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[Vlad RF]

Harmonic Patterns in Trading

Author : Victor Gryazin

Dear Clients and Partners,​

In this article, we will consider the use of harmonic patterns in trading. We will get acquainted with the history of their emergence, and the principles of their formation, and tell you about the most popular patterns.

What are harmonic patterns?

Harmonic patterns are graphical price patterns based on a combination of Fibonacci ratios and Elliott wave elements. The basis for such patterns was laid down in the works of Harold Gartley, a renowned analyst, and technical analysis specialist. His book "Profits in the Stock Market" describes his trading methodology in detail.

The harmonic patterns became widely known and popular at the end of the last century when Gartley's works were further developed by his followers – Scott Carney, Larry Pesavento, and Bryce Gilmore. They have refined the description of already known models, and also identified and described new ones.

Harmonic patterns are versatile: they can be used to trade on different timeframes and financial markets. The most popular are Gartley, Butterfly, 5-0, Crab, ABCD, Bat, and Shark.

Gartley pattern

The Gartley pattern is one of the first harmonic patterns described. It is also called "Gartley's butterfly" because of the similarity in the outlines of price movements, and the Fibonacci lines on the chart resembling the wings of a butterfly.

Stages in the formation of the Gartley pattern:

• XA is the first impulse of the price movement on the chart
• AB is the correction from the first XA movement at approximately 61.8%
• BC can be 38.2%, 50%, 61.8%, 78.6%, 88.6% of the AB wavelength
• CD can be 127.2%, 146%, 150%, and 161.8% of the BC wavelength and ends around the correction level of 78.6% of the XA wavelength
• The D-point is the final point in the pattern, where a reversal of quotes is expected

Butterfly pattern

The Butterfly pattern, created by Bruce Gilmore, is very similar to the one mentioned above. Therefore, understandably, many traders confuse the two.

Stages in the formation of the Butterfly pattern

• XA is the first impulse of the price movement on the chart
• AB is the correction from the first XA movement at approximately 78.6%
• BC can range from 38.2% to 88.6% of the AB wavelength
• CD can range from 161.8% to 224% of the BC wavelength and ends at about 127.2% of the XA wavelength
• The D-point is the final point in the pattern, where a reversal of quotes is expected

5-0 Pattern

The 5-0 pattern was first described in detail in Scott Carney's book "Harmonic Trading: Volume Two", which was published in 2007. Visually, it resembles the Head & Shoulders and Wolf Waves patterns.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

 

[Vlad RF]

11 Rules of Effective Capital Management On Forex

Author Timofey Zuev

Dear Clients and Partners,​

There is no successful Forex player that has achieved a good and stable result without an efficient money management system. Wise and weighted up capital management allows for playing on the high-risk market thanks to marginal trading. In this article we are going to have a look a the main rules and principles of money management on Forex.

Rule № 1

The size of the margin must not exceed 10-15% of the deposit.

This rule helps calculate the margin for the orders to open. The remaining sum is necessary for normal work of the trader and for avoiding force majeure on the market: Forex may behave unexpectedly.

As for the suggested margin, its maximum size is not always the same. For example, Murphy suggested that it should not exceed 50%; however, other sources advise to stick to the margin amounting to 5 to 30% of the deposit. Anyway, the approach should go in line with the initial size of the deposit, as long as the smaller it is, the harder it is to go along the conservative way.

Rule № 2

The investment into one instrument or a group of assets with high correlation coefficient must not exceed 15% of the deposit.

This helps diversify risks and avoid strong dependence on the result of the trade.

On Forex there are groups of instruments as yen pairs, groups of allied currencies like EUR/USD и GBP/USD, AUD/USD и NZD/USD, metals like XAU and XAG and so on. Currency pairs of one group normally move in the same direction, slightly lagging behind one another. Thus, large investments into one instrument or the assets of one group go against the rules of risk control. The principles of efficient funds use are also to be kept in mind. Money should be allocated in such a way that a trade resulting in a large loss does not rid the trader of the whole deposit.

Rule № 3

Each instrument must imply a risk no bigger than 5% of the deposit.

This rule seems rather arguable, and its feasibility to a big part depends on the size of the trading capital. The risk of the trade may vary from several tenths of a percent to 10-20%. It does not relate to traders who do not regulate risks at all, the only limit being the size of their deposit.

