Forex Education by Admiral Markets

Admiral Markets

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What is Forex?

Most people have an idea of what trading, investing and Forex currency exchange are.

But many also think it sounds complicated.

So what if we told you that you have already been part of it?

Whenever you are abroad and exchange your native currency for a local one, you participate in the Forex currency market.

It’s actually simple enough to present on one infographic - so we have.

 

Admiral Markets

AdmiralMarkets.com Representative
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Forex strategies

A Forex strategy is often compared to a business plan, because traders commit to their strategy and make decisions for the long run.

One popular strategy is scalping, but there are many ways to scalp.

Check out a scalping overview in this infographic on Forex strategies.

 

Admiral Markets

AdmiralMarkets.com Representative
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95
8 economic indicators that may predict recession



By definition, economic recession is a period of at least two consecutive quarters when the economy is in decline.

It is typically accompanied by an increase in unemployment, decline in the housing market and a drop in the stock market – decline in GDP.

Though recession is less severe than a depression, there are still many different factors that are the cause of recession.

While many economists and some traders are arguably versatile in predicting another recession, beginner traders can have difficulties deciding which factors to track.

Can we predict recessions?

The short answer is, yes – I personally think it is possible, at least to a large extent.

Now, let’s talk about the key economic indicators when trying to predict the next recession and how to use this information when trading.

Yield curve

This is my favorite economic indicator.

So, how to predict recession with a yield curve?

I will try to explain it in an easy way.

In normal markets, a longer-dated bond should have a higher yield than a shorter dated bond.

If we take a look at US government bonds, we can see a normal yield curve that has rising yields with longer duration.

Risk premium

Longer-dated treasuries or bonds in a normal or positive yield curve means they attach a higher yield than shorter maturing treasuries or bonds.

This is caused by a risk premium.

This risk premium considers the possibility that rates may increase in the future.

Consequently, longer-dated treasuries of bonds might have a higher yield than shorter-dated ones.

Normal yield curve



Duration is the bond’s time to maturity.

So as duration increases, the yield increases with it.

The implication of a normal yield curve is that the longer the bond duration, the higher the yield.

Inverted yield curve



An inverted yield curve is usually a sign of recession coming.

This is due to people flocking to longer-dated bonds for safety of returns, causing the price of bonds to rise and the yields to drop.

As longer-dated bonds attract a premium in price, a lower yield may imply that rate cuts are in the near future.

In simple terms, an inverted yield curve can imply a future recession, as it indicates that shorter-term yields are lower than longer-term yields.

This also means that interest rates in the near future will reduce.



GDP

Gross domestic product (GDP) is the market value of all goods and services produced within a country in a given period of time.

In economic terms, if GDP declines for two or more consecutive quarters, it is a sign of recession.

Oil supply

Oil supply is directly linked to GDP.

Higher oil prices increase the cost of production of most goods and services, with a chance to cause lower real GDP and higher inflation.

As a consumer, you may already understand the lesser implications of higher oil prices.

To better illustrate it, I will use gasoline example.

Gasoline purchases are necessary for most households.

When gasoline prices increase, a larger share of households’ budgets is likely to be spent on it, which leaves less to spend on other goods and services.

Similarly, higher oil prices tend to make production more expensive for businesses, leaving them less assets to invest into other fields.

High interest rates

When interest rates rise, they limit the amount of money available to invest.

In the recent history, the biggest culprits was the Federal Reserve, which would often raise interest rates to protect the value of the dollar.

The Fed also raised rates to protect the gold vs. dollar relationship, which made the Great Depression even worse.

Asset bubbles

When the prices of different companies, houses or stock markets become inflated beyond their sustainable value, they tend to burst.

That’s why we call it “the bubble”.

Recession usually occur when the bubble bursts.

Stock markets and currency correlation

The drop in stock markets may also predict recession.

The sudden loss of confidence in investing can create a subsequent bear market, which may drain the capital out of businesses.

Keep in mind that if loans are written off as bad, it actually destroys the supply of the currency...

...which may cause the currency to strengthen too.

