Categories
Forex Daily Topic Forex Psychology

A Strategic Plan for Trade Management

I’ve already stated my view that most wannabe traders put their focus in technical analysis of the market and on trading signals, mostly provided by others, hopefully, more knowledgeable than themselves.

The issue is that any advice, no matter how good it is, is worthless to most of the beginners because the problem is 10% of the success as a trader is entries, 20% exits, including stops and targets, and 70% is the rest of overlooked themes. 

The overlooked themes, all of them has to do with the trader’s psychology:

  • Lack of a strategy
  • Overtrading
  • Not following the plan 
    • Skipping entries or exits
    • let losses grow to wait for a reversal
    • cut profits short, afraid of a reversal…

Every one of these subjects is critical, but if you make me choose, I’d say that overtrading is the worst evil that happens to a novice trader. Improper position sizing kills the majority of the Forex trading accounts. This trait is also linked to the cut profits short, let losses run character flaw, so let’s do create a basic strategic plan to help traders with a basic trade management plan.  

Emotional Risk

For the following plan to work, the trader needs to accept the risk. It is easy to say but challenging to do. Mark Douglas, in his book Trading in the Zone, explains that “To eliminate the emotional risk of trading, you have to neutralize your expectations about what the market will or will not do at any given moment or in any given situation.”

That is key. You cannot control the market. You can only control yourself. You need to think about probabilities. Create a state of mind that is in harmony with the probabilistic environment. According to Mark Douglas, a probabilistic mindset consists of accepting the following truths:

  1.  Anything can occur.
  2. To make money, there is no need to know what will happen next 
  3. It is impossible to be 100% accurate. Therefore there is a win/loss distribution for any strategy with a trading edge.
  4. An edge is just a higher probability of being right against a coin toss (if not, the coin toss would be a better strategy)
  5. Every moment in the market is unique. Therefore
  6. A chart pattern is just a very short-term approximation to a statistical feature, therefore less reliable than a larger data set pattern. We trade reliability for speed.

The idea is to create a relaxed state of mind, ultimately accepting the fact that the market will always be affected by unknown forces.

The Casino Analogy

Once that is understood and accepted, we can approach our trading job as if the trading business were casino bets. When viewed through the perspective of a probabilistic game, we can think that trading is like roulette or slot machines, where you, the trader, have a positive edge. At a micro level, trade by trade, you will encounter wins and loses but looked at a macro level, the edge puts the odds in your favor. Therefore, you know only need to manage the proper risk to optimize the growth of the trading account.

A plan to manage the trade

Lots of traders enter the Forex market with a rich-quick mentality. They open a trading account with less than 5,000 USD and think that due to leverage, they can double it week after week. This is not possible, of course, and they get burned within a month.

Our plan consists of three ideas

  • Profit the most on the winners, while let die the losers
  • let profit run, or even, pyramid on the gains.
  • Reach as soon as possible a break-even condition, for our mind to attain a zero-state as quickly as possible.

The Strategy and Exercise

Pick a forex pair.

Choose one actively traded pair. All major pairs fit this condition, but then choose the one that provides the best liquidity of your time zone.

Choose your favorite strategy, that you think it works and fits you.

The strategy must include the following components:

An Entry: The entry method should be precise. No subjective evaluations or decisions. If the market shows an entry, you have to take it. Of course, you can condition it with a reward-to-risk ratio filter, since this is an objective fact. Really, having a reward-to-risk ratio filter is quite advisable. A 3:1 ratio would be ideal, but 2:1, which is more realistic, can work as well.

A Stop-loss: Your methodology should define the level at which set your stop loss.

Timeframes: You need to choose a couple of timeframes: A short timeframe to create low-risk trades, and a longer timeframe to be aware of the underlying trend and filter out any signal that does not go with that trend.

Profit Targets: This is the tricky part. We will define at least three take profit points: One-third very-short, one-third defined bt the short-term timeframe, and the rest of the position specified using the longer-term timeframe.

The trade size: Choose a total trade size such that the entire initial risk is no more than 2 percent of your account. So if your account is $3,000, the total risk of the trade will be $60.

Accepting the risk. The smaller dataset needed to get any statistical information is 30. Therefore, you should accept the loss equivalent of 30X the average loss per trade. Think that to analyze and decide about changing any parameter, you must move in chunks of 30 trades.

How it works

 1.- Compute the trading size

      • Measure the pip distance between entry and stop-loss.
      • Compute the value in dollars of that risk
      • Calculate how many mini or micro-lots fit in that amount.

2.- Trade that size and mentally divide it into three parts

3.- take profits of1/3 of the position as soon as you get 5-6 pips profit or 10% of your main profit target. This will help you tame the risk if the trade is a short-term gainer that, next, tanks.

4.- As soon as you get a profit equivalent to the size of your risk (1:1), move your stop-loss to Break-even.

5.- Take profits of the second third of the position when your second target is hit

6.- Let the remaining 1/3 run until your third target (from the longer timeframe) trailed by your stop loss. Use a parabolic approach to the stop loss, as the risk-reward diminishes when approaching the target.

7.- Alternatively, use the profits of the last winning trade and add it to the risk of the following trade. That way, on a combination of two trades, you can gain 4X with a risk of just one trade since the added risk was money taken from the market.

8.- The next trade should start with the basic dollar risk, but computed over the newly acquired funds.


Reference: Trading in the Zone by Mark Douglas.

Categories
Forex Videos

Types Of Forex Markets Part 1 – Mastering Your Understanding

Types of Markets Part 1

The foreign exchange market has a daily turnover of over $5 trillion, and which has the largest amount of market participants than any other asset class. The forex market has seen continual growth over the years. But it started evolving into what we have now after the advent of the Bretton Woods system, which was a monetary policy where countries agreed to peg their currencies to the US dollar, and where the United States agreed to redeem all dollars for gold. This system collapsed in 1971, which led to the free-floating of currencies on the free market that we see today.


Forex trading platforms began to emerge in the 1990s. However, it wasn’t until the development of the internet, trading software, and the emergence of forex brokers who offered trading on margin, which started the growth of retail trading in the Forex arena.

Foreign or international currency exchange rates display how much one unit of a currency can be exchanged for another currency. Typically, exchange rates float up or down and where the value of one currency against another is traded based on a multitude of factors, including the strength or weakness of an economy, interest rates, gross domestic product, and political factors, including war. Currencies can also be fixed to another, in which case they still float. However, they move in tandem with the currency to which they are pegged.

All currencies are traded in pairs, and where traders simply look for the strength of one currency against the weakness of another in order to make profitable trades. While this is not the easiest thing to achieve in such a volatile market as foreign exchange, software trading platforms that offer great technical analysis tools, where the study of recurring chart patterns on screens, has completely changed the dynamics of trading within this asset class. And so, technical analysis trading has driven the exponential growth of the Forex market.
The types of people who trade the forex market are hedge funds, asset managers, central banks, sovereign wealth funds, financial institutions including currency speculators, and retail traders who all try to make potential profits from currency fluctuations relating to the global economy.

Example A


In the example ‘A,’ we can see how the Euro is quoted first against the USD because one Euro has a greater value than one US dollar, in which case it is quoted as the base currency against the quote currency. The same applies for all currencies.

Although it is common sense to believe that, for example, a country such as the United States, with all its wealth and power, has a much greater financial foothold over countries such as New Zealand, or Australia and Japan, there is almost an unquantifiable amount of economic variables that formulate the value of one currency against another. And this is why you’ll find one of the idiosyncrasies in the Forex marketplace, where holders of United States dollars might quickly sell those in order to buy the Yen, Australian and New Zealand dollars, simply based on rumors, speculation, and chart patterns. It is because of this that the forex is the most volatile of all asset classes with constant price movement.

Example B


Example ‘B’ is a market watch price board showing many currency pairs and where the fluctuating exchange rates are expressed as bid and ask. If a trailer believes a particular pair is going to go, they will

accept the bid price and execute that rate on their trading terminal, and if they think that the value of the exchange rate is going to go down, or depreciate, they will accept the price as quoted on the ask section of their trading platform

Example C


Example ‘C’ is a screen chart of the USDCAD pair on a four-hour time frame. Traders look for patterns on their screens, such as swing highs and swing lows, in order to try and gauge the strength of one currency against another. And therefore in this chart, we can see that after a swing low the US dollar began strengthening against the Canadian dollar, all the way up to the swing high, where it met some resistance, and then the Canadian dollar began to strengthen against the US dollar as price retreated away from the swing high.

When trading in the currency markets, traders buy one currency and sell the other. In our example, traders began buying the US dollar and selling the Canadian dollar when price moved up and away from the swing low and where this continued all the way up to the swing high.

Traders choose the forex market because there is so much activity. There are many currency pairs, and because the market is often extremely volatile, it presents many trading opportunities. And because of the continual change in the economic circumstances of countries, and the continual newsflow pertaining to economic data, this market has become the most liquid of all asset classes. And because of tight spreads and cheap execution relating to trading within the forex market and the small outlays in capital, which is needed to fund a trading account, it makes absolute sense to consider Forex trading as a great business opportunity.

Categories
Forex Market Analysis

Daily FX Brief, November 20 – Major Trade Setups – Eyes on U.S. FOMC Meeting Minutes! 

The U.S. dollar was steady ahead of the release of the latest Federal Reserve monetary policy meeting due later today. The Dollar Index closed broadly flat at 97.82. While media reported that the U.S. and China are discussing the size of tariff rollbacks, President Donald Trump cautioned to force higher tariffs in case a deal is not reached.

Economic Events to Watch Today

Let’s took at these fundamentals.

 


EUR/USD – Daily Analysis

The EUR/USD is flashing red and will likely slip from its recovery rally, and today’s close will decide the next direction. As of writing, the currency pair fluctuating in the bearish range of 1.1084-1.1063 and representing declines on the day within yesterday’s bullish and bearish range of 1.1090 and 1.1048. 

On the technical side, the EUR/USD pair created an inside bar candlesticks pattern today. Moreover, a close above the inside bar’s high of 1.1084 is needed to improve the recovery rally from 1.0989. While a close below the inside bar’s low of 1.1063 would suggest a bearish reversal.

On the other hand, the United States ten-year yields hit the two-week low of 1.763% and have dropped almost 20-basis-points since the topping out at 1.972% on November 7. Apart from Yields, the United States and China trade concerns are sending the risk assets danger.

It should be noted that the market flow may stand in favor of sellers if the FOMC’s 29-30 October meeting sounds hawkish. The meeting is scheduled to happen at 29-30 October19:00 GMT.

However, the hawkish tone has to be strong because, as we know, the financial markets have confirmed that the rate cuts by the Federal Reserve will not deliver until June of 2020.

According to Germany’s influential BDI industry association’s Managing Director Joachim Lang, manufacturing production in Europe’s economic powerhouse is anticipated to decrease by 4% this year.

Daily Support and Resistance

S3 1.1036

S2 1.1056

S1 1.1067

Pivot Point 1.1076

R1 1.1087

R2 1.1095

R3 1.1115

EUR/USD– Trading Tips

The EUR/USD displayed bearish behavior after testing the resistance mark of 1.1090. Today, the EUR/USD pair has violated the upward channel, which supported the pair around 1.1080 level, and it’s now extending it towards 1.1050 level. Consider taking sell positions below 1.1075 today with the aim of 1.1040. 


GBP/USD– Daily Analysis

The GBP/USD pair hit the bearish track for the second consecutive day and representing 0.19% declines on the day, mainly due to uncertainties surrounding the Tory leader’s public favor after the ITV debate. By the way, the cable pair is currently trading at 1.2915.

At the broadside, the ITV debate, which happened between the Tory and the opposition Labor leaders, seemed peaceful as both parties showed a relaxed attitude during holding to part and of Brexit and 2nd referendum, respectively. At the end of the debate, the survey surprise the GBP/USD pairs traders because the United Kingdom Prime Minister Boris Johson got only 51% votes in his favor whereas, on the other hand, the opposition party leader Jeremy Corbyn got 49% votes. 

In addition to the recent polls of the ITV’s debate, the uncertainties over the UK PM’s refrain from publishing the news of Russian interference into the Brexit referendum and delaying the corporate tax forms also simulate challenges to the Tory administration.

At the greenback front, another reason behind the GBP/USD pairs weakness is that the U.S. Dollar extended its gains and offer more weakness to the GBP/USD pairs mainly due to the favorable housing market data from the United States. It also helped the US Dollar strength the United States Federal Reserve policymaker John C. Wiliams continued support for the current monetary policy also supported the U.D. buyers.

At the Sino-US front, the greenback extended its recovery streak on the day due to the risk-off arisen by the United States and China trade war regarding the Hong Kong bill. The risk-tone also weighs down amid on-going protests in Hong Kong and Israel. As a consequence, the U.S. 10-year treasury yields drop to 1.75%.

Looking forward, all the market’s eyes will be on the Feral Open Market Commmetiiees latest monetary policy meeting, which is scheduled to happen on 29-30 October, whereas the trade and political headlines will likely keep the trader entertaining.

Daily Support and Resistance

S3 1.2816

S2 1.2876

S1 1.2901

Pivot Point 1.2935

R1 1.296

R2 1.2995

R3 1.3055

GBP/USD– Trading Tips

The GBP/USD is consolidating in a sideways range of 1.2970 – 1.2890 as bearish bias dominates despite weakness in the U.S. dollar. The GBP/USD pair may face double top resistance at 1.2975 on the 4-hour chart. While support stays at 1.2890 level today. Below this, the GBP/USD may head towards 1.2855. 

The leading indicators such as a MACD and RSI, are holding in the selling zone, suggesting chances of more selling. Consider staying bearish below 1.2935 today. 


USD/JPY – Daily Analysis

The USD/JPY currency pair representing marginal declines and having hit the low of 108.36, the pair is currently trading at 108.50. As of writing, the pair is fluctuating in the range of 108.38/57, mainly due to weakness in the Treasury yields and lack of fresh impulse in the trade war and Brexit.

On the green side, the USD/JPY currency pair has recovered from session lows but remains on the defensive below 109.07 despite the weakness in the Treasury yields.

At the Sino-US front, the greenback extended its recovery streak on the day due to the risk-off arisen by the United States and China trade war regarding the Hong Kong bill, and Beijing warned the United States to do not interfere in this matter. The risk-tone also weighs down amid on-going protests in Hong Kong and Israel. As in consequence, the U.S. 10-year treasury yields drop to 1.75%.

At the Brexit front, the ITV debate, which is happened between the Tory and the opposition Labor leaders, seemed peaceful because both parties showed a relaxed attitude during holding to part and of Brexit and 2nd referendum, respectively. However, at the end of the debate, the United Kingdom Prime Minister Boris Johson got only 51% votes in his favor, whereas, on the other hand, the opposition party leader Jeremy Corbyn got 49% votes. 

Meanwhile, the Fedspeak came with New York Federal Reserve president Williams announced that the economy is in a “good place.” The U.S. 2-year Treasury yields roundtripped between 1.59% to 1.62%, while the 10-years initially rose from 1.80% to 1.83% but was then sent back to 1.78%. 

Daily Support and Resistance

S3 107.84

S2 108.23

S1 108.39

Pivot Point 108.61

R1 108.77

R2 109

R3 109.38

USD/JPY – Trading Tips

The USD/JPY is trading at 108.40, as the bearish engulfing candle on the 2-hour chart is suggesting a strong bearish bias for the pair. Closing of another bearish candle will confirm bearish setup and the safe-haven currency pair USD/JPY may drop towards 108.200 today.  

On the higher side, resistance stays at 108.600 level. 

All the best!

Categories
Forex Videos

Analysing Price Cycle & Market Structure

Price Cycle – Market structure

In this section, we will be looking at technical market structures. Professional traders are continually looking out for technical market structures that occur when a currency pair has achieved a swing high – or structural high – followed by a swing low – or structural low – and vice versa. Traders gain great inside in the relationship between these highs and lows.
These swing highs and swing lows can be found on any time frame, including the 1 minute, the 5-minute, 15-minute, 1-hour, even the 1-month time frame. And herein lies one of the most problematic aspects of trading the forex market: because a swing high might occur on one timeframe, while actually forming the basis of a swing low on a different time frame!

Example A


Let’s take a look at example ‘A’, which is a 1-minute chart of the USDCAD pair, and where we can see price action, as denoted by our Japanese candlesticks, has formed a swing high at position ‘A’, followed by a swing low at position ‘B’, and then a swing high to position ‘C’. In total, this A, B, C, swing high, to swing low price and swing high price action move presented traders with an overall 20 pip trading opportunity. This is not an unsubstantial amount of pips!

Example B


Now let’s look at the example ‘B’; this is a 4-hour chart of the same USDCAD pair. In this example, we have used position ‘1’ to show a previous structural, or swing high, followed by position 2, which is a structural or swing low and then followed by a structural , or swing high, to position 3. This overall move presented traders with a 300 pip price action swing. A huge swing, and an extremely profitable one, if you got it right!. However, sat all on its own, in the top right-hand corner of the chart, as they noted by position ‘A,’ is the exact same position of our swing high, swing low, swing high on our 1-minute chart.

All of the timeframes present trading opportunities when it comes to identifying structural highs and structural lows. However, it is advised that traders are mindful as to what is going on in various other time frames on any given currency pair! But one thing is for sure, and self-evident from the two examples, that the larger the timeframe is, the more important significant the market structure becomes.
Technical traders will keenly observe price action at structural highs and structural lows, because they present trading opportunities, such as pullbacks and reversals, continuations in price action, or price consolidation and subsequent breakouts. They can use a number of tools, such as Fibonacci retracements, moving averages, stochastic oscillators, and Moving Average Convergence and Divergence or MACD, however, the best tool is price action itself, and the most common method to determine price action is via the use of Japanese candlesticks.
Traders don’t need to load their chats up with lots of technical indicators, because more often than not, all the information is already on the charts, and we can use a few lines that we draw onto the charts ourselves in order to show us where the structural highs and lows are.

Example C


So let’s look at example C, where we have added a few lines to the same 4-hour chart of the USDCAD pair. First of all, at position ‘A’ on the bottom left of the screen, we can see a structural low, or SH, where price action has failed to go any lower. Price action enters a consolidation, or sideways pattern, between this low, and the area of resistance just above it.
Price, as it will always do, eventually brakes out of this range at position ‘B,’ where we find that our previous area of resistance has become an area of support. The major structural low has failed, and price action moves to the upside as denoted by the very large bullish candlestick, which tells traders that a large amount of liquidity or volume has entered this pair and moved it up to position ‘C.’ Again we see some consolidation of price action, but where are an initial pullback below the support level at position ‘D’ is curtailed when price action bounces off our ascending magenta simple moving average, and where we can see price action hugging this line all the way up to position ‘I.’ Because position ‘I’ is the highest point in this range it is considered to be a structural high or SL on our chart.. Traders will now be looking to establish if price action moves underneath the simple moving average, or if it will continue above the structural high. And if this becomes a support level, buyers may take advantage of an upward trend continuation.
Here at Forex.Academy, we emphasize to new traders, to be patient, understand their technical analysis, and that an awful lot of information is already on the chart. It does not need to be overloaded with too many technical analysis tools. And that to be a successful
trader, one needs to be patient. What is more, that a multi time-frame approach should be observed to help maximize win to loss ratios.

Categories
Crypto Videos

Cryptocurrency Trading Strategies – How To Make Money Using A Small Starting Balance

Viable cryptocurrency trading strategies
 

“How can traders potentially profit from the cryptocurrency markets without risking too much money, and what are the profitable strategies for the current market?”

Whether the market is moving up or down, there is an opportunity for profit! Cryptocurrencies have been the most volatile tradable asset class in decades, which makes them the most sought after place for traders, as it offers the most opportunity. However, trading brings its risks along with the opportunities. So how can we overcome these risks and make sure the odds are in our favor when trading, even in the bear market we are in currently?

Strategy #1 Heikin Ashi and MA crossover


With the cryptocurrency market mostly being in a downtrend since 2017, we have to take a look at some good strategies for trending markets (whichever way they go). This strategy includes Heikin Ashi as well as slow and fast-moving average crossovers to create an entry point, a profit target as well as a stop-loss. It is suitable for automation as well as beginner traders, as it’s quite easy to pick up.
Heikin Ashi is a version of a chart similar to a candlestick chart. The main difference is that the Heikin Ashi “candles” are averaged out. When used along with moving average crossovers, it can be quite effective in catching upwards and downwards moving trends.

Setup

Heikin Ashi chart 13-21 Simple moving average (fast)

100 Simple moving average (slow)

This strategy marks an entry when the fast SMA crosses the slow SMA, and 2-3 Heikin Ashi candles in a row are in green. For short-selling, the entry should be when the slow SMA crosses the fast SMA, and 2-3 most recent Heikin Ashi candles are red.
The profit target is when (in case of a long position) a few HA candles in a row are red. In the case of a short position, the profit target is when a few HA candles in a row are green.
Stop-loss is a great prevention tool when it comes to preserving capital. When using this strategy, the stop loss should be the latest swing low for a long trade and the latest swing high for a short trade.
Caution: This strategy works extremely well in trending markets, but does poorly in ranging swings.

