Tag: forex

10 Common Forex Trading Mistakes to Avoid

Human error is widespread in the forex market and often results in well-known trading blunders. These trading errors often occur, especially with new traders. Having an awareness of these mistakes might make traders more effective in their forex trading. Despite the fact that all traders, regardless of experience level, make trading errors, being aware of the reasoning behind them may help to stop trading obstacles from becoming out of control. The top 10 trading errors and solutions are listed in this article. These errors are a part of the ongoing learning process, and traders should get used to them to prevent repeating blunders.

Consider these 10 common trading blunders you must avoid before starting a forex trading strategy since they account for a large share of losing transactions.

MISTAKE 1: NO TRADE PLAN

Without a trading plan, traders’ approaches are often haphazard since their strategies are inconsistent. Trading strategies have established rules and methods for each deal. This stops traders from acting irrationally in response to unfavorable fluctuations. Sticking to a trading strategy is important since straying from it might result in traders entering uncharted waters in terms of trading style. This ultimately leads to trading errors brought on by unfamiliarity. Testing trading methods on a practice account is recommended. This may be used to a real account if traders are confident and comprehend the technique.

MISTAKE 2: EXCESSIVE LEVERAGING

The use of borrowed funds to establish forex trades is referred to as leverage or margin. This function reduces the amount of personal cash needed for each transaction, but there is a genuine risk of increased loss. Leverage amplifies earnings and losses, therefore controlling the amount used is essential. Find out more about forex market leverage.

Brokers are crucial to their clients’ protection. Many brokers provide excessively high leverage ratios, such 1000:1, which greatly increase the risk to both inexperienced and seasoned traders. Regulated brokers will restrict leverage to reasonable levels under the direction of reputable financial authorities. When choosing the right broker, this should be taken into account.

MISTAKE 3: INSUFFICIENT TIME HORIZON

The trading method being used and time invested go hand in hand. Understanding the strategy will enable you to determine the estimated time frame utilized for each transaction since every trading method adapts to different time horizons. For instance, whereas positional traders prefer the longer time periods, scalpers focus on the shorter time frames. Investigate the forex trading methods for various time frames.

MISTAKE 4: Insufficient Research

In order to implement and carry out a certain trading strategy, forex traders must make the necessary research investments. When markets are studied properly, fundamental effects, market patterns, and entry/exit timing may all be revealed. The more one understands the product itself, the more time is spent on the market. There are minute differences in how the various pairings operate inside the forex market. To thrive in the target market, these variations need to be carefully examined.

Avoid reacting to media coverage and unfounded advise without first checking the information with the approach and analysis you’ve used. This often happens to traders. This is not to say that these suggestions and press releases shouldn’t be taken into account; rather, it means that they should be thoroughly researched before being put into practise.

MISTAKE 5: BAD RISK-TO-REWARD RATIOS

Traders often ignore favorable risk-to-reward ratios, which may lead to poor risk management. A good risk-to-reward ratio, such as 1:2, means that the trade’s potential profit is twice as great as its possible loss. A long EUR/USD trade with a 1:2 risk-to-reward ratio is seen in the chart below. With a stop at 1.12598 (10 pip) and a limit of 1.12898, the trade was initiated at a level of 1.12698. (20 pips). The Average True Range (ATR), which bases entry and exit points on market volatility, is a useful indicator for identifying stop and limit levels in forex trading.

A ratio in mind may help traders moderate their expectations, which is crucial since, according to extensive research by DailyFX, poor risk management has emerged as the most common error traders make.

Risk-to-reward ratio for EUR/USD is 1:2.

MISTAKE 6: TRADING BASED ON EMOTION

Trading decisions made out of emotion are often illogical and ineffective. After losing transactions, traders typically start new positions to make up for the loss. These trades often lack any technical or fundamental educational support. Since trading strategies are designed to prevent this kind of trade, they must be strictly adhered to.

MISTAKE 7: INACCURATE TRADING SIZE

Every trading strategy must take trade size into account. Many traders trade in sizes that are inappropriate for their account sizes. Thereafter, risk grows and account balances may be lost. DailyFX advises putting no more than 2% of the entire value of the account at risk. For instance, if the account has $10,000 in it, a maximum risk of $200 per transaction is advised. The strain of overexposing the account would be relieved if traders follow this basic guideline. Overexposing the account to one single market carries a very high risk.

MISTAKE 8: TRADING ON MULTIPLE MARKETS

Trading on a small number of marketplaces allows traders to amass the required expertise to master these markets without even touching the surface of a small number of markets. Due to a lack of knowledge, many newbie forex traders attempt to trade on various markets without success. If necessary, this should be carried out using a demo account. Trades without the required fundamental or technical reason are often made by traders as a result of noise trading (irrational trading) on a variety of marketplaces.

