Edge Forex

Tag: dollar

  • 4 Global Market Updates- 15 September, 2022

    4 Global Market Updates- 15 September, 2022

    In this article, we have covered the highlights of global market news about the Gold Prices, AUD/USD, USD/JPY and the Canadian Dollar.

    Gold prices are in danger as FOMC wagers increase. U.S. retail sales could cause a crash.

    During Wednesday’s New York trading, gold prices dropped under the 1,700 level, putting the yellow metal in danger of a potentially jarring decline. The US dollar and short-term Treasury yields were helped by the US inflation data, which also sent Federal Reserve rate hike bets soaring. The week will be concluded by the US retail sales report for August, which is due at 12:30 GMT on Thursday, and the September consumer sentiment report from the University of Michigan, which is due on Friday.

    Those occurrences could be crucial for bullion prices because they will probably affect FOMC market pricing. A 100 basis point rate increase is one in four likely, according to Fed funds futures. If those odds rise, gold’s value as a financial asset will decrease. The Fed wants to achieve a soft landing, but it is more concerned with controlling inflation. However, a robust overall economy would mitigate the effects of higher interest rates. The FOMC would have more flexibility as a result.

    However, a report on retail sales that was stronger than anticipated would probably be bad news for gold prices. Analysts predict that the headline figure will show a 0.1% decline from July, but that is only because gas prices are declining. The figure to pay attention to is one that does not include gasoline or vehicles. According to the Bloomberg consensus prediction, the price will rise by 0.5% from July. The initial Michigan consumer sentiment index is anticipated to increase to 60.0 on Friday from 58.2 in August. Inflation expectations are also covered in the survey, with estimates for the next year and the next five to ten years tracking at 4.6% and 2.9%, respectively.

    Even if those economic prints come in below expectations, the most likely outcome after the CPI is a 75-bps Fed hike, which puts gold in a difficult position. Treasury yields will remain supported as a result, limiting the potential for price increases. Lower skew means that the path of least resistance. As the likelihood of a 100-bps rate hike rises, it is likely that XAU will decline. A bearish catalyst may be set off once Fed funds futures reach a 50% probability for the large price hike.

    On the back of the jobs report, the AUD rose as investors anticipated RBA action. AUD/USD: Will it Rise?

    After today’s jobs report, the Australian Dollar initially fell before surging, and the likelihood that the RBA will raise interest rates by 50 basis points at their next meeting in October slightly increased.

    In August, the unemployment rate increased slightly from the previously reported 3.4% to 3.5%.

    Instead of the 35k expected, the overall change in employment for the month was 33.5k. While there was a 58.8k increase in full-time employment, there were 25.3k part-time job losses in August.

    PRICE

    As anticipated, the participation rate came in at 66.6%, up from the previous reading of 66.4%.

    The incorrect reporting of the statistics by Bloomberg was the cause of the unusual price movement right after the number. Someone there could have a difficult day. The initial flash had zero jobs added but the unemployment rate was correct at 3.5%.

    Japanese Yen Gained After BoJ Hinted Intervention, What Could this Mean for USD/JPY?

    The Japanese Yen gained 1.08% against the US Dollar on Wednesday, which is a notable achievement given JPY’s persistent depreciation since 2021. What was the cause of this move? Reports crossed the wires that the Bank of Japan conducted a rate check, opening the door to market intervention for the first time since 1998. Traders were spooked. Should they be?

    Prior to this event, various Japanese government and monetary policy officials have been offering verbal jabs against the currency for some time. There was no physical activity. The BoJ continues to be in a very different position from its major peers at the end of the day. The central bank keeps up its ultra-loose monetary policy, which includes negative interest rates, ongoing quantitative easing, and yield curve control.

    Nearly every other significant central bank has tightened policy in the interim. The Japanese Yen is probably under pressure due to this widening gap between them and Japan. To understand the story, all you need to do is look at the yield spreads on government bonds. The action on Wednesday might have been viewed as the next step by officials in their efforts to control the Yen.

    Funny enough, a push for intervention could also be interpreted as a sign that the Bank of Japan might keep policy loose. Former board member Goushi Kataoka mentioned that at the earliest, a BoJ policy shift might come by the middle of next year. It seems that in the interim, the government may have to use other measures to help hold up the Yen.

    Canadian Dollar Technical Analysis: CAD/JPY, USD/CAD Rates Outlook

    The Canadian Dollar has turned lower over the past few days, in line with risk appetite more broadly. Rapidly rising Fed rate hike odds have pushed up the US Dollar (via the DXY Index) and US Treasury yields, while proliferating global recession concerns have weighed on energy prices. The net-result has been that USD/CAD rates are pushing their yearly highs, while CAD/JPY rates have dropped to their lowest level in over a week.

    price

    In the prior note at the end of August, it was observed that “continued deterioration in US equity markets, noted by rising US 2-year yields and an elevated VIX, could help pave the path for USD/CAD rates to retest their yearly high above 1.3200 in short order.” Since then, including today, the pair has traded above 1.3200 on occasions, but has not yet reached the yearly high at 1.3224. Having broken above ascending triangle resistance that’s been forming since April, the near-term bias appears to be to the topside.

