Forex Education -


Four patterns that new FX traders can utilize

Which technical indicators to watch when you're starting out For many , foreign exchange (FX) can seem a bit overwhelming at first glance. Given the complexity of the data or charts, it is not always clear what the best tools or patterns are to use in your trading.

How to make sure that you take all your profit

Tips for taking profits Trading is a game of patience and mental resilience. If you want to get your pips of profit from the market, you need to be like a hunter: determine the exit levels in advance and stay on a stakeout until the market settles the bill. A feather in the hand is better than a bird in the air. That's why we have a positive opinion about take profit orders in general. You never know whether the market will be able to give you more, so it's necessary to place a TP somewhere and not to be too greedy. Ways to find a nice spot for a TP Different trading strategies imply different techniques of placing take profit orders, so we will review several options here.Support and resistance levels It's a simple but elegant solution. The most evident S&R levels (trendlines, previous highs and lows, Moving Averages, Fibonacci, pivot points, etc.) act as a magnet for the price. Billions of traders recognize them and tie their orders to them, so it's only natural that the price goes there. Don't forget to check higher timeframes as there can be recognizable levels that are ideal for TPs. If several things point at the importance of a particular level, there are even more reasons to use it as an exit point. In most cases, it's safer to be a little conservative and place a TP a few pips below the resistance and a few pips above the support. After all, S&R are not levels as such but more like areas. In fact, this piece of advice is good for other methods of locating TP as well.  Fibonacci retracement and moving averages offered a good place to take profit in GBP/USD long.  2. Chart patterns Chart patterns (Head and Shoulders, Double Top and Bottom and more complicated ones like the harmonic Gartley and others) offer rather distinct guidance on where to put a TP. The best thing is that this guidance has a solid logical foundation. For example, H&S shows how traders gradually lose confidence in a trend. This pattern attracts attention of many investors who are willing to trade the reversal. As a result, in the majority of cases, the price goes down as much as the height of the pattern and it often happens that a bigger downtrend follows. A H&S and a round level offered a place for a TP in EUR/NZD short. The market went further down, but that can offer ideas for further trades: there's no point in trying to catch all moves of the market in a single trade. 3. Daily scope It's always necessary to judge the relative size of candlesticks on the chart to estimate the scope of the potential price movement and the time it will take to arrive there. The ATR indicator can give you a hand in measuring volatility during a certain period of time. Add the value of ATR to your entry point and you'll get your TP. Notice though that it would make sense to adjust it for the evident S&R levels you see nearby. Daily ATR is 64 pips. With EUR/USD already up by 20 pips, it's possible to set a TP for a buy trade 40 pips away. 4. Your level of risk It's a golden rule of trading: your potential profit in a trade should always be bigger than your risk. As a result, you can start from risk: if you have determined a specific stop loss, you can calculate TP using an acceptable risk/reward ratio. A classic solution is a risk/reward ratio of 1:3 (if a SL is 20 pips, the TP should be 60 pips).  Intraday traders can use time TPs in order to have all trades closed before the end of the day. Although this approach is worthy of existing, it looks too detached from what's actually happening in the market, so it is not our first choice. If you choose not to set TPs in advance and "see how it goes", then you can take cues from big candlesticks (they are usually followed by consolidations or corrections, so it can be wise to take profit right after them), divergence between the price chart and oscillators (as well as overbought/oversold oscillators) and the appearance of a signal in another direction. Yet, experience shows that if you are doing something more than scalping, it's wise to keep calm and set a TP.   Conclusion A poorly placed take profit can kill a brilliant trade idea. Don't underestimate the importance of this step in your trading and always make sure that you are acting in line with the rules of risk management. The art of a good take profit is the ability to keep in mind several things (S&R, average range, risk/reward ratio) and find a TP position that would fit them all in a maximum possible way. Another critical thing: don't move your take profit closer to the entry price and fight the temptation to manually close a trade ahead of time: you should have trust in your initial analysis and planning. Otherwise, there will be no point in searching for a good place for a TP. Remember that the market loves planning and precise execution - these are the vital elements of a sustainable profit. Good luck!      This article was submitted by FBS.

InstaForex: What leverage can suit both newbies and professionals?