If we turn to classics, Elder suggested 1.2-2.0% risk for one trade, Murphy – 5.0%.

Rule № 4

Define the level of diversification of instruments.

Regardless of diversification being one of the most efficient ways of protecting money, one should not overuse it. There should be a certain balance between concentration and diversification of assets. Excess diversity of the instruments used in trading makes the trader lose their concentration which may lead to untimely reaction to the market movements and a decrease of productivity.

Allocation of assets to 5-6 different instruments of various groups is considered most efficient. The bigger the coefficient of inverse correlation is, the higher is the diversification level.

Rule № 5

Put Stop Loss orders.

The main purpose of Stop Loss order is to limit the trader’s losses. Some put them every time opening a trade, others do so only for the time of their absence from their workplace. However, it is always worth remembering that Forex is an unpredictable market, and the movements of currency pairs can be sharp and quick. As a consequence, traders may suffer excessive losses, because they may not react in time, even sitting in front of the computer screen.

The size of a Stop Loss depends on two factors: the size of the loss that the trader is ready to suffer and the situation on the market.

Let me give you an example. The trader’s deposit is 1,000 USD. The risk of a trade is 5%. The volume of the trade is 0.02 lot. In such circumstances they can afford a loss of 50 USD, and in case the price is 0.1 USD per 0.01 lot for a pair, as, say, with GBPUSD, the Stop Loss should be no farther than 250 points from the entrance to the position.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

 

[RoboForex Contest]

Dear traders!

This week, the ContestFX project is waiting for everyone in the following competitions:

The 142nd competition of "Demo Forex" is gaining momentum.
The 395th competition of "Week with CFD" has just kicked off.
The 529th competition of "Trade Day" will start on 11.01.2023 at 12:00.
The 443rd competition of "KingSize MT5" will start on 12.01.2023 at 20:00.

Joining the list of our contestants is easy - all you need to do is to go through a simple registration procedure, and all of the competitions you may want to take part in will become available in just a couple of mouse clicks.

We wish you success!

Sincerely,
RoboForex Contest

 

[Vlad RF]

Gann Concept in Trading: Fundamentals, Algorithm

Author : Timofey Zuev

Dear Clients and Partners,​

In this article we shall discuss the trading method of William Delbert Gann. While alive, Gann managed to become a legend thanks to his exact market forecasts. First, a bit of his biography. He was born in the family of a poor farmer that cultivated cotton. In early childhood William got to know that the family’s income depended on the prices on “some market”. So, he was eager to know, how and why the prices for cotton change. Later this desire led him to the New York stock exchange, where he opened his broker company 5 years later. However, real success found him when he forecast the capitulation of Germany in the World War I.

Gann became known for his “sniper” forecasts based on his unique trading method, which later transformed into a whole concept.

As a great sportsman of present time said, the main thing that is left after a person is their legacy. Well, Gann left a great intellectual baggage after himself. Perhaps, not every trader knows his name, but each and every has at least come across the phrase “Gann’s theory”, not to speak about William Gann’s many followers.

Gann’s theory: main theses

The main thesis of Gann’s theory is based on the postulate about the necessity of the balance between the price (quotation) and time.

Financial markets are very dynamic in essence, which, naturally, makes them attractive for speculators. The level of volatility (variability) of markets can be different. Rate fluctuations on Forex can differ in frequency and amplitude. Meanwhile, Gann’s theory states that in any price change one may see certain patterns. In other words, though chaotic at he first sight, fluctuations of quotations presuppose a certain degree of order in their structure. The ability of a speculator to identify this data timely guarantees that their forecasts will have a real basement and come true in the end. As the author of the theory said: “Future is a repetition of the past”. Which means that all actions on the market are cyclic and can be forecast.

An argumentative forecast of the market dynamics is an indisputably important factor of success of any speculative trade.

Gann’s theory states that a very important moment of the market analysis is to define the so-called balance points correctly. These points of balance between the price and time let the player forecast future rates and detect the priority vector of further market dynamics.

Gann developed a lot of instruments meant to help the analyst (trader) define the aforementioned points:

• using patterns, formed by market fluctuation patterns;
• using “angles” and “squares” of time and price (quotations);
• studying the factors of time.

