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Since there can be a few different prices for a currency pair at any one time, you may not be able to see what is the best available price if you trade through only one market maker. Generally, though, the rates provided by market makers to retail traders are quite close to the pricing quoted in the interbank market. No standard data Exchange rates differ from one market maker to another because there is no consensus specified by a centralised market.
Different market makers have different rates at the same time although usually not differing by more than a few pips. A trader would have to accept what is being quoted by his broker unless he compares prices with other brokers.
Price charts from different price feed vendors will also look slightly different as they each have their own data source. Although, in general, the currency prices are quite similar. The forex trading day Also, being a hour market, boundaries of a trading day are blurred. Traders from around the world are in various time zones. Traders from, say, Singapore would display a different timing from their US counterparts — who tend to display EST Eastern Standard Timing on their price charts.
While the trading arena has had a boost from the CME-Reuters joint venture of a central forex exchange, it remains to be seen if that can benefit independent traders.
Trade manipulation by some market-making brokers is something that is difficult for traders to prove, and something that is easy for the culprits to dismiss.
However, despite the limitations that come with the OTC territory, spot forex trading can be extremely financially rewarding for those who are aware of the limitations and know how to deal with them.
And trading forex is not one of the easiest ways — despite what many new traders believe. Many traders fail, and they empty their trading accounts before they learn how to exploit the forex market to their advantage.
Although there are also traders who are successful in forex trading, their numbers are small compared to the majority of losers. Many times, traders are not aware that they have the power and might to shift the odds to their favour, that they can dramatically increase their chances of success if they want to.
The main reason why many traders get defeated by the market can be attributed to their lack of knowledge. In this 21st century, where the buzzword is knowledge, it is not just a matter of working hard, but also a matter of working smart. Knowledge is the key that can open many doors — if you have an intimate knowledge of how something works, you can then come up with ways to exploit what you know to your advantage.
This applies to forex trading as well. You need to know how to identify high probability trade setups and how to manage your money wisely. For every transaction in the forex market, there are winners and losers. Your goal is to make more overall profits than losses over a period of time, and to emerge an overall winner. My approach to consistent trading success lies in three main pillars, or the 3Ms: Mind, Money and Method.
It is often said that we are our own worst enemy. Human beings are emotional creatures, and most of our decisions are guided more by emotions than logical thinking. Our mind is capable of playing tricks on us; we can get seduced into unfavourable situations by our emotions. Emotions can work for us or against us. Sometimes they can save us from landing in a pile of sticky mess, but sometimes they can land us in it. We can also turn the tables around by playing tricks on our mind, making it believe whatever we want it to believe.
Do you have the mental strength? Whether you are new to trading currencies or a forex trader who has some experience, here are some questions to ask yourself: Do you really have a strong desire to succeed in forex trading?
Sure, every one wants to succeed in something, but do you have the desire to want to succeed in forex trading? First of all, this field is not for every one, for you must have the passion for it. If you just want to try your luck, or dabble, in trading, you will just end up among the majority who lose their money. You must have the deep desire to want to accomplish your goals, because without this desire, your thoughts will not materialise into action, and it is action that could transform your goals to reality.
To be a successful trader, you must be highly self-motivated, have a concrete plan of action, and not be afraid of failure. Are you prepared to devote a lot of time and effort into picking up trading skills and knowledge?
To be really good at anything, you need skills and knowledge in that field. A huge amount of time, effort and money is required for a trader to attain consistent success in forex trading. Despite the availability of forex trading-related resources on the internet, and in the bookstores, traders can find it quite daunting to learn about trading on their own as they do not know what there is to be known.
I recommend that you check out those which are offered by skilled and practising instructors. Note: Be wary of signing up for courses or seminars that are full of hype, for they can be very misleading. Avoid those that give you the impression that you can attain consistent profits after two days of intensive learning, or those that require you to purchase expensive software. While there are some shortcuts to gaining knowledge via courses or seminars, there is no substitute for honing your trading skills in the market.
Are you willing to accept losses as part of trading? Every one makes mistakes, and mistakes are inevitable. Got a trading loss? Then whip out your trading log to record what your mistakes are and what you have learnt from that losing trade. Always have something positive to take away from your losses, and treat it as a learning experience.
Know that there will be other trades coming your way. Are you willing to take sole responsibility for your trading decisions? You read some market analysis, and then trade according to what the analyst is saying. That trade turns out to be a loser, and you turn around to blame it on that market report. It is dangerous to blame losses on other people, the forex market, or the stars, for you are the only person responsible for pulling the trigger.
And if you blame others you will never be able to find out how you can improve. Fear and greed Fear and greed are the two dominant emotions that affect not just the state of our mind, but also the currency market. In fact, the fluctuations of these two emotions are the main drivers of the currency market.
There are, of course, other emotions that exist in the market such as disappointment, regret and so on, but fear and greed are the principal forces that tilt the scales of supply and demand of currencies.
When traders feel overly optimistic about a country or its currency, they become consumed by the great hope that the currency would appreciate in value against another currency. They are then guided by this hope and greed to buy the currency pair now so that they could hopefully sell it at a higher price in the future. Greed then grows into euphoria, as traders continue to buy and buy, thus taking currency prices to newer highs.
When people are buying a currency with great hope, they are also selling the other currency in the pair with great fear. On the other hand, when currency prices go down, fear and greed are also the main drivers of the move. All in all, fear and greed are behind the steering wheel of the currency market. So, while you must learn to recognise these emotions in the market, the problem comes when you allow them to distort your logic when it comes to making trading decisions, as most of these decisions will turn out bad, and are likely to cause you to regret your actions later.
Since there is no way of banishing these emotions for good, the best thing to do is to control these emotions, instead of letting them control the way you think and act. Face and control your fears Since greed can be categorised as a kind of fear, which is the fear of missing out, I will discuss the primary types of fears relating to trading, and how they can be overcome. The first step to preventing fears from ruining your trading performance is to recognise the various forms of fear that is connected to trading.
And once you recognise the type of fear you are experiencing, the easier it is for you to handle that emotional obstacle so that you can trade better. That is the key to emotion-free trading. It is not about pretending that those fears do not exist, but how you handle them that matters. Here are some common trading-related fears.
Fear of missing out Why do so many people rush to departmental store sales, or rushed to buy technology stocks during the dot-com boom? Any kind of buying mania stems from a very strong emotion that is commonly invoked in people, and that is the fear of missing out.
In trading, this fear manifests itself especially during a sharp rally or decline of a currency pair. Your heart begins to pound really fast, and you have a million thoughts zipping through your brain, with most of the thoughts urging you to buy now, now, now. I am losing out! Traders suffering from this type of fear are usually the ones who get onto a trend too late.
Be disciplined and hold off that mouse whenever you sense that this type of fear is creeping up on you. Think instead of all those traders who are pouring dumb money into the market, and be glad that you know better than them not to join in the craze.
Fear of losses Trading is a game — there will be winners, and there will be losers. Sometimes you win some, sometimes you lose some. Losses are bound to happen, no matter how accurate a trading system may be. The fear of losing is most prominent in new traders as they do not yet have adequate trading skills and knowledge to help assess and evaluate trading opportunities with a high level of confidence. This can lead to trading paralysis, whereby traders become afraid of pulling the trigger when it comes to entering or exiting trades as they fear losing money or a big portion of their trading capital.
However, if you have a reasonable stop-loss order in place, that is in accordance to your money management rules, you should have no reason of being fearful of damaging the trading account based on just one trade.
That is what stop-loss orders are for — to guard against huge losses. When you do encounter hesitancy in pulling the trigger, evaluate if you have valid reasons for doing so or if you are simply held back by fear.
Traders just have to get used to the reality that losses are inevitable. The trick is to ensure that your losses are kept small so that you do not harm both your trading account and your state of mind. A trader does not have to be right. It does not matter at all whether he or she is right or wrong; what counts is whether he or she is profitable in the long run. Traders should not be hung up on the outcome of single trades, or even a few trades, as trading performance has to be assessed over a period of time.
What matters is that you end up profitable over a period of time. Once you place less emphasis on being correct on a current trade, your fear of making wrong decisions should abate, thus enabling you to make better trading decisions without feeling burdened by the overwhelming pressure to be correct in that trade. Remember that there will be times of losses and times of profits, which is why it is so important to enter only trades that have a high probability of success. Focus on the big picture Do not get caught up in feeling invincible or pessimistic after a win or a loss.
As trading is a very highly charged and emotional activity, it is very easy for traders to oscillate between emotional highs and lows. The outcome of just one trade should not affect your overall performance, unless you have violated proper risk management guidelines by betting the farm on a single trade or by over-leveraging.
A trade is just one of many trades. When you are wrong on one trade or several trades, try not to beat yourself up or feel regret. Instead, analyze to see where and how you could have done better in those trades or what mistakes you may have made, and record what you have learnt from them. If there was really nothing that could have been preventable, just accept that the market is unpredictable. The outcome of one or a few winning or losing trades should not be magnified.
Other trades will surely come. I strongly believe that once a trader has honed his or her trading skills, the ultimate factor that will affect his or her overall profitability is money management skills. Money management is all about managing the possible risks, and it is the defining factor that separates winners and losers in forex trading.
Novice traders think of how much they can harvest from the market; experienced traders think of how much they can lose to the market. Many traders are so eager to trade to make big money that they completely overlook money management.
Poor money management also explains why so many traders get wiped out by the market. Money management is about fully optimising your trading capital. It allows you to be proactive in managing risks, and to cope with trading losses — which are part and parcel of the game.
It is an essential tool to ensure that you will have more than enough to last another day in the trading game. No matter how good a trading system may be, there will be times when you will experience a series of losses. Success comes to those who have set down rules for money management, and have the discipline to follow them through their trading. Preserve your capital The shining light that attracts all traders to the forex market is the prospect of being able to grow their money by tapping into the online trading platform as their own in-house money tree.