What's the right amount of leverage? Many traders often ask themselves what leverage is better to be used. They are not only newbies but also experienced investors who, being self-confident, want to make more profits and do it faster, so they try out various values of leverage. Let us remind that leverage is a certain amount of credit funds that a broker lends to traders in accordance with itstrading conditions. Leverage provides traders with an opportunity to open buy or sell deals and work with much bigger sums of money than they deposit. The size of leverage varies. A broker offersa range of leverage values while traders need to choose what leverage suits them best. Additionally, leverage determines the trading manner: whether it is risky and intense or relaxed and easygoing. Risky traders can reap hefty profits but not regularly while calm traders can make moderate earnings but more often. In a nutshell, leverage is the ratio of traders' own funds to the funds that are traded on their account. This ratio is denoted in the following way: 1:100, 1:230, 1:125, and so on. The first figure stands for the currency unit while the second figure defines how many times a deposit is increased. For example, if traders deposited 200 USD and applied the leverage of 1:100, then they can trade with 20,000 USD. In fact, leverage is not necessary for trading on Forex, but the profit that can be received without borrowed money is comparatively smaller, especially if the initial deposit is not big. The thing is that prices of currency pairs change no more than 1% per day. At the same time, with the high chances to earn there are also high risks to lose. That is why the right leverage is really important. When tradersregister an account with a broker, they can choose from various leverage values. Usually, the values from 1:10 to 1:500 are offered. The most widely used leverage is 1:100, but risky or aggressive traders, employing the scalping strategy, for example, can try bigger values up to 1:300 or 1:500. What leverage suits newbies best? Beginners on Forex should make carefully weighed decisions when choosing the leverage.  At first, they are better to take on low risks, therefore applying low leverage. Naturally, initial profits are to be modest with a small amount of borrowed funds, but as traders gain experience, they can enhance their risks, thus increasing their earnings. Besides, the lower the leverage, the lower the risk of losing the whole deposit. In some way, it balances the loss/profit ratio. And here is another piece of advice for newbies: they need to test their trading system with the chosen leverage on a demo account at first, and only after that they can deposit to a live account. Additionally, traders need to check whether a broker provides an opportunity to change the leverage value after an account is opened, as some companies do not allow doing it, so clients have to register new accounts which is rather inconvenient. The key thing to keep in mind is that the size of your leverage should correspond to your experience in the market. If this condition is fulfilled, your trading will be successful from the very first day. Leverage size Two factors can help beginning traders to choose the leverage that suits them best. 1. The appropriate leverage for trading on Forex. Most traders prefer using the ratio of 1:100. This factor implies high risks but also it can generate hefty profits. It provides an opportunity to open counter deals which can amount to 1% of the total trade volume. 2. Small leverage. It is mainly used for trading with big deposits (sums can come up to several thousand dollars). The recommended leverage in this case is 1:1, 1:10 or 1:50. This leverage value enables traders to attempt complex maneuvers and protects their deposits from losses regardless of price fluctuations. Besides, a broker may advise its clients what leverage is better to choose. The maximum leverage and opportunities provided by the broker also should be considered. For example,InstaForex offers its clients a wide range of leverage values, including the most popular among newbies ratios of 1:100 and 1:500. Importantly, the trading strategy that is being employed and trading conditions are the key factors for successful profitable work in the currency market. "If a trader decides to work on the intraday basis with a small deposit, they need to apply high leverage. Otherwise, potential losses in trading currency pairs are unlikely to be offset by potential gains,"analysts at InstaForex say. Before choosing the leverage on Forex, traders need to work with a small deposit at first. This way, they will learn how to operate in financial markets and analyze the price behavior. The most appropriate leverage for this purpose is 100:1. An example Let's analyze a specific case of a trader's usage of leverage to understand what size is optimal. At first, let us take the leverage of 1:100 as an example and see how the trading statistics of an account change. To open a deal of 0.1 lots, which is equal to USD 10,000 for the EUR/USD pair, traders need to invest the whole sum if they do not apply any leverage. However, in margin trading it will be enough to put in 1/100 of this sum which is USD 100. Thus, after traders open a deal of 0.1 lots with the leverage of 1:100, they actually spend only USD 100 while USD 900 remain on balance. This sum can be used to overcome a drawdown, increase the trading volume, or open another deal. So, having a balance of USD 1,000 and leverage of 1:100 traders can buy a whole lot (100,000 of currency units), while without leverage USD 100,000 will be needed to open such a deal. What will change if the leverage is increased to 1:1,000? All conditions remain the same for an exception of a change in the leverage. In this case USD 10 will be required to open a deal of 0.1 lot which is 1/1000 of the actual sum. Just imagine what opportunities traders get when they apply leverage. Having merely USD 1,000 they are able to open deals of several market lots. For example, it is enough to invest USD 300 with the leverage of 1:1,000 to buy 3 lots on EUR/USD. What else you need to know about leverage To put aside psychological factors, we should admit that an increase of leverage on Forex can influence only the size of a deal but it does not change the risk degree. Buying 0.1 lots with the leverage of 1:100 is the same as buying the equal volume with the leverage of 1:1,000. The only difference is the size of margin. Surely, high leverage opens up new opportunities for trading, but traders should be careful and refrain from using it to the full. It does not matter whether you choose the leverage of 1:100 or 1:1,000 if you have steel nerves. But if you are a hot-headed investor, then you'd better confine yourself to smaller leverage, for example 1:50 or 1:100. This article was submitted by InstaForex.

