EUR/USD Forecast for 2023-2026 and Beyond

2023.02.06 2023.02.06
EUR/USD Forecast for 2023-2026 and Beyondlogo

EUR/USD is one of the major currency pairs. It means that it’s one of the most traded pairs in Forex. However, traders around the globe try to predict its future price for more than opening successful trades. The direction of EUR/USD may reflect the strength of either the EU or US economy. Moreover, the EUR to US dollar rate may reflect the overall global market sentiment.  

As the pair is widely traded, it may be hard to forecast its rate for the long term. The Euro/US dollar rate is subject to such factors as interest rate differences, inflation, jobs data, trade, and capital flows. Simultaneously, a large part of the pricing is also related to ‘event’ risks that cannot be gauged in advance. Let’s go more in-depth in this Euro to Dollar forecast.

The article covers the following subjects:

EUR/USD Current Rate

The current rate of the EUR/USD pair is $1.07817. Below, you can see an interactive chart from Forex in real-time:

 

Characteristic Features of the EUR/USD Pair

The EUR/USD pair belongs to the major currency pairs (majors) and is characterized by increased liquidity. This is not surprising, as it includes two of the world’s major reserve currencies: USD and EUR. It is in the euro/dollar that the largest volume of transactions is made during daily trading on the Forex market (approximately 20% of the total volume).

The behavior of the EUR/USD pair is a kind of indicator showing the comparative state of the US and EU economies. If the US economy is growing steadily, and problems arise in the EU, this might cause a EUR to US dollar fall. Conversely, if there is a decline in growth rates in the US and the Eurozone demonstrates good performance, the EUR/USD pair will grow. Let’s consider the main trading characteristics of this pair:

Active trading hours – the pair is traded around the clock except for weekends. It is most active during the European and American trading sessions. At this time, the largest trading volumes take place, and the main movements of the EUR/USD pair take place.

Volatility – the EUR/USD pair is characterized by medium volatility. During the release of important data, the pair is capable of making strong movements from 100 points and above. But in general, if you look at the historical data, the average daily volatility of the EUR/USD pair is about 80 pips.

Spread is one of the main advantages of this pair. Due to the highest liquidity, the spread for the EUR/USD pair is minimal. On popular ECN accounts, the spread is usually less than 1 pip.

The Dollar in 2023: More Predictable?

Perhaps the direction of the dollar will become a little easier to predict under President Biden. First of all, financial markets are counting on the new US president to run less internationally and deal more diplomatically with trade disputes. This provides more peace and security in the financial markets, reducing the need for a haven such as the dollar.

Also, Biden is expected to spend (a lot) of money to continue to stimulate the US economy, including post-corona, which will further increase the US’s debt position. The fact that interest rates will remain low for a longer period also plays a role: at the most recent meeting of the Federal Reserve, Chairman Jerome Powell hinted that he would not have an interest rate hike until mid-2023.

All of this leads to an estimate that capital flows towards emerging markets and currencies will continue to flow at the US dollar expense. Countries such as Indonesia and Mexico have aggressively lowered their interest rates, but interest rates in these countries are still considerably higher than in the United States.

Besides, countries such as China, South Korea, and Taiwan have had the coronavirus outbreak reasonably under control for some time now. In combination with optimism about the arrival of COVID vaccines, this means that investors are, in any case, moving to more risky markets.

EURUSD Technical Analysis

To make up a realistic forecast for the EURUSD, it is necessary to conduct a deep technical analysis on different timeframes. Let’s start by studying the EURUSD monthly chart.

Until the summer of 2020, the euro price was moving within a multi-year downtrend. In July 2020, the blue trend line was broken upside at the level of $1.16. It is impossible to say with certainty about the reversal of the price movement or the imminent downtrend continuation due to the lack of appropriate signals.