In almost any field, it is true that most people are drawn to short-term benefits, but are myopic when it comes to long-term planning. Trading is no exception. When risk capital is put aside for trading, you are hoping that this amount of money could be transformed into a much bigger amount; otherwise, what would be the point of risking it?
But if this capital runs out, what can you bank on to make your desired profits? After all, money begets money. To drive home the importance of capital preservation, I will discuss the concept of drawdown, and how that is relevant to money management. In other words, it is the amount of money that you lose — it is usually expressed as a percentage of your total trading equity at any given time.
Drawdown is not an indication of your overall trading performance, as it is calculated when you have a losing trade against your new equity high or your original equity, depending on which is higher.
Recovering from drawdown As drawdown gets bigger and bigger, it becomes increasingly difficult to recover the equity.
Many people are not aware that in order to recoup the percentage of equity that they lose, they will need to gain a bigger percentage just to break even. The answer is no. It will require an Let me show you with numbers. OK, that is not scary yet, but if you start losing more and more of your capital bigger and bigger drawdowns , the faster you will go down the rabbit hole. While many traders hope for that One Big Win that will magically transform them into millionaires overnight, they are more likely to be confronted with the One Big Loss that will threaten their survival in the forex market if they do not exercise careful money management.
If a trader has a big loss, he or she will have to spend more time to get back to where he or she was before, instead of using the time to make profits. Traders who burn out quickly in the market are those who do not show respect for risk.
On the other hand, traders who have flourished are those who fully understand the importance of stringent money management and incorporate that into their trading approach. There is no way around to recouping slowly, unless you want to drive yourself to total destruction by risking more and more of your equity to try to make back your losses.
Holding on to a losing trade for too long is the biggest cause of a big drawdown. Be well-capitalised Most new traders run out of money even before they see any profits in their trading account. Indeed, those who are new to trading most likely do not have a good understanding of the risks and dangers that are lurking in the market, and few even know what drawdown means or have even heard of this word.
Many of them do know that trading can be very risky if they do not know what they are doing or how things work in the currency market and, to them, one of the obvious but incorrect ways to limit this risk is by allocating just a small amount of money to their trading account.
There are also many new traders who begin their trading business with little initial capital as they simply do not have enough money. Whatever their reasons may be, being under-capitalised will be more than just a mistake; it is often the prelude to trading failure.
Forex traders who want to set themselves up for success must be well-capitalised. Never mind that some retail brokers are offering a minimum account deposit of just a few hundred dollars — a paltry amount that almost every one can afford. Sufficient initial capital must be available to cushion the impact of a string of consecutive losses, so that you do not wipe out your trading account.
A series of losses is really not that uncommon in trading, and all traders must be financially prepared for it. Those with insufficient trading capital tend to set really tight stops, which will naturally then lead to a higher probability of being stopped out.
They also tend to have a good chunk of their account eaten away by unreasonably large losses in relation to their trading account, if they do not set tight stops. So it seems that whichever way they turn, they are setting themselves up for failure, unless they are willing to trade smaller lot sizes.
Looking outside of trading, many other businesses fail because the owners often do not have enough capital to tide them over the initial starting phase.
For example, a new restaurant owner must set aside enough money to pay the rent of the restaurant for at least a few months to a few years, assuming that the restaurant would not make any net profits in that period of time. If the owner only has enough to pay for two months rent from his or her own pocket, and the restaurant is still not making enough to cover the rent and other expenses in the third month, how do you think the business is going to sustain itself?
The entire business could fail, not because of the business model, but because of the lack of sufficient capital to keep the business running while the customer base builds up.
Trading, as I have mentioned before, must be treated just like any other business, not a frivolous casual pursuit. The point is this: by starting off sufficiently capitalised, you are more likely to adhere to your money management rules and, by doing so, you are really giving yourself a good fighting chance in the market. Losses are really just part of the trading game. If trading losses are kept manageable and reasonable, they should not dent your trading account too much, provided that you are well-capitalised.
Knowing when to get out of a losing position in the currency market is a very important tool of risk management. Stop-loss orders allow traders to set an exit point for a losing trade, and are the best weapon against emotional trading.
While I recommend that traders place a stop-loss order at the time of placing their entry order, mental stops may also be used — but preferably by traders who are more disciplined. From experience, it is much wiser to have a wider but reasonable stop than to have an unreasonably tight stop.
Generally, a stop-loss order should not be shifted in the losing direction while a position is opened. A good trader should know beforehand when to cut his or her losses, and also when to get out of the market with profits.
It is indeed the elusive factor that courts the relentless determination of its seekers. Want to know where it lies? It only exists in the creative part of the mind — together with fairies and gnomes. There is no perfect formula or strategy that can achieve that unrealistic goal because people who are involved in the financial markets evolve with changing market circumstances, even though certain old habits die hard.
Despite the non- existence of the magic formula, there are certainly high probability ways of trading the forex market. While the bulk of this book is focused on the Method part, you need to combine Method with both Money and Mind in order to attain success in the trading business.
The old question: technicals or fundamentals? There are generally three broad categories of forex traders pertaining to what they base their trading decisions on: 1. the technical trader, 2. the fundamental trader, 3. the trader who combines both technicals and fundamentals. Each type of trader has a distinctively different way of interpreting the currency market based on his or her own opinions. Technical trading A technical trader believes that historical data has a big role in the forecasting of future price action, and is thus devoted to currency price chart analysis, making use of various charting tools such as support and resistance levels, trendlines and a myriad of chart indicators to understand past price behaviour so as to predict what the market will do next.
Most forex traders employ some kind of technical analysis to help them make trading decisions. Technical traders assume that everything that is to be known about the market has already been factored into the current price.
Fundamental traders believe that the exchange rate of currencies are largely driven by economic and geopolitical conditions, aside from central bank interventions, and will keep track of economic data such as trade balances, inflation, Gross Domestic Product GDP , unemployment rates, interest rates and so on.
They are also concerned about what policymakers have to say regarding the monetary policy of the country, and will keep on top of these when speeches are scheduled. Combing technicals and fundamentals Since there are advantages of analyzing the forex market from these two different fields, it would be too restrictive to just side with one area and ignore the other.
The most effective traders tend to make trading decisions based on a combination of both technical and fundamental factors in order to get a feel of the overall market sentiment, and then decide to either trade that sentiment or to trade against it taking a contrarian approach. The strategies taught in this book must always be combined with the prevailing market sentiment, which is influenced mainly by fundamentals. Some strategies may work well for some traders, but may not have the same results for others over a period of time.
This may seem puzzling for some people who are wondering that if something works for someone, then it should work for other people as well. In trading, there are so many other factors specific to each trader that can influence the overall trading performance — his or her emotions, psychology, trading time frame, money management rules, lifestyle, trading capital and so on. The strategies included in this book are open to customisation according to your own personal preference.
Many traders do not give themselves the fighting chance and time to stay in the game as they are prone to getting wiped out very quickly. The Ten Rules For Forex Trading I list here ten rules that I think are important for trading forex. Dos 1. When trying out a new trading strategy, always test it in a demo account, or with a small amount of money, before you commit more money to it. Always keep a record of each of your trades, with details of: why you got in, how you got out and why it turned out the way it did.
Have a personalised trading plan and update it as you learn from the market. If you are unsure of a trade, stay out. It is better to miss an opportunity than to have a loss.
When trading, keep up-to-date with both the fundamentals and technicals affecting the market. A trader in the dark is a trader in the red. It will affect you emotionally, and you will most likely lose it to irrational trading. Always know why you are getting into a trade, and how you are going to get out of it.
Just be concerned about being profitable. Chances are that your account will be decimated before you can recoup your losses and go into profit. Vent your frustrations elsewhere after a loss. Do you see it as a big mechanical matrix which is devoid of emotions? Or do you think of it in mathematical and probability terms?
Perhaps, you may even view it as just a vast network of computers which are designed to cheat the trader sitting in front of his or her computer and trading electronically. Most traders I know have a love-hate relationship with the forex market, thinking that the market is, in turn, either against them or for them. To me, the forex market is nothing more than the compressed display of emotions at any one time emanating from currency speculators around the world.
It is similar to a big living organism, like a human being, which is made up of numerous cells, with each cell carrying out its own function and interacting with other cells of the body, working to keep the body alive with round-the-clock chemical and biological processes. The forex market is alive as a macro living organism, which comprises a vast number of market participants acting out their perceptions and emotions, thus driving the blood around the invisible entity.
The participation of each player, whether the player is an institutional dealer or an independent trader, is akin to the individual functioning of a cell, which collectively will constitute the whole organism — the forex market in this case.
Knowing what the market thinks and how it thinks is crucial to trading success because, ultimately, the trader is dealing with other traders out there, and needs to know what they are thinking. Even if you see the market as an enemy, what could be better than knowing the weak points and being able to read the mind of your adversary? In this chapter, I shall focus on how you can better understand the market, and use that knowledge as one of your trading weapons.
Market sentiment is simply what the majority of the market is perceived to be thinking or feeling about the market — it is the most important factor that drives the currency market.
This is so because traders tend to act based on what they feel and think of certain currencies, regarding their strength or weakness relative to other currencies. Market sentiment sums up the overall dominating emotion of the majority of the market participants, and explains the current actions of the market, as well as the future course of actions of the market. The trend adopted by the forex market is actually a reflection of the current market sentiment, which in turn guides the trading decisions of other traders, whether they should long or short a currency pair.
In the process of making educated trading decisions, traders have to weigh a multitude of factors which could influence the bias of a currency, before making up their minds about the current and future state of certain currencies. There are three main types of sentiment when it comes to forming opinions in the forex market: 1. bullish, 2. bearish or 3. just plain confused. If the majority of the market wants to sell that currency, the market sentiment is deemed to be bearish; if the majority wants to buy that currency, the market sentiment is bullish; and when most market participants are unsure of what to do at the moment, the sentiment ends up being mixed.