    Please click here for the Market News Updates from 13 September 2022.

  • Bonds as a Stock Forecasting Tool: Four Key Yield Curve Regimes

    Bonds as a Stock Forecasting Tool: Four Key Yield Curve Regimes

    Because it can accurately anticipate output growth, inflation, and interest rates – three crucial factors for the overall economy and financial assets – the bond market is sometimes referred to as the “smart money” on Wall Street by traders. Based on this belief, investors sometimes pay close attention to bonds and the peaks and valleys of the yield curve to learn more about future economic performance and developing trends. Given how interconnected the financial system is, signals from one market might sometimes serve as an indication, even a leading one, and a forecasting tool for another that is slower or less effective at integrating new data.

    This article will examine the Treasury market to see how the yield curve’s shape and slope might provide hints about anticipated future equity returns and sector leadership by revealing information about the economic cycle. Before starting, it is vital to familiarise yourself with critical ideas.

    CURVE FOR TREASURY YIELD

    The Treasury yield curve is a graphical depiction that shows the interest rates on government bonds for all maturities, from overnight to 30 years, across several tenors. It illustrates an investor’s return by lending money to the U.S. government for a certain time. The asset yield is shown on the graph’s vertical axis, and the borrowing term is shown on the graph’s horizontal axis.

    Longer-term debt instruments often provide better yields than short-dated ones to offset additional risks like inflation and length. Therefore the curve may assume various forms in healthy settings (see figure below). For instance, the yield on a 30-year government bond is often more significant than that of a 10-year note, which should be higher than that of a 2-year Treasury note.

    The U.S. Yield Curve
    bond

    Even though it’s uncommon, there are situations when long-term security may provide a lower return than a short-term investment, resulting in a term structure of interest rates that slopes downward. When this happens, the yield curve is said to have inverted.

    The yield curve often inverts when the central bank raises short-term rates to avoid overheating to the point where it restricts activity and clouds the outlook for the economy. Investors wager that interest rates will need to decrease in the future to handle a potential downturn and disinflation when monetary policy becomes too restrictive. These presumptions lead to a decline in longer-dated bond rates and an increase in short-term bond rates, which inverts the Treasury curve.

    Inversions have historically often predicted approaching recessions. An economic downturn has followed each 3-month to 10-year or 3m10y yield curve inversion since the end of World War II.

    U.S. Yield Curve inverted
    Bond

    Traders often compare two rates at two different maturities and refer to their spread, defined in basis points, as “the yield curve” instead of concentrating on the Treasury market’s overall interest rate term structure. The following curves are the ones that are most commonly discussed and examined in financial media:

    • The 2-year/10-year curve sometimes referred to as the twos-tens or 2y10y: is the spread between the yield on 10-year Treasury bonds and the yield on 2-year Treasury notes.
    • The 3-month/10-year curve sometimes referred to as the 3m10y or three-month-tens curve: The yield differential between the 10-year Treasury bond and the 3-month Treasury bill is shown by this curve.
    CURVES FOR 2S10S AND 3M10S SINCE 2020

    Modifications to the yield curve

    The difference between long-term and short-term Treasury rates will fluctuate with changes in economic activity, inflation expectations, monetary policy outlook, and liquidity circumstances. The curve is considered to steepen when the spread widens, and the gap between long- and short-dated rates grows. On the other hand, the yield curve is considered to flatten when the term spreads contract.

    The term spread may shift for various causes, such as the long-term yield curve flattening or the short-term rate curve increasing (or a combination of both). The Treasury curve’s erratic movements may be used to create engaging cross-market trading strategies since they are a reliable real-time business cycle predictor. For instance, savvy stock investors often assess the yield curve’s form and slope when constructing an equity portfolio that aims to capitalize on a developing economic trend.

    THE FOUR DIFFERENT CURVES TO UNDERSTAND

    The four basic yield curve regimes and how they may be used to forecast sector leadership in the equities market are summarised below.