How the US Dollar Index can help your trading

The Dollar Index is another tool for your trading toolbox  You don't have to be reading analysts posts or market wraps for very long before you come across references to the US Dollar Index. The US Dollar Index is a very useful tool in your trading as it can confirm a directional bias for the currency pair you are trading and also warn you of any headwinds that your trade might face before you pull the trigger. The Federal Reserve is the most important central bank in the world with the US dollar being the most traded currency in the world, comprising of around 70% of all transactions on a given day. So, having a handle on what the Dollar is doing overall on any given day is going to be a key advantage for any trader. The Dollar Index will help you do just that. So, what is the US Dollar Index? The US Dollar Index (USDX) started in March, 1973 for a value of 100.000. In February 1985 it traded as high as 164.7200 (depending on your price feed) and in March 16, 2008 it traded as low as 70.698.  At time of writing it sits around 95.32. You can see the approximate, historical  range of the Index below. The US dollar Index compares the USD to a basket of currencies The US Dollar Index is a measure of the value of the US dollar in relation to the value of a basket comprised of some of the US's most important trading partners. The Index is comprised of six foreign currencies. Due to the fact that all these countries are not the same size ,the Euro  for example comprises of 23 countries, the USD Index gives varying weight to each currency. The biggest proportion of the Dollar Index (USDX) is made up of the EURO which has a 57.6% weight. The currencies are weighted in the following ways: The Euro (EUR), 57.6% weightThe Japanese Yen (JPY), 13.6% weightThe Great British Pound (GBP), 11.9% weightThe Canadian Dollar (CAD), 9.1% weightThe Swedish Krona (SEK), 4.2% weightThe Swiss Franc (CHF) 3.6% weight It will become immediately apparent that the Index is heavily influenced by the Euro. This gives us the first clue as to how the USD Index can be useful for making trading decisions. The USDX is the Anti-Euro Index When the Euro loses values this mean the Dollar Index gains value. The nearly 60% average weighting means that the EUR/USD pair and the USDX are inversely correlated. In the chart below, since May 2018,  the EUR/USD has been steadily falling In contrast below, since May 2018, the US dollar Index has been rising. Armed with this knowledge the US dollar Index becomes an excellent indicator for the EUR/USD. At the time of writing the Index is testing the daily 200 moving average while the EURUSD is testing the daily 200 moving average. The Dollar Index can be eyed for clues as to the EUR/USD's next move The US Dollar Index is a guide for the direction of the USD in any pair Trading any pair with a USD half will be guided by the USD index, so here are a couple of key facts to keep in your mind: •If the USD is the base currency (USD/xxx ), then the US dollar Index and the currency pair will typically move in the same direction. •If the USD is the quote currency. (xxx/USD) then the US dollar index and the currency pair will typically move in opposite directions. The US dollar index and the smile theory. The US dollar index can give you a quick broad picture of the dollar and help you see what is going on with the market. The smile theory is worth mentioning since it is such a good way of mentally holding the three varying ways the dollar responds to different situations. If you look at the picture below you can see a kind of smile.  On the left hand side of the smile you have USD strength , which is when the global economy is struggling. This is where you have JPY, CHF strength and USD gains too as money is put into less risky dollars, The bottom part of the smile is where the USD depreciates on a dovish Fed. At the time of writing, in January 2019, the USD is falling with a more reserved Jerome Powell looking to the data before continuing the pace of hike rates. The right part of the smile is when the USD gains value on a hawkish fed and risk on environment. This smile theory is useful as a quick rule of thumb for understanding the dollars present position and what is likely to happen next. By getting into the habit of noticing the USD index as soon as you start trading you can speed up your analysis on the dollar and also gain invaluable insights to inform your next trading decision. ForexLive

