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FUNDAMENTAL STRATEGY | BASICS Mon 22 Apr

An important aspect of trading is about anticipating what comes next

Expectations are what influences the way market participants react ForexLive You can try as much as you want to argue about facts and what is right or what is wrong in financial markets but the only thing that matters at the end is what everyone else perceives it to be. There's an old trading adage that the market is never wrong. And that's something I quite agree with. If you want to play the game, you have to accept the rules as they are. You may not always see eye-to-eye with everyone else but it doesn't mean that they are wrong to stand on the other side of line. At the end of the day, what drives movement in markets is where the majority of the people stand. And in that sense, it's important to try and understand why they are standing there i.e. what are they expecting? In learning to gauge that, you'll understand how markets come to decisions on "selling the rumour, buying the fact" or even why certain economic data points/central bank events have particular importance. A simple analogy I like to use in relation to economic data releases is a football-related one: Just take a Man Utd vs Man City game in 2003 and compare it to a Man Utd vs Man City game in 2019. It's the exact same match-up with the exact same teams but the circumstances and situation surrounding the match-up has changed dramatically.In 2003, Man Utd were the dominant force in English football and you would expect easily brushed aside Man City. But in 2019, Man City has improved by leaps and bounds and is now the team to beat while Man Utd has been struggling for years so you would expect them to crush Man Utd when they square off now.The important part here is that expectations have changed and that means the reaction to the results of the game will be different. And that's the same thing with economic data releases such as the US non-farm payrolls if you compare it now to the same release back in 2013. That is why markets move by 300-400 pips back then and barely 30-40 pips today. I talk more about this in the posts below so I hope they can help you with your trading. I'll pop in again if there are any notable happenings during the day but if not, have a good remaining Easter break everyone! Sizing up market expectations in trading is more important than you thinkCentral bank speakers... how to prepare for them?

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MARKET WISDOM | BASICS Fri 19 Apr

Central bank speakers... how to prepare for them?

A tip in managing expectations to improve your trading efficiency I often come across many new traders basing off their trading day on key central bank speakers like ECB president Mario Draghi or BOE governor Mark Carney, thinking that their speeches will contain something to heavily influence the respective currencies involved. But a less common talked about topic is how to prepare and manage your expectations ahead of such speeches. On most economic calendars, you'd find that these speeches tend to have a so-called "High Impact" rating attached to it because of the nature of the person speaking. However, it is important to also know the context of their speech because it plays a big role in determining what they will be speaking about. There's plenty of ways to find out information on what central bank speakers will be talking about beforehand and that's the best way for you to prepare and manage your expectations surrounding the event. For example, the ECB lays it all out for you in their weekly schedule which can be found here. ForexLive Here's an example of how two recent events involving ECB president Mario Draghi where he was scheduled to speak during the European trading session. The first being on 22 February and the second being on 27 March. Without any context, most traders will just go about their trading day expecting a key risk event to take place as Draghi will be due to speak. And that will affect the way they trade and their view/position on the euro. However, if you know about what he will speak of or what the event he is attending is related to, you will get a better gauge on how to manage your trading expectations and adjust your view/position accordingly. The phrase information is power would be most appropriate in instances like these. I provided previews on what his speeches will be about at the time and this was what his 22 February speech covered: Meanwhile, this was what his 27 March covered: And sure enough, he didn't touch on anything too important related to monetary policy on 22 February but made some commentary related to that and the economy on 27 March here, which gave the euro a bit of a nudge higher. TLDR: It's important to understand and know what central bank speakers will be speaking about as it is knowing who will be speaking on the trading day. However, much like trading economic news releases, there is no guarantee that you won't get rare days - although these are indeed very rare - where central bank speakers surprise with their comments on events not related to monetary policy. But you can learn to take control and minimise those risks and apply that to your trading arsenal rather than be lazy and ignore what they are about.

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TECHNICAL ANALYSIS | MARKET WISDOM Thu 18 Apr

He is on pace to become the highest earner in Jeopardy! history. Who is James Holzhauer.

