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While Facebook isn’t as popular as Twitter among traders, investors and market analysts, it still hosts a number of high-quality pages.
There are groups where traders regularly write about trending market news, trade ideas and setups, educational topics and opinions.
Some of them even offer trading contests and live webinars, while others have vibrant online communities where traders and group members can share their own trade ideas and comment on other traders’ views.
We couldn’t begin without mentioning our own Facebook page. At My Trading Skills we cover a mix of skills, tech, market commentary, tools, lifestyle and industry updates from our experienced Head Tutor, Phillip Konchar.
If you’re looking for trading quotes, look no further than Trading Legends’ Facebook page. Over 21,000 people enjoy the page’s trading quotes from legendary traders, such as Mark Douglas, Jim Rogers, Bill Lipschutz, Peter Brandt and more. The quotes cover everything from trend following to risk management and are a great way to start your trading day.
StockTwits is a popular trading website where traders share their views on stocks they’re following, and this is the website’s official Facebook page. Posts are mostly of entertaining nature, but you’ll also find some market news published here and there. Over 37,000 people are already following StockTwits’ Facebook page, so if you’re into stock trading, this is one of the largest pages to follow.
eToro is the largest social trading platform in the world where traders can share their ideas, analyse the views of other traders or simply copy other successful traders’ trades.
On eToro’s official Facebook page, you’ll find entertaining posts that cater to all types of traders. While the majority of content is focused on Forex, you’ll also find trending market news, business updates and more, making eToro a very useful page to follow.
The official Facebook page of Instaforex, one of the largest Forex brokers in Asia, offers valuable content for Forex traders of all experience levels. The number of promotional posts and ads is quite low when compared to other brokers’ pages. Instead, traders will find useful infographics, trading strategies, market and trade analysis and a vibrant and engaged community at Instaforex’s Facebook page.
If you’re looking for a useful mix of market analysis, business news, live events, and interviews, then the Harvard Business Review Facebook group is a good place to go. With more than 3.7 million followers, Harvard Business Review is one of the largest Facebook pages in our list where traders can find comments and news of trending topics that can impact the financial markets.
The MT5 Forum Facebook page hosts infographics, memes, market news, trading ideas and more. With more than 898.000 likes, this Facebook page should be on every trader’s subscription list. The active community regularly posts their own market trading ideas which adds to the social trading aspect of the page.
Created by Vance Williams, the Forex Art of War Facebook page offers daily market insights, analysis, trade ideas and comments to over 68.000 followers. The author also posts links to important market news that could impact the market. The majority of posts cover the Forex market, but cryptocurrencies are also analyzed in times of high market volatility.
Interested in pure price-action trading? Then the Forex School Online Facebook page is the page to follow. The engaged community of the page regularly posts charts and educational articles that cover price-action trading strategies, including chart patterns, candlestick patterns, risk management and more. The page has already more than 184.000 followers.
Oanda is one of the largest Forex brokers out there, and this represents the company’s official Facebook page. While the page is mostly used to drive traffic to Oanda’s blog, traders will find interesting articles on the financial markets, trading strategies, trade setups and business news on the page. Live webinars that cover a variety of trading topics are also often announced on Oanda’s Facebook page.
Saxo Bank is a large Danish-based broker that offers trading in a variety of financial markets, including CFDs and stocks. On the broker’s Facebook page, Saxo Bank regularly posts market news and analysis that link to their trading site TradingFloor. The page has more than 177.000 likes, and you’ll also find company news and announcements and videos that cover trending market news.
FXCM is a US-based Forex broker owned by the renowned Jefferies Financial Group. The broker’s Facebook page has around 83.000 likes, as of May 2019, and offers mostly technical analysis posts on major currency pairs. Occasionally, FXCM hosts live broadcasts and webinars on important trading topics.
Another big player in the FX brokerage industry, Forex.com has over 34.000 page likes on Facebook. The broker has chosen a similar path to other brokerage houses and avoids posting promotional content, making the page a valuable source of Forex news, analysis and discussions. You’ll also find daily charts of top-performing currencies, CoT reports and more on the page.
Jarratt Davis is an active hedge fund manager who specializes in Forex fundamental analysis, making his page a great choice for traders who’re interested in market fundamentals and longer-term trading.
The page counts over 20.000 likes and new content is posted on a regular basis. It’s quite rare to find Facebook pages that focus primarily on fundamental analysis, making Jarratt Davis’ page an attractive one to follow.
Rayner is a Singapore-based full-time Forex trader with an active presence on Facebook. His group has over 10.000 likes, and new traders keep coming because of his discussion-oriented Facebook group. Notice that this is a group and not a page, which means that all traders who join the group can have active participation in posts, analysis, or even post their own market views and ideas. The author regularly posts educational content in the group as well.
If you’re into stock trading, then this Facebook page might be for you. You’ll find regular market updates and news, trade ideas and educational content focused on stock trading. Occasionally, the page also posts about other financial markets, such as commodities and cryptocurrencies. The fan count is rather small with around 6.900 likes, but given the valuable content on the page, we’re sure it’ll keep attracting new traders.
E*Trade is a large stock broker and this is its official Facebook page with more than 150.000 likes. The wall is very active with trending market news, live webinars and the broker’s famous E*Trade Baby YouTube channel. If you’re a new trader, you’ll find tons of useful information on the page, including educational videos, articles and trade ideas.
Another popular stock broker on this list, Charles Schwab’s Facebook page has a very active community of 238.000 traders and offers educational articles on financial planning, market news, and surveys. A very interesting part of the page is the hosting of free webinars where trading experts and financial planners talk about how to invest your money for retirement, child education and so on.
Looking for a complete guide on how to trade double tops and bottoms in the Forex market? Then look no further.
Whether you’re a complete beginner or an experienced trader, I’m sure you’ll find a few handy trading tips in the following article.
We’ve covered everything you need to know to successfully trade double tops and bottoms, and will show you a few simple methods that can be used to increase the winning rate of those patterns.
So, let’s get started!
Chart Patterns: An Insight into Market Psychology
Let’s start with a brief introduction to chart patterns. Even though chart patterns are considered by some as a hocus-pocus, they continue to deliver steady results if traded and analysed the correct way.
The Random Walk hypothesis, for example, suggests that the market moves in an unpredictable way and that all price-moves in the intraday chart should be treated as market noise.
Chart patterns provide us with exactly that – a valuable insight into market psychology and the cumulative behaviour of market participants. Financial markets, such as the Forex market, are still mostly dominated by human traders who exhibit certain (predictable) behaviour, especially when they act as a crowd. It may be quite difficult to predict the future actions of an individual trader, but crowd behaviour is much more simple and primitive than the behaviour of an individual.
So, what are the main characteristics of crowds?
The French psychologist Gustave Le Bon made a significant contribution to the understanding of crowd dynamics in his book Psychology of Crowds from the late 19th century. This book is considered one of the seminal works on crowd behaviour and should be on the read-list of any serious Forex trader.
In the book, Gustave Le Bon describes how human behaviour changes when part of the crowd and shows that crowd behaviour can be easily anticipated by understanding a few simple rules. In the context of trading, crowds tend to follow other group members and nourish two simple emotions: fear and satisfaction.
The next time you see a strong breakout candle, think about a large number of buyers or sellers trying to join the ride which in turn pushes the price higher or lower. Also, have you ever noticed that uptrends and market tops take much longer to develop than market bottoms? Again, think about the basic emotions of crowds: fear is much stronger than satisfaction and causes a stronger market response, which in turn causes the price falling much faster than rising.
Alright, back to chart patterns now. Chart patterns allow us to analyse the psychology and behaviour of market participants (or the crowd.) Chart patterns are specific patterns in the price that signal either a continuation of the underlying trend (the satisfaction of rising prices) or its reversal (the fear associated with losses.)
Chart patterns also rely on one of the basic premises of technical analysis, which says that history tends to repeat itself. Since certain patterns in the price proved to have a certain prediction power in the past, technical traders assume that they can be used to anticipate future price-movements as well.
Finally, chart patterns usually take some time to develop – usually over a period of a few days to a few weeks. Bear in mind that chart patterns represent the behaviour of the crowd, and the more market participants are watching certain technical levels, the higher the probability that the chart pattern will correctly anticipate the future price direction.
Types of Chart Patterns
As we already mentioned, there are two main types of chart patterns:
Continuation patterns – This type of patterns signal that the underlying trend is about to continue. They usually form during consolidation phases in the price after a strong up- or down-move. Market participants take a break during consolidation phases, assess the fair value of an exchange rate (is the current price overbought or oversold), and new market participants are starting to join the crowd in anticipation of a continuation of the underlying trend.Popular continuation chart patterns include rectangles, triangles, bullish wedges during uptrends, bearish wedges during downtrends, pennants.
Reversal patterns – As their name suggests, reversal chart patterns signal that the underlying trend has reached its top/bottom and that traders should prepare for a potential trend reversal. Most reversal patterns try to identify whether the price has formed a fresh ceiling (higher high) or a fresh floor (lower low). An absence of higher price during uptrends and lower prices during downtrends suggest that market participants who pushed the price higher/lower are losing steam.
Popular reversal patterns include the head and shoulders pattern, inverse head and shoulders pattern, double tops and bottoms, triple tops and bottoms, bearish wedges during uptrends, bullish wedges during downtrends, symmetrical triangles (which can be both continuation and reversal patterns, depending on the direction of the breakout.)
What is a Double Top and Double Bottom Pattern?
So far, we’ve learned what chart patterns are and how they’re grouped into continuation and reversal patterns. Now, let’s dive deeper into one of the most popular reversal chart patterns: The Double Top and the Double Bottom pattern.
Double tops and bottoms are reversal patterns that signal an upcoming reversal of the underlying trend. A double top pattern usually forms at the top of an uptrend with the price failing to form a fresh higher high. Instead, the price finds resistance at a previous swing high and reverses, forming two highs at roughly the same price level (hence the name, double top.)
A double top pattern is shown in the following EUR/USD chart. Notice points (1) and (2), which are the actual double top. At point (2), the price failed to break above and to form a fresh higher high. The high at point (1) acted as a horizontal resistance level, and once the price rejected that level, market participants who were long started to close their positions, which in turn pushed the price even lower. Fear emerged inside the crowd, causing a strong fall in the price.
Line (3) is the neckline of the double top pattern. It aligns with the lowest point between the two tops, which is the higher low of the uptrend. A fall below the neckline signals that a fresh lower low is under way and can be used to enter into a short position.
A double bottom pattern is quite similar to a double top, only that it usually forms during downtrends and signals an upcoming uptrend. In a double top pattern, the price fails to form a fresh lower low and faces support at the previous swing low, which now acts as a horizontal support level for the price. A double bottom pattern is recognised by two bottoms in the chart at roughly the same horizontal level.