Money supply and velocity

Money velocity is the amount of times that money is turned over in a given period.

So when money velocity is high, it means there is a lot of transactions, which is good for economic activity.

Consequently, a drop in money velocity can be a sign of an impending recession.

Here is a good article explaining money velocity in the credit crunch and recession.


Technical chart

Below shows the Dow Jones during the two most recent recessions that happened in the last 15 years.

The first one is the small recession after dot-com bubble and the second one is the recession linked to the global financial crisis.

My personal study has shown that the only lead you get from the stock market is if a significant high is made.

Then, the equities market should keep going lower into the recession.

In both cases, the index price went below the 200 SMA on Weekly TF.

Best Forex indicators for this purpose are 200 SMA plotted on weekly chart, zoomed out with trend line overlay and MACD.



In the picture above, we can see that the first economic downturn started in early 2000s.

This coincides with the collapse of the speculative dot-com bubble and September 11 attacks.

Dow Jones Index dropped significantly.

The subprime mortgage crisis led to the collapse of the United States housing bubble, lasting from December 2007 until June 2009.

It was named the global financial crisis.

Have in mind that recessions usually run their course over time, but the major goal is to make sure that they do not cause a depression.

How to make money during recession and depression

This is what traders should watch for if they want to trade during recession/depression:

  1. abovementioned economical signs and cues
  2. weekly timeframe for spotting out technical patterns
  3. lower timeframes for cherry-picking overbought price
  4. traders should be following the trend by selling the equities.
Weekly time frames and monthly charts will provide traders with complete look of the price action.

Once the price breaks below trend lines like the 200 SMA with MACD being below 0 line, traders should focus on lower time frames to find better entries.

H4 or Daily time frame have the least noise so they could be suitable for cherry picking the entries.

As with all bearish trends, traders should sell when the price is overbought. If US gets into recession again it would be mainly US equities.

You have to remember, US Economy is largest in the world, and can drag the rest of the world into a recession.

Equities are generally positively correlated, so they tend to fall together in most cases.

Outside US Equities, it is likely to impact the Import partners most.

...China, Canada, Mexico, Japan and Germany in that order…

...and their respective Indices.



This unique correlation table shows dynamic correlation between equity markets.

In a nutshell

Inverted yield curve, reducing money supply and reducing money velocity all point to a possible recession.

Once everything is set in motion, a domino effect prevails, with one outcome causing or worsening another.

When the stock market becomes unstable, businesses become fearful and lay off more workers, leading to greater unemployment.

This vicious cycle generally continues for months.

Technical charts give us a clear picture, with zones and levels where we could place our trade setups.

For some traders, effects of economic recession can even be beneficiary.

Have you ever traded during recession and/or depression?

Feel free to let us know in the comments below.
 
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Admiral Markets

AdmiralMarkets.com Representative
Messages
95
Wave analysis: more valuable than traders realise



Many Forex and CFD traders try to apply the Elliott Wave theory for a short while...

...but the majority quickly moves on to the next indicator or tool.

Why does this happen?

Most traders understand, at least partly, the wave theory but find it difficult to apply it to real trading situations.

Sounds familiar?

Well, my goal is to provide a practical solution to traders who want to give wave analysis a chance.

This article explains a simple step-by-step approach that allows traders to gradually start using wave analysis.

Please note that this is not a guide which explains the wave theory itself.

Our wave ebook covers this part in more detail – feel free to sign up below:



Why Forex and CFD traders struggle with wave analysis

Each trader has their own experience and difficulties with trying out wave analysis.

However, most traders give up on wave analysis due to one of the following reasons (I included solutions after the arrows):

1. not knowing the wave theory → learn theory

2. not able to apply wave theory on the charts → build experience

3. insecure about their wave application (wave count) → build experience

4. trading wave count too soon without experience → step-by-step process

5. applying a full wave count from the start → step-by-step process.

The biggest problem is that traders expect too much too soon from wave analysis (point 4 and 5).

They immediately rely on waves for all of their trading decisions...

...however, wave analysis is most useful for understanding the market structure and as a confluence tool – especially when starting to use waves for trade decisions.

