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BASICS | EDUCATION FROM BROKERS Tue 15 Jan

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

TECHNICAL ANALYSIS | EDUCATION FROM BROKERS Mon 14 Jan

Useful tips to identify support and resistance levels

A couple of pointers on the basics of technical analysis Trading requires a wide range of skills, which sometimes can range from simple techniques to complex patterns. Being able to identify both support and resistance prices trends more towards the former, though this is no less important for any respective trading strategy. At first glance, even novice traders can locate specific levels at which prices inflect. Rather, support and resistance levels form as orders cluster in places where many traders expect the price to stop. In this way, it becomes useful to pinpoint in advance these specific points in order to optimize any trading strategy. Learn more about how to optimally utilize support and resistance levels Ultimately, there are multiple approaches to identifying important market levels. These techniques involve swing highs and lows, psychological levels, trendlines, moving averages, pivot points, and Fibonacci, among others. Swing highs and lows A swing is a distinct movement of the price chart. Highs and lows of such moves are the natural reference points for traders. Take note of swing highs and lows in the visible area of the chart. It is important to not to forget to check higher timeframes for levels that are not normally in your field of vision but that can still create obstacles near the current price. The more times a level stopped the price and made it reverse, the stronger it is. Making use of psychological levels Next up is psychological levels, which are points that are considered to be psychologically important when its price quote ends with 0. The more zeros a level has, the more important it is. If you ask for someone's opinion about the future price of EUR/USD, no one will say something like 1.1932 but they can mention 1.2000 or 1.1500. Harnessing trendlines Diagonal lines are also important just as numbers are with several zeroes attached to them. It is important to note that you need at least 2 points (2 highs or 2 lows) to draw a trendline. There should be about 20-30 candlesticks between these points so that the trend had a 45-degree angle. The more times the price touches the trendline, the stronger this trendline becomes. Moving averages Although moving averages lag behind the price in a sense that they are slow to reflect the most recent changes of the market, they act as good support/resistance levels. One way to utilize moving averages is to rely on 200-, 100- and 50-period lines for this purpose. These MAs are especially strong hurdles for the price on the weekly and daily charts because many "big bank" analysts use them. Exploring pivot points Pivot points represents an instance when math comes to trading. Pivot points are calculated on the basis of previous highs, lows, and closing prices. There are many custom indicators that will draw these levels for you. One way is to look at Pivot Points Multi-timeframe indicator for MetaTrader. It shows a central pivot level, 3 support levels and 3 resistance levels for each timeframe. The indicator will let you see daily levels applied to any other timeframe you use. A good starting point is to analyze weekly levels of this indicator. They are redrawn after the end of every week and provide a very good idea of what the scope of the pair's movement will be like during the coming days. Fibonacci Fibonacci constitutes one of the core trading strategies that exists for users. In order to use this instrument correctly it is important to spread the line from the left to the right of any chart and take into account the candlesticks' shadows in the figure. In the example above, key levels of the Fibonacci retracements are 38.2%, 50%, and 61.8%. A correction is expected to end at one of these levels so that the overall trend could resume. - This article was submitted by LegacyFX. ForexLive

WAR STORIES Sat 12 Jan

What happened in the sterling flash episode (and what to do next time)