Apart from this, on the basis of William Gann’s drafts, several indicators have been developed; they lay the foundation of the market analysis according to Gann’s method. By the way, Gann Grid is integrated into each MT4 and MT5 terminal, which proves the genius of Gann and his theory (Insert-Gann):

According to the basic theses of Gann’s theory, financial market can be interesting for speculations in two typical cases only:

• when time goes ahead of the price on the chart;
• when the price goes ahead of time on the chart.

If the market remains in perfect balance for a long time, it is of no particular interest for trading as no significant movements are to be expected.

The essence of Gann’s theory

On the whole, Gann’s theory is based on drafting certain geometrical patterns and angles. When analyzing the market according to Gann, the main attention is paid to the interrelation of time, price and the patterns. Thus, for successful market forecasts one should know how to use squares, circles, angles, lines etc. What is more, each figure is to be used at the right moment and in the right order.

All the aforementioned reveal the main drawback of the theory – it does not suit inexperienced traders. Some traders use the main principles of the theory and certain indicators separately, which is wrong in the essence. For successful use of Gann’s theory all its components should be applied in complex, because they supplement each other, and the trader should perform the whole series of actions when analyzing market movements.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

 

[Vlad RF]

RoboForex: upcoming changes to the trading schedule in view of Martin Luther King Jr. Day in the US

Dear Clients and Partners,​

We are informing you that changes will be made to the trading schedule due to the Martin Luther King Jr. Day in the US.

This schedule is for informational purposes only and may be subject to further change.

MetaTrader 4 / MetaTrader 5 platforms

Schedule for trading on CFDs on US indices (US30Cash, US500Cash, and USTECHCash) and CFD on the Japanese index JP225Cash

• 16 January 2023 – trading stops at 7:45 PM server time.
• 17 January 2023 – trading as usual.

Schedule for trading on CFDs on Metals (XAUUSD and XAGUSD) and CFDs on oil (Brent and WTI)

• 16 January 2023 – trading stops at 7:45 PM server time.
• 17 January 2023 – trading as usual.

Schedule for trading on CFDs on US stocks

• 16 January 2023 – no trading.
• 17 January 2023 – trading as usual.

R StocksTrader platform

Schedule for trading on US stocks and ETFs

• 16 January 2023 – no trading.
• 17 January 2023 – trading as usual.

Schedule for trading on CFDs on US stocks and ETFs

• 16 January 2023 – no trading.
• 17 January 2023 – trading as usual.

Schedule for trading on CFDs on US indices (US500, US30, and NAS100)

• 16 January 2023 – no trading.
• 17 January 2023 – trading as usual.

Schedule for trading on CFDs on Metals (XAUUSD and XAGUSD) and CFDs on oil (WTI.oil, BRENT.oil)

• 16 January 2023 – no trading.
• 17 January 2023 – trading as usual.

cTrader platform

Schedule for trading on CFDs on Metals (XAUUSD and XAGUSD)

• 16 January 2023 – trading stops at 7:45 PM server time.
• 17 January 2023 – trading as usual.

Please take note of the above trading schedule changes when planning your trading activity.

Sincerely,
RoboForex team

 

[RoboForex Contest]

Dear traders!

This week, a RoboForex project called ContestFX will continue with the following exciting competitions:

The 142nd competition of "Demo Forex" has crossed its "Equator".
The 396th competition of "Week with CFD" has just started.
The 530th competition of "Trade Day" will start on 18.01.2023 at 12:00.
The 444th competition of "KingSize MT5" will start on 19.01.2023 at 20:00.

Let us remind you that all winners of our contests receive prize funds to their real accounts and they can use them to trade in the Forex market instead of investing their own savings.

Don't miss your chance to be one of them!

Sincerely,
RoboForex Contest

 

[Vlad RF]

How to Start Trading on a Demo Account?

Author : Andrey Goilov

Dear Clients and Partners,​

Trading is a way of conquering financial markets to make a good profit by applying your skills and knowledge. We can trade from any place on the globe, having neither a boss nor subordinates, which is characteristic of very few jobs. Many beginners rush at trading, having no real experience and thus compromising their money, which, of course, might lead to poor results.