Market sentiment acts like a fickle lover, capable of changing its mind based on certain incoming new information which can upset the existing sentiment. One moment everyone could be buying the US dollar in anticipation of a stronger dollar; the next second they could all be dumping it as they fear the dollar would start to weaken due to the impact of some new piece of information, which is almost always some fundamental news.
Interest rates Trends in interest rates are one of the most significant factors influencing market sentiment, as interest rates play a huge role affecting the supply and demand of currencies.
Every currency in the world has interest rates attached to them, and these rates are decided by central banks. Some currencies have higher interest rates than others, and these are usually the currencies that attract the most attention from savvy international investors who are always looking across the global landscape in the continual search for a better interest rate yield on fixed-income investments. This, of course, also depends on the geopolitical or economic risks of that particular currency.
Just like when a bank lends money to a higher-risk borrower, high-risk currencies require a significantly higher interest rate for investors to consider keeping money in those currencies. What causes fluctuations in interest rates?
The value of money can and does decrease when there is an upward revision of prices of most goods and services in a country. The nice word for this erosion in value is, of course, inflation. Controlling inflation Central banks are responsible for ensuring price stability in their own country, and one of the ways they employ to fight inflationary pressures is through the setting of interest rates. If inflation risks are seen to be edging upward in, say, the US, the Fed would raise the federal funds rate, which is the rate at which banks charge each other for overnight loans.
When the overnight rate is changed, retail banks will change their prime lending rates accordingly, hence affecting businesses and individuals. An increase in interest rates is an attempt to make money more expensive to borrow so that there will be a gradual decrease in demand for that currency, thus slowing down an overheated economy.
Interest rates and currencies The most important way in which interest rates can influence currency prices is through the widespread practice of the carry trade. A carry trade involves the borrowing and subsequent selling of a certain currency with a relatively low interest rate, then using the funds to buy a currency which gives a higher interest rate, in an attempt to gain the difference between these two rates — which is known as the interest rate differential.
The trader is paid interest on the currency he or she is long in, and must pay interest on the currency he or she is shorting. This difference is the cost of carry. Therefore, a currency with a higher interest rate tends to be highly sought after by investors looking for a higher return on their investments. The increased demand for that particular currency will thus push up the currency price against other currencies.
For instance, in there was a strong interest among Japanese investors to invest in New Zealand dollar-denominated assets due to rising interest rates in New Zealand. The then near-zero interest rates in Japan forced a lot of Japanese investors to look outside of their country for better yields on cash deposits or fixed- income instruments. See Figure 5. When forex traders anticipate this kind of situation, they become more inclined to buy that high-interest-rate currency as well, knowing that there is likely to be massive buying interest for that currency.
So, in general, rising interest rates in a country should boost the market sentiment regarding the currency of that country. The opposite is true too: when interest rates are cut in a country, that would result in quite a bearish sentiment regarding the currency of that country, and traders would be more willing to sell than buy that particular currency.
Economic growth Besides interest rates, economic growth of countries can also have a big impact on the overall currency market sentiment. Since the United States has the largest economy in the world, the US economy is a key factor in determining the overall market sentiment, especially of currency pairs that have the USD component.
A robust economic expansion, coupled with a healthy labour market, tends to boost consumer spending in that country, and this helps companies and businesses to flourish.
A country with a strong economy is in a better position to attract more overseas investments into the country, as investors generally prefer to invest in a solid economy that is growing at a steady pace. Forex traders, expecting this consequence, will put on their bullish cap to buy that currency before the investors do.
Gross Domestic Product GDP , 2. the unemployment rate, and 3. trade balance data. These are explained below. Unemployment rate The unemployment data reports the state of the labour market of a country. Trade balance data Another widely watched economic indicator is the trade balance data. Trade balance measures the difference between the value of imports and exports of goods and services of a country.
If a country exports more than it imports, it has a trade surplus. For example, if the US imports an increased amount of goods and services from Europe, US dollars will have to be sold in exchange to buy euros to pay for those imports.
The resulting outflow of US dollars from the United States could potentially cause a depreciation of the US dollar against the euro or other currencies, and that can affect market sentiment surrounding the USD.
The opposite scenario is true for a country that is experiencing a trade surplus. Global geopolitical uncertainties such as terrorism, transitional change of government or nuclear threats can cause investors to lose faith in some particular currencies, and they may prefer to shift their assets into a safe haven currency when these circumstances arise.
Market sentiment is very sensitive to such geopolitical developments, and can cause a strong bias towards a particular currency. For example, during periods of high tension in the Middle East in , the market formed a very bullish sentiment towards the US dollar, which became the preferred currency to hold in such turbulent times, replacing the traditional status of the Swiss franc as the safe haven currency.
Forex traders should be keenly aware of the current geopolitical environment in order to keep track of any potential change in market sentiment, which could impact currency prices. But how can you get an idea of the overall sentiment of the market? You can do so by reading reports by analysts and financial journalists in news wires or by visiting online trading forums to see what other traders are discussing. However, these ways of getting a feel of the current market sentiment are not too accurate; you may think that other traders are in a buying or selling mood, but that may not be what is really happening in reality.
Here are some of the more effective ways of gauging market sentiment: 1. The Commitment of Traders COT report 2. Commitment Of Traders COT report What is the COT? The COT report provides traders with detailed positioning information about the futures market, and is, in my opinion, one of the most underrated tools that forex traders can make use of to enhance their trading performance. The report is compiled and released weekly by the Commodity Futures Trading Commission CFTC in the United States every Friday at Eastern Time, and records open interest information about the futures market based on the previous Tuesday.
Anyone can access the COT report for free on the CFTC website www. There are basically two types of reports available: the futures-only COT report and the futures-and-options-combined COT report. I usually just access the futures- only report for a glimpse of what has happened in the futures dimension of the forex market.
In order to get through to the currency futures data, you have to wade past other commodities like milk, feeder cattle and so on, so a little patience is required. Even though the data arrives three days late, the information nonetheless can be helpful since many traders spend their weekend analyzing the COT report.
The time lag between reporting and release is the main handicap of the COT data, but despite this limitation, you can still use it as a sentiment tool. Figure 5. You can see the long and short positions held by traders in each of the three main categories defined by the CFTC, as explained below.
Some notes to the figure above. For example, a German car-maker, who exports to the US, expects to receive 10 million euros worth of sales within the next quarter. To hedge against the possibility of a US dollar decline which would affect the amount of euros it would receive once converted, the German car-maker would short 10 million in Euro FX futures.
On the other hand, if a US car manufacturer exports 10 million US dollars worth of cars within the next quarter, it would long the equivalent in Euro FX futures contracts. The COT report tells you the long and short positions undertaken by participants from each category.
When it comes to analyzing information pertaining to currency futures in the COT report, it is generally more relevant for traders to focus on the non- commercial participants rather than on the commercial participants. The reason behind this is that these large speculators trade the futures contracts mainly for profits, and do not have the intention to take delivery of the underlying asset, which in this case would be cash.
Large speculators, however, will usually close their losing positions instead of rolling them over to the next month.
Why use The COT? The COT report allows you to gauge market sentiment in the currency futures market, which also influences the spot forex market. Currency futures are basically spot prices which are adjusted by the forwards derived by interest rate differentials to arrive at a future delivery price. Unlike spot forex which does not have a centralised exchange at the time of writing, currency futures are cleared at the Chicago Mercantile Exchange.
Price quotation One of the many differences between spot forex and currency futures lies in their quoting convention. In the currency futures market, currency futures are mostly quoted as the foreign currency directly against the US dollar. That said, spot forex and currency futures do have one similarity: the spot and futures prices of a currency tend to move in tandem. When either the spot or futures price of a currency rises, the other also tends to rise, and when either falls, the other also tends to fall.
What is of concern to us is whether the non-commercials are net long or short in that currency futures. In order to determine the volume of contracts that these large speculators are holding net long or short positions of for that particular currency futures, you just need to calculate the difference between the longs and shorts, that is, subtract the number of short contracts from the number of long contracts.
A positive figure shows the number of net long contracts, while a negative figure shows the number of net short contracts. As you can see in Figure 5. The non-commercials are long 98, contracts and short 12, contracts. Therefore, they are overall net long 85, contracts - Usually, when a particular currency is trending up against the US dollar, the non- commercials tend to register a net long position since these large speculators tend to ride on the existing trend.
The opposite situation is true too: the non-commercials tend to register a net short position when a particular currency is trending down against the US dollar. Knowing whether this category has been net long or short a few days ago only indicates to us the positioning in retrospect; this information is only useful if you compare the latest net positioning with the positioning figures from the past few weeks or months. By comparing the latest net positioning with that of the past few weeks or months, you can tell if the latest net long or net short positioning is skewing towards an extreme reading.
My observation of the financial markets is that dramatic price moves, usually at major turning points, tend to occur when the majority of the market is positioned incorrectly.
And since the large speculators are more inclined to close their losing positions than the commercial hedgers, it is beneficial for us to keep an eye on their net directional positioning as well as their net contract volume in the currency futures market.
If these large non-commercials are positioned on the wrong side of the market, you can expect liquidation of these positions, with the extent of liquidation depending on the total volume of contracts traded in the wrong direction. Such mass unwinding of positions tends to bring about a powerful price move in the opposite direction which could last for a few days, and it is this turning point that you could detect with the COT data before the reversal scene actually plays out.
