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The Importance of Exit Strategy - Part #1
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The threads on the forum :
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Videos :
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Basic Concepts of Trading - Understanding Swaps | Forex Trading Tutorial
Forum on trading, automated trading systems and testing trading strategies
Something Interesting
Sergey Golubev, 2017.01.05 12:20
Full Information - indicator for MetaTrader 4
Show full information: price, symbol, timeframe, date, time, spread, swap, stop out level, your name...
Forum on trading, automated trading systems and testing trading strategies
"Hedging" in Forex trading -Why do it?
Keith Watford, 2017.01.19 01:09
if I may offer my opinion.....
Hedging is a method to limit risk.
Consider this scenario.....
You may consider an investment in ABC Oil to be a good as you feel that it will outperform the market.
However you know that the whole oil sector can be volatile, so if the sector falls, ABC Oil will fall with it, even though it is a solid company.
So what you do is you Buy ABC Oil and at the same time you short the oil sector.
This limits your risk as if the oil sector falls, your short will gain and as long as ABC Oil outperforms the other oil companies, you will have a net profit.
This is hedging.
There is no such thing as true hedging in Forex.
True hedging is not opening an opposite trade in the same instrument, yet that is exactly what so many traders do.
There is no logic behind this at all, so I do not understand why it is so common.
Say you have 1 lot Buy open with EURUSD and it goes 100 pips in loss.
So you "hedge" it with an opposite 1 lot Sell.
You are now in a position where if the EURUSD falls another 50 pips, the Buy order now shows a loss of 150 pips and the Sell a gain of 50 pips. A net loss of 100 pips. EXACTLY the same as if you had simply closed the Buy order. No matter whether the price goes up or down, the net position will always be a net loss of 100 pips.
Also, should the trades be held overnight, swap charges will be applied (maybe triple swaps), so now the loss is bigger than it would have been if the Buy trade had simply been closed.
Not all brokers offset opposite orders in the same instrument against margin requirements, so there is a risk that there may not be enough free margin to open the "hedge". In an EA, this could leave you exposed to more risk than you are comfortable with.
If there is not the intention to "re-enter" the Buy by closing the "hedge", then you also incur additional spread/commission charges.
So it is not just my opinion that "hedging" in Forex is unproductive and pointless, it is a fact. When swaps are taken into account, "hedging" actually loses more money.
My advise to anyone when considering "hedging" in Forex is "Don't do it". You are not hedging, you are opening an opposite order in the same instrument.
Now there will be some who will say "Ah yes, but what if instead of Selling 1 lot as the hedge, I Sell 1.1 lots?"
Again, don't do it, there has to be a reason to Sell. If you have a reason, then close the Buy and open a 0.1 lot Sell. It has the same result, but without additional charges.
Kevin 'Huddy' Hudson - The Basics of Market Profile
Kevin “Huddy” Hudson is a full-time trader and coach to fellow traders specializing in the S&P E-mini futures contract. He has spent many years perfecting his entry and exit techniques using channels and trend lines along with critical Market Profile levels to find and trade both minor and major support areas. He has made a living trading the markets for more than a decade. As the founder of Channel-Trading.com, Huddy loves to pass along his thoughts about the market and trade ideas to subscribers and students. Nothing makes him happier than seeing a student actually “get it”.
In this webinar we will cover the basics of market profile
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MT5 CodeBase :
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External articles :
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Introduction to Market Profile
Characteristics of the Main Currencies
Although there has been much press recently about the US Dollar loosing its status, there is no doubt that as of this lesson and most likely for the foreseeable future, the US Dollar still reigns supreme over all other currencies of the world. The price for the majority of traded commodities such as oil is quoted in US Dollars and the US Dollar represents over 60% of the worlds currency reserves (the currency held by central banks to back their liabilities). These facts combined with the fact that the US Economy is by far the largest economy in the world has resulted in a market where over 80% of all currency transactions involve the US Dollar. As you can probably imagine after hearing this, currency traders pay heavy attention to what is happening with the US Economy, as this has a very direct affect not only on the US Dollar but on every other currency in the world as well.
The rising power of the currency world is the Euro which was introduced in 1999 as part of an overall plan to unify Europe into something known as the European Union. In short the differing laws and currencies of the different European countries were making them less competitive in the global market place. To try and fix this problem and create one entity with a common set of laws and a common currency, 15 countries joined what is now referred to as the European Union and 12 of those countries adopted the Euro as their common currency. While the economies of the individual countries that make up the Euro Zone don’t come anywhere close to the size of the US Economy, when combined into one Euro Zone economy they do, and therefore some say the Euro will eventually rival or even replace the Dollar as the main currency of the world.