Identifying the top 5 mistakes that traders make

A look at the common mistakes that most traders tend to encounter Everyone makes mistakes, that's why they put erasers on pencils. That being said, the potential to make mistakes in your trading is manifold, and it's important to familiarize oneself with the most common different issues faced by individuals. There is a fallacy of the daytime trader sitting casually at home with nothing to lose. This couldn't be further from the truth as there is tremendous difficulty in trading as well as selecting the right instruments. Without further delay these are the top five mistakes that traders routinely make that you can be mindful of. Find out how to improve your trading today ForexLive 1) Absence of a trading plan You have your trading account and there's a world of options or instruments to choose from so why not jump right in? This could be one of the most common pitfalls for traders as the lack of a clear trading plan for traders at the beginning of their path is due to inexperience. As such, its crucial to construct a trading plan whether you are a novice or even veteran trader. This mistake is all too common, resulting in hasty or ill-conceived decision-making as a lack of research or familiarity with instruments can lead to losses. Instead, a fruitful exercise is todetermine the solid parameters for entering and exiting the trade and follow them as closely as possible. Depart from the plan is permissible except in periods of increased market volatility to close the position and reduce trade risks. In the long-run, this tactic is generally more apt to yield positive results, although at the first glance it may look overcautious. 2) Problems with recognizing mistakes Did you get unlucky, not your trade? Or did you truly recognize that you made an error. Often times people are likely to blame anything or anyone before themselves, which is why this mistake ranks so highly on this list with regards to trading. Not recognizing your mistakes is a common error that can be related to overconfidence in traders' assessments of the situation. The market is always changing, and consequently a new important circumstance could appear. However, for newcomers it seems that they need only a little bit to stay calm and wait while loss disappeared and then there will be a reward. Ultimately, your technique and forecasts could be relevant, though traders should not use these as a surefire predictor for future. Even the largest investment banks and international organizations are changing their expectations and forecasts. There is nothing wrong with it: nowadays the world is difficult to predict. Probably it was always like this, but now it is more often told. 3) Emotions Nothing is ever as good or as bad as it seems. Still, it is worth noting that emotions are an integral part of trading for most individuals. The prospect or payoff of some nice trades often brings a healthy excitement and a competitive spirit to those for that are trading. However, the reverse side yields an inverse effect on traders that can trigger deep sorrow with loses or outright depression. Greed and fear lead to mistakes and these emotions should be dispelled for any longer-term trader. Instead, make your goals for the day and tune your trading strategy on a shorter-term basis. In doing so, this technique allows a trader to reduce a level of emotion and better control or minimize the number of spontaneous decisions. 4) Always buy low and sell high It's so easy when you look at a chart in hindsight to identify the highs and lows. In real time however, this practice is slightly more complex or unpredictable. What seems like a good moment for reversal at first glance can very often turn out to be a small stop in the midst of the trend. Don't be lulled into knee-jerk moves as a result of this narrow line of thought. Instead utilize a range of tools such as oscillators (technical indicators) that are helpful to determine entry/exit moments. Moreover, by estimating the strength of the current price trend, you can be better informed to execute your strategy. 5) Overconfidence in your trading strategy/performance You are on a roll and can't be stopped. Maybe it's time to rethink your career after the stellar month you have just had trading...then the wheels come off. On the opposite side of the spectrum from having no trading strategy is being overconfident in it. After the trader has tested it on very long historical data and if it has successfully had worked out for several months before, it is rather difficult to take a critical look at its shortcomings. A series of losses at first glance seems only a black stripe, which is about to end. It is paramount that a trader always needs to keep an open mind to the notion that the market can change dramatically and unexpectedly. The economy can enter next macroeconomic cycle phase, the policy or other economic conditions could have changed, or seemingly any different scenario could be a game changer. Strategies should be time to time subjected by a critical review for relevance, sometimes by your colleagues or another set of eyes. Critical thinking is one of the best lines of defense against a seemingly bulletproof strategy. - This article was submitted by LegacyFX