On October 7, 2016 the pound fell 10% in 40 seconds Flash crashes in financial markets may become an increasingly frequent part of the landscape. The preponderance of algos, instant electronic access and the illusion of liquidity make for fragile markets. In early January 2019, a flash crash took place in yen crosses. In 2016, it was the pound that fell 10% in less than a minute. There are lessons in these events but they're not always the same. In the 2019 event, I wrote as the crash was underway: "These are some of the biggest moves you will ever see. I'm sticking my neck out here but this looks like a one-off liquidity event and those tend to retrace." The moves all did. For those who bought the dip it was an incredible buying opportunity. One that yielded hundreds of pips in minutes and hundreds more within days. The cable crash was similar. The pound plunged but was able to recover most of the gains. One thing was entirely consistent: the timing. Both flash crashes happened at the most-illiquid time of day -- after the US shuts down and before Tokyo really ramps up. The yen crash also took place on a Japanese holiday, thinning liquidity further. But the algos don't sleep. Or do they? A Bank of England analysis shows there were a healthy amount of bids on each side of the market -- £60 million of orders in the observed ten levels of price closest to the best bid and ask prices. Yet when the selling started, it vanished. This chart shows triangles where transactions occurred on the Thomson Reuters platform. Those blue and pointing down show transactions initiated by a participant seeking to sell sterling. Those green and pointing up show trades initiated with an order to buy. The dark shaded regions show limit orders. The white areas indicate that liquidity had completely vanished. The implication is that the algos switch off once an event outside its limits takes place. Some algos might shutter after a 1 standard deviation move, others may only halt after 5 standard deviations but them dropping out might have cascaded just as stops were cascading lower. Ultimately there was no liquidity. Looking deeper at the episode, the BIS concludes that the flash crash appears to have been triggered by a large order to sell the pound. At this point, it wasn't a major event but enough to send GBP/USD to 1.24 from 1.26 in a somewhat orderly fashion. That was followed by a number of minutes of "extreme dysfunction" in lower volumes that added up to a 10% decline followed by a gradual recovery. "There is still a relatively limited understanding of the implications of widespread automated trading, the reduced role of traditional market-makers, and the increasingly important role of principle trading firms and other non-bank liquidity providers in FX and other market," the BIS concludes. Here are my lessons for traders: 1) Trade with a stop I read far too many heartbreaking messages from traders who lost far more than they could afford in the SNB, GBP and JPY flash crashes among other events. Most forex brokers now protect retail traders from negative balances but there's no excuse not to have a stop somewhere. 2) These are remarkable opportunities These are harrowing episodes but they're opportunities. In practice, it's tough to be aggressive at a time like this but a small-sized trade to fade the move can be prudent. 3) Longer term outcomes vary Ultimately, the pound fell much further after the GDP flash crash, which only helped to underscore the disorder in the UK after the vote. In other episodes, policymakers have levers to pull on that can and have reversed the sentiment, making these 'blow off' moves bottoms. 4) Algos are here to stay Policymakers have tried to understand these moves but the answers haven't been satisfactory. Ultimately, I believe a global policy will emerge where central banks agree to coordinate in order to step in after certain parameters are hit. I think we've been lucky so far that none of these events spilled over into critical derivatives markets, leading to cascading problems in an event that leads to some kind of breakdown in a bank or the broader financial system. The trigger could easily be FX but ETFs are also vulnerable. Information will be at a premium when that happens and we here at ForexLive will be with you every step of the way. ForexLive

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BASICS | EDUCATION FROM BROKERS Fri 4 Jan

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.

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MARKET WISDOM | EDUCATION FROM BROKERS Thu 3 Jan

Algorithmic trading: Do the masters of the old school have a future?

