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FOREX Articles Finance / How to Use Average Pip Movement
« Last post by FXshooting on Today at 11:40:07 am »
How to Use Average Pip Movement

What is Average Pip Movement?
Average pip movement is simply the average amount of pips by which the price of a Forex currency pair or cross moves in a given amount of time. It is represented by the Average True Range indicator which shows the average pip movement over whatever length of time it is set to. For example, if the Average True Range indicator is set to 20, and applied to a daily chart, the amount shown by the indicator will represent the average daily pip movement over the past 20 days. There is no reason why this indicator cannot be usefully applied to any other time frame, from the 1 minute to the 1-month charts. This indicator tends to be overlooked by less experienced traders, which is unfortunate, because it can be usefully applied to pick both trade entries and trade exits, as well as to select which currency pairs to trade.

To explain why average pip movement (also called “volatility”) is so useful, we must understand why there is an edge in volatility studies, and what that edge is.

Volatility Statistics
Just as studies of the directional movement of historical prices can indicate the more likely future direction movement by identifying trends or deviations from averages, so can studies of historical volatility indicate the most probable level of future volatility. Academic studies of volatility have shown that the level of volatility tomorrow is likely to be close to the level of volatility today.

Proof of this proposition, that volatility over a current period follows the previous period, can be proven by a back test on some major Forex currency pairs using thousands of samples over almost two decades of historical data:

Currency Pair

% Days Volatility >50% or <100% Previous Day

EUR/USD    68.12%

GBP/USD    70.12%

USD/JPY     68.21%

ALL            68.82%

This shows that slightly more than two-thirds of days have ranged within half or 100% of the volatility of the previous day. In plainer terms, if yesterday’s pip movement was 100 pips, there is probably a 48% chance that today’s pip range will be between 50 and 100 pips. A “clustering” effect exists, even if you only use a single previous period to measure the effect. If you use a wider look-back, say the Average True Range (ATR) of the previous 20 days, the clustering tightens a little further:

Currency Pair

% Days Volatility >50% <100% ATR 20 Day

EUR/USD      72.63%

GBP/USD      73.37%

USD/JPY       70.88%

ALL               72.29%

How to Use Volatility to Choose Trade Entries

As we have seen that likely future volatility can be inferred from current volatility, using an increase in volatility above the average pip movement as an entry trigger can improve your trading profitability, because it suggests that there is likely to be greater movement in price. For example, let’s say you are looking to trade the GBP/USD currency pair long on the H4 time frame, and the ATR 30 shows that the average pip movement over 4 hours is 30 pips. You then get a candle moving in the direction that you want to trade in which has a range of 40 pips, and the candle’s high breaks quickly. This tells you that it could be a better than usual time to enter a trade, because the price is showing unusually strong momentum in the direction that you want it to go. Volatility can be used in this way to measure momentum. Of course, the potential disadvantage is that the further the price has already moved before you enter, the higher the chance that the move has already mostly played out. Yet if you wait for average pip movement to be around, say, 25% higher than normal before entering, it will put the odds more firmly in your favor when used on less liquid major currencies such as the British Pound and the Japanese Yen. Remember also that if you see volatility just beginning to move beyond its average, it is likely to continue to be relatively high, which should also be good news for your trade as it can mean the price will go in your favor relatively strongly and quickly. With the extremely liquid EUR/USD currency pair EUR/USD, interestingly, waiting for volatility to be relatively low works better in picking trade entries.

Another possible technique to apply is waiting for a very strong and fast dip in a trend – a highly volatile movement – to turn back in the direction of the trend, and then entering. This is a high-probability set-up because of two factors: the probability of the trend to continue in its trending direction, and the probability that the volatility will remain high. Taken together, it means that the price is more likely than not to snap back quickly in the direction of the trend. I have published a back test based on this method using the three major Forex pairs, which showed very strongly positive results.

So far, this is an explanation of picking trade entries which focuses upon the price at and just before the time of entry, but there is a wider context to consider. The currency pair that is showing the highest volatility today is likely to be the biggest mover tomorrow, so it might be a wise idea to put your focus there at the start of the next trading day. Also, how about using volatility to decide whether to take what looks like being a good trade entry? Remember that if it is early in the trading day and 80% of the average pip movement for the day has already been made, and you are trading in the direction of the movement, your entry is going to be too late most of the time. For example, if the 20-day Average True Range is 100 pips, and the price was 1.0000 at Midnight and is 1.0090 at 11am, if you enter a long trade then in most cases it won’t advance further enough to make the trade much of a winner. However, on a few occasions it will go much further, but the best trades will usually be the ones which set up before the average range is made.

How to Use Volatility to Choose Trade Exits
The good news is that average pip movement can be used in several ways to optimize your trade exits, as well as your trade entries.

The most common exit method using volatility is used by day traders, who might keep an eye on the Average True Range indicator on a daily chart applied to whatever they are trading. They often look to exit when the pip movement made for the day is approximately equal to the ATR 20. This can be a great method for day traders, especially when the volatility value is close to the location of major support and resistance and maybe a round number as well. However, there is a common pitfall here. What is usually not understood is that most days, the pip movement does not equal its average pip movement – but on the days when traders can really make a lot of money, the price will exceed that value! This means that if you are aiming for a conservative profit target, you should be watching for something like 80% of the 20-day ATR. This is because on average only 51% of days reach the value of the 20-day ATR. The problem is that you will get a few days where the price just keeps going and going, and by letting these winners run, you can make your trading more profitable. The answer to this dilemma is to watch what the price does as it gets beyond more than 80% of the average daily pip movement. If the price action starts to go flat and you see short-term volatility decreasing, this would suggest that the trade does not have any more profit left in it, at least over the short-term. Alternatively, if the price just keeps going in your direction like a train, stay in the trade and expect a day of abnormally large pip movement to play out.