Strategy #2


Fib retracements, volume, and oscillators
The second strategy is quite the opposite of our first one: it works great in ranging markets, and poorly in uptrends/downtrends.
Using Fibonacci retracements, we can establish potential previous move reversal points. Combining the previous support and resistance levels makes it easy to predict support and resistance points that the price will react to. This is where volume and oscillators come into play. Oscillators such as RSI or Stochastic can tell us when to expect a reversal and are mostly used as confirmation indicators.
The entry points in this strategy should be breakouts to the upside or downside from the resistance/support levels followed by a spike in volume as well as a confirmation from the indicators. Stop-loss should be placed just on the other side of the support/resistance level that was used as an entry point.
Leveraging your position can be an amazing addition to this strategy, and is even considered necessary, as ranging moves are usually not big. This means that the movements are more predictable, and when supplemented with a medium to high leverage, can be an amazing profit-making strategy.

Utilizing leverage trading

Using leverage as a tool to increase the potential profits has been used by both institutions as well as retail traders for decades. It is a great tool to enhance potentially profitable trades. Many traders are arguing that it’s a fast way to lose all your money. However, if used properly, each of the trades taken will have a bigger upside than the downside. If that’s taken into consideration, leverage is an amazing way to increase profits, and start trading with as little money as possible!
If the market makes a 1% move, you will get only 1% profit without leverage. However, with the leverage of up to 1:100 that trading platforms are currently offering, that 1% move can turn into a 100% gain.
With that being said, people should be careful when using leverage as cryptocurrency markets are extremely volatile and unpredictable. The amount of leverage used should correspond to the level of risk a trader is willing to take.

Categories
Forex Market Analysis

Gold’s Ascending Triangle Plays – Is It Good Time to Buy?

On Tuesday, gold slid erasing profits from 1,470 t0 1,464 level earlier in the session, as a temporary respite from Washington for China’s Huawei increased confidence for a trade agreement between the nations and increased risk sentiment.

The yellow-metal prices dropped during the last week mainly due to the Commerce Secretary Wilbur Ross and White Hosue’s economic adviser Larry Kudlow hinting that the United States and China were close to signing the deal. That sent the three major stocks indexes to record highs on Wall Street.

On the other hand, Donald Trump met with Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin at the White House overnight to discuss the economy and the greenback weakness.

Powell’s remarks were consonant with his statements at his congressional hearings last week the Fed said in a statement released after the meeting. In contrast, the United States President Donald Trump said the meeting was “very good.”

Risk appetite was shaken due to the news that Trump and Fed Chairman Powell had met to discuss the tendency of the dollar. There were rumors of a CNBC report that Chinese officials were involved over prior comments concerning tariffs from Trump.


XAU/USD – Daily Technical Levels

Support Resistance 

1,460.54    1,478.16

1,449.67    1,484.91

1,432.05    1,502.53

Pivot Point 1,467.29

Gold is trading at 1,468 level, bouncing off above 1,464 support level. On the 4 hour timeframe, it has formed an ascending triangle pattern, which is extending its resistance around 1,474. While the bullish trendline is likely to support the pair around 1,464 level. 

The recent bullish closing above 1,464 level is suggesting the market to retrace back upward until 1,472 level. While on the flip side, a bearish breakout of 1,464 can lead gold prices towards 1,456.

All the best!

Categories
Forex Harmonic Forex Trading Guides

Harmonic Patterns – Start Here

Harmonic Patterns – Start Here

Harmonic Patterns are an advanced form of analysis and require more than a basic understanding of the technical analysis of financial markets. For those of you who have familiarized yourself with the application of Fibonacci levels, Harmonic Pattern Analysis will, perhaps, be of use to you. The following is a list of the Harmonic Patterns available for learning here at Forex Academy. The suggested order of learning about these patterns is below.

Phase One – Basic Harmonic Patterns

AB = CD

The Gartley Pattern

Phase Two – Advanced Patterns

The Butterfly Pattern

The Bat Pattern

The Alternate Bat Pattern

The Crab Pattern

The Deep Crab Pattern

The Shark Pattern

The Cypher Pattern

The 5-0 Harmonic Pattern

Phase Three – Application

Harmonic Pattern Walkthrough

The article above provides an example of how to use Harmonic Patterns in your own analysis and trading.

 

 

Sources: Carney, S. M. (2010). Harmonic trading. Upper Saddle River, NJ: Financial Times/Prentice Hall Gartley, H. M. (2008). Profits in the stock market. Pomeroy, WA: Lambert-Gann Pesavento, L., & Jouflas, L. (2008). Trade what you see: how to profit from pattern recognition. Hoboken: Wiley

Categories
Forex Elliott Wave

How to Analyze a Fast Market Using the Elliott Wave Principle – Part 2

In our previous article, we introduced the concept of “fast market.” Also, we commented about the importance of watching the big-picture to support the market’s general overview. In this educational article, we’ll review the analysis of the fast movement.

Disclosing the Speed

Once the market moved following our forecast, the price action developed its next sequence in a fast way. To aid in building our analysis in the EURGBP cross, we’ll use the RSI indicator to identify each swing.

From the EURGBP hourly chart, we observe the bullish sequence started on May 05. The RSI use, allows us to identify each swing of waves 2 and 4, and divergences the end of waves 3 and 5.

Until now, the movement developed by EURGBP corresponds to a 5-3 sequence; thus, the next path should develop in five waves. In consequence, our new hypothesis could be the next move a wave three or be the second leg of a zigzag pattern.

The second EURGBP chart exposes the progress in an ending diagonal pattern. This Elliott wave formation is a motive wave built by five internal legs that overlap each other.

On the other hand, the new big-picture structure observed on the EURGBP cross unveils a 5-3-5 sequence. Thus, according to the Elliott wave principle, this formation corresponds to a zigzag pattern.

Another observation comes from the alternation between the first and second bullish leg. Both segments moved on a different relationship price and time. In other words, while the first leg ascends in a fast step, the second one progress at a slower price/time relation.

Now, from the Elliott wave principle, the next path from the EURGBP should be a corrective move in three waves. If the price breaks below the invalidation level, the correction should be more profound.

On the following chart, we observe an incomplete corrective move developed in two internal waves labeled in black. In consequence, the next movement should be a wave ((c)) in black. The completion should complete a new wave A labeled in green.

Until this moment, the price action bounced above the invalidation level, which makes us observe two things:

  1. The EURGBP cross is running in a complex corrective structure, likely a double three pattern. This Elliott wave structure is labeled as WXY, follows a 3-3-3 sequence, and develops seven swings.
  2. Probably according to the alternation principle, the next corrective structure could be a flat pattern.

The following chart exposes the waves A and B labeled in green completion. As can be noted, wave A holds three internal legs, wave B retraces between 81% and 100% of A. Thus, the Elliott wave structure should correspond to a regular flat pattern.

Finally, the next EURGBP chart illustrates the end of the last segment of the wave C from the regular flat pattern, which is part of a complex corrective sequence, in this case, the formation corresponds to a double three structure.

As a learned lesson, the use of the RSI indicator is useful to support the wave identification process. Similarly, to apply the Elliott Wave Principle is essential to know the basic corrective patterns to follow any market. Finally, remember that the market has only two ways to move: it moves in three or five waves.

Categories
Forex Psychology

A Lesson from a Failed Entry

In today’s lesson, we are going to demonstrate an example of a failed entry. We usually explain winning trade setups in our lessons. It teaches us how to win a trade on a setup like that and gives us more confidence as well. We are going to talk about a failed entry, which may hurt our confidence. However, the lesson that it teaches that may help us be a batter trader.

The price heads towards the North with good bullish momentum. Ideally, we shall look for long opportunities here upon consolidation and at a breakout at resistance. Let us find out what happens next.

The price consolidates, but it does not make any breakout. The last candle looks very bearish. The door is open for both the bull and the bear. Traders shall go long on an upside breakout and go short on a downside breakout. Let us find out which way it makes its next breakout.

 

The price heads towards the downside after making a breakout at support. It is a different ball game now. Traders are to look for short opportunities upon consolidation and downside breakout. Let us proceed to the next chart to find out what happens next.

Here comes the corrective candle. It is an Inside Bar. Thus, to sum up, the whole equation, the price consolidates after being bullish, makes a breakout at the support, the trend continues, produces a corrective candle (an Inside Bar). A bearish engulfing candle closing below the lowest low is the signal to go short here.

This is what I have meant. A bearish engulfing candle forms right after the corrective candle. The candle closes below the support, where the price reacted three times recently. If we consider the momentum of the last bearish candle, that gets ten on ten as well. Let us trigger a short entry.

Oh! The price goes another way round than our expectations. It hits the Stop Loss. We are to encounter a loss here. The first thing we shall do after a losing trade, we shall write all the details about the trade in our journal. If there is anything that we have missed from our trading strategy, we must find that out and write it in our journal.

As far as I am concerned, there is not anything wrong with the entry. It is an entry; I would take ten times out of ten opportunities. I have been working with the strategy for a long time. Thus, I can assure you I would win at least six entries out of those 10. This is the faith that a trader needs to have. A trader must not lose his faith in his proven strategy.

The Bottom Line

Never lose your faith in yourself and in your proven strategy. Do not let a losing trade hurt you psychologically.

Categories
Forex Market Analysis

Daily FX Brief, November 19 – Major Trade Setups – U.S. China Trade War Plays! 

The U.S. Dollar Index fell 0.1% on the day to 97.82, extending its decline to a third session. The euro gained 0.2% to $1.1072, and the British pound advanced 0.3% to $1.2947. The USD/JPY slipped 0.1% to 108.67.

After Federal Reserve Chairman Jerome Powell met with President Donald Trump and Treasury Secretary Steven Mnuchin to discuss the economy, the Fed released a statement saying Powell’s comments were consistent with his remarks at his congressional hearings last week.

Economic Events to Watch Today

Let’s took at these fundamentals.

 


EUR/USD – Daily Analysis

The EUR/USD currency pair overall flashing green and consolidates in the narrow range of 1.1063 – 1.1076 due to renewed trade tensions leaving the selling pressure on the greenback. As of writing, the EUR/USD currency pair rose by 0.10% at 1.1060 and hit a high level of 1.1076.

As we all well aware that the pair extended its bullish trend for the 3rd session in a row, extending its recovery trend from the recent 5-weeks lows of 1.0990/85 range, mainly due to the selling pressure in the greenback and some fresh trade tensions.

At the Sino-US trade front, the Chinese legislators showed some attention during the earlier session regarding the singing of the Phase one deal after the United States President Donald Trump announced to ruled out the rollover of some tariffs. In the consequences, due to these concerns, the U.S. Treasury yields turned into lower and some resurgence cities in the safe-havens, weakening further the greenback sentiment.

According to the schedule, the ECBs C.Lagarde is scheduled to deliver the speech in Frankurt later in the week, whereas the investors should keep their eyes on the ECB minutes and the preliminary figures of November PMIs in core Euroland as well.

It should b noted that the pair is increasing the recovery from the last week lows in sub-1.10 range, mainly due to the renewed weakness of U.S. Dollar and hopes of the United States a China fair trade deal. 

On the other hand, the outlook in the Euroland continues weak and does nothing but justify the failure for the more extended monetary policy by the European Central Bank and the bearish outlook on the single currency in the medium term, at least. So, from this point of view, all eyes will be on the publication of flash PMIs figures for the current month later in the week.

Daily Support and Resistance

S3 1.1

S2 1.1036

S1 1.1054

Pivot Point 1.1072

R1 1.109

R2 1.1108

R3 1.1144

EUR/USD– Trading Tips

The EUR/USD displayed bullish behavior to examine the resistance mark of 1.1090. Today extension of buying biases can direct the EUR/USD prices towards 1.1125 areas. While support lingers around the 1.1065 area.


GBP/USD– Daily Analysis

The GBP/USD currency pair trading on the bullish track and takes buying to 1.2950 in the wake of fresh hints of political stability, and the successful Brexit keeps the cable pairs strong. As of writing, the pairs consolidate in the range of 1.2944 – 1.2967 dring the Asian session.

The GBP/USD currency pairs recently got the support from the Brexit party decrease of candidates, whereas also avoiding the Bank of England’s dovish bias.

Apart from the continued support for the tory leadership during the December election, as defined by the major surveys, the recent decision regarding the ban of liberal Democrats and the Scottish National Party form the T.V.’s cross-party political discussion also speaks louder for the Conservative’s position in the United Kingdom.

Challenges are surrounding Prime Minister Boris Johnson avoid to release documents regarding Russian interference in the Brexit election stop to cuts the British locals, including Tories, highly criticize corporate tax. Moreover, the European Union stable on the decision does not change the Brexit deal gains less of market attention.

Whereas, the trade and political headlines regarding the United States and China and ITVs debate will likely keep the entertaining investors of markets, as well as, all eyes will be on the November month CBI Industrial Trends Survey data from the U.K., the U.S. Building Permits, Housing Starts and speech from the President of the Federal Reserve Bank of New York, John C. Williams.

Markets are looking for CBI industrial orders to increase from October’s multi-year low of -37 to -30 during November. We think that risks lie toward a more significant gain because the October survey hopefully didn’t capture the improvement in sentiment because Brexit success chances were increased.

The market expects housing starts to have rebounded to 1,320k in October, reflecting a firm 5.1% m/m jump. This would follow a notable -9.4% tumble in September, which was primarily driven by a sharp -28.2% m/m contraction in the volatile multifamily segment,” says T.D. Securities.

Daily Support and Resistance

    

S3 1.2826

S2 1.289

S1 1.2922

Pivot Point 1.2954

R1 1.2986

R2 1.3018

R3 1.3081

GBP/USD– Trading Tips

The GBP/USD is consolidating with a bullish bias, and it surged to test resistance mark around 1.2970 level. The GBP/USD pair is now facing a double top resistance level at 1.2975 on the 4-hour chart. Typically, the pair becomes bearish below the double top. Therefore, the GBP/USD may exhibit bearish retracement unto 1.2925 ere driving the bullish trend to 1.2975. 

The MACD and RSI are staying in the bearish zone, suggesting chances of bearish trading in the GBP/USD trading today. 


USD/JPY – Daily Analysis

The USD/JPY currency pair consolidates in the narrow range between the 108.60 and 108.70 so far. As of writing, the currency pair is currently trading near the 108.60.

The USD/JPY currency pair has been capped due to markets presuming a soft dollar policy from the United States administration, whereas trade discussions between the United States and China are on the close track, but the tension still surrounding the market.

The USD/JPY currency pair dropped from 109.05 in early N.Y. to just above 108.50. As for United States treasury yields, the United States’ two-year yields have been on the buying from 1.60% to 1.63% before dropping back to 1.59% due to the US-China trade doubt. The 10-year yields also dropped from 1.85% to 1.80%. 

On the technical side, the USD/JPY pair now tries to re-test 50% Fibonacci retracement of April-August drops at 108.40. However, a confluence of 50 and 100-day Exponential Moving Average (EMA) around 108.30/25 will be the key to limit the pair’s further bearish sentiment. The Japanese Trade Minister was on the wires last minutes, also telling the need for an extra budget of around JPY 10 trillion.

    

Daily Support and Resistance

S3 107.63

S2 108.19

S1 108.44

Pivot Point 108.75

R1 109

R2 109.32

R3 109.88

USD/JPY – Trading Tips

The USD/JPY is trading at 108.60, completing 61.8% Fibonacci retracement level at 108.550. For now, this level also works a double bottom support level as the USD/JPY prices are pushing higher. 

On the uppers side, the USD/JPY may find resistance at 108.700, and bullish breakout of this level can extend buying until 108.900 level today. Consider taking sell positions below 108.900 to target 108.500 today. 

All the best!

Categories
Crypto Videos

Cryptocurrency Day Trading Vs Swing Trading – Which is best for you?

Cryptocurrency Day trading vs. Swing trading

Cryptocurrency trading is becoming more and more popular as new people enter the markets. Depending on how risk-averse they are, traders are more prone to day trade or swing trade. First off, we need to know the difference between the two.
Day trading is trading where the long or short position is done within one day. Day traders usually stick to this rule relentlessly, regardless of the outcome of the trade. On the other hand, swing trading is and tries to take into account market swings and lasts longer than day trading. The positions can last several days, weeks, or even months. Anything more than a few months, and the trade can be considered an investment.
Many people are struggling to choose between day trading and swing trading and can’t decide which one is better for them. This article will try to explain the differences between the two.


Day trading

Being a day trader is not for everyone, as it brings a lot of risks with its profit potential. Day traders enter short trades with a high win/loss ratio and hope for the trade to be profitable within the trading day. In the case of cryptocurrencies, day traders are people that hold their positions up to 24 hours, as the markets never stop. These traders often utilize leverage to make their profit potential even higher.
Day trading, more than any other form of trading, requires extreme accuracy and quick decision-making when it comes to sizing as well as the timing of the entry, exits, and stop-losses. This form of trading relies much more on the technical overview of the cryptocurrency as opposed to longer time-frame trading, which has a much more fundamental approach. For this trading strategy to work properly, the trades need to be extremely precise and calculated. Day trading can be superior to swing trading in terms of profit, but only if the trader is analytical and can handle stress well.


Day trading also requires constant analysis and knowledge of the markets and their correlations. Cryptocurrency markets are never asleep, so the amount of information a day trader has to process is huge. Day trading is a lot more demanding in terms of time spent on strategizing when compared to swing trading. However, it can be a fulfilling full-time job.
Day trading cryptocurrency markets can be extremely lucrative because of the constant fluctuations of the market. On top of that, there are no set times when a trader must operate, so anyone can trade at any time.

Swing trading

Unlike day traders, swing traders hold their positions for longer than a day. They are usually more patient and fundamentally driven. They require less time to trade, but more time to analyze the markets. These trades have a bigger profit potential due to the duration of the trade, but there are fewer trading opportunities as opposed to day trading.
Swing trading requires less technical analysis skills, but it is more demanding in terms of fundamental research and knowledge of macroeconomics. The entry points are not intended to be micro-managed and don’t have to be as precise. On top of that, the timing is not as crucial as with day trading since the moves swing traders are aiming to catch are larger. The important thing with swing trading is to determine the trend and trade with it.
As swing trading doesn’t take as much time as day trading, it can be a fun and profitable part-time job. However, traders need to understand the importance of stop-losses as the cryptocurrency market does not sleep while they do. If stop-losses are not utilized properly, one might lose most of the trading portfolio while they sleep. This vulnerability has to be countered with a strategy that involves various defensive measures.

Conclusion

Depending on the trader’s personality, ability to tolerate stress, people pick day trading or swing trading. Highly analytical people that have time to do the research and don’t like holding their positions would be a perfect fit for day traders.
On the other hand, people who like trading based mostly on fundamentals and think that chart analysis is pointless, boring, or not as important as fundamental analysis, are a good fit for swing traders.
Either way, both trading strategies can be profitable as long as the traders utilize all of the tools that can minimize their risk and increase their profit potential.

Categories
Forex Videos

Technical indicators Vs Price Action – Which Is Best For High Probability Forex Trades


 

Technical indicators V. Price Action

 

The foundation of price action trading is based on the discipline of making all trading decisions based on chart analysis only. A chart, relating to a specific period of time, or time frame, reflects the beliefs of traders in the form of ‘price action.’
Technical traders believe that economic data and other global news events are the catalysts for price action movement. Technical trading assumes that we don’t need to fundamentally assess such data in order to trade the forex market successfully. The reason for this is because all economic data and related world news that causes price movement are ultimately reflected in the price seen on a chart.

Example A

 

In example ‘A’, the candlestick formation shows an elevated price action at the beginning of the charts on the left-hand side, and then falls lower and traders believe that the market news is ‘in the price’ and therefore they are safe to trade the charts on the basis that their technical indicators are telling them that the price action is overbought, or oversold, and that therefore their chart indicators have a greater probability of offering winning trade set-ups until the next release of economic including such things as unemployment, CPI and inflation, gross domestic product or GDP, interest rate changes and political events and conflicts.

 

Example B


How do we analyze the price action? Let’s look at the example ‘B.’ This is a 15-minute time frame chart of the EURUSD pair. Each of the Japanese candlesticks presents 15 minutes of price action. Traders always read their charts from left to right, and in the case of Japanese candlesticks trading, they try to decipher the meaning of each candlestick, either individually or as part of a trend.

 

Example C

In the example ‘C,’ we have highlighted some Gravestone Doji’s and Inverted Hammers, which traders look out for because they tend to occur at times of price action slowing just before a reversal.

 

Example D

In example ‘D’ this is made much clearer by the use of some technical lines to identify an A, B, C, D, price action, and where at position C, technical traders would be looking for a push lower to the ‘D’ position, purely based on the gravestone and inverted hammer candlestick formations.

 

Example E


Now let’s look at example E, we have now added a trend line at position 1, and we can see a clear trend which is moving to the upside, and where price action bounces off our trendline as it gradually pulls back from the lows of the previous A, B, C, D, price swing. However, price action begins to flatten out at position 2, and when the price breaks through our trend line at position 3, our bear traders will no doubt be wondering if there is going to be a continual push lower to add to the overall trend of this chart. But the push lower is short-lived, and price reverses during position 4, and where these three candlestick formation is known as three Bullish soldiers and typically denotes a strong bullish trend. Price action falters at position 5, and this becomes an area of resistance, or a ceiling because technical traders will have drawn a trendline, such as ours, and noted that price failed to go above this level on three previous occasions at position 2. Indeed price action begins to fall lower from position 5.