Example: COT — using extreme position An example of this was played out in the week through November 17, In this case, all those who had the intention to go long on GBP had already done so. X-axis displays the dates for every three weeks even though the data for every week is shown on the chart. Y-axis displays the net number of speculative contracts. Positive numbers indicate net long positioning, while negative numbers indicate net short positioning. The presence of an extreme reading allows you to be prepared for a possible trend reversal which could occur when large speculators liquidate their positions.
A mere increase or decrease of contracts for a particular currency futures does not indicate anything which could be of predictive value, as it simply shows you what has happened, but not what could possibly happen in a high-probability scenario. COT data is a diamond in the rough What deters many traders from using the COT report is its raw organisation of data, but that is not good enough an excuse to completely neglect this little treasure trove.
The information from the COT report can be transferred into a spreadsheet so that further analysis can be conducted in a more suitable format.
Analysis of the COT report does not always throw up trading opportunities in the spot forex market, but when it does, you will be better prepared for a potential turn of tide, and be more confident in your trades.
Even though entries and exits cannot be timed solely based on the COT data, it can be an extremely useful tool to have in your toolbox to gauge the overall market sentiment. The forex market is very efficient at discounting future expectations by incorporating them into current prices. Very often, when news comes out better than is expected by economists and analysts, the currency of that country is more likely to soar against another currency.
When the news is worse than expected, that currency is more likely to fall against another currency. However, if the news or data turn out to be worse than expected and still the currency price soars, that is, the market reacts in a very bullish way to worse than expected data, a bright red flag should be waving at you.
The opposite situation also applies: if price action remains very bearish to much better than expected news, it signals a highly suspect price move. In short, you should look out for a contrarian market reaction to better or worse than expected news. Under these circumstances, it is better to assume that the price move is hardly supported by substance, and could reverse sometime soon.
A bullish price move that is not accompanied by evidence will soon be due for a reality check, just like a bearish price move that is not accompanied by evidence is very likely to be corrected very soon.
For example, if a piece of news turns out to be worse than expected, and assuming that there are no pre-release rumours or leaks of the news, and the currency pair rallies to break above a significant resistance level, you have reasons to suspect that the breakout move is likely to be false and unsustainable. Even if the currency pair manages to make new highs later on, you should be prepared for a possible trend reversal very soon.
The relative significance of news will vary from time to time. Summary As you have seen, market sentiment can be used, and should be used, to time your trade and identify profitable trading conditions. The Market Sentiment Strategy has to be applied in conjunction with other strategies as it does not have precise entry and exit signals. Once you get a sense of the current market sentiment, you can then decide whether it is best to trade with or against the sentiment, taking into account all other factors.
While it may be sensible to trade in the direction of the current sentiment, sometimes, trading against the sentiment can also be a profitable strategy, provided that you have valid reasons to do so.
For example, when the COT report indicates extreme positioning of the market, or when the market seems to be feeding off false euphoria on worse than expected news, it may be better to trade against the overall sentiment. You should, however, wait for a more precise signal that the current sentiment is wearing off before going against it, as sometimes false euphoria can last for quite some time before resulting in a reversal. This signal could be a failed breakout of some sort or some other pattern failure.
Always keep in mind that currency prices are, after all, the expressed perceptions of traders and market sentiment is really the blood that drives the market on the whole. Being able to ride on a trend is akin to making full use of the wind direction to steer your ship towards your destination. For a ship to go against the wind requires a tremendous amount of effort — one has to fight the stubborn resistance from the opposing wind.
Indeed, for most of the time, it pays more to be on the side of the current trend than to go against it. In the forex market, trend riders can capture any trend regardless of whether it is rising or falling in an attempt to generate trading profits. Forex tends to have quite trending markets, regardless of which time frame you are looking at — trends are often formed on hourly, daily or weekly charts.
With trends possibly having a long lifespan stretching to months, or even years, it is no wonder that many traders and fund managers exalt the strategy of hitching onto trends, with the glorious aim of capturing enormous profits from start to finish.
Trend riding is one of my favourite trading approaches, and I often ride the uptrend or downtrend after the trend has been established, rather than anticipating the move before it happens. I would say that even though the trend is your friend most of the times, one has to use a variety of methods to distinguish between a continuation of the trend and a possible trend reversal.
But before you can ride on trends, you first need to identify what the current trend is, and to determine the time frame of the trend. The question of what kind of trend is in place cannot be separated from the time frame that a trend is in.
Trends are, after all, used to determine the relative direction of prices in a market over different time periods. There are mainly three types of trends in terms of time measurement: 1.
primary long-term , 2. intermediate medium-term , and 3. These are discussed in further detail below. Primary trend A primary trend lasts the longest period of time, and its lifespan may range between eight months and two years. This is the major trend that can be spotted easily on longer term charts such as the daily, weekly or monthly charts. Long-term traders who trade according to the primary trend are the most concerned about the fundamental picture of the currency pairs that they are trading, since fundamental factors will provide these traders with an idea of supply and demand on a bigger scale.
Intermediate trend Within a primary trend, there will be counter-cyclical trends, and such price movements form the intermediate trend. This type of trend could last from a month to as long as eight months.
Knowing what the intermediate trend is of great importance to the position trader who tends to hold positions for several weeks or months at one go. Short-term trend A short-term trend can last for a few days to as long as a month.
It appears during the course of the intermediate trend due to global capital flows reacting to daily economic news and political situations. Day traders are concerned with spotting and identifying short-term trends and as such short-term price movements are aplenty in the currency market, and can provide significant profit opportunities within a very short period of time. You can easily gauge the direction of a trend by looking at the price chart of a currency pair.
A trend can be defined as a series of higher lows and higher highs in an uptrend, and a series of lower highs and lower lows in a downtrend. In reality, prices do not always go higher in an uptrend, but still tend to bounce off areas of support, just like prices do not always make lower lows in a downtrend, but still tend to bounce off areas of resistance.
There are three trend directions a currency pair could take: 1. uptrend, 2. downtrend or 3. Uptrend In an uptrend, the base currency which is the first currency symbol in a pair appreciates in value.
An uptrend is characterised by a series of higher highs and higher lows. However in real life, sometimes the currency does not make higher highs, but still makes higher lows. Downtrend On the other hand, in a downtrend, the base currency depreciates in value.
A downtrend is characterised by a series of lower highs and lower lows, but similarly, the currency does not always make lower lows, but still tends to make lower highs. Sideways trend If a currency pair does not go much higher or much lower, we can say that it is going sideways.
When this happens the prices are moving within a narrow range, and are neither appreciating nor depreciating much in value. For the Trend Riding Strategy, I shall focus only on the uptrend and the downtrend.
The stages of a trend are not clear- cut, and that includes the starting and ending stages; and each stage can vary in length of time. Nascent trend 2. Fully charged trend 3. Aging trend 4. End of trend Figure 6. As you can see, Stage 1 of the uptrend started when the currency pair first emerged from the down trendline. Later, a double top formation hinted that the uptrend was at Stage 3 when the trend was beginning to show signs of weariness.
Stage 1: Nascent trend Right after a reversal, the embryonic trend emerges into the new territory with the greatest amount of uncertainty, as traders have the least amount of confidence in the direction of the nascent trend. Price moves are often sharp, and may even retest the price levels seen before the entry into the new territory as bulls and bears wrestle for power. This characterises Stage 1 of a trend, and it is where aggressive traders get into the currency market, hoping to be right about the new direction of the trend and reap potentially the most profits by getting in early.
Since this stage of the trend has the greatest level of uncertainty, it is also where the risk of trend failure is greatest. Stage 2: Fully charged trend By the time the trend reaches Stage 2, it is fully charged. Either the bulls or the bears have won the battle over the other by now, and are persistently pushing the currency prices higher during an uptrend, or lower during a downtrend.
The highly confident behaviour of the bulls in the uptrend and of the bears in the downtrend gives little room for uncertainty about the trend direction. This stage is ideally the best time for the risk-averse trader to join in the prevailing trend, after getting confirmation from the technical picture and market sentiment.
Larger degrees of inaccuracy increase the chance and extent to which the price may change once the report is out. However, let's remember that forex traders are smart, and can be ahead of the curve. Well the good ones, anyway. Many currency traders have already "priced in" consensus expectations into their trading and into the market well before the report is scheduled, let alone released. As the name implies, pricing in refers to traders having a view on the outcome of an event and placing bets on it before the news comes out.
The more likely a report is to shift the price, the sooner traders will price in consensus expectations. How can you tell if this is the case with the current market? Well, that's a tough one.
You can't always tell, so you have to take it upon yourself to stay on top of what the market commentary is saying and what price action is doing before a report gets released. This will give you an idea as to how much the market has priced in. A lot can happen before a report is released, so keep your eyes and ears peeled. Market sentiment can improve or get worse just before a release, so be aware that price can react with or against the trend. There is always the possibility that a data report totally misses expectations, so don't bet the farm away on the expectations of others.
When the miss occurs, you'll be sure to see price movement occur. Help yourself out for such an event by anticipating it and other possible outcomes to happen. Play the "what if" game.
Ask yourself, "What if A happens? What if B happens? How will traders react or change their bets? What if the report comes in under expectation by half a percent? How many pips down will price move? What would need to happen with this report that could cause a 40 pip drop?
Come up with your different scenarios and be prepared to react to the market's reaction. Being proactive in this manner will keep you ahead of the game.
What the Deuce? They Revised the Data? Now what? Too many questions in that title. But that's right, economic data can and will get revised. That's just how economic reports roll! Let's take the monthly Non-Farm Payroll employment numbers NFP as an example. As stated, this report comes out monthly, usually included with it are revisions of the previous month's numbers.
We'll assume that the U. economy is in a slump and January's NFP figure decreases by 50,, which is the number of jobs lost. It's now February, and NFP is expected to decrease by another 35, But the incoming NFP actually decreases by only 12,, which is totally unexpected.