Finally, if you are in trade and the price is moving in your favor, and then it starts to move against you with much larger candlestick pip ranges than the advance was showing, it is usually a good signal that it is time to get out of the trade, at least over the short-term, because it is probably going to move even further against you.

Average pip movement is a very useful but often overlooked tool that can be applied easily using the Average True Range Indicator. It can be used to determine:

Which currency pair(s) or cross(es) are worth trading

Whether it is probably too late to find a high-probability trade entry

When a good entry opportunity has come

When to exit a profitable trade

Ref. www.dailyforex.com/forex-articles/2018/05/how-to-use-average-pip-movement/97846

Scalping in the Forex Markets: A Beginner's Guide

In the investment world, scalping is a term used to denote the "skimming" of small profits on a regular basis, by going in and out of positions several times per day.

Scalping in the forex market involves trading currencies based on a set of real-time analysis. The purpose of scalping is to make a profit by buying or selling currencies and holding the position for a very short time and closing it for a small profit. Many trades are placed throughout the trading day and the system that is used by these traders is usually based on a set of signals derived from technical analysis charting tools, and is made up of a multitude of signals, that create a buy or sell decision when they point in the same direction. A forex scalper looks for a large number of trades for a small profit each time.

Why Scalp?
Scalping is not unlike day trading in which a trader will open a position and then close it again during the current trading session, never carrying a position into another trading period or holding a position overnight. However, while a day trader may look to take a position once or twice, or even a few times a day, however, are much more frenetic and trade multiple times in a session. And whereas a day trader may trade off the five-minute and the 30-minute charts, scalpers will often trade off of tick charts and one-minute charts. In particular, some scalpers like to try and catch the high-velocity moves that occur around the time of the release of economic data and news, such as the announcement of the employment statistics or GDP figures – whatever is high on the economic agenda.

Scalpers like to try and scalp between five and 10 pips from each trade they make and to repeat this process over and over throughout the day. Using high leverage and making trades with just a few pips profit at a time can add up, especially if your trades are profitable and can be repeated many times over the course of the day. Remember, with one standard lot, the average value of a pip is about $10. So, for every five pips of profit made, the trader can make $50 at a time. Ten times a day, this would equal $500.

Scalping, though, is not for everybody, and one thing is for sure: You have to have the temperament. Scalpers need to love sitting in front of their computers for the entire session, and they need to enjoy the intense concentration that it takes to scalp. You cannot take your eye off the ball when you are trying to scalp a small move, such as five pips at a time.

Even if you think you have the temperament to sit in front of the computer all day, or all night if you are an insomniac, you must be the kind of person who can react very quickly without analyzing your every move. There is no time to think. Being able to "pull the trigger" is a necessary key quality for a scalper. This is especially true in order to cut a position if it should move against you by even two or three pips.

Market-Making Versus Scalping
Scalping is somewhat similar to market-making. When a market maker buys a position he is immediately seeking to offset that position and capture the spread. (This is not referring to those bank traders who take proprietary positions for the bank.)

The difference between a market maker and a scalper, though, is very important to understand. A market maker earns the spread, while a scalper pays the spread. So when a scalper buys on the ask and sells on the bid, he has to wait for the market to move enough to cover the spread he has just paid. In the converse, the market maker sells on the ask and buys on the bid, thus immediately gaining a pip or two as profit for making the market.

Although they are both seeking to be in and out of positions very quickly and very often, the risk of a market maker compared with a scalper, is much lower. Market makers love scalpers because they trade often and they pay the spread, which means that the more the scalper trades, the more the market maker will earn the one or two pips from the spread. (Find out how this tool magnifies both gains and losses. Check out "Forex Leverage: A Double-Edged Sword.")

How to Set up for Scalping
Setting up to be a scalper requires that you have very good, reliable access to the market makers with a platform that allows for very fast buying or selling. Usually the platform will have a buy button and a sell button for each of the currency pairs, so that all the trader has to do is hit the appropriate button to either enter or exit a position. In liquid markets, the execution can take place in a fraction of a second.

Picking a Broker
Remember that the forex market is an international market and is largely unregulated, although efforts are being made by governments and the industry to introduce legislation that would regulate "over the counter" forex trading to a certain degree.

As a trader, it is up to you to research and understand the broker agreement and just what your responsibilities would be and just what responsibilities the broker has. You must pay attention to how much margin is required and what the broker will do if positions go against you, which might even mean an automatic liquidation of your account if you are too highly leveraged. Ask questions to the broker's representative and make sure you hold onto the agreement documents. Read the small print.

The Broker's Platform
As a scalper you must become very familiar with the trading platform that your broker is offering. Different brokers may offer different platforms, therefore you should always open a practice account and practice with the platform until you are completely comfortable using it. Since you intend to scalp the markets, there is absolutely no room for error in using your platform.