So, in these examples, we can see just how important price action alone, in the form of Japanese candlesticks, and a few lines drawn onto our charts can be so effective in analyzing the ‘clean’ price of an exchange rate. There is an abundance of information when we drill down and look for it. But this can only be truly established by learning about how Japanese candlesticks can define price movements, the stalling, and reversal of price movement, and the indisputable evidence they provide of support and resistance on the basis that these candlestick shapes and formations simply repeat themselves time after time. Price action is a leading indicator, whereas technical indicators, which are overlaid onto chats and follow a statistical measurement of price, are lagging indicators. While technical indicators are an extremely effective tool in technical analysis, they often throw up false signals, or simply leg behind price action so far as to be unreliable when used on their own and without factoring in price action.

Here at Forex.Academy we recommend that new traders learn about the significance of Japanese candlesticks, and study their charts, and read them from left to right, because they tell a story of where price action has been, and where it is likely to move to in the future, based on the fact that all the relevant fundamental data is already encapsulated in the exchange rate of a particular price action.

Categories
Forex Course

22. Perks Of Trading The Forex Market

Introduction

The foreign exchange market is, no doubt, the most popular market in the world. Though it is considered to be a very risky business, it can prove to be the best platform for trading and investing if things are done wisely. People often are in a dilemma to choose between the stock market, commodity market, and the forex market. Hence, it is important to know the benefits each market has to offer. So, in this lesson, we shall discuss some significant benefits the forex market has to offer.

Advantages of Trading Forex

Open 24/5

The forex market is traded throughout the day from Monday to Friday. And this got to be the biggest advantage for the part-time traders. Since there are quite a large number of people who are into 9-5 jobs, the forex market is an excellent option as one can trade anytime during the day. Hence, the forex market is the most flexible market when it comes to timings.

Great Liquidity

The forex market is the largest market in the world. It has a huge volume of orders coming in every single second. With high liquidity, trades are executed as soon as the order is placed. In fact, the forex market has the highest liquidity compared to any other market.

Margin Trading

In forex, the retail traders get the facility to trade with leverage. That is, with leverage trading, a trader can trade with quantities even if they do not possess the required amount. This is a great advantage as it paves the way for the small traders who are willing to participate in the market.

Nominal Commission and Transaction Costs

Another significant benefit to consider about the forex market is that the forex brokers don’t really charge any high fee, such as brokerage fees, exchange fees, or clearing fees. Having said that, they do charge commission, which is in the form of spreads. The bid/ask price, which is often referred to as the transaction cost, is typically around 1% when the market conditions are normal.

The Freedom on Lot Sizes

In forex, the brokers allow trading with as low as 0.001 lots. And traders can choose from 0.01 lots, 0.1 lots and 1 lot. Hence, there are variable lot sizes in this market. But, if you were to consider the futures market, the lot sizes are of one type and are determined by the exchanges.

Free Demo Trading

Demo trading is one of the best features the forex brokers have to offer. And the cherry to the cake is that demo trading accounts are free of cost. Demo trading can be very helpful to both novice and professional traders. Novice traders can use it to get the hang of placing orders and other features in the platform, while professional traders can use them to test the consistency of their strategies. Hence, we can consider demo trading to be a powerful risk-reducing tool.

Facility to Go long and Go Short

In the forex market, there is no directional bias. This is because currencies are traded in pairs. If a trader thinks the base currency would rise in value, they can go long, and if they think it will depreciate in value, they can go short. So, unlike the stock market, a trader need not borrow shares to sell short an instrument. Hence, traders can profit from both rising markets as well as falling markets without any complications.

Hence, these were some of the most significant features and advantages of the forex market. In the coming lesson, let us put up a comparison between different markets and see which market proves to be the best; for now, take the below quiz and see if you have understood this lesson correctly.

[wp_quiz id=”48839″]
Categories
Forex Trading Guides

Ichimoku Kinko Hyo Guide – Start Here

Ichimoku Guide – Start Here

The Ichimoku Kinko Hyo system is a powerful, tested, and vetted trading system. This guide will lead you in the direction of the articles you should follow.

Phase One – Start Here

Ichimoku History

In this article, you will learn a short history of Japanese technical analysis. It is not necessary to read this article to understand the Ichimoku Kinko Hyo system, but I would suggest reading it.

Ichimoku Kinko Hyo System

Learn the Ichimoku Kinko System and its components. Learn how it works.

Phase Two – Beginners Strategies

Ichimoku Strategies

Ideal Ichimoku Strategy

Learn your first Ichimoku Strategy, the Ideal Ichimoku Strategy.

K-Cross Strategy

Learn the Kijun-Cross ‘Day Trading’ strategy.

Phase Three – Advanced Ichimoku Kinko Hyo Theory

The Two Clouds Discovery

Learn about Manesh Patel’s powerful discovery, an extremely useful addition to your Ichimoku trading strategies.

The Three Principles

Wave Principle

Price Principle

Time Principle

Learn about the three principles in Ichimoku Analysis. Ichimoku analysis has a Wave, Price, and Time principles.

 

Categories
Forex Market Analysis

Daily FX Brief, November 18 – Major Trade Setups – Risk-on Sentiment In Play

On Monday, the market trades with a risk-on sentiment over the faded safe-haven appeal. Significant forex pairs indicated time on Monday as traders observed to whether Washington and Beijing can promptly approve an agreement to end a trade war that has been a drag on word’s economic growth.

  EUR/USD – Daily Analysis

The EUR/USD currency pair hit the bullish track and currently trading at 1.1061, As of writing, the pair consolidates between the range of 1.1048 – 1.1065 on the day and hit the weekly highs at 1.1065 mainly due to greenback weakness against the bucket of currencies. The buyers join the latest bullish trend, awaiting fresh trading clues and keep their eyes on ECB-speak.

On the EUR-side of the equation, the Eurozone October inflation came in as expected, up by 0.7% YoY and core CPI up by 1.1%, which supported the continuing bullish drive in the common currency.

Looking forward, the buyers target the 100-DMA now located at 1.1093 should the recovery momentum continue. On the other side, the 50-DMA at 1.1042 could defend the downside if the ECB speakers support dovish expectations. However, the United States and China’s trade progress will keep under the spotlight for getting the fresh impulse.

    


Daily Support and Resistance

S3 1.0957

S2 1.0999

S1 1.1026

Pivot Point 1.1042

R1 1.1069

R2 1.1084

R3 1.1126

EUR/USD– Trading Tips

The EUR/USD proceeds to trade higher, violating the resistance level of 1.1000, which now is working as a support. On the 4 hour timeframe, the EUR/USD has three white soldiers candlestick pattern, which is signaling chances of further buying in the EUR/USD. At the moment, the EUR/USD is holding at the resistance level of 1.1065 as above this; the pair can continue to soar until 1.1080. So consider staying bullish above 1.1065 and bearish below the same level today.

GBP/USD– Daily Analysis

The GBP/USD currency pair consolidates in the range of 12909 – 1.2933, representing 0.20% gains on the day. As of writing, the pair is currently trading at 1.2925 and faced a month old falling trend line resistance due to the increasing expectations of Tory leadership after the December elections. As well as the hardship for the United Kingdom Prime Minister Boris Johnson, limit the further pair’s upside.

The market’s trade sentiment still slows with the United States’ ten-year treasury yields taking rounds to 1.82%, whereas most Asian shares are flashing mixed signals.

Looking forward, traders will now keep their eyes on British prime minister Boris Johnson’s speech at Confederation of British Industry’s annual conference for getting a new direction to move ahead. At the economic calendar front, the US NAHB Housing Market Index figures for November, expected to remain at 71, will keep the thin line of statistics. However, trade and political headlines will keep under the spotlight.


Daily Support and Resistance

S3 1.2793

S2 1.2845

S1 1.2874

Pivot Point 1.2897

R1 1.2926

R2 1.2949

R3 1.3001

GBP/USD– Trading Tips

The GBP/USD continues to trend upward to test our previously suggested upper corner of a wide trading range of 1.2970 – 1.2780. 

The MACD and RSI are lingering in overbought territory as their values linger at 0 and 50, respectively. Besides this, the chances of bullish correction are becoming very strong. 

At the time, the GBP/USD trades at 1.2940 level, and it may find support immediate support around 1.2920. I will consider taking buying positions above 1.2920 and bearish positions if this level breaks on the lower side. 

USD/JPY – Daily Analysis

The USD/JPY currency pair consolidates in the narrow range between the 108.75 and 109.00, mainly due to intensifying tensions in Hong Kong and lack of trade war hopes.

So, the risk-off sentiment raises so far, with S&P 500 futures down -0.15%, Treasury yields falling almost 0.50%, whereas the Asian equity markets trade with moderate losses. The Japanese Yen currency still on the supported track and keeping a break above the 109 range.

If talking about the greenback, the U.S. Dollar still on the bearish track due to the losses in the Treasury yields. As in result, this situation sending lower the USD/JPY currency pair. Moreover, the investors are on the waiting mood and await some transparency regarding the United States and China trade deal and FOMC minutes for fresh trading direction, because the United States economic calendar seem light during this week.

As of writing, the U.S. Dollar Index traded 0.1% lower to 97.810. The Federal Reserve will announce the minutes of it’s October meeting on Wednesday, and several Federal Reserve policymakers are scheduled to speak before the upcoming Thanksgiving holiday.


Daily Support and Resistance

S3 107.96

S2 108.33

S1 108.55

Pivot Point 108.7

R1 108.93

R2 109.08

R3 109.45

USD/JPY – Trading Tips

The USD/JPY is trading at 108.90, crossing over 61.8% Fibonacci retracement level. This level also marks a double bottom resistance level, but that has now been violated and may keep the USD/JPY pair supported today.

The violation of the 108.90 level can extend buying until 109.200. The MACD and RSI are also supporting the bullish trend in the USD/JPY pair. 

All the best!

Categories
Forex Elliott Wave

How to Analyze a Fast Market Using the Elliott Wave Principle – Part 1

The speed is a characteristic of nature; in the same way, some markets tend to be faster than others. The problem arises when a market moves sharply. In this educational article, we’ll introduce how to analyze a fast market using the Elliott Wave Principle.

Price and Speed

Both price and speed are individual characteristics of each market. Depending on specific factors, one market could be faster than another.

The problem arises when, in an active market, the price moves faster than usual. R.N. Elliott, in his Treatise “The Wave Principle,” wrote:

“In fast markets, it is essential to observe the daily as well as the weekly ranges; otherwise, characteristics of importance may be hidden.”

In other words, when the market studied in a specific timeframe doesn’t allow to identify any pattern. It is useful in these cases to observe the market in a higher time frame, for example, the daily or weekly timeframes.

The Case of Study

Consider the EURGBP cross in its 4-hour chart, which shows a rally developed from early May until the middle of August 2019. The remarkable observation is that the first part of the rally was faster than the second part of the range of study.

As a first step, let us observe the big-picture; in this case, we will study the EURGBP cross in a weekly timeframe. As can be noted, the EURGBP developed an extended Wave 3.

Both the RSI and the Awesome Oscillator display a bearish divergence, that helped us to identify waves (3) and (5).

In consequence, in view that the five-wave sequence has been completed, it is time for a corrective movement in three waves.

The next chart shows the possible recount of the EURGBP cross.


In the above figure, we observe that the cross could have fully completed a cycle that, as we know, includes a motive impulse and its corrective sequence. Thus, if our market hypothesis is that the EURGBP has completed a cycle, then our forecast should consider a new five-wave rally.

The following chart unveils the upward movement developed by the EURGBP from its bottom, established in early May.


In the next educational article, we will expand the analysis on how to decipher a fast market using the Elliott Wave Principle.

Categories
Ichimoku

The Three Principles – Timespan Principle

The Three Principles – Timespan Principle

In another correlation to Western analysis, Hosada’s Ichimoku Kinko Hyo system has a timing component within the system. The numbering system used in Ichimoku is unique when compared to Western analysis. The reason for the numbering and counts in Ichimoku is related to the cultural importance of some numbers in Japan versus others. Numbers that would be considered ‘lucky’ in Japan are the same numbers in the West and many other cultures – particularly 7 and 9. But those numbers themselves are not what is important. How, exactly, this numbering and count system came to be developed in the fashion that it was developed I do not know. The following is directly from Ichimoku Chats – An Introduction to Ichimoku Kinko Clouds by Nicole Elliot – I heavily suggest getting her book (the 2nd edition). The important numbers are:

9, 17, 26, 33, 42, 65, 76, 129, 172, 257

If you ever study the work of WD Gann, then these numbers are not only familiar but non-random.

Numbering

Numbering the candlesticks in a pattern is done with traditional Arabic numbers (1,2,3,4,5, etc.) and English letters (A, B, C, D, E, etc.). When counting how many candles are in a trend/wave, the last candle in an uptrend is counted as the first in the down wave and vice versa. See below:

Timespan Principle - Candle Counts
Timespan Principle – Candle Counts

Notice that candle 19 is also A, candle H is also 1. Also, notice that the time counts (total number of candles) in this ‘N’ wave all represent essential numbers in the Ichimoku number system. 19 is close to 17, H is close to 9, and 8 is close to 9.

Kihon Suchi – ‘Day of the turn.’

Nicole Elliot’s work is fantastic – it’s refreshing to read an analyst and trader who updates her work and goes through the grueling process of keeping it relevant. Kijun Suchi (‘the day of the turn’). The Kihon Suchi is the Hosada’s Timespan Principle put into practice. It is very similar to the use of Gann’s cycles of the Inner Year or horizontal Point & Figure counts to identify turns in the markets. Let’s use the image above again as an example. Below, I’ve separated the ‘N’ wave into A, B, and C.

Timepsan Principle - Combined Counts
Timespan Principle – Combined Counts

When adding the number of bars in A, B, and C, we always subtract 1 from each wave after the first. For example, if we counted five waves and the total was 100 bars, we would subtract 4 from 100; 96. On the chart above, the total number of bars of A, B, and C is 33 bars. We subtract 2 from 33 to get 31. This is where the Timespan Principle using Kihon Suchi comes into play. We should be able to project the end of the down drive that will occur after wave C. Does it work? Let’s see.

Timespan Principle - A+B+C = D
Timespan Principle – A+B+C = D

Below is another example. In reality, the use of the Timespan Principle is a very simplified version of a phenomenon known as a foldback pattern. But Japanese analysis focuses on the quality of equilibrium, so it makes sense to see this kind of behavior from a method that focuses on balance in all things.

Timespan Principle - Symmetrical Inverse Head & Shoulder Pattern
Timespan Principle – Symmetrical Inverse Head & Shoulder Pattern

 

Sources: Péloille, Karen. (2017). Trading with Ichimoku: a practical guide to low-risk Ichimoku strategies. Petersfield, Hampshire: Harriman House Ltd.

Patel, M. (2010). Trading with Ichimoku clouds: the essential guide to Ichimoku Kinko Hyo technical analysis. Hoboken, NJ: John Wiley & Sons.

Linton, D. (2010). Cloud charts: trading success with the Ichimoku Technique. London: Updata.

Elliot, N. (2012). Ichimoku charts: an introduction to Ichimoku Kinko Clouds. Petersfield, Hampshire: Harriman House Ltd.

 

Categories
Ichimoku

The Three Principles – Price Principle

The Three Principles – Price Principle

This will be the shortest article over the three principles, mainly because it is the same as many other Western styles of price projection. I do not need to go into any significant detail here. If you want further detail into this method, I would suggest Nicole Elliot’s book, Ichimoku Charts – An Introduction to Ichimoku Kinko Clouds (2nd Edition).

Elliot identified four price target methods from Hosada’s work: V, N, E, and NT. Elliot does mention that she (myself included) does not use this analysis and relies instead on traditional Western methods. However, she does cite that for investors and traders with short time horizons that this Japanese method of the Price Principle is superior to many techniques.

 

V Price Target

V = B + (B – C)

Inverse: B – (B+C)

Price Principle - V Price Target
Price Principle – V Price Target

 

N Price Target

N = C + (B – A)

Inverse: C – (B + A)

Price Principle - N Price Target
Price Principle – N Price Target

 

E Price Target

E = B – (A – B)

Inverse E: B + (A + B)

Price Principle - E Price Target
Price Principle – E Price Target

 

NT Price Target

NT = C + (C – A)

Inverse NT: C – (C – A)

Price Principle - NT Price Target
Price Principle – NT Price Target

 

 

Sources: Péloille, Karen. (2017). Trading with Ichimoku: a practical guide to low-risk Ichimoku strategies. Petersfield, Hampshire: Harriman House Ltd.

Patel, M. (2010). Trading with Ichimoku clouds: the essential guide to Ichimoku Kinko Hyo technical analysis. Hoboken, NJ: John Wiley & Sons.

Linton, D. (2010). Cloud charts: trading success with the Ichimoku Technique. London: Updata.

Elliot, N. (2012). Ichimoku charts: an introduction to Ichimoku Kinko Clouds. Petersfield, Hampshire: Harriman House Ltd.

 

Categories
Crypto Videos

Trading Stocks & Forex vs Trading Cryptocurrencies – what Is Best For The Every Day Trader

 

Trading stocks and FOREX vs. trading cryptocurrencies

Many people are wondering if trading cryptocurrencies can match trading stocks or FOREX in terms of profit potential. Many factors affect traders’ choice on which market to trade. Whether it is the liquidity of the market, volatility, or simply the ease of access to the profit-making trade, everything, and anything can influence that decision. We can certainly point out a few factors that differentiate stocks or FOREX to cryptocurrency trading.

Ease of access

When it comes to trading, the ability to start the process fast and without any issues should be a priority. When it comes to stocks and FOREX trading, trading software is expensive and requires a lot of paperwork and time. It is also demanding in terms of computer performance. On the other hand, cryptocurrency exchanges and trading platforms offer a quick and painless registration process as well as the ability to trade from any device in most cases.


Stockbrokers also have a day-trading rule, which requires accounts to have more than $25,000 balance in order to day trade. This rule is called “pattern day trading rule” and is created by FINRA (Financial industry regulatory authority) to stop people from day trading stocks with no intention of supporting the companies or investing into their stocks for the longer term. This makes the barrier to enter the “playing field” when it comes to trading stocks much higher.

Volatility

Volatility is the single most important indicator when deciding whether something is tradable or not. It signifies the price oscillation of the tradable asset. The more volatile the asset is, the more profit potential it has. It is safe to say that cryptocurrencies are far more volatile than stocks or FOREX, and still have enough volume for traders to avoid any form of slippage. Markets like FOREX or the big stock indexes are safer, but also much slower.
We can compare the NYSE FANG+ index, which consists of the biggest tech companies: Facebook, Amazon, Netflix, Google, Alibaba, Baidu, Nvidia, Tesla, and Twitter. This stock index has returned a total of 21.65% annualized total return, starting from September 19, 2014, until October 31, 2019. It has outperformed the NASDAQ-100 index and S&P500 index by a large margin. Still, when compared to the return Bitcoin has made from September of 2014, it is not even close.


Market liquidity and market depth

Bitcoin and the cryptocurrency market have a decent market size, but not close to anything like FOREX. FOREX is by far the biggest tradable market in the world. It trades 5.3 trillion dollars each day. However, even though the cryptocurrency market is a lot smaller, it has no liquidity issues. Both markets are liquid, and the market depth is good enough, so the traders do not have to worry about their orders not being filled, or any form of slippage. As far as liquidity goes, any market liquidity that does not allow for slippage and sudden non-fluid jumps in price are good enough for trading.

Institutional involvement

Institutions are trading every form of asset and commodity they can earn money on. However, the cryptocurrency market is still young and fairly free of institutional manipulation. There is no denying that institutions manipulate the order books and use the latest software and the best technology to create a trading “edge.” This makes trading traditional assets extremely hard. FOREX is especially filled with algorithmic robot-trading and market manipulation (to a degree), which destroys all profit potential traders should have. According to data gathered by Morton Glantz and Robert Kissell, the percentage of algorithmic trading in FOREX is ranging from 85% to 90%. On the other hand, algorithmic trading in cryptocurrencies is minuscule compared to the numbers FOREX shows. Competing with machines that are analyzing as well as entering/exiting positions faster than any human can be extremely hard.


Regulation

When compared to FOREX and stock trading, cryptocurrency markets are less regulated. This gives many platforms a chance to rise and try to offer the best options for the traders, as it is much easier to create a cryptocurrency trading platform than a FOREX brokerage firm. However, quantity does not mean quality. Only a few exchanges are offering innovative and good options to their customers. Most trading platforms offer crypto traders 100x leverage on their traders, among other options, making it much easier to start with less money and profit more from small movements in price.

Uptime

Quite simply, cryptocurrency trading is available every minute, hour, and every day. There is no downtime, not even for holidays. FOREX markets, on the other hand, are not tradable on weekends, while stock markets have trading hours each day. Why should a trader lose two trading days a week in case of FOREX, or even more when it comes to stocks? Most retail traders are trading only part-time, and this gives them the option to be more involved in trading, as the markets are available and tradable at all times.

Conclusion

Every trader needs to decide how much risk he or she can handle. Trading cryptocurrencies is a bit riskier but brings massive profit potential. On the other hand, investing in stock indexes or FOREX can bring constant minute profits over a longer period.

Categories
Forex Videos

Technical Analysis Defined – Using Past Price & Technical Tools To Predict The Future

Technical Analysis Defined

Technical analysis is the study of historical exchange rate price action, which forex traders study in order to predict future price movement. Traders can look at historical price movements on charts with various time frames in order to determine the current trading conditions, including volume and liquidity and possible price movement. Technical analysts use screen charts because they are the easiest way to visualize historical data!