The following chart shows a double bottom pattern in the EUR/USD chart. Point (1) acted as the lower low of a downtrend, but the price failed to break below that level, faced increased buying pressure and reversed at point (2). The neckline of the pattern, marked (3), acted as the lower high of the previous downtrend, and a break above that level signals that a fresh higher high is coming and that it might be a good idea to think about buying the pair.
The second top of a double top and the second bottom of a double bottom pattern don’t have to form at the exact same level as the first top/bottom. Think about these prices as horizontal support/resistance zones and not as exact levels. A break below/above the neckline triggers a short/long trade.
How to Find High-Probability Double Top and Bottom Patterns
Even though chart patterns have a proven track-record and reveal a lot about current market psychology, they return even better results when combined with some additional technical tools.
Here’s a list of effective tools that can be used to increase the success rate of chart patterns, such as double tops and bottoms, and to confirm their short/long trading signal:
Trend-analysing tools: Double tops form at the top of an uptrend, while double bottoms signal the bottom of a downtrend. Other trend-analysing tools can be used to confirm a double top/bottom. For instance, if the price breaks below a rising channel during an uptrend while previously forming a double top pattern, a trader has a double-confirmation to enter short.
Fibonacci levels: Fibonacci levels measure the extension of a price-correction (i.e. a counter-trend move) during uptrends and downtrends. If the price forms a double top or double bottom and then breaks below/above an important Fibonacci level, such as the 50% or 61.8% retracement level, the success rate of the double top/bottom pattern will significantly increase.
Candlestick patterns: Last but not least, candlestick patterns are a great tool to use in any trading strategy and can be used to confirm the trading signal of a double top/bottom pattern. If the price breaks above/below the neckline with a strong marubozu candlestick, or the price forms a reversal candlestick pattern at the pullback to a previously broken neckline, the success rate of the pattern will be much higher.
How to Trade Double Tops and Bottoms?
Regardless of what technical tools you’re using to confirm a chart pattern, there are certain rules which need to be followed when trading double tops, bottoms or any other pattern. You can use any of the approaches highlighted below that suit your trading strategy and style.
Enter short/long on neckline breakout
As explained earlier, the basic approach to trading double tops and bottoms is to trade in the direction of the neckline breakout. For a double top, that would be going short after the price breaks the neckline to the downside, and for a double bottom pattern, going long after the price breaks the neckline to the downside.
With this approach, it’s important to wait for the breakout candlestick to close before entering into a trade. This will help you to avoid fake breakouts and increase the success rate of your trade. Also, if you combine this approach with an additional confirmation tool (e.g. candlestick patterns), you could look for strong marubozu candlesticks at the breakout point to confirm a short setup.
The chart above shows the breakout approach on the GBP/USD pair. After the price formed a double top pattern, a strong bearish candle broke and closed below the neckline (3). You could enter into a short position at line (1), and place a stop just above the breakout candle. The same rules apply when trading breakouts in double bottom patterns.
Determining exit points
When trading double tops and bottoms, the usual profit target should equal to the height of the pattern, projected from the breakout point. The following chart shows a double bottom pattern on the EUR/USD chart. After the neckline of the pattern got broken, a trader could place a take profit order at line (1), which equals the height of the pattern.
Risk-averse traders could place their stops just below the breakout candle as the neckline will act as a support (in double bottoms) and resistance (double tops) once the pattern gets triggered.
Risk-tolerant traders could aim for a wider stop and place a stop-loss just below a double bottom (line 3 in chart above), or just above a double top pattern. This approach allows the price to breath, but also returns higher losses if the stop-loss order gets triggered.
Entering after the price completes a pullback
Since the neckline of a double top and double bottom pattern basically acts as a support and resistance, respectively, a trader could wait for a pullback to enter into the direction of the breakout. This approach usually returns the best results when trading double tops and bottoms, as the rejection of the neckline area proves that a large number of market participants is following those levels and that traders who’ve missed the first ride are now waiting for the opportunity to join the second ride.
That being said, the pullback approach is great if you’ve missed the initial breakout. The market will often complete a pullback to the broken support/resistance area, offering you a second opportunity to join the crowd.
The following chart shows a double top pattern in the EUR/USD pair. The actual pullback is shown in the red shaded rectangle (5), with line (1) acting as the entry level. Line (2) shows the stop-loss position of a risk-averse trader, while rectangle (4) measures the height of the pattern which is then projected from the entry point to the downside, forming the exit point (profit target) at line (3).
Pullbacks are traded in a similar way in double bottom patterns. Take a look at the next chart. The red rectangle (5) shows the actual pullback to the broken neckline, with line (1) acting as the entry level. Line (3) is the profit-target which equals to the height of the pattern, as shown by rectangle (4). Line (2) represents a stop-loss order, placed just below the pullback.
Double Top/Bottom Indicators
You can also combine various technical indicators to improve the success rate of a trade based on double tops or bottoms. While I’m not a fan of indicators (I prefer pure price-action combined with fundamentals), I’ll share with you two effective indicators for chart pattern trading:
Relative Strength Index: The RSI is commonly used to identify overbought and oversold market conditions. It’s a momentum indicator that measures the magnitude of recent price-movements and can be used to measure the strength of the double top/bottom breakout.
After the neckline breakout, check how the RSI behaves. If the price makes a fresh high (such as after the break of a double bottom’s neckline) and the RSI follows, it’s safe to assume that the underlying move has enough strength to continue. On the contrary, if the price makes a fresh high but the RSI fails to follow, we have a bearish divergence and the breakout may prove to be a fake one.
Average Directional Movement Index: The ADX is a popular indicator that measures both the strength and the direction of an established trend. Readings above 25 signal a trending market, above 50 a very strong trend and above 75 an extremely strong trend. Since double tops and bottoms are reversal patterns, the ADX reading should confirm that a trend had been established before the formation of a double top/bottom.
For traders who prefer to use EAs and technical indicators to identify double tops and bottoms, there’s good news:
There are dozens of indicators available on the internet that analyse the market and notify you once a valid double top or bottom has been identified. However, I strongly encourage you to keep developing your own trading skills and trade on your own.
These patterns are not complex and can be successfully traded with some screen-time and experience.
Bonus: Best Timeframes to Trade Double Tops and Bottoms
Although double tops and bottoms can be found and traded on all timeframes, certain timeframes work better and return a higher chance of success than others.
Again, crowd psychology plays an important role. People memorise and remember prices at which the market had difficulties to break above or below (resistance and support.) How many market participants do you think actually follow the 5-minute chart? And will they consider a horizontal support or resistance level (which forms the basis of a double top and bottom) to be of large importance on such a short timeframe?
On the other side, how many traders follow the daily chart and consider a support or resistance level formed 10 days ago as important? The answer is: a lot. We need a large number of people to be prepared to enter into the market once an opportunity arises in order to increase the success ratio of any chart pattern, and the daily chart offers exactly that.
Besides the daily chart, popular timeframes to trade double tops and bottoms include the 4-hour chart and weekly chart. Shorter-term traders could trade them on the 1-hour and 30-minutes charts but have stricter entry rules in place in order to avoid trading on fake breakouts.
Double tops and bottoms are reversal candlestick patterns that usually signal a trend reversal after an uptrend or downtrend, respectively. Trading these chart patterns is not hard, but traders need to understand the market psychology and dynamics that lie behind them as described in this article.
To increase the success rate of double tops and bottoms, consider using additional tools as confirmations, such as Fibonacci levels and candlestick patterns. Also, assess your risk tolerance to find the best place to set your stop-loss orders.
Day trading is one of the most popular trading styles in the Forex market. However, becoming a successful day trader involves a lot of blood, sweat, and tears if you don’t follow some important rules and don’t manage your risk correctly.
In this article, we’ll discuss what it takes to become a profitable day trader. Some of the most popular day trading strategies and how to improve your trading skills by keeping a simple trading journal.
So, what are the different Forex trading styles?
The first thing you need to understand is that day trading isn’t just one type of trading style.
It’s not a trading strategy on its own, as it doesn’t show you how to open a trade, where set your exit points, when to trigger a trade or how much to risk.
It’s simply a style of trading. This means that there are hundreds of day trading strategies that you can switch between and still be a day trader.
To fully understand day trading, let’s briefly go through the other most popular trading styles in Forex trading – Scalping, swing trading and position trading.
Scalping – This is the fastest and most exciting trading style of all. Scalpers open a large number of trades in a single day, leave them open for a short period of time and try to close them in a profit. Since scalping involves pulling the trigger many times during a trading day, trading costs can be quite high and eat up a hefty portion of your total daily profit.
Swing trading – Slower than scalping and day trading, swing trading fits patient and disciplined traders who can wait for several days for a trading opportunity. Swing traders aim to catch the “swings” in the market, up-moves and down-moves that may last for several days.
Being a longer-term trading style, swing traders often combine fundamentals in their analysis and use technical analysis to get into a trade and to set their exit levels.
Position trading – Position trading is a very long-term trading style where trades are sometimes held open for months or even years. Position traders rely on fundamental analysis to find overvalued and undervalued currencies and to identify trends in macro-economic variables that could lead to long-lasting trends.
Position traders need to be well-educated on currency fundamentals, extremely patient and able to withstand large price fluctuations (i.e. have a large trading account.) One of the benefits of position trading is that trading costs are almost non-existent when compared to the potential profit.
Day Trading: A Fast-Paced Trading Style
So far, we’ve covered the main points of scalping, swing trading and position trading. Day trading is just another trading style that fits perfectly in between scalping and swing trading.
Day traders open a few trades per week and try to close them by the end of the trading day, making either a profit or loss. Day traders avoid holding their trades overnight, as news that is published overnight may affect a position and reverse the price.
Many day traders analyse the market in the morning. They decide whether to go long or short on a currency pair. However, traders who follow a day trading style need to be aware that leaving a trade unmonitored throughout the day can be very dangerous, as intraday market volatility (e.g. after a GDP news release) may easily turn the price against you.
FINRA (The Financial Industry Regulatory Authority) defines a pattern day trader as “any customer who executes four or more ‘day trades’ within five business days, provided that the number of day trades represents more than six percent of the customer’s total trades in the margin account for that same five business day period.
Customers should note that this rule is a minimum requirement, and that some broker-dealers use a slightly broader definition in determining whether a customer qualifies as a “pattern day trader.”
Traders who trade stocks with a day trading strategy need to be aware of FINRA’s rule, since many stock brokers require a minimum deposit of at least $25.000 for a trader who is flagged as a “pattern day trader.” So far, there are no special requirements when day trading Forex.
There are many day trading strategies out there, and most of them can be grouped into one of the following categories:
Trend-following: Trend-following strategies are perhaps the most wide-spread day trading strategy, and that’s for a good reason – they work. Trend-following refers to riding the trend as long as it lasts. You enter long when the trend is up, and short when the trend is down.
Counter-trend trading: Counter-trend trading refers to trading against the trend. This approach is quite risky and should be left to the most experienced day traders out there. Basically, in a counter-trend strategy, a trader goes short during uptrends and long during downtrends in order to profit from price-corrections (counter-trend moves).