If you press the "Sell" button by mistake, when you meant to hit the buy button, you could either get lucky if the market immediately goes south so that you profit from your mistake, but if you are not so lucky you will have just entered a position opposite to what you intended. Mistakes like these can be very costly. Platform mistakes and carelessness can and will cause losses. Practice using the platform before you commit real money to the trade. (Learn more about how to set each type of stop and limit when trading currencies in "How to Place Orders With a  Forex Broker.")

As a scalper you only want to trade the most liquid markets. These markets are usually in the major currency pairs, such as EUR/USD or USD/JPY. Also, depending on the currency pair, certain sessions may be much more liquid than others. Even though the forex markets are trading for 24 hours a day, the volume is not the same at all times of the day. Usually, when London opens at around 3 AM EST, volume picks up as London is the major trading center for forex trading. At 8 AM EST, New York opens and adds to the volume being traded. Thus, when two of the major forex centers are trading, this is usually the best time for liquidity. The Sydney and Tokyo markets are the other major volume drivers.

Guaranteed Executions
Scalpers need to be sure that their trades will be executed at the levels they intend. Therefore, be sure to understand the trading terms of your broker. Some brokers might limit their execution guarantees to times when the markets are not moving fast. Others may not provide any form of execution guarantee at all.

Placing an order at a certain level and having it executed a few pips away from where you intended, is called "slippage." As a scalper you cannot afford slippage in addition to the spread, so you must make sure your order can and will be executed at the order level you request.

Redundancy is the practice of insuring yourself against catastrophe. By redundancy in trading jargon, I mean having the ability to enter and exit trades in more than one way. Be sure your internet connection is as fast as possible. Know what you will do if the internet goes down. Do you have a phone number direct to a dealing desk and how fast can you get through and identify yourself? All these factors become really important when you are in a position and need to get out quickly or make a change.

Choosing a Charting Time Frame
In order to execute trades over and over again, you will need to have a system which you can follow almost automatically. Since scalping doesn't give you time for in-depth analysis, you must have a system that you can use repeatedly with a fair level of confidence. As a scalper you will need very short-term charts, such as tick charts, or one- or two-minute charts and perhaps a five-minute chart.

Getting Prepared to Scalp
1. Get a Sense of Direction
It is always helpful to trade with the trend, at least if you are a beginner scalper. To discover the trend, set up a weekly and a daily time chart and insert trend lines, Fibonacci levels and moving averages. These are your "lines in the sand," so to speak, and will represent support and resistance areas. If your charts show the trend to be in an upward bias (the prices are sloping from the bottom left of your chart to the top right), then you will want to buy at all the support levels should they be reached.

On the other hand, if the prices are sloping from the top left down to the bottom right of your chart, then look to sell each time the price gets to a resistance level. Depending on the frequency of your trades, different types of charts and moving averages can be utilized to help you determine direction.

Figure 1 - EUR/USD Daily Chart
Source: Wordon Brothers

Figure 2: EUR/USD Weekly Chart
Source: Wordon Brothers

In the example above, the weekly chart shows a strong upward bias of the EUR/USD. The price could be heading back to a target of 1.4280, the previous high on November 4, 2010.

The daily chart shows the price has reached the 127.6 Fibonacci extension, at about 1.3975. Clearly, there is a possibility of a pullback to the trend line somewhere in the vicinity of 1.3850. As a scalper, you can take the short side of this trade as soon as your shorter term charts confirm an entry signal.

2. Prepare Your Trading Charts
A forex scalping system can be either manual, where the trader looks for signals and interprets whether to buy or sell; or automated, where the trader "teaches" the software what signals to look for and how to interpret them. The timely nature of technical analysis makes real-time charts the tool of choice for forex scalpers.

Set up a 10-minute and a one-minute chart. Use the 10-minute chart to get a sense of where the market is trading currently, and use the one-minute chart to actually enter and exit your trades. Be sure to set up your platform so that you can toggle between the time frames.

Trading System
In the system shown here, and there are many other systems you can use to trade profitably, we've included a three-period RSI with the plot guides set to 90% and 10%. Only trades on the short side once the RSI crosses over the 90% plot guide, and the long side once the RSI reaches below the 10% plot guide, are entered. To nuance the signal, it's best to wait for the 2nd crossing into either of the two zones (only take the trade if the RSI goes into the zone – either the 10% for longs or 90% for shorts – on the second consecutive attempt.

Figure 3
Now, before you follow the above system, test it using a practice account and keep a record of all the winning trades you make and of all your losing trades. Most often it is the way that you manage your trades that will make you a profitable trader, rather than mechanically relying on the system itself.

In other words, stop your losses quickly and take your profits when you have your seven to 10 pips. This is a scalping method and is not intended to hold positions through pullbacks. If you find that you can manage the system, and you have the ability to pull the trigger quickly, you may be able to repeat the process many times over in one trading session and earn a decent return.

Remember that too much analysis will cause paralysis. Therefore, practice the methodology until it is automatic for you, and even boring because it becomes so repetitive. You are in the business of scalping to make a profit, not to boost your adrenalin or feel like you are playing in a casino. Professional traders are not gamblers; they are speculators who know how to calculate the risk, wait for the odds to be in their favor and manage their emotions.

When to Scalp – and When Not To
Remember, scalping is high speed trading and therefore requires lots of liquidity to ensure quick execution of trades. Only trade the major currencies where the liquidity is highest, and only when the volume is very high, such as when both London and New York are trading. (The unique aspect of trading forex is that individual investors can compete with large hedge funds and banks – they just need to set up the right account. For more, check out "Forex Basics: Setting up an Account.")