For instance, the 2018 Bitcoin mania attracted many noisy traders at the wrong moment. Sadly, a lot of traders joined the market at the “FOMO or Euphoria” period of the market cycle, which led to huge losses.

MISTAKE 9: FAILURE TO REVIEW TRADES

The regular usage of a trading log will enable traders to recognize both successful and potential strategy weaknesses. The trader’s general comprehension of the market and future strategy will improve as a result. Reviewing transactions reveals both mistakes and positive elements that need to be continually emphasized.

MISTAKE 10: CHOOSING AN UNSUITABLE BROKER

Choosing the best CFD broker might be challenging since there are so many of them available worldwide. Before creating an account with a broker, financial security and legal compliance are required. The broker’s website should make this information easily accessible. To avoid laws in more stringent nations like the US (Commodity Exchange Act) and the UK, many brokers are licensed in nations with lax rules (FCA).

Safety is the first priority, but selecting a broker also involves considering the broker’s platform’s comfort level and simplicity of use. Prior to trade with actual money, you should allow yourself enough time to get familiar with the platform and costs.

MISTAKES IN FOREX TRADING: A SUMMARY

Before engaging in any kind of live trading, it’s essential to have the appropriate theoretical framework for forex trading. Future traders will profit from taking the time to comprehend the dos and don’ts of FX trading. All traders will ultimately make mistakes, but it’s important to train and develop anticipated behavior in order to reduce errors and prevent repeat crimes. This article’s main emphasis is on maintaining a trading strategy with appropriate risk management and a workable reviewing mechanism.

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September 16, 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.

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.

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.

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September 15, 2022
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

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

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.

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August 8, 2022
As Your First Indicator in Technical Analysis, Consider Price Action

WHAT IS IT?

The study or analysis of price movement in the market is known as price action. It is a tool used by traders to generate views and make choices based on trends, important price levels, and effective risk management. The first stage in price action trading is typically trend identification.

Price action chart characteristics:

PRICE MOVEMENT AS YOUR PRIMARY INDICATOR

Price movement serves as the first kind of analysis for technical analysis setups. When employing an indicator, it is important to keep in mind that it is a function of price action. When it comes to trading, the indicator itself is not the most important instrument; rather, price action takes precedence. The information that the indicator will finally display on the chart is determined by price activity.

As a result, before examining the indicator for an entry signal, a trader must ascertain what the price action is doing (i.e., the trend). The trader may then check the indicator for an entrance signal in the trend’s direction after the trend has been identified. Since traders base their decisions on an instrument’s price movement, they pay more attention to price changes than indicator value changes.

Technical indicators are derived from price activity; as such, the information that they display on the chart is determined by price action. These metrics are determined utilising various periodic price data that serve as support for the entry, exit, and stop distance requirements. To determine how the market is operating on a broad scale, trend identification is crucial in market analysis (time frame dependent).

Example of price movement in USD/ZAR:

The USD/ZAR chart shows how price movement and technical indicators work together to provide a classic trade setup. The price action section of the chart is where the upward trend (blue line), which in this case also acts as a support level, is first identified. The inclusion of the moving average (MA) and the fact that the forex price is above the 20, 50, and 200 moving average lines further corroborate the direction of the short-term trend.

The stochastic oscillator indicates that the market is almost in oversold territory, pointing to further bullish/upward activity. In order to time the entry, it would be necessary to monitor both the stochastic and the direction of the price as it approaches the support (blue line). Traders would want to start a long position with proper risk management once the price hits this level.

SUMMARY

Price action is a wide technical analysis methodology that includes many trading approaches used by traders to study the markets. Price movement and technical indicators combine effectively to help traders make more precise trading selections.

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August 4, 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.

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.

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August 4, 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.

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.

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August 3, 2022
The 5 Most Effective Candlestick Patterns
A specialized technique known as a candlestick chart condenses data from many periods into a single price bar. They are thus more valuable than conventional open-high, low-close bars or straight lines that link closing prices. Candlestick patterns forecast price movement. This colorful technical instrument, which goes back to Japanese rice merchants in the 18th century, is made more interesting by proper color coding.

In his well-known 1991 book, Japanese Candlestick Charting Techniques, Steve Nison introduced candlestick patterns to the West. These patterns, which go by colorful names like bearish dark cloud cover, evening star, and three black crows, are now well recognized by traders. Numerous long- and short-side trading systems have also used single bar patterns like the Doji and hammer.

Reliable Candlestick Patterns

Not every candlestick pattern performs as well as others. Because of the algorithms used by hedge funds to examine them, their enormous popularity has reduced their dependability. These well-funded players compete with regular investors and conventional fund managers using technical analysis tactics from well-known literature with lightning-fast execution.

In other words, hedge fund managers use algorithms to lure in traders seeking outcomes with high probabilities of being bullish or negative. Nevertheless, consistent patterns keep emerging, providing both short- and long-term profit potential.