Example A


In the example ‘A,’ we can see a very basic screen 15-minute time frame chart of the EURUSD pair where the elapsed time is shown on the X-axis along the bottom and where the change in exchange rate price fluctuations is shown on the vertical Y-axis to the right of the chart.
Many professional technical traders are of the opinion that the fundamental reasons that might affect a currency exchange rate, such as the latest economic data releases, including interest rates, will all be encapsulated within the current exchange rate, as seen on the chart. But of course, everybody’s opinion differs and when you Factor in market sentiments and expectations from future events, plus institutions creating extra markets liquidity by ducking in and out of various currency pairs. This is just one of the reasons why exchange rates seldom stay static.
But, essentially, traders use past chart data in order to try and determine future exchange rate direction.

Example B

Let’s look at an example ‘B.’ This is the same 15-minutes charts of the EURUSD pair, and the only tool we have on the screen is Japanese candlesticks. Some Traders only have candlesticks on the charts because they are often the best indicator of all when it comes to historical price movement. In our example, we can see that to the left of the screen at position A there was a self in the pair to position B, and then a complete reversal to position C, where one single bullish candlestick engulfed the price activity of the previous elven time frames. Therefore, due to the size of this candlestick, it would have been considered to be a strong indication that the market was going to continue to move higher.

Example C


In example ‘C’, we are sticking with the initial A, B, C move, to try and identify what traders might have been looking for during the move from position B to position C. As such we have added some X’s, which mark areas, usually a couple of pips above entry points where the short-selling traders in our example may well have placed their stop losses, during periods mini stop losses are taken out, it can increase volatility, And so Traders will be aware where of where the stop losses lay.

Example D


In example ‘D’, we have added Bollinger bands to our chart. This is another tool favored by technical analysts. Something clearly interesting can now be seen at point ‘A,’ which is at the top of the bands, and often features as a selling opportunity to traders. And at position ‘B,’ we can see price action bounce off the bottom of the bands and move up to position C. Again, price action had reached the top of the bands again before pulling back slightly, but not to the bottom of the bands this time. And this was most likely due to the fact that the move from b to c was seen as a bullish move and where several stop losses were taken out along the way.

Generally speaking, over 90% of price action will remain within the Bollinger bands.
In example ‘B’ we have added another favourite tool that technical Traders use the stochastic oscillator, which is a momentum indicator and tells traders when a pair might be overbought, for example when the two lines moved above the 80 axis line, and when the pair were likely oversold, which would be when the two lines crossed underneath the 20 axis line.

 


Here we can see that at position ‘A,’ the stochastic was close to the 80 axis line, and therefore overbought. We subsequently see at position B, that our stochastic had gone below the 20 axis line and the market then moved higher to position C. We think we know why there was only a short pullback from position C to position however D, and then position E coincides with our stochastic being overbought at position 3. From here, we then see a fall back in price action.

One of the most common mistakes that new traders make is to load up their screens with many and various technical tools. In the case of technical analysis, we find that less is more when it comes to using technical trading tools.
This is a short example of the power of technical analysis. However, there is a caveat, which is that indicators are just that, indicators! They are not a guarantee of future price action and must be used with caution. The best indicator is price action itself, and even this is not a guarantee that price action will not stop dead in its tracks and completely reverse without warning.

Categories
Forex Basics

Importance of Timing in Trading

Timing is an essential factor in trading. Price action traders take entry on signal candle’s/bar’s attributes and support/resistance breakout. Many traders ignore the timing factor. However, it is an important factor when the signal candle is produced. In this article, we are going to demonstrate an example of the importance of timing in trading.

This is a daily chart. The price keeps going towards the South. Traders shall only look for selling opportunities in this chart on upward price correction/consolidation. Let us go to the next chart and find out what happens next.

The chart produces an engulfing bullish candle. It is a sign that the price may go towards the North. Intraday buyers such as 5M, 15M, H1 traders may look for long opportunities in this chart. The daily chart traders must wait for the correction/consolidation to get over upon a daily bearish reversal candle.

The price heads towards the North with good bullish momentum. The intraday buyers have made full use of the engulfing candle here. However, upper shadow and an Inside Bar suggest that a bearish reversal may come soon.

Here it is. A bearish engulfing candle suggests that it is time to look for short opportunities. It is a daily chart, so we shall flip over to the H4 chart to look for short opportunities.

The H4 chart shows that the price consolidates and makes a bearish move. However, support is still intact. The sellers must wait for a breakout at the support to go short on this chart. Let us draw the support line on the chart.

With an upward adjustment, the support lies at the black marked level. One of the H4 bearish candles is to breach the level for the sellers to get engaged in selling. Let us proceed to the next chart.

Concentrate on the chart. The chart has produced six candles since we have flipped over to the H4 chart. Six H4 candles mean a trading day is passed. Does it have any message to give us? We dig into the message later. Let us proceed to the next chart.

Wow! We have a breakout. Some traders may want to trigger an entry right after the candle closes. Let us find out what happens next.

The price starts heading towards the North. The price hits the Stop Loss. It even breaches the highest high of the wave. This is a different ball game now. If it were a technically right entry, we would not have talked about it. The thing is this one was a wrong entry, as the signal candle forms at the wrong time.

The signal candle does not form within the next trading day. It takes nine H4 candles to make the breakout. If the signal came within the first six candles, it would have been a valid trade. Since it comes at the ninth candle, it means the support has become daily support. Thus, an H4 breakout is not enough to drive the price towards the South. It goes towards the upside instead. The lesson we have learned here is, “A breakout is not a breakout if it does not take place at the right time.”

Categories
Forex Basic Strategies

Learning The Art Of Fading In Trading

What is Fading?

Fading involves placing trades against the trend to profit from a reversal. Using the concept of fading, a trader will short sell, expecting the momentum to fade when the market is in an uptrend. Likewise, he/she will buy a currency pair with the expectation that the move will fade away and reverse when the market is in a downtrend.

The fading strategy involves three assumptions:

  • The price is either at the overbought or oversold condition.
  • Early buyers or sellers are getting ready to take profits.
  • Current position holders might be at risk.

Overbought and oversold conditions can be identified using technical indicators such as the Relative Strength Index (RSI). Momentum shows the signs of shifting of forces from bulls to bears or vice-versa. And as these signs develop, current holders of the asset start to rethink their positions.

These conditions get exaggerated after an earnings announcement or news release. This may lead to a knee-jerk reaction on the part of other traders to sell the currency pair. As a result, this reaction gets overextended, and a mean-reversion takes place.

Now let us see how does the strategy work and what are the necessary steps you need to take to profit from the strategy:

The Fading strategy

Step 1 – Identify market extremes from the daily time frame 

The first step is identifying overbought and oversold zones using technical indicators or chart patterns.

The popular indicators used for identifying the zones include:

The overbought and oversold conditions are indicated by reading above or below a certain level. For example, the market is said to be in an overbought condition if the RSI is above 70, and it is said to be in oversold condition if the RSI is below 30. This can help traders in identifying fading opportunities.

In the above chart, we can see how the RSI indicator was crossing the normal range when the market gets into the overbought zone. One can find trading opportunities just using the RSI indicator stand-alone. But to trade like how professionals trade, we need to use a lot more tools.

Traders may also use familiar chart patterns or analysis based on price action and watching the price continuously.

Step 2 – Look for signs of capitulation

The second step in the strategy is to look for early signs of capitulation or change in the short-term trend using momentum. This can be mostly done by using candlestick patterns or price action with a volume indicator. We suggest looking for price action signals.

Some other signs to watch for include:

  • When technical indicators start to fade or move away from their extreme overbought or oversold levels.
  • The volume of the significant trend starts decreasing, or the volume of the opposite trend starts increasing.
  • Bearish candlestick patterns appear (in case of an uptrend), or critical support and resistance are broken.

It’s essential to identify these signs early to maximize profit and avoid mistakes.

The signs mentioned above can be explained better with the help of some figures.

Image 1

In the above image, we clearly see that the market is in an uptrend and has been trending from a few days (as it is a daily chart). The volume of the significant trend is also high with the decreasing volume of the sellers, which is a good sign for bulls. But in the end, the volume starts to decrease. The RSI declines sharply after entering the overbought zone for a while.

Image 2

Immediately we see an increase in the volume of sellers with a drastic drop in the RSI indicator (Image 2). The signs are getting stronger for a reversal, and this trend can continue. All the traders who are holding the currency pair start exiting the market. This could be one of the most reliable signs for us to take appropriate action.

Image 3

Finally, we see a break in the ‘support’ by the bears with high volume. Now we have combined all the tools, and each of them is indicating a reversal. Hence, we should take a position in the opposite direction. This is precisely the kind of setup that you need to be looking for every time.

Image 4

In order to find the exact entry, we need to magnify the chart. For this, you need to go on a lower time frame to analyze and set your stop-loss or target based on that time frame. This is mandatory for getting precise entries. The above figure is the lower time frame chart of the explained example.

Note: Images 1, 2 & 3 belong to the daily timeframe, whereas Image 4 belongs to the 4H timeframe.

Step 3 – Enter the trade with a stop-loss and take-profit

The last step is to enter the market with a compulsory stop-loss and take profit to ensure risk management is in place. In this strategy, a stop-loss order can be placed above the price where the RSI enters the overbought/oversold zone. Avoid putting small stop-loss as you can prematurely get stopped out from the trade.

Profit can be booked when the volume of your trend starts to decrease. Now, the stop-loss and target would be placed, as shown in the above chart. This trade would result in a risk-to-reward ratio of a minimum of 1:5. Traders can also use a moving average or any other indicator to set a profit-taking price level. Limit orders are almost used by all traders to avoid any slippage or other issues, particularly in less liquid assets.

Bottom line

Fading strategies can be considered as risky as you are going against the trend. It is always a good idea to take a trade if the risk to reward ratio is favorable. These strategies are commonly used by short to medium term traders to capitalize on short term reversals. Even though it seems risky, it can be extremely profitable if appropriately used. This is because the market has reached a saturation state, and there has to be some balancing force. This is why fading strategies are also known as contrarian strategies. Because they work on the assumption that prices deviating far from the trend, tend to reverse and revert back. That’s about Art Of Fading. If you have any queries, let us know in the comments below. Cheers.

Categories
Forex Market Analysis

Daily FX Brief, November 15 – Major Trade Setups – Core Retail Sales In Focus! 

The US greenback has stretched back a little versus the Japanese yen, as risk-off sentiment dominated the market. That being said, this market is highly sensitive to risk appetite, so with the multitude of problems that the global economy has right now/ Friday is a calm day ahead of the data aspect. There are no economic figures due from the United Kingdom to give the Sterling with direction.

Economic Events to Watch Today

Let’s took at these fundamentals.

 

 

   


EUR/USD – Daily Analysis

A day before, the EUR/USD currency pair traded on the bearish track as on the way a stable support level of 1.0990 was there to stop its movement. As we know, the German Q3 GDP showed the Eurozone’s largest member miss entering Techincal slowdown but overall look still darker. 

As of writing, the EUR/USD currency pair seen on the bearish track and losing almost 160 ticks during the last ten trading session. At the starting of the month, we observed the 200-day Moving Average as a robust range for the EUR/USD pair to hit, which it proved, and any support from the 50 and 20-day Moving Average proved short-lived.

As of now, the EUR/USD currency pair continues to move lower with the 1.1000. The EUR/USD currency pair on the overselling track, but this may well slow down and not change its direction. A double at the 1.0879, while these targets remain near and achievable. 

Daily Support and Resistance

S3 1.0936

S2 1.0974

S1 1.0998

Pivot Point 1.1013

R1 1.1037

R2 1.1052

R3 1.109

EUR/USD– Trading Tips

The EUR/USD continues to trade lower, maintaining a bearish bias after violating the support level of 1.1000. On the 4 hour timeframe, the EUR/USD has inside down candlestick pattern, which is signaling chances of further sell-off in the market. 

For the moment, the EUR/USD is holding above a crucial trading level of 1.0990 as below this; the pair can continue falling until 1.0960. So consider staying bearish below 1.0990 level today.


GBP/USD– Daily Analysis

The GBP/USD currency pair sideways and taking round to 12840 mainly due to optimism surrounding the United Kingdom political plays face the greenback strength ahead of the United Kingdom Retail Sales Data for October. 

Friday is a calm day ahead of the data aspect. There are no economic figures due from the United Kingdom to give the Sterling with direction. The shortage of fundamentals leaves the Pound firmly in support of UK politics and the general voting opinion polls. At the moment, the Pound was down by 0.02% to $1.2879.

The GBP/USD was range-bound since Monday, in what has been a dull week, but the Cable showed a dramatic surge to 1.2880 level. The pair is still finding support around 1.2870, and below this, the GBP/USD can drop until 1.2860 level. On the higher side, we see resistance at 1.2925, which is defending the symbolic level of 1.3000.

Daily Support and Resistance

S3 1.2767

S2 1.2806

S1 1.2829

Pivot Point 1.2845

R1 1.2868

R2 1.2884

R3 1.2923

GBP/USD– Trading Tips

The GBP/USD has come out of a broad trading range of 1.2970 – 1.2780 to trade at 1.2870 level. The MACD and RSI are holding in an overbought zone as their values stay at 0 and 50, respectively. With this, the odds of bearish correction are becoming very strong. 

At the time, the GBP/USD trades at 1.2880 level, and it may find support immediate support around 1.2870. I will consider taking buying positions above 1.2875 and bearish positions if this level breaks on the lower side. 


USD/JPY – Daily Analysis

The US greenback has dropped a bit versus the Japanese yen, tearing through the 200 day EMA but has a vital sum of support just below as well. I think we maintain the very slovenly trading, as markets have multiple concerns to trade with at the same time.

The US greenback has stretched back a little versus the Japanese yen, as risk-off sentiment dominated the market. That being said, this market is highly sensitive to risk appetite, so with the multitude of problems that the global economy has right now, it’s not difficult to imagine a situation where the Japanese yen remains to be a market that traders jump in and out of.

The latest update on the global macro figures is presenting a not so definite hint of the pernicious influence the protracted US-China trade war is becoming on the global economy.

Daily Support and Resistance

S3 107.87

S2 108.37

S1 108.57

Pivot Point 108.86

R1 109.06

R2 109.36

R3 109.85

USD/JPY – Trading Tips

The USD/JPY is trading at 108.50, right below the 38.2% Fibonacci retracement level. This level also marks double bottom support and may keep the USD/JPY pair supported today.

The violation of the 108.500 level can extend selling until 108.200. The MACD and RSI are also supporting the bearish trend in the USD/JPY pair. 

All the best!>

Categories
Forex Market Analysis

Gold’s Bearish Channel Breakout Drives Bulls – What’s Next?

 

On Thursday, the precious metal gold surged to trade around 1,468 level extending gains to a third session, as soft Chinese figures and risk about whether Beijing and Washington will strike a trade agreement anytime soon depressed demand for riskier assets.

China and the United States are enduring “in-depth” talks on a first-phase trade deal, and cutting tariffs is a crucial requirement for settling, the Chinese commerce ministry stated.

The report came from the Wall Street Journal that the United States and China hit a snag over farm purchases. Notably, President Trump recently said that China committed to buying up to $50 billion in U.S. soybeans, pork, and other agricultural products as part of a phase one trade agreement.

However, China is unwilling to quantify its farm purchases now, as in result, instantly activated a risk-off sentiment in the American markets that destroyed the Wall Street party.

XAU/USD – Daily Technical Levels

Support     Resistance
1,458.56      1,467.83
1,453.59      1,472.13
1,444.32      1,481.4
Pivot Point 1,462.86

Gold has crossed over a triple top resistance level of 1,466. CLosing of the bullish candle above this level is suggesting the bullish trend is still strong. While the MACD and RSI are also supporting the buying trend in gold.

At the moment, gold has immediate support around 1,466 and above this, gold has the potential to target 1,472 and 1,479. Let’s consider staying bullish above 1,466 today. All the best!

Categories
Forex Chart Basics

Unusual Candlestick Chart Types

In our previous article, we have seen the mainstream chart types, out of which the candlestick charts are the most prevalent in the current markets. But traders devised other ways to represent the price action in their search to get an edge over the rest of the traders. In this article, we are going to describe two popular variations of the basic candlestick chart.

Tick Charts

Tick Charts look similar to a candlestick chart, and every bar indeed is a real candlestick. But a Tick Chart does not depict a linear time scale. Instead, the chart moves to another bar every time a determined number of ticks have been reached.
And what is a tick? A tick is defined as one trade. So a 100-tick chart changes to a new candle every 100 trades, no matter its size.

Advantages of Tick charts

The main advantage of tick charts is that it allows spotting bars mostly populated by non-pro trades. Since every bar is made of the same number of trades, it is easy to detect bars with low volume, caused mainly through retail accounts. That allows pros to fade them and collect their money.

Tick charts homogenize the potential volatility on every bar because all bars represent the same number of trades. Therefore, it compresses low liquidity time segments into a few or one candlestick and expands hyperactive times into several candles. That way, amoving averages, and other indicators are more accurate. Also, the price action can be better appreciated, breakouts appear earlier, and chart cycles show up better.

 

Range Charts

Range charts are a convenient kind of chart. It also gets rid of the temporal method to move to the next bar. The idea of a range chart is to switch to a new bar once the chart has covered the assigned range. On the example supplied, the EURUSD is drawn using a 10-point range. Every candlestick covers ten pips and moves to the next bar. If the instrument is stuck inside a tight range, that candle may last for hours, until volatility comes back and the price creates a breakout.

Advantages of Range Charts

A range chart acts as a filter for ranging periods if the range size is adequately set, so trades can more easily avoid choppy market action, and only act on trendy segments.
Range charts also homogenize volatility.

Trends can be spotted more quickly as a result, and the trader can act on breakouts sooner than with regular candlestick charts. As happens with tick charts, indicators such as moving averages, MACD, and Stochastics work better with range charts.

The key to a proper range setting is to see when a relevant range starts a trend. It is easy to experiment until the adequate range hides most of the sideways action and takes away these harmful periods of inactivity. Looking at the average true range indicator on the timeframe of reference can help with the decision. The style of the trade should be taken into account. A scalping trading style calls for shorter ranges than a 4-hour trader.

To trade using range charts, we can add trend lines, averages, and other indicators. Range charts, as said, are excellent charts for the early entry of breakouts. Finally, range charts are very handy to spot momentum, so trade strategies based on volatility work better using them.

 

Categories
Forex Basic Strategies

Even a Choppy Price Action Offers Entries

The market moves in three ways upward, downward, and sideways. In today’s lesson, we are going to demonstrate an example of a Rectangle breakout and an entry from a choppy price action. Let us have a look at the chart below.

The price action is choppy in this chart. Typically, traders avoid this kind of price movement. However, if we want to take trading as a full-time business, we are to widen our eyes. An entry can be found even in this market. Concentrate on the rectangle drawn here. After all these bounces, rejections the price finds its support and resistance within the rectangle.

The chart produces a bearish engulfing candle right at the resistance of the rectangle. This is a sign that something may happen. Let us assume a bearish move may occur. The first candle of the bearish trend looks good. A downside breakout with good momentum is the second thing that the sellers may wait to get.

The next candle comes out as a bearish candle followed by an Inside Bar. Things are getting better for the sellers. A bearish engulfing candle closing below the support would be the signal to go short for the sellers.

Here it is. The breakout candle is a bearish Marubozu candle. We may trigger a short entry right after the candle closes. Let us find out where we will set our Stop Loss.

Many traders may suggest setting the Stop Loss above the resistance of the rectangle and setting the Take Profit with the same distance. This is a good idea. However, we may set our stop-loss just above the resistance of the last consolidation. The reason is the price consolidates before making the breakout at the support. If the price made a breakout without the consolidation, we would have set our Stop Loss differently. By setting Stop Loss above the last consolidation’s resistance, we are to keep an eye with our Take Profit level.

We may set our Take Profit all the way down at the last swing low. The price may have kept going towards the major support. Look at the chart above. What do you think? The price is still very bearish but it produces a bullish reversal. That is too with a gap. The price action traders do not like price gaps. Considering the fact that we have set our Stop Loss as close as it can get, thus it may be the time to close our trade and come out with the profit.

The Bottom Line

Even a choppy market ends up producing an excellent trading signal. Our first choice shall be trending markets to look for entries. However, if we can spot out some entries from the choppy market, it would surely make us be more profitable.

Categories
Forex Market Analysis

Daily FX Brief, November 14 – Major Trade Setups – German Prelim GDP In Focus! 

On Thursday, the safe-haven demand remains high as the trader’s eyes stay on the United States and China trade news to observe the impact on the riks sentiment, which continues to play an impactable role in the USD/JPY currency par prices. The market will closely be observing the US producer Prices Index an Unemployment Claims data, which is scheduled to release ahead of day 2 of Powell’s testimony.

At the Hong Kong front, the Hong Kong civil unrest and violence take the worst turn for the 4th-straight day on Thursday, after the police reported that a man dressed in black and aged in his 30s died.

Economic Events to Watch Today

Let’s took at these fundamentals.

   


EUR/USD – Daily Analysis

The EUR/USD currency pair currently trading near the level of 1.1006 on the day. Even after the pair spot staying below 200-bar Simple Moving Average, the EUR/USD currency pair bounces off 61.8% Fibonacci retracement of its October month upward. 

However, the buyers will likely wait for a bullish break of 200-bar moving Average at 1.1058 now, followed by 38.2% Fibonacci retracement and late-October lows surrounding 1.1065/75, to target 1.1100 marks.