Do not scalp if you do not feel focused for whatever reason. Late nights, flu symptoms and so on, will often take you off your game. Stop trading if you have a string of losses and give yourself time to regroup. Do not try to get revenge with the market. Scalping can be fun and challenging, but it can also be stressful and tiring. You must be sure that you have the personality to indulge in high-speed trading. You will learn a lot from scalping, and then by slowing down you may find that you can even become a day trader or a swing trader because of the confidence and practice you may get from scalping. Remember though, scalping is not for everyone.

Always keep a log of your trades. Use screen capture to record your trades and then print them out for your journal. It will teach you a great deal about trading and even more about yourself as a trader.

The Bottom Line
The forex market is large and liquid; it is thought that technical analysis is a viable strategy for trading in this market. It can also be assumed that scalping might be a viable strategy for the retail forex trader. It is important to note, however, that the forex scalper usually requires a larger deposit, to be able to handle the amount leverage he or she must take on to make the short and small trades worthwhile.

Scalping is very fast-paced. If you like the action and like to focus on one- or two-minute charts, then scalping may be for you. If you have the temperament to react quickly, and have no compunction in taking very quick losses, not more than two or three pips, then scalping may be for you.

But if you like to analyze and think through each decision you make, perhaps you are not suited to scalp.

Ref. www.investopedia.com/articles/forex/11/beginners-guide-forex-scalping.asp

FOREX ANALYSIS / XE Market Analysis: North America - Jul 20, 2018
« Last post by FXshooting on Today at 10:56:11 am »
XE Market Analysis: North America - Jul 20, 2018

The Dollar reached the early European PM session at near net unchanged levels, consolidation the declines that were seen in the wake of President Trump voicing his displeasure at the prospect of higher interest rates. Trump's verbal intervention, if that's what it was, has thrown a spanner in the works of many Dollar-bullish prognostications. EUR-USD settled to an oscillation of 1.1650 after capping out at 1.1678, which is a two-day high. USD-JPY found its feet after stocks rebounded in China and Asia, which was seen after the Yuan lifted from lows amid reported purchases by major state banks, apparently in a Beijing-directed move to smooth USD-CNY's assent after the PBoC set a higher reference rate for a seventh consecutive day. The Yen had been firming after the Yuan hit one-year lows, which had rattled stock markets in Asia. The sharp drop in global equity markets seen after China's sudden 2% devaluation of the Yuan in August 2015 has been at the forefront of investors minds lately, so the apparent intervention to cap Yuan losses mollified, at least up to a point, prevailing concerns about competitive devaluation and ratcheting-up trade tensions with the U.S. This fuelled a rebound in the MSCI Asia-Pacific equity index (ex-Japan) to a net gain of 0.55% from a 0.4% loss at the intraday lows. USD-JPY concomitantly recouped to the mid 112.0s after printing a low of 112.21 while AUD-JPY, a relatively high-beta cross which is sensitive to China sentiment, has lifted by nearly 1% from its lows.

EUR-USD settled to an oscillation of 1.1650 after capping out at 1.1678 in the wake of President Trump voicing his displeasure at the prospect of higher interest rates. Trump's remarks were from a preview of an interview with CNBC, which will be played in its entirety later today. The President's verbal intervention, if that's what it was, has thrown a spanner in the works of our bearish EUR-USD view, which was rooted on the prognosis for strong U.S. economic growth and the Fed's tightening course. We still see the balance of direction risks as being skewed to the downside for EUR-USD. The still-evolving populist political landscape in Italy still carries potential to disrupt the functioning of the EU. EUR-USD has support at 1.1626-30.


USD-JPY found its feet after stocks rebounded in China and Asia, which was seen after the Yuan lifted from lows amid reported purchases by major state banks, apparently in a Beijing-directed move to smooth USD-CNY's assent after the PBoC set a higher reference rate for a seventh consecutive day. The Yen had been firming after the Yuan hit one-year lows, which had rattled stock markets in Asia. The sharp drop in global equity markets seen after China's sudden 2% devaluation of the Yuan in August 2015 has been at the forefront of investors minds lately, so the apparent intervention to cap Yuan losses mollified, at least up to a point, prevailing concerns about competitive devaluation and ratcheting-up trade tensions with the U.S. (and risks for capital outflows from China). This fuelled a rebound in the MSCI Asia-Pacific equity index (ex-Japan) to a net gain of 0.55% from a 0.4% loss at the intraday lows. USD-JPY concomitantly recouped to the mid 112.0s after printing a low of 112.21 while AUD-JPY, a relatively high-beta cross which is sensitive to China sentiment, has lifted by nearly 1% from its lows.

Sterling has underperformed this week, showing an average 1.7% decline on the week-on-week comparison versus the G3 currencies. Wednesday's unexpected dip in core UK CPI (to 1.9% y/y from 2.1% y/y) along with yesterday's unexpected contraction in June retail sales (of 0.5% m/m) have been ostensibly blamed for dimming BoE tightening expectations, though there are arguments that hawks at the MPC could use to downplay both -- summer discounting being behind an aberrative ebb in inflation, and, in the case of retail sales, hot weather and the national fixation on the World Cup being behind one-off declines in footfall on the high street and online activity. A more pressing concern is the sharpening Brexit negotiation process, as time starts to run out. An EU source cited by Bloomberg yesterday said that the UK government's policy document, which lays out what it wants from a new relationship with the EU, is unclear. EU ministers are meeting in Brussels today to formally review the UK government's proposals. The European Commission said yesterday that "everyone must now step up plans for all scenarios" ahead of March 29th next year, especially in the event of a no-deal exit. We continue to see directional risks to Cable as being greater to the downside than to the upside. Cable has resistance at 1.3042-45.

