Forex Education -


Fake news isn't just a problem for the public, it's a problem for algos

Algos are reading headlines, but what if they're wrong? Algos are all over the newswires and twitter. The straightforward way is a race to trade on news and economic data. As a result of an arms race that's lasted the past 15 years; it's gotten hyper-competitive and now the moves are unbelievably fast. The next frontier was sentiment and that's been mined heavily for the past five years. The next frontier may be gaming the system. If there are algos trading on twitter sentiment, then what's to stop someone from making a trade and then bombarding social media with commentary about it. Or gaming news services. It's something  Marko Kolanovic is worried about. He's one of the earliest algo/quant professionals on Wall Street and the global head of derivatives and quantitative strategy at JPMorgan. "f someone is creating fake tweets to hurt your strategy, are you allowed to defend yourself by throwing off that algorithm? Where's the limit of market manipulation vs. defense?," he said in a Bloomberg profile. At the same time, he's worried about fake news that simply designed to throw of people, but can also throw off machines. He said recent market moves may have been amplified by fake news. There are "specialized websites" that present a blend of real and fake news and distorted write-ups of financial research, he said, without citing the specific sites."If we add to this an increased number of algorithms that trade based on posts and headlines, the impact on price action and investor psychology can be significant," Kolanovic told CNBC. The Bloomberg profile is particularly interesting: There's this fragility in the marketplace that came with the new structure of liquidity, with electronic market-making, computers, and growth in passive. Passive assets and quant assets will grow, and computers and AI will have a bigger role in ­market-making. At some point that's going to end up badly-most likely when the next recession hits. ForexLive

5 tips for trading the Turkish lira

How to trade TRY The Turkish Lira has fallen dramatically in recent weeks. The Lira is down over 30% on the year and it had a 16% drop on just the 10th of August alone. One of the key reasons for the implosion of the economy has been Turkey's current account deficit. This simply means that Turkey's economy is operating on borrowed money, with other countries financing the economy and allowing the country to run on a deficit. Turkey has an external financing need of over $200bln. According to the Financial Times there will need to be repayments of over $130bln this year. Take your trading to the next level today On top of this current account deficit a strong USD with the Federal reserve on a path of rate hikes has added pressure to the USD/TRY pair. Furthermore, Erdogan placed his own son in law in charge of the central bank. This move has resulted in some strange economic decisions with one of the most marked one being a strong reluctance to raise interest rates, even though the country has desperately needed to in order to address its rising inflation. So, if you want to try and capitalize on the Lira's recent volatility here are 5 tips for trading the USD/TRY.#1 Check the spread The first tip before you open a trade on the USD/TRY pair is to check the current spread. The spread for the USD/TRY pair can be large, and in the snapshot below taken from a number of different brokers the spread varied from 660+ points to 31.8 points at a moment in time. So, before you place your trade, just check the spread so that you don't enter during an illiquid time and pay a hefty premium for doing so. This is particularly relevant if there is a strong time of uncertainty or volatility in the market. It is at these times that spreads can widen considerably. #2 Check your position size Due to the large number of points on the USD/TRY pair it can be very easy to open a very large position size by accident. So, as a general rule of thumb, you will need to use 1/10th of your normal lot size. If for example, on an intraday EUR/USD trade, you normally trade with 1 lot, then to do a similar amount of your normal risk trade on the USD/TRY pair you would open only 0.10 lots. So, do not open a USD/TRY position size without first calculating your risk. With a large spread, and a lot of points on the pair it would be very easy to open too large a position and you could find yourself with a margin call in no time at all. So, make sure you check that position size. If you open a position casually you will quickly regret it. #3 Using moving average to define and limit risk. You can use the 100 and 200 moving averages to define and limit your risk. With the large moves we have had recently the 50, 100 and 200 moving averages have provided places for traders to lean against. You can define and limit your risk with the ebb and flow of news out of Turkey. Going forward these moving average levels will be excellent levels on the 1hr, 4hr, and daily charts to find good places to enter and sensible places to put your stop. #4 - Keep an eye on the EUR/USD pair A far more liquid pair to trade than the USD/TRY is the EUR/USD. The EUR/USD pair is being affected by the Turkish Lira crisis due to the amount of financing that Europe's banks have given to Turkey. The fear was that if the Lira became any weaker than the Turkish banks and institutions would default on their loans they had taken from Europe's banks. As a result, the Euro lost value with the Lira. So, a smart move, if the Turkish crisis re-emerges, and the Lira weakens again, might be to short EUR/USD. The pair has a much higher liquidity that USD/TRY, being one of the world's most traded currency pair, and a much smaller spread. Risk is also easier to calculate on the EUR/USD pair than on the USD/TRY pair, so this is worth remembering. #5 Keep an eye on the news Turkey introduced a number of measures which have temporarily halted the tumble in the Lira. However, the next direction will be decided by the actions of the US and Turkey. Any improvement in politics between the US and Turkey will be supportive. Recently Qatar injected $15bln of support which helped further stem the bleed of the weakening Lira.  The key event to look out for though, is a central bank rate hike to start addressing the twin problems of a weaker Lira and higher inflation which is affecting the country. This will cause the Lira to strengthen and is what markets are really wanting to see happen in order to give strength to the failing Lira.  This post was submitted by LegacyFX ForexLive