Also, January's revised data, which appears in the February report, was revised upwards to show only a 20, decrease. As a trader you have to be aware of situations like this when data is revised. Not having known that January data was revised, you might have a negative reaction to an additional 12, jobs lost in February.
That's still two months of decreases in employment, which ain't good. However, taking into account the upwardly revised NFP figure for January and the better than expected February NFP reading, the market might see the start of a turning point. The state of employment now looks totally different when you look at incoming data AND last month's revised data. Be sure not only to determine if revised data exists, but also note the scale of the revision. Bigger revisions carry more weight when analyzing the current data releases.
Revisions can help to affirm a possibly trend change or no change at all, so be aware of what's been released. Market Sentiment The market has feelings too, you know.
Get ready to learn all about market sentiment! Lessons in Market Sentiment 1. What is Market Sentiment Every trader has his own opinion about the market. The combined feeling that market participants have, that's what you call market sentiment, young Padawan. Commitment of Traders Report Gauging market sentiment may not be as difficult as you think. The Commitment of Traders COT report can be a clue on whether the market is bearish or bullish. How do you get a hold of the COT report?
It's as easy as , baby! Understanding the Three Groups Meet the different playas in the futures trading field: hedgers, large speculators, and small speculators! The COT Trading Strategy Yeah, we know. The COT report looks like a giant gobbled-up block of text. But don't fret! There's actually a pretty simple way to use it. Picking Tops and Bottoms When the market sentiment shifts, should you go with the speculators or the hedgers?
Your Very Own COT Indicator Studying the School of Pipsology is about to get sweeter! Are you ready to create your very own COT indicator? Getting Down and Dirty with the Numbers Put your thinking caps on because we're gonna get down and dirty with the numbers to calculate for the percentage of speculative positions!
What is Market Sentiment How's Mr. Market Feeling? Every trader will always have an opinion about the market. I'm pretty bullish on the markets right now. When trading, traders express this view in whatever trade he takes. But sometimes, no matter how convinced a trader is that the markets will move in a particular direction, and no matter how pretty all the trend lines line up, the trader may still end up losing.
A trader must realize that the overall market is a combination of all the views, ideas and opinions of all the participants in the market. That's right This combined feeling that market participants have is what we call market sentiment.
It is the dominating emotion or idea that the majority of the market feels best explains the current direction of the market. How to Develop a Sentiment-Based Approach As a trader, it is your job to gauge what the market is feeling. Are the indicators pointing towards bullish conditions? Are traders bearish on the economy? We can't tell the market what we think it should do. But what we can do is react in response to what is happening in the markets. Note that using the market sentiment approach doesn't give a precise entry and exit for each trade.
But don't despair! Having a sentiment-based approach can help you decide whether you should go with the flow or not. Of course, you can always combine market sentiment analysis with technical and fundamental analysis to come up with better trade ideas. In stocks and options, traders can look at volume traded as an indicator of sentiment.
If a stock price has been rising, but volume is declining, it may signal that the market is overbought. Or if a declining stock suddenly reversed on high volume, it means the market sentiment may have changed from bearish to bullish. Unfortunately, since the foreign exchange market is traded over-the-counter, it doesn't have a centralized market.
This means that the volume of each currency traded cannot be easily measured. OH NOOOO!!!! Without any tools to measure volume, how can a trader measure market sentiment?! This is where the Commitment of Traders report comes in! Commitment of Traders Report The COT Report: What, Where, When, Why, and How The Commodity Futures Trading Commission, or CFTC, publishes the Commitment of Traders report COT every Friday, around pm EST.
Because the COT measures the net long and short positions taken by speculative traders and commercial traders, it is a great resource to gauge how heavily these market players are positioned in the market. Later on, we'll let you meet these market players. These are the hedgers, large speculators, and retail traders. Just like players in a team sport, each group has its unique characteristics and roles. By watching the behavior of these players, you'll be able to foresee incoming changes in market sentiment.
You're probably asking yourself, "Why the heck do I need to use data from the FX futures market? Activity in the futures market doesn't involve me. So what's the closest thing we can get our hands on to see the state of the market and how the big players are moving their money?
Yep, you got it The Commitment of Traders report from the futures market. Before going into using the Commitment of Traders report in your trading strategy, you have to first know WHERE to go to get the COT report and HOW to read it.
htm Step 2: Once the page has loaded, scroll down a couple of pages to the "Current Legacy Report" and click on "Short Format" under "Futures Only" on the "Chicago Mercantile Exchange" row to access the most recent COT report. Step 3: It may seem a little intimidating at first because it looks like a big giant gobbled-up block of text but with a little bit of effort, you can find exactly what you're looking for.
To find the British Pound Sterling, or GBP, for example, just search up "Pound Sterling" and you'll be taken directly to a section that looks something like this: Yowza! What the heck is this?!
We'll explain each category below. For the most part, these are traders who looking to trade for speculative gains. In other words, these are traders just like you who are in it for the Benjamins! If you want to access all available historical data, you can view it here. You can see a lot of things in the report but you don't have to memorize all of it. As a budding trader, you'll only be focusing on answering the basic question: "Wat da dilly on da market yo?!
These players could be categorized into three basic groups: 1. Commercial traders Hedgers 2. Non-commercial traders Large Speculators 3. Retail traders Small Speculators Don't Skip the Commercial - The Hedgers Hedgers or commercial traders are those who want to protect themselves against unexpected price movements. Agricultural producers or farmers who want to hedge minimize their risk in changing commodity prices are part of this group. Banks or corporations who are looking to protect themselves against sudden price changes in currencies or other assets are also considered commercial traders.
A key characteristic of hedgers is that they are most bullish at market bottoms and most bearish at market tops. What the hedgehog does this mean? Here's a real life example to illustrate: There is a virus outbreak in the U. that turns people into zombies. Zombies run amok doing malicious things like grabbing strangers' iPhones to download fart apps. It's total mayhem as people become disoriented and helpless without their beloved iPhones.
This must be stopped now before the nation crumbles into oblivion! Guns and bullets apparently don't work on the zombies. The only way to exterminate them is by chopping their heads off. Apple sees a "market need" and decides to build a private Samurai army to protect vulnerable iPhone users. It needs to import samurai swords from Japan.
Steve Jobs contacts a Japanese samurai swordsmith who demands to be paid in Japanese yen when he finishes the swords after three months. In order to protect itself, or rather, hedge against currency risk, the firm buys JPY futures.
In It to Win It - The Large Speculators In contrast to hedgers, who are not interested in making profits from trading activities, speculators are in it for the money and have no interest in owning the underlying asset! Many speculators are known as hardcore trend followers since they buy when the market is on an uptrend and sell when the market is on a downtrend. They keep adding to their position until the price movement reverses.
Large speculators are also big players in the futures market since they hold huge accounts. As a result, their trading activities can cause the market to move dramatically. They usually follow moving averages and hold their positions until the trend changes.
Cannon fodders - The Small Speculators Small speculators, on the other hand, own smaller retail accounts. These comprise of hedge funds and individual traders.
They are known to be anti-trend and are usually on the wrong side of the market. Because of that, they are typically less successful than hedgers and commercial traders. However, when they do follow the trend, they tend to be highly concentrated at market tops or bottoms. The COT Trading Strategy Since the COT comes out weekly, its usefulness as a market sentiment indicator would be more suitable for longer-term trades.
The question you may be asking now is this: How the heck do you turn all that "big giant gobbled-up block of text" into a sentiment-based indicator that will help you grab some pips?!
One way to use the COT report in your trading is to find extreme net long or net short positions. Finding these positions may signal that a market reversal is just around the corner because if everyone is long a currency, who is left to buy? No one. And if everyone is short a currency, who is left to sell? What's that? Pretty quiet Yeah, that's right. NO ONE. One analogy to keep in mind is to imagine driving down a road and hitting a dead end.
What happens if you hit that dead end? You can't keep going since there's no more road ahead. The only thing to do is to turn back. At the same time, on the bottom half, we've got data on the long and short positions of EUR futures, divided into three categories: Commercial traders blue Large Non-commercial green Small non-commercial red Ignore the commercial positions for now, since those are mainly for hedging while small retail traders aren't relevant.
Let's take a look at what happened mid-way through Soon after, investors started to buy back EUR futures. Over the next year, the net value of EUR futures position gradually turned positive. In early October , EUR futures net long positions hit an extreme of 51, before reversing. Holy Guacamole!
Just by using the COT as an indicator, you could have caught two crazy moves from October to January and November to March The first was in mid-September This would have resulted in almost a 2,pip gain in a matter of a few months! With those two moves, using just the COT report as a market sentiment reversal indicator, you could have grabbed a total of 3, pips. Pretty nifty, eh? Picking Tops and Bottoms As you would've guessed, ideal places to go long and short are those times when sentiment is at an extreme.
If you noticed from the previous example, the speculators green line and commercials blue line gave opposite signals. While hedgers buy when the market is bottoming, speculators sell as the price moves down.
As a result, speculative positioning indicates trend direction while commercial positioning could signal reversals. If hedgers keep increasing their long positions while speculators increase their short positions, a market bottom could be in sight. If hedgers keep adding more short positions while speculators keep adding more long positions, a market top could occur.
Of course, it's difficult to determine the exact point where a sentiment extreme will occur so it might be best to do nothing until signs of an actual reversal are seen.
We could say that speculators, because they follow the trend, catch most of the move BUT are wrong on turning points. Commercial traders, on the other hand, miss most of the trend EXCEPT when price reverses. Until a sentiment extreme occurs, it would be best to go with the speculators.
The basic rule is this: every market top or bottom is accompanied by a sentiment extreme, but not every sentiment extreme results in a market top or bottom. Your Very Own COT Indicator Having your very own COT indicator is like having your own pony.
Using the COT report can be quite useful as a tool in spotting potential reversals in the market. There's one problem though, we cannot simply look at the absolute figures printed on the COT report and say, "Aha, it looks like the market has hit an extreme I will short and buy myself 10,, pairs of socks.
