Forex Education -


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.

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

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.

Do you need a trading strategy?

It is important to have a game plan when you trade If you read up on Forex trading, you will certainly come across a recommendation to have a trading strategy. However, the details of this advice often seem rather vague. In this article, we tried to gather the most important things you need to know about Forex trading strategies. We hope that these insights will turn out to be of use for you. In essence, a trading strategy is a set of rules for market entry and exit. It is presumed that with a strategy you have a ready-to-use plan of action. You need to check whether the market situation fits the conditions outlined in the strategy and, if it is indeed so, open a trade. ForexLive Should you really live by the rules? Such an approach has a couple of obvious merits. Firstly, if you abide by the rules zealously, the destructive emotions (fear, greed, insecurity, etc.) get removed from the list of your daily bugbears. It happens as you shift the responsibility to the shoulders of the inanimate strategy. Secondly, with a strategy, you certainly reduce the time spent on market analysis as the area you have to cover by it significantly narrows. So, is a trading strategy a way out for lazy people who want some carefree trading experience? That is not really so. Almost any source about trading strategy will undoubtedly tell you that there's no "Holy Grail" that will allow you to relax and enjoy the ride. All the strategies you can find on the Internet have various degrees of imperfection. Finding the winning strategy As a result, to pick out a strategy that - 1. fits your personality; 2. has a decent success rate, - you will need to do a rather big, time-consuming and, put simply, impressive job. To complete it, you will have to possess all kinds of knowledge about the world of trading. That alone will require plenty of effort on your part. Moreover, any strategy you find or come up with has to be backtested on historic data. This can be done either manually or automatically. In addition, the market is like a living creature: it evolves with time. As a result, even if you managed to find yourself a strategy that satisfies you at one point, you won't be able to allow yourself to rest on the laurels. Constant vigilance should become your motto. You will need to monitor the performance of your strategy and adjust it from time to time. So, what's the takeaway from above? It's like this: it's good to have some sort of trading strategy because it will provide you with a framework of dealing with the market and help you control your emotions. If you don't get obsessed with the idea to find a simple solution, you will be fine. What steps should you take to choose a trading strategy or to create one of your own? Step 1. Give truthful answers to these questions: how much time are you willing to spend on trading? How long do you hold a typical trade (i.e. are you a scalper, a day trader, a medium-term trader or a long-term trader)? At this point, you should develop an understanding of the timeframes you will use. Step 2. Decide which instruments you will trade and which market conditions you will focus on. Will you be a classic trend trader? Are you willing to make counter-trend bets or trade in ranges? Do you want to tool your strategy to breakout trading specifically? A strategy that is good for trend trading can show a weak result when the market is in a range, so you will need to choose different kinds of indicators for each market condition. Step 3. Choose your toolkit. Each technical indicator has its purpose. No good will come out of using the indicators for the wrong tasks or combining two indicators with similar functions together in one strategy. In addition, no indicator is perfect so the goal is to reduce the impact of their weak spots and find a way to filter out entry signals. You will need to know how the indicators work both for seeing the flaws and strengths of the existing strategies and for designing your own one. For example, the Stochastic Oscillator goes well together with Moving Averages, Heiken Ashi, or Alligator. It goes without saying that you need to study the price action (candlestick patterns, chart patterns, trendlines) as well: it also produces signals and hints. Step 4. Think of whether you will incorporate fundamentals in your strategy and, if so, in what way. Step 5. Define the setup (required conditions) and trigger (entry rule) of your strategy. In short, the setup represents preconditions for your trade. It can consist of one or more filters that let you know that the market's "weather" has become favorable. A trigger is a signal itself that highlights a particular entry level. Step 6. Set the strict risk management parameters: risk/reward ratio, position size. The common ratio between potential loss and profit is 1:3. The basic rule of trading is like this: risk no more than 1-2% of deposit for 1 trade. Choose exit rules - make a rule for Take Profit and Stop Loss orders. A good exit is as important as a good entry. Step 7. Write down the rules of your strategy. Even if you are sure that you remember all the steps of your strategy, it is important to have them on paper, so that you don't hesitate when it is time to trade. Step 8. Backtest your strategy on a demo account. Make a good effort: this will create a base for your success. If there are mistakes, you will be able to correct them without losing money. Step 9. Start using your strategy on a live account: don't digress from your rules but keep learning and thinking about how to make your strategy even better. Once again, we encourage you not to underestimate the importance of learning and the procedures mentioned above: they will improve your performance. Good luck in your trading! This article was submitted by FBS.