    • Bear steepening: The yield curve becomes steeper when long-term rates rise faster than short-term rates. This risk-on atmosphere often develops during a recession in the early stages of the economic cycle after the central bank has lowered the benchmark rate and indicated it would do so indefinitely to promote recovery. A reflationary environment is created by accommodating monetary policy, which raises long-term rates set by the market as future inflation and economic activity forecasts improve. Because of the more robust profits growth, smart money views this environment as positive for most equities, particularly those in cyclical industries. Materials, industrials, and consumer discretionary equities often see substantial rallies during bear steepening. Due to expanding net interest margins, banks (financials), which depend on short-term and long-term lending, also fare well during these times.
    • Bear flattener: Short maturity rates increase faster than their long-term equivalent, compressing term spreads and flattening the curve. Before the Fed hiked the federal funds rate to tame inflationary pressures, this regime operated throughout the expansion period (the front end of the turn is primarily influenced by monetary policy expectations determined by the central bank). While there may be spikes in volatility, the atmosphere for equities is still one of risk-taking amid solid results. It promotes a favorable environment for technology, energy, and real estate.
    • Bull steepening: The curve becomes steeper when short-term rates decline more quickly than long-term yields. This regime often manifests early in a recession when the outlook is very hazy, and the central bank is lowering short-term rates to boost the economy. It is risk-averse. Overall, equities suffer during bullish times; however, defensive industries like utilities and staples often outperform the market while technology and materials struggle.
    • Bull flattener: The Treasury curve flattens when long-term yields decline more quickly than short-dated rates. Moves on the back end, primarily driven by market factors in the face of declining long-term inflation forecasts and a worsening GDP outlook, are what is causing the gap to decrease. Late in the economic cycle, when investors start pricing in a potential recession and disinflation, this regime, which heralds volatility in the financial markets, bursts into action. Equity investors start to skew their portfolios toward better quality investments as a buffer against growing volatility while the bull market is in full swing. While the cyclical struggle with declining corporate results for economically sensitive industries, staples and utilities take the lead.

    Note: The bond price movement is meant by the “bull” and “bear” signifiers that characterize each regime. For instance, short-dated Treasuries are sold in a bear flattener, causing their values to decline since short-term rates are rising more quickly than long-term ones (bearish for price in this example). Remember that bond yields and prices fluctuate in opposite directions.

    The outlook for monetary policy, output growth projections, and inflation expectations significantly impact how the U.S. Treasury curve will appear. The yield curve is an excellent leading predictor of the economic cycle because it captures key elements of the economy’s present and future. Based on this assumption, equity investors often use the curve’s form as a forecasting tool to estimate the stock market’s direction. However, this technique shouldn’t be used in isolation since bonds may sometimes provide erroneous signals, just like any instrument. To that end, combining top-down and bottom-up analyses is often better when building a balanced, diversified, and less volatile portfolio.

  • 4 Global Market Updates- 4 August, 2022

    4 Global Market Updates- 4 August, 2022

    In this article, we have covered the highlights of global market news about the US Dollar Index, EUR/GBP, USD/JPY and Australia’s trade surplus.
    The US Dollar Index seems cautious at about 106.30.

    As measured by the US Dollar Index (DXY), the dollar continues to trade cautiously at 106.30 against a background of rising US yields and shifting risk appetite trends.

    The dollar’s recovery has slowed down in reaction to recent hawkish remarks from FOMC members Daly, Bullard, and Mester, who justified more tightening in the coming months. This development is also consistent with the rise in US rates throughout the curve, notably in the short end.

    EUR/GBP Price Analysis: Below 0.8440, bears are in control and the BOE is watching

    As buyers make another effort to overcome the prior support level from March on early Thursday morning in Europe, bids on the EUR/GBP increase to 0.8310. Nevertheless, on Tuesday, the cross-currency pair fell to its lowest levels since April 22 before rebounding off 0.8340.

    However, the pair’s most recent rebound draws insights from the RSI circumstances that were almost oversold. The quotation is still below the support line that later turned into resistance around 0.8380. The weekly resistance line, located at 0.8385, presents another obstacle for short-term EUR/GBP investors.

    Even if the pair moves beyond 0.8385, the EUR/GBP bulls may face resistance from the 200-DMA level and the 61.8 percent Fibonacci retracement of the March-June upswing, which are located respectively at 0.8400 and 0.8440.

    The onus then shifts to the buyer, and prices may increase in the direction of the swing high from late July, which was about 0.8585.

    EUR/GBP

    On the other hand, the recent bottom at 0.8340 limits the EUR/GBP prices’ immediate downside during the recent decline. The next move seems to go southward toward the low of 0.8295 on March 23.

    The possibility of seeing a further decline toward the annual low set in March, at 0.8200, cannot be ruled out if EUR/GBP continues bearish above 0.8295.

    USD/JPY is likely to remain range-bound in the short future – UOB

    The resistance around 134.60 is unlikely to be threatened by the overbought circumstances, according to the 24-hour view: “We anticipated USD to ‘move further’ yesterday. Our prediction came true, as USD increased to 134.54 before abruptly falling again. The upward trend has paused, and the USD is not expected to continue. For now, it’s more probable that the USD will fluctuate between 133.10 and 134.50.

    Within the next three weeks: “Our position has not changed from yesterday (03 Aug, spot at 133.50). The current USD weakness is over, as was indicated. The USD is anticipated to trade in the range of 131.30 and 135.60 for the time being as the recent price movements are likely the beginning of a wide consolidation period.