Breakout trading: Trading breakouts is a popular day trading strategy, especially among retail Forex traders. Breakout traders want to catch a breakout of the price above or below an important support/resistance level, chart pattern or any other price-structure. Volatility can be quite high immediately at the breakout point, which is the reason why day traders take advantage of pending orders to enter into a trade as soon as a breakout happens.
How do Traders Make Money Day Trading?
Applying a well-defined trading strategy is just one side of the coin in day trading. Without risk management, even the best trading strategy will eventually blow your account. You need to define your risk-per-trade and reward-to-risk ratios of setups that you want to take in order to make it in the long run.
Risk Management – Risk management is a set of rules that are designed to help you grow your account and avoid large losses. Try to maintain a risk-per-trade (total risk on any single trade) equal to around 2% of your total trading account size, and a reward-to-risk ratio (ratio between the potential profit and the potential loss of a trade) of around 2:1. This way, you’ll stay in the game even during a losing streak.
Riding the Momentum – Since day trading is a relatively short-term trading style, there needs to be sufficient movement in the market in order to make a profit. Traders live on volatility, and trading slow markets without much movement will only increase your trading costs. Try to pick a volatile currency pair when day trading and catch breakouts as soon as they happen (with buy stop and sell stop pending orders, for example.)
Trade Monitoring – Last but not least, it’s extremely important to monitor your trades when day trading. Even the slightest change in market sentiment may cause a trade to go against you, leaving you with a loss. Avoid trading during important news releases as markets can get quite unpredictable immediately after a release.
How to Enter into a Day Trade?
As mentioned previously, most day trading strategies can be grouped into three main categories: trend-following, counter-trend trading and breakout trading. Now let’s learn how to enter into a day trade, where to place your stop-loss and profit targets, and how to manage trades that are already open.
Many day traders love to follow the trend. In a trend-following strategy, you would enter long when the trend is up and short when the trend is down. The best time to enter into a trend-following trade is immediately after the completion of a price-correction. You don’t want to short a downtrend when the price has already fallen to a large extent, or go long in an uptrend when the price is already overbought.
To master trend-following, you need to understand how trades form. An uptrend is formed when the price makes consecutive higher highs and higher lows, with each higher high pushing the price higher than the previous high. The best time to enter into a trade is exactly at the bottom of a higher low – that’s the level where traders who’ve missed the trend are ready to join the crowd and where traders who’re already long are adding to their positions.
Similar to uptrends, downtrends are formed when the price makes consecutive lower lows and lower highs. Here, the best time to short is right after a new lower high has formed – this is where new traders will jump into the downtrend with the short positions and where traders who’re already short will add to their positions.
The chart below shows an uptrend in the EURUSD pair with a rising channel applied to the chart. Points (2) shows levels where you could enter long, while points (1) are potential profit targets. You should place your stop-loss right below the rising channel or below the higher low.
Counter-trend trading strategies
Counter-trend trading is a day trading strategy that adopts the opposite approach to trend-following.
In a counter-trend trade, a trader would go against the established trend in order to catch price-corrections. If you take a look again at the chart above, you’ll see that the uptrend didn’t go up in a straight line. Instead, the price forms so-called corrections at levels where many market participants are closing their long orders and take profits (points labeled (1)). So, a counter-trend trader would basically go short at points (1) and take profits at the lower channel line.
The problem with this approach is that it’s riskier than trend-following and has a lower profit potential. On the other side, combining a trend-following and a counter-trend trading strategy allows a trader to take more trades, both in the direction of the established trend and in the opposite direction. Still, counter-trend trading should only be done by experienced traders.
Take a look at the following chart.
A trader could enter into a short position at point (1) after the price made a fake breakout to the upside. His profit target could be set at an important Fibonacci level (such as the 38.2%), shown at point (2). After the price rejects the 38.2% Fib level, the trader could enter into a long position and ride the trend. This way, he would make a profit both on the up- and down-moves. A stop-loss should be placed just above point (1).
Breakout trading strategies
Finally, breakout traders are day traders who aim to profit from breakouts out of important technical levels, support and resistance lines and chart patterns. Breakouts are often followed by a strong move and increased volatility, which makes breakout trading a popular way to day trade the Forex market.
Pending orders are an effective tool when trading breakouts. By placing buy stops or sell stops at the breakout level, you don’t need to wait for the actual breakout to happen in order to open a trade. The pending order will automatically trigger a market order once the price reaches the level specified in the pending order. This also helps to catch the initial market volatility and increases the profit potential.
The chart above shows a typical breakout trade based on a symmetrical triangle. You could enter into the direction of the breakout right at the breakout point or after the price completes a pullback to the broken triangle line, shown by line (1). A stop loss should be placed just below the recent low (2), and the profit target, shown by line (3), should be equal to the height of the pattern projected from the breakout point.
Day Trading with Little Money: Is It Possible?
Many new traders are attracted to the Forex market because of the low minimum deposit requirements and the high leverage offered by Forex brokers. This means that traders with a trading account size of $100 can theoretically control a very large market position when trading on leverage. For example, a leverage ratio of 100:1 allows a trader to open a trade worth $10,000 with only $100 of trading capital.
Watch: Leverage: Is it a trader’s friend?
Recap: Trading on Margin - YouTube
This means that day trading is possible with little money. However, if you’re thinking to start trading with a small amount of money, always keep an eye on your free margin as it can drop quite fast given the number of trades when day trading. Your free margin equals your equity minus the total margin used on all your open trades. Your trading platform should be able to calculate this automatically.
Also, bear in mind that trading on very high leverage is risky. Leverage increases both your profits and losses. That’s why you should always respect your risk management and only risk a small amount of your capital on any single trade. Your position size should depend on the size of your stop-loss level.
Learn how to master leverage and technical trading with our expert tutor Phillip Konchar:
Most of the rules that apply to longer-term trading also apply to day trading, technical levels work the same and chart patterns are analysed in the same way across all timeframes. However, day traders need to make trading decisions much faster since they’re trading on short-term timeframes. There’s no room to double-guess an entry, analyse the market in-depth and let emotions interfere with your trading decisions.
If you want to become a successful day trader, you must have a detailed trading plan and stick to it all the time. Also, try first to master a longer-term trading style before getting your feet wet in day trading. A common mistake among beginners is to start trading on very short timeframes and then move on to longer-term trading later on.
How to Avoid Common Mistakes When Day Trading
Day trading is not easy. Follow these points and avoid making common mistakes of traders new to day trading. Only start day trading after you’ve built a trading plan, have a profitable trading strategy and strict risk management rules in place.
Have a Trading Plan – A trading plan works like a road map in trading. It includes your strategy, entry and exit points, entry triggers, how to manage losses and when to close a profitable trade, to name a few points. A trading plan should be written on paper, so you can quickly get back to it if your trading performance starts to deteriorate.
Build a Robust Trading Strategy – Your trading strategy should be part of a well-written trading plan. Good trading strategies need to be robust and describe how to analyse the market to find trading opportunities. It should also include rules when to enter a trade and where to place your stop-loss and take-profit levels.
Respect Risk Management – Managing your trading risk is the ultimate road to success. Even the best trading plan and strategy won’t be of much help if you don’t control your losses and manage your money. Define the maximum amount you want to risk on any single trade and the reward-to-risk ratio of potential trades you want to take.
Keep a Trading Journal – If you want to improve your trading performance, keeping a trading journal is a good way to achieve that. A trading journal consists of journal entries that include the traded instrument, entry and exit prices, the date and time you took the trade, the reason you pulled the trigger and its results. You should do regular retrospectives of your journal entries and try to learn from your past mistakes, i.e. losing trades.
Monitor Your Trades – Day trading is a short-term trading style and monitoring your trades needs to be part of your daily routine. Since day traders have relatively tight exit points, even the slightest change in market sentiment can lead to a losing trade. If a trade doesn’t perform, just close it. There will be many other trading opportunities along the way.
Follow a Forex Calendar – News reports, headlines, labour market statistics, inflation rates and other important releases can have a significant impact on the market. If your trades aren’t based on fundamentals, try to avoid leaving a trade open during important news releases. Following a Forex calendar needs to be part of your market analysis.
EAs, Robots and Indicators in Day Trading: Do They Work?
All day trading strategies described above are based on pure price-action. However, you can successfully apply indicators to them to increase the success rate of trades, confirm a setup or filter through them.
The RSI is a popular indicator among day traders. This momentum indicator measures the magnitude of recent price-moves and identifies overbought and oversold market conditions. When the value of the RSI indicator moves above 70, this signals an overbought market (consider selling). Similarly, when the value of the RSI moves below 30, it indicates an oversold market (consider buying).
However, the RSI can stay overbought or oversold for long periods of time during strong uptrends and downtrends, respectively. That’s something you have to bear in mind.
Some traders use EAs (Expert Advisors) and trading robots, but their performance can easily change during major shifts in the market environment. Trend-following EAs work great in trending markets but give a lot of fake signals when markets are ranging. If you’re using an EA or robot in your trading, you need to be very cautious and monitor your trades more actively than when trading on your own.
Day Trading Other Markets: Stocks and Cryptocurrencies
Besides the currency market, traders can also day trade other financial markets, such as stocks or cryptocurrencies. However, be aware that different financial markets may behave differently and consider adjusting and fine-tuning your trading strategy to suit the dynamics of other markets.
Day trading stocks may also require a larger trading account (pattern day traders need to have at least $25,000 in their accounts), many illiquid stocks form gaps in the price at the start of a new trading session and trading times are also different. Also, many brokers have different leverage ratios for stock trading.
Just like stocks, cryptocurrencies can be successfully traded with a day trading strategy by adjusting your current trading strategy and risk management rules. Bear in mind that cryptocurrencies can be quite volatile at times, which makes having strict risk management guidelines even more important. Avoid trading in times of an upcoming fork or other important events that may affect the price of cryptocurrencies.
Best Time to Day Trade
The best time to place a day trade is when the market is the most liquid. This will reduce trading costs by keeping spreads tight, reduce slippage that could move the price against you and increase the overall success rate of your trades.
In Forex, the most liquid market hours are usually the New York and the London session,..
With more than 100,000 subscribers, Option Alpha has been a great educational resource for Forex traders for over 10 years now. While the primary focus of Option Alpha is options trading, there are dozens of general trading videos and lessons that traders of all experience levels will find useful. Whether you’re interested in how to calculate options profit or loss as a percentage, how to close out of a bull call spread or what is a “head fake” in stock trading, you’ll find an answer on Option Alpha’s YouTube channel.
If you’re interested in technical analysis and charts as the main tool to find profitable trading opportunities, then you’ll find yourself at home with ClayTrader. His account, which was opened in 2013, counts around 176,000 subscribers and hosts more than 7,000 videos. On the channel, you’ll find a variety of trading topics, from trading psychology to live trading days. Besides technical analysis, risk management is also a recurring topic on ClayTrader’s channel.