How to trade during holidays and slow markets

Tips for staying ahead in a quiet market Summer trading can present a number of challenges for trading. For starters, ranges can be smaller due to the reduced volatility with many institutional traders away from their desks. Markets are more vulnerable to having patches of illiquidity with random moves taking out stops more readily on any lack of order flow. All of the above can result in some frustrating trading experiences, so here are some tips to help you keep a cool head during the hot summer months. Be aware of ranges If there is a strong range in play, then it is more likely to hold during summer trading. So, pay attention to tests of key levels and take a quick look at the news. Are there any key releases that are coming out? Find out how to stay ahead of the game If there is not, then the chances of a well-established range holding are strong. It could be a great location to trade a quick bounce off a key level. Similarly, if a key level looks like breaking during the summer months, and there is little in the way of significant market news, then that break may well be a false break. So, be aware of these two phenomena; strong ranges holding and false breakouts of key levels. Be aware of changing market dynamics Automation has been impacting nearly every area of our lives and foreign exchange trading is no exception. Once institutions looked to 'the man' now more and more they look to 'the machine'. Algorithmic trading has increased considerably over the last few years and this is resulting in a key change. The algorithmic trading model involves the 'algos' being switched on during the whole year; computers do not need a holiday. Their short-term, constant day to day profit profiles means that they are going to be left running during the summer months, So, even though the large investors may have key staff on holiday, the age of automation means that the trading of assets in FX goes on. Technical levels are still in play Just because it is summer it does not mean that technical levels are forgotten. The key moving averages are still respected. Key moving averages like the 50 MA, the 100 MA and the 200 MA will still be respected during the summer. Similarly, fib retracement levels and horizontal support and resistance levels can still be relied upon. Take a look at the daily EUR/USD chart below to see how the moving 50 daily moving averages is respected during the summer months. These levels can be used to limit and define risk. ForexLive Be aware of surprise events Just because it is the summer it doesn't mean that there can't be some very large moves in the currency markets. One recent example is that of the Turkish Lira. It lost an astonishing 20% of its value in just one day of summer trading. If you look at the chart below you can see the nearly parabolic weakening of the Turkish Lira against the US dollar. Moves like these are rare, but they are possible at any time. So, keep alert for any major market moving news. If you had been switched onto the story behind the moves seen here, you could have netted yourself a tidy profit.  Be willing to reduce intraday targets You may want to consider taking slightly smaller profits during the summer months and particularly consider taking profits when price pushes into key support and resistance levels which are less likely to break. If you normally look for 60% of the average true range for your profit target, consider taking 50% of the average true range instead. Be prepared to set wider intraday stops At first this can seem counter intuitive, if ranges are narrower shouldn't you use smaller stops too?  Not necessarily. To understand this point look at the market when it opens each week on a Sunday evening. What do you notice? You will see a market that seems slow, yet it can have very quick and strong short term directional moves. Why is this and what is going in here? This is how an illiquid market moves. Now, if there is a lack of liquidity during normal market hours the same type of price action can occur. This can needlessly take out your stops, so consider reducing your position size and setting wider stops. Be sensible and take a break You will also want to factor in a break during the summer and make sure you don't trade when you are on holiday. It will firstly ruin your holiday and secondly it will present you with logistical problems if you lose internet connection or can't check your trade during a flight or a trip. So, ensure that you give yourself a summer break too. The markets will still be there when you return. This post was submitted by brokerage, LegacyFX