On the positive side, if the GDP positive release, the pair may attempt recovery of 1.1040 and 1.156, the confluence zone of the 50 and 10-DMA. Buyers will likely try for the test of the 100-day Moving Average at 1.1100 on a continues break above the last. 

On the technical side, the pairs Techincal st up continues to favor the buyers because the EUR/USD pair still on the track to test the immediate support of mid-October lows near the 1.0991. While the break bellow will likely escalate selling pressure, because of the buyer’s eyes 1.0950 as the next support, the more bearish trend in pairs could hit the multi-year lows of 1.0879 over again.

Daily Support and Resistance

S3 1.0958

S2 1.0983

S1 1.0996

Pivot Point 1.1008

R1 1.1021

R2 1.1033

R3 1.1058

EUR/USD– Trading Tips

The EUR/USD continues to trade lower, maintaining a bearish bias after violating the support level of 1.1000. On the 4 hour timeframe, the EUR/USD has inside down candlestick pattern, which is signaling chances of further sell-off in the market. 

For the moment, the EUR/USD is holding below a crucial trading level of 1.1000 as below this; the pair can continue falling until 1.0960. So consider staying bearish below 1.1000 level today.


GBP/USD– Daily Analysis

The GBP/USD currency pair sideways and taking round to 12840 mainly due to optimism surrounding the United Kingdom political plays face the greenback strength ahead of the United Kingdom Retail Sales Data for October.

Brexit party leader Nigel Farage’s denial of the Conservative’s request of standing down more than 317 candidates, earlier promised, will likely negatively affect the British Prime Minister (PM) Boris Johnson’s popularity. The United Kingdom’s (UK) PM Boris Johnson was recently hackled during a speech to the flood-affected area. Whereas, surveys regarding the December election keep showing Tories holding power.

Looking forward to October, UK Retail Sales could boost the GBP/USD demand if it hit the upbeat predictions. However, the market’s rush to risk-safety can increase the USD gains if the Fed Chair support upside momentum during his Testimony 2.0.

Overview of UK Retail Sales, the UK retail sales, scheduled to be released later this session at 0930 GMT, is forecasted to come in at 0.2% MoM in October, after no increase seen in September. Total retail sales are seen coming at 3.7% over the year in the reported month, up from 3.1% booked previously.

Daily Support and Resistance

S3 1.2767

S2 1.2806

S1 1.2829

Pivot Point 1.2845

R1 1.2868

R2 1.2884

R3 1.2923

GBP/USD– Trading Tips

The GBP/USD is consolidating in the broad trading range of 1.2970 – 1.2780, while if we narrow it down, it becomes 1.2870 – 1.2785. The MACD and RSI have passed above 0 and 50, sequentially, indicating the probabilities of a downward movement in the GBP/USD. 

At the moment, the GBP/USD trades at 1.2835 level, and it may find support around 1.2785. I will consider taking buying positions above 1.2845 and selling below the same level today. 

 


USD/JPY – Daily Analysis

The USD/JPY currency pair failed to hit the recovery track from thee 6-days lows of 108.65 and still stands near the range of 108.80 area, mainly due to on-going trade uncertainty between the United States and China. On the other hand, the pairs didn’t get any impact by the Japans Q3 GDP because of the renewed Sino-US trade war.

The Japanese Preliminary Q3 GDP rate slightly increased even less-than-expected across the time limit. However, the Japanese yen currency gave little attention to the sluggish figure releases. The Japanese yen continued getting support from the risk-off sentiment in Wall Street’s futures and global equities mainly after the United States and China trade tension again escalated during the overnight trading hours.

Trader’s eyes stay on the United States and China trade news to observe the impact on the riks sentiment, which continues to play an impactable role in the USD/JPY currency par prices. The market will closely be observing the US producer Prices Index an Unemployment Claims data, which is scheduled to release ahead of day 2 of Powell’s testimony.

At the Hong Kong front, the Hong Kong civil unrest and violence take the worst turn for the 4th-straight day on Thursday, after the police reported that a man dressed in black and aged in his 30s died.

Despite the Hong Kong confusion and renewed US-China trade tensions, the market mood looks to be developing over the last, with S&P 500 futures having flashed green as well as the Japanese stocks. This has helped put a minor buying under USD/JPY that is now trading in session highs near the 108.85 regions.

Daily Support and Resistance

S3 107.87

S2 108.37

S1 108.57

Pivot Point 108.86

R1 109.06

R2 109.36

R3 109.85

USD/JPY – Trading Tips

The USD/JPY is trading at 108.70, right above the 50% Fibonacci retracement level. This level also marks double bottom support and may keep the USD/JPY pair supported today.

The violation of the 108.700 level can extend selling until 108.500, the 61.8% Fibo level today. The MACD and RSI are also supporting the bearish trend in the USD/JPY pair. 

All the best!

Categories
Forex Chart Basics

All you need to be introduced to Trading Charts – Part 1: Line, Bar, and Candlestick Charts

Why Technical Analysis?

The expression “technical analysis” originated from the belief that price action is all that is required to make sound trading decisions. Fundamental analysts believe that fundamental or structural influences are already incorporated in the history of the price. The concept of price action analysis is credited to Charles Dow, the author of the Dow theory, around 1900.

Starting from there, TA began to rise in importance to traders. The idea that price movement discounts all new information seemed rational. Concepts such as price trending, price confirmation, support, resistance, divergence, and volume confirming price started to emerge.

TA practitioners believe that the current price represents the instantaneous consensus of value. It’s the cost at which someone is ready to buy and a different person to sell. That agreement depends on the different beliefs persons hold about the prevailing market situation. A potential seller believes that odds the price continuing moving up are minimal or that it will surely go down shortly. Opposing this view, a buyer, maybe trading in a different timeframe, might think it is the right place for the asset to start an uptrend. There’s a third category of people: Traders that are expecting to detect another price level to make a decision.

Charts

Traders using technical analysis record prices in charts. Since thousands of transactions happen every minute, chartists accumulate the market action in packets called timeframes. The x-axis registers the passing of time, while the Y-axis register the prices. Usually, volume bars are added at the bottom of the graph.

When traders and investors had to draw the charts on graphical paper, the usual was to use a daily timeframe and follow the daily closings. With the advent of personal computers and dedicated charting packages, we can find charts from sub-minute timeframes to hours, days, weeks, and months. Precisely, the MetaTrader 4 platform allows timeframes of 1 min, 5 min, 15 min, 30, min, 1 hour, 2, hours, 4 hours, one day, one week and one month.

Line charts

The most basic chart is the line chart. Line charts connect the ending price of every frame with a line.

Fig 1 – Line chart of the Bitcoin in a daily timeframe.

Bar charts

Line charts are useful to see trends but lack the information about how volatile was the session. To record this kind of information, chartists decided to draw vertical bars in every time segment, showing four critical elements: The open (O), the high (H), the Low (L), and the Close(C) prices of every segment of trading activity. That’s why sometimes they are called OHLC charts.

Fig 2 –  The same Bitcoin segment of history in a daily bar chart.

As we already stated, every bar is composed of four prices. The Open price is shown as a horizontal mark on the left side of the bar. A close price is depicted as a horizontal mark on the right side of the bar. The high is the highest point of the bar, and the Low price is the lowest part of a bar. The Close is the most crucial level, followed in importance by the Open, and then the high and the low.

Fig 3 – Bar anatomy.

The most probable price path for the bar shown above is the price moving from Open to High, then descending to the Low and finally having the strength to close higher. But we don’t know for sure. It might have moved from open to low, from there to a high to descend to the closing level, finally.  What we know for sure is that the sellers had the strength to drive down the price.

Candlestick charts

Candlesticks are a relatively new way to draw charts. They were introduced to the western world by the work of Steve Nison on the Japanse charting and trading methods.

They use the same four points, OHLC, but a body of the candle is formed between the Open and the Close. The rest of the price action, beyond that range, is left as a line called wick or shadow.

Fig 4 –  The same Bitcoin segment of history in a daily candlestick chart

 Traditionally a bullish candle was drawn hollow or white, while the bearish candle is drawn in black. Now we can assign any color to it. On figure 4, the upward candlesticks are depicted in turquoise, and the red candles denote descending prices.

Candlestick charts are much more graphical, and traders can see immediately if the trend is up or down. During the uptrend seen in fig 4, the turquoise color is prevalent, while the color shifted to red in the downtrend that followed.

Fig 5 –  The candlestick Anatomy

On candlestick charts, the Open and close prices are deducted by the context. The ascending candlestick moves from a lower open to a higher close, while the descending one moves from a higher open to a lower close.

The next article will be dedicated to introducing other forms of charting, such as Renko, three-line break, and point and figure.

 

Categories
Crypto Videos

The Complete Guide To Binance DEX – Crypto Master

 

Binance DEX guide

Binance has released a decentralized exchange in addition to its traditional one. The Binance DEX is now running on the testnet. Binance wanted to tackle the problems of the conventional exchange model. Having a decentralized exchange puts back full custody in customers’ hands as well as goes along with the principle that cryptocurrency decentralization.

Binance DEX is a decentralized order-matching engine that does not have any influence, power, or custody over its users. Binance DEX should be seen as an extension of the traditional Binance exchange, especially now that Binance DEX is only in testnet. As Binance DEX required a blockchain to be built on, Binance Coin (BNB) will transform from an ERC-20 token to a cryptocurrency with its blockchain called Binance Chain.


Binance DEX guide

Binance DEX currently allows people to create a wallet and start exchanging their tokens on it.

How to Start Creating a Wallet

Click the “Create Wallet” icon that appears on the official website. After creating a wallet, pick one of the three options to how you want to access your wallet:
Keystore File + Password;
Mnemonic Phrase;
Private Key.

Binance DEX requires all users to use the Keystore file + password, while the choice between Mnemonic Phrase and Private Key is left to the users. The chosen method will act as a secondary way of accessing the account wallet.
Creating a Keystore file requires users to enter a password that is at least eight characters in length. The password must include an upper case letter, a symbol, and a number for it to be accepted. After the password is created, the mnemonic phrase will be shown.


Unlocking
the wallet

Before placing any trades, users are required to unlock their wallets. That can be done by clicking on any of the relevant tabs which will lead you to the password window. Once you choose one of the three aforementioned methods of wallet accessing and input it, you are ready to go.
Adding funds to the Testnet account
Adding funds to Binance DEX will give users free 200 BNB funds. All testnet users are required to have at least 1 BNB token on their traditional Binance account so they can receive the 200 BNB testnet funds. This requirement is not a limitation, but rather a security measure against spam.


Binance DEX trading interface

Binance DEX user interface (UI) is created to be easy to use and intuitive, as that was one of the biggest downsides to other DEXs.
TradingView chart is the center of Binance’s user interface. This chart is connected to TradingView, which means that all indicators, strategies as well as the ability to draw on the chart are available on Binance DEX.

The bottom left-hand side of the UI is where users can track their Open Orders, Order History, Trade History, and Balances.

Binance DEX currently supports only Limit orders, but other types of orders will be available. Limit orders can be located at the lower right-hand corner of the interface.

The order book can be found in the right-hand side middle part of the interface. By utilizing the order book, users can see a list of open orders on the exchange for both asks and bids.

The Left-hand side middle part of the UI is reserved for the trading history panel. This part of the UI shows users all trades that occurred on the selected trading pair and in a certain period.

Available trading pairs can be located at the upper left-hand side of the UI. Additionally, this part of the UI also shows the current price of the asset, 24-hour percentage price change, and the 24-hour volume.

Users can sign out by clicking the “Sign Out” icon at the top right of the user interface when they are finished with trading.

Categories
Forex Videos

Assessing Forex Price Consolidation Like A Pro

Price Consolidation

 

In any market, but specifically, the Forex market, when we talk about price consolidation, we are referring to the price action, or the up and down movements, of exchange rates of a particular currency pair that occurs between defined levels of support and resistance.
These areas of consolidation are typically seen after, or during trend cycles, either to the upside or downside or during time zone crossovers. At these times, price action will usually become slightly muted and whereby volume in terms of liquidity dries up.

Some people refer to these areas of price consolidation as the markets taking a breather, or times of indecision. At these times, traders will look at what has been happening on a currency pair after a defined trend in either direction, due to technical or fundamental analysis. At which point traders will be wondering if the trend will continue or if there will be a reversal. And therefore, liquidity is taken out of the market until such time as traders pile into the next move.
Therefore, price consolidation can only be identified via technical analysis.

Example A

 

And so let’s look at the example ‘A,’ which is a fairly typical example of what you can expect in the Forex market on an all too regular basis. This is a 15-minute time frame of the EURUSD pair. We are using Japanese candlesticks and some trend lines which we have drawn it onto our chats.
We always read our chats left to right, because they tell a story of where the pair has been moving too and from. We can see that from position ‘A’ there was a bearish trend which is clearly defined by our red candlesticks. Traders pushed the pair lower by 55 pips during this move, before price action pulled back slightly due to indecision by traders.

Position ‘B’ then becomes an area of support, and price action consolidates between this support level and a clearly defined area of resistance, where price action fails to go any higher than position ‘C.’ We then have a period of sideways movement or price consolidation, and where the overall movements between these two lines is restricted to a very small 15 pip range. In the middle of this section we can see that some of the candlesticks are very small, and during some of those 15-minute time frames, price action moves no more than a couple of pips. This is a clear sign that price action is in a consolidation mode, and where traders will be looking for the next breakout from this narrow range.

 

Example B

Let’s go back to that chart as per example ‘B,’ which is a few time frames later than the previous. Here we have added a secondary support level. This level was not breached during the midsection of this consolidation period. However, as price action begins to fade to the downside of the consolidation period and breaches the secondary support level and also breaches the original support level briefly before moving up to the secondary support level, which then becomes an area of resistance at position ‘E.’ Price action then falls back to our original support level. We can see that the size of the candlesticks has become larger, and during this later stage where the sellers’ candlesticks engulf those of the final two bullish candlesticks in the series. This indicates to traders that buyers are starting to stay on the sidelines and where sellers believe that they will see a continuation of the trend lower and which originally started at position ‘A.’ Therefore, the activity around positions ‘D’ and ‘E’ become selling opportunities and where a secondary trends lower has been established from this period of consolidation. The longer the period of consolidation, the more likely the market will react with an explosive breakout. Remember, at some stage, the market simply must move on.

Example C

So how do we know if support and resistance is applicable to our chart? Have a look at the example ‘C.’


The best way to determine if support and resistance is happening is to establish at least two positions on our chats where the market fails to go lower, and this will be the support or floor, and two positions on our chats where price fails to go higher, and this an area of resistance, or a ceiling. As we can see in our diagram, price action fails at position B’s bearish trend, and we have now called this position 1, Traders try to push the pair lower again and failed at position 2. The move action pushes higher to position 3. A subsequent move fails to go higher at position 4. Therefore this could be considered to be acceptable areas of support and resistance.
We can now use these levels of support and resistance in our risk management strategy, should we wish to take on a trade in either direction with this pair. If we believe the market is likely to break out to the downside eventually, then we should place our stop loss a couple of pips above the highest candlestick formation adjacent to our resistance line.

On the flip side, if we believe the market will reverse the original trend lower, and move to the upside, we would simply need to place our stop loss a couple of pips under the lowest candlestick adjacent to our support line. This is typically how professional traders place this stop losses when trading out from areas of consolidation.

Categories
Forex Basics Forex Daily Topic

Stop Loss: An Art to be Learned Well by Traders

Setting Take Profit and Stop loss in the right areas are essential factors in trading. A trader does not survive in the market by placing Stop Loss and Take Profit at the wrong places. In today’s lesson, we are going to demonstrate an example of an entry with the level of Stop Loss and Take Profit.

This is a daily chart. The price heads towards the North with good bullish momentum. The buyers are to look for long opportunities at the pullback. Let us wait for the price to make a pullback.

The price starts having a downside correction with an Inside Bar. It produces two more candles that are bearish. After that, it forms a Spinning Top right at a flipped support. This is a bullish reversal candle but not a strong one. A breakout at the top of the Spinning Top attracts the minor charts’ buyers to go long on the pair. However, major charts’ traders may want to wait for a stronger daily bullish reversal candle.

The next candle comes out as an Engulfing candle. This reversal candle attracts more traders to look for long opportunities here. Since it has not made an upside breakout, thus, to take an entry, traders shall flip over to the H4 chart.

This is the H4 chart. The price has a rejection at the red marked level on the daily chart. Thus, this is the level where the price may find its resistance on the H4 chart. This shall be the level to count in setting Take Profit. The H4 chart shows that the price starts having a pullback. Things are getting better for the buyers.

Let us draw the resistance. If the price consolidates and makes a breakout at the black marked level, a long entry may be triggered. However, the buyers must wait to get the level of support.

Here it comes. A bullish reversal candle forms at a flipped support followed by a breakout candle. A long entry shall be triggered right after the last candle closes. Stop Loss may be placed right below the support where the price forms the bullish reversal candle. Many traders set their stop loss right below the breakout candle. In my experience, this offers a better risk-reward, but it often brings more losing trades.

Have you noticed that the price came back and then headed towards the North? If we had set our Stop Loss right below the breakout candle, our Stop Loss would have been hit. Rather than making some profit, we would make a loss here.

The Bottom Line

Setting Take Profit is important, but setting Stop Loss is more important. In my opinion, it is an art. It needs a lot of practice to be well acquainted with the art of setting Stop Loss as immaculate as it can get.

Categories
Ichimoku

Ichimoku – The Two Clouds Discovery

The Two Clouds Discovery

In Manesh Patel’s book, Trading with Ichimoku Cloud – The Essential Guide to Ichimoku Kinko Hyo Technical Analysis, he made a fantastic discovery. When I first read his work, I almost missed it. Whether he knows it or not, Mr. Patel made a discovery and an observation that his peers have not written about in their work. I call this the ‘Two Clouds Discovery.’ It’s one of those moments where you know you’ve probably been aware of this phenomena, but no one put words to it. It’s one of those things where you go, ‘huh, why didn’t I think of that?’ or ‘I can’t believe no one else noticed this.’

Two Clouds

The Two Clouds discovery puts a label on the component we already know: the Kumo (Cloud). The names we are giving to these two components are the Current Cloud and the Future Cloud. The Current Cloud is where price action is currently trading. The Future Cloud is the further point of Senkou Span A and Senkou Span B – so Future Senkou Span A and Future Senkou Span B. It’s important to think of it this way:

The Current Cloud is the average of the Tenkan-Sen and Kijun-Sen from 26 periods ago.

The Future Cloud is the current average of the Tenkan-Sen and Kijun-Sen.

And here is the main point and of the Two Clouds Discovery: When a significant trend change occurs, the Future Cloud is thin with both the current Senkou Span and Senkou Span B pointing in the direction of the Future Cloud.

The image below is Gold’s daily chart. Using the market replay feature in TradingView, I have used November 20th, 2018, as the starting point for this article. It’s important to remember what we are looking for: Current Senkou Span A and Current Senkou Span B pointing in the direction of Future Senkou Span B and Future Senkou Span A.

First, we look to see if the Future Cloud is thin. The thickness or thinness of the Cloud is going to be very subjective, but I believe most people can determine whether something is thick or thin based on the instrument they trade and the timeframe they are trading in. For Gold, this is a thin cloud.

Thin Future Cloud

Next, we want to see if the Current Senkou Span A and Current Senkou Span B are pointing in the direction of the Future Cloud – they are.

Current Senkou Span A and Current Senkou Span B

Now, let’s see what happens when we populate the screen with the price action that occurred after November 20th, 2018. What we should see if a significant trend change is occurring when both the Current Senkou Span A and Current Senkou Span B are pointing in the direction of a thin Future Cloud.

Bull Move

Go through any Daily or Weekly chart and find a thin Cloud and then utilize the market replay – odds are you will see what I have discovered: a high positive expectancy rate of markets trending strongly when price is trading near where the current Senkou Span A and current Senkou Span B are pointing towards the direction of a thin Future Cloud.

 

Sources: Péloille, Karen. (2017). Trading with Ichimoku: a practical guide to low-risk Ichimoku strategies. Petersfield, Hampshire: Harriman House Ltd.

Patel, M. (2010). Trading with Ichimoku clouds: the essential guide to Ichimoku Kinko Hyo technical analysis. Hoboken, NJ: John Wiley & Sons.

Linton, D. (2010). Cloud charts: trading success with the Ichimoku Technique. London: Updata.

Elliot, N. (2012). Ichimoku charts: an introduction to Ichimoku Kinko Clouds. Petersfield, Hampshire: Harriman House Ltd.

 

Categories
Forex Market Analysis

Daily FX Brief, November 13 – Major Trade Setups – Fed Chair Speech In Focus! 

On Wednesday, the global financial markets await the Fed Chair speech along with the CPI (Consumer Price Index) data from the U.K and the U.S. The United States and China trade front, the trade concerns between the United States and China are getting severe, with the Trump administration warned to increase the tariff but not until the deal gets confirmation.

We look for CPI to decline from 1.8% y/y in September to 1.5% in October (mkt 1.6%), in line with the BoE’s forecast from November. Let’s take a more in-depth look at the technical side of the market. 

Economic Events to Watch Today

Let’s took at these fundamentals.

  


EUR/USD – Daily Analysis

The EUR/USD currency pair found on the high range of 1.10 handle, as of now, the pair consolidate in the narrow range around the 1.10 handle because tye buyers await for the key inflation report and Federal Reserve Chair Powells statement for the next move.