Applying wave analysis is a step-by-step process that cannot be rushed.

The second-biggest problem is that traders feel insecure about their wave approach.

Logically, it takes time to build up experience with applying waves.

Traders simply cannot expect to take the best wave trades right away from the start.

The solution: gradually apply trading waves

As I often say in live webinars, there are roughly five steps in a trader's transition from not applying waves to fully labelling waves on multiple time frames.

Let me be clear that one step is not better than another.

They are all equal – Forex and CFD traders need to find one that suits them best.

1. Not using waves, swing or impulse and correction.

2. Using swings, impulse and correction.

3. Looking at multiple swings.

4. Partial wave count labelling.

5. Full wave count labelling.



The first steps in using waves

The best place to start is to analyse whether a swing (a group of candles) is moving:

1. as an impulse (momentum); or

2. as a correction (corrective).

This is the first key step when analysing waves because traders are decomposing the story and psychology behind the moves.

For instance:

1. a bullish corrective swing → I could expect a choppy upside until a bigger resistance appears (depending on the market structure)

2. a bearish momentum swing → I could expect a shallow pullback and momentum continuation that pushes beyond support (depending on the market structure).

A trader's ability to understand the market structure will increase just by learning what impulse and correction are and knowing how to recognise them.

The next step is to connect multiple swings and understand the flow behind them.

By analysing multiple swings instead of just one, traders can build a larger understanding of the market structure.

For example:

...the current swing is the start of a bearish impulse and the previous two swings were bearish impulse and bullish correction...

...a trader could conclude that a continuation of the bearish momentum is likely.



Only now start with labelling

Usually, Forex and CFD traders start with the labelling waves, but the most important step is to understand momentum and correction.

Practice this first with dedicated engagement before moving on.

Once you see your experience grow, it's time to add and label wave counts:

1. add the wave count when the wave structure is clear (find logical pieces and skip difficult parts)

2. monitor whether the wave count, invalidation levels and confirmation levels worked out and learn from the process

3. learn from the feedback to gain experience

4. start adding wave counts when it's useful and beneficial (either partially or fully).

For more information on wave rules and guidelines, see the video below.


Realise that wave analysis is not the best method when used as a stand alone wave trading strategy(unless someone has huge experience).

Wave analysis is much better as a confluence tool.

I firmly believe that waves are valuable for all Forex and CFD traders, especially for:

1. better understanding the market structure

2. identifying the trend

3. finding confluence or deviations

4. spotting confirmation and invalidation levels in your analysis.

However, it is an art and science that is not suitable for every trader.

If you have tried wave analysis for some time and still don't know if that's helping you, maybe it's time to say adieu to this form of analysis and move on.

Final thoughts

What is your view on waves?

Do you think that the above cheat sheet will help you learn wave analysis?

For more exact details on wave counts, check out my daily wave analysis.

Keep in mind that the Webtrader platform from Admiral Markets allows you to easily add wave counts to chart.

You are also welcome to try our latest Zero to Hero course and MT4 Supreme Edition, with 100+ plus extra features.

Admiral Markets is dedicated to continue its educational efforts after winning the Best Educator award during the Forex awards of 2016.

 

Admiral Markets

AdmiralMarkets.com Representative
Messages
95
6 benefits of trading a Forex system



GBP/JPY 1 hour chart

As you might already know, the Forex market offers traders great possibilities.

One of the most important things to consider is how to choose a good Forex system.

The main advantage of Forex online trading is the ability to generate high ROI.

Another important point is creativity and freedom in trading that different Forex systems offer.

Knowing the benefits of having a trading strategy is one of the essential steps of Forex education.

HTML:
<a href="http://www.admiralmarkets.com/education/webinars/" target="_blank"><img src='http://s16.postimg.org/gsaksnsit/Banner_live_edu.jpg'border='0' alt='postimage'/></a>
Profitability

Profits are usually quoted in pips per given period.

However, be careful when looking at this statistics because the face value that is traded with any given float depends on the average risk per trade.