This has to be the real-life equivalent of riding a 100-bagger

Getting on the perfect wave, and riding it all the way The 100-bagger is a mythical creature in markets. It means making a single trade and earning 100 times your money. $1,000 into $100,000. Yesterday, some Facebook puts went up 50x overnight but a truly mythical 100-banger is one that takes some time. One that tests the holder day after day, tempts him to take profits and yet he holds on for the mother of all trades. For some inspiration, here is perhaps the greatest wave ever ridden, if not recorded. Koa Smith rode this wave of the coast of Nambia for nearly 1.5 km in a two-minute and eight-second hypnotic adventure through eight barrels. What's more impressive is that -- like a great trade -- this wasn't a fluke. "Smith and many world-class surfers have mastered the art of reading weather charts to predict when and where the greatest sized ocean swells will hit. It's one thing to know they're coming, quite another to get to where the action is, and Smith is more than willing to drop everything in search of the perfect wave. "He can be in one place one day, and you call him and he says, 'I'm taking off for Africa tomorrow,'" says Smith's publicist, Ryan Runke."  And some inspiration for holding onto a great trade: "There was a point where I was at four barrels and I was already like, 'This is amazing,'" he said. "It looked like the wave was over, but it formed again. I figured, the drone's there, I might as well stay on. And I was like, 'Whoa!' This went from a good wave to like a life-changing wave." "My whole day surfing I try to envision that one dream wave that I want to experience. I picture it clearly. What it will look like. How it will feel. The emotions pouring out of me when the wave is complete. Then this happened."ForexLive

Video: I won a shareholder lawsuit

I didn't see this one coming I tell the improbable story of how I won a shareholder class action lawsuit. It took more than 10 years but it paid off and I learned a few strange lessons about trading. Want to know when we've got a new video out? Click here to subscribe to our YouTube channel.

Video: The worst way to earn $1257.67

Any money is good money, or is it? A few months ago, I got a bit excited and wrote some things I maybe shouldn't have written. But I'm the kinda guy to put my money where my mouth is -- even if it broke one of my unbreakable rules. Want to know when we've got a new video out? Click here to subscribe to our YouTube channel.

Do the technical tools help define risk in cryptocurrencies?

The latest cryptocurrency to race higher The price of Ripple has been the latest cryptocurrency to catch the wave higher. Adam talks about it in an earlier post. For me, in these "currencies" if you are going to play, it helps to know about where to get in. If the overall bias is to the upside in these cryptocurrencies (the vast majority of the players are either long or square), if you can get in (long) at a low risk level - and the risk focused "market" does too - the price will go higher.  If the price does not hold the risk defining level (i.e., it breaks lower) you can just get out and look for the next opportunity (i.e. when it moves back above the risk defining level). So where are the low risk levels? For me, I look toward the 100 and 200 hour MAs for clues in the digital currencies.  If I can look at a chart (any chart), and I see those MAs holding support (or resistance), it gives me confidence that I am not the only trader out there in the world looking to define and limit risk against those risk defining levels. Putting it another way, I am not the only trader who is looking for cheap levels to buy.   Above is the hourly chart of Ripple on Bitstamp.  The blue line represents the 100 hour MA. The green line is the 200 hour MA.  What is noticeable around those lines (see large red arrows)?   The "market" has been using those levels as risk defining levels. That is, when tested, traders come in against the level and buy.  Just look at the large red arrows for the proof.   That tells me risk can be defined and limited at those levels.  It also tells me, that if I want to buy, that area (around the MAs) is where I want to venture in the water. IF the price bounces, I can manage the winner. If the price does not bounce, I can get out with a small loss.   That is the basis for all risk focused traders no matter what they may be trading.  Even in infant markets like Ripple, traders will tend to do the same thing that they will tend to do in the EURUSD or the USDJPY, or Apple, or Gold.  If they are buying, they buy against a risk defining level like the 100 and 200 hour MA, and if broken, they will get out.   So looking at the chart above, the price based against the 100 hour MA last on Monday and Tuesday (there are no days off in trading).  Yesterday, the price took off and the current price at $3.0899 is not really close to the 100 hour MA at $2.2977 (and moving higher).   So it is not a time to buy as the risk is $0.80 which is 26% (at $3.08).   What do you do if you want to get in but don't want to risk 26%? You can drill down to a shorter chart to see if there is any technical clues that the "market" may be focusing on. Looking at the 5 minute chart below, the same 100 and 200 bar MA are on that chart (blue and green lines).  I have also added a trend line connecting recent lows.   What I notice is on the run higher, there have been instances where buyers came in against the MA lines.  However, the risk defining level that traders are really paying attention to is the trend line.  There are 6 points on that line.  So stay above is more bullish. Move below and bias turns more bearish.  On a break, the bias turns more corrective, the buying should dry up. The price should go lower.  We don't know, but the price may head down toward the rising 100 hour MA on a break in which case it would be a lower level to try to buy again. What happens if the trend line is not broken?   You are a winner and you look for the high at $3.317 to be broken and the price momentum higher to continue.  SUMMARY: Trader in any instrument will often look for levels to buy (or sell). The best levels are where the risk can defined and limited.  It does not matter if it is Bitcoin, or EURUSD, or Gold or Crude oil, traders look to limit risk on buys and sells.  Ripple shows those tendencies too.   So follow some key tools.  Be patient. Know your risk and if you can catch a wave, like the Beach Boys sang, you might be sitting on top of the world (or at least a cryptocurrency world). 