Meir Barak is a veteran trader with more than 17 years of trading experience. He teaches on Tradenet and posts his trades in his live Trading Room. Barak’s channel is focused on beginner to intermediate traders and offers plenty of advice to aspiring traders. Besides his live day trading videos, there are also trading competitions organised by Barak from time to time.
Since 2016, Adam Khoo’s channel has grown rapidly and hit almost 300,000 subscribers as of May 2019. That’s no surprise, given the amount of free and helpful advice that can be found on his channel. Based in Singapore, Adam is a professional stock and forex trader and the author of best-selling books such as “Winning the Game of Stocks” and “Profit from the Panic”. On his channel, you’ll find helpful videos on any trading topic as well as investment opportunities in today’s financial markets.
I bet you’ve already heard about Investopedia.com. This is the YouTube version of the widely popular investing website. With over 127.000 followers and millions of website viewers, Investopedia is an authority website and mainstream source of anything investment-related. While you won’t find trading strategies and Forex scalping tutorials on Investopedia’s YouTube channel, there is a ton of entertaining and comprehensive clips about today’s financial markets, economics, entrepreneurship, and leadership, making it a must-follow for any type of trader.
Akil Stokes is a professional Forex trader and trading coach who shares free educational trading videos on his channel. Besides Forex, Akil also covers motivational tips and tricks for aspiring entrepreneurs who want to grow their businesses. His channel was established in 2012 and includes Akil’s personal trading podcasts, risk management videos and trading lessons on how to become a consistently profitable trader.
Established in 2007, TopDog Trading is one of the older YouTube channels on this list with a subscriber count of 66,000, as of May 2019. Despite the relatively low number of followers, TopDog’s channel offers valuable educational resources on swing trading and day trading the Forex market, stocks, E-minis, futures, and options. TopDog covers all important trading concepts and also shares some popular trading strategies in his videos.
This is another mainstream giant that doesn’t need a long introduction. For many traders, checking Bloomberg.com has become part of their daily trading routine, and this is Bloomberg’s YouTube channel. You’ll find videos on trending world topics in business, politics, and environments, to name a few. Experienced traders already know how headlines can change the market sentiment at a moment’s notice, which makes following Bloomberg’s YouTube channel a must for any serious trader.
Singapore-based trader Rayner Teo has grown rapidly after he opened his YouTube channel in 2013. Currently, he counts more than 160.000 followers and new ones are sure to come given the amount of helpful information that Rayner shares in his videos. Even though Rayner’s videos are mostly based on stock trading, some evergreen trading concepts also find their way to his channel, such as risk management, fundamental analysis, and technical trading strategies.
Day trade to Win is established in 2009 and focuses on day trading strategies using pure price-action. The great thing about pure price-action is that it can be successfully applied to numerous financial markets and instruments, including e-minis, currencies, stocks, and commodities. The channel has also some scalping strategies covered and claims to be trading the market from the open to noon. Short-term traders will find some interesting content on the channel for sure.
Tradeciety is a relatively new channel established in 2016. With 30.000 followers, it’s also among the smallest in our list. Still, I’ve decided to add it because of the interesting videos and topics covered on the channel. The founders of Tradeciety call themselves “Trading Nomads”, as they’re traveling the world and trade just using their laptops. Their channel is a mix of trading strategies, Q&As, risk management and live trade examples, mostly based on the Forex market.
The Boiler Room YouTube channel was opened in 2017 by Connor Pollifrone as a place to teach healthy trading styles. Over time, the channel has grown to more than 74.000 followers who’ve recognised the valuable channel content. The Boiler Room is especially famous for its day trading calls and trading re-caps.
Patrick Wieland is a momentum day trader who shares his experience in his YouTube videos. The channel features entertaining clips and Patrick’s thoughts on the financial markets, investing, cryptocurrencies and trading strategies. If you want to take a break from studying risk management and technical analysis, Patrick’s channel offers refreshing content for you.
Operating in New York, London, Paris, Hong Kong, and Ottawa, Trading Central is a provider of investment research and market analysis, and this is their official YouTube channel. Don’t get fooled by the small number of followers, as Trading Central’s channel offers great market commentary on trending topics as well as analysis on major currency pairs.
Bulls on Wall Street opened their YouTube channel in 2009 and attracted over 61.000 followers since then. The channel is especially popular for its daily market watch lists, but trading lessons and cryptocurrency updates are also occasionally published. The market watch lists are quite detailed and updated on a daily basis, so if you’re a stock day trader, give this channel a try.
Every trader at some stage of their trading development inevitably feels the need to create their own trading system.
This need is due to the fact that a trader needs to follow a set of rules that will be the basis of making decisions to open trading positions.
On the one hand, the rules of the trading system should limit the possible losses in the case of an incorrect price forecast. On the other hand, it helps to derive maximum benefits from the realisation of the price forecast.
Without such systematisation of a trade, it’s difficult to check its effectiveness.This is because trade statistics are random by their nature so there can be no question of the stability of the results.
There are different options of finding effective trading rules. While some traders form them empirically, others take these rules from foreign trading systems, and sometimes the entire trading system as a whole.
Checking the effectiveness of the trading system
No matter what option the trader chooses, the next step is to check the effectiveness of the trading system.
A demo account is often opened for transactions to be made according to the rules of the trading system for virtual money.
This option is acceptable, but has a significant drawback, which is time consuming. Trading is conducted in real time and, accordingly, in order to check the effectiveness of the trading system in an annual range of time, it is necessary to monitor the situation on the foreign exchange market and wait for the situation to be suitable for the rules of the trading system.
It would be more expedient to use the forex simulator, which allows a trader to check the performance of their trading system as soon as possible. It is better to spend the day on the test of the trading system in the forex simulator than a month, and sometimes a year in the case of trading on a demo account.
What is a trading simulator?
In its essence, the forex simulator is a history of the dynamics of quotations of currency pairs, which can be run from any interesting interval for testing.
The question “Why not just rewind the schedule back in a regular trading terminal and not look at how effective trading rules are for history?” may arise.
The answer lies in the indicators, which in the trading terminals will be displayed taking into account the entire price history, whereas in the forex simulator only a part before the specified date.
Simply put, in the forex simulator, the indicators will be drawn in real time, just like in real trading.
Currently, forex simulators are presented both as a separate software that is installed on a user’s computer, and as online services.
Tips on Choosing the Correct Simulator Software
For the correct choice of forex simulator, it is necessary to take into account the presence of the following components:
The depth of the history of quotations. The larger it is, the more time available for testing the trading system.
Availability of different timeframes. The trading system can show its effectiveness on the daily and minute charts in different ways, so there should be a choice.
Large selection of currency pairs. The price dynamics of each currency pair are specific. Therefore the trading system will often not be equally acceptable for trading them.
The ability to speed up the time of appearance of each new price bar. This speeds up testing.
A large number of technical analysis tools. The more of them, the more complex trading system can be tested.
Availability of statistics on transactions. This information is decisive, as it shows whether the trading system is effective.
When the choice in favour of the forex simulator is made, and the trading rules are determined, it remains only to begin testing the trading system. In the forex simulator, choose your favourite currency pair, a convenient time frame, set indicators of your trading system and start to make deals. Statistics will show whether your system is viable.
What is Trading Simulator?
As an example of a good forex simulator, you can use Trading Simulator. It is based on a real historical data and users get more than 10 years of data for 44 cross currencies.
The interface is simple and clean, the solution is absolutely web-based and available from any device. You feel as close to trading on real exchanges as possible and get high-quality data and instruments while reducing your risks to zero.
The ranking system is an integral part of Trading Simulator
Sometimes it’s hard to stay motivated and it might be difficult to evaluate your own progress. The spirit of competition makes us move forward, so the ranking system is an amazing instrument to solve these issues.
Basically, the ranking session is a competition between traders where everyone can participate in setting rank in the Global Ranking List. Participants can trade in any asset and invest any available funds.
The winner is the trader who finishes sessions with the best result and maximum profit. the list of winners forms the Global Ranking List. The system automatically generates information to set the list where you can see your own position and TOP traders.
It provides extended statistics reports where you can find all the details. Game — is the simplest way to learn complicated things. Trading with digital assets brings you immediately closer the moment you begin.
In addition, Trading Library access is a very useful tool included in Trading Simulator. It’s obvious to see that it doesn’t really matter if the exchange rates, such as Bitcoin, go up or down as you can definitely benefit and develop in the sphere of trading. They offer a free trial period and free registration so you can easily test the simulator and see the platform from inside.
You buy and hold an investment until it reaches a higher price and make a profit on the difference between the buying and selling price.
However, many traders don’t understand how bear markets, i.e. falling prices can be used to profitably trade.
What Does Short-Selling Mean?
The usual way of making a profit in financial markets has long been this: you buy a stock, wait for its price to rise and sell it later at a higher price. Your profit would be the difference between your buying and selling price. This is what most stock traders do, they’re looking for stocks that are undervalued, buy them and hope that the price will rise in the future.
Short-selling refers to the practice of borrowing financial instruments from your broker and selling them at the current market price, with the anticipation of lower prices in the future. Once the prices fall, a trader would buy the same instruments on the market and return the borrowed instruments to the lender (typically the trader’s broker.)
The trader would make a profit equal to the difference of the selling price (when prices are higher) and the buying price (when prices are lower.)
Here’s a graphic that explains how short-selling work.
Step 1: Naked short seller (“naked” because he doesn’t own the shorted instrument) sells the borrowed instrument to the market (the “buyer”) at the current market price.
Step 2: The short seller buys from the market (in this case, the “seller”) at a lower market price and closes his short-position, making a profit on the difference between the selling and buying price.
However, bear in mind that short-selling doesn’t come without risks. When buying a financial instrument, there’s theoretically a limited risk associated with the trade. The price of an instrument can only fall to zero, but the upside potential is basically unlimited.
Short-selling is different. Since a trader is profiting from falling prices, there’s a limited profit potential as prices can only fall as low as zero. On the other hand, risks are theoretically unlimited as the price can skyrocket. This is the main reason why beginner traders hesitate to short in the financial markets.
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You short-sell a stock, only to find out that the company is a takeover candidate a day after. The company’s stock opens with a gap of $100 and continues to rise in the following days.
What would you do?
Having strict risk management rules in place is a must when short-selling the market.
With the rising popularity of derivative trading and CFDs, a trader can nowadays short-sell on almost all financial markets. While we’ve focused on stocks in this introduction to explain the concept of short-selling, the same practice works on any other financial market.
Whether you’re trading stocks, currencies, commodities or stock indices, you can profit from falling prices on the markets.
How Do Forex Pairs Work?
There are eight major currencies on the Forex market which are heavily traded on a daily basis. Those are the US dollar, Canadian dollar, British pound, Swiss franc, euro, Japanese yen, Australian dollar and the New Zealand dollar.
However, to trade on the Forex market, traders are dealing with currency pairs and not with individual currencies, because the price of each currency is quoted in terms of a counter-currency.