EUR-CHF has settled back in the mid 1.1600s, down from the eight-week high seen earlier in the week at 1.1714. SNB's Maechler said late last month that the Franc "remains highly valued" despite the depreciation seen over the last year, arguing that "we are in extraordinary times and we are using unconventional measures." The commáents affirm that the SNB is firmly on hold, with Maechler admitting that the SNB's monetary policy room for manoeuvre is "necessarily" affected by the actions of ECB and Fed.


USD-CAD has settled higher, around 1.3250. Fed chair Powell's upbeat view of the U.S. economy, along with recent hefty declines in oil prices, formed a cocktail of bullish narratives for USD-CAD this week. We retain a bullish view of the pairing, looking for a revisit of the June highs at 1.3384-87. Support comes in at 1.3146-68. The Canadian calendar picks up today with the release of retail sales and CPI data. We expect retail sales to snap back by 1.0% in May after the 1.2% loss in April that was blamed on poor weather during the month (ice storm!). We anticipated CPI to slip 0.1% in June (m/m, nsa) after the surprisingly slim 0.1% gain in May, as falling gasoline prices impact in June. The annual growth rate is seen at 2.2% (y/y, nsa), matching the 2.2% y/y clip in May. The three core CPI measures are expected to maintain 1.9% annual rate of expansion in June.

Ref. http://community.xe.com/blog/xe-market-analysis/xe-market-analysis-north-america-jul-20-2018

FOREX ANALYSIS / Technical analysis: key levels for gold and crude
« Last post by FXshooting on Today at 10:43:14 am »
Technical analysis: key levels for gold and crude
Oil looks to be putting in a higher low, while gold has enjoyed what could be a short-term rebound.

Gold bounces from support

There has been strong buying for gold around the $1214 level so far in the past 24 hours.

A rally from here would be normal within the context of a downtrend, but it will have to move above $1265 to escape creating a new lower high. Fresh declines bring the $1205 level into play.

WTI rebounds

From the looks of the price chart it seems like WTI has created a new higher low, bouncing back above $68.00 and gaining momentum.

Further gains will target $72.88 and higher. A close below $66.30 would be a bearish development and raise the prospect of a move down to $63.40.

Ref. www.ig.com/au/commodities-news/technical-analysis--key-levels-for-gold-and-crude-180720

Economic factors that affect the forex market

Forex is a true global marketplace, with buyers and sellers from all corners of the globe participating in trillions of dollars of trades each day. The fact that foreign exchange trading has become such a globalized activity means that macroeconomic events play an even greater role in forex than ever before. Below, we'll discuss some economic trends and events that will benefit those who are new to forex markets. (For background reading on forex, see "Popular Forex Currencies" and "How To Become A Successful Forex Trader.")

The Role of Macroeconomics in Forex
The forex market is primarily driven by overarching macroeconomic factors. These factors influence a trader's decisions and ultimately determine the value of a currency at any given point in time. The economic health of a nation's economy is an important factor in the value of its currency. Overall economic health, however, is shaped by numerous events and information that may change on a daily basis, contributing to the 24/7 nature of the international foreign exchange market. Let's take a closer look at some of the factors that influence an economy's standing and drive changes in the value of its currency.

TUTORIAL: The Most Important Forex Trading Rules

Capital Markets and Forex

The global capital markets are perhaps the most visible indicators of an economy's health, while stock and bond markets are the most noticeable markets in the world. It is difficult to miss the release of public information in capital markets, as there is a steady flow of media coverage and up-to-the-second information on the dealings of corporations, institutions and government entities. A wide rally or sell-off of securities originating from one country or another should be a clear signal that the future outlook (short-term or long-term) for that economy has changed in investors' eyes.

Similarly, many economies are sector-driven, such as Canada's commodity-based market. In this case, the Canadian dollar is heavily correlated to the movements of commodities such as crude oil and metals. A rally in oil prices would likely lead to the appreciation of the loonie relative to other currencies. Commodity traders, like forex traders, rely heavily on economic data for their trades, so in many cases the same economic data will have a direct affect on both markets. (For more on this correlation, see "How to Trade Currency and Commodity Correlations.")

The bond markets are similarly critical to what is happening in the forex market, since both fixed-income securities and currencies rely heavily on interest rates. Treasury price fluctuations factor in to movements in currencies, meaning that a change in yields will directly affect currency values. Therefore, it is important to understand how bonds — government bonds especially — are valued in order to excel as a forex trader.

International Trade and Forex
Another key factor is the balance of trade levels and trends between nations. The trade levels between nations serve as a proxy for the relative demand of goods from a nation. A nation with goods or services that are in high demand internationally will typically see an appreciation of its currency. For example, in order to purchase goods from Australia, buyers must convert their currency into Australian dollars (AUD) to make the purchase. The increased demand for the AUD will put upward pressure on its value.

Trade surpluses and deficits also exemplify a nation's competitive standing in international trade. Countries with a large trade deficit are net buyers/importers of international goods, resulting in more of their currency being sold to purchase the currency of other nations in order to pay for the international goods. This type of situation is likely to have a negative impact on the value of an importing country's currency.