Bitcoin technical education: Two exchanges. Two technical charts. How can you trade that?

Bitcoin/Bitstamp charts are different but similar. As the stock market surges to new highs, the Christmas/Holiday parties are not talking Apple, or Microsoft or Intel, but bitcoin. My wife works for Intel.  They had their holiday party on Friday.  Their stock is up about 28% vs a year ago.   When I introduced myself to mostly strangers, and the discussion led to "I work in the financial sector as a currency analysis/trader", the conversation went right to bitcoin.  It IS the cocktail party discussion.  When talking with the people on Friday, one thing I talked about is that the market price is really not transparent.  Case in point, the CME futures contract will cash settle to 5 exchange prices (which is different to the CBOE contract which settles to one).  If the different exchanges were transparent, the price on each exchange for Bitcoin would all be the same (give or take a small difference). So there is not price transparency in the bitcoin market. Bitcoin has different values on one exchange vs another.    It got me thinking and looking today... So what are the implications of not having a transparent price? For one, bitcoin could not be a unit of exchange for goods and services.  How would a vendor know what to price goods and services,  if the price on one exchange is different than another?  Putting it another way, which exchange do they use to price $200 of goods?   It can get confusing - especially in a world where USD, or EUR or JPY or GBP are not going anywhere, any time soon.   Does that matter to "traders" who are not using bitcoin to buy something at some "store"? For most "traders" out in Bitcoin land, they don't care. If they buy on Coinbase or Bitstamp and the price goes higher, what is the big deal?  Those people are just "trading" bitcoin on their exchange.  Just go higher and the "traders" are happy.   Are these "traders" really trading?   To me a trader is not just concerned about reward, but are at least, equally concerned about risk.  For me, risk is even more important. It is 80-20 vs reward.  I like to say, "if a trade is not risked out, you are rewarded. Focus on risk, and let the reward take care of itself".   So "traders" (in quotations) of bitcoin who do not define risk, are not really traders because they are just concerned about reward, and have no concern (or very little concern) about risk.   So how do I characterize "traders" who are not concerned about risk? The "traders" who are not concerned about risk, and only about reward are simply speculators in a speculative market (some call it a bubble).  That bubble could continue to go up and up and up.  It could burst too.   When it burst, speculators could lose a good percentage of their money.  Traders will not.    So if you want to be a trader and not a speculator, the next question is what is your risk?  How do you define risk? If I put a chart up of Coinbase's bitcoin, it looks likes this: Traders can define risk (and a bullish and bearish bias) by using technical tools like trend lines and moving averages.  The trend lines are the solid lines. There is a red one that comes down from the December 7th peak on this hourly chart, and flatter upward sloping green trend line.   Looking at the chart, the price moved above the red trend line on December 15th and above the green trend line on December 16th. Each turned the bias more bullish on the break above.  Today, the price has been testing the green trend line.   There was a little dip below, but that break failed.  What about the MAs?   The blue line represents the 100 hour MA. The green line is the 200 hour MA.   The 100 hour MA has been breached going back in time. The falls below have solicited a downward reaction but the price has also bounced back above after a relative short time period.   I like to think as the blue line as a trigger.   Looking at the green line in the chart above, it has done a really good job of holding support and attracting buyers.  There have been tests of the green line but apart from a brief failed move below the line on November 29, the price has remained above that MA line.  The green line is a confirmation MA line. If broken, it would confirm a more bearish market (as long as the price stays below).  Traders (no quotation), can use each of those tools (trend line, 100 and 200 hour MA) as a risk defining tool.  Stay above, bullish. Move below, bearish - to different degrees.  Traders can define and limit risk using those technical tools.      For today in the chart above, the green trend line and the 100 hour MA are roughly at the same level. As a result, a break below would be more bearish in the Coinbase chart above.  That 100 hour MA comes in at 18424.52.   If the price goes below the 100 hour MA and trend line, traders would still want to see the 200 hour MA broken (green line).  