If you trade the EUR/USD pair at a market price of 1.15, you’re basically paying $1.15 to buy one euro. Similarly, if EUR/GBP trades at 0.80, you’re paying 0.80 pounds to buy one euro.
The first currency in a currency pair is called the base currency and the second currency is called the counter-currency. A rising exchange rate signals any of the following scenarios:
The base currency is appreciating or the counter-currency is depreciating in value
Both the base currency is appreciating and the counter-currency depreciating in value
Both currencies are appreciating, with the extent of appreciation being higher for the base currency
Both currencies are depreciating, with the extent of depreciation being higher for the counter-currency
Read those four points as many times as needed until you fully understand this concept. You need to know what is going on with the base and counter-currencies of a pair when short-selling on the Forex market.
Currency indices can do a great job in determining what currency is appreciating and what is depreciating. For example, take a look at the Dollar index (DXY), which shows the value of the US dollar relative to a basket of six major currencies which have the largest share in the US trade balance.
The following chart shows the US dollar index on the daily timeframe. A bullish candle shows that the US dollar was outperforming most other major currencies that day, while a bearish candle shows a relatively weak greenback.
Finally, currency pairs are usually traded in lots. One lot represents 100,000 units of the base currency. For example, if you short one lot of EUR/USD, you’re basically borrowing €100,000 and selling them at the current market price by funding the position in the counter-value of US dollars.
Shorting on Forex is perfectly possible and many traders do it on a regular basis. Unlike on the stock market, risks associated with shorting on Forex are relatively limited because of the inter-relation of currencies in a currency pair.
For an exchange rate to go through the roof, there needs to be dramatic changes in the current market environment.
Similarly, the downside potential of an exchange rate is also limited. It’s an interplay of the value of both currencies that determines the current exchange rate.
Ugly ducklings can throw spanners in the works
However, Black Swan events (unexpected events with severe and long-lasting impact) do happen from time to time on the Forex market and are a nightmare for traders.
Think about the unexpected removal of the EUR/CHF peg by the Swiss National Bank in 2015. The value of the Swiss franc soared by 30% in a matter of minutes. This led to dramatic losses to many market participants who were short on the franc.
Another good example is the Brexit vote in 2016. Investors who were short on the EUR/GBP pair either finished the day with high losses or blew their account completely.
Rollovers and financing
When shorting on the Forex market, you also need to be aware of the rollover and financing costs which can decrease your potential profits.
Since you’re shorting the one currency and funding the position with the other currency of a currency pair, you’ll have to pay interest payments on the shorted currency. That said, you will earn interest payments on the funding currency.
If the interest rate of the shorted currency is higher than that of the funding currency, you’ll incur interest costs equal to the difference in interest rates. And if the interest rate of the shorted currency is lower than that of the funding currency, you’ll earn the difference in interest rates.
In addition, if you’re shorting on leverage, your broker will charge you financing costs depending on the amount you’ve borrowed. Financing costs usually depend on the current interbank rates plus your broker’s markup.
Fibonacci levels also offer an excellent opportunity to enter into a short position if the price rejects an important Fib level, signalling that a downtrend is about to continue. Rejections of the 61.8% and 38.2% Fib levels are often used to enter into a short position during a downtrend.
Currencies that have a high chance of a rate cut (for example, because of weak economic growth, rising unemployment levels or weak inflation) are good to short-sell. Capital flows to currencies which have the highest interest rates, causing low-yielding currencies to depreciate and high-yielding currencies to appreciate.
Finally, political and economic turmoil, especially in emerging market countries, often cause a depreciation of the domestic currency.
Best and Worst Time to Short the Market
Despite being the largest, most liquid and most traded market in the world, there are times at which you should stand on the sidelines.
The Forex market is an over-the-counter market that trades during trading sessions, which are basically large financial centres where the majority of the daily Forex transactions take place. It’s no wonder that the largest world economies also have the largest share in the daily trading turnover.
The main four Forex trading sessions are:
Recently, Singapore and Hong Kong have also become big players in the currency market.
The New York session, also called the US session, is a heavily traded session during which major US economic reports are published. After the London session, the New York session is the most liquid of all Forex trading sessions with a high number of buyers and sellers available for all major currencies.
When the New York session is at its peak, it’s safe to short-sell a currency pair.
The London session is the largest European session and the most liquid trading session of all. The geographic location of London, being in between east and west, allows traders from both the US and Asia to trade during the London open market hours. The few hours during which the New York and the London sessions overlap represent the most-liquid and most-traded hours of all.
During these hours, it’s safe to scalp and short-sell at the same time.
Sydney and Tokyo
Finally, the Sydney and Tokyo sessions are major Asian sessions that trade when London and New York close. Asian currencies, such as the Japanese yen, Australian dollar, and New Zealand dollar are heavily traded during those sessions.
This makes it relatively safe to short those currencies against other majors.
Liquidity is your friend
As you’ve noticed, we mentioned the term “liquidity” several times. If you’re a day trader or scalper, you should only trade and short-sell during periods of high liquidity. Avoid short-selling during these times:
Low liquidity – Liquidity refers to the number of market participants who are ready to buy or sell a financial instrument. If there is a high number of buyers and sellers, the liquidity is high. Similarly, a small number of active market participants are a characteristic of low liquidity. Liquidity is important because it allows you to immediately open and close a position with a market participant who has the opposite market order. When you buy, someone else has to sell, and vice-versa. In times of low liquidity, spreads can widen significantly and slippage can eat up a hefty portion of your profits.
Ahead of important political and economic events – Think about Brexit, the presidential elections and the European sovereign debt crisis. All these events and the associated headlines can send shockwaves through the markets.
How to Close a Short Position?
After you’ve opened a short position, you’ll eventually want to close it to lock in profits or limit losses.
Remember what we’ve said in the introduction about short-selling. A short-seller borrows a currency, sells it at the current market price, waits for the price to fall and buys the currency later at a lower price in order to return the loan.
So, after you sell a currency, you’ll have to buy it to close a short position. This can be done either to lock in profits or to cut losses if the trade starts to go against you. If the currency starts to rise, you’ll still have to buy it in order to return the loan, only that in this case you’ll pay more than what you sold the currency for and incur a loss.
If your trade is in profit, the best time to close a short position is in times of high liquidity. This will ensure a tight spread and allow you to find a buyer close to the current market price.
Learn how to trade the markets. Make money on your own terms:
The forex market is so extensive and widespread it needs to be understood before stepping in.
Forex signal providers can be an effective tool for that.
Discover everything there is to know about forex signals.
Read on …
First things first, what are forex signals?
Forex signals include entry and exit points on a currency pair which are sent out by Forex signal providers to their client base.
This means that a human analyst or a piece of software is continuously monitoring and analysing the Forex market, looking for tradable setups. The moment the analyst or the robot sees that the time is ripe to enter the market, a signal is distributed to the followers of the respective service provider.
The basic idea is that an experienced trader or program does all the hard work for you. You just need to open the signal in your trading account and wait for the profits to pour in. Also, the whole process happens in real-time. So, you will receive either a message, an email, an RSS feed or a Twitter update. Anyhow, it is the job of the analyst or robot to send you the signal at the right time.
Why set them up though?
The main motive of providing these signals to the users is to build a loyal customer base of signal followers. The service providers, in turn, employ analyst experts, use software or can also use a robot program to extrapolate the correct signals.
Some signal providers do charge a fixed fee, while others choose to send these signals free of cost. You may ask what benefit do they get for sending these signals for free?
Well, for one they are building a customer base.
And once people start to use their signals and earn a profit, they’re one step closer to gaining a subscriber to the signal service for a fixed monthly fee.
Types of forex signal
While some providers focus on longer-term setups, others may be scalping the market. Some may use fundamental analysis and trade the news, while others are focusing solely on technical analysis. Some providers analyse the market themselves, while others use complex algorithms and trading software to find the perfect trading opportunity.
In general, there are two types of Forex Signals:
Manual Signals: Manual signals are distributed by Forex signal providers who employ human traders to analyse the market. There are certain advantages of manual signals over automated ones, as an experienced trader can fine-tune their strategy to accommodate the current market environment.
Automated Signals: With this type of Forex signal, a program will do the job of an analyst. Trading software and robots are programs that use a set of technical rules to find trading opportunities in the market. Programs don’t have emotions and can work around the clock, but they still lack the ability to adjust their trading rules to changes in the market environment.
What’s their legal status?
Just like in any type of business, there are legal and illegal Forex signal providers and scammers. It’s important to understand that, in order to provide investment advice, an individual needs to hold the certification of a financial advisor. This is the reason why many Forex signal providers emphasise that their “views are not investment advice and should be used only for educational purposes.”
There are also companies that employ professional market experts to analyse the market and prepare the signals, but they will usually charge you a higher fee.
Finally, scammers are only interested in growing their client base without providing valuable trading signals in return. Their signals may work for a period of time, but once the market environment changes you can forget about the profits. Scammers know that once a disappointed client ends his subscription, a new beginner will come around and subscribe to their service.
Is it Beneficial to Use Forex Trading Signals?
So far, we’ve learned the “What” and the legality of Forex signals.
Now, let’s talk about the reasons why people use signal providers to trade the market. Profits are an important incentive, but there are other reasons too.
Time-Saving: Forex trading requires discipline and constant education to be mastered. Why not leverage other traders’ knowledge, pay a fixed monthly fee and stop worrying about analysing the market yourself? Forex signal providers save a lot of time, given their analysis is correct and profitable.
Risk Diversification: If you’re already trading other markets, such as equities or commodities, Forex signal providers can provide you a welcoming risk diversification. Currencies often exhibit a significant correlation with other markets.
Education: If you’re new to trading, Forex signals can also be used to learn something new about the market. Look at the charts of your signal provider and try to understand why they are opening a long or short position on a particular currency pair. If your signal provider also distributes market commentary, you have all the necessary material to boost your knowledge and eventually become an independent trader.
Sources of Forex Signals
Most Forex signal providers use human traders to prepare the signals.
There are also software and robots which do the same task, but the strategy and the markets used by trading programs are still entered by a human trader. If a trader fills in different values forcing the software or the robot to look in the other direction, the results will also be different.
Still, computers don’t have emotions and won’t take a trade because of greed or fear of missing out – both common mistakes among beginner traders. The lack of emotions gives trading software an upper hand when compared to human traders, given their algorithms are regularly adjusted to fit the current market environment. A trend-following robot won’t do well in a ranging market, and vice-versa.
Also, you have to be cautious of the scammers who are looking to dupe you into investing your money. It’s quite difficult to differentiate between a reliable and scam Forex signal provider because you are getting a message on your phone or an email which suggests you invest in a certain currency and don’t know whether the trade will work out well. You need to be extra cautious if you are a beginner in order to protect your trading capital.
Why learning to trade by yourself can be more beneficial than trading signals:
Beginning to Trade - YouTube
Free Forex Signals – Are They Worth It?
You must have encountered the term “free forex signals” somewhere on the internet. The word FREE is what encourages beginners to invest their money and start trading. However, do you know how providers of free Forex signals pay their bills?