What may have been an extreme level five years ago may no longer be an extreme level this year. How do you deal with this problem? What you want to do is create an index that will help you gauge whether the markets are at extreme levels. Below is a step-by-step process on how to create this index. Decide how long of a period we want to cover. The more values we input into the index, the less sentiment extreme signals we will receive, but the more reliable it will be.
Having less input values will result in more signals, although it might lead to more false positives. Calculate the difference between the positions of large speculators and commercial traders for each week. This would result in a positive figure. On the other hand, if large speculators are extremely short, that would mean that commercial traders are extremely long and this would result in a negative figure.
Rank these results in ascending order, from most negative to most positive. Assign a value of to the largest number and 0 to the smallest figure. And now we have a COT indicator! This is very similar to the RSI and stochastic indicators that we've discussed in earlier lessons. Once we have assigned values to each of the calculated differences, we should be alerted whenever new data inputted into the index shows an extreme - 0 or This would indicate that the difference between the positions of the two groups is largest, and that a reversal may be imminent.
Remember, we are interested in knowing whether the trend is going to continue or if it is going to end. If the COT report reveals that the markets are at extreme levels, it would help pinpoint those tops and bottoms that we all love so much. We dug around the forums and found this little gold nugget for you. Apparently you can download the COT indicator if you're trading on an MT4 platform and you can find the link in our COT data to indicator forum thread!
Recall that not every sentiment extreme results in a market top or bottom so we'll need a more accurate indicator. Calculating the percentage of speculative positions that are long or short would be a better gauge to see whether the market is topping or bottoming out.
Going through the COT reports released on the week ending August 22, , speculators were net short 28, contracts. On March 20, , they were net short 23, contracts. From this information alone, you would say that there is a higher probability of a market bottom in August since there were more speculators that were short in that period.
But hold on a minute there You didn't think it would be THAT easy right? A closer look would show that 66, contracts were short while 38, contracts were long. On the other hand, there were just 8, long contracts and 32, short contracts in March.
What does this mean? There is a higher chance that a bottom will occur when As you can see on the chart below, the bottom in fact did not occur around August , when the Canadian dollar was worth roughly around 94 U. The Canadian dollar continued to fall over the next few months. Then what happened?
It started to steadily rise! A market bottom? Yep, you got it. Before we start betting the farm based on our analysis of the COT report, remember that those were just specific cases of when the COT report signalled a perfect market reversal. The best thing to do would be to back test and look at reasons why a reversal took place. Was the economy booming? Or was it in the middle of a recession?
Remember, the COT report measures the sentiment of traders during a specific period of time. Like every other tool in your toolbox, using the COT report as an indicator does not always correlate to market reversals. So take the time to study this report and get your own feel of what works and what doesn't.
Also, before we bring this lesson to an end, always keep in mind that market prices aren't driven by solely COT reports, stochastic, Fibonacci levels, etc. The markets are driven by the millions of people reacting to economic analysis, fundamental reports, politics, Godzilla attacks, UFO sightings, Lady Gaga concerts - life in general! It is how you use these tools that will help you be prepared to what lies ahead.
In conclusion Trading the News Extra! Reading up on the news reports may just reel you in a handful of pips! Lessons in Trading the News 1.
Importance of News Like how things are in the world of Star Wars, there is always fundamental force behind each movement in the market. Why Trade the News Trading the news is a double-edged sword. Sure, you can earn a lot of money by doing it but you also stand to lose a lot in times of increased volatility!
Which News Reports are Trade-Worthy? The most-watched news reports are from the U. Can you guess why? Directional Bias vs. Non-Directional Bias "Buy the rumor, sell the news. Trading with a Directional Bias Let's take a look at an example on deciding whether to go long or short before a report is released. Letting the Market Decide Which Direction to Take Okay, you already know which market-moving report to trade. What do you do next if you want to let the market decide which side to take? Summary: Trading the News You could get burned a couple of times by trading the news so practice, practice, practice!
It will be very rewarding once you get the hand of it. Importance of News It's not enough to only know technical analysis when you trade. It's just as important to know what makes the market move. Just like in the great Star Wars world, behind the trend lines, double tops, and head and shoulder patterns, there is a fundamental force behind these movements. This force is called the news! To understand the importance of the news, imagine this scenario purely fictional of course!
Let's say, on your nightly news, there is a report that the biggest software company that you have stock with just filed bankruptcy.
What's the first thing you would do? How would your perception of this company change? How do you think other people's perceptions of this company would change? The obvious reaction would be that you would immediately sell off your shares. In fact, this is probably what just about everyone else who had any stake in that company would do. The fact is that news affects the way we perceive and act on our trading decisions. It's no different when it comes to trading currencies.
There is, however, a distinct difference with how news is handled in the stock market and the forex market. Let's go back to our example above and imagine that you heard that same report of the big software company filing bankruptcy, but let's say you heard the report a day before it was actually announced in the news. Naturally you would sell off all your shares, and as a result of you hearing the news a day earlier, you would make save more money than everyone else who heard it on their nightly news.
Sounds good for you right? Unfortunately this little trick is called INSIDER TRADING, and it would have you thrown in jail. Martha Stewart did it and now she has a nice mug-shot to go along with her magazine covers.
In the stock market, when you hear news before everyone else it is illegal. In the forex market, it's called FAIR GAME! The earlier you hear or see the news, the better it is for your trading, and there is absolutely no penalty for it!
Add on some technology and the power of instant communication, and what you have is the latest and greatest or not so greatest news at the tip of your fingers. This is great to react fairly quickly to the market's speculations. Big traders, small traders, husky traders, or skinny traders all have to depend on the same news to make the market move because if there wasn't any news, the market would hardly move at all!
The news is important to the Forex market because it's the news that makes it move. Regardless of the technicals, news is the fuel that keeps the market going! Why Trade the News The simple answer to that question is "To make more money! When news comes out, especially important news that everyone is watching, you can almost expect to see some major movement. Your goal as a trader is to get on the right side of the move, but the fact that you know the market will most likely move somewhere makes it an opportunity definitely worth looking at.
Dangers of trading the news As with any trading strategy, there are always possible dangers that you should be aware of. Here are some of those dangers: Because the market is very volatile during important news events, many dealers widen the spread during these times.
This increases trading costs and could hurt your bottom line. You could also get "locked out" which means that your trade could be executed at the right time but may not show up in your trading station for a few minutes.
Obviously this is bad for you because you won't be able to make any adjustments if the trade moves against you! Imagine thinking you didn't get triggered, so you try to enter at market then you realize that your original ordered got triggered! You'd be risking twice as much now! You could also experience slippage. Slippage occurs when you wish to enter the market at a certain price, but due to the extreme volatility during these events, you actually get filled at a far different price.
Big market moves made by news events often don't move in one direction. Often times the market may start off flying in one direction, only to be whipsawed back in the other direction. Trying to find the right direction can sometimes be a headache! Profitable as it may be, trading the news isn't as easy as beating Pipcrawler at Call of Duty.
It will take tons of practice, practice and you guessed it more practice! Most importantly, you must ALWAYS have a plan in place. In the following lessons, we'll give you some tips on how to trade news reports. Before we even look at strategies for trading news events, we have to look at which news events are even worth trading.
Remember that we are trading the news because of its ability to increase volatility in the short term, so naturally we would like to only trade news that has the best market moving potential. While the markets react to most economic news from various countries, the biggest movers and most watched news comes from the U.
The reason is that the U. has the largest economy in the world and the U. Dollar is the world's reserve currency. This means that the U. news and data important to watch. With that said, let's take a look at some of the most volatile news for the U.
In addition to inflation reports and central bank talks, you should also pay attention to geo- political news such as war, natural disasters, political unrest, and elections.
Although these may not have as big an impact as the other news, it's still worth paying attention to them. When our economic guru Forex Gump is in a good mood, he usually releases a Piponomics article on upcoming news reports that you can play and with trade strategies to boot! Check out some of his articles of this sort: Trade the News This Week 4 News Reports You Can Trade this Week Trade the U. Retail Sales Report With Me Make Pips with this Week's Big Reports Also, keep an eye on moves in the stock market.
There are times where sentiment in the equity markets will be the precursor to major moves in the forex market. Now that we know which news events make the most moves, our next step is to determine which currency pairs are worth trading. Because news can bring increased volatility in the forex market and more trading opportunities , it is important that we trade currencies that are liquid. Liquid currency pairs give us a reassurance that our orders will be executed smoothly and without any "hiccups".
These are all major currency pairs! Remember, because they have the most liquidity, majors pairs usually have the tightest spreads. Since spreads widen when news reports come out, it makes sense to stick with those pairs that have the tightest spreads to begin with. Now that we know which news events and currency pairs to trade, let's take a look at some approaches to trading the news. Non-Directional Bias There are two main ways to trade the news: a Having a directional bias b Having a non-directional bias Directional Bias Having directional bias means that you expect the market to move a certain direction once the news report is released.
When looking for a trade opportunity in a certain direction, it is good to know what it is about news reports that cause the market to move. Consensus vs. Actual Several days or even weeks before a news report comes out, there are analysts that will come up with some kind of forecast on what numbers will be released.
As we talked about in a previous lesson, this number will be different among various analysts, but in general there will be a common number that a majority of them agree on. This number is called a consensus. When a news report is released, the number that is given is called the actual number.
For example, let's say that the U. unemployment rate is expected to increase. Imagine that last month the unemployment rate was at 8. With a consensus at 9. economy, and as a result, a weaker Dollar.
So with this anticipation, big market players aren't going to wait until the report is actually released to start acting on taking a position.
They will go ahead and start selling off their dollars for other currencies before the actual number is released. Now let's say that the actual unemployment rate is released and as expected, it reports 9.