Political Impact on Forex Markets
The political landscape of a nation plays a major role in the economic outlook for that country and, consequently, the perceived value of its currency. Forex traders are constantly monitoring political news and events to gauge what moves, if any, a country's government may take in the economy. These can include measures from increasing government spending to tightening restrictions on a particular sector or industry.

For instance, an upcoming election is always a major event for currency markets, as exchange rates will often react more favorably to parties with fiscally responsible platforms and governments willing to pursue economic growth. A good example is the Brexit vote, which had a major impact on the British pound (GBP) when the UK voted to leave the EU. The currency reached its lowest levels since 1985 after the vote because the UK's economical prospects were suddenly highly uncertain.

The fiscal and monetary policies of any government are the most important factors in its economic decision making. Central bank decisions that impact interest rates are keenly watched by the forex market for any changes in key rates or future outlooks. (For a closer look into monetary policy, see "How the U.S. Government Formulates Monetary Policy.")

Economic Releases and Forex
Economic reports are the backbone of a forex trader's playbook. Maintaining an economic report calendar is crucial to staying current in this fast-paced marketplace. GDP may be the most obvious economic report, as it is the baseline of a country's economic performance and strength. GDP measures the total output of goods and services produced within an economy. One key thing to remember, however, is that GDP is a lagging indicator, meaning that it reports on events and trends that have already occurred.

Inflation is also a very important indicator, as it sends a signal of increasing price levels and falling purchasing power. However, inflation is a double-edged sword, as many view it as placing downward pressure on a currency due to retreating purchasing power. On the other hand, it can also lead to currency appreciation, as it may force central bankers to increase rates to curb rising inflation levels. Inflation is a hotly-contested issue among economists, and its effects on currencies are rarely straightforward.

Employment levels, retail sales, manufacturing indexes and capacity utilization also carry important information on the current and forecasted strength of an economy and its currency, serving as a suitable complement to the factors we've outline above.

The Bottom Line
The forex market is ultimately driven by economic factors that impact the value and strength of a nation's currency. The economic outlook for a country is the most important determinant of its currency's value, so knowing the factors and indicators to watch will help you keep pace in the competitive and fast-moving world of forex.

For additional reading on the economic factors that specifically impact the U.S. dollar, see "Top Economic Factors That Depreciate the $US."

Ref. www.investopedia.com/articles/forex/11/economic-factors-affecting-forex.asp

3 Reasons Why Countries Devalue Their Currency

With a potential outbreak of a trade war between China and the US, talks of the Chinese using currency devaluation as a strategy have been rumbling. However, the volatility and risks involved may not make it worth it this time, as China has made recent efforts to stabilize and globalize the Yuan.

In the past, the Chinese denied it, but the second largest economy in the world has time and time again been accused of devaluing its currency in order to advantage its own economy, especially by Donald Trump. The ironic thing is that for many years, the United States government had been pressuring the Chinese to devalue the Yuan, arguing that it gave them an unfair advantage in international trade and kept their prices for capital and labor artificially low.

Ever since world currencies abandoned the gold standard and allowed their exchange rates to float freely against each other, there have been many currency devaluation events that have hurt not only the citizens of the country involved but have also rippled across the globe. If the fallout can be so widespread, why do countries devalue their currency?

To Boost Exports
On a world market, goods from one country must compete with those from all other countries. Car makers in America must compete with car makers in Europe and Japan. If the value of the euro decreases against the dollar, the price of the cars sold by European manufacturers in America, in dollars, will be effectively less expensive than they were before. On the other hand, a more valuable currency make exports relatively more expensive for purchase in foreign markets.

In other words, exporters become more competitive in a global market. Exports are encouraged while imports are discouraged. There should be some caution, however, for two reasons. First, as the demand for a country's exported goods increases worldwide, the price will begin to rise, normalizing the initial effect of the devaluation. The second is that as other countries see this effect at work, they will be incentivized to devalue their own currencies in kind in a so-called "race to the bottom." This can lead to tit for tat currency wars and lead to unchecked inflation.

To Shrink Trade Deficits
Exports will increase and imports will decrease due to exports becoming cheaper and imports more expensive. This favors an improved balance of payments as exports increase and imports decrease, shrinking trade deficits. Persistent deficits are not uncommon today, with the United States and many other nations running persistent imbalances year after year. Economic theory, however, states that ongoing deficits are unsustainable in the long run and can lead to dangerous levels of debt which can cripple an economy. Devaluing the home currency can help correct balance of payments and reduce these deficits. (See also: Current Account Deficits: Government Investment Or Irresponsibility?)

There is a potential downside to this rationale, however. Devaluation also increases the debt burden of foreign-denominated loans when priced in the home currency. This is a big problem for a developing country like India or Argentina which hold lots of dollar- and euro-denominated debt. These foreign debts become more difficult to service, reducing confidence among the people in their domestic currency.

To Reduce Sovereign Debt Burdens
A government may be incentivized to encourage a weak currency policy if it has a lot of government-issued sovereign debt to service on a regular basis. If debt payments are fixed, a weaker currency makes these payments effectively less expensive over time.

Take for example a government who has to pay $1 million each month in interest payments on its outstanding debts. But if that same $1 million of notional payments becomes less valuable, it will be easier to cover that interest. In our example, if the domestic currency is devalued to half of its initial value, the $1 million debt payment will only be worth $500,000 now.