That is directly connected to the average stop-loss distance for a system.

After all, the system should be designed to help you shape up your decisions…

...and it is you, a trader, who ultimately pulls a trigger to buy or sell.

You should be able to test profitability of a system by using a Forex simulator software that is designed for both manual and automatic trading.

Freedom

Forex systems can be both simple and advanced.

Simple Forex systems can be profitable in the long run if you apply the proper money management…

...while advanced Forex methods can provide you more freedom.

With advanced methods, you can trade four different setups on each Forex currency pair:

  1. trend setups
  2. countertrend setups
  3. breakouts
  4. scalping.
Automation

Some systems offer automated trading.

By using these systems, a trader can effectively remove emotion and guesswork from trading, making fear and greed no longer an issue.

Traders can let professional strategies do the work for them, allowing trading experts to manage their money.

Different trading software might improve money management and the strategy itself by freeing up trader's time.

Discipline

Currency market is notorious for punishing traders who don't exert discipline.

Discipline is often lost due to emotional factors such as fear of taking a loss, or the desire to squeeze out a little more profit from a trade.

Mastering a Forex trading system ensures that discipline is maintained through the usage of predetermined rules.

Simplicity

Forex systems should be easy to understand, with a medium learning curve.

Every Forex system trading requires practise on either demo or small live account, so you could get a hang of how the system operates.

Getting started isn't that hard, either.

All you really need to do is load up a template, remove any unnecessary indicators and practise trading the system.

HTML:
<a href="http://www.admiralmarkets.com/education/zero-to-hero/" target="_blank"><img src='http://s18.postimg.org/6s0ahymjt/Banner_zero.png'border='0' alt='postimage'/></a>
Diversification

Proper trading software such as MT4 and MT4 SE should provide traders with a whole range of different tools, helping them achieve profitable Forex trading.

By using the software, I believe traders should focus on trading not just popular Forex currency pairs such as EUR/USD or GBP/USD…

...but also different currencies such as GBP/JPY or USD/CAD.

MT4SE provides the distinct advantage to any Forex system as it diversifies a trader's portfolio.

You should be able to scan more easily for trading opportunities across a range of markets, generate orders and monitor trades.

In the video below, you can watch one of our systems in action.


If you have any questions, drop me a line in the comment section below.

After all, discussion is an integral part of education.
 

Admiral Markets

AdmiralMarkets.com Representative
Messages
95
A complete guide to the US Presidential elections and the best approach for Forex and financial markets



On Tuesday, 8 November 2016, the world will be closely watching the 2016 presidential elections in the United States of America.

Americans will cast their vote and choose a new leader for the next four years, following the current President Barack Obama stepping down after eight years in the office.

As traders and investors, you want to prepare yourself properly for the upcoming political event.

You probably have questions running through your mind about the markets and future American and global economic performance:

  1. How do the economic, fiscal and tax plans differ between Clinton and Trump?
  2. How will these plans impact the Forex, CFD, and other financial markets?
  3. What could be expected during and after elections?
This article will address all of these issues – and more.

Read our extensive centered take on the 2016 US Presidential Elections below – and feel free to express your opinion or ask questions in a comments sections below.The 2016 Elections: Clinton vs. Trump



To bypass political complexity we will focus mainly on two frontrunners, Hillary Clinton from the Democratic Party, and Donald Trump from the Republican Party.

Despite strong indications for a favorite, New York Times aggregated poles data shows Clinton (at the time of publication) with 90% likelihood of winning the elections, the race is far from over.

The difference between Clinton and Trump in terms of experience and expertise could not be larger.

Trump has little experience in the US political scene and comes from a commercial background, basically running a diversified business of property development, casinos, hotels, various investments and even reality TV shows.

In comparison, Clinton perhaps shows less commercial experience, with a career largely in public service and politics as a US Senator and as Secretary of State.

However, it should be noted that in her earlier years Clinton has held multiple positions on the corporate board of directors (such as Walmart), on the boards of nonprofit organizations and as a full partner at a law firm.

Let's discuss both candidates in detail.

Read the full article here
 
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