As of writing, the currency pair is found slightly supported from the pause in the greenback strength after the United States President Trump’s latest comments failed to offer any detail on the United States and China trade agreement and due to this partial trade deal’s uncertainty increased. The U.S. Dollar index trades flat near the 98.30, consolidating the increase to a 4-week high of 98.42.

On the technical side, the 5-Moving Average barrier at 1.1025 is could to reduce the recovery attempts, whereas the bearish sees the next support around the 1.0950 level. The sub-1.1000 levels could be tested on a likely increase in the U.S. Consumer Price Index (CPI), which is scheduled to release at 1330 GMT.

Daily Support and Resistance    

S3 1.0944

S2 1.0981

S1 1.0995

Pivot Point 1.1017

R1 1.1031

R2 1.1053

R3 1.1089

EUR/USD– Trading Tips

The EUR/USD is trading with a slightly bullish bias since it violated the resistance level of 1.1025. On the 4 hour timeframe, the EUR/USD has formed a bullish engulfing candle, which is signaling chances of further buying in the market. 

For the moment, the EUR/USD is concentrating on a critical trading level of 1.1060, which is probable to hold the EUR/USD bearish below this mark. Below this level, the EUR/USD may gain support at 1.1025 and 1.1000 level today. 


GBP/USD– Daily Analysis

The GBP/USD currency pair found near the 1.2850, notably the lack of significant impetus from the United Kingdom, has recently limited the cable pairs movement, as well as the market traders on the waiting track ahead of the critical data and events. 

After the mixed figures of the British employment details, the GBP/USD currency pair saw another pressure on the United Kingdom Prime Minister Boris Jonhson to release a report regarding the Russian interference in the 2016 Brexit referendum. 

On the United States and China trade front, the trade concerns between the United States and China are getting severe, with the Trump administration warned to increase the tariff but not until the deal gets confirmation.

We look for CPI to decline from 1.8% y/y in September to 1.5% in October (mkt 1.6%), in line with the BoE’s forecast from November MPR. The complete deceleration in inflation is due to energy prices; household energy prices will be affected by the OFGEM cap, while fuel prices may decline a bit on a y/y basis. Stripping out the volatility, we’re looking for core CPI to hold steady at 1.7% y/y (Mkt 1.7%).

Daily Support and Resistance

S3 1.2728

S2 1.2787

S1 1.2816

Pivot Point 1.2845

R1 1.2875

R2 1.2904

R3 1.2962

GBP/USD– Trading Tips

The GBP/USD appears to have broken the bearish trendline resistance of 1.2825 upon the release of optimistic GDP figures. The MACD and RSI have crossed above 0 and 50, respectively, implying the odds of a bullish bias in the GBP/USD. The Cable may find immediate support at 1.2845 level. But the closing of candles above 1.2845 area suggests a strong chance of buying trend continuation. 

Consider taking buying positions above 1.2845 and selling below the same level today. 


USD/JPY – Daily Analysis

The USD/JPY currency pair still consolidates in the bearish range of 109 handles, and traders are found on the waiting track even after the latest updates regarding Hong Kong protests and the United States and China trade deal.

Whereas the intensifying uncertainty between the United States and China trade deal as well as the protest unrest in Hong Kong, keep leaving bearish pressure on the USD/JPY currency pair, the overall hawkish sentiment at the Federal Reserve limits the bearish off-late.

Officials from the United States, including President Donald Trump and White House Economic Adviser Larry Kudlow, just show a willingness to raise the tariff on the Chinese goods if the round-1 talks fail. Moreover, the political also did clear that the existing tariff could reduce but not until the deal gets confirmation.

Market traders are now planning for the Federal Reserve Chairman Jerome Powells statement in front of the Joint Economic Committee, and traders will closely follow Fed speak, whereas the market is also waiting for the October month Consumer Prices Index.

Daily Support and Resistance

S3 108.33

S2 108.7

S1 108.86

Pivot Point 109.07

R1 109.23

R2 109.44

R3 109.81

USD/JPY – Trading Tips

The USD/JPY pair is forming higher’s high and higher’s low pattern on the 4-hour chart, which suggesting bullish bias among traders. The USD/JPY has immediate support at 108.900 and resistance at 109.400. 

The MACD is forming histograms in the bearish zone, but the recent histogram is likely to develop above 0, and it may drive more buying until 109.450 today. 

All the best!

Categories
Forex Videos

Why You Will Never Be A Successful Forex Trader – Understanding Forex Position Sizing

Position Sizing

Position sizing is the technical size of a trade, or the monetary risk, that a trader is going to take in any given trade. Investors use position sizing to help determine how many units of a particular currency they can purchase, or sell, which helps to control risk and help maximize returns.
Let’s face it, some people might be prepared to go into a casino and put all of their available funds on black, or red, or odds or evens, or a select a number on the roulette wheel, or snake eyes on a throw of the dice, and then hope for the best! A few lucky punters might win occasionally. However, the house always wins in the end!

In Forex trading, we are unlike a casino, insofar as we use fundamental and technical analysis skills in order to try and stack the odds in our favor. We then utilize position sizing in order to maximize our winning potential and also to help to mitigate against the risk of losing trades. In other words, if we do suffer a few losses, we live to fight another day, unlike gamblers who put all their money on one roll of the dice.
Therefore, traders must put up an appropriate amount per trade, given their level of experience, the level of volatility in the market, and proportional to their account balance size. This is where most inexperienced traders go wrong; they simply use too much of their capital per trade, and as a result, when they have a couple of losing trades, they blow their accounts. Statistically speaking, over 70% of new retail forex traders will blow their accounts within the first six months. This, coupled with a lack of understanding of how the forex market works and a lack of understanding regarding leverage and margin requirements, is the account killer for new traders.

In order to be a successful Forex trader, they must learn how to apply the correct use of capital exposure per trade or position sizing. The three most important issues are 1: how much capital they wish to assign to each trade, 2: what is the trade risk associated with each trade, and 3: are they calculating position size accurately.
All of these issues come under effective risk management and are just as important as any other area in Forex trading, such as technical and fundamental analysis. If traders do not understand this, then everything else they know about the market is a waste of time! In Forex trading, every aspect must work together in unison, in order for a trader to consistently win trades. When it comes to trading, capital preservation is paramount to survival.

Example A


Let’s look at example A: Determining capital risk per trade This is typically a percentage of an account balance
The average percentage per trade risk for retail traders is 2%
Example: 2% risk of a $2,000 account balance is $40
Calculation: $2000 x 0.02 or 2% = monetary trade size risk
In this example, a trader could experience ten back-to-back losing trades or $40 and still have
80% of the capital intact.

It is extremely advisable that new traders adopt this very important position sizing risk strategy, in order to achieve longevity in their trading careers, especially in the early stages. Once a trader has a consistent winning methodology in place percentage risk per trade can be gradually increased above 2%. Traders are also advised to try and achieve a minimum of 2 to 1 win to loss ratio. This would mean that a trader should be looking to make a minimum of $80 per trade win while risking a $40 loss.

Example B

Let’s look at example B: Determining trade risk per trade
Is there an accurate assessment of the probability of a positive outcome?
Are there enough reasons in place to enter this trade?
Decisions must be made to determine precisely where to place a stop loss
Does the chart confirm a realistic possibility of your trade hitting a minimum profit based on the 2 to 1 win to loss ratio?
One area where new traders fall down is their failure to understand that when they trade in the Forex market, they trade on a per pip basis within exchange rate fluctuations. That is to say, that traders’ winnings and losses are calculated on the movements of pips. In Forex, trading pips are calculated from four places to the right of the decimal point.

Example C

Therefore in example C, if we bought 1 mini lot of the EURUSD pair at 1:1100, we would need to place our stop loss at 1.1060, which would give us an exposure of $40.
In keeping with our 2 to 1 win-loss ratio, we would put our take profit at 1.1180.

Example D

Let’s look at example D: Notional trade size.
In order to understand position sizing, traders also need to understand the notional size of a trade. In keeping with our earlier EURUSD trade example, when setting our trade size on our platform, we need to understand about lot sizes. Therefore when trading currencies, because we are trading on leverage, essentially when we trade one mini lot, we are effectively trading 10,000 units of the base currency of the particular pair.
And so in our example, we would be buying 10,000 units of Euros, as the base currency is always quoted first, and the counter currency is always quoted second.

Categories
Forex Videos

The Complete Guide To Forex Order Types

 

Order Types

The pre-internet era for the institutional foreign exchange currency market was fairly limited by today’s standards for institutions who wanted to buy and sell currencies. Back then, the market was known as the Spot Forex market. This is because most trades were done on the spot. A bank would call a broking house, or another institution directly and ask for an exchange rate on a currency pair in a given amount. If the price was right, the trader would hit the bid or the offer by saying, Mine, or Yours. The trade was done instantly, or on the spot. A fairly average trade size would be $1 – $10 million per ticket, a sizable amount.

So banks in the institutional Forex market would typically use money broking firms who would supply them with various exchange rates pertaining to the currency pairs the bank was interested in trading. This is where the bulk of the liquidity was, because it was quicker for a trader at a bank to call a broker, who in turn would be simultaneously taking orders from over 100 other banks in the major trading hubs, such as the city of London, for example.
Banks would have direct lines to the brokers and often had squawk boxes on both sides for quick contact. It was much less time consuming for a bank to speak to one or two brokers than it was to call around all of the other banks one by one.
However, in the late 1980s, banks decided to try and do away with broking firms due to the high amounts of commissions the brokers were charging, and with the advent of increasing technology, the first screen-based ordering FX systems hit the market.
Now, rather than the bank calling brokers, or other banks directly, they would simply place their orders onto a computer-based trading platform, where a growing number of other institutions would also place their bids and offers until trades were executed automatically by the trading platform which price matched the orders.
This was the advent of pending orders in the Forex trading arena. Thanks to this evolutionary period, retail forex traders are now able to enjoy various types of trading orders for their convenience, including the provision of capital protection orders, known as a stop loss, and orders to enter the market at a future exchange rate, which might be above or below the current one.

And so traders can use a market execution order, which is the same as the on the spot order, or right now, where a trade is executed instantly by accepting the bid or offer on a current exchange rate, as seen on a trading terminal. In this example, traders accept the best available price at the time of execution. Obviously, for this type of order, the trader needs to have instant access to his or her trading platform terminal, which is not always convenient in a 24 hour a day, five days per week market.

Traders are also able to place a stop-loss order on their trades, which will guarantee that should the exchange rate move against them to a chosen level of acceptable loss, then the trade will

automatically be stopped at the chosen exchange rate. This might be slightly greater due to price action slippage in volatile market conditions.
Traders are also able to take profit orders: this is known as a pending order and is placed onto the trading terminal and is designed to automatically close out the trade and thus bank the profit from winning trades, and this must also be set at a pre-determined exchange rate. This is extremely useful for traders who may not have the ability to be sat at their trading terminal, perhaps due to other commitments, or during overnight trading sessions. This facility can be used to close out the entire trade, or in increments. Pending orders are extremely convenient and allow traders to enter a trade, either long or short, at a future exchange rate, which would be above or below the current available exchange rate.

 

Example A


In the example ‘A,’ we can see the Metatrader MT4 platform, terminal. This is the EURUS pair.
On this market-leading platform, a trader will enter the volume or size of the trade. In this example we are trading with 0.10 size, which is one-tenth of a standard lot, or approximately €1 per pip in this example. We have also chosen market execution, which means that should we hit the red, sell box, or the blue, buy box, we are choosing the exchange rate, which is highlighted just above the box. So, we would be selling 1.10808 or buying 1.100811.
This example is set up as an instant sell, where the stop-loss has been set at 1.1150 and with a take profit target set at 1.0850 to the downside.

Example B


Let’s now look at the example ‘B.’ This is the same EURUSD pair. Here we have decided to use a pending order. And the order we have chosen is a buy limit order. The current exchange rate is 1.10898, as seen on the Y-axis to the right of the chart. And we have decided to place an order to buy this pair, should the exchange rate move up to 1.1100. We have also placed a stop loss at 1.1000 and a take profit at 1.1300. This trade is also good until manually canceled, or as per the expiry date which has been set at the 8th of November 2019, and at 12:21 in the afternoon.
In this example, we have increased the volume or size of the trade to 1 standard lot, which is the equivalent of €10 per pip. This would give us a profit of 200 pips, or around €2000 Euros, or approximately there or thereabouts of your designated account currency. Should the trade lose, we would be automatically stopped out at 1.100 with a potential loss of €1,000. Although the beauty of the MT4 platform is that traders can manually change their orders once executed by dragging trade order lines which appear on the screen once a trade order has been placed.
This trade represents a win-to-loss ratio of 2 to 1, which is fairly standard within the trading community.

To reverse this trade order to a sell limit, we simply highlight the buy limit box and change it to sell limit and adjust our stop loss and take profit accordingly, on the basis that we would then be expecting this pair to move lower.

Categories
Crypto Videos

How To Trade Crypto With A Small Balance – Cryptocurrency Margin Trading

What is cryptocurrency margin trading?

Margin trading is a way of trading assets where traders use funds provided by a third party. Margin accounts allow traders to trade with much bigger capital, which can, in turn, bring bigger profit. Margin trading allows its users to leverage their positions. Users get to borrow a certain multiple of their original assets, which essentially amplifies their trading results. Amplifying trading results makes margin trading interesting in low-volatility markets such as Forex markets. However, they have their place in cryptocurrency trading as well.


In traditional markets, the additional funds are provided by an investment broker, while cryptocurrency markets work by traders offering the funds. In return for their investment, they earn interest. Some cryptocurrency exchanges also provide margin funds by themselves to their users, but that is far less common.

How does margin trading work?

The first thing that has to happen in a margin trade is that the trader commits a percentage of the total order value. These funds are better known as the margin. Margin trading accounts are used to exploit the feature that is leveraged trading. Leverage is the ratio of borrowed funds compared to the margin. As an example, a $1,000 trade with 100:1 leverage requires a margin of $10.

Different trading platforms offer bigger or smaller leverage, based on their capabilities as well as the asset class they are trading. Stock markets usually trade with a 2:1 ratio, while Forex trading can have leveraged trading of up to 200:1. Cryptocurrency trading platforms offer trading of up to 100:1.
Margin trading offers its users the feature to open both long and short positions. A long position is a bet that the asset’s price will go up, while a short position is a bet that the asset’s price will fall. Trader’s assets act as collateral for the borrowed funds for the duration of the position. If the market moves against the position, brokers have the option to liquidate the position. Margin trading is riskier than regular trading due to the leverage it offers. Margin trading cryptocurrencies brings the risk even higher due to their inherent volatility.


Pros and cons of margin trading

If we talk about advantages, the most obvious one is the profit-making potential. Leveraged positions can quickly result in larger profits as a bigger relative value is traded in the position. Margin trading is also useful when diversifying, as traders have the option to open many positions with relatively insignificant capital. The last advantage is simply the ease of use. Margin traders don’t have to shift large amounts of funds to the margin account.
If we talk about the advantages, we have to talk about the disadvantages of margin trading. Leveraged positions can, if not properly managed, bankrupt an account in a matter of seconds. Overleveraged trading that goes against the position will quickly lead to the liquidation of the funds. It’s extremely important to exercise caution while trading with leverage. Any form of stop-loss is also advised.

Margin funding

Trading is a task that requires a lot of research, knowledge, and intuition. Many people do not have the skillset or the risk tolerance to engage in margin trading. However, they still want to make a profit off of the whole margin trading idea. The way for them to profit from leverage trading is margin funding. Some trading platforms and cryptocurrency exchanges offer an option for users to invest their money to fund the margin trades of other users. This process has a set interest rate, which is quite low. However, so is the risk associated with the investment.


Conclusion

Margin trading is a useful tool for risk-averse traders that want to amplify their profit-making potential. If used properly, this method of trading can have an amazing effect on the profit size. On top of that, users interested in diversifying should also look into margin trading.
However, this method of trading amplifies potential losses as well. The risk it inherently brings is not for everyone.

Categories
Forex Basics Forex Daily Topic

The Babe Ruth Syndrome

In his book More than you know, Michael J. Mauboussin tells the story of a portfolio manager working in an investment company of roughly twenty additional managers. After assessing the poor performance of the group, the company’s treasurer decided to evaluate each manager’s decision methods. So he measured how many of the assets under each manager outperformed the market, as he thought that a simple dart-throwing choice would produce 50% outperformers. This portfolio manager was in a shocking position because he was one of the best performers of the group while keeping the worst percent of outperforming stocks.

When asked why was such a discrepancy between his excellent results and his bad average of outperformers, he answered with a beautiful lesson in probability: The frequency of correctness does not matter; it is the magnitude of correctness that matters. 

Transposed to the trading profession, The frequency of the winners does not matter. What matters is the reward-to-risk ratio of the winners.

Expected-Value A bull Versus Bear Case.

Since a combination of both parameters will produce our results, how should we evaluate a trade situation?

Mauboussin recalls an anecdote taken from Nassim Taleb’s Fooled by Randomness, where Nassim was asked about his views of the markets. He said there was a 70% chance the market had a slight upward movement in the coming week. Someone noted that he was short on a significant position in S&P futures. That was the opposite of what he was telling was his view of the market. So, Taleb explained his position in the expected-value form:

Market events Probability Magnitude Expected Value
Market moves up 70% 1% 0.700%
Market moves down 30% -10% -3.000%
Total 100% -2.300%

  As we see, the most probable outcome is the market goes up, but the expected value of a long bet is negative, the reason being, their magnitude is asymmetric. 

Now, consider the change in perception about the market if we start trading using this kind of decision methodology. On the one hand, we would start looking at both sides of the market. The trader will use a more objective methodology, taking out most of the personal biases from the trading decision. On the other hand, trading will be more focused on the size of the reward than on the frequency of small ego satisfactions.

The use of a system based on the expected value of a move will have another useful side-effect. The system will be much less dependent on the frequency of success and more focused on the potential rewards for its risk.

We Assign to much value to the frequency of success

Consider the following equity graph:

 

Fig 1 – Game with 90% winners where the player pays 10 dollars on losers and gains 1 dollar on gainers

This is a simulation of a game with 90% winners but with a reward-to-risk ratio of 0.1. Which means a loss wipes the value of ten previous winners.

Then, consider the next equity graph:

Fig 1 – Game with 10% winners where the player pays 1 dollar on losers and gains 10 dollars on gainers

A couple of interesting conclusions from the above graphs. One is that being right is unimportant, and two, that we don’t need to predict to be profitable. What we need is a proper method to assess the odds, and most importantly, define the reward-to-risk situation of the trade, utilizing the Expected Value concept,

By focusing on rewards instead of frequency of gainers, our strategy is protected against a momentary drop in the percent of winners.

The profitability rule

P  > 1 / (1+ R)  [1]

The equation above that tells the minimum percent winners needed for a strategy to be profitable if its average reward-to-risk ratio is R.

Of course, using [1], we could solve the problem of the minimum reward-to-risk ratio R required for a system with percent winners P.

R > (1-P)/P    [2]

We can apply one of these formulas to a spreadsheet and get the following table, which shows the break-even points for reward-to-risk scenarios against the percent winners.

We can see that a high reward-to-risk factor is a terrific way to protect us against a losing streak. The higher the R, the better. Let’s suppose that R = 5xr where r is the risk. Under this scenario, we can be wrong four times for every winner and still be profitable.

Final words

It is tough to keep profitable a low reward-to-risk strategy because it is unlikely to maintain high rates of success over a long period.

If we can create strategies focused on reward-to-risk ratios beyond 2.5, forecasting is not an issue, as it only needs to be right more than 28.6% of the time.

We can build trading systems with Reward ratios as our main parameter, while the rest of them could just be considered improvements.

It is much more sound to build an analysis methodology that weighs both sides of the trade using the Expected value formula.

The real focus of a trader is to search and find low-risk opportunities, with low cost and high reward (showing positive Expected value).

 


Appendix: The Jupyter Notebook of the Game Simulator

%pylab inline
Populating the interactive namespace from numpy and matplotlib
%load_ext Cython
from scipy import stats
import warnings
warnings.filterwarnings("ignore")
The Cython extension is already loaded. To reload it, use:
  %reload_ext Cython
from scipy import stats, integrate
import matplotlib.pyplot as plt
import seaborn as sns
sns.set(color_codes=True)
import numpy as np
%%cython
import numpy as np
from matplotlib import pyplot as plt

# the computation of the account history. We use cython for faster results
# in the case of thousands of histories it matters.
# win: the amount gained per successful result , 
# Loss: the amount lost on failed results
# a game with reward to risk of 2 would result in win = 2, loss=1.
def pathplay(int nn, double win, double loss,double capital=100, double p=0.5):
    cdef double temp = capital
    a = np.random.binomial(1, p, nn)
    cdef int i=0
    rut=[]
    for n in a:
        if temp > capital/4: # definition of ruin as losing 75% of the initial capital.
            if n:
                temp = temp+win
            else:
                temp = temp-loss        
        rut.append(temp)
    return rut
# The main algorithm. 
arr= []
numpaths=1 # Nr of histories
mynn= 1000 # Number of trades/bets
capital = 1000 # Initial capital

# Creating the game path or paths in the case of several histories
for n in range(0,numpaths):
    pat =  pathplay(mynn, win= 1,loss =11, capital= cap, p = 90/100)
    arr.append(pat)

#Code to print the chart
with plt.style.context('seaborn-whitegrid'):
        fig, ax = plt.subplots(1, 1, figsize=(18, 10))
        plt.grid(b = True, which='major', color='0.6', linestyle='-')
        plt.xticks( color='k', size=30)
        plt.yticks( color='k', size=30)
        plt.ylabel('Account Balance ', fontsize=30)
        plt.xlabel('Trades', fontsize=30)
        line, = ax.plot([], [], lw=2)
        for pat in arr:
            plt.plot(range(0,mynn),pat)
        plt.show()

References:

More than you Know, Michael.J. Mauboussin

Fooled by randomness, Nassim. N. Taleb

 

 

Categories
Ichimoku

Ichimoku Strategy #2 – K-Cross, The Day Trading Strategy

The Kijun-Sen Crossover (Crossunder) Strategy is the second in my series over Ichimoku Kinko Hyo. There are two trades setups provided for the long and short side of a market. This strategy also comes from Manesh Patel’s book, Trading with Ichimoku Clouds: The essential guide to Ichimoku Kinko Hyo technical analysis.