In the near future, the market is likely to remain in a sideways trend. If significant fundamental factors do not affect the Euro exchange rate, then expect the trading in the range of 1.06-1.25 US dollars for the next year. The upper and lower borders of the trading channel are determined by local lows and highs that were formed at the peaks of trading activity in February 2018 and March 2020. These extremes are marked with blue marks on the chart.

EURUSD price prediction for next three months

Let’s continue a technical analysis on the weekly chart and use the MACD indicator to get additional signals.

As the chart shows, the indicator has been in a hidden bullish divergence towards price in recent months. MACD moving averages are below the price level. Therefore, we can conclude that the forecasted value shortly will not decline for long, if at all. The lower border of the channel at 1.06 USD serves as a support level.

Starting in April, expect a slow reversal of the price up. It will continue to move in this direction over the next three months. So far, there are no fundamental reasons for a serious strengthening of the Euro against the US Dollar. Most likely, growth will be limited by the upper border of the trading channel at 1.15 USD, which was formed in 2015 and 2016. The beginning of the upward movement will be confirmed by the crossing of the signal line by the MACD line from the bottom up.

What will be the price of euro in 2022?

To make a long-term forecast, let’s use Bollinger Bands on the chart to make up a price history analysis.

After analyzing the overall market’s potential and the dynamics of changes in Bollinger Bands depending on the market situation, we can conclude that over the next 12 months the EURUSD rate will be in the range of 1.06 – 1.15 USD. Growth towards the upper border of the channel is likely to be very volatile. Bullish impulses will be replaced by short-term corrections, after which the upward movement will continue.

Expect at least one strong correction in the summer and late fall of 2022. The potential target of the local bullish trend is the level of 1.15 USD, which serves as the upper border of the multi-year trading channel.

Monthly EURUSD price forecast for 2022/2023

Based on the forecast above, I made up the expected EURUSD trading ranges for each month of 2022/2023. The table below shows the projected market lows and highs for the designated period.

Month

EURUSD price

Minimum $

Maximum $

March 2022

1,07

1,12

April 2022

1,06

1,09

May 2022

1,07

1,11

June 2022

1,09

1,14

July 2022

1,12

1,15

August 2022

1,11

1,14

September 2022

1,09

1,13

October 2022

1,08

1,10

November 2022

1,05

1,095

December 2022

1,06

1,09

January 2023

1,07

1,095

February 2023

1,085

1,10

Long-term EURUSD trading plan

Given the EURUSD potential, expected highs, lows, and targets, it is possible to draw up a trading plan that will help you get profit with minimal risk.

Enter trades after the expected growth is visible on the price chart and confirmed by a distinct signal. This can be the intersection of the MACD lines on a weekly timeframe or the appearance of a reversal candlestick pattern. The approximate entry level is around 1.07 USD (marked with a blue line on the chart). 

Stop-loss should be placed below the border of the trading channel, that is the level of 1.06 USD (marked with a red line). Place take profit at the level of the upper border of the channel, around 1.15 USD (marked with a green line). This is an important psychological mark, which the future price is unlikely to overcome on the first try.

Follow personal risk management rules, take care of yourself and your money!

EURUSD technical analysis is presented by Mikhail Hypov.

Euro/dollar weekly price forecast as of 06.02.2023

EURUSD was corrected down last week and reached support (A) 1.0821 – 1.0800. The support zone has not been broken out, so one could enter new purchases with a target at the high of last week. 

If support (A) is broken down, the price will reach support (B) 1.0715 – 1.0683. After support (B) is tested, I suggest taking a pause and watching the buyers’ reaction. If there is upward momentum, one could enter long trades with a target at the high of last week. 

If the price breaks out level 1.0683 and consolidates below, the trend will turn down and it will be relevant to sell the instrument.

EURUSD trading ideas for the week:

Buy according to the pattern at support (А) 1.0821 – 1.0800. TakeProfit: 1.1026. StopLoss: according to the pattern rules.Buy according to the pattern at support (В) 1.0715 – 1.0683. TakeProfit: 1.1026. StopLoss: according to the pattern rules.