An overview of how many trades per month

A look at the different factors influencing the number of trades one makes ForexLive Well, how often should I expect to trade? One question that many beginner traders ask is, 'How many trades should I take each month?' It is obvious why it is asked as traders are trying to calculate what their potential gains might be from trading. Also, being aware of the dangers of overtrading, and wanting to avoid that, the obvious question arises, 'well how many trades should I be taking each month'. The number of trades taken depends on a number of different factors The answer to the question, 'how many trades should I be taking each month' is, 'it depends'. That might sound like an unsatisfactory answer but this article will show you some of the most significant factors which determine how many trades you should be taking each month. Three of the most relevant factors include: Market dynamics, trading timeframe, and entry style'. Market dynamics Just as not all weather is good for sailing, so too not all market dynamics are good for trading. The market dynamics will dictate the number of trades that you take each month. The best type of trades that you are looking for is trades that have a high conviction level. You find these high conviction level trades by finding shifts in sentiment or fundamental analysis. For example, say the Federal Reserve had just indicated to the market that it is going to scale back its intended pace of interest rates in 2019, then we can expect to see USD selling. Now, say that at the same time we are entering a 'risk-off' mode and the Nikkei index has sold off -2% on the news of a renewed opening in the US/China trade war, then we can expect to see USD/JPY selling off. This would be a high conviction trade to look at taking. Now, not every day will provide a high conviction opportunity. So, the obvious trades don't come along all the time. A recent real-world example has been the GBP/USD pair. Over the course of the last few weeks there has been a near constant sell sentiment for the pair. On the 4hr chart below each time the 100 EMA has been tested price has sold off from that level. There could have been four trades taken on the 4 hr chart during November and December that offered high conviction trades. In fact, the sentiment was so bearish with GBPUSD and Theresa May's bungled Brexit plans that traders would have been looking for trades on the lower timeframes too. In fact, at the time of writing GBPUSD bearish sentiment remains. See below here for pivot point opportunities on the 1-hour chart. The upshot of this is that the market dynamics (a strong GBP sell sentiment) has meant that savvy traders will be looking to short the GBPUSD pair as long as this sentiment remains. How many trades will this provide? Who knows? However, the old saying, 'Make hay while the sun shines' springs to mind as the market presents a great opportunity. Trade as long as the decent chances are there. Trading timeframes The timeframe of your trade will also affect the frequency of your trades. For example, if you are trading from a higher timeframe, such as the daily, weekly and monthly chart then you will be trading less trades per month than if you were trading the 15-minute charts. An intraday trader may easily be taking between 1-3 trades a day on the lower timeframe. If that was the case then an intraday trader might expect to be making somewhere between 20-60 trades per month. Of course, this is only a rough guide, with individual traders potentially trading more or less than this. However, it does give you an idea of what an intraday trader's trade frequency might be. By contrast, a trader who only uses the daily timeframe and above, may be trading between 4 and 15 trades per month as a rough guide. The general rule of the thumb is the higher the timeframe, the less trades you can expect to trade per month. Entry style This is the final aspect that may impact the number of trades taken per month. Some traders will scale their positions in. Say for example a trader is going to trade 5 lots on US Crude futures. They might divide that 5 lots into separate units of 1 lot. They might enter one lot at 50.50 cents, another at 50.60 cents, and the remaining lots at increments of 0.10 cents. In this instance the 'one trade' has been broken down into 'five separate trades'. Obviously, a trader who regularly scales their positions in will be taking more 'trades' per month than a trader who doesn't. How many trades you might typically expect to trade per month In summary, an intraday trader can expect to trade between 20-60 trades a month and a swing trader somewhere between 4 and 15 trades per month. Obviously, if you mix styles of trading together, like intraday and swing trading, then you can expect to achieve a figure that allows for that. On a different note, some algorithmic trading will reach hundreds of trades per day. This would mean thousands of trades per month. So, there you have it, a rough guide to the number of trades that you will expect to take per month and the reason why you can't pre-determine the number of trades due to changing market conditions and trading styles.- This article was submitted by Instaforex.