    Australia’s trade surplus has reached a new high, according to Westpac.

    “The jump in exports helped the surplus rise to $17.7 billion in June.”

    The $14.6 billion result for Westpac and the $14.0 billion market median in June was beyond forecasts.

    Note that the May results were reduced from $16.0 billion to $15.0 billion, nevertheless setting a new record high before the June result.

    Off a very low basis, “export profits rose during the June quarter, indicating a mix of stronger prices and a welcome increase in volumes.”

    “In April, exports increased by 5.4 percent. In May, they increased by 8.9 percent. In June, they increased by 5.1 percent. We had predicted that the export market would stabilise in June.

    The growth of 0.7 percent on the import side “fell short of our expectations, an anticipated 3.2 percent,” according to the report.

    Weakness was mostly caused by a decrease in civil aircraft as well as a softening in automotive imports, which are still being hampered by supply chain problems.

    Please click here for the Market News Updates from 3 Aug, 2022.

  • 4 Global Market Updates- 3 August, 2022

    4 Global Market Updates- 3 August, 2022

    In this article, we have covered the highlights of global market news about the Crude Oil Price, GBP/USD, USD/CAD and EUR/USD.
    Crude Oil Futures: More consolidation is on the way

    According to CME Group advanced prints, open interest in crude oil futures markets fell by roughly 8.2K on Tuesday after three consecutive daily gains. Following two daily increases in a row, volume fell by roughly 108.7K contracts.

    On Tuesday, the WTI recorded an indecisive session amid declining open interest and volume, indicating the persistence of the range-bound theme in the very near term. So far, the commodity has been supported by a price of $90.00 per barrel.

    GBP/USD is now consolidating – UOB

    “We said yesterday that ‘the quick climb looks to be continuing, although there is headroom for GBP to get above 1.2300 before the possibility of a retreat increases.’ We were not expecting such a steep and quick decrease to 1.2158. (high has been 1.2279). The pound is losing ground and might fall below 1.2100. For the time being, the next support level at 1.2040 is not likely to be challenged. The resistance level is 1.2195, followed by 1.2225.”

    “The pound fell rapidly to a low of 1.2158 yesterday.” While our strong support’ at 1.2135 remains in place, the upward impetus has faded. In other words, the GBP surge that began late last week has abruptly ended. GBP looks to have entered a consolidation phase and is expected to trade around the 1.2040/1.2255 area for the time being.”

    USD/CAD bears test 1.2850 as oil prices surge ahead of the OPEC meeting, with attention focused on US data and Taiwan.

    USD/CAD accepts offers to repeat the intraday low around 1.2850 ahead of the European session on Wednesday. The Loonie pair gained ground over the past two days before backtracking from its weekly high of 1.2891. On the other hand, the retreat movements are influenced by the lately higher prices of Canada’s principal export commodity, WTI crude oil. The US dollar’s fall amid cautious optimism ahead of crucial US data also keeps USD/CAD prices high.

    oil

    Nonetheless, WTI crude oil prices broke a two-day downtrend, rising 0.63 percent intraday near $93.75, amid growing expectations of no significant change in oil producers’ policy during today’s meeting of the Organization of the Petroleum Exporting Countries (OPEC) and allies, including Russia, known as OPEC+.

    EUR/USD maintains its consolidative tone – UOB

    “We underlined yesterday that ‘upward momentum is starting to develop, but it remains to be seen whether EUR can breach the significant barrier above 1.0300.” As the EUR dropped quickly from 1.0293, the key barrier of 1.0300 remained intact (the low was 1.0162). The quick decline may continue, although it is unlikely to breach the key support around 1.0100. (there is another support at 1.0130). A break of 1.0210 (minor resistance is at 1.0195) on the upside would signal that the present bearish pressure has decreased.”

    “We emphasized yesterday that the risk for the EUR is turning to the upside, but EUR must first cross 1.0300 before a prolonged increase is conceivable.” EUR failed to break beyond 1.0300, falling quickly from 1.0293. The surge in upward momentum faded shortly. The price activity suggests that the EUR is consolidating and will likely trade between 1.0100 and 1.0260. The EUR must break through the main support level of 1.0100 before conceiving a significant drop.”

    Please click here for the Market News Updates from 2 Aug, 2022.

  • Gold price forecast: XAU/USD hits multi-week high on USD weakening

    Gold price forecast: XAU/USD hits multi-week high on USD weakening

    On Monday, gold recovered some of its early losses and went positive for the fourth day in a row. During the first part of Monday’s European session, the momentum drove the gold price to a new three-and-a-half-week high, circling around $1,772-$1,773. The post-FOMC selling bias in the US dollar has not faded on the first trading day of the new week, which is turning out to be a significant element that is to the advantage of the commodity priced in dollars.