Jeopardy! winners and winning traders have lots of things in common Jeopardy! is a  game show where three contestents compete in providing the question to answers under topic headings.   Since you need to answer with a question, you need to form your response in the form of a question like "Who is Alex Trebek?"  That would be in response to "He hosts the long running game show where contestants answer in the form of a question". Another response, "Who is James Holzhauer?", would be the response to the answer "He is on pace to becoming the highest earner in Jeopardy! history" The last 10 days on the show has seen a professional sports gambler named James Holzhauer race through the games without much competition.  His 10 day total winnings are $697,787 or $69,778.70 per day. That pace is more than double the all-time record holders average.   That record holder won 74 consecutive days and amassed $2.52M over that period.  That comes to $32,054 per day If Holzhauer were to go 74 days without losing, he would win $5.16M.   Judging from his results to date, it may become his full time job for the entire year.  He is without competition.  No one is close.  The Game. In Jeopardy!, the subject categories are broad in topic like "Shakespearean Plays".  They could also have clever/fun topics.   For examples, the category heading might by "All my Ex-es" and the contestants will be told that the answer all start with letters "Ex".  There are categories that suit the contestants skill, and other that don't. There are two rounds with round 1 having values for correct answers from $200 to $1000 or $15,000 in total on the board.  Round 2 has values from $400 to $2000 or $24,000.  If a contestant were to answer every question correctly, he would win $39,000.  So how can Holzhauer haul in $69,778.70 per show so far? Leverage.   The cumulative totals can be leveraged higher as there is one Double Jeopardy question in game one and two Double Jeopardy questions in game 2 (three in total). Those questions allow the contestant - who is in charge of the board (i.e. answered the last question correctly) - to wager up to his current winnings.  So if the contestant has $5000, he/she can in effect wager $5000 (and double his/her total). The game ends with Final Jeopardy question - another leverage opportunity -  where the contestants can wager all or part of their total winnings (again on a determined topic).  The winner is the one with the most money after Final Jeopardy.  The winning process To  win the game, you need to have broad knowledge on many topics.  You also need  to be ready to press a button with your thumb, on a hand held devise as soon as Alex Trebek finishes  reading the question, and do that ahead of the competition (i.e, you need to anticipate and react).  In effect the game process involves Anticipating responses from the topic chosen, Reading the question,  Listening to the question audibly, Processing the information quickly, and Anticipating with an action (press the button at the right time).  Before game requires: A plan on how to  play the game Immense knowledge Practice. Practice. Practice.  Oh, you also have to hope you are right as a correct answer is rewarded with a dollar value, but a wrong answer leads to a negative value. The higher the value, the higher the dollar risk.  Finally, it does help to utilize leverage opportunities.    Since getting hooked on the show this last week, I started to think if traders/trading relates to contestants/the Jeopardy! game? The answer is a resounding "YES!"  Let's go through some key similariities from the two. Hopefully it will help you up your trading game. 1.  The Game Plan  In my book, Attacking Currency Trends, I outline a game plan for traders. That game plan is to trade trends and keep fear to a minimum.   Trends are where the most money is made and lost. It is essential that you stay on the right side of a trend.  Don't do it, and you lose money...fast.  Look back on your biggest losses and I guarantee it was because you traded against the trend.   In Jeopardy!, the trend is "knocking it out of the park" in category topics that you know.  I am not great in "Famous baroque composers" but "The Masters" (as in the golf tournament) or "Technical Analysis", would be topics I would ride the trend with lots of confidence.    What about fear? In trading you define your risk, and limit your risk using technical tools.   A trend line or 100 day MA are implicit "lines in the sand" that say bullish above, and bearish below.  If you know that line is your risk line, and you look to limit your risk by trading near it, then do the final step of accepting the risk in your mind. Once you accept the risk,  your fear should disappear. Because you are doing that process, and your risk is limited, you have a greater chance to "make more than your risk".  All of which, should lower your fear. In Jeopardy!, the most successful players, like James, are defining, and limiting risk on each question read ("Do I answer it or not?"), and also accepting that risk every time the button is pressed (i.e. I am 80% sure but I accept that risk of loss).  A statistical fact from James Holzhauer's performance to date (CLICK HERE for interesting game facts and comparison to another super contestant), shows he has answered 341 questions correctly with 13 incorrect responses.  That is incredible win/loss percentage, and it does come with outright knowledge, but you can understand why he is so fearless. He has defined and limited his risk, and accepts the risk by pressing the button.2.  KnowledgeYou can't be successful in trading without knowledge, nor the desire to learn.   One of the more frustrating things I hear from traders is how they lost money buying some signal provider.  A signal provider is NOT knowledge. They tend to be the opposite of knowledge.  You need to learn to fish for yourself.   At Forexlive, we all try to teach, coach, and mentor, with not only timely information but trading knowledge. I could tell you to sell the EURUSD on a break of the 1.1282-84 area, but I also show you the chart that has the 200 hour MA and a swing area converged at that area.  Hence a break would shift the bias to the downside.   The price should go lower.  I post everyday using the same tools and trading decisions. I wrote about the "yellow area" and the 200 hour MA many times.   One of the things that James Holzhauer said when asked how he prepared, was that he "studied topics that he was most uncomfortable with".  He is already incredibly smart, but he had a desire to make himself better in things he was not good at.  He also said that there is a "limit to knowledge". You can't learn it all.  There is information that borders on the absurd in knowing.  For example, knowing all the Canadian birds in existence would be a waste of time, but knowing the Loon reside in every province and territory and is on the dollar coin, would be something too know, and a potential question (or answer).  In trading, if you know too much, you can lose track of the obvious.  You need to know enough to win the game but not too much to border on the absurd.   Know what you need to know in trading to win the game, and know it well.  3.  Practice. Practice. Practice. In trading, the longer you do it, the better you become.  For example, through practice,  You learn that Friday's can be the worst of the times to trade, while Tuesday's to Thursday's can be great times. You learn to understand non-trending markets and how to trade them. You learn how to recognize and trade trending markets. You understand how to target and what reaching a target, allows you to do with your stop. You learn to respect failures.  