Category: Forex Education - Page 13

The gambler’s fallacy in trading

Regarding the issue of probability, a lack of understanding can lead to incorrect assumptions and predictions about the occurrence of certain events. One of these incorrect assumptions is known as the Gambler´s fallacy.

In the gambler’s fallacy, an individual mistakenly believe that the occurrence of a certain random event is less likely to occur after an event or series of events. This line of thinking is incorrect because the past events do not change the likelihood of certain events occurring in the future.

For example, consider a series of 20 coin tosses in which all have landed with the head side facing up: Under the gambler’s fallacy, a person can predict that the next coin toss is more likely to fall to the tail side facing up. This line of thinking is an incorrect understanding of probability, because the possibility that a coin lands heads or tails is always 50%. Each coin toss is an independent event, which means that each and every one of the previous tosses have no effect on future releases.

Island Reversal Price Pattern

by rcanessa

Description of the Island Reversal

Island reversal is a trend change pattern which forms a gap on both sides. This chart pattern is most likely shown when the market trend proceeds to its last level. The name island reversal is obtained from the fact which the candlestick appearing alone, that is quite alike in the island. This chart pattern explains an increase in the volume amidst the primary gap and the following gap proceeding in the opposite direction.

The island reversal pattern is driven across the pre-market trading and pro trading as well. Generally, the island reversal chart pattern is described as a distinct trading activity that works within a range and moreover it is separated with a move. The separation is resulted due to an exhaustion gap and the opponent direction results with a breakthrough gap.

Forex Carry Trade

by rcanessa

The carry trade is a strategy in which an investor sells a certain currency with a relatively low interest rate and buy another currency with a higher interest rate. The aim of this strategy is to get as profit the difference between the two interest rates, a benefit that may become attractive depending on the amount of leverage used. As the profit comes from the interest rate differential, you can make a profit even if the price of the currency does not change a single pip.

Although the Forex market operates 24 hours, is taken by consensus UTC 0 hours as the end and beginning of a new trading day. In Forex trading, at the end of each day is credited or charged to the account of the trader the spread between the interest rates of the two currencies of the currency pair in which the trader have open positions at this time (this is known as Rollover).

New Home Sales Indicator

by rcanessa

General Definition

The “New Home Sales” is an economic indicator that measures sales of newly built homes. This is a monthly published data, which always refers to the previous month in which the Department of Commerce’s Census Bureau published the report. This report includes both the quantity and price statistics. It is considered a lagging indicator of market demand and also affect interest rates on mortgages.

It is considered as a sale of a new home any deposit or signing a contract, either in the year in which the house was built or the year after construction.

Profitable Tips for Forex Trading

by rcanessa

Trading on the Forex can be more complex than it appears to be, and it may take novice traders some time before they have the ability to earn a decent profit from their investments. However, you can avoid most of the mistakes made by beginners simply by educating yourself on how the Forex market works and how to choose currency pairs wisely. Following are several tips for novices and intermediate traders, and a few of them may even be new and helpful to seasoned Forex veterans.

Track Down a Dependable Broker

Having a dependable broker on your side can make all the difference in the world when trading on the Forex, but it may take a little time and effort to locate one. In most cases, the best brokers work for large Wall Street investment firms. However, it is possible to find great brokers with powerful and reliable trading platforms online.

When you have an experienced Forex broker on your side, you will receive the most favorable bid and ask prices, and your trades will be executed quickly if not instantly. In addition, many firms that trade in large volumes will understand the macroeconomics behind each trade. A good broker may also provide access to breaking news that may affect the market and tools to help you conduct research and analyses.

What is leverage and Margin Call?

by rcanessa

Leverage and margin call are two basic Forex concepts whose definitions may seem unrelated to each other at the beginning. Despite this, the fact is that both terms are closely related so we will explain what they are and and why they should be known by any investor interested in investing in the Forex market.

What is leverage?

Leverage is a tool which allows to trade with large trading volumes using an amount of money (initial capital) much lower. This increases the potential of benefits but at the same time increase the risk of losses. The most usual leverage level provided by most Forex brokers is 1:100 and 1:200.

The best days to trade in the Forex Market

by rcanessa

Because it is no a centralized market, Forex is open 24 hours a day Monday through Friday. However, not all time is equally suitable to enter the market. In fact, there are periods that offer excellent earning potential while others should be avoided since they have low liquidity and movement.

Many traders know that the period corresponding to the London session is the period that has more movement compared to other sessions, however, there are certain days in the week in which markets tend to show more movement.

Usually it is best to trade during midweek, as in this period is when most of the action occurs in the market.

Friday markets remain relatively active until 12:00 pm EST and thereafter the activity falls until the closing occurs at 5:00 pm EST. This means that on Friday, traders work only half a day since most are kept off the market for the rest of the trading session.

Except for the more conservative traders who prefer the slower and less volatile markets, the most suitable periods for Forex trading are those with higher levels of liquidity and volatility as they present the most extensive movements and clearer trends. This increases the chances of success of the trader.

Line Forex Charts

by rcanessa

In technical analysis the technical traders use various types of price charts. The simplest of these types of charts is the line chart which is used to obtain an overview of price movements in the market. In this case it shows the closing prices at selected intervals. Line charts are very clear and facilitate the detection of the most obvious chart patterns but lack the detail level offered by bar charts and Japanese candlestick charts.

In these price charts the points for price are joined by lines. In general the price used is the closing price of the period (which may be 5 minutes, 1 hour, etc..), but it can also display the average price, the buy/sale price, and many other options that vary according the trading platform that we use.

Forex market sessions

by rcanessa

As every investor with some experience in the Forex market knows, one of the main advantages of this financial market is that it operates 24 hours a day from Monday to Friday, which gives the trader the opportunity to take advantage of the many opportunities offered by the market throughout the day. This is because the financial market is not centralized as is the New York Stock Exchange, for example, so at all times there are large and small traders worldwide who perform currency transactions whose total volume is much higher than any other market. This makes the Forex market an excellent investment option as there is liquidity to open and close positions at all times. In other financial markets, the smaller trading volume sometimes makes it not possible to find a counterpart to buy or sell when a trader wants to open a long or short position.

However, this does not mean that it is profitable to trade in the Forex market at all times, as there are periods in which the market is relatively calm and without any clear direction or trend so it is difficult to find good opportunities to obtain profits (these are the periods of lower trading volume for which there are relatively few investors transacting in the market).

Should we trade in the Forex Market during the opening of the main exchanges?

by rcanessa

A question that has many traders specialized in the Forex market is whether to open a position when any of the major exchanges like the New York Stock Exchange opens its daily session.

The fact is that during these periods is when the trader can get the biggest gains since these are the moments when the main future and stock exchanges open, there is a greater market participation of companies, institutions, funds and traders, and therefore there will be a higher volume of transaction in the markets including Forex.

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