Again, this tactic should be used with caution. As most countries around the globe have some debt outstanding in one form or another, a race to the bottom currency war could be initiated. This tactic will also fail if the country in question holds a large number of foreign bonds since it will make those interest payments relatively more costly.

The Bottom Line
Currency devaluations can be used by countries to achieve economic policy. Having a weaker currency relative to the rest of the world can help boost exports, shrink trade deficits and reduce the cost of interest payments on its outstanding government debts. There are, however, some negative effects of devaluations. They create uncertainty in global markets that can cause asset markets to fall or spur recessions. Countries might be tempted to enter a tit for tat currency war, devaluing their own currency back and forth in a race to the bottom. This can be a very dangerous and vicious cycle leading to much more harm than good.

Ref. www.investopedia.com/articles/investing/090215/3-reasons-why-countries-devalue-their-currency.asp

FOREX Articles Finance / Basics of money management on Forex
« Last post by FXshooting on Today at 10:14:08 am »
Basics of money management on Forex

To be a successful trader, it is not enough to open an account and deposit it with some money. A rookie trader might not start earning immediately. Before anyone launches into trading on Forex, it would be wise to develop a smart program of money management.

Trading on Forex, control of a money flow in and out of a trader’s pocket is a “must know” to keep a trading account alive and make profits. It is a vital skill to keep an equal ratio between a profit amount and a loss amount per average trade. Only in this case trading will be a gainful business, but not a game of chance and luck. Let’s consider the main principles of money management.

1. Every trader should have a reserve fund which is to be spent in case of emergency. An amount of a reserve fund should be at least half a deposit size.

2. To avoid losing all money, it is advisable to invest no more than 10-15% of the whole deposit in one market.

3. A trade volume should not exceed 5% of the total account equity. Otherwise, if a trader executes a losing trade, it is possible to face runaway losses.

4. Every trader is focused on big earnings. However, everyone should be aware of potential losses. If you invest your capital in a market of a certain type, the whole margin should not exceed 20-25% of the cash flow as markets of the same type move in a similar way. In this case, it makes sense to optimize investments. To be exact investments should be diversified. If one trade turns out to be a failure, a profit on another trade can offset that losing trade.

5. A trader should determine to what extent one’s portfolio is diversified.

Diversification of risks is one of the methods to hedge investments. A trader should always keep balance between concentration and diversification. If a trader opens several positions in parallel at least on 4-6 markets of different types, this strategy provides a quite safe allocation of one’s portfolio.

6. Stop orders

Please make sure you set stop orders while you are getting away from your workplace in front of the trading platform. It will enable you to avoid losses. Besides, take profit orders are used to lock in profits in case a trading instrument moves in a favorable direction.

7. Profit/loss ratio

In case a trend reversed in an adverse direction while a position is open, a trader should strike a balance between possible losses and profits. As a rule, the efficient profit/loss ratio is 3:1. Otherwise, it would be wise to avoid opening a trade.

8. Trading several positions

Let’s assume a trader enters a market opening three positions. So it would be useful to divide them into position trade and trend trade. Position trader holds a position for the long term setting rather flexible stop orders, which enable this trader to keep a position even when prices go through consolidation and correction. Position trading is the polar opposite of day trading when a position is restricted by rigid stop orders. This strategy is used for speculations within the same trading day.

9. Rules of opening a position

- A position should be opened only in case an indicator generates at least one signal.

- Before a position is opened, it is essential to determine a market entry price, a price to close a gainful position, a price to close a losing position as well as time to hold a position open.

- A counter-trend position should be opened with caution for a short time frame.

- Similar things should be considered when trading on a sideway market.

10. Rules of holding a position and partial closing before a time frame expires

A trader should hold a position open only if analysis confirms decisions made prior a market entry.

It would be wise to close a position partially when current losses have already exceeded estimated losses or when a price has reached the level which is expected to gain a profit.

A trader should make a pause if total losses are still below estimated losses, a price is holding flat, or a price has not approached a level calculated to make a profit yet.

11. Rules of closing a position

A time frame has expired.
An estimated profit has been gained.

A calculated loss has been reached.
A position has yielded an utmost profit.
Please always bear in mind that a properly elaborated strategy of risk diversification is a steppingstone to gainful trading on the forex market.

Credit: www.mt5.com/articles/fundamentals_of_money_management

FOREX Articles Finance / How to earn on Forex
« Last post by FXshooting on Today at 09:59:19 am »
How to earn on Forex

Thanks to this article you will know how to earn money on Forex and where to start to understand all ins and outs of forex trading. It does not matter whether you are a beginner or a professional trader in the forex market, you should always improve your skills and learn something new.

In order to avoid typical mistakes and start trading on Forex effectively, you will need not only knowledge but also useful trading tools. It`s not enough to have a theoretical foundation only, practical skills are indispensable as well. So, how is it possible to gain experience without a risk of losses? First, you can open a demo account. It is a perfect solution for those who just plans to start working on the foreign exchange market. A demo account will help you to understand how live trading works and, besides, you do not risk losing your money. You will be able to analyze your actions and avoid repeating the same mistakes. Thus, you will learn to earn money on Forex and be able to enlarge the amount of your deposit.