You learn when to trade bigger (leverage up) or when to trade smaller (or not at all).  As you start to trade, you haven't done enough practice. You have not been punched in the gut, made all the mistakes, learned from your mistakes.  There is an apprentiseship in trading (one can argue you never get to the finish line as well).   Reading about winners on Jeopardy!, one of the consistent tips the best contestants shared is to go over the same things over and over and over again.  By doing this, in the heat of the games battle, it will allow your brain to read or hear the question, and go right to the possible answer(s).    It is not good enough to read Romeo and Juliet, it is good enough to know by repetition the families are the Montagues and the Capulets.  It is not good enough to read Hamlet. It is better to know that Hamlet caused the deaths of Polonius, Laertes, Claudius, and two acquaintances of his from the University of Wittenberg, Rosencrantz and Guildenstern.  In trading, if you look at enough charts and are consistent in your approach, you can see things more clearly.  In Jeopardy!, if you know Presidents and State Capitals and Shakespeare, and the most famous movie lines, you see things more clearly as well. Practice. Practice. Practice. 4.  Anticipation.In trading you need to anticipate.  In the hourly chart from above, it is easy to show - after the fact - what happened.  However, the most successful traders were already anticipating the potential break before it happened in that chart, and were "buzzing in" with a trade as it is breaking the 200 hour MA, or looking to lean against the level on a bounceIn trading, if you don't have an idea what the future looks like before it happens, you will be reacting too late.  You need to anticipate by being prepared on what to do.  Below is the minute chart of the price action from the EURUSD with the overlay of the 200 hour MA at 1.1282.  The price fell below the 1.1282 level on the weaker PMI releases to 1.1271 and then bounced to 1.1279 before moving lower again. Why do we see that specific price action?Traders, who anticipated, were waiting to sell below the 1.1282 and/or willing to sell on the correction against the 1.1282 (i.e. at 1.1279).  They were anticipating what might happen next after the break (with defined/limited risk too).  If the price moved back above the 1.1282 (say to 1.1288 oor 1.1289), they would likely bail.  The price never got there, and they rode the trade to the downside.  On Jeopardy!, the most succcessful contestants are already anticipating the answers under a topic. If it is Shakespeare, "Who is Rosencrantz and Guildenstern?" are right there in their brain.  If they are Masters golf experts, they are anticipating Jack Nicklaus, Butler's Cabin, Pimento Cheese sandwiches, Bobby Jones, Magnolia Drive, Amen Corner, Verne Lundquist, bikini wax (if you know the Masters, you can understand each of those).  Moreover, the best contestants are anticipating when to press the button.   Traders pressed the button to sell at 1.1277 to 1.1279 today.You need to anticipate.  5. Reading. Listening. Processing. Reacting. In trading, you need to read (both fundamental information and charts). You need to listen to "the market" through the price action.  You need to process, and finally you need to react.  Admittedly, most traders out there don't have the real-time headline news, but all do have the ability to read about other news that potential could move the market (Brexit, US China trade relations, etc). I read Forexlive, the first thing every morning. I read the WSJ and other news sites.  I don't want to overload, but I need to read.   Being aware is part of being a successful trader. You need to read and understand.  If you don't have a real time feed for news (seconds and minutes do matter a lot of times but so does anticipation of price action), you always have the charts in real-time. Charts do tell a story that may be influenced by something fundamental that you don't even know about yet - or quite frankly don't even need to know.   The price action will always fit the story in tomorrows paper (or on the internet).  Believe me.   Successful traders read stuff.  That can be fundamental or simply charts. Successful traders also listen to 'the market' through the price action and tools. The price action - and tools applied to the price action - do not lie.  If the price in the USDCHF is making new highs since March 2017, don't ask me "Is the USDCHF a sell?.  You are not listening to "the market", but are instead listening to the devil in your mind saying "sell because it is high". LISTEN to what is happening. If the story changes, the price action and tools will tell you. I promise.   Succcessful trader also process and react. Processing and reacting are what you need to do to trade.  If you can't process and react, you are not going to trade.  The same is true for contestants on Jeopardy!.  They need to read and listen to the question, process the answer and react, by pressing the button and answering in the form of a question.Read. Listen. Process. React. 6.  LeverageThe final thing I want to talk about is leverage.  I am a little hesitant to list this as most of you are not at the point where "leveraging up" is a good idea.   However, more experienced traders who have mastered all of the above, can successfully leverage positions.  In order to leverage a position, it should ONLY be with the trend. Occur when you already have great trade location (in profit) on an existing positionBe accompanied by fundamental bias in the same directionBe relatively early in the trend (you don't want to leverage up after 800 pips)Be entered on a retracement against a KEY, KEY level, or on the break of a KEY, KEY  level in the direction of the trend, Have risk that is well defined, and at such a key level that you are sure if breached, would send the price the other way.Be accepted firmly by you (no wishy washy).In Jeopardy!, the biggest differentiating factor with James that has allowed him to break all the 10 day records, is he has mastered 1 to 5 above.  James Holzhauer has a: Game PlanIncredible knowledgeHe has practicedHe anticipatesHe reads, listens, processes. and reacts.  He has all the skills. So that allows him to leverage up.Below are his statistics from the Daily Doubles over the first 10 days:A total of $218,199 of his $697,000 has come on Daily Doubles alone. That is leverage.  Those earnings have allowed him to have an average score at the end of the 2nd round $48,020 (remember there is only $39,000 on both Game 1 and Game 2 combined), and an average lead of $35,780.  His average wager on the Final Jeopardy question has been $22,361.  By that time, he has locked up a win on 9 out the 10 shows he has been on.  Excessive leverage is earned on Jeopardy! and it is earned in trading too.  ----------------------------------------------------------Success in trading, and lots of other things in life - even Jeopardy! - have a lot of similarities in common.   As you progress as a trader, a good exercise is to read about experts in things other than trading, and try a see the similarities in each.   You will find that you learn from them. That in turn will allow you to take the next step in your trading journey.Wishing all a Happy Easter and Happy Pesach.    ForexLive