Why you get huge currency moves at this time of day

Huge, huge moves in currencies in the past few minutes: AUD/JPY falls further (and its not the only Turkey)Yen surgingAUD collapsing The thing about this time of day, and I repeat this over and over again, is the forex market is at its thinnest for liquidity for the entire 24 hour cycle. The only active FX markets are NZ and Australia. So, if it rains, it can easily pour. Its an uncommon event, but it does happen in this susceptible time slot. The AAPL news earlier kicked of a bout of risk aversion: Apple has cut its Q1 revenue guidance Apple commentary on China's economy ... sharp contraction in market Apple citing China economic weakness was a particular barb for the AUD. If China economic weakness is news to you … well it should not be. Knowing that is essential background information. The AAPL announcement was then the catalyst.  ForexLive

Sizing up market expectations in trading is more important than you think

A lot about trading is about anticipating what to expect ForexLive One of the beauties of trading is that every trader has their own unique style and approach when going about their business in the market. Each and every one of us has their own trading compass. But even so, one of the most important skills to have as a trader is learning to read other compasses as well. And that means learning to gauge what other traders are doing or saying in the market; as essentially, that is what makes up market expectations in trading. I remember about six years ago witnessing price action after the US non-farm payrolls was released, there was plenty of whipsaw and price volatility between 300-400 pips. Fast forward to today, you'll be surprised to see a reaction in currencies that amounts to 50-60 pips on the same data release. So, what has changed since six years ago? The main factor that is different now is that the market's attention has moved away to focus on other details and market expectations have also changed as a result. Back then, the labour market wasn't as tight as it is now and markets are weighing up the possibility of the Fed normalising policy further as QE comes to an end. The non-farm payrolls data was at the forefront of that as it not only presented key measures such as the jobs print and unemployment rate (labour market conditions) but it also contained wages data (used to scrutinise inflationary pressures).Now, it's already a given that labour market conditions are holding up well in the US economy. Hence, there is almost little to no significance placed on the jobs print and any minor changes in the unemployment rate. The only key data is wages but with the Fed already confidently hiking to reach near neutral rates, it's not exactly the blockbuster data it was two years ago. Knowing what to expect ahead of economic data releases One of the more common mistakes retail traders make is to attach a particular significance and expectation to upcoming economic data releases and central bank speeches. Instead of focusing on whatever scale/indicator that tells how "important" the data release is, knowing the background and expectations ahead of the data will help you position yourself better ahead of said particular release. That's one of the reasons I put lengthy paragraphs in describing those details in my economic data preview posts. It not only helps those new to the trading game pick up on the focus and expectations of markets but it also helps to write these stuff down to get better clarity of the situation. A perfect example of the importance of knowing what markets are expecting and what to expect from a data release has been UK economic data over the past three months. For instance, retail sales back in May surprised to the upside and the pound got a good jolt higher from the release. Meanwhile, the exact same data point also saw a sizable upbeat reading in November but produced a <10 pips reaction. So, what gives? Prior to September, the two key focus areas of markets are a possible BOE rate hike in the summer and Brexit. Negotiations between the UK and EU on the latter wasn't moving much but markets weren't panicking or thinking about any no-deal scenario just yet as it seemed like talks would somehow produce a positive outcome around September to October. Hence, the immediate and key focus of markets at the time was on the BOE. That is why solid economic data which helped to support the notion that the economy was doing well helped to give the pound a bigger lift as markets looked to price in an increased chance of a BOE rate hike. As for recent data releases, we have all come to know now that Brexit developments continue to cast a large shadow over developments in the UK economy and the BOE's plans. Hence, regardless of whether the data is good or bad, there is no certainty in saying that the data holds any significance towards UK economic outlook or the BOE's capacity to hike rates. This is because everything gets thrown out the window if there is a no-deal Brexit and further uncertainty will