Understanding the difference between M/M and Y/Y data

Learn how to familiarize yourself with the time periods in data reports Economic reports are given in a number of different formats. Many economic data releases are reported in a month on month format (m/m) and also in a year on year format as well (y/y). A y/y reading might be represented by the characters, YoY. Similarly, a m/m reading may also be represented by the format MoM. Regardless of the format of the report, they both mean the same thing. In many instances, both m/m and y/y readings are reported as percentages which allows for easy reporting and comparisons. At first, these conventions can be confusing, so this article is designed to help explain them and point out the key differences between the readings and, most importantly, how they help investors get a handle on the key data. m/m or MoM data The m/m readings are changes in data with respect to the previous month. So, for example, on Friday March, 9 German January factory orders showed a m/m reading of -2.6% vs. a prior reading of +0.9% m/m. This meant that the factory orders for January were down -2.6% on December's figures. As such, this indicated a m/m contraction. For simplicity, the chart below illustrates this trend: m/m data and a few things to be aware of One of the most important things to mention is that m/m readings are vulnerable to a number of variables. Is there a major holiday in a month? Take Christmas, Thanksgiving, and lunar New Years for example. When these events occur, they can impact m/m readings. Similarly, one-off events can impact m/m readings. In the last football World Cup, UK retail sales were positively impacted as England made it through to the Semi-finals of the World Cup. Many new televisions were bought, more food and drink and, as a result, retail sales enjoyed a spike in the report. In a similar way, m/m readings can also be impacted by natural disasters and other one-of disasters. Other less dramatic variables can be things such as days in the month and months when people typically take holidays. All of these types of factors mean that m/m readings can vary considerably from month to month. This is why m/m figures are often reported with the more stable y/y figures. y/y or YoY data The y/y readings are changes in data over the course of one year in comparison with the previous year. So, as an example, in June 2018 Japanese preliminary machine tool orders reported +11.4% y/y reading vs +14.9% prior y/y reading. This means that the data, at this point in time, shows only a +11.4% y/y increase as opposed to the previous year's increase of 14.9%. See the chart below. Calculating y/y data with a working example To calculate year on year growth you perform the following calculation. Let's simplify this with a fictional example by comparing the sales of a watch company. Say a company sells 200 watches in one year and 220 watches in the following year. How do we calculate the growth rate? You can calculate this as follows: 1. Take away last year's sales from the most recent number e.g. 220 - 200 = +20 The company sold 20 more watches in the present year 2. Then divide that number of 20 by the previous sales and multiple by 100 to get a percentage. 20/200 x 100 = 10% So, in the listed example we can see that there is a year on year growth rate of +10%. y/y data and a few things to be aware of If a company experiences a period of negative growth over one year then the next period that reports strong growth may be more an emphasis on the period of weakness than a particular period of strength. The worse the prior year, the better the present year will seem. Therefore, it is always prudent to be aware that if a y/y reading is reported that appears very strong, just check what has happened in the previous year. However, y/y analysis does generally help to smooth out the inherent volatility that you get through reporting m/m data. This is probably the biggest advantage of y/y data; all the ups and downs of m/m reporting (one-of events, seasonality, holidays etc.) are balanced out allowing for simpler comparisons. A final word on Q/Q data While covering m/m and y/y data it is also worth covering q/q data. This stands for quarter-over-quarter and these figures compare the previous financial quarter. Each year is broken down into four quarters and the first quarter of the year is referred to as Q1. There are a number of reports that are broken down into m/m and y/y readings. However, some very important indicators, like Gross Domestic Product (GDP) are broken down into quarters. In terms of volatility q/q data will be more volatile than y/y figures, yet less volatile than m/m readings. So, there you have it, a quick rundown on understanding the difference between m/m readings and y/y readings. This article was submitted by the ADSS Research Team.

Lessons on risk management from the Burj Khalifa

Lessons from Dubai on risk Over the course of this last week I have been writing from Dubai as I have been leading an FX trading course for aspiring traders. Needless to say, one of the key teaching aspects I have been emphasising is the danger of using leverage and that has led me to that theme for some of my posts during this week. Understanding the impact of leverage on risk management The first benefit of deleveraging your trading Today, before my flight home to the UK, I was able to visit the Burj Khalifa. The World's tallest building. It was quite something and the views over Dubai  were stunning. The Berj Khalifa stands at 828 metres and was completed in 2010.  Considering the effort that went into the construction of the project it is interesting to note that the Berj Khalifa only stands so tall, because it's foundations run so deep. Here are the photos that show the first two years of construction. In these records it shows that the tower didn't even get off the ground in the first two years. 2004 and excavations began 2005 and still at ground level, 2 years into the 6 year project (2004-2010) It was all about building solid, deep foundations. In a similar way, trading without leverage can seem like slow progress. Where is the fun? The buzz? How can I make money? The truth is that by putting in solid stable risk management you are preparing yourself for real, serious growth. You are putting in the ground work necessary to be a responsible risk taker. Remember yesterday's article here. Today's article highlights the mental relief of trading without leverage. Trade in a calm frame of mind The second benefit of deleveraging your account is that it allows a professional trader to think calmly and logically. One of the major impacts of using leverage is that it is very hard to think unemotionally when you are risking large percentages of your account. A certain aspect of successful trading requires a detachment from a trade and not over managing it. If you are using high levels of leverage then you will find it much harder to keep an emotional detachment to your trades. You are far more likely to intervene and mis-manage a trade. Using leverage also makes you vulnerable to a black swan event when huge moves can happen in the currency market. In 2015 the EUR/CHF fell around 40% in just a few minutes when the Swiss National Bank gave up defending it's 1.2000 peg. Just a couple of days before this the SNB had outlined their intention to keep defending the peg. If you were trading leveraged during this even you would have risked losing all of your account in a few minutes. People as large as hedgefunds and small as retail traders were all vulnerable to being  wiped out during that event. Some of these people lost their entire trading capital by this event. Not nice.    When you will use leverage Now you can use leverage, but only when they have the highest conviction in a trade. For example, when a central bank surprises the market and hikes interest rates. That would exactly be the time that leverage would be used. However, they will have a very definite plan of where to exit should the trade not play out as they expected. An example can be seen in the chart below when the Bank of Canada surprised markets on the 12th of July in 2017 by raising interest rates (CAD positive). The pair below is USD/CAD and it fell heavily (CAD being bought) with the surprise hike. Over the next 10 or so trading days price moved over 300 points with very little retracement. This would be an excellent scenario to use leverage to maximise your gains as traders would have the highest conviction that the trade will move in their direction. In conclusion The Burj Khalifa was built on strong stable foundations. Your trading, whether it is a hobby that pays, or you aspire to manage a fund, or maybe  to even manage family capital will only prosper when you master risk management. A deleveraged account is a fundamental step to controlling risk. If you are reading this and the articles over the last few days have resonated with you then step up and take repsonsibility, so that you can carry on taking risk in a measured and calm way. It makes for a much calmer trading experience. Oh, and by the way, the view from the top will all be worth it in the end. Herein endeth the lesson... ForexLive