A break below that MA line, would confirm the bearish bias.  It would represent a change in what traders have been doing (i.e. buying against the 200 hour MA). Now lets look at the same chart from Bitstamp - a different Bitcoin exchange (see chart below). This chart picture was taken at the same time of the Coinbase chart.  What is different? The current price is different.  The Coinbase price is $18642 (chart above), while the Bitstamp price is $18577 (chart below). The price is not transparentThe Coinbase chart (chart above) has a spike higher on December 7th.  The Bitstamp chart below does not have a spike.  Why it spiked on one vs the other is not sure, but you can guess that a large order on Coinbase, was the likely reason, If you look at the price box in each chart, the price high on each was on December 17 at 12:00. For Coinbase (upper chart), the high was at $19891.99. For Bitstamp (chart below), the high was $19666.    The current 100 hour MA on Coinbase (chart above) is 18424.52 while the 100 hour MA on Bitstamp is lower at 18149.09 (chart below).  The 200 hour MAs are different too with Coinbase at $17557 and Bitstamp at $17173.The green upward sloping trend line is higher relative to the blue MA line in the charts.  For the Coinbase chart above, the green trend line is right near the MA line. For the Bitstamp chart below, the trend line is further above the 100 hour MAWhat is the same or similar?The market lows on each chart held the 200 hour MA on corrections and the distance looks similar, Both exchanges had price dips below the 100 hour MA (blue line) at the same times and tended to have a momentum reaction on the breaks.  What does that all tell me? It tells me that traders - without quotations - despite the differences in price transparency, are still trading some of the technicals from each respective chart.   The bitcoin traders in the chart above tend to sell on the break of the 100 hour MA (blue line) and buy vs the 200 hour MA (green line).   Think of the 100 hour MA as a trigger. The bias turns more bearish below, but it needs more. That "more" is the confirmation below the 200 hour MA. A break below it, should be even more bearish.   Now will a break of the 100 hour MA (assuming it happens at some point) happen at precisely the same time on each exchange? Right now, without price transparency, we really don't know.  The price on Coinbase could break the 100 hour MA BEFORE the price on Bitstamp breaks below it's 100 hour MA (or visa versa).    I think we can make the visual judgement - looking at each chart, that they are close (but at different prices).     For me that says technical levels are less exact.  It is more a "horseshoes and hand grenades" trading, but the trigger and confirmation can still be the technicals on each respective chart.   If I were trading on Coinbase, a move below its 100 hour MA would be more bearish. A move below it's 200 hour MA would be a confirmation of the bearishness even though each breaks would be at a higher dollar amount vs Bitstamp.    The same would be true for Bitstamp.  A break below the 100 is a bearish trigger, while a move below the 200 hour MA would be a confirmation trigger. SUMMARY: To properly trade, you need to focus on risk too. Risk can be defined by looking at technicals. However, in bitcoin, different exchanges have different prices for the same bitcoin.  That could be a problem.   The good news is that taking a look at two exchanges (Coinbase and Bitstamp), although the prices of Bitcoin are different, the traders (who are concerned about risk), tend to react to each exchanges technical levels. That is good news for the viability of a market as traders need a reference for risk.   "Traders" who are not concerned about risk and just want to speculate might make money in spite of their lack of risk concern. However, when the bubble bursts (and it can happen anytime), they stand to lose a lot of their investment capital without a risk reference. So no matter the exchange, focus on your own technicals from your price stream.  Although prices on exchanges are different, the tools are around the same trigger levels (relatively). So use them to your advantage.   For the future of bitcoin, to grow the market, there should be a movement toward price transparency.  Traders want to know, their bitcoin over here is worth the same over there.  That would be a good thing for the bitcoin trading market. 

Cryptocurrency Brokers – the Complete Trading Guide

I noticed this on the Finance Magnates website and thought I'd pop it up, if you are trading bitcoin etc. its useful explaining who is offering what Cryptocurrency Brokers - the Complete Trading Guide It's a full list of online brokers offering Bitcoin, Litecoin, Ethereum & more - a trading cryptocurrency guide There is a huge list of brokers here in an easy to follow format, eg: Check out the link for the complete table  


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