All beginners are attracted by high percents and wide perspectives often described by experienced traders in their books and blogs. Financial markets do provide such opportunities but you have to take into account your experience and get prepared for systematic trading to make a profit in the long run.

To gain experience and enhance your future results, you should start with a demo account, where you can test your trading system without risking your real money.

What is a demo account?

A demo account is an almost-normal trading account, with real quotations and financial instruments; the trader can open and close their positions following the market. It is identical to a real account in the quotations and the size of positions. The only difference is that the capital is virtual, i.e. the trader does not deposit such an account, only chooses a sum when opening a position, which is later shown in trading.

Naturally, you cannot spend the profit you make, however, you can feel like you are a real trader, practice your trading methods, and make sure you are psychologically prepared to various market situations.

How to start trading on a demo?

After you receive your access data, which are the trader's login and password, you type them in the terminal. For example, if you are using MetaTrader 4 click "File" — "Access account" and introduce your data. After you accessed the account successfully, in the "Trade" section you will see your balance. Now you can start trading.

To open your first trade, click "New order", choose your financial instrument, choose your direction depending on what is expected (a decline or growth), and click "Sell by Market" if we are forecasting a decline or "Buy by Market" if we are waiting for growth.

How long do you trade on a demo?

There are a few opinions on this issue, most of them depending on the timeframe you prefer.

1. If you trade minutes, it is advised to stick to your demo account for about a month. If you use H4s, you should spend some three to four months on trading. The difference is explained by the fact that on minute charts you receive lots of signals in a small period, such as a week; conversely, trading H4s, you can receive few to no signals at all during the same week.

2. In most cases, you can have good signals in a flat, but as soon as a trend begins, you lose your funds. However, it may happen vice versa: in a downtrend, the signals are good but in a range or a bullish trend, they are executed poorly. That is why it is so important to sample trading at different stages of the market.

However, it should be remembered that a demo account will not get you emotionally prepared to trading large real sums. The psychological pressure will be quite strong at the moment of transition to a real account; what is more, to stick to the rules of your system on a real account, you will definitely need some experience with real money.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

 

[Vlad RF]

What is a Gap? Main Types and Gaps Trading

Author : Igor Sayadov

Dear Clients and Partners,​

What is a Gap?

In order to get a full idea of a Gap, let us have a look at the stock market as it features the full range of the peculiarities of this phenomenon. Our example will be the stock index DAX, describing the state of the German economy. It is comprised of the indices of 29 biggest German companies; in a terminal, it is market as DE 30.

The Gap is shown in the chart above as yellow rectangles. This is a practical gap in the flow of quotations reflecting a serious difference between the opening and closing prices in trading sessions. A quick look at the chart captures a large number of such phenomena. This means that if we classify them we may find a lot of opportunities to use them in trading. But first, let us talk about the reasons which a Gap emerges for.

Reasons for the Gap emergence

As a rule, all markets close Friday evening and open Monday morning. During this time, major events may occur in the world: natural and industrial disasters, terrorist acts, as well as elections and speeches of political leaders. All this may make investors reprice the assets abruptly. Thus, pending orders accumulate; upon market opening, they trigger at the opening price without due coverage because of the lack of demand/supply. A weekly Gap, which we can see in the chart, emerges. Of course, such Gaps are featured on daily as well as hourly timeframes, too. Gaps inside a daily session also exist; however, it has no connection to the news, and we shall discuss this phenomenon in subsequent posts about gaps and strategies. And now let us try to classify weekly Gaps.

Types of the Gap

Depending on the direction, there are the following types of the Gap:

• Downward Gap appears when the opening price of a candlestick is much lower than the closing price of the previous candlestick.
• Upward Gap appears when the opening price of a candlestick is much higher than the closing price of the previous candlestick.

How to trade Gaps?

There is a classic, conventional way of trading Gaps. Seven out of ten Gaps are traded on closing. The remaining three are traded on the continuation of the trend. How should a trader tell one type from the other? This is what indicators are used for.

Firstly, as has been said before, volumes can give a hint, but not an exhaustive one. Secondly, even a simple Moving Average (MA), following the trend, may be of much help.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

 

[RoboForex Contest]

Dear traders!