Although there’s no monthly subscription fee for their customers, there’s a large number of signal providers who don’t charge a dime for their service.
So, how do they work?
In the majority of cases, providers of free Forex signals ask their potential clients to open a brokerage account with a specific brokerage house. That broker usually has a partnership with the signal provider, and the provider gets a commission with each new client who deposits a certain sum of money with that broker.
This is simply another way of monetising a signal subscription service. There’s no reason to believe that free signals have to be inferior to paid ones in any sense. Do your analysis, check the signal provider’s track record and check whether his trading fits your trading style.
Once you’ve chosen a signal provider that suits your needs in terms of trading style, it’s time to check how the provider distributes his signals. There are many channels used by signal providers to communicate with their clients and we’ve listed the most popular ones below.
Telegram: While this may not be a very famous and widespread messaging application, Telegram is extensively used by signal service providers to distribute signals to their subscribers.
Did you know?
There are hundreds of Telegram channels that offer Forex signals. Most of them are free and public, and once you subscribe to a provider you’ll usually receive an invitation to join a private channel where the trading signals are posted. Many providers also use Telegram groups, which differ from channels in a way that members can chat with each other and discuss active trades and current market developments.
Email: A major benefit of using email to send Forex trading signals is its descriptive nature. Through email, the service provider can send a detailed description of the signals. Paid providers often combine various channels of communication to make sure their clients receive any new signals right on time.
Text SMS: Another way of receiving Forex signals is by SMS. You don’t need an internet connection and SMS messages can be received at any location around the world. The main drawback of this channel is that you can only receive the main points of a signal – most commonly the traded currency pair, stop-loss, and take-profit levels.
WhatsApp/Viber: These platforms are quite popular among Forex signal providers. You can receive a detailed market commentary, signals, and charts through them, and most of us are already using either WhatsApp or Viber (or both?), so there’s no need to install new programs on your smartphone or computer.
Forex signals can expand your knowledge
Believe it or not, Forex signals are a great way to deepen your knowledge about Forex trading and to sharpen your trading skills. Many traders who subscribe to Forex signals don’t want to follow someone else’s advice forever – They want to trade on their own once the time comes.
If a signal provider has a profitable track-record, you can use his signals and accompanying market commentary to learn.
What analysis did the provider use to decide to go long or short on a currency pair?
Are they trading on shorter-term or longer-term timeframes?
How did they set their entry and exit points?
All these important points can be learned by observing the signals you’re receiving.
To make the most out of Forex signals, make sure that your signal provider actually explains their signals by using charts and a technical description of the trade.
Also, don’t take all signals and analyses for granted. Always have a dose of skepticism.
What to Look for in a Signal Provider
It cannot be stressed enough how important it is to choose the right signal provider. Your trading performance and bottom line will be directly impacted by the signals sent out by the signal provider. Hence, given below are a few tips and strategies. Follow these to know whether or not you are choosing the right service provider.
Track Record: To assess the profitability of a service provider, observe their track record. This means that you need to research a bit about the service. Go to their website and check the success rate of their signals. These records are typically enlisted on a monthly basis. After that, you also need to ensure that they have a verified track record. Do not believe everything they say on the website. There is a platform which goes by myfxbook.com, which connects directly with a trader’s (or provider’s) trading account and verifies its results. A serious signal provider will always show their trading results by using a transparent and verified third-party.
Trial Period: Going one step further, opt for a trial period. This matters because a good Forex trading signal provider will have nothing to hide. They would love to give you a taste of what it looks like to work with profitable signals. You can check whether the signals are profitable and whether they suit your trading style. You can observe the type of signals they send, the information that comes with these signals, such as market commentary and charts, and much more. This gives you a taste of the service you can expect once you subscribe for a monthly subscription.
Customer Support: This is also important. The best service provider will always have a system to help their subscribers in any way possible. You can check whether they have tutorials to help you learn the basics. This way you won’t have to spend money on learning them separately.
Plus, look for what other services they have, like webinars, the number of currency pairs they analyse, or daily or weekly alerts about the market performance. All of this shows that the service provider wants to share as much information as they can with their clients and that they’re actually monitoring the market full-time.
Charts and Market Commentary: Charts that are well analysed enrich a signal service significantly. You can check the analysis behind the signal and have more trust in the trade once you place it. Similar to charts, market commentary can also be used to describe a trade and the underlying fundamentals that may cause a currency to appreciate or depreciate.
Trading Style: Make sure that the signals sent out by a signal provider match your trading style. A scalper may want to look for a signal provider who sends scalping signals, while position traders may feel better off with longer-term signals.
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An easy way to assess the trading style of a signal provider is by checking the number of trades usually sent out during a day. A large number of trades shows that the provider uses a relatively short-term timeframe to analyse the market. On the other hand, if there are only a few signals during a week, the provider is likely using a longer-term approach and may be combining fundamentals in their analysis.
Time Zone: Before signing up for a Forex signal service, make sure that you can actually follow the signals sent out by the provider. Most signals have a relatively short time span, which means that the trades need to be opened as soon as possible. If your provider is based on another continent and distributes his signals while you’re asleep, you’ll likely already miss the majority of profits at the time you open the trade.
Managing Trades: A good signal provider should be able to manage their trades while they’re open. Market conditions are constantly changing, and a setup that looked like a good one yesterday may become useless today. Managing trades includes following them as long as they’re open. If market conditions change, such as with the release of some breaking news, your signal provider shouldn’t hesitate to adjust the signal’s exit points or close the trade altogether.
Trading Support: Last but not least, signal providers who provide on-going customer and trading support tend to be a better choice for beginner traders than other providers.
Although the profitability of the trades is the most important feature of any signal provider, you also need to be able to contact the provider with any questions you might have along the way. Many providers offer customer support via e-mail, WhatsApp or Telegram and won’t mind answering your questions.
Most signal providers provide the complete list of offered services on their website, so make sure to check them out before subscribing.
Remember, forex signal providers vary in quality
The Forex market attracts a large number of traders on a daily basis. Unfortunately, many of those newbies will learn to trade the hard way – by blowing their account. While trading on your own should be your ultimate goal, it takes time, experience and patience until you master the art of trading.
Forex signal providers are traders who monitor the market full-time and send trading opportunities in the form of signals to their client base. The quality of a signal provider depends on the profitability of the signals, so make sure to check for a verified track-record on the provider’s website before signing up for a monthly subscription.
Forex signal providers can also shorten your learning curve significantly, but only if you choose the right one. Follow the points provided in this article and try to find a signal provider who uses charts and market commentary to explain the signals.
Remember, trading in this market without basic knowledge is akin to rowing in uncharted waters. Hence, take care of your trading capital and whom you are trusting. Don’t lose your hard-earned money by blindly following an analyst sitting thousands of miles away.
Learning the skill of Forex trading requires a lot of discipline, sacrifice, and patience, and having an inexperienced coach will only prolong your learning curve. Coaches who have many years of trading experience have encountered a large number of market events and have learned how to deal with them.
While experience is immensely important, keep in mind that more experienced traders may also charge a higher rate.
#2 What strategy do you use to trade the market?
While most instructors won’t reveal all of their trading secrets, they should provide the main points of their trading strategy.
How do they analyse the market, determine the entry and exit points and what’s their trigger to enter into a trade? A good Forex trading coach should be able to answer these basic questions without hesitation.
The strategy used by your coach can also reveal a lot about their trading style. If they use a lot of fundamentals, he may have a longer-term trading approach based on the daily or weekly chart. On the other hand, coaches who rely primarily on technical analysis can be both longer-term and shorter-term traders. It all depends on their trading edge.
Don’t try to copy your instructor’s trading strategy. Trading is much more than a set of rules, and a specific strategy may prove ineffective if used by different types of traders.
#3 What trading style fits my personality?
For a coach to successfully answer this question, he or she first needs to get to know you. Whether you’re holding trading sessions online (e.g. over Skype) or not, a good coach will likely get a feeling about your personality as soon as you start working together.
As a rule of thumb, if you’re patient and disciplined then swing trading or position trading may be a good choice for you. However, if you like fast-paced action and can’t wait for days for a trade to open, then scalping or day trading is perhaps a better choice for you.
A good trading coach should be able to explain to you the advantages and drawbacks of popular market analysing tools, such as technical, fundamental and sentiment analysis. While many successful traders base their trading decisions on a combination of two or more analytical disciplines, such as technicals and fundamentals, there are also many traders who’ve mastered only one approach and trade profitably with it.
If your trading style requires longer-term trading, then combining fundamental analysis with technicals might be a wise decision. Currencies follow the development of macro-fundamentals in the long run, and market-moving reports can easily break a well-defined support or resistance zone.
Traders who combine fundamentals in their trading are able to anticipate large exchange rate moves and increase the success rate.
Why our beginning to trade course can help you:
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#5 At what time should I place my trades?
The Forex market is open around the clock, Monday through Friday. Traders can place their trades at any time they want since there is always an open market somewhere in the world. When New York sleeps, Tokyo and Sydney are awake, and vice-versa.
However, despite the ability to place trades around the clock, certain times offer better profit opportunities than others. This is especially true for day traders and scalpers who open a large number of trades during the week or day and who can easily get affected by wider spreads or slippage.
Again, a good trading coach should assess your trading style before giving you a definitive answer to this question. Day traders and scalpers should focus on the most liquid time of a trading day, which is the overlap of the New York and London session. Swing and position traders, on the other hand, are not affected by wider spreads since they hold their trades for a longer period of time and have higher profit targets.
#6 How many positions do you open per day/week?
Beginner traders are often interested in how much they should trade.
Should you open one trade per day or one day per week?
How about 10 trades per day – the average number of trades that scalpers take?
The way you analyse the market directly affects the number of trades you can take. While there is no single answer to this question, bear in mind that most professional traders have a longer-term approach to trading and have the patience to sometimes wait for weeks before a trading opportunity arises.
Risk management is perhaps the most important part of trading success. Nobody knows what the market will do in the next day, the next hour or even the next minute. When we place a trade, it’s all about probability – we believe that our trade has a higher chance to win than to lose and pull the trigger to open the position.
The risk we take in the market is the only thing that we’ve full control over. Successful traders are well aware of this and risk only a small percentage of their total trading account on any single trade. The golden rule is not to risk more than 2% of your trading account on a trade – and as your account rises, consider even to reduce your risk-per-trade to 1%.
A good Forex trading coach should be able to explain to you the main goals of a Forex trader:
So, if your take profit is set 100 pips away from your entry price and your stop-loss is 50 pips, then your reward-to-risk ratio would be 2. You can potentially earn twice as much as you can potentially lose. Good traders use reward-to-risk ratios of more than 1, and your Forex trading coach should be able to determine the best ratio for you based on your trading style, strategy, and experience.
#9 How to handle the stress of a losing trade?
Let’s face it – there will always be losing trades here and there. Even professional traders need to swallow a loss from time to time. However, they know that they’ll be profitable since they use strict risk management rules and risk only a small percentage of their trading account per trade.