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TRADING TECHNIQUES | TECHNICAL ANALYSIS Wed 17 Apr

If you think about trading USDCAD, take two aspirin and lie down until the feeling goes away.

Brutal up and down price action Looking at the USDCAD price action of late, I am reminded of what an old colleague of mine at Citibank used to say when markets were particularly choppy.  He would say "If you think about trading ____________, take two aspirin and lie down until the feeling goes away."    You can fill in the blank with the "USDCAD" of late.  There has been lots of choppy action including today's run lower on the higher core CPI, and the snap back rally that erased the declines.   Nevertheless, in the ugliness, is there any broader technical themes in play when you see such price action.  This is what I think:  Realize that anything is possible.  I am always looking for a break in an up and down market, but realize that there can also be failuresOn the chart, find technical areas that "seem" to be working.  Put faith that they will  give bias clues and levels to lean against to define risk, Be humble and don't fall in love with positionsLooking at the hourly chart of the USDCAD, the 1.32966 area was home to 4 swing lows (see red circles). Yes there was a failed break on April 9 (anything can happen), but subsequently the price level was reestablished as a low on Monday (red circle 3 and 4).  Key level.  The other thing is the 200 hour MA (green line in the middle of the chart) has done a good job of dissecting bullish and bearish bias in the middle of the up and down range.   Finally, there is a double top at the highs (see green circles 1 and 2). That was yesterday's "best trade". So what happened today? The price fell below the 200 hour MA earlier and stayed below (bearish).  On the CPI data, the pirice tumbled lower and below the 1.32966. That is even more bearish. The price should have gone lower below the 1.32966 level.  It did for a little while reaching 1.3273 on the break.  However, the price rebounded and then held the low from April 9 at 1.32832.  Having the mindset that "anything can happen", a red flag goes up.  You gotta be careful. You also have to be humble and realize you can't be in love with positions.  So sellers shifted - despite the bullish news - and turned to buyers.  The race was on to the upside.   The price rise got close to the 200 hour MA (green line) at 1.33454 (high reached 1.3339). Sellers may be leaning and hoping the price stays below.   What now? You always have the option to take two aspirin, lie down and wait for the trading feeling to go away.  Alternatively, you can lean against the 200/100 hour MAs and hope that the buyers off the low, are sellers against the MAs above.   The hope is the the price retests the 1.32966 level again, but remember, anything can happen and be humble.  It will help you make sense of horrible up and down price action.  If you are lucky and nimble from the homework, you may make a few bucks (but don't fall in love with the position).   ForexLive

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TRADING TECHNIQUES | EDUCATION FROM BROKERS Tue 16 Apr

Automated wealth forex signals

Are forex signals reliable? Unless you are already a full-time trader, or unable to access a computer 24 hours a day, it's difficult to trade forex on a part-time basis. Many forex brokers and independent companies have developed trading systems that offer forex signals telling the user when to buy and sell. The execution of a trade could be as simple as pressing a button or making a telephone call. Forex trading signals usually operate on a mathematical formula and when parameters are met, a signal is sent out via e-mail or phone.  Once the signal is received, it's up to the user to decide whether or not to take the signal. There are a lot of mixed reviews on forex signal service providers.  To be truthful most signal services work, it's the individual that fails to follow the system.  Even though you are not deciding when it's a good time to buy or sell, your emotions can still get in the way if you are coming off of a losing streak.  It is however possible to weed out a lot of the losing signals if you are able to identify the overall trend. Some companies claim to make 20% per month using automated trading systems.  I'll be the first to say that these systems do exist; it's just a matter of testing the different trading software's out there to see which ones work and which ones do not. When seeking out a reliable source of forex signals be sure that their data is back tested and the company has a proven track record.  Most systems will offer a trail period that enables you to test the system before committing to their service completely.  Prices for these systems can range anywhere from $15 to $500 per month depending on the quality of the signals. If a novice trader is lucky enough to find a personal forex trader that manages a small group of people and their money this can sometimes be even more profitable then the large forex signal service providers. However, finding reliable forex traders and trusting them with your funds are hard to come by. In my personal opinion, there is nothing wrong with using forex signal providers given you do not have time to trade for yourself. However, taking a bit of time to learn how the forex market reacts to news and events will greatly enhance you trading profits. This article was submitted by UBCFX. ForexLive

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EDUCATION FROM BROKERS Thu 11 Apr