Japan, which is the second largest individual economy in the world, has the third most actively traded currency, the Japanese Yen. After experiencing impressive growth in the 60’s, 70’s and early 80’s Japan’s economy began to stagnate in the late 1980’s and has yet to fully recover. To try and stimulate economic growth, the central bank of Japan has kept interest rates close to zero making the Japanese Yen the funding currency for many carry trades, something which we will learn more about in later lessons. It is also important to understand at this stage that Japan is a country with few natural energy resources and an export oriented economy, so it relies heavily on energy imports and international trade. This makes the economy and currency especially susceptible to moves in the price of oil, and rising or slowing growth in the major economies in which it trades with.
While the United Kingdom is a member of the European Union it was one of the three countries that opted out of joining the European Monetary Union which is made up of the 12 countries that did adopt the Euro. The UK’s currency is known as the Pound Sterling and is a well respected currency of the world because of the Central Bank’s reputation for sound monetary policy.
Next in line is Switzerland’s currency the Swiss franc. While Switzerland is not one of the major economies of the world, the country is known for its sound banking system and Swiss bank accounts, which are basically famous for banking confidentiality. This, combined with the country’s history of remaining neutral in times of war, makes the Swiss Franc a safe haven currency, or one which attracts capital flows during times of uncertainty.
Also known as “The Aussie” the Australian Dollar is heavily dependant upon the price of gold as the Australian economy is the world’s 3rd largest producer of gold. As of this lesson interest rates in Australia are also among the highest in the Industrialized world creating significant demand for Australian Dollars from speculators looking to profit from the high yield the currency and other Australian Dollar denominated assets offer.
Like the Australian Dollar the New Zealand Dollar which is also known as “The Kiwi” is heavily dependant on commodity prices, with commodities representing over 40% of the countries total exports. The economy is also heavily dependant on Australia who is its largest trading partner. Like Australia, as of this lesson New Zealand also has one of the highest interest rates in the industrialized world, creating significant demand from speculators in this case as well.
Last but not least is the Canadian Dollar or otherwise affectionately known as “The Loony”. Like its commodity currency brothers, the Canadian Economy, and therefore the currency, is also heavily linked to what happens with commodity prices. Canada is the 5th largest producer of gold and while only the 14th largest producer of oil, unbeknownst to most; it is also the largest foreign supplier of oil to the United States. Its relationship with the US does not end here either as the country exports over 80% of its goods to the United States, making the economy and currency very susceptible to what happens not only with commodity prices, but to the overall health of the US Economy as well.
The Gartley Pattern
Scott Carney discusses the origin of the Gartley Pattern and the measurement strategies that validate the most profitable opportunities according to the Harmonic Trading approach.
This is the 1st video in a series on economic reports created for all markets, or for those who simply have an interest in economics. In this and the next lesson, we cover the Employment Situation Report, also known as Non Farm Payroll.
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Non-farm Payrolls (metatrader5.com)Non-farm Payrolls is the assessment of the total number of employees recorded in payrolls.
This is a very strong indicator that shows the change in employment in the country. The growth of this indicator characterizes the increase in employment and leads to the growth of the dollar. It is considered an indicator tending to move the market. There is a rule of thumb that an increase in its value by 200,000 per month equates to an increase in GDP by 3.0%.
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FF forum economic calendar :
- Source : Bureau of Labor Statistics
- Measures : Change in the number of employed people during the previous month, excluding the farming industry
- Usual Effect : Actual > Forecast = Good for currency
- Frequency : Released monthly, usually on the first Friday after the month ends
- Why Traders Care : Job creation is an important leading indicator of consumer spending, which accounts for a majority of overall economic activity
- Also Called : Non-Farm Payrolls, NFP, Employment Change
============mql5 forum thread : Non-Farm Employment Strategy
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AUDUSD M5 with 45 pips in profit (by equity) for NFP :
EURUSD M5 : 87 pips price movement by NFP news event :
NZDUSD M5 : 37 pips price movement by USD - Non-Farm Employment Change :
Trading EURUSD during NFP :
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NON FARM PAYROLL (Part 2)- ECONOMIC REPORTS FOR ALL MARKETS
Basic Concepts of Trading - Understanding Swaps | Forex Trading Tutorial |
Forum on trading, automated trading systems and testing trading strategies
Something Interesting
Sergey Golubev, 2017.01.05 12:20
Full Information - indicator for MetaTrader 4
Show full information: price, symbol, timeframe, date, time, spread, swap, stop out level, your name...
Forum on trading, automated trading systems and testing trading strategies
"Hedging" in Forex trading -Why do it?
Keith Watford, 2017.01.19 01:09
if I may offer my opinion.....
Hedging is a method to limit risk.