This week, the ContestFX project invites you to take part in the following demo competitions:

The 142nd competition of "Demo Forex" has gained "cruising speed".
The 397th competition of "Week with CFD" has just started.
At 12:00, 25th January 2023, starts the 531st competition of "Trade Day".
At 20:00, 26th January 2023, starts the 445th competition of "KingSize MT5".

If you haven't participated in our trading contests yet, all you need is to go through a simple registration procedure just once, and then you can get access to all of your favorite contests in just a couple of mouse clicks.

We wish you all successful trading!

Sincerely,
RoboForex Contest

 

[Vlad RF]

What is OPEC, and How It Influences Crude Oil Prices

Author : Victor Gryazin

Dear Clients and Partners,​

In this article, we will find out more about OPEC and its activities. We will look at the history of OPEC, and how it was established. We will also try to analyse how the organisation influences world crude oil prices and demand.

What is OPEC?

The term OPEC (Organization of the Petroleum Exporting Countries) refers to a group of thirteen of the world's largest oil-exporting countries. The organisation was founded in 1960 to coordinate the petroleum policies of its member countries and the technical and economic cooperation among them. OPEC is headquartered in Vienna, where the executive body, the OPEC Secretariat, manages the day-to-day operations of the organisation.

OPEC was formed in response to the Seven Sisters alliance, which included major international crude oil corporations such as British Petroleum, Exxon, Mobil, Royal Dutch Shell, Gulf Oil, Texaco, and Chevron. They adversely affected the development of oil-producing countries whose natural resources were actively used.

According to OPEC's charter, the organisation's mission is to coordinate and unify the oil policies of its member countries and stabilise the crude oil market to ensure an efficient and uninterrupted supply of black gold. The basic principles guiding its work are oil for consumers, stable income for producers, and a fair return on capital for those who invest in the crude oil industry.

How OPEC affects the price of crude oil

Cartel members produce about 40% of the world's oil, and their exports account for about 60% of global trade in black gold. OPEC estimates that its member countries accounted for more than 80% of the world's proven oil reserves in 2021.

Members meet regularly to agree on how much crude oil to collectively sell on world markets. Each member country is assigned its own production quota to which it must adhere.

In case of sharp price fluctuations, OPEC can regulate quotas and, through them, the world's crude oil supply. If the price of the resource falls, OPEC reduces production – this reduces supply, thereby increasing prices. If the cost of crude oil rises excessively, the cartel can increase production to help bring prices down slightly.

For example, during the economic crisis of 2020 caused by the COVID-19 pandemic, oil became very cheap: at one point, futures went from $50 per barrel to even below 0. To stabilise prices, the OPEC+ participants decided to substantially reduce the volume of crude oil produced by cutting quotas. The supply level fell, which made prices rise gradually and rebound to the level of $50 per barrel by the end of the year. Eventually, the price of crude oil reached $100/bbl.

Criticism of OPEC

OPEC criticism dates back to the 1970s when the organisation was perceived as a monopoly. In 1973, member countries from the Middle East banned crude oil sales to the supporters of Israel in the Arab-Israeli conflict, namely the US, Portugal, the Netherlands, and South Africa. As a result, the price of a barrel of crude oil quadrupled by 1974 and impacted end-users negatively with fuel shortages, and the cost of petrol skyrocketed. The embargo seriously affected the US and other economies.

In response, Western countries in their attempt to reduce their dependence on OPEC stepped up efforts to produce oil offshore in the Gulf of Mexico and the North Sea. Subsequently, global oversupply and lower demand led to a significant drop in the price of black gold.

Still, some countries periodically accuse the cartel of collusion, through which they believe it manipulates the price of crude oil by interfering with market pricing.

The US has drafted a bill, NOPEC (No Oil Producing and Exporting Cartels), which would allow US courts to punish association members and their partners for manipulating production volumes. But the project is still in draft form.

The future of OPEC

The world economy needs stability and predictability when it comes to crude oil prices, production, and export volumes. Therefore, OPEC is likely to retain its position as a price regulator in the short term. The cartel's position looks quite stable in the context of the current energy crisis, and the expected growth in demand for black gold in the coming years.

It is worth noting, however, that in the long term, there are factors that could reduce the impact of the organisation's decisions on the global economy. These could include an increase in the supply of cheap shale oil by non-alliance countries and an increase in the use of renewable energy sources.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team