Technical analysis based on margin zones methodology is presented by an independent analyst, Alex Rodionov.

Read on to find out the EUR/USD forecast for the upcoming years!

Analytical Agencies’ EUR/USD Forecast for the Rest of 2022

EUR/USD has lost a lot from the beginning of the year to the beginning of March. Will the pair have a chance to recover?

Trading Economics

According to global macro models and the expectations of analysts’ from Trading Economics, the pair may trade at 1.09 by the end of March. By July, the Euro/US dollar rate may fall to 1.08. By the end of the year, the price may decline to 1.07. The downtrend seems insignificant. However, if you compare the future rate to the previous one, you will see that the pair has been weakening. 

Long Forecast

Below is a EUR/USD prediction chart for 2022. The Economy Forecast Agency is more pessimistic than Trading Economics. The price will fall below $1 by the end of the year. The price record of $1.12 will be recorded in March, while the lowest price will be hit in November. It’s worth knowing that the pair will mostly trade at lows last seen in 2002. 

Month

Open

Low-High

Close

2022

Mar

 

1.034-1.122

1.050

Apr

1.050

1.004-1.050

1.019

May

1.019

1.003-1.033

1.018

Jun

1.018

0.990-1.020

1.005

Jul

1.005

0.995-1.025

1.010

Aug

1.010

0.974-1.010

0.989

Sep

0.989

0.972-1.002

0.987

Oct

0.987

0.953-0.987

0.968

Nov

0.968

0.949-0.977

0.963

Dec

0.963

0.950-0.978

0.964

PandaForecast.com

PandaForecast.com is quite optimistic about the pair’s future. By the end of the year, the price will be able to reach the highs recorded in January and February 2022.

Month 

Average target 

Pessimistic forecast 

Optimistic forecast

Volatility, % 

Apr

1.0692

1.0369

1.0922

5.06 

May

1.0998

1.0647

1.1367

6.34 

Jun

1.0942

1.0740

1.1131

3.51 

Jul

1.1168

1.0797

1.1351

4.88 

Aug

1.1261

1.1167

1.1517

3.04 

Sep

1.1129

1.1031

1.1405

3.28 

Oct

1.1335

1.1149

1.1511

3.14 

Nov

1.1506

1.1371

1.1748

3.21 

Dec

1.1516

1.1216

1.1758

4.61 

EUR/USD Forecast for 2023

2023 projections vary. One source expects the pair to trade at the lows of 2002, while another one sees the pair at the highs of 2014. Have a look. 

Long Forecast

In 2023, the overall market trend is expected to be bullish. Still, the pair won’t be able to reach the highs of previous years. The pair will be still at the lows of 2002. 

Month

Open

Low-High

Close

2023

Jan

0.964

0.921-0.964

0.935

Feb

0.935

0.935-0.965

0.951

Mar

0.951

0.951-0.990

0.975

Apr

0.975

0.933-0.975

0.947

May

0.947

0.928-0.956

0.942

Jun

0.942

0.921-0.949

0.935

Jul

0.935

0.935-0.972

0.958

Aug

0.958

0.958-0.997

0.982

Sep

0.982

0.960-0.990

0.975

Oct

0.975

0.943-0.975

0.957

Nov

0.957

0.954-0.984

0.969

Dec

0.969

0.969-1.013

0.998

PandaForecast.com

PandaForecast.com predicts a solid uptrend that will lead the EUR/USD price to the highs of 2014. The volatility degree won’t exceed average levels.  