Following are five candlestick patterns that excel in predicting price direction and momentum. Each one functions to forecast higher or lower prices in the context of neighboring price bars. They also have two time-sensitive aspects:
- Whether an intraday, daily, weekly, or monthly chart is being examined, it can only operate inside its parameters.
- Their power quickly declines three to five bars after the pattern is finished.
Performance of Candlestick

In his 2008 book, “Encyclopedia of Candlestick Charts,” Thomas Bulkowski created performance rankings for candlestick patterns used in this research.

He provides data for two categories of anticipated pattern outcomes:
- Reversal Candlestick patterns foretell a shift in price movement.
- Continuation patterns indicate that the present price trend will continue.
The black candlestick in the images below indicates a closing print lower than the opening print. In contrast, the hollow white candlestick indicates a closing print higher than the beginning print.

STRIKES IN 3 LINES

Source: Investopedia

The bullish three-line strike reversal pattern forms three black candles inside a downtrend. The intrabar low is reached by each bar, which also records a lower low. Although the fourth bar reverses in a wide-range outer bar that closes above the high of the series’ opening candle, it opens significantly lower. The opening print likewise indicates the low of the fourth bar. Bulkowski estimates that this reversal has an 83 percent accuracy rate in predicting rising prices.

2 BLACK GAPPING

Source: Investopedia

After a significant uptrend peak, the bearish two-black gapping continuation pattern develops, with a gap down that results in two black bars with lower lows. According to this pattern, the drop will likely continue to even lower lows before beginning to decline on a larger scale. Bulkowski claims this pattern has a 68 percent accuracy rate in predicting decreased pricing.

THREE CROWS IN BLACK

Source: Investopedia

Three black bars with lower lows close to intrabar lows form the bearish three black crows reversal pattern, which begins at or around an uptrend’s top. According to this pattern, the drop will likely continue to even lower lows before beginning to decline on a larger scale. To prevent buyers from initiating momentum plays, the most bearish variant begins at a new high (point A on the chart). Bulkowski claims this pattern has a 78 percent accuracy rate in predicting decreased pricing.

EVENING STAR

Source: Investopedia

A towering white bar that leads an uptrend to a new high serves as the foundation for the bearish evening star reversal pattern. The following bar sees the market gap higher, but no new buyers show up, resulting in a candlestick with a restricted range. The pattern is completed by a gap down on the third bar and foretells that the slide will go on to even lower lows, perhaps igniting a larger-scale downturn. Bulkowski claims this pattern has a 72% accuracy rate in predicting decreased pricing.

ABANDONED BABY

Source: Investopedia

The bullish abandoned baby reversal pattern develops at the bottom of a downtrend after a string of black candles that have printed lower lows. The market gaps are lower on the subsequent bar, but no new sellers materialize, resulting in a narrow range doji candlestick with identical starting and closing price prints. The pattern is finished by a bullish gap on the third bar, which foretells that the recovery will go on to even higher highs, perhaps igniting a larger-scale upswing. This pattern accurately forecasts increased prices by 49.73 percent, according to Bulkowski.

How Accurate Is Trading With Candlesticks?

Candlestick trading may be dependable, but the Candlestick patterns shown shouldn’t be taken as definitive directional movement indications. The candles are just trailing indications of market conditions as timeframes change and consolidate as each candle’s period lengthens. As a result, all the knowledge learned from reading candlesticks is outdated, and basing bets on patterns on hypothetical price movement based on historical patterns and other indicators is risky. The relative strength index (RSI) and moving average convergence divergence are two standard supplemental trading tools (MACD).

How Are Candlesticks Read?

Candlestick reading is relatively easy. Each candle’s height is defined by its opening and closing prices for the period it symbolizes (typically 15 minutes, 30 minutes, one hour, four hours, one day, one week, and one month). Each candle’s wick or tail and the single line above and below the box show the candle’s peak and lowest prices, but not its closing price. Said, this is the highest position that the candle has ever reached. The price closed lower if the body is solid, black, or red. White or green candles that are hollow indicate that the price closed higher than it did at the beginning of the candle.

How Many Different Candlestick Patterns Exist?

Depending on who is asking, the response will change. While conservative traders who only trade on the most well-known patterns would claim there are approximately 25, some who concentrate on less common candlestick patterns may claim over 50. The spectrum of candlestick designs generally acknowledged is between 35 and 42.

Conclusion

Market participants are drawn to candlestick patterns, but many of the reversal and continuation signals that these patterns emanate don’t consistently function in the current technological world. Thankfully, data from Thomas Bulkowski demonstrates extraordinary accuracy for a small subset of these patterns, providing traders with helpful buy and sell recommendations.

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August 2, 2022
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.

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.

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August 1, 2022
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):

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:

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:

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.

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July 27, 2022
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.

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.

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July 26, 2022