Patel called this the day-trading strategy. He warned that this trading strategy has the lowest risk factor out of all of his strategies. The positive expectancy rate is lower, and so being stopped out of trades is a normal consequence of this strategy. He also indicated that the win/loss ratio could be extremely high.

Kijun-Sen Cross Bullish Rules

  1. Price crosses above the Kijun-Sen.
  2. Tenkan-Sen greater than the Kijun-Sen.
    1. If the Tenkan-Sen is less than the Kijun-Sen, then the Tenkan-Sen should be pointing up while the Kijun-Sen is flat.
  3. Chikou Span in open space.
  4. Future Senkout Span B is flat or pointing up.
    1. If Future Senkou Span A is less than Future Senkou Span B, then Future Senkou Span A must be pointing up.
  5. Price, Tenkan-Sen, Kijun-Sen, and Chikou Span should not be in the Cloud. If they are, it should be a thick cloud.
  6. Price not far from the Tenkan-Sen or Kijun-Sen
  7. Optional: Future Cloud is not thick.
K-Cross Strategy Bullish Entry
K-Cross Strategy Bullish Entry

 

Kijun-Sen Cross Bearish Rules

  1. Prices cross below the Kijun-Sen.
  2. Tenkan-Sen less than the Kijun-Sen.
    1. If the Tenkan-Sen is less than the Kijun-Sen, then the Tenkan-Sen should be pointing up while the Kijun-Sen is flat.
  3. Chikou Span in open space.
  4. Future Senkou Span B is flat for pointing down.
    1. If Future Senkou Span A is greater than Future Senkou Span B, then Future Senkou Span A must be pointing down.
  5. Price, Tenkan-Sen, Kijun-Sen, and Chikou Span should not be in the Cloud. If they are, it should be a thick Cloud.
  6. Price not far from the Tenkan-Sen or Kijun-Sen
  7. Optional: Future Cloud is not thick.
K-Cross Strategy Bearish Entry
K-Cross Strategy Bearish Entry

 

Sources: Péloille Karen. (2017). Trading with Ichimoku: a practical guide to low-risk Ichimoku strategies. Petersfield, Hampshire: Harriman House Ltd.

Patel, M. (2010). Trading with Ichimoku clouds: the essential guide to Ichimoku Kinko Hyo technical analysis. Hoboken, NJ: John Wiley & Sons.

Linton, D. (2010). Cloud charts: trading success with the Ichimoku Technique. London: Updata.

Elliot, N. (2012). Ichimoku charts: an introduction to Ichimoku Kinko Clouds. Petersfield, Hampshire: Harriman House Ltd.

Categories
Forex Chart Basics

Why Mark Support/Resistance Zone Along with Line?

Most traders use a horizontal line on their trading chart to mark support/resistance levels. Support and Resistance lines are the most basic trading tools, which traders use to make a trading decision. However, traders often find that the price does not react right at the drawn level.  It is because of candles’ wicks and candles’ bodies. We may see that sometimes the price reacts at the level where the candles’ bodies are, and sometimes the price reacts where the wicks are. Thus, it is a good practice that we mark the support/resistance zone instead of marking the level only.

Let us demonstrate an example of that.

The price is being bullish after producing a Pin Bar. We know that a bullish Pin Bar has a long lower shadow. This means it reacts from a zone not only from a particular horizontal line.

The price is on the correction. Look at those Spinning Tops with long upper and lower wicks. Do you notice that one of the flipped support holds the bodies of the candles? However, those shadows often play an essential role, especially when the price is to confirm a breakout. We will reveal that soon.

The flipped support does not hold the price at last. The price comes towards the South further to find its support. The last bullish candle suggests it finds one strong support for sure. Do you notice that this is where the price has bounced earlier and produced spikes?

This time we have marked out the resistance zone. A bullish candle breaches the zone. The buyers need to wait for consolidation. The question is which level to hold the price as the level of support. Is it the level where the wicks are or where the bodies close or both?

Both levels hold the price as support. On this chart, the level, which is drawn on the wicks, holds the price as the support. On its smaller time frames, the level that is drawn on candles’ bodies holds the price as support. If we draw just one level here, we may get confused. Thus, we must mark out the support/resistance zone. Since the buyers are waiting for a bullish reversal candle to go long, it may be produced where the price is now. The price may as well come down at the lower level of the support zone and create a buy signal. Both are valid signals. Let us find out where the signal is produced.

The buyers may want to trigger a long entry right after the last candle closes. Assume only the red line was drawn here. Some buyers would have been confused that the signal did not come from the right level. Thus, drawing the support/resistance zone comes out handy for the traders. Support/Resistance zone helps traders take a better trading decision.

Categories
Forex Market Analysis

Daily FX Brief, November 05– Major Trade Setups – Services PMI Figures In Highlights! 

During the Asian session, the economic event well-occupied as it included October Service sector PMI figures coming out from China and Retail Sales Monitor figures from the United Kingdom. 

On the flip side, the Reserve Bank of Australia also released its November interest rate verdict and rate statement. The RBA decided to keep the policy unchanged today.  

On the geopolitical uncertainty aspect, chatter on trade contributed backing for riskier investments in the first section of the day. The focus today stays on the series of economic events from the U.S. and New Zealand. 

Economic Events to Watch Today

Let’s took at these fundamentals.

   

GBP/USD– Daily Analysis

The GBP/USD currency pair still flashing red for the 3rd consecutive day and dropped to 1.2880 on the day. Apart from trade positive headlines, recent uncertainty is taking place, surrounding the United Kingdom Prime Minister Boris Johnson’s victory in the snap election, which is scheduled to happen in December.

Besides that, not only the trade-positive comments from the United States and Chinese officials but the United States administration plan to remove some tariff on Chinese goods looks to support the existing risk-on sentiment. Everything boosts the chances of an incomplete trade deal between the United States and China.

A Labour-party member as the speaker of House of Commons and questions on the Prime Ministers’ performance in the report of Russia interference in British politics looks to hint additional difficulty for the United Kingdom citizen.

However, the British traders will keep their eyes on October month figures of services Purchasing Managers Index from the United Kingdom, ISM Non-Manufacturing PMI, second-tier jobs data, and trade balance will enhance the economic calendar of United States.


Daily Support and Resistance

S3 1.2769

S2 1.2835

S1 1.2858

Pivot Point 1.29

R1 1.2924

R2 1.2965

R3 1.303

GBP/USD– Trading Tips

The GBP/USD hasn’t changed much so far as it continues to trade bullish due to the weaker U.S. dollar. The Cable has outraged the previous resistance level of 1.2930. Now the pair is likely to face fresh resistance around 1.3050 area. Consider staying bullish above 1.2941 today.  

USD/JPY – Daily Analysis

The USD/JPY currency pair flashing green and representing 0.17% gains on the day mainly due to positive news came regarding trade. Notably, the pair is currently hit the session highs above 108.77. Whereas the recovery in the pair came from Friday’s lows of 107.89 is bright.

Japanese traders enjoy the heightening chances of the Successful trade deal between the United States and China after a holiday. As of writing, the USD/JPY currency pair takes buying to 108.75.

Besides, it’s not only the trade war-related positive comments from the United States and Chinese officials, but the United States administration plan to remove some tariff on Chinese goods looks to support the existing risk-on sentiment.

As a result, the United States’ ten-year Treasury yields continue the previous run-up to 1.8%, whereas Japan’s NIKKEI climbed 1.5% high at the start of Tuesday trading.

There is another reason behind the pair’s bullish trend, and that’s the support of greenback from the market. It came after the Fridays more than expected Nonfarm Payrolls that ward off Mondays’ adverse Factory Orders. Moreover, the U.S. dollar strong buying could be the new comments from the San Francisco Feds Mary C Daly, who declined the scope of the recession.


Daily Support and Resistance

S3 107.62

S2 108.05

S1 108.33

Pivot Point 108.49

R1 108.76

R2 108.92

R3 109.35

USD/JPY – Trading Tips

The USD/JPY continues to trade bearish with the selling bias due to weakness in the U.S. dollar. The USD/JPY pair broke the bullish channel, which was holding the USD/JPY at 108.800 zones.

Three Black Crows candlestick patterns are suggesting chances of additional selling in the USD/JPY until 107.450 today. On the upper side, resistance is likely to stay at 108.350. Consider taking bearish trades under 108.350 today.  

EUR/USD – Daily Analysis

The EUR/USD currency pair found on the bearish outside day candlestick pattern even after the positive news came regarding the United States and China trade progress and seen the risk-on sentiment in the financial markets.

As of writing, the EUR/USD currency pair dropped from 1.1175 to 1.1125 during the Monday and consolidating between the highs and lows. Notably, the bearish outside day candlestick pattern is broadly considered as a sign of a coming bearish reversal.

If the EUR/USD currency pair closes below the level of 1.1125 in today’s trading hour so then the trend reversal would be confirmed. By the way, the currency pair is currently trading at 1.1124, having hit the low of 1.1113 a few minutes ago.

The German economy badly damaged mainly due to the United States and China trade war, sending the Eurozone’s manufacturing powerhouse on the edge of the slowdown. So, the heightened chances of the United States and China makes a trade deal are supportive headlines for Eurozpn and Germany.

The market bought greenback during the Monday and will likely continue to buy more today, possibly due to the decrease of trade tensions that provides the Federal Reserve more opportunity to pause the rate cut series.


Daily Support and Resistance

S3 1.1033

S2 1.1087

S1 1.1105

Pivot Point 1.114

R1 1.1158

R2 1.1194

R3 1.1247

EUR/USD– Trading Tips

The EUR/USD has struck below the double top resistance point of 1.1175 and has lately closed series of neutral candles, which are suggesting chances of a bearish bias until the 1.1175 level gets violated. The pair still stays in the buying zone as the MACD, and RSI value is holding above 0 and 50, respectively. Consider staying bullish above 1.1153 to 1.1180 and 1.1220 today. 

All the best!

Categories
Forex Basic Strategies Forex Trading Strategies

What Should Know About Trading Ranges Using Support & Resistance?

What is Range trading?

It is said that the market only trends for 30% of the time. So it becomes necessary to have a range trading strategy to take advantage of the other 70% of the time. Range trading is not difficult, but it requires discipline and determination to make most out of it. When a market is trending, it forms a pattern of higher highs and higher lows, in case of an uptrend. The move, in this case, is really strong and is known as an impulsive move. The other type of movement is known as the corrective move, which comes in the form of a pullback. Impulsive moves are stronger than corrective moves.

When the market is making any such moves, it finds itself stuck between a high or low and continues to oscillate between these two points. It means buyers and sellers are equally strong, and this creates a very choppy environment.

Traders now trade these extremes and continue to trade until price breaks out on either of the sides. These two points act as potential support and resistance points, used by traders to place their orders.

In the above chart, we have drawn a few lines from where the market bounced off. The price action in those areas creates many trading opportunities. The instrument in the chart first trends down and then puts up a low (marked by line 1). Initially, you might think it as a downtrend and expect the pattern of lower lows and lower highs to continue.

Then you see the market rally to line 2, from where the market falls back to line 3 but does not fall till line 1. This highlights the fact that the market is no more trending. The market instead could be stuck in a range between line 1 and line 2. These are not ‘defined’ prices. Always consider them as zones with a margin of error both outside and inside the range. A trader will look to position himself/herself at these zones of support and resistance that forms the range.

Why support and resistance?

The price that is stuck between these two extremes has a lot of significance. This is because, at this point, the price can either Stop, Reverse, or Breakout. When you have the right knowledge, it will stop you from simply pushing the buttons and will make you trade with a defined strategy.

Range = Consolidation

A range is nothing but a price consolidation of the overall trend move. It could either end the current trend or cause a reversal. The different price behavior pattern in the range creates many trading opportunities, which can be traded by all types of traders, depending on their risk appetite. Now let’s discuss some important trading strategies using support and resistance of ranges.

Strategy Using Technical Indicators

Using technical indicators to trade can aid your trading strategy. Especially while trading ranges, many indicators can be a part of your trading plan. Here, we have used the Stochastic Indicator as a tool to trade the ranges.

In the above image, the two lines represent the support and resistance of the range formed. When the price reaches the resistance at point 1, the Stochastic enters the overbought area, and the slowdown in momentum is the confirmation signal for a sell. The resistance pushes the price back to support (point 2), but this time the momentum is very strong, hence no entry. The stochastic also does not enter the oversold area clearly. Next time the price goes to resistance with greater momentum, and the Stochastic too does not give an entry signal as it is not in the overbought area. This means one shouldn’t be going short at this point.

Overall, there is only one risk-free trade available in the above chart, and that is at point 1 (short).

Strategy Recap

Firstly, we should be able to see the price at one of the extremes. When that happens, the indicator should show either be at overbought or oversold conditions. The momentum of the price should be an important factor that determines our entry. If we see reversal patterns, this could be the best entry with a good risk to reward ratio. Do not forget to place protective stops much below or above the support and resistance levels, respectively. This will always protect your trades from a false breakout.

When not to buy at support and sell at resistance in ranges

You must have probably heard traders saying that more time a level is tested, the stronger it becomes. This is not true in the case of our range break-out strategy. You need to start paying attention to the price patterns at these ends. If the price has made multiple touches, it could be getting ready for a breakout in the direction of the higher time frame.

The above chart is an example of such a scenario. It shows a range, and at point 1, you can see the strength in the candle as price pushes towards the resistance area. The next push makes the price to consolidate at the extreme. It appears to be a battle between the bulls and bears. It is also making higher lows as a part of the uptrend. Hence a breakout after this point is not surprising.

You don’t want to see the higher lows at the resistance extreme and lower highs at the support extreme.

The resistance could still work, and a reversal could happen, but this type of price action does not give much confidence for shorts. Only aggressive traders may find some entry in that consolidation, for a potential long. They can put a protective stop below the higher low that was formed before the accumulation.

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

Categories
Forex Market

What Should You Know About Funding Your Forex Trading Account?

Introduction

A forex account, also known as the foreign exchange account, is used to hold and trade different currencies. When a trader opens an account with a forex broker, they will have to fund his account with his home currency, and then they get to buy or sell foreign currencies using that money. Today, opening a forex account and funding that account is a pretty seamless process. All you need to do is to choose a reliable and credible Forex broker, open an account with them, and fund it to start trading. Forex brokers provide many options to fund a trading account. Let’s look at those methods in this article.

Funding methods in forex

To attract traders, forex brokers offer a wide range of payment options for both deposits and withdrawals. They are categorized into the following methods.

Offline payments

Offline payment options involve traditional means of funding trading account which includes:

  • Local deposit
  • Western union
  • Bank wire
  • Cheque

These methods are best used when you want to trade in huge amounts of money. However, before you transfer this large amount of money, make sure that you know the broker well enough and that you trust them completely. Payment via Bank wire and other methods are relatively more expensive and take at least six days or more. The reason for this method being expensive is because it involves bank transaction fees and currency exchange services fees. These are additional costs which are levied when you make payments.

The disadvantage of using the above method is that if you fall prey to a scam, it will get hard to get your money back. The broker will provide you with the transaction ID, which is the only proof of payment.

eWallet payments

eWallet payments are getting more and more popular nowadays due to their ease of use, relatively lower transaction costs, and faster execution. In fact, most brokers offer instant deposits and withdrawals with eWallets. Some of the widely used eWallet funding methods include:

  • Neteller
  • Skrill
  • Paypal
  • CashU
  • Webmoney

Using the eWallet payment method is often better than using offline payment methods. eWallet service providers offer higher protection of trading account, which means if you want a refund of your deposit, your eWallet can get the job done for you easily. It acts as a medium between the merchant (the forex broker) and the customer (the trader). Forex brokers also offer special bonuses when you use your eWallet very frequently or make transactions with huge volume.

Debit/Credit cards

Funding your trading account using debit/credit cards is another popular way for traders to deposit instantly. However, the bank will enforce a limit on deposit and withdrawal based on the trader’s capacity. If you notice the broker is carrying out any malicious activity, you can take back all your money using a facility called ‘chargeback.’ Note that a ‘chargeback’ does not guarantee your money back. Therefore traders need to be cautious when funding their account using debit/credit cards. Even the credit card details will be exposed, of course, when using this method for transactions.

Best way to fund your trading account

After looking at different funding methods, eWallet payments turn out to be the best option for funding for the following reasons:

  • Lower transaction cost (relatively) – Deposits and withdrawals can be done almost cost-free, which are usually covered in spreads charged by the broker.
  • Safe – eWallets ensure the safety of your money, with great transparency.
  • Fast execution – Deposits and withdrawals are faster via eWallets as it is instant in most of the cases. You can also link your debit or credit card to your eWallet and use them.

This covers most of the ways through which you can fund your trading account. If you have any questions, let us know in the comments below. Cheers!

Categories
Forex Videos

Understanding Which Pairs Effect Each Other – Forex Hacks

Correlated Market’s – Understanding Which Pairs Affect Each Other

When we talk about correlation in the financial markets, we are looking for assets across all the financial classes, such as stocks, Forex, bonds futures, commodities precious metals and oil, etc., which trade positively or negatively against each other, either for brief or sustained periods. And so in Forex trading, we seek other currency pairs or other assets from these classes to assist us in our trading decision making, especially when we know that we can rely on correlation due to historical reliance.

As an example, in the stock market, we often find that if a major bank announcers a large loss due to underperformance you might find that there is a knock-on effect in the banking sector, causing bank stocks to fall due to the fact that the market perceives a correlated risk in this sector. This was particularly true in the 2008 market crash. Stock market traders might consider trying to counter this by buying stocks in utilities companies and firms that manufacture consumer staples, which are usually seen as more safe haven stock. In this example, traders look for positive correlation by buying utilities and consumer staples producers, and negative correlation in selling banking stocks in order to balance their portfolios.

There are many ways to measure correlation, and the larger the financial institution, the more complex measurements are used to define values in correlation, such as; Correlation Brownian motions, The Binomial correlation coefficient, Copula correlations, and others.
The basic measurement is called a Correlation Coefficient and is calculated within a range between -1 and +1. A perfect positive correlation has a correlation coefficient of +1, where currency pairs will move in the same direction 100% of the time. A perfect negative correlation is measured at -1 and means that the two currency pairs will move in the opposite direction 100% of the time. And if the correlation is 0, the two currency pairs are said to have no correlation and will act independently of each other.

We often find positive correlation within the precious metals sector, where silver will move either up or down in line with gold. An example of a negative correlation would be between gold and the US dollar. If we think about this logically, gold is valued in US dollars, and therefore for if the price of gold is rising, it stands to reason that the value of the dollar must be falling in value. Therefore some Traders will buy gold when the value of the dollar is falling and vice versa. See example ‘A.’

When looking for correlation on equities we find a positive correlation between the Dow Jones, the NASDAQ 100 and the S&P 500, and this is because these indices are priced in dollars and when the US economy is strong we would expect that these three indices are correlated positively to the upside, and vice versa when their economy is weak. Also, if the US has a strong economy and, therefore, we experience positive correlation between the indices, then we might expect this positive correlation to spill over into global equities. Again the opposite would

apply in a US downturn.
Another area we would expect to see positive correlation would be the bond market and especially when it comes to US and German 10 year treasury bonds, which typically move in sync with each other. Another positive correlation is seen in the oil markets where US, Canadian, and European oil stocks are heavily correlated, being supply-driven, and where the price is affected by the global economy outlook.

Great, so we know that correlation exists in the market and that traders use correlation to adjust their portfolios, but how can it help us in the retail Forex market? First and foremost, the fact that we know it exists already helps us because now we can use it as a tool or leading indicator in order to support our trading view of a particular currency, for example, USDCAD. This pair is heavily influenced by the fluctuations in the oil market. We can see this in action, in the example, ‘B.’

Here we have overlaid the USDCAD pair with US oil on a daily chart. The magenta trend line helps to define areas where USDCAD and especially when the price of oil is moving higher from the 10th to the 12th of June 2019, and the opposite is true between the 18th September to the 4th October 2019.
This is because a major contributor of the Canadian economy GDP is their production and subsequent sale of oil into the global oil market. Therefore when we find the price of oil tumbling, we might see the value of the Canadian dollar to fall in relation to the US dollar due to a negative correlation.

Also during the last few days, we have seen a rapid appreciation of the British pound to US dollar and whereby this rally was followed by the Euro against the US dollar which acted as positive correlation between the two pairs, and which largely came about because of positive sentiments regarding the eurozone and United Kingdom withdrawal agreement. See example ‘C.’