    The Federal Reserve sounded less hawkish last week and signaled that it might moderate the pace of the policy tightening campaign at some time in the future in response to evidence of a downturn in the economy. In addition, the dismal publication of the Advance US Q2 GDP data confirmed a technical recession. It encouraged predictions that the Fed would not boost interest rates as rapidly as prior forecasts indicated. Because of this, the US Dollar is subjected to some follow-through negative pressure for the fourth day in a row.

    In addition to the consistent selling of USD, the prevailing cautious attitude surrounding the equities markets further supports the safe-haven commodity of gold. The recent upbeat surge in the markets seems to be losing momentum as concerns about a worldwide economic slowdown intensify. Following the dismal announcement of the official Chinese Manufacturing PMI for July, which fell back into the contraction zone, the fears have again come to the surface. This results in investors’ desire for perceived riskier assets being muted.

    GOLD

    However, it is yet unknown if bulls will be able to capitalize on the rise or choose to take some winnings off the table. The potential for a goodish return in the rates on US Treasury bonds might limit losses for the USD and contain gains for the non-yielding gold. A possible course of action for investors is to hold off on making risky bets in the run-up to this week’s crucial central bank event risks. Tuesday is the day that the Reserve Bank of Australia (RBA) is expected to reveal its policy decision, and Thursday is when the Bank of England is due to convene.

    In addition, important US macro data planned to be released at the beginning of each new month will also play a vital role in defining the next leg of a directional move for gold. The publication of the ISM Manufacturing PMI on Monday sets off a week that will be rather eventful for the economy of the United States. This, in conjunction with the rates on US bonds, will affect the USD and offer some impetus to spot prices. The monthly employment report (NFP) released in the United States on Friday will continue to be the primary focus.

  • Compound Interest: World’s Eighth Wonder For A Trader

    Compound Interest: World’s Eighth Wonder For A Trader

    “Compound interest is the world’s eighth marvel. Whoever comprehends it earns it; whoever does not pays it. Einstein, Albert
    Since this subject has many different aspects, I’ll limit my discussion to the trading industry and the benefits of compounding returns. Any traded financial market is affected by this.

    Let’s first look at two straightforward money management strategies that a trader might include in their trading plan.

    • Fixed-size trades (monetary)
    • Trade size in percentage (proportional to trading balance)

    The first choice would imply that no matter the result of the prior transaction (win or loss), the same set monetary deal size would remain on all future trades. So how would this relate to a successful trader?

    Assuming Sam and Ben, two traders, have the same approach and balance:

    • $10,000 as a deposit
    • Fifty-five percent of games are won.
    • The average win to average loss is a profit ratio of 1.2.

    Although the data above is sparse, it provides a foundation to build a visual depiction of the increase in each trader’s account.

    Their performance of Sam is simulated in the graph below using a FIXED Transaction SIZE of $100 for each trade he does (i.e., each loss will cost him $100):

    trade

    A little side comment is necessary here. Here is only one simulation of how a line chart may display the distribution of wins and losses. Remember that there was a chance we might have had a losing result. We never know how each deal will turn out when we trade the markets and when a run of losses will start. Instead, the longer we trade, the more money we should make.

    Returning to the main topic, we can observe that this produced a +16 percent increase by dividing (end balance less start balance) by end balance using the set transaction sizes discussed above.

    Let’s now evaluate Ben’s trading strategy, which was predicated on a FIXED PERCENTAGE of his balance. Ben will initiate his transaction with a balance of $100, and the fixed percentage will be 1 percent of that amount:

    trade

    Ben has yielded (or produced) a +9.58 percent increase throughout this simulation of 40 transactions using 1% of his available balance at the time of each deal.

    So, why does the set stake size on each transaction appear preferable after all?

    If you still believe that, allow me to educate you.

    As I mentioned before, these are short simulations, or what statisticians would call a “sample size,” and they don’t always represent what can be accomplished “over the long run.”

    Now let’s evaluate the potential outcomes of 1,000 transactions using both betting methods side by side:

    trade

    The comparable results are as follows:

    • Betting System: +208.6 percent
    • 1,211.5 percent as a fixed percentage

    In the short term, Sam has been shown to provide a little higher return than Ben, but over the long run, Ben has progressed to purchasing his yacht while Sam is still in his row boat. One compounded his riches, while the other did not, which was the sole difference between them.

    I think it’s clear that this post has two lessons. I put the potential of compounding returns front and center using a set percentage risk for every transaction. I also hope you’ve learned that it’s not always a good idea to judge if your method has a positive “expectancy,” which suggests it’s likely to withstand the test of time by looking at a few transactions.

  • THE RECOVERY FROM A FOREX DRAWDOWN

    THE RECOVERY FROM A FOREX DRAWDOWN

    Drawdown is the term used to describe the process of losing money while playing a game. Losses in the foreign exchange market are unavoidable and will happen to every one of us at some point; the question is, what is the actual cost when you suffer a loss? If you have a significant downturn, you will need significant profits to return to where you began. I will show you a graph in this video highlighting the harm that may be caused by excessive drawdown.