As a retail trader, you see this and think "Okay, this is bad news for the U. It's time to short the dollar! Now let's revisit this example, but this time, imagine that the actual report released an unemployment rate of 8. The market players thought the unemployment rate would rise to 9.
What you would see on your charts would be a huge dollar rally across the board because the big market players didn't expect this to happen. Now that the report is released and it says something totally different from what they had anticipated, they are all trying to adjust their positions as fast as possible.
This would also happen if the actual report released an unemployment rate of The only difference would be that instead of the dollar rallying, it would drop like a rock! Since the market consensus was 9. looks a lot weaker now than when the forecasts were first released. Keeping track of the market consensus and the actual numbers, you can better gauge which news reports will actually cause the market to move and in what direction.
Non-directional bias A more common news trading strategy is the non-directional bias approach. This method disregards a directional bias and simply plays on the fact that a big news report will create a big move. It doesn't matter which way it moves We just want to be there when it does! What this means is that once the market moves in either direction, you have a plan in place to enter that trade. You don't have any bias as to whether price will go up or down, hence the name non-directional bias.
Trading with a Directional Bias Let's go back to our example of the U. unemployment rate report. Earlier, we gave examples of what could happen if the report came in light with expectations, or slightly better. Let's say there was a surprising drop. What effect could this have on the dollar?
One thing that could happen is that the dollar falls. Isn't the dollar supposed to rise if the unemployment rate is dropping? There could be a couple reasons why the dollar could still fall even though there are more people with jobs. The first reason could be that the long-term and overall trend of the U.
economy is still in a downward spiral. Remember that there are several fundamental factors that play into an economy's strength or weakness. Although the unemployment rate dropped, it might not be a big enough catalyst for the big traders to start changing their perception of the dollar.
The second reason could be the reason for the unemployment rate drop. Perhaps it's right after Thanksgiving during the holiday rush. During this time, many companies normally hire seasonal employees to keep up with the influx of Christmas shoppers. This increase in jobs may cause a short term drop in the unemployment rate, but it's not at all indicative of the long term outlook on the U.
A better way to get a more accurate measure of the unemployment situation would be to look at the number from last year and compare it to this year. This would allow you to see if the job market actually improved or not. The important thing to remember is to always take a step back and look at the overall picture before making any quick decisions.
Now that you have that information in your head, it's time to see how we can trade the news with a directional bias. Let's stick with our unemployment rate example to keep it simple. By looking at what has been happening in the past, you can prepare yourself for what might happen in the future.
Imagine that the unemployment rate has been steadily increasing. You could now say with some confidence that jobs are decreasing and that there is a good possibility the unemployment rate will continue to rise.
Since you are expecting the unemployment rate to rise, you can now start preparing to go short on the dollar. Take note of the high and low that is made. This will become your breakout points.
Since you have a bearish outlook on the dollar, you would pay particular attention to the lower breakout point of that range. You are expecting the dollar to drop so a reasonable strategy would be to set an entry point a few pips below that level. You could then set a stop just at the upper breakout point and set your limit for the same amount of pips as the breakout point range. One of two things could happen at this point.
If the unemployment rate drops then the dollar could rise. No harm no foul! Or if the news is as you expected and the unemployment rate rises, the dollar could drop assuming the entire fundamental outlook on the dollar is already bearish. This is good for you because you already set up a trade that was bearish on the dollar and now all you have to do is watch your trade unfold.
Later on, you see that your target gets hit. You just grabbed yourself a handful of pips! The key to having a directional bias is that you must truly understand the concepts behind the news report that you plan to trade.
If you don't understand what effect it can have on particular currencies, then you might get caught up in some bad setups. Luckily for you, we've got Pip Diddy and Forex Gump to help explain what effect each report can have on the forex market.
Letting the Market Decide Which Direction to Take The first thing to consider is which news reports to trade. Earlier in this lesson we discussed the biggest moving news reports. Ideally you would want to only trade those reports because there is a high probability the market will make a big move after their release.
The next thing you should do is take a look at the range at least 20 minutes before the actual news release. The high of that range will be your upper breakout point, and the low of that range will be your lower breakout point. Note that the smaller the range is the more likely it is you will see a big move from the news report. The breakout points will be your entry levels. This is where you want to set your orders. Your stops should be placed approximately 20 pips below and above the breakout points, and your initial targets should be about the same as the range of the breakout levels.
This is known as a straddle trade - you are looking to play both sides of the trades, whichever trade it moves. Now that you're prepared to enter the market in either direction, all you have to do is wait for the news to come out. Sometimes you may get triggered in one direction only to find that you get stopped out because the price quickly reverses in the other direction.
However, your other entry will get triggered and if that trade wins, you should recoup your initial losses and come out with a small profit. A best case scenario would be that only one of your trades gets triggered and the price continues to move in your favor so that you don't incur any losses. Either way, if done correctly you should still end up positive for the day. One thing that makes a non-directional bias approach attractive is that it eliminates any emotions - you just want to profit when the move happens.
This allows you take advantage of more trading opportunities, because you will be triggered either way. There are many more strategies for trading the news, but the concepts mentioned in this lesson should always be part of your routine whenever you are working out an approach to taking advantage of news report movements. Summary: Trading the News There you have it! Now you know how to trade the news! Just keep these things in mind when trading: When you have a directional bias, you are expecting price to move a certain direction, and you've got your orders in already.
You just want to get triggered. That's pretty much it Is it really that easy??? HECK NO!!! You'll have to practice and trade many different reports before you get a feel of which news reports will make the market move, how much of a surprise is needed for the market to move, and which reports to avoid trading. Like in any other trading method, your success depends on your preparation.
This will take time and practice. Do your homework and study the economic indicators to understand why they are important. Remember, nothing worth having comes easy, so stick with it and you'll find that trading news report will be very rewarding once you get the hang of it! Carry Trade Did you know that you can actually still make money in forex without doing anything? You just have to keep your fingers crossed that price stays the same for a long period of time.
Lessons in Carry Trade 1. What is Carry Trade? Carry trades involve buying higher-yielding currencies and selling lower-yielding ones. How Do Carry Trades Work for Forex? Seems too good to be true? Oh, but carry trades are true! Check out how they work in real life in the forex market! To Carry or Not to Carry Carry trades work well when risk aversion is low. Carry Trade Criteria and Risk There are only two things to consider when you pick a pair to do a carry trade, but that simplicity doesn't make it any less easy.
Summary: Carry Trade Simply put, carry trades can work by making moolah out of the interest rate differentials of two currencies. Did you know there is a trading system that can make money if price stayed exactly the same for long periods of time?
Well there is and it's one the most popular ways of making money by many of the biggest and baddest money manager mamajamas in the financial universe! It's called the "Carry Trade". A carry trade involves borrowing or selling a financial instrument with a low interest rate, then using it to purchase a financial instrument with a higher interest rate.
Thus your profit is the money you collect from the interest rate differential. What's your profit? You got it! The difference between interest rates! By now you're probably thinking, "That doesn't sound as exciting or profitable as catching swings in the market. In this section, we will discuss how carry trades work, when they will work, and when they will NOT work.
We will also tackle risk aversion WTH is that?!? Don't worry, like we said, we'll be talking more about it later. dollar and selling Swiss francs at the same time. Just like the example in the previous, you pay interest on the currency position you sell, and collect interest on the currency position you buy. What makes the carry trade special in the spot forex market is that interest payments happen every trading day based on your position. Technically, all positions are closed at the end of the day in the spot forex market.
You just don't see it happen if you hold a position to the next day. This is the cost of "carrying" also known as "rolling over" a position to the next day. The amount of leverage available from forex brokers has made the carry trade very popular in the spot forex market.
What a deal, eh? Let's take a look at a generic example to show how awesome this can be. For this example we'll take a look at Joe the Newbie Forex Trader.
Instead of going out and blowing his birthday present on video games and posters of bubble gum pop stars, he decides to save it for a rainy day. Isn't that fantastic? com School of Pipsology and knows of a better way to invest his money. So, Joe kindly responds to the bank manager, "Thank you sir, but I think I'll invest my money somewhere else.
What will happen to Joe's account if he does nothing for a year? Well, here are 3 possibilities. Let's take a look at each one: 1. Currency position loses value. The currency pair Joe buys drops like a rock in value. The pair ends up at the same exchange rate at the end of the year. Currency position gains value.
Joe's pair shoots up like a rocket! That would be a nice present to himself for his next birthday! Here is an example of a currency pair that offers a 4. Again, this is a generic example of how the carry trade works. Any questions on the concept? We knew you could catch on quick! Now it's time to move on to the most important part of this lesson: Carry Trade Risk. To Carry or Not to Carry When Do Carry Trades Work? Carry trades work best when investors feel risky and optimistic enough to buy high-yielding currencies and sell lower yielding currencies.
It's kinda like an optimist who sees the glass half full. While the current situation might not be ideal, he is hopeful that things will get better. The same goes for carry trade. Economic conditions may not be good, but the outlook of the buying currency does need to be positive. If the outlook of a country's economy looks as good as Angelina Jolie, then chances are that that country's central bank will have to raise interest rates in order to control inflation.
This is good for carry trade because a higher interest rate means a bigger interest rate differential. On the other hand, if a country's economic prospects aren't looking too good, then nobody will be prepared to take on the currency if they think the central bank will have to lower interest rates to help their economy.
To put it simply, carry trades work best when investors have low risk aversion. Carry trades do not work well when risk aversion is high i.
selling higher-yielding currencies and buying back lower-yielding currencies. When risk aversion is high, investors are less likely to take risky ventures. Let's put this into perspective. Let's say economic conditions are tough, and the country is currently undergoing a recession. What do you think your next door neighbor would do with his money? Your neighbor would probably choose a low-paying yet safe investment than put it somewhere else.