Where we see negative around the beginning of August 2019 and positive correlation during mid-October 2019. Correlation can be seen in the most unexpected places, such as, for example, ‘D,’ between the CHFJPY and EURUSD pairs, so it’s worth looking out for examples by studying your charts regularly.

 

The thing to bear in mind when it comes to correlation in the financial markets is that the markets have an ebb and flow to them, and things are constantly changing, and therefore correlation between assets should be seen as a fair-weather friend who comes and goes when they feel like it.

Categories
Forex Harmonic

The 5-0 Harmonic Pattern

Harmonic Pattern Example: Bearish 5-0 Harmonic Pattern

The 5-0 Harmonic Pattern

Like the Shark Pattern, the 5-0 pattern is a relatively new pattern discovered by the great Scott Carney. Carney revealed this pattern in his second book in his harmonic series, Harmonic Trading: Volume Two.

The 5-0 pattern is easily one of the wonkiest looking patterns. Depending on where you are at with your knowledge of harmonic patterns, the 5-0 will look foreign. And this is primarily because the 5-0 Pattern starts a 0. If you are used to seeing XABCD,  then 0XABCD will undoubtedly look odd.

5-0 Elements

  1. The pattern begins (begins with 0) at the beginning of an extended price move (direct quote from Carney’s work).
  2. After 0 has been established, an impulse reversal at X, A, and B must possess a 113 – 161.8% extension.
  3. The projection off of AB has a 161.8% extension requirement to C. C can move beyond the 161.8% extension but not beyond 224%.
  4. D is the 50% retracement of BC and is equal to AB (a Reciprocal AB=CD Pattern).
  5. The reciprocal AB=CD is required.

One of the best ways to interpret this pattern is to view it from an exasperated trader’s point of view. If we take the Bullish 5-0 Pattern as an example, then we can see why. The AB leg ends with B below X, creating a lower low. We then get an extended move in time where the BC leg is the most prolonged move with C ending above A. The movement from B to C may take on the appearance of a bear flag or bearish pennant. C to D shows intense shorting pressure and a belief among bears that new lows are going to be found. Instead, we get to D – the 50% retracement of BC. Instead of new lower lows, we get a confirmation swing creating a higher low. That move will more than likely generate a brand new trend reversal or significant corrective move.

 

Sources: Carney, S. M. (2010). Harmonic trading. Upper Saddle River, NJ: Financial Times/Prentice Hall.  Gilmore, B. T. (2000). Geometry of markets. Greenville, SC: Traders Press.  Pesavento, L., & Jouflas, L. (2008). Trade what you see: how to profit from pattern recognition. Hoboken: Wiley.

Categories
Forex Daily Topic

To Reinvest or Not Reinvest, That is the Question

That is one key issue when trading. Should I stick with the same trade size, or is it better to compute trade size based on the account balance?

In his book “The mathematics of money management, Ralf Vince answers that question simply and elegantly, so let’s follow Ralph’s steps to dissect this topic.

No Easy Answer

The question of reinvestment or not can’t be answered directly. Let’s see an example where a wining system becomes a loser by reinvest.

Table 1 – System A

In System A, we have two trades. In the first trade making 50% and -40% in the second one, for a total profit of 10%. If we take the same sequence and reinvest, the system loses 10%.

Table 2 – System B

Using System B, we see there is a gain of 15%, followed by a loss of 5% for a total of 10% gain. This system also nets 10% without reinvestment, but it continues being a winner with reinvestment.

Changing the order of the sequence does not alter the final result, provided none of the trades leads the account to a broke (because then the second trade would not be happening). You can make your own calculations, but multiplication is commutative, isn’t it?: 

 A*(1 +0.15)* (1 -0.05) = A*(1 -0.05)*(1 +0.15)

Geometrical Mean: Key to Qualify Systems under Reinvestment

Let’s add two one-point winners to system A, and two one-point losers to system B.

Table 3 – System A

Table 4 – System B

Now we will take as a reference a typical bank account paying one point per period. 

Table 5 – System C

We already know that system B is the optimal one for reinvesting, but, let’s see which parameter defines the optimal system to fulfill our objective to maximize profits under reinvestment. How could we determine which system is the best for reinvesting, given we had only the information of its non-reinvesting performance?

By percentage of winners, system C will be the winner, by average trade or by total dollars the winner is system A. Risk/reward or lowest drawdown is not the answer. If that was the answer, then we should move our money to a bank account.

 We know system B has the right mix of profitability and consistency, and systems A and C lack one of these properties. So how to measure this mix?

According to Vince, the right formula is the Geometric Mean, which is the Nth root of what he calls “Terminal Wealth Relative” (TWR), where N is the number of trades. TWR is the cumulative amount we would obtain if the initial amount of the trading account were 1 instead of 100. 

TWR = (1+%R1)*(1+%R2)*… (1+%RN)

Where %Ri is the percent returns on each trade.  

A simpler formula to express TWR is:

TWR = Final Capital / Starting Capital 

      And these are the  TWR of our systems :

Table 6 – TWR   

    By taking the square roof of the N trades we obtain

Geometric Mean (G) = TWR^(1/N)

G = (Final Cap/Starting Cap)^(1/Nr of trades)

     Let’s see the G of our sample systems  

  Table 7 – Geometric Mean   

From table 7 we can see that the best performer in terms of geometric Mean is System B.

Final words

The Geometric Mean is the growth factor per trade. A system with the highest G is the system that makes the most profit and grows the fastest on a reinvestment basis. 

G less than one means the system is not profitable and would lose money when using reinvestment.

If we obtain a G = 0, it means we went broke because anything multiplied by zero is still zero, and G is a multiplicative function. Any big losing trade will have a powerful effect in G. That is a mathematical way of saying, “cut your losses short.”

As Ralf Vince put it: “in trading, you are only as smart as your dumbest mistake.


Reference: The Mathematics of Money Management, Chapter 1.

The examples of this article were taken from Ralph Vince’s book, although the formulas were checked and computed using an Excel spreadsheet.

Categories
Forex Harmonic

The Cypher Pattern

The Cypher Pattern

The Cypher Pattern is another type of Harmonic Pattern – except it isn’t – but it is. This is one of the few patterns not identified by Scott Carney. Darren Oglesbee discovered this particular pattern.

This pattern is very similar to the Butterfly in both it’s construction and where it typically will occur (near the end of trends). However, the Cypher Pattern is a rare pattern and not one that shows up with a high amount of frequency. Don’t confuse rarity with being more powerful or profitable. I do not know enough about this pattern, nor have I had the opportunity to trade it enough to gauge it’s ‘power’ versus its peers. All I do know is that in the times I have traded it, its positive expectancy rate is high, no different than a Bat or Alternative Bat in my experience. The same goes for the Crab and Deep Crab, for that matter. Just like all of the other Harmonic Patterns that you will have learned about, the Cypher has specific rules and conditions that must be met for it to be a specified Cypher pattern.

Cypher Confirmation Conditions

  1. B must retrace to an expansive range between 38.2% and 61.8% of XA. At least 38.2% but not exceeding 61.8%
  2. C is an extension leg and moves beyond A – but must move to at least 127.2%, but it is normal for it to go as far as the 113% – 141.4%. It is considered invalid if it moves beyond the 141.4%
  3. CD leg should break the 78.6% level of XC.
  4. The PRZ (Potential Reversal Zone) of D is a wide range where the price must get to. Price can move anywhere between 38.2% to 61.8%.

I’ve created a simplified approach to how to ‘see’ this pattern.

Simplified Approach (Bullish Cypher)

  1. C must be higher than A.
  2. D must be less than B but greater than X.
  3. We should see a higher high (C > A) and a higher low (D > X).

Simplified Approach (Bearish Cypher)

  1. C must be less than A.
  2. D must be more than B but less than X.
  3. The same approach as above, reverse: lower high (D < X) and a lower low (C < A).

This pattern can be confusing (all harmonic patterns can be complicated), but in a nutshell, what we see happening with the Cypher pattern is the first pullback/throwback of a trend (B). After B, the small pullback/throwback of B occurs with the C leg. From a bullish perspective, when we see prices making lower highs and lower lows, but there is no follow-through shorting pressure, we should be on the lookout for some powerful and influential moves to occur in a very short period of time. It is not uncommon to see a bullish candle engulf several days of consolidation with this pattern.

 

Sources: Carney, S. M. (2010). Harmonic trading. Upper Saddle River, NJ: Financial Times/Prentice Hall.  Gilmore, B. T. (2000). Geometry of markets. Greenville, SC: Traders Press.  Pesavento, L., & Jouflas, L. (2008). Trade what you see: how to profit from pattern recognition. Hoboken: Wiley.

Categories
Forex Course

12. The First Step In Your Trading Journey

Introduction

Trading the forex market involves high risk. As per statistics, 95% of the traders fail in this domain. Hence, having expertise and experience in trading is very necessary for staying away from the 95%. And in this course, we’re here to guide you on how to be a successful trader. So let’s discuss what your first step should be in your trading journey.

Demo Trading

As mentioned, forex is a very risky business. One must never enter the live market during their initially early stages. So, brokers help the novice traders by providing a facility to demo trade. With a demo trading account, one can place live trades in the market just like a real trading account. In this account, you get virtual cash to place trades on the live charts. Moreover, in this platform, you get all the features and tools that are available on a real trading platform. And the best part is that this platform is provided by brokers for free of cost.

Advantage of Demo Trading

Helps test your strategies and techniques

There is no strategy that will work with 100% certainty. So, testing a new strategy on the real account can cause damage to your account balance. But, with a demo account, you can test your strategies without any risk.

Gives you a hands-on experience on placing orders

In forex, there are different types of orders. With a demo account, one can test the working of all these orders without the fear of losing money.

Helps concentrate on analysis rather than emotions

Emotions play a major role when it comes to trading. Emotions in trading can lead to huge losses as it takes over the actual analysis. One can reduce emotions entering into them while trading, only when they start gaining experience. Hence, trading in a demo account can help you focus on your analysis rather than emotions taking over.

How to create a trading plan

Well, having experience in demo trading is insufficient to start trading the live markets. A systematic plan for trading plays a vital role, as well. Below is an example of how you can create a perfect plan for yourself.

Choose your time zone: Though the forex market is a 24 hours market, it is not ideal to trade anytime in the day. Hence, you must choose those zones which bring in great liquidity and volatility in the market.

Fix your timeframe: You must be firm on one set of timeframes because switching over timeframes is a clumsy way of trading.

Choose the right currency pairs: There are about 28 majorly traded currencies. Keeping track of all these is a challenging task. So, you must select only a few currencies and analyze them deeply.

Have one fixed strategy: Novice traders look for new strategies every trading day. But, this is completely the wrong way to trade as it becomes more like gambling than real trading. So, you must have one standard strategy in which you can keep optimizing with experience.

Maintain a trading journal: This can be the most vital plan in your trading plan. However, many take this for granted. With a journal, one can keep track of their past transactions and get a statement on the number of loss & win trades. It will give you a clear picture of your consistency. This can help you improve your trading by learning from past mistakes.

By following these steps, you can be sure that you are up to a great start on your trading journey. Take the below quiz to check your learnings.

[wp_quiz id=”45923″]
Categories
Forex Market Analysis

Daily FX Brief, October 23 – Major Trade Setups – Stronger Dollar Plays

On Wednesday, the dollar rose versus its peer currencies as a risk spread ahead of the British parliament’s vote on the Withdrawal Agreement Bill, which will reflect light on when and how Britain will exit the Eurozone.

The British Pound currency was found on the selling track, although Prime Minister Boris Johnsons Brexit bill gained the parliamentary support, the government timeline of just three-days discussion on the bill was rejected.

The European Union Consumer Confidence is scheduled to release at 14:00 GMT. Hence, the European Central Bank, Andrea Enria, is expected to deliver the speech at an event in Madrid at 08:45GMT.

Economic Events to Watch Today

Let’s took at these fundamentals.


GBP/USD– Daily Analysis

The GBP/USD currency pair came under pressure, and the pair is currently trading below the 1.2850. As well as, the pair failed to hit the critical support range on Tuesday, mainly due to Brexit uncertainty and delay. The 50-hour and 100-hour Moving Averages are found at 1.2940 and 1.2905, respectively.

The British Pound currency was found on the selling track, although Prime Minister Boris Johnsons Brexit bill gained the parliamentary support, the government timeline of just three-days discussion on the bill was rejected.

The chances of Britain departing the European Union before the deadline date of October 31 has dropped sharply, mainly due to parliamentary failure.

On the other hand, the headline came from the Prime Minster Boris Johnson office said that if the European Union agree to a delay until January, then the only way to shift from Britain’s Brexit crisis is a new election.

Forecast view, the ongoing uncertainty regarding Brexit could continue to push the GBP lower. Moreover, the pair is trading well below the 100-hour Moving Average for the 1st time since October 11.

It should be noted that the greenback may gain some haven buying due to the risk-off sentiment in the equity markets and trade uncertainty.



Daily Support and Resistance

S3 1.264

S2 1.278

S1 1.2839

Pivot Point 1.292

R1 1.2979

R2 1.306

R3 1.32

GBP/USD– Trading Tips

The GBP/USD has violated the bullish channel, which was supporting the pair around 1.2945. The formation fo a bearish engulfing candle is suggesting chances of a bearish reversal in the GBP/USD pair. 

On the lower side, the Sterling may find support at 1.2785 level, which also marks a double bottom on the 4-hour chart. Besides, the resistance stays at 1.2945 level. Consider staying bearish below 1.2920 today. 

 

EUR/USD – Daily Analysis

During the early Asian session, the EUR/USD currency pair hit the bearish track, having gained acceptance below the 100-day M.A. yesterday. The EUR currency came under selling pressure, mainly due to the decline in the GBP currency as the Brexit obstacle.

If talking about the past movement of EUR, Brexit certainty has sent the shared currency above the 100-day Moving Average on October 18. 

On the technical side, the EUR/USD currency pair found on the inverted hammer on Monday and ended well below the inverted hammers low of 1.1139 on Tuesday.

So, the EUR currency could drop further, notably if the German ten-year bond yields extend Tuesdays 4-basis-points decline to -0.38%. 

Moreover, the greenback may gain some haven buying, adding to the bearish pressures near the EUR/USD currency due to the risk-off sentiment in the equity markets.

On the other hand, the European Union Consumer Confidence is scheduled to release at 14:00 GMT. Hence, the European Central Bank, Andrea Enria, is expected to deliver the speech at an event in Madrid at 08:45GMT.


Daily Support and Resistance

    

S3 1.1056

S2 1.1096

S1 1.1113

Pivot Point 1.1135

R1 1.1153

R2 1.1175

R3 1.1214

EUR/USD – Trading Tips

The EUR/USD currency was trading 1.1116 and 1.1157 yesterday, hit the lowest range. As for today, the EUR will likely to continue consolidating in the narrow range of 1.1110 – 1.1150.

The EUR/USD is also facing double bottom support at 1.1110 area, and above this, we can expect to buy a trend in the EUR/USD until 1.1150 and 1.1180. On the other hand, selling can be expected below 1.1110 until the 1.1065 area. 

USD/JPY – Daily Analysis

The USD/JPY currency pair is flashing red and representing 0.16% declines on the day. As of writing, the USD/JPY currency pair currently trading at 108.30, as the time of writing, the pair traveled from a high range of 108.51 to a low range of 108.25.

The USD/JPY currency pair may end with a much higher daily loss, as the four-hour chart is showing a head-and-shoulders breakdown. 

Such as Prime Minister Boris Johnsons Brexit bill gained the parliamentary support, but the government timeline of just three-days discussion on the bill was rejected.

Notably, Prime Minister Boris Johnson made a plan to meet with European Union leaders once again to discuss the timeline, and the chances of an early election are increasingly, but Brexit delayed beyond the elections. 

At the data front, the Oct Richmond Fed manufacturing survey rose firmly to +8 (est. -7, prior -9). Increases were comprehensive, with noted raises in employment and new orders with expectations edging higher in addition to stronger current conditions. United Step Sep existing home sales slid -2.2%m/m (est. -0.7%m/m). However, at 5.38mn (est. 5.45mn), the annualized level continues close to post record highs, and NAR’s chief economist continues to cite a shortage of stock and supply.

The United States’ two-year Treasury yields were moving between 1.59% and 1.63, whereas the ten-year yield traveled between 1.76% and 1.80%. Markets are expecting 22-basis points of a rate cut at the October 30 meeting and a terminal rate of 1.24% against % currently.


Daily Support and Resistance

S3 108.09

S2 108.31

S1 108.41

Pivot Point 108.53

R1 108.63

R2 108.75

R3 108.97

USD/JPY – Trading Tips

Recalling our previous update, the USD/JPY was trading in the bullish channel, which was extending support at 108.350. This bullish channel is now violated. As anticipated, the violation of 108.350 is extending bearish rally until the 108 level. 

The MACD and Stochastics are consistently pointing into the selling zone, signaling odds of a bearish bias.

The USD/JPY may attain a critical resistance at 108.57, along with support at 108.300. Today, the violation fo 108.270 can help us capture a quick sell position until 107.950. 

All the best!  

 

Categories
Forex Harmonic

The Alternate Bat Pattern

Harmonic Pattern Example: Alternate Bat Bullish

The Alternate Bat Pattern

The Alternate Bat Pattern is another pattern by Scott M. Carney. This pattern comes from his second Volume Two in his Harmonic Trading series of books. He discovered this pattern roughly two years after (2003) his discovery of the Bat Pattern (2001). Carney wrote that ‘the origin of the alternate Bat pattern resulted from many frustrated and failed trades of the standard framework. The standard Bat pattern is defined by the B point that is less than a 0.618 retracement of the XA Leg.’ Essentially, with the Alternate Bat Pattern we observe an extension beyond the 88.6% level at D, where D moves slightly below X (in a bullish Bat) or above X (in a bearish Bat). I view Alternate Bats as classic and powerful bear traps and bull traps. And they are just plain nasty if you find yourself thinking that a new low means further downside movement and a continuation lower – but instead to you get whipsawed by a massive reversal.

 

Alternate Bat Elements

  • Whereas the 88.6% retracement is nearly singular to the Bat Pattern, the Alternate Bat Pattern utilizes the 113% retracement of XA to determine the endpoint.
  • B must be a 38.2% or less retracement of XA.
  • Minimum projection of 200%
  • The AB=CD pattern must be an extended AB=CD and often is a 161.8% level.
  • The pattern is potent when using a form of divergence detection, such as the Composite Index, to confirm the pattern.

 

Sources: Carney, S. M. (2010). Harmonic trading. Upper Saddle River, NJ: Financial Times/Prentice Hall.  Gilmore, B. T. (2000). Geometry of markets. Greenville, SC: Traders Press.  Pesavento, L., & Jouflas, L. (2008). Trade what you see: how to profit from pattern recognition. Hoboken: Wiley.

Categories
Forex Harmonic

The Bat Pattern

Harmonic Pattern Example: Bearish Bat

The Bat Pattern

The Bat Pattern is another harmonic pattern that was not identified by Gartley, but instead by the great Scott M. Carney – found in Volume One of his Harmonic Trading series (I believe that Mr. Carney’s work is essential in your trading library).

I am particularly grateful to Carney’s work because it was his work that introduced me to a very powerful Fibonacci retracement level: 88.6%. Previously, I have followed Connie Brown’s suggestions in her various books utilizing only the 23.6%, 50%, and 61.8% Fibonacci levels – the 88.6% is now a near-constant in my own analysis and trading. That particular level, the 88.6% level, is the primary level to reach with the Bat pattern.

One of the key characteristics of this pattern is the strength, power, and speed of the reversals that occur after a confirmed and completed pattern is verified. As a Gann based trader, this is the pattern I personally look for to identify the ‘confirmation’ swing in a new trend (the first higher low in a reversing downtrend and the first lower high in a reversing uptrend).

Bat Pattern Elements

  1. B wave must be less than the 61.8% retracement of XA – ideally the 38.2% or 50%.
  2. BC projection must be at least 1.618.
  3. The AB=CD pattern is required and is often extended.
  4. C has an expansive range between 38.2% and 88.6%.
  5. The 88.6% Fibonacci retracement is a defining and particular level to the Bat Pattern.
  6. The 88.% D retracement is the defining and exact limit of the end of this pattern.

Ideal Bullish Bat Conditions

  1. 50% retracement of XA.
  2. Exact 88.6% D retracement of XA.
  3. BC wave 200%.
  4. Alternate AB=CD 127% is required.
  5. C should be inside the 50% and 61.8% retracement range.

Ideal Bearish Bat Conditions

  1. B wave must be less than the 61.8% retracement of XA – ideally the 38.2% or 50%.
  2. BC projection must be at least 88.6%.
  3. BC projection minimum of 161.8% with the max extensions between 200% to 261.8%.
  4. AB=CD is required, but the Alternate 127% AB=CD is ideal.
  5. C wave retracement can vary between the 38.2% to 88.6% retracement levels.

 

 

Sources: Carney, S. M. (2010). Harmonic trading. Upper Saddle River, NJ: Financial Times/Prentice Hall.  Gilmore, B. T. (2000). Geometry of markets. Greenville, SC: Traders Press.  Pesavento, L., & Jouflas, L. (2008). Trade what you see: how to profit from pattern recognition. Hoboken: Wiley.