    The failure of many forex traders to comprehend the impact that an unchecked losing streak may have on their trading accounts is the most common instance of gross underestimating that these traders engage in.

    When a trader loses, their money is taken out of their trading account. We’ve all been in that situation. Extremely improbable that there won’t be any further losses in the future.

    Drawdown: What is it?

    Drawdown is the difference between the highest value and following lowest value in the balance of your trading account. It is measured from highest value to lowest value. This displays the total amount of money you have lost due to unsuccessful deals.

    To put it another way, if you build up your account to $100,000 and then suffer a loss of $30,000, your drawdown is 30 percent.

    How might a drawdown affect your account?

    Most people are unaware of this fact; nonetheless, in addition to the money that is lost, the drawdown may do a great deal of other harm to the account.

    Example: Let’s consider two dim performances on an equity curve. Trader A and trader B.

    Both have set their sights on achieving an annual growth rate of 5% over the following ten years. The horizontal axis of the graph below represents the passage of time in years, while the vertical axis represents the percentage increase or growth that occurred during this period.

    Both achieved the goal of 5 percent growth throughout the program’s first year. During the second year of the trading operation, trader B has a losing spell that leads to a loss of 24 percent.

    drawdown

    For trader B to attain the same aim as trader A, who in this example has a gain of 63 percent over ten years, he will need to make twice the first intended amount of 5 percent for each of the next eight years. Therefore, to make up for the previous year’s loss, he has to increase his annual profit by 10%.

    If you have a drawdown of 10 percent, you need to increase by 11.1 percent merely to be even. If you suffered a loss of 25 percent, then you will need to achieve a gain of 33 percent to return to where you were before. And if you have a drawdown of sixty percent, you need a gain of one hundred fifty percent merely to return to where you started.

    What can be done to control drawdown?

    Drawdown is an essential component of trading; every trader will experience it at some point. However, what is essential to understand is how you need to perform following the drawdown phase.

    Trading with a lower risk percentage might be one approach to avoid a drawdown of these disastrous proportions. If you have a strategy that has been back-tested and shown to have a positive expectation, then you should understand how the future downturn may affect your equity curve moving ahead.

    To retain one’s discipline and keep one’s emotions under control during downturn times, it is preferable to reduce one’s level of risk and maybe even quit trading for a while. You may establish a weekly or monthly cap just as you can set a limit for each deal you make. If you lose more than 5 percent of the total value of your account, you will be required to refrain from trading for a certain amount of time.

    If you don’t have a clearly defined strategy, you can feel motivated to use more leverage to recoup some of your losses. Don’t make this mistake. Get up and go away from the charts; give yourself a rest instead.

    When trading the markets, you should constantly remember this rule in the back of your mind. The most important foreign exchange rule is to always protect your money.

  • HOW TO DRAW FOREX TREND LINES?

    HOW TO DRAW FOREX TREND LINES?

    One of the most popular types of technical analysis is trendlines. However, are you sketching them properly? If not, allow me to demonstrate.

    Many different types of technical analysis are used to study the markets. The application of support and resistance is, by far, the most typical.

    Trend Lines: What Are They?

    On a chart, a trend line is a line that is drawn between two levels to represent support or resistance, depending on the trend’s direction. The more often a price abides by a specific trend line, the more critical that trendline is.

    Based on these trend lines, we can quickly identify possible pockets of higher supply and demand that may help the market go downward or upward.

    How are trend lines drawn?

    In my years of trading and instructing, I’ve seen a lot of misunderstandings about the precise location and placement of trend lines. In this area, there are two schools of thought:

    • You may create a trendline by connecting the highs and lows of a particular candle.

    or

    • They may be deducted from the final price.

    The key is to remain consistent in your approach, so you can either do one or the other.

    Drawing a trendline from the highest closing price of one candle to the higher candle and trying to compel them to match the market is pointless. You’ll likely get some false trade signals as a result of this.

    The direction of the trend, from where the price has been to where it is heading, should be considered while drawing trend lines.

    Let’s examine the trend line in the chart below:

    trendline
    Source: Forex Signals

    The trend line will be positioned below the price in an upward market, functioning as support.

    The trendline will be located where the market price is in a downtrending market, functioning as resistance.

    How should the trend line be placed?

    One technique is to align the trend lines with the extreme highs and lows of a particular candle as measured by its wicks.

    The price is now quite far from where that specific trendline is drawn, which is the only issue. The same holds if you are projecting a market that is declining.

    The closing price method is the alternative strategy. Using the line graph, the price will trade much more closely to the trend line, which you can see on the candlesticks with ease.

    How do you trade using trend lines?