Month 

Average target 

Pessimistic forecast 

Optimistic forecast

Volatility, % 

Jan

1.1066

1.0931

1.1335

3.57 %

Feb

1.1080

1.0889

1.1266

3.35 %

Mar

1.1261

1.0902

1.1507

5.26 %

Apr

1.1167

1.0796

1.1270

4.20 %

May

1.1101

1.0817

1.1250

3.85 %

Jun

1.1567

1.1295

1.1844

4.64 %

Jul

1.1805

1.1632

1.2162

4.36 %

Aug

1.2217

1.2099

1.2335

1.91 %

Sep

1.2581

1.2254

1.2750

3.90 %

Oct

1.2872

1.2585

1.3012

3.28 %

Nov

1.2753

1.2405

1.3037

4.85 %

Dec

1.2796

1.2468

1.3167

5.31 %

EUR/USD Forecast for 2024

In 2024, the EUR/USD pair won’t hit new maximums. Still, it may trade at good levels. 

Long Forecast

In 2024, EUR/USD may finally break above $1. Nevertheless, the source doesn’t give chances to the pair again. By the end of the year, the euro will trade below $1 against the US dollar. The maximum rate will be set in September when the pair is expected to touch $1.04.  

Month

Open

Low-High

Close

2024

Jan

0.998

0.994-1.024

1.009

Feb

1.009

1.008-1.038

1.023

Mar

1.023

1.000-1.030

1.015

Apr

1.015

1.001-1.031

1.016

May

1.016

0.995-1.025

1.010

Jun

1.010

0.984-1.014

0.999

Jul

0.999

0.999-1.032

1.017

Aug

1.017

0.990-1.020

1.005

Sep

1.005

1.005-1.040

1.025

Oct

1.025

1.005-1.035

1.020

Nov

1.020

0.997-1.027

1.012

Dec

1.012

0.971-1.012

0.986

PandaForecast.com

PandaForecast.com expects the pair to rise until September. After that, trades may see a downtrend. Still, the prediction is optimistic. The average price in December 2024 is anticipated to be $1.2896.

Month 

Average target 

Pessimistic forecast 

Optimistic forecast

Volatility, % 

Jan

1.2962

1.2761

1.3164

3.06 %

Feb

1.2739

1.2456

1.3071

4.71 %

Mar

1.3130

1.2705

1.3422

5.34 %

Apr

1.3201

1.2769

1.3456

5.11 %

May

1.3113

1.2964

1.3476

3.80 %

Jun

1.3630

1.3310

1.3854

3.93 %

Jul

1.3590

1.3219

1.3950

5.24 %

Aug

1.3642

1.3493

1.3991

3.56 %

Sep

1.3401

1.3131

1.3531

2.95 %

Oct

1.2934

1.2586

1.3244

4.96 %

Nov

1.2890

1.2495

1.3058

4.31 %

Dec

1.2896

1.2479

1.3102

4.75 %

Long-Term Euro to USD Forecast 2025-2026

Any long-term forecast is not reliable. Market conditions change daily. Thus, a long-term prediction for the EUR/USD pair should be taken with a grain of salt. You won’t find a EUR/USD projection for  2025-2030. However, we found some data for 2025 and the beginning of 2026. 

Long Forecast

The Economy Forecast Agency is still negative about the bright future of the EUR/USD pair. The rate will barely close above $1 in 2025. In 2026, the pair won’t rise above $1 at all. 

Month

Open

Low-High

Close

2025

Jan

0.986

0.986-1.018

1.003

Feb

1.003

0.984-1.014

0.999

Mar

0.999

0.984-1.014

0.999

Apr

0.999

0.971-1.001

0.986

May

0.986

0.964-0.994

0.979

Jun

0.979

0.975-1.005

0.990

Jul

0.990

0.975-1.005

0.990

Aug

0.990

0.951-0.990

0.965

Sep

0.965

0.952-0.980

0.966

Oct

0.966

0.945-0.973

0.959

Nov

0.959

0.945-0.973

0.959

Dec

0.959

0.945-0.973

0.959

2026

Jan

0.959

0.916-0.959

0.930

Feb

0.930

0.897-0.930

0.911

Mar

0.911

0.907-0.935

0.921

Apr

0.921

0.891-0.921

0.905

PandaForecast.com

The source sees a continuation of the bullish trend in 2025. Although the uptrend will be replaced with a downtrend, the pair may hit the highs of 2011.  