If we can’t avoid losses, how should we deal with them?
Simply consider them as a part of the game.
Novak Djokovic or Roger Federer may lose a set, but will likely win the match in the end. The same applies to professional trading – just embrace a loss and move on.
Beginners tend to follow each tick of a position that goes against them and worry about the trade. Professional traders believe in their analysis and give the trade room to perform. If the trade takes much time to become profitable, they cut the loss early and look for other opportunities.
#10 How many trades should I have simultaneously open?
The next question you should ask your trading coach is how many trades should you have open at a time.
Your coach will answer you based on your trading style and strategy. Just bear in mind that the average number of trades held simultaneously open by beginner trades is usually up to three. Professional traders, on the other hand, can hold a dozen of open trades to lower their market risk and take advantage of currency and intermarket correlations.
Naturally, the actual number depends on how many trading opportunities that exist in the market. But, it’s important to know that professionals won’t hesitate to pull the trigger once they identify an opportunity.
#11 Should I combine Forex with other markets?
There are many financial markets in the world. You can trade currencies, equities, bonds, commodities, or even derivative contracts based on each of these asset classes.
While we focus mostly on Forex, the truth is that all financial markets are interrelated with each other. Rising equities can increase the demand for the domestic currency in order to invest in stocks, for example, which can lead to an appreciation of that currency. Similarly, falling equities can decrease risk appetite among investors and support the price of gold, which is traditionally considered as a safe haven.
Ask your Forex trading coach whether they trade other markets and how to take advantage of the intermarket relationship that exists among different markets.
#12 Should I close my trades ahead of important news?
Beginners often try to predict the actual number of a market report and get badly hurt after the number gets released. Once they realise that forecasting the actual number of a report is almost impossible, they begin to close their positions ahead of important market events, such as the non-farm payrolls or interest rate decisions.
Fundamentals can be broadly grouped into micro-fundamentals and macro-fundamentals. News, headlines and reports such as the aforementioned ones are micro-fundamentals that have a relatively short impact on the markets. The trend of a currency pair isn’t changed by the report itself, but rather by the collective view of a large number of market participants who may start to question the current trend.
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For instance, if a country reports lower-then-expected economic growth for two consecutive quarters, investors may question the ability of the central bank to hike interest rates at the next meeting.
Trends change gradually, and if you have a longer-term approach to trading, you don’t have to close your trades ahead of scheduled news reports. However, if you’re a scalper or day trader, the increased volatility after the report can easily lead to relatively high losses.
#13 Should I trade exotic currencies?
As most of you already know, there are eight major currencies in the Forex market.
Exotic currencies are not as much traded as majors. As a result, their liquidity is low and volatility quite high. It’s not unusual for less-traded currencies to move hundreds and even thousands of pips in a matter of hours. In addition, you need to pay attention to political and economic risks of those currencies, which may change from day to day.
Ask your Forex trading coach whether trading exotic currencies fit into your trading style and how to manage the risks associated with trading them.
#14 Are certain pairs better to trade than others?
Not all Forex pairs behave the same during certain market events. Even among majors, there is a large difference in liquidity, volatility and active market hours among them.
As a beginner, it might be a wise decision to focus on the most-traded currency pairs such as EUR/USD, USD/JPY and GBP/USD. Trading these currencies will likely reduce trading costs and slippage, and you’ll be able to avoid chaotic movements that may arise as a result of low liquidity in other pairs.
#15 How to identify a trending market?
Different traders may have different approaches to identify a trending market. Ask your Forex trading coach what his approach is. Usually, a trending market is defined as a market that is forming consecutive higher highs and higher lows (an uptrend), or consecutive lower lows and lower highs (a downtrend.)
In addition, some technical indicators can also be used to identify trends and their strength, such as the Average Directional Movement Index. Your trading coach will show you what’s the best trend-analyzing tool to use based on your trading style.
#16 How to identify a ranging market?
Besides trending, markets can also stay in a range for a long period of time. Ranges are defined as an absence of trends where the price doesn’t manage to form higher highs or lower lows. Also, bear in mind that different trading rules apply when trading ranging markets. Ask your trading coach whether your trading strategy allows taking trades during ranging markets.
#17 How much profit can I make trading Forex?
This is a classic question among beginners. It might also be an interesting question to ask a Forex trading coach. As a rule of thumb, if your coach promises to teach you how to double your account every week, you’ll be better off looking for other coaches out there.
If you’re a beginner in the Forex market, chances are you’ve stumbled upon an article or forum post that include terms such as “pips”, “cross-pairs”, “margin” and others.
Those are basic terms of the Forex market that all traders need to know about and understand early in your trading career.
We’ve created a list of the most important Forex trading terminology to help get you started in the market.
While this list is not all-inclusive, it covers the 15 most common terms regularly used by Forex traders.
The world’s currencies are traded on the Forex market. But let’s start with the very basics – What is a currency?
The word currency is derived from the Latin word “currens”, which means “running” or “in circulation.” A currency is money used as a medium of circulation, such as banknotes and coins. Some sources refer to currencies as a system of money used among people in a nation.
The United Nations currently recognise 180 currencies that are used in 195 countries across the world. Some examples of currencies are the US dollar, the Euro, the British pound and the Japanese yen, which all act as a store of value and which are traded on the global foreign exchange market (Forex).
Just like other assets, the forces of supply and demand determine the value of a currency relative to another currency. Increased supply of a currency sinks its value, while increased demand pushes its value up.
Even though currencies are traded on the Forex market, we’re not able to buy or sell single currencies. Each time we place a trade in the market, we have to trade on currency pairs. Currency pairs consist of two currencies – the first one is the base currency and the second one the counter-currency.
An example of a currency pair is the EUR/USD pair. When we buy the EUR/USD pair, we’re actually buying the euro and selling the US dollar. Similarly, when we sell the EUR/USD pair, we’re actually selling the euro and buying the US dollar.
#3 Major pairs
In general, currency pairs can be grouped into major pairs, cross pair, and exotic pairs. Major pairs are currency pairs that include the US dollar as either the base currency or counter-currency and one of the other seven major currencies (EUR, CAD, GBP, CHF, JPY, AUD, NZD.)
If you’re just beginning with trading, you should focus on the major pairs since they usually offer very low transaction costs and enough liquidity to avoid high slippage. Examples of major pairs are EUR/USD, GBP/USD and USD/CHF.
#4 Cross pairs and exotics
Cross pairs, on the other hand, include any two major currencies except the US dollar. Unlike major pairs, cross pairs have higher transaction costs and, at times of lower liquidity, traders can face slippage. Cross pairs are also usually more volatile than major pairs. Examples of cross pairs include EUR/GBP, EUR/CHF and AUD/NZD.
Finally, exotic pairs include exotic currencies which are not in the Top 10 of the most traded currencies, such as the Mexican peso, Turkish lira or Czech koruna. Since those currencies can be extremely volatile, they should be left to be traded by the pros.
The exchange rate of a currency pair is what all traders follow. The exchange rate is often simply called the price, since it shows the price of the base currency expressed in terms of the counter-currency. For example, if the exchange rate of EUR/USD is 1.15, this means that one euro costs $1.15, or it takes $1.15 to buy one euro.
A rise in the exchange rate of a currency pair shows that the base currency is appreciating against the counter-currency or that the counter-currency is depreciating against the base currency. Similarly, a fall in the exchange rate shows that the base currency is depreciating against the counter-currency or that the counter-currency is appreciating against the base currency.
#6 Bid/Ask price
At any given moment, each currency pair has two exchange rates or prices – the bid price and the ask price. What’s the difference between those two? The bid price is the price at which buyers are willing to buy, while the ask price is the price at which sellers are willing to sell.
Given its nature, the bid price is always lower than the ask price. Once those two prices meet, either when sellers lower their ask price to meet a buyer’s bid price or when buyers increase their rate they’re willing to pay for a currency and meet a seller’s ask price, a transaction occurs.
In the end, buyers buy at the ask price, and sellers sell at the bid price. This means that each price plotted on your chart represents the market equilibrium at that point of time – the price at which the majority of market participants are willing to transact.
Each time you enter into a trade, you have the pay transaction costs for that trade. While most brokers don’t charge commissions and fees on placing trades nowadays, the bid/ask spread remains the main cost to Forex traders. When bulls buy at the ask price (the price at which sellers are willing to sell), their position is immediately in a loss that equals the bid/ask spread.
If you’re a day trader or scalper, you need to pay attention to the bid/ask spread since it can eat a large portion of your profits at the end of the day. Swing traders and position traders who have a longer-term approach to trading are less affected by the spread as they open a smaller number of positions and have relatively higher profit targets.
When Forex traders talk about profits or losses, they usually use the term “pips”. A pip is short from Percentage in Point and represents the smallest increment that an exchange rate can move up or down. Usually, one pip equals to the fourth decimal of most currency pairs.
For example, if EUR/USD is currently trading at 1.1558 and rises to 1.1562, that rise would equal to a change of 4 pips. However, some currency pairs have their pips located at the second decimal place, mostly yen-pairs. If USD/JPY currently trades at 110.25 and falls to 110.10, that fall would equal to a change of 15 pips.
A pip represents the fourth decimal place of most currency pairs, but there is an even smaller increment that prices can change. It’s called a pipette and equals 1/10 of a pip, i.e. 10 pipettes are one pip. A pipette is located at the fifth decimal place of most pairs (in yen-pairs, they’re at the third decimal place.)
Most traders don’t follow movements in pipettes, even though some brokers use them in their trading platform. Today, pipettes are mostly used to measure the bid/ask spread, where a tenth of a pip is needed. For example, the spread in EUR/USD might be 1.4 pips, or one pip and four pipettes.
#10 Going long/short
You’ve probably heard about going long or short in a currency pair. Going long simply means to buy, while going short means to sell. In equity markets, most traders are long in anticipation of rising prices. However, in derivative markets, such as options and futures, there is always an equal number of longs and shorts in the market, because each new contract that is bought needs a corresponding seller who needs to go short, and vice-versa.
Since retail Forex is mostly traded with CFDs, traders are able to bet both on rising prices and falling prices. When buying, they’re going “long”, and when short-selling, they’re going “short”.
Support and resistance are one of the most important concepts in technical analysis. Technical traders analyse only price-moves as they believe that the price reflects are available fundamental information, and support and resistance trading plays an important role in that analysis.
The markets are made of crowds of people that speculate, hedge, trade, invest or gamble in the markets. Since people have memory, they remember certain price-levels where the price had difficulties to break below in the past.
They place their buy orders around those levels, as they believe that the price will again fail to break below. This is how support levels are formed. In other words, a support level is a previous low at which the price has a large chance to retrace and move up.
Just like support levels, resistance levels are also a crucial tool in a technical trader’s toolbox. While support levels are based on previous lows, resistance levels track previous highs at which the price had difficulties to break above.