    First off, trendlines established on a long-term chart using the closing price are more accurate and dependable. It might be used on many kinds of charts and for a breakout.

    Second, trend lines may be utilized to create dynamic support and resistance levels based on recent price movements. The support level will be the uptrend line, and the resistance level will be the downtrend line.

    Price movement might either break through the trend line and create a reversal or bounce off the trend line and continue the trend.

    The price won’t always bounce back precisely from the moving average since these trend lines are like regular support and resistance lines.

    The next move should see prices move toward the break after the level of resistance or support has been breached. A fake breakout will occur if prices break and then fail to go forward quickly.

    Trendlines may also be significant or minor, much as with support and resistance.

    Summary:
    • A line drawn between two levels on a chart to represent support or resistance is known as a trend line.
    • The most trustworthy trend lines will always be produced at more significant periods.
    • NEVER try to shoehorn trend lines into a market by drawing them.
    • Trend lines may be used as dynamic levels of support and resistance.
  • 4 Global Market Updates- 15 July, 2022

    4 Global Market Updates- 15 July, 2022

    In this article, we have covered the highlights of global market news about the Silver Price, USD/JPY, Copper Price and S&P 500 Index.
    Silver Price Analysis: XAG/USD will continue to fall towards the $17.92 support level.

    Already having established a new high, silver is moving closer and closer to the critical support level of $18.65. The economists at Credit Suisse anticipate that there will be additional declines in the coming weeks and months.

    “Silver has already finished a massive top and is getting closer and closer to the vital 61.8 percent retracement support of the whole 2020/21 up move, which is around $18.65. We anticipate this will serve at the very least as a temporary floor. On the other hand, if the momentum continues to deteriorate, it is conceivable that more deterioration towards the $17.92 support may occur within the next one to two months.

    “From a purely technical point of view, Silver will not significantly stabilize until it rises over the 55-day moving average, presently sitting at $21.33.”

    Since ancient times, silver prices have been tracked. Among its many uses, silver (XAG) is a valuable metal found in jewelry, cutlery, electronics, and money. In financial markets throughout the globe, silver prices are closely monitored. Silver has been exchanged for thousands of years and originally served as the underpinning for money.

    USD/JPY: Attention moves now to 140.00

    The 24-hour view: “While we did anticipate that the USD would appreciate yesterday, we believed that a sustained increase over 138.00 is doubtful.’” When the USD climbed to a new high of 139.39, we were caught off guard by the sudden acceleration to the upside. Despite being at an all-time high level of buying, the quick surge has not yet shown any indication of slowing down. In other words, the USD might keep climbing higher until it reaches 139.50. It is doubtful that the enormous resistance located around 140.00 will come into play for the time being. Support may be found at 138.60, and then at 138.30.”

    Within the next one to three weeks: “We went bullish USD three days ago (12 July, spot at 137.20), and we predicted that USD might climb further to 138.00, as high as 138.50. Although we were correct in predicting that the USD would rise, we were not quite prepared for the lightning-fast pace at which it blew right through 138.00 and 138.50 yesterday on its way to a new all-time high of 139.39.

    The acceleration of the price increase provides evidence that the USD will continue to gain strength. The next important level to pay attention to is at 139.50, and then at 140.00, which is a significant round-number level. On the other hand, a breach of 137.50 (the level of strong support was at 136.30 the day before) would signal that the upward solid pressure present recently has weakened.

    Copper Price Analysis: A 61.8% retracement of around $6,844 is needed to level the market.

    Copper is still seeing selling pressure and is now trading only a hair’s breadth above the previous yearly low. The market analysts at Credit Suisse anticipate that the metal will locate a stable support level at the $6,844 price point.

    silver

    “We expect the 61.8 percent retracement at $6,844 to floor the market temporarily,” with the industrial metal holding just barely above the $7,291 last set YTD low. “We would expect the 61.8 percent retracement at $6,844 to floor the market.”

    Key resistances may still be observed at the latest breakdown point, near $8,570/8,740.

    S&P 500 Index: Around danger of more short-term weakening to long-term supports at 3522/05.

    S&P 500 continues under pressure. According to the analysts at Credit Suisse, the near-term risk over the next two to four weeks is projected to be lower than it is now. However, crucial support is still anticipated around 3522/05.

    The market has to break above the resistance level of 3946 to conduct a deeper rebound.

    “A break below 3637 would likely set off additional weakening over the following two to four weeks, with the following support being around 3522/05, which is the location of the 50 percent retracement and the 200-week average. We would be inclined to seek at least a floor here if it were hit, especially in light of the waning momentum over the medium term.

    Please click here for the News Updates from July 14, 2022.

  • What Is A Bear Market? Is It A Good Time To Invest?

    What Is A Bear Market? Is It A Good Time To Invest?

    What does “Bear Market” mean?