A glance into algos and how they compare with the human elements of trading ForexLive Man vs Machine Once upon a time in the financial world it was all about getting the right 'man' to do the trading. Now, you may be forgiven for thinking that it is all about getting the right machine.  The impact of our new age has been most keenly felt in the two spheres of globalization and automation and trading is no exception. The rewards can be large for those able to capitalize on the benefits that automation offer to us. For example, the Medallion hedge fund founded in 1988 has achieved an average annual return of around 30%. However, don't get your hopes up since the fund has been closed to the outside world since1993. It simply focuses on trading its own money now. In 2018 it had $84 billion assets under management with profits of around $25 billion. What is algorithmic trading? For those unfamiliar with algorithmic trading it is simply trading that takes place on an automated level. Computers are given specific instructions to follow (algorithms) for making trades at large volumes and high speeds.  The largest portion of today's algo-trading is High Frequency trading (HFT) which places large numbers of orders and helps to make liquid markets. The following are some of the most well-known algos. Volume Weighted Average Price (VWAP) This executes a buy order in a stock close to its historical trading volume in an attempt to reduce the trade's impact on the market. To explain, imagine that over a month 5% of a stock's trading volume typically occurs in the first hour of trading. Armed with that knowledge then a computer with a client's order will stop trading that order as soon as the 5% level is reached. The remainder of the order will be traded at a different time. The thinking behind this algo is to disguise heavier than normal trading activity, so other traders/machines don't see what is happening. If they did, and bid the price up, this would impact the price at which the order was filled. Trade Weighted Average Price (TWAP) This executes orders based on time. This is for the investor who wants to match the levels of volume that are going on at any particular time. If there is an increase in interest, then the algo will become more aggressive. Similarly, if there is less volume going on then the algo will become less aggressive. This is an algo used by momentum traders who want to trade small, illiquid markets where volume analysis make's less sense. Guerilla Developed by Credit Suisse it was developed to enter orders without signaling to the market place that a large order is being placed. It has a variety of techniques designed to cover its own tracks. The algorithmic trader operating at pockets of volume This is the algo trader who find pockets of volume in order to enter the market from the buy or sell side. This is type of trading is most likely to occur in the stock market where volume flows can be seen.  This type of trading is much harder to execute in the forex market especially for retail traders.  It is only those with the ability to see large pools of volume that could profit from this knowledge. This would be banks, large traders, and brokers with a good sight of the market volume.   There are supposed to be rules about front running these orders, but that is very hard to implement.So, the question you might be asking is, 'Is it possible to compete with algorithimic trading as outlined above?' The short answer is no, not on an algos own terms. If the algo you are trading against is a High Frequency Trader (HFT) scalping the markets with the aid of a computerized program and advanced technology in order to aid execution, then you can't compete with that. If speed is needed to enter after an economic deviation then you can't beat the algo for speed of execution. Furthermore, the HFT will have considerable resources and will be able to keep the algo running 24 hours a day and 5 days a week. No-one can keep awake for that amount of time, let alone function reliably. Some algo trading uses technical areas to enter and exit However, traders can still compete with algos by knowing when to take trades. This is where an edge can lie for the old school trader. For example, some algos will enter trades where pockets of large volume is likely to collect, such as around the 100 and 200 MA. When that happens, the man, can evaluate the fundamental and sentiment of the market to allow the trade to run a little further or even decide whether to enter or not. Take the GBPUSD currency pair for example through December 13 to the time of writing on December 17. In the GBPUSD chart below Theresa May had been struggling considerably in getting her Brexit deal through Parliament. As a result there was no appetite to buy the GBP and all the rallies were sold. Through December 13 and 14 Theresa May was trying to get assurance from European officials that the Irish Border issue would not be allowed to drag on indefinitely if the UK Parliament accepted May's Brexit proposals. Europe was not prepared to give legal assurance to Theresa May and the bearish GBP sentiment remained. In this instance the man has an advantage over the machine. The man can enter orders with the knowledge that there are strong sentiment factors to sell the GBP from the 100 and 200 moving averages on the 1hr chart. The machine can only enter orders at the technical level. The man can choose whether to enter to not and whether the market dynamics are suitable. There is still a future for the old school trader So, the masters of the old school still do have a future and it revolves around interpreting market dynamics. There is also the human element that people like in the finance world. A machine does not have a personality, whereas a trader does. Some people will choose a man above a machine just out of preference for the human factor that a computer can't meet. Not yet, anyway. - This article was submitted by Instaforex.

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TRADING RULES | BASICS Wed 2 Jan

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

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TECHNICAL ANALYSIS | EDUCATION FROM BROKERS Wed 2 Jan