Traders remember those levels and place their sell orders around them, as they believe that those levels will again provide selling pressure and move the price down. Since fresh memory is more important than old memory, recent support and resistance levels usually have a higher importance than old support and resistance levels.
The Forex market is open around the clock and offers traders to profit not only on rising prices, but also on falling ones. However, there is another reason why a large number of traders feel attracted to the Forex market – leverage.
Trading on leverage allows traders to open a much larger position size than their initial trading account size would otherwise allow, and the Forex market is known for extremely high leverage ratios offered by retail brokers.
Watch: Is Leverage a True Friend or Foe?
Leverage: A Traders Friend? - YouTube
A 100:1 leverage allows a trader to open a position that is a hundred time larger than their initial deposit. If you deposit only $1,000, you’re allowed to open a position size equal to $100,000!
However, bear in mind that trading on extremely high leverage is very risky, as it boosts not only your profits, but also your losses. Beginners should consider trading on a lower leverage until they gain enough experience and screen time. This will reduce losses and make sure that you stay in the game in the long run.
When trading on leverage, your broker will allocate a portion of your trading account size as the collateral for the leveraged trade. This collateral is called “margin” and its size depends on the leverage ratio that you’re trading on. A leverage ratio of 100:1 asks for a margin that equals 1% of your position size.
If you open a $100.000 position size using a 100:1 leverage, your margin will equal $1,000, which is 1% of the position size. Similarly, if you open a position size of $40.000 with a leverage ratio of 100:1 and a trading account size of $1.000, your broker will allocate a margin the size of $400.
What’s important when trading on leverage is to always keep an eye on your free margin. Your free margin equals your total equity (account size + any unrealized profits/losses), minus your used margin. If your free margin drops to zero, you’ll receive a margin call and all your open trades will be closed at the current market rate.
The position size you take on the market determines the size of your profits and losses in dollar value by affecting the value of a single pip. In the Forex market, one standard lot (standard position size) equals to 100.000 units of the base currency. For example, if you take one standard lot in the EUR/USD pair, you’re actually trading 100,000 euros with a pip-value equal to $10.
Fortunately, traders with smaller account sizes can take smaller trades with mini-lots (10.000 units of the base currency) and micro-lots (1.000 units of the base currency.) Some brokers even allow you to trade on nano-lots (100 units of the base currency.) In any case, calculate your lot size in dependence of the size of your stop-loss so that you remain inside your risk-management boundaries.
The Forex market has many abbreviations and acronyms that might seem intimidating to beginners.
Here’s a list of the most common abbreviations and acronyms you may stumble upon while trading or reading online analyses. These range from macro-fundamentals and central banks to currencies and technical terms.
Don’t worry though if you don’t remember them all at once. Take your time and read through the following lines a couple of times.
You’ll quickly grasp and fully understand the abbreviations.
FX – The term Forex is an abbreviation of the foreign exchange market – the world’s largest financial market and the marketplace of currencies. Some sources abbreviate Forex even shorter as “FX”.
OTC – OTC stands for “over-the-counter.” The Forex market is an OTC market, as there are no centralised exchanges at which currencies are traded. Instead, currencies are directed directly between two parties, usually with the intermediation of a financial institution such as a bank or broker. The stock market, on the other hand, is not an OTC market as stocks are traded on a stock exchange.
There are certain stocks that can also be traded over-the-counter.
ECN/STP – In general, Forex brokers can be grouped into dealing desk (DD) and no-dealing desk (NDD) brokers. NDD brokers are further divided into ECN brokers, STP brokers or a combination of the two. ECN stands for “Electronic Communication Network”, while STP means “Straight Through Processing”. Both models have liquidity providers and simply forward their clients’ orders to other participants in the market, who act as counterparts.
BC/CC – Currencies can’t be traded in isolation. Whenever we trade a currency, we have to pair it with another currency which forms a currency pair. BC stands for “base currency”, i.e. the first currency in a pair. CC stands for “counter currency”, i.e. the second currency in a currency pair.
GDP – The Gross Domestic Product, or GDP, is the broadest market indicator available for a country. The GDP measures the total value of a country’s output, including goods and services, over a specific period of time (usually one year.) A rising GDP can lead to interest rate hikes by a central bank, which in turn pushes the country’s currency higher.
CPI – The CPI report (Consumer Price Index) is a very important market indicator in Forex. It represents the inflation rate in a country that most major central banks follow when adjusting their monetary policy. The CPI shows the increase in prices of goods and services over a specific period of time.
Core CPI – The Core CPI report is quite similar to the CPI report, only that it excludes the volatile categories of food and energy in its calculation.
PPI – This stands for Producer Price Index. While CPI measures the change in retail prices, PPI reflects changes in prices of intermediary goods in the manufacturing process. Since producers often try to “push” any increased costs in the manufacturing production to the end consumer, traders sometimes try to anticipate the CPI number by following PPI reports.
NFP – Besides inflation reports, labour market statistics also have a large market-moving effect. NFP stands for “Non-Farm Payrolls” and is reported together with the average hourly earnings and the unemployment rate on the first Friday each month. This is a US report.
CoT – Each Friday, the CFTC (US Commodity Futures Trading Commission) reports the CoT (Commitment of Traders) report. This report shows the changes in open positions of futures traders, including commercials, small speculators and large speculators. Traders follow the CoT report to identify extreme levels of long or short positions in a currency, which may signal a trend reversal.
Fed – Federal Reserve – The central bank of the United States, in charge of the country’s monetary policy. The Fed follows inflation rates, labour statistics, and economic growth to make interest rate decisions.
BoC – Bank of Canada, the Canadian central bank.
BoE – Bank of England, the country’s central bank and one of the oldest banks in the world, founded in 1694.
ECB – European Central Bank. The central bank of the eurozone and the body responsible for monetary policy in the euro area.
SNB – Swiss National Bank. The central bank of Switzerland.
RBA – Reserve Bank of Australia.
RBNZ – Reserve Bank of New Zealand.
BoJ – Bank of Japan.
S/R – If you’ve ever read an online Forex market analysis, chances are that you’ve stumbled upon the term “S/R”. This is short for “Support/Resistance”, a major concept of technical analysis. Support levels represent price-levels below the current market price at which bears could have difficulties to break below. Similarly, resistance levels represent price-levels at which bulls may have difficulties to break above.
Support and resistance levels usually form near the prices of previous highs and lows. Markets consist mostly of human traders who have memories of prices at which the market has reversed and this memory is what creates S/R levels.
TP/SL – The abbreviations TP and SL stand for Take Profit and Stop Loss, respectively. When you enter a market order, you can specify at which price-level to close your trade if it is in profit – this is the TP level. Similarly, you can set a Stop Loss level at which your order will be closed in loss to prevent larger losses. TP and SL levels are simple market orders – those levels sell your buy position and cover your short position when triggered.
MA – Have you ever heard of Moving Averages? I bet you have. MA is short for “Moving Average” – a technical indicator that averages the prices over a pre-specified period of time and plots the result on your chart in the form of a line.
Moving averages are used as a representation of fair value, which means that the market tends to return to its average price over time. Prices above the average of recent prices are considered overbought, while prices below the average of recent prices are considered oversold. Moving averages can also act as dynamic S/R levels, with popular choices being the 100-day MA and the 200-day MA.
MACD – MACD is a popular technical indicator and stands for “Moving Average Convergence Divergence.” This indicator is one of the best indicators a trader can use, as it can be interpreted both as a trend-following indicator and an oscillator. The MACD consists of three moving averages – a fast MA, a slow MA and a signal line.
The MACD line is calculated as a difference between the fast and the low MA, while the Signal line is a moving average of the MACD line itself. The differences between the MACD line and the Signal line are often plotted as a histogram.
RSI – Another popular technical indicator is the RSI – Relative Strength Index. This is an oscillator which is used to identify overbought and oversold market conditions. When the indicator rises above 70, this usually signals an overbought market which may go lower. Similarly, when the indicator falls below 30, this represents an oversold market which may go higher.
The RSI indicator is often used to find bullish and bearish divergences between the price and the indicator. A bullish divergence forms when the market makes a fresh low, while the indicator fails to follow and creates a low higher than the previous low. This signals a potential market reversal. Bearish divergences form when the price makes a fresh high, while the indicator forms a lower high.
ADX – The ADX indicator, or Average Directional Movement Index, is a trend-following indicator that shows both the current trend (bearish or bullish) and the strength of the trend. The indicator consists of three line – DI+, DI- and the ADX line. If DI+ is above DI- the trend is up, and if DI- is above DI+ the trend is down. The ADX line shows the strength of the trend – a reading below 25 means the market is ranging, a reading between 25 and 50 signals a weak trend, and a reading above 50 signals a strong trend.
TL – Another popular tool in technical analysis is the trendline, often shorted as “TL”. Trendlines connect lows during an uptrend to create a rising trendline and highs during a downtrend to create a falling trendline. Those trendlines often act as a support or resistance for the price.
HH/HL – When analysing trends, you’ll necessarily have to deal with HHs (Higher Highs) and HLs (Higher Lows). HHs and HLs form during uptrends when the price pushes above the recent high, creating a new Higher High. Price-corrections push the price lower again and create Higher Lows during uptrends, forming the characteristic zig-zag pattern that you can notice on your price-chart.
LL/LH –LLs (Lower Lows) and LHs (Lower Highs) form during downtrends. When the price pushes below the recent low it forms a fresh Lower Low, while the consecutive price-correction pushes the price higher again to create a Lower High. Notice that if the price rises above the recent high, it forms a Higher High instead of a Lower High. This signals that a trend reversal might be ahead.
Greenback – The US dollar is the most heavily traded currency in the Forex market and is included in around 80% of all market transactions as either the base currency or the counter currency. The US dollar is also known by the slang term “greenback”, which refers to the colour of US paper dollars. Traders who trade the US dollar often follow the USDx (US Dollar Index), which shows the value of the US dollar against a basket of other major currencies.
Loonie – The Canadian dollar or CAD is also known as the Loonie, because there is a picture of a loon on one side of the $1 coin. Since Canada is a major energy exporter, the Canadian dollar often follows the price of oil on the international market. When oil is rising, so is the Canadian dollar, and vice-versa.
Sterling – The British pound or GBP is often called sterling because the original pound weighed one troy ounce of sterling silver and was originally divided by 240 sterling pence.
Cable – Another popular acronym in the Forex market is “cable”, which refers to the GBP/USD currency pair. This term originates from the 19th century when a long cable between the UK and the USA ran across the Atlantic Ocean to transmit the GBP/USD exchange rate.
Single currency – If you’ve ever read the term “single currency”, it was referring to the euro. Since the euro is an official currency for 19 out of the 28 EU member states, (which also represent a single economic market), the euro is also called the single currency.
Aussie – The Australian dollar is often called the Aussie – a slang term for the currency, Australians and less commonly, Australia.
Kiwi – New Zealand is home to many native animal species, such as the Kiwi – a flightless bird that has borrowed its name to the country’s currency. Kiwi is slang for the New Zealand dollar.