Ways to grow a small trading account

Trading tips for beginners Not everyone is able to start trading with a big account. In fact, if you are a beginner, it's certainly better for you not to risk a big amount of money right away. At the same time, smaller accounts do require a special approach. In this article, we will provide some recommendations on how to trade with small accounts with the maximum efficiency, so that a small account eventually turns into a big one. What is a small account? There's no exact definition of a small account. We are likely talking about the cent and the micro account types. Initial deposit here starts from $1 and $5 respectively. Given the fact that the smallest order volume on Forex is 0.01 that corresponds to 1,000 units of a base currency, it's not really hard to do the math and calculate the minimum amount of money you need to start trading. To do that, consider the leverage you will use as well as the percent of the capital you are ready to risk in one trade and the number of open positions you want to be able to have at one time. Notice that if you are not sure about the calculations, you can always make some risk-free trades on a demo account or get a welcome bonus from the broker. These options will let you test not only the mechanics of trading but also the quality of the company's service.      Problems of small accounts The jokes about size are not really funny, and yet the nature of problems you can face while trading with a small account indeed comes from the fact that you don't have a lot of funds at your disposal. This, in turn, means the absence of a big buffer against mistakes or unexpected losses. As a result, with a small account, it's necessary to be especially vigilant about managing risks. You will have to calculate the acceptable position size, use stop-loss orders and watch your risk/reward ratio and not just open a trade with arbitrary parameters. The biggest problem of small accounts is that smaller positions mean that profit would be smaller than the one you could get if you traded with bigger sums of money. In addition, you won't be able to make many simultaneous trades. As a result, even if your trades are successful, s small account will grow much slower than the big one. This can be a major psychological challenge for a trader: after all, who doesn't want to get more money fast? The fact that you put a lot of effort into your trading and it doesn't pay off big time may be very disturbing. Recommendations for trading with small accounts First of all, it's necessary to calm down and ensure that your mindset is positive. Everything has to start somewhere and a small account is not a bad thing to begin your trading career. After all, practice has shown that trading with small accounts can be as successful as trading with big accounts. Get comfort from the fact that with a smaller account you won't risk your financial well-being and yet you will be able to gain the invaluable trading experience, develop patience, discipline, and all other qualities that are good for a trader while making money in the process. If you have realistic expectations and look at everything rationally, you will be able to concentrate on the benefits of trading with a small account. That doesn't mean, of course, that you shouldn't aim for bigger things. Although this is surely entirely your decision to make, we would like to point out that there's a sense not to withdraw profit you get from a small account. After all, there's no other good way to make this account bigger, except, of course, investing more money of your own. At the same time, we don't recommend you to increase your typical position size every time your account gets bigger. Increase the size of your trades only when you are most definitely ready for that and do it gradually. This way you will be able to avoid rash steps while maintaining the sense that you are in control of your money and actions. Another tip is not to set daily profit goals: the market's situation is different every day, and you can't be sure that every day will offer you equal opportunities (you can actually be pretty sure in the opposite thing). The necessity of meeting a daily target will put you under useless pressure. You can set goals and track your progress and motivation but choose a bigger scale for that. In addition, try not to compare your performance with the results of others. Focus on what you are doing and on becoming a better version of your trading self. Next, a small account implies that you should be very active. Try to keep more capital at work: if you have free margin, look for more trade ideas. However, it's very important that in your quest for the quantity you don't cut corners on the quality. Do you remember that we have ascertained earlier that there would be less room for mistakes? Well, it means that you should be picky about the trades you make and go with those that have the highest probability of success. Here much depends on your trading system and methods of market analysts. In any case, make sure that you filter out bad signals, have confirmations from several tools of technical analysis and stay psychologically comfortable with every trade. When the price arrives to your target, don't be too greedy and take profit: even if you suddenly want more, no one prevents you from analyzing the market once again and making another trade.  All in all, if you follow these recommendations, trading with a small account will teach you everything you will need to know for managing bigger sums of money. Of course, you won't make billions with a small account, but you will be able to practice and achieve decent results. Never regret the fact that you could have opened a bigger trade. Everything in life could be better, bigger, brighter and so on. Praise yourself for your success and move forward with steady steps - this is the most reliable way to have a big account someday. This article was submitted by FBS.

