Category: Forex Education - Page 11

The Sortino Ratio – good and bad volatility in your investments

To correctly analyze the performance of investments in the stock market and other financial markets, it is always advisable to relate profitability with respect to risk. One of the most used ratios for this is the Sharpe ratio. But today we will see that it is possible to further refine this measure using the Sortino ratio. Both ratios serve to measure the expected return of an investment fund, calculated on the expected return of an asset without risk, however, they present a series of subtle differences that we are going to show next.

The spot market – Definition and Types

by rcanessa

The spot market is one in which the value of financial assets is paid in cash (spot price) at the time of delivery. That is why this market is also known in the trading enviroment as “cash market” or “physical market”. Its transactions are made in the short term, so it is a highly liquid marketplace with large and small participants..

A trader or investor can trade on the spot market from anywhere that has the necessary infrastructure to carry out transactions. That is why the Internet is now the main support for this type of transactions.

The most famous spot markets are the Forex spot markets and commodities spot markets. In the latter group includes financial assets such as precious metals, sugar, natural gas, grain or oil. In the case of oil, even if payments are made at the spot price, the delivery of the product is performed about a month later.

ABC Correction Waves – Elliott Wave theory

by rcanessa

Following with the Elliott Wave theory that we have seen in the previous article, in this article we will see how the 5 impulse waves (in favor of the trend) proposed by Elliot are corrected and reversed by 3 waves against the trend called ABC Correction Waves.

Observe the following image:

ABC Correction Waves — ABC Correction Wave in a bull trend

The price swings marked by colored lines and the letters a, b, c form a corrective movement of the bullish wave formed by swings 1, 2, 3, 4 and 5.

Because we have used a bull market in the previous example does not mean that this theory does not apply to bear markets. The same pattern 5-3 may appear like this:

What Should Your Forex Trading Plan Have?

by rcanessa

A trading plan can be simple or complex depending on how you want it to be, but most important of all in the end, is that you have a plan and follow its rules.

These are some of the essential points that every forex trading plan should have:

1- Trading system

This is the true essence of the trading plan. It should be your own trading system that you have tested a lot and in which you have traded for at least two months in a demo account of an online broker or in a cent account in which you risk little money.

Risks of trading Forex with the news

by rcanessa

In a future article, we will see some techniques to trade the fundamental news in Forex. Before going on, you have to take into account the advantages mentioned in previous lessons about news trading but also the risks and disadvantages that I will expose next and that you will be able to experiment frequently when important market news is published. As with any trading technique, news trading can be profitable but risky, especially for novice traders

Increase of Bid-Ask spread

Some brokers can guarantee the execution of your orders during the publication of important news but not the spread, others can guarantee the spread but not the execution, and others may not guarantee either one thing or another and let the market decide what it can offer you. You will see very often how the spread increases considerably (2, 3, 10, or even more pips) moments before and after the publication of economic news or important economic indicator. If you are going to pursue small profits, 10 or 20 pips, this increase in the spread will also increase the chances of your trades ending up with losses.

How to Invest in a Choppy Market?

by rcanessa

Today, I will talk about the choppy market, that is, the laterality in the market, how to approach it and take advantage of it.

Choppy means hectic or variable. The term Choppy Market, therefore, refers to when the prices of shares in the Stock Exchange or currencies in the Forex market rise and fall, or fluctuate uniformly, without following an upward or downward trend, so they remain lateral.

For a market to be considered “choppy”, the fluctuation can occur both in the short term, and in the long term. There are times when markets do follow a clear upward or downward trend.

But there are many times when they do not. That is why we can say that the market can enter a choppy or lateral state at any time. Or, failing that, the choppy state is one of the natural conditions of the market.

RMB vs yuan: understanding the difference

by rcanessa

The national currency implies the money issued by a state central bank or any other state monetary institution. The Chinese currency is becoming popular and a more powerful international currency day by day. The most debatable issue in the international economy is due to the policy of artificial undervaluation of Chinese money against the United States dollar, to the extent that China has been gaining an advantage in export prices until 2015. During that period, the Chinese currency received an appreciation of its growing position in the world by the International Monetary Fund.

Before 2010, since it was under strict government control, the Chinese renminbi was never considered an international currency. But now the Standard Chartered Bank forecasts that 28% of international trade from China will be made in RMB in 2020.

How have the main currencies behaved during 2018?

by rcanessa

The year 2018 has been marked by tensions and uncertainty. The commercial war between the United States and China has been carried to its maximum level, the rise of interest rates and QT (quantitative tapering) has continued in the US and in Europe the QE (quantitative easing) has been ended. Towards the end of the year the atmosphere is even more tense with the “gilets jaunes” (yellow vests) in France, the political escalation between the US and China and the fall of the world stock markets. On the other hand, the price of oil is practically at a minimum, although it seems to start to rise, which has helped to reduce the increase in global political-economic tensions.

On the one hand, the low price of oil contains inflation, which reduces the pressure towards the contraction of the monetary stimuli of the main world banks and on the other hand supposes an injection of disposable income for consumers.

What are exotic currency pairs in the Forex market?

by rcanessa

The Forex market is the largest OTC market in the world, according to some estimates it moves almost 5 trillion dollars a day. Specifically, in the last triennial survey of the BIS, you can observe the level of negotiation and distribution among the main currency pairs that are traded in that market. This tells us clearly why it is the largest market in the world. But the fact is that not all the instruments that are traded in this market are the same. Each pair has its own characteristics and advantages and disadvantages.

Overlay of the European session and the U.S. session

by rcanessa

Usually the currency markets have the highest trading activity when occur the overlap of the trading sessions of the two most important financial centers in the world: London and New York. In fact, generally the average range of price movement between 8 am and 12 pm EST time, is on average about 70 percent of the average total range of price movement during the European session and 80 percent of the average total range during the U.S. session. Undoubtedly, for all currency pairs this period is usually the most active and volatile, and for this reason is ideal for traders who want to get high profits in the market with fast price movements, ie traders with high tolerance risk.

By themselves, the above percentages indicate that traders who are interested in trading with highly volatile prices and wide price ranges must act precisely during the hours in which the markets of United States and Europe overlap, especially if they are unable to monitor the market all day.

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