Making the best use out of moving averages

A look at one of the most used tools in a trader's trading arsenal A moving average is a simple tool that traders use for different purposes. The main advantage is that it makes trading smoother and if used correctly, can lead to favorable trading results. A simple moving average is calculated by adding the price of a currency pair (Open/High/Low/Close) for a set period "X" and then dividing the sum by this number "X". For example, to identify a 5-day moving average you would add up the closing prices of the last 5 days and then divide the result by 5. There are several types of moving averages, but traders mostly use the Simple and Exponential Moving Average. The difference between these two types of moving averages is that the Simple Moving Average will give equal weight for all the periods while the Exponential Moving Average will give more weight to the most recent periods. Some traders may believe that the difference does not affect the outcome. The Simple Moving Average is smoother and will respond more slowly to the latest price action, which is good in the case of a false breakout as this prevents traders from jumping into a losing trade. On the contrary, the Exponential Moving Average responds faster to the latest price action and allows the trader to join a new trend faster but remains subjected to fake outs (when a trader believes a price action will take place but it never get fulfilled). Now, after explaining the differences between the two most used moving averages, we should understand how we can benefit from these moving averages. Traders can use moving averages to detect the trend of a certain financial product. We plot one moving average on the chart with a specific period and trade the crosses between the price and the moving average. In other words, if the price moves above the moving average, we can enter a long (buy) position, and if the price moves below the moving average, we can enter a short (sell) position. Traders can add two moving averages: one with a short period (fast), one with a long period (slow). The moving average that has the shorter period will substitute the price which means when the fast moving average crosses above the slow moving average, the trader can initiate a long (buy) position, and if the fast moving average crosses below the slow moving average, the trader can initiate a short (sell) position. Another strategy that can be applied using moving averages can be plotting a fast moving average for execution when crossing above or below the price along with a slow moving average to confirm direction or bias. Moving averages are also used as dynamic support and resistance levels. They are called dynamic because they change along with the recent price action. This means that traders expect a falling price to bounce when touching a moving average. Therefore, the moving average will act as support (heavy buying overcomes selling power) and vice versa. A rising price is expected to falter when touching a moving average. Therefore, the moving average will serve as a resistance (heavy selling overcomes buying power). Many traders ask about the best moving average periods which could provide the best trading outcome. There are no perfect periods. Usually, traders use the 50-100-200 periods. Traders should always set the periods based on their trading strategies and style. For example, a trader uses 5 and 21 periods on the daily charts as he believes that if the price action of the last 5 days differed from the price action of the last 21 days than the market is going to change the direction. Always use periods that match your trading style and strategy. - This article was submitted by ICM.com ForexLive  

MARKET WISDOM Mon 31 Dec

There is good volatility and there is bad volatility

Stanley Druckenmiller on how markets have changed When Stanley Druckenmiller complains, you know it's tough. He's a billionaire and undoubtedly one of the greatest traders of all time. He laments how algos and quants have changed the game. "I made 30 percent a year for 30 years. Now, we aren't even in the same zip code, much less the same state," he said. It might be easy to dismiss him as a has-been but he's not just complaining, he outlines how markets have changed. "You're getting noise that used to mean something, and now it doesn't mean anything," he says. Volatility used to be something that traders and active fund managers loved. It was seen as an opportunity but not any longer. "Volatility is only good if it's part of the trend and it's giving you entry points within a trend," he said. "When you're going up and down, but there's no real trend, that's a nightmare. You might think that a volatility move is the beginning of a trend and get yourself whipsawed." At the end of the day, that's the lay of the land now. People will always find ways to make money and today is no different. Druckenmiller highlights the things that will always be key, including curiosity, open-mindedness and courage. "I've never made a buy at a low that I didn't just feel terrible and scared to death making it," he said. ForexLive

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MARKET WISDOM | TRUSTED GURUS Thu 27 Dec

Ray Dalio helps put recent economic & market moves in perspective

Ray Dalio is the founder one of the world's largest hedge funds, Bridgewater Associates. He is one of the 100 wealthiest people in the world. If you are unfamiliar with how Dalio understands the economy and markets (ie. his mental model of how these work) this article he shared over Christmas is a good read. To whet your appetite: At the biggest picture level, there are three big forces that interact to drive market and economic conditions over time.  They are  1) productivity growth,  2) the short-term debt cycle (which typically takes about 5-10 years), and  3) the long-term debt cycle (which typically takes about 50-75 years).   These factors also affect geopolitics both within and between countries, which also affects the market and economic conditions. Here is the link where you can read it all  ForexLive

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