TECHNICAL ANALYSIS | EDUCATION FROM BROKERS Mon 8 Apr

How to trade double tops and bottoms

A look at a key technical analysis pattern from SimpleFX In many cases you can easily identify a trend reversal using a simple double tops or double bottoms pattern. In this post I will explain you how to do it. Here's the next episode of SimpleFX CFD Academy tutorials for beginner traders. Of course, the signals you (and all other experienced trades) learn to recognize in practice can go the other way. It's a question of probability. If you are confident in your chart signals interpretation, you will be able to see when something extraordinary happens. Especially cryptocurrencies, but the most traded Forex pairs as well, are exposed to market manipulation. You could see it at the beginning of April when allegedly $100,000,000 was enough to move the largest cryptocurrency 20% up, and start a bullish trend on Bitcoin and other altcoins. Most of the times you won't be able to read this kind of events from the chart. The big actors who want to make money include the basic patterns into their scheme of playing the small traders. This is just another reason why you have to know the basic patterns. Don't miss today's lesson where I'll write about a pretty straightforward double top formation and double bottom formation. Double tops and double bottoms are variations to support and resistance trading. They are technical analysis ABC, simple patterns to spot. Recognizing a double top pattern This trading formation occurs when the market is trending up. As always during a bullish trend, you get retracements (temporary price declines when some of the investors sell their assets to make a profit) after which the market should go to the new heights. However, if the retracement happens before breaking the old resistance level, this may be the beginning of a double top chart pattern. Take a look at the example below. Here's a GBPCHF price action on a 5-minute chart.  Image: SimpleFX WebTrader As you can see, the price moves down once again before reaching the previous heights. At this point, you may suspect a double top, but if you don't want to take too much risk (which may be a good strategy for beginners), you could wait for a confirmation. In this case, it does come when the price breaks through the local support level. The double top pattern showed up, and I place an order assuming that the price will go down at least the amount equal to the difference between the local high and low market by my horizontal lines. I'll go by the book and make a SELL order here. Image: SimpleFX WebTrader Let's take a look if it worked for me here... It did. Not only the price dropped substantially during the next two and a half hours, but also the pattern helped me predict a trend reversal. Image: SimpleFX WebTrader In this case, the double top formation and the confirmation of the pattern proved to be a clear signal and used created an attractive opportunity for profit. Taking advantage of a double bottom chart pattern Since the double bottom formation is just a mirror reflection of a double top one, to make things more attractive, let's take a look at the stock chart and use candlesticks this time. Let's take a look at the pattern on the chart of Tilray Inc., a popular among SimpleFX traders stock on the Nasdaq. Once again I chose the same timeframe, where each candle represents five minutes worth of trading. At the moment shown below, we are in a downtrend. Some retracements happen, then we have a rally that starts above the last support level. This may be a sign of trend reversal. Image: SimpleFX WebTrader Once again, let's wait for confirmation. Will the rally break the local resistance line? We may open a BUY order now, but it's much safer to wait for a confirmation. Let's see, what happens next. Image: SimpleFX WebTrader The chart broke the resistance. I decide to open a long position assuming that the price will go up at least the difference market by the two horizontal lines. Image: SimpleFX WebTrader This time it worked, too. In the next period, I managed to make a 2,89% profit, before closing my position. Of course, these are just examples, and you may point to many historical examples where the pattern didn't work. It's always the case when trading the patterns. You need to be aware that other traders use them, but also that big influential players may want to act against them. As usual, the devil is in the details. When trading chart patterns, it's crucial to adjust your stop loss levels accordingly. In the Tilray example above I set it at the lower support level, had I done it tighter, I would have been knocked out of my position during the "third bottom." On the other hand, placing it that low made a possible loss bigger, and if I applied maximum leverage, this could mean a substantial risk. Give the double top and double bottom pattern a try. See how it works on your favorite instruments. Try tempering with different stop loss and take profit levels, and develop a successful trading strategy. Good luck. This article was submitted by SimpleFX.

FUNDAMENTAL STRATEGY | EDUCATION FROM BROKERS Mon 8 Apr

Why year-end markets are full of opportunity (and danger)

Timing is everything There are certain times in the markets that present risks and opportunities. In the market, different times have different characteristics. This is true on a day to day basis. For example, at the end of the US and before the Asian session the market becomes particularly illiquid and flash crashes can move the market hundreds of points on very little. This is a vulnerability that occurs at certain times. In a similar way, the end of the month and end of financial years have influences on different currencies too. This article will focus on year-end markets and both the risks and opportunities that lie within them. ForexLive Buying gold on the last day of the year One of the best ways to end the year is to consider buying Gold at the end of December in anticipation of the strong pattern of buying Gold, which takes place with a surprising regularity, in the month of January. Over the last few years this seasonal pattern has shown particular strength. If you include the months for February and March too there has only been negative returns once, in 2013. This year presented a really good opportunity to take advantage of this pattern as there were also strong fundamental reasons to buy Gold. The concern over the US-China trade war accelerated as President Trump became more and more vocal in his combative stance. The market feared that a hostile trade war between the US and China, which constitute around 40% of the entire world's GDP, would spark a global slowdown in growth. The result was that Gold was bought as a safe haven currency into year-end as US equities plummeted. Cryptocurrencies had also declined during the year as an alternative safe haven and Gold technicals looked good with a close above the highs of $1244. It was a great year start for Gold as usual. Japanese financial year end in March At the end of the Japanese financial year, which is at the end of March, many Japanese firms look to consolidate the years profits. As Japanese firms move their profits they bring them back home by buying the Japanese Yen. These Yen flows are typically seen in the last couple of weeks into March and end around three days before the end of the month. One of the best times to see these Yen flows coming into the market is around the London Fix. The London Fix starts at around 1600GMT each weekday and this is when a number of FX transactions occur out of London. The characteristic of these transactions at this fixing timing is that they are not run by speculators, but they are normal businesses who are having their money exchanged for purchases and employers etc. In this instance there can be an uptick in JPY buying as Japanese firms repatriate their profits. This JPY repatriation is not necessarily an easy phenomenon to trade, but it still serves to offer some explanation for strange JPY moves into Japanese year end and traders should be particularly aware of trading any JPY pair in the last two weeks of March around the London fix. The January effect There are strong tax and psychological reasons that mean a number of stocks show what is known as 'the January effect'. This is simply reference to a widely anticipated cyclical pattern in stock markets that occurs for a number of reasons. Sometimes, investors are simply closing their profits for the year and some investment firms are wanting to ensure they book their year-end profits and so they close their positions going into November and December. There is also a tax incentive and losing trades can be closed at year end to offset any tax implications of winning trades already booked. The impact seems to be seen most acutely in small caps. One study conducted by the firm Salomon Smith and Barney between 1972 and 2002 found that the stocks of the Russell 2000 index outperformed stocks in the 1000 index during the month of January. The interesting thing to note was that the outperformance was around 0.82%, but the stocks underperformed during the rest of the year. The usefulness of this fact has been questioned by some due to the necessary transaction costs in trying to capitalize on it. However, possessing strong fundamental reasons to purchase a stock at this time means that you potentially benefit from a year-end tail wind. Year-end USD demand starts in November At the end of the year there is demand for USD and typically speaking November is good month for broad USD strength. Over the last 5 years the Bloomberg Dollar Index (BBDXY) has increased +1.6% during November and that increases to +1.8% if you go back over the last 10 years. The conventional wisdom is that USD buying takes place in December, whereas there is greater evidence of USD buying in the month of November as opposed to December. The year-end oil effect Oil has a very strong year-end effect and it tends to have a period of depreciation at the end of the year.  In the month of October Oil prices have fallen 13 times and that general pattern of weakness has often flowed through to the months of November and December. By contrast, the months of February through to April are typically strong seasonal times for Oil. Therefore, traders should be particularly alert as we approach year end for fundamental reasons to short Oil as a strong seasonal pattern may give you a tail wind. Similarly, although this article is about year-end markets, it is worth pointing out that February should be considered for potential long US Oil positions. This year, that trade has already played out well for the month of February as OPEC cut their oil production levels, Venezuelan and Iran sanctions further hit supply and US oil rigs numbers steadily fell. It proved to be an excellent example of a strong seasonal pattern reinforced by good fundamentals. So, there you have it, year-end markets offer opportunities and risks, so look out for these characteristics for the end of 2019. This article was written by the ADSS Research Team.  