    A bear market is characterized by an asset price decrease of at least 20 percent from recent highs. Clearly, these are hardly favorable circumstances, but fighting back might be risky.

    Here, we will discuss eight essential investing methods and mentalities that can help you remain cool and “play dead” while the stock market eats into your gains.

    Bear Market Strategies

    Keep Your Fears Under Control

    Wall Street has an ancient saying: “The Dow climbs a wall of fear.” In other words, the Dow has continued to increase throughout time despite economic problems, terrorism, and numerous other catastrophes. Always attempt to separate your emotions from your investing decision-making process. A few years from now, what appears like a great global calamity now may be regarded as little more than a blip on the radar screen. Remember that fear is an emotion that may impair logical decision-making. Keep your cool and continue!

    Invest Using Dollar Cost Averaging

    The most essential thing to remember during an economic slowdown is that negative years on the stock market are common; they are a natural component of the business cycle. If you are a long-term investor (with a time horizon of 10 years or more), dollar-cost averaging is one of your options (DCA). By acquiring shares regardless of price, you get shares at a discount while the market is down. Your cost will “average down” over time, resulting in a better total entry price for your shares.

    Act Dead

    During a bear market, bears dominate and bulls have no chance. According to an ancient proverb, the best course of action during a bear market is to pretend dead, just as you would if you saw a genuine grizzly bear in the woods. Fighting back would be very risky. By remaining cool and avoiding unexpected movements, you will avoid becoming a bear’s meal. Playing dead in financial terms refers to allocating a greater proportion of your portfolio to money market products, such as certificates of deposit (CDs), U.S. Treasury bills, and other assets with high liquidity and short maturities.

    Diversify

    Diversification is allocating a portion of your portfolio to stocks, bonds, cash, and other assets. The manner in which you divide your portfolio depends on your risk tolerance, time horizon, objectives, etc. Every investor’s circumstances are unique. A smart asset allocation plan will enable you to avoid the potentially harmful consequences of putting all of your eggs in one basket.

    Never invest more money than you can afford to lose.

    Investing is vital, but so are eating and staying warm. It is undesirable to invest short-term cash (such as money for the mortgage or groceries) in the stock market. As a general rule, investors should not invest in stocks unless they have a five-year or longer investment horizon, and they should never invest money that they cannot afford to lose. Bear markets and even slight market dips may be exceedingly devastating.

    Consider Excellent Values

    Bear markets may provide excellent investment opportunities. The secret is knowing what you’re searching for. A bear market is characterised by equities that are beaten up, battered, and priced too low. Value investors such as Warren Buffett often consider bear markets as purchasing opportunities due to the fact that the prices of excellent firms fall in tandem with the valuations of inferior companies, resulting in very favourable valuations. Buffett often increases his holdings in some of his favourite firms during market downturns because he understands the market’s propensity to unfairly penalise even outstanding businesses.

    BEAR
    Take Stock in Defensive Industries

    In general, defensive or non-cyclical equities do better than the market as a whole during bear markets. These sorts of stocks provide a constant dividend and dependable profits regardless of the market’s condition. Companies that manufacture non-durable home goods, such as toothpaste, shampoo, and shaving cream, are examples of defensive sectors, since consumers will continue to use these products throughout difficult times.

     Prefer Short

    There are opportunities to benefit from price declines. One method is short selling, which involves borrowing shares of a business or ETF and selling them in the hope of buying them back at a cheaper price. Short trading involves margin balances and might result in damaging losses if markets rise and short positions are covered, resulting in further price compression. Put options are another alternative, which increase in value when prices decline and guarantee a minimum price at which to sell an asset, thereby setting a floor for your losses if you are hedging. To purchase puts, you must be able to trade options in your brokerage account.

    Inverse exchange-traded funds (ETFs) provide investors with the opportunity to benefit from the decrease of significant indexes or benchmarks, such as the Nasdaq 100. When the main market indexes decline, these funds increase, enabling you to benefit while the rest of the market declines. These options may be acquired simply from your brokerage account, unlike short selling or puts.

    Why Is It a Smart Move to Continue Investing During Bear Markets?

    The stock market and the economy tend to rise over the long term. Bear markets may disrupt this generally upward tendency, but these declines always finish and reverse, resulting in new highs. By investing during bad markets, you may develop stronger holdings by purchasing equities at cheaper prices (“on sale”).

    What is the frequency of bear markets?

    Historically, bear markets in the United States occur every 4.5 to 5 years on average.

    Why Is This Known as a Bear Market?

    There are many conflicting hypotheses about the origin of the names bull and bear markets. Bulls often attack by thrusting their horns forward, while bears typically strike by bringing their claws downward. According to a second explanation, the name “bear” derives from the early fur trade, in which bearskins were seen as especially dangerous goods in terms of price and durability.

    Which bear market was the most severe to date?

    The 1929-1932 decline, which coincided with the Great Depression, was the most severe and longest bear market ever.