It doesn't matter if the return is low as long as the investment is a "sure thing. he loses his job. In forex jargon, your neighbor is said to have a high level of risk aversion. The psychology of big investors isn't that much different from your next door neighbor. When economic conditions are uncertain, investors tend to put their investments in safe haven currencies that offer low interest rates like the U. dollar and the Japanese yen. If you want a specific example, check out Forex Gump's Piponomics article on how risk aversion led to the unwinding of carry trade.
This is the polar opposite of carry trade. This inflow of capital towards safe assets causes currencies with low interest to appreciate against those with high interest. Carry Trade Criteria and Risk Carry Trade Criteria It's pretty simple to find a suitable pair to do a carry trade.
Find a high interest differential.
Unlocks access to the leading crypto trading analysis, signals and trading tools. World class development team backed by Quant developers and VC investors. Our Forex trading PDF, it is widely believed that forex is one of the biggest and most fluid or liquid asset markets in the world. Sometimes referred to as FX, currencies are traded 24 hours per day — 7 days per week. In simple terms, refers to the process of exchanging one currency to another — and generally speaking, this will be for tourism, commerce, trading and many other reasons.
In this forex trading PDF we are going to talk about what forex trading is and some of the commonly used terminology in the industry. Essentially, it is the action of selling or buying foreign currencies.
Of course, these are all used by banks, corporations and investors for a variety of reasons like profit, making a trade, exchanging foreign currencies and tourism.
One of the major benefits with forex trading is that after opening a position, traders are able to put in place an automatic stop loss as well as at profit levels this closes the trade. The forex market is a place to buy or sell against each other a variety of national currencies, globally. Wherever two foreign currencies are being traded, you can be sure that a forex market exists regardless of the time zone. In this section of our forex trading PDF, we are going to run through some of the most commonly used forex trading terminologies in the industry.
The pip represents the smallest amount possible a currency quote can alter. For instance, 0. The differentiation between the sale price and the purchase price of a currency pair is known as the spread. The least popular least commonly used currency pairs usually have a low spread.
In some cases, this can be even less than a pip. When trading the most commonly used currency pairs the spread is often at its lowest.
The total value of the currency pair needs to surpass the spread in order for the forex trade to become profitable. In order for forex brokers to increase the number of trades available to its customers, they need to provide capital in the way of leverage. Before you can trade using leverage, you must sign up to a forex broker and open a margin account.
Contingent on the broker and the size of the position, leverage is usually capped at if you are a retail client non-professional trader. Some offshore forex brokers will offer much more than this if you are seeking higher limits.
It is because of the aforementioned example that you should exercise caution when using leverage. Should the worst possible scenario happen and your account falls below 0, you should contact your forex broker and ask for its policy on negative balance protection. The good news is that all forex brokers which are regulated by ESMA the European Securities and Markets Authority will be able to provide you with this extra level of protection, ensuring that you never become in debt with your broker.
Margins are a good way for traders to build up their exposure. Put simply, in order for a trader to maintain position and place a trade, the trader needs to put forward a specific amount of money first — this is the margin. Rather than being a transaction cost, the margin can be compared to a security deposit. This will be held by the broker during an open forex trade.
It is commonplace for forex brokers to give their customers access to leverage see above. In order for you to lower your risk of exposure and offset your balance, you might consider hedging. This is a procedure which involves traders selling and buying financial instruments. When there are movements in currencies, a hedging strategy can reduce the risk of disadvantageous price shifts. The protection of this technique is often a short term solution. Traders often turn to hedge in a panic as a result of the financial media reporting volatility in currency markets.
This is usually down to huge events like geopolitical turmoil conflict in the middle east , global health crisis COVID and of course the great financial crisis of To counteract negative price movements, market players will tactically take advantage of attainable financial instruments in the market.
This is hedging against risk in its truest form. Hedging will give you some flexibility when it comes to enhancing your forex trading experience, but there are still no guarantees that you will be totally protected from any losses or risks. While it can take some time to get your head around heading in the forex markets, the overarching concept is that it presents both outcomes. That is to say, irrespective of which way the markets move, you will remain at the break-even point less some trading commissions.
More specifically, the spot trade is a spot transaction, with reference to the sale or the purchase of a currency. Essentially, spot forex is to both sell and buy foreign currencies. A good example of this is if you were to purchase a certain amount of South African rands ZAR , and exchange that for US dollars USD.
If the value of the ZAR increases, you are able to exchange your USD back to ZAR, meaning you get more money back in comparison to the amount you originally paid. CFD is basically a contract which portrays the price movement of financial instruments.
So, without having to own the asset, you can still make the most of price movements, whilst also avoiding the need to sell or buy vast amounts of currency. CFDs are also accessible in bonds, commodities , cryptocurrencies, stocks, indices and of course — forex. With a CFD you are able to trade in price movements, cutting out the need to buy them at all. This section of our forex trading PDF is all about forex charts.
When it comes to a MetaTrader platform, traders can use bar charts, line charts and candlestick charts. You can usually toggle between the different charts, depending on your preferences, fairly easily. The first record of the now-famous candlestick chart was used in Japan during the s and proved invaluable for rice traders.
These days, this price chart is without a doubt one the most popular amongst traders all over the world. Much like the OHLC bar chart see below , candlestick charts provide low, high, open and close values for a predetermined time frame. Live forex traders love this chart due to its visual appearance and the range of price action patterns utilised. This allows you to gain a better understanding of how live trading works before you take any big financial risks in the market.
As the title suggests, this one is a bar chart, and each time frame a trader is looking at will be displayed as a bar. In other words, if you are viewing a daily chart you will see that every bar equates to a full trading day. With this price chart, traders are able to establish who is controlling the market, whether it be sellers or buyers.
OHLC analysis was the starting block for the creation of the ever-popular candlestick charts please further down. It is a great tool for looking at the bigger picture when it comes to trends. The line chart arranges the close prices at the end of that time frame; so in this case, at the end of the day, the line will connect the closing price of that day. In this section of our forex trading PDF, we are going to talk about the different ways in which you can sell and buy a forex position as well as things to look out for.
When it comes to forex trading you can trade both short and long, but always make sure you have a good understanding of forex trading before embarking on trades. After all, forex trading can be a bit complex to begin with, especially when mixing long and short trades. In a nutshell, going long is usually a term used for buying. So, when traders expect the price of an asset to rise, they will go long.
When forex traders expect the price of an asset to fall, they will go short. This means benefiting from buying at a lesser value. To achieve this, you simply need to place a sell order. The current exchange rate of a forex pair is always based on market forces.
This will change on a second-by-second basis. As we noted earlier, you also need to take the spread into account, so there will always be a slight variation in pricing. For instance, if you exchange 1 USD for 17 ZAR, the sale and purchase price offered by your forex broker will be either side of that figure.
The currency pairs with the most notable supply and demand attached to them will be considered the most liquid in the forex market. The supply and demand aspect is thanks to the investment of importers, exporters, banks and traders — to name a few.
The most liquid currency pairs are therefore the ones in high demand. When you feel you are ready to take the plunge and begin live trading, you need to select a forex trading system. There is a vast amount of trading strategies for you to pick from. This is because investors, speculators, corporations and banks have been trading for decades. In this part of the forex trading PDF, we are going to explain a few of the strategies available to you. If you want to buy and sell currency pairs from the comfort of your home or even via your mobile device , you will need to use a trading platform.
Otherwise referred to as a forex broker, there are literally hundreds of trading platforms active in the online space. This makes it extremely difficult to know which broker to sign up with. In the below sections of our forex trading PDF, we explain some of the considerations that you need to make. You should also look out for analysis tools available to you. In some cases, this might be embedded, while some offer tools such as technical analysis and fundamental analysis.
This is because it will save you a lot of leg work having to move between different sites and sources of information. Some of the fastest and easiest trading platforms are MetaTrader 5 MT5 and MetaTrader 4 MT4.
Crucially, both MT4 and MT5 are fast and receptive trading platforms, both providing live market data and access to sophisticated charts. It is essential before you begin trading seriously that you fully trust the trading platform you intend on using. This is especially the case if you intend on using a scalping strategy, for example. However, if you like to trade, it is vital for your peace of mind and your finances that you are fully confident with the fast execution of data transfer.
This is also the case with the precision of quoted prices, and the speed of order processing. All of these things are going to help you to have a successful forex trading experience. To enable you to make the most of new opportunities, the ideal forex broker will be available to you 24 hours a day and 7 days a week, in line with the forex market opening hours.
To save you from having to request that your broker takes action for you, your forex broker should enable you to manage your account and your trades separately.
WebForex trading guide for beginners pdf, Forex currency trading is just one of one of the most lucrative organizations you can get involved in these days. When the fears of Web2/7/ · Technical analysis – This is when you use mathematical techniques to predict future prices. Margin trading – This is when you buy and sell currencies Forex Web18/8/ · Best MT5 Forex Trading pdf Broker. We have picked RoboMarkets as the best tutorials on forex trading MT5 Broker. RoboMarkets (also RoboForex) is one of the few ... read more
stocks have an index, so does the U. In the s, the RMB was devalued to promote growth in China's economy, and between and the People's Bank of China artificially maintained a USDRMB rate of 8. Getting in Serious investors tend to buy an instrument based on the underlying fundamental reasons. Remember me on this computer. negative price movement.Thank you for your support! We have picked XM as the best forex broker for beginners with edycation PDFs for CFD Trading. Usually, when a particular currency is trending up against the US dollar, the non- commercials tend to register a net long position since these large speculators tend to ride on forex trading techniques pdf existing trend. The primary downside is that they are lagging rather than leading indicators. Non-commercial traders Large Speculators 3. Author of this review By George Rossi. This is the cost of "carrying" also known as "rolling over" a position to the next day.