Four patterns that new FX traders can utilize

Which technical indicators to watch when you're starting out For many newer traders, 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. Indeed, figuring out the optimal indicators for your strategy and trading goals can take years of trial and error, as well as fine tuning and endless small adjustments. However, there are generally four very powerful and reliable patterns that FX traders can harness that are amongst the most popular for traders of all experience levels. This article will highlight four such indicators. 1. Relative Strength Index (RSI) Relative Strength Index (RSI) constitutes a gauge of a trend's momentum that can indicate whether the asset being analyzed is in the overbought or oversold region. This distinction is extremely relevant for future price action and relies on a simple calculation. For the purpose of calculation, the RS in the equation below is the Average gains during upswings/Averages Loss during downturns within the timeframe being looked at. As such, we can represent this via a simple formula. RSI = 100 - 100/(1+RS) Broadly speaking, RSI oscillates between the range of 0-100 if the price moves below 30 - this means that is in the oversold region, and if the price moves above 70 that means it is in the overbought region. However, it's crucial to understand why this is important. For example, if a given asset is oversold or overbought, there is a high probability the current trend will undergo a price reversal. By extension, traders can use RSI (cross-referencing it against other indicators to avoid false signals), by using a drop below 30 as a "buy" signal and a cross above the 70 level as a "sell" signal and anything in between a sign to hold the position. 2. Simple Moving Average (SMA) A tried and true indicator, the Simple Moving Average (SMA) represents the sum of all the closing prices of a specific time period divided by the time intervals. This can sound like a lot of data that is more complex than it actually is. As its name suggests, the indicator is a simplified display of prices over a given interval of time. For example, if you want the SMA of the last 10 days, you would add the closing prices of the last ten days and then divide them by 10.  Expanding this to other intervals, depending on the time frame that is used to calculate the SMA it can show price changes rapidly. If the SMA is calculated on a short timeline or slower to react (but better at revealing long term trends) then the timeline is longer.  Longer-term SMA can visually normalize a given price movement whereby affording you a better gauge of emerging longer-term trends. Conversely, the first shorter term SMA shows smaller fluctuations in the price, which is a better analytical tool for traders using shorter-term strategies such as intraday. 3. Bollinger Bands Bollinger Bands have evolved into one of the most popular indicators in recent years, given its versatility and utility. The indicator excels in helping traders identify periods of volatility, as the upper and lower bands will converge when volatility is lower as they diverge when volatility increases The reason many traders swear by the Bollinger Bands indicator is due to it giving more specific short and long signals (comparable to other indicators).For example, when a high price crosses an upper band, a short signal is given and where the low price crosses the lower band, a long signal is given (as indicated in the circles in the image below). Bollinger bands also occasionally act like support and resistance, like other indicators do as well. 4. Moving Average Convergence Divergence (MACD) Finally, one of the other more common and helpful indicators used by traders is the Moving Average Convergence Divergence MACD. While MACD is a touch more complex in terms of calculation and analysis, the indicator has a variety of uses for traders. MACD is a trend-following momentum indicator, which highlights a relationship between two moving averages of an asset. MACD is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA. Consequently, the result of this calculation is the MACD line. A 9-day EMA of the MACD, known as the "signal line," is then plotted on top of the MACD line, which can function as a trigger for buy and sell signals. Traders may be incentivized to buy when the MACD crosses above its signal line and sell - or short - when the MACD crosses below the signal line. MACD indicators can also be interpreted in several ways, but the more common methods are crossovers, divergences, and rapid rises/falls. Generally speaking, MACD can help traders identify the speed of crossovers taken as a signal of a market being overbought or oversold. Moreover, MACD also assists investors in understanding whether bullish or bearish movement in the price is strengthening or weakening. This article was submitted by InstaForex.

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.


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