still continue to cloud the near-term outlook for the pound as there is still no clear outcome that will materialise from recent Brexit talks. And that is why recent economic data releases don't matter as much. They're very much secondary to what the impact of Brexit developments can bring towards the currency and the economy. Understanding what the market is saying I'm going to be talking about this in relation to more of a knee-jerk reaction from markets towards economic data releases. Even when you anticipate and expect certain releases to produce a volatile reaction, how do you know which side markets will take after? One of the more common plays in the rule book is "buying the rumour, selling the fact". We've all seen this happen plenty of times in markets but what exactly does that mean? I'll use the Fed's most recent decision as a good example of this. As we entered December, markets were pricing in a lesser chance of the Fed hiking rates in its most recent meeting; falling from ~80% to ~65% ahead of the FOMC meeting. However, this was how the dollar performed in the build up from 3 December to 14 August: It was the second best performing major currency despite the fact that markets were anticipating the Fed to turn more dovish in their commentary as they deliver yet another rate hike. Markets were preparing for a "buy the rumour, sell the fact" scenario as they bought the dollar up in anticipation of another rate hike but are looking prepared to sell the dollar as the Fed turned more dovish. However, there was a twist in the tale as we entered the Fed decision week. The dollar came under selling pressure as markets then changed their focus and started pricing in a rather dovish Fed to follow. This was the dollar's performance on 17 and 18 December, before the decision was made on 19 December: The dollar was the second-worst performing major currency as it slumped against the major currencies bloc with markets anticipating that the Fed would pull off a dovish hike and possibly signal a pause to the tightening policy. The Canadian dollar was beaten down worse mainly to oil worries as it fell below $50 at the previous week's close. When decision time came, the Fed and Powell were indeed a tad more dovish but offered no signals that they would pause the tightening cycle any time soon. The immediate market reaction was to cover the earlier shorts and instead buy up the dollar. Although markets eventually settled on a renewed focus of a dovish Fed, the immediate reaction shows the importance of anticipating and understanding what markets are saying before any economic data releases. In doing so, it will help give you an edge to your trading and understand why markets move the way they do. Summary In my view, the best way to go about sizing up market expectations is to be unbiased about it. We all have our views on each individual currency pair but it is important to be honest to yourself in gauging what the market is saying especially. After all, the number one rule in trading is that the market is never wrong. So, hope this article helps you understand a little bit more about why it is important to stay abreast with any developments - big or small - that are happening to economies/politics and why we should always take note of what the market is saying, regardless of whether or not it goes against fundamentals, technicals, and any other analysis. Always be aware if economic data releases are preliminary or final readings (the former tends to have the biggest impact more often than not)Try and anticipate the key theme that the market is focusing on ahead of data releases i.e. post-ECB meeting, plenty of talks about 'downside risks' hence Eurozone growth-related data like PMIs become even more sensitiveFor central bank speakers, try and find out what the speeches will be related to; a Draghi speech on regulatory risks isn't as crucial as a Praet speech on markets and policyAlways prepare for the unexpected as we can all have certain views going into the economic data releases but never be too attached to them and be ready for the unexpected, and that includes central bank speeches too

Trader who sold Bitcoin top has covered his short

A Bloomberg piece that might give some encouragement to those looking for BTC to recover.  Well, maybe, the guy who sold the top and now covered is not all that encouraging: "I don't want to try to ride this thing to zero" Mark Dow shorted bitcoin: "They just saw it was going up and wanted a piece of it. People's imaginations can run further when they're not tethered to facts, when they don't understand the issueIt allowed the bubble to be much larger and much more violent. I saw the psychological hallmarks of it and there came a point where it looked like the fever was breaking." Has taken profit. Here is the link to Bloomberg for more I've tagged this post under 'Education'. Read that quote I've included and internalise it.  Meanwhile, a look at the BTC itself over recent days: ForexLive


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