Consider this scenario.....
You may consider an investment in ABC Oil to be a good as you feel that it will outperform the market.
However you know that the whole oil sector can be volatile, so if the sector falls, ABC Oil will fall with it, even though it is a solid company.
So what you do is you Buy ABC Oil and at the same time you short the oil sector.
This limits your risk as if the oil sector falls, your short will gain and as long as ABC Oil outperforms the other oil companies, you will have a net profit.
This is hedging.
There is no such thing as true hedging in Forex.
True hedging is not opening an opposite trade in the same instrument, yet that is exactly what so many traders do.
There is no logic behind this at all, so I do not understand why it is so common.
Say you have 1 lot Buy open with EURUSD and it goes 100 pips in loss.
So you "hedge" it with an opposite 1 lot Sell.
You are now in a position where if the EURUSD falls another 50 pips, the Buy order now shows a loss of 150 pips and the Sell a gain of 50 pips. A net loss of 100 pips. EXACTLY the same as if you had simply closed the Buy order. No matter whether the price goes up or down, the net position will always be a net loss of 100 pips.
Also, should the trades be held overnight, swap charges will be applied (maybe triple swaps), so now the loss is bigger than it would have been if the Buy trade had simply been closed.
Not all brokers offset opposite orders in the same instrument against margin requirements, so there is a risk that there may not be enough free margin to open the "hedge". In an EA, this could leave you exposed to more risk than you are comfortable with.
If there is not the intention to "re-enter" the Buy by closing the "hedge", then you also incur additional spread/commission charges.
So it is not just my opinion that "hedging" in Forex is unproductive and pointless, it is a fact. When swaps are taken into account, "hedging" actually loses more money.
My advise to anyone when considering "hedging" in Forex is "Don't do it". You are not hedging, you are opening an opposite order in the same instrument.
Now there will be some who will say "Ah yes, but what if instead of Selling 1 lot as the hedge, I Sell 1.1 lots?"
Again, don't do it, there has to be a reason to Sell. If you have a reason, then close the Buy and open a 0.1 lot Sell. It has the same result, but without additional charges.
A lesson on how to trade the RSI for traders and investors using technical analysis in the stock market, futures market and forex market.
In our last lesson we looked at 3 different ways that the MACD indicator can be traded. In today's lesson we are going to look at a class of indicators which are known as Oscillators with a look at how to trade one of the more popular Oscillators the Relative Strength Index (RSI).
An oscillator is a leading technical indicator which fluctuates above and below a center line and normally has upper and lower bands which indicate overbought and oversold conditions in the market (an exception to this would be the MACD which is an Oscillator as well). One of the most popular Oscillators outside of the MACD which we have already gone over is the Relative Strength Index (RSI) which is where we will start our discussion.
The RSI is best described as an indicator which represents the momentum in a particular financial instrument as well as when it is reaching extreme levels to the upside (referred to as overbought) or downside (referred to as oversold) and is therefore due for a reversal. The indicator accomplishes this through a formula which compares the size of recent gains for a particular financial instrument to the size of recent losses, the results of which are plotted as a line which fluctuates between 0 and 100. Bands are then placed at 70 which is considered an extreme level to the upside, and 30 which is considered an extreme level to the downside.
Example of the RSI :
The first and most popular way that traders use the RSI is to identify and potentially trade overbought and oversold areas in the market. Because of the way the RSI is constructed a reading of 100 would indicate zero losses in the dataset that you are analyzing, and a reading of zero would indicate zero gains, both of which would be a very rare occurrence. As such James Wilder who developed the indicator chose the levels of 70 to identify overbought conditions and 30 to identify oversold conditions. When the RSI line trades above the 70 line this is seen by traders as a sign the market is becoming overextended to the upside. Conversely when the market trades below the 30 line this is seen by traders as a sign that the market is becoming over extended to the downside. As such traders will look for opportunities to go long when the RSI is below 30 and opportunities to go short when it is above 70. As with all indicators however this is best done when other parts of a trader's analysis line up with the indicator.
Example of RSI Showing Overbought and Oversold :
A second way that traders look to use the RSI is to look for divergences between the RSI and the financial instrument that they are analyzing, particularly when these divergences occur after overbought or oversold conditions in the market. These divergences can act as a sign that a move is loosing momentum and often occur before reversals in the market. As such traders will watch for divergences as a potential opportunity to trade a reversal in the stock, futures or forex markets or to enter in the direction of a trend on a pullback.
Example of RSI Divergence :
The third way that traders look to use the RSI is to identify bullish and bearish changes in the market by watching the RSI line for when it crosses above or below the center line. Although traders will not normally look to trade the crossover it can be used as confirmation for trades based on other methods.