On the MT5 web portal, you will find educational videos, get to know a trading system and trading strategies, understand the psychology of trading, and learn how to manage your capital. If you come across some new words or unknown terms, you can look them up in the Forex glossary. There is also a lot of information on online trading in such sections as Forex Book Reviews and Interesting to Know.

A trader`s psychological attitude plays an important role in achieving success in forex trading.You need not only to foresee market movements using tools of technical analysis but also to control your emotions and excitement and be patient.

Now, after you have got answers to the main questions, it is the right time to start live trading. In order to do this, you just need to open a live trading account, make a minimum deposit, and begin earning profits on differences in exchange rates. Cent accounts will suit beginners perfectly as they allow them to trade with a very small capital and, at the same time, the trading conditions are the same as for standard accounts. The only difference is that the maximum deposit is limited. Professional traders have a different approach to forex trading. It is important to protect their deposits from possible risks as well as to reduce the percentage of unsuccessful deals.The vital skill is to determine the right point of a market entry or exit because the market will not wait.

So, that is, perhaps, all that you need to know in order to start earning on Forex.The managers of our customer support will answer any questions about working with InstaForex. Learn to earn money with us!

Credit. mt5.com

FOREX ANALYSIS / Earnings look ahead – ITV, Vodafone, AstraZeneca
« Last post by FXshooting on Today at 09:57:15 am »
Earnings look ahead – ITV, Vodafone, AstraZeneca
A look at company earnings next week.

ITV (first-half earnings 25 July)

ITV is expected to report earnings of 6.8p per share, down 11.3% year-on-year, while revenue rises 2.5% to £1.5 billion. The average move on the day is 4.16%, while current options pricing indicates a move of 4.6%.

Investors will be hoping that the firm can paint a more positive picture than was seen in the full-year numbers in February, when the firm suffered a tough year thanks to political and economic uncertainty. The group will continue to talk up the performance seen over the World Cup, which will have boosted revenues, helping to offset last year’s tough performance. Further improvement in content and its broader video offering should help it compete in an increasingly difficult marketplace.

At 11.1 times earnings, the share are trading below their five-year average of 13.3, while a 4.3% dividend adds to the attraction of the stock for income investors.

ITV shares have rallied sharply since the March lows, and the surge shows little sign of slowing. Crucially, the price broke above the 170p zone of resistance that prevailed in late 2017 and early 2018, and a turn higher would target 183p and then 201p, last seen in mid-2017. A close below 170p would suggest a broader retracement.

Vodafone (Q1 trading statement 25 July)

Vodafone’s performance in the first quarter (Q1) will likely see a slowdown in Europe, hurt by tougher competition in Italy and difficult comparisons with the previous quarter in its German division. Higher prices in Spain and a better performance in the UK should help to offset this.

Vodafone currently trades on a forward earnings multiple of 16.4, more than one standard deviation below its five-year average of 28.4. In addition, it currently trades at a 15% discount to its peers, versus an average 5% discount in the past two years. The current dividend yield is 7.5%, above the two-year average of 5.9%.

Vodafone’s bounce into early July did not last, creating a new lower high and reasserting the ongoing collapse seen so far in 2018. It is now at vital support around 175p, a key level around the turn of 2017. Any bounce must clear the trendline resistance around 183p, and then push on above 192p to break early July’s lower high.

AstraZeneca (first-half/Q2 earnings 26 July)

AstraZeneca’s Q2 earnings are expected to see a 25% drop in headline earnings per share, to 64.6 cents, while revenues rise 2.2% to $5.16 billion. The average move on the day of results is 3.9%, but current options pricing suggests a move of 3.37%.

New product launches should be a key feature of the quarter, with launches beating expectations, but weaker divestment levels will hit income. However, the firm is expected to reiterate earnings guidance for the full year.

At 20.2 times forward earnings, the shares are well above their five-year average of 15.9. This expensive valuation is combined with a 3.6% dividend yield, compared to a two-year average of 4.4%.

AstraZeneca shares have clocked up new record highs this week, as the strong uptrend of the past two years refuses to slow down. Possible near-term support comes in at £55.19 and then £52.74, with any dip even back to £49.00 and the post-June 2016 rising trendline still serving as a buying opportunity.

Ref. www.ig.com/au/shares-news/earnings-look-ahead--itv--vodafone--astrazeneca-180720

FOREX ANALYSIS / Levels to watch: FTSE 100, DAX and S&P 500
« Last post by FXshooting on Today at 08:44:56 am »
Levels to watch: FTSE 100, DAX and S&P 500

Indices have dropped back from highs, but the overall bullish view remains.

FTSE 100 stuck below 7700

The FTSE 100 has struggled to make much progress in the past three days, unable to push on above 7700.

A close above 7687 would be a good first step and raise the prospect of a move on to 7700 and higher. A bearish view would require a close back below the 7570 support zone.

DAX sees bounce off the lows

The DAX has dropped back from the highs of the week, although the uptrend from the lows of the end of June is still intact.

Buyers have come in to defend the 12,600 level so far, and if this remains the case then a move back to 12,800 and higher is possible. A drop below 12,600 would suggest a test of support around 12,400.

S&P 500 still in steady uptrend

This week has seen the S&P 500 record a new higher high in its move upwards from the March lows.

A recovery back above 2803 would then suggest a move back to 2816 and the highs of the week. From here, 2877 comes into play. A deeper retracement possibly finds support around 2730.

Ref. www.ig.com/au/indices-news/levels-to-watch--ftse-100--dax-and-s-p-500-180720

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