BASICS Sat 6 Apr

Trading 101: The inversion of the US Treasury yield curve

Why the focus is on the Treasury yield curve by Giles Coghlan US 10 year Treasury yields touched a 14-month low in late March as concerns mounted regarding the trajectory of the Federal Reserve. This article is for you if you have been reading about the inverted yield curve in US Treasuries, but haven't really understood what it means. Don't worry if that is the case since one of the most often overlooked areas for FX traders is the impact the bond markets have on the FX sphere. However, it is an important area to master and not understanding why the inversion on bond yields is so important can be a major barrier in fundamental knowledge of the underlying financial forces at play in the equity, fx sphere and beyond. So, if you need a heads up on the inversion of the yield curve, and why it matters so much, read on. We will start with an explanation of what a bond actually is. Firstly, understanding the basics of what a bond is Think of a bond as simply a type of loan. It is a loan taken out by Governments and companies. When Governments and very large companies want to borrow money they can't easily go to a bank because of the huge amounts of money involved. So, a bond is the mechanism by which a Government or large corporation borrows money for their needs.The bond is issued for a set period of time. Bonds can be purchased for different lengths of time from short term, medium term and long term bonds. Short term bonds are only for a year or two, medium term bonds are up to 10 years and long term bonds are generally 10 years or longer. These bonds have a coupon or yield rate. Secondly, understanding what a yield is on a bond As an incentive to loan money to the Government or a large company the bond has a yield. The yield is an agreed interest payment on the value of the loan. So, for example, say you purchased a UK bond for  £1000 with a yield of 5%, referred to as a coupon, you would receive £50 for each year you held the bond. Then, when the bond expires, you would receive back the original value you purchased the bond for. So, to be clear, the graph below shows a 'yield curve'. The black dots on the chart show the 'yields or coupons' for each bond. The 3YR bond is showing a yield just above 1%. The 7YR bond is showing a yield just above 2% and the 30YR bond has a yield of just over 3%. The dots are joined together and that creates what is known as the 'yield curve'. Thirdly, understanding the yield curve There are different types of 'yield curve' and they vary between 'steep curves, flat curves and, of course, the inverted yield curve'. An example of a steep yield curve can be seen in the example above. The longer bonds offered a higher yield than the shorter bonds. This is as you would expect; the longer the loan, the higher the yield to compensate for your money being tied away for a longer period. You would expect a 30YR bond to compensate you more highly, as you don't have access to you original bond purchase for 30 years. A flat yield curve, in contrast to a steep yield curve,  can be seen in the chart below if you look at the orange line. In this example below the orange yield curve line is said to be 'flat' as a 10Y bond only yields marginally higher than a 3Y yield.  And now onto the main event, the inverted yield curve Well, we are now ready to discuss what the markets are focused on. In the chart below we can see an 'inverted yield curve'. This is where the yield offered for short term bonds is actually higher than the yield offered for a long term bond. The usual yield curve is 'inverted'. Long term bonds are bought as money moves out of equities into bonds. As an incentive, short term bonds offer higher yields to attract investors and experience strong demand as investors seek to guarantee yields as lower interest rates are expected going forward. So, why does an inverted yield curve matter? It matters so much because of history.  Historically the inversions of the yield curve in US treasuries have preceded many of the U.S. recessions. Due to this historical correlation, the yield curve is often seen as an accurate forecast to the turning points of the business cycle e.g 2005, 2006, 2007 and late 2008. In fact, each of the past 9 recessions dating back to the 1950's have saw the 1Y -10Y yield invert approximately 14 months before a recession. All relatively straight forward so far, however, there is one key difference today that there hasn't been in the past. That is the impact of Quantitative Easing or 'QE'. The unknown impact of QE on the inverted yield curve as a recession signal  The impact of QE is seen by some as a reason why an inverted yield curve may not actually signal a recession in the way it has done in the past. For those wanting some further reading I wrote a short piece on this on Wednesday from a Bloomberg article I read and I found the logic convincing. You can check it out here.  It is also worth noting that yield curves are not always reliable as a universal signal. For example, both the UK and Germany have had inversions without recessions. Furthermore, as the chart below from LPL research shows, stock markets can still gain and the economy still grow in the time after the 10Y yield falls below the 2Y yield curve has inverted. ForexLive