Month 

Average target 

Pessimistic forecast 

Optimistic forecast

Volatility, % 

2025

Jan

1.2652

1.2323

1.2939

4.76 %

Feb

1.3045

1.2634

1.3412

5.80 %

Mar

1.2963

1.2636

1.3137

3.81 %

Apr

1.2930

1.2632

1.3186

4.20 %

May

1.3376

1.3039

1.3595

4.09 %

Jun

1.3702

1.3299

1.3920

4.46 %

Jul

1.3794

1.3435

1.4222

5.54 %

Aug

1.3249

1.3021

1.3566

4.02 %

Sep

1.3466

1.3099

1.3862

5.51 %

Oct

1.3534

1.3193

1.3705

3.73 %

Nov

1.3466

1.3126

1.3867

5.34 %

Dec

1.3455

1.3291

1.3669

2.77 %

Which Factors Affect the Quotes of the EUR/USD Currency Pair?

The EUR/USD rate is the ratio of the currencies of the two largest economies in the world – the EU and the USA. Therefore, important economic and political news from the EU and the US directly affects the euro-dollar rate. These factors of influence are called fundamental; in addition to them, there are also technical ones. Let’s consider both those and others in more detail:

Fundamental Factors

There are several important economic indicators for the US and EU. The most significant factors affecting the course of the pair include the following:

Change in interest rates of the ECB and the Fed

Unemployment Rate

Data on jobs created in the US (Nonfarm Payrolls)

Growth rate of GDP

Inflation indices (CPI, PPI)

Industrial production (Industrial Production index)

Retail Sales

Trade balance

Consumer Confidence Index

Indices of business sentiment (ISM, IFO)

Speeches by top officials – press conferences of the heads of the ECB and the Fed, speeches, and comments by leading politicians from the EU and the United States.

Political events – various reshuffles in the government, elections, popular unrest, internal political instability (e.g., Brexit)

Force majeure – extraordinary events, natural disasters, man-made disasters, terrorist attacks, epidemics

Technical Factors

Active trend – an essential technical factor for trading is the presence of an active trend. In an uptrend, purchases are preferable; in a downtrend, sales are recommended, in a sideways trend (range), trading in both directions from the boundaries of the price range is appropriate.Important support and resistance levels are historical highs and lows on the price chart. These are important price reference points for analyzing and predicting the future movement of the pair.Price patterns – various patterns of continuation or reversal of a trend from classical technical analysis, candlestick patterns, and Price Action patterns.

History of the EUR/USD Pair

The Euro (EUR) is a fairly young currency that was born in 1999. The single European currency has replaced a whole galaxy of the EU countries’ national currencies: The Deutsche mark, the French franc, the Italian lira, and others. Therefore, one of the euro’s features is its susceptibility to macroeconomic statistics of the entire Eurozone and individual EU countries’ indicators.

The European currency was officially introduced into non-cash circulation on January 1, 1999, and on January 1, 2002, banknotes and coins were introduced into cash circulation. In terms of the volume of use in international payments, the euro is second only to the US dollar. It is also the second most popular (after USD) reserve world currency. At the time of the official start of trading, the EUR/USD rate was in the 1.1800 area.

Since the beginning of trading in 1999, the EUR/USD pair has undergone significant changes. In the first two years, the euro’s prospects were still vague, and the quotation was declining, reaching a minimum of around 0.8200. The pair then rallied for seven years, reaching an all-time high of 1.6039 in 2008. In subsequent years, due to the banking crisis’s influence and various problems in the Eurozone, the pair corrected significantly.

The pair was in a dramatic bearish trend until April 2015. After that, the pair started recovering. The Covid-19 breakout pushed the price up. 