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EDUCATION FROM BROKERS | BASICS Wed 3 Apr

Forex trading: Understanding account types and differences

Instaforex: See what different account options are available to FX traders  There are a number of different account types available in the FX sphere and this article will run you through some of the most popular account options there are and outline some of the key advantages and disadvantages. The first account type we will discuss is the entry point account that all traders begin with; the demo account. Demo account, the entry account for all traders A demo account is a brilliant way to start trading and is offered by virtually all brokers. This is a demo or 'virtual' account that gives you a nearly identical experience of trading, but without the risk of losing capital, Advantages Trade with liberty: The absence of capital risk means that you can trade with freedom. You can allow trades to develop exactly the way you want them and practice following Forgiving of mistakes: If you lose your demo account, you can just re-set it and start again. All capital risk is artificial and without consequences to your income or lifestyle. Disadvantages Easy to trade incorrectly: You can misuse a demo account by not treating it as a demo. The whole point of a demo account is to trade it with liberty and freedom. Trading it like a real account will not allow you to practice the necessary skills you need for your longer-term trading development.  Advantageous spreads: Sometimes a demo account will give you unrealistic spreads and fills. Real market conditions may be radically different to the artificial demo account environment. Mini trading account A mini trading account allows you to start investing in trading Forex with a small personal investment up to about $500. You can then use leverage, with some brokers offering high levels of leverage, which would enable a trader to access a large trade size relative to the capital in their account. Here are some of the advantages and disadvantages of the mini account. Advantages Small capital at risk: the key advantage of this type of account is its accessibility. Many traders are easily able to afford this account and the use of leverage means that, for the experienced trader, some money can still be made on a comparatively small initial outlay. Low risk: This is an excellent option for beginner traders who would like to try and graduate from a demo account. A mini account offers a great first step to graduate from a demo account and begin to experience the emotions involved with a live account Risk management: The skills needed to manage risk on a large account can be practiced here on the mini account. The reality is that if you can manage your risk responsibly on a small account then you can do exactly the same on a larger account Disadvantages Limited gains: Although an excellent entry into the forex trading world, you are not going to be able to make a living trading a mini account. Standard trading account The most common trading account which goes from around $1000 up to around $10000. Different brokers require different capital requirements in order to open a standard account. Again, let's go through the different advantages and disadvantages of this account Advantages Potential for genuine gain: The larger deposit size, coupled with the use of leverage does allow for a potential larger gain. More services from the broker: The greater commission generated from the standard trading account means that the broker is motivated to keep their client trading successfully with them. A number of brokers will offer additional services for standard account holders. They may include, but are not limited to, a provision of an educational service, a dedicated account manager, access to professional FX services and a cash bonus deposit bonus. Disadvantages Potential for significant loss: However, the use of leverage and larger capital requirements means that this is only suitable for experienced traders. Trading takes time and rushing it will end in some kind of disaster, sooner or later. Larger capital requirements:  Minimum capital requirements in opening a standard FX account varies from broker to broker. Expect minimum requirements to sit somewhere between $2000 - $10000. Managed trading accounts This is a trading account where you provide the capital requirements, but another trader, or robot, executes the trades. There is an increasingly varied way of doing this from social trading platforms, to professional FX traders and in-house broker services which link other traders to your account automatically. Once again there are pros and cons of using a managed service. Here are some of the key advantages and disadvantages Advantages Potential for profitability: If you are unable to trade profitably, having someone who can trade for you can mean that you are making, rather than losing, money in your account. Get away from the screen: Trading can be absorbing, and time consuming, Having someone else trade for you means that you gain freedom to do something else Disadvantages The price of freedom: You will obviously have to pay a premium to have someone else manage your account. This could be paying via a monthly subscription, a profit share basis or some other commission structure, either way, it is a luxury you will have to pay for Placing your trust in someone else: Ultimately, whether it is a man or a machine, you will be putting your trust in something other than yourself. This can mean that the good trade you can see may not be taken. It also means that you may incur large losses due to human or machine error. It can be hard to accept losses that comes this way and some people prefer to have their own control over their account at all times. A couple of closing points Metatrader 4, Metatrader 5, and web trading Some accounts offer access to MT4 or MT5 accounts. The main difference between MT4 and MT5 accounts is that the MT5 platform has a wider range of instruments, including currencies, but also including stock CFD's. Web trading options can be good, but you need to check that platform is reliable. MT4 has been around for years and has been proven over time. Different spread options Some brokers will allow you to pay commission in different ways, as suits your trading style. So, for example, you may have the option of a fixed spread. This means that you know in advance the cost of trading a particular currency or instrument. The cost is fixed for each trade you take. By contrast, a variable spread option will give you a variety of prices throughout a trading day. The price available to the broker is constantly changing, so a variable spread reflects that change. A raw spread option would be where you pay the minimum spread, but you pay a round commission on the trade. So, it could be something like, $5 per round commission plus the raw market spread. Which is best? It depends on your trading style, trading volume and time you trade. If you trade during busy market times then a variable spread would be good for you. If you only ever trade in the quiet Asian session then a fixed spread will probably be the best way to go. This article was submitted by Instaforex.


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