In terms of market sentiment, 2020 was a very illustrative year. During the first coronavirus wave in March, the market was unpleasantly surprised by the severity, magnitude, and impact of the coronavirus pandemic, causing investors to flee to the dollar as a safe haven.

Initially, the coronavirus was thought to be “a Chinese problem only.” Still, as the virus began to spread faster worldwide – locking up economies around the world – the dollar exchange rate was recalibrated in no time. 

A similar revision took place three months ago but in the opposite direction. When pharmaceutical company Pfizer released positive vaccine news in early November, the dollar fell in value due to the disappearance of the need for a safe haven. 

In both cases, the market reaction was apparent, but that is not always the case. Take the announced financial support packages from the European Central Bank (ECB) this year. Whereas in the past, the availability of more euros often caused downward pressure on the euro, such packages resulted in an upward price movement this year.

Coronavirus support was “suddenly” perceived as positive by the market. According to investors, the ECB showed it was doing everything it could to prevent companies from collapsing and safeguard employees’ jobs.

Precisely because of the occurrence of unforeseen market conditions and the sometimes-surprising market reaction to them, our starting point is that you should always take price estimates with a grain.

For example, at the end of 2018, many market parties anticipated a weaker dollar, but in 2019 the dollar picked up with the US-Chinese trade war as a catalyst. That created a lot of uncertainty, causing capital to flow to safe havens like the dollar. Such events are difficult to envision, and this was especially true in recent years with a fickle character like Donald Trump at the helm in the United States.

The pair was quite strong until April 2021. However, a new downtrend took place after. If you check the historical price actions, you will notice that the pair simply follows traditional trends.  

To check how has the rate of EUR/USD changed over time, please follow this link to the extended historical price chart. 

Is EUR/USD Still a Good Investment?

Due to its enormous liquidity, projection, availability, and low spread, the EUR/USD currency pair enjoys well-deserved popularity among traders. As of March 2022, the pair follows its traditional downtrend. Thus, some sources predict the pair’s fall in 2022. Below is a EUR/USD prediction chart for 2022: 

Month

Open

Low-High

Close

Mar

 

1.034-1.122

1.050

Apr

1.050

1.004-1.050

1.019

May

1.019

1.003-1.033

1.018

Jun

1.018

0.990-1.020

1.005

Jul

1.005

0.995-1.025

1.010

Aug

1.010

0.974-1.010

0.989

Sep

0.989

0.972-1.002

0.987

Oct

0.987

0.953-0.987

0.968

Nov

0.968

0.949-0.977

0.963

Dec

0.963

0.950-0.978

0.964

Source: Longforecast.com 

But what does the EUR/USD forecast predict for the distant future? It’s important to remember that any long-term forecasts, even the EUR/USD forecast, or any other currency pair, are too unreliable to believe in. Too many factors may affect the rate of the currency pair, and it’s best to be up-to-date with what’s happening in the global arena in order to make realistic and reliable predictions.

If you do decide that trading this currency pair is something for you, and you believe in the future of the Euro vs. US Dollar pair, first, you need to decide on a suitable trading method for you and work it out first on a demo account, and then on a real account. A great reason to create a free demo account on LiteFinance! LiteFinance has fact-checked information and a user-friendly platform with an outlook for novices as well as experienced traders and investors.

By the time of transactions, you can trade as follows:

Intraday – trading without carrying over the position to the next day. It is characterized by narrow stop-loss and take-profit orders, requiring a trader to spend a lot of time in front of a monitor and strict discipline, and is available even with a small deposit.

Medium-term – the duration of transactions from several hours to two-three days. The medium-term trading implies wider stop-loss and take-profit orders, takes less time, and requires a more substantial trading account size.

Long-term – trades are held for several weeks or even for months. This trading style is more suitable for investors. 

 

Disclaimer: The information in this statement is not intended as individual investment advice and should therefore be seen as an investment recommendation. This recommendation has been drawn up by LiteFinance and/or third parties and does not match your personal financial situation, your knowledge and experience, your investment objective and/or horizon, and your risk profile and/or tolerance. You are therefore responsible for correctly assessing whether this investment is suitable for you in relation to your financial situation and your investment objectives.

Price chart of EURUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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XAUUSD: Elliott wave analysis and forecast for 03.02.2023 – 10.02.2023

2023.02.03 2023.02.03
XAUUSD: Elliott wave analysis and forecast for 03.02.2023 – 10.02.2023logo

Main scenario: consider long positions above the level of 1865.40 with a target of 2000.00 – 2050.00 after correction.

Alternative scenario: breakout and consolidation below the level of 1865.40 will allow the pair to continue declining to the levels of 1818.01 – 1772.93.

Analysis: a descending correction appears to have formed as the fourth wave (4) of larger degree on the daily chart, with wave С of (4) completed inside. H4 chart: apparently, the fifth wave (5) started forming, with the first wave of smaller degree 1 of (5) forming inside. Supposedly, wave iii of 1 finished forming on the H1 chart, and a local correction started unfolding as wave iv of 1. If the presumption is correct, the pair will continue to rise to the levels of 2000.00 – 2050.00 once the correction is over. The level of 1865.40 is critical in this scenario as a breakout will enable the pair to continue declining to the levels of 1818.01 – 1772.93.

Price chart of XAUUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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Pound is deadlocked. Forecast as of 02.02.2023

2023.02.02 2023.02.02
Pound is deadlocked. Forecast as of 02.02.2023logo

No one can confidently say how the BoE will act in February. Inflation is above 10%, which is pushing the central bank to raise interest rates aggressively, but the economy is weak. Let us discuss the Forex outlook and make up a GBPUSD trading plan.

Fundamental pound forecast today

A weak economy, high inflation, and a dispute among the BoE members. It seems that the UK is watching the same first act of the play while the US has already moved on to the second. It doesn’t matter that the BoE started the monetary tightening cycle earlier than the Fed did. It started selling bonds purchased under QE also earlier. Some economists even suggest that the BoE should be the first to pause monetary restrictions after raising the bank rate by half a point in February. However, hardly anyone can say for sure what exactly the regulator will do. And this uncertainty is driving the GBPUSD into consolidation.

Even a major improvement in global risk appetite and a weakening US dollar since the first FOMC meeting in 2023 failed to strengthen the pound. In the UK, unlike the USA, nothing changes. The IMF still considers the UK economy the weakest in the G7, lowers its GDP growth forecast for the current year by 0.9%, and predicts a recession of -0.6%. Given that estimates of global economic growth were raised to 2.9%, one can say that the UK economy and the sterling are under pressure.

Projections for G7 economies

Source: Bloomberg.

Consumers face high energy prices, borrowers face high interest rates on loans, and taxpayers face high taxes – these are named as the main reasons for the downturn. Furthermore, government spending is cut, and the labour market doesn’t suggest much optimism. So, the future of the UK economy doesn’t look so bright.

Nevertheless, pessimistic forecasts are unlikely to stop the Bank of England from the 10th act of monetary restriction in a row and the growth of the interest rate to 4%, the highest level since 2008. Inflation in the UK seems to have passed its peak but is still at an unacceptably high level of 10.5%. It seems that previous steps along the road of tightening monetary policy are not producing results.

Dynamics of leading central banks’ interest rates

Source: Bloomberg.

The stagflationary environment makes BoE more divided than ever. At the December meeting, the majority of MPC members voted in favor of raising borrowing costs by half a point, but one official suggested a wider move, and two others did not want any change. What will happen in February? Will the balance of power change? The derivatives market is not sure about raising the BoE rate by half a point, although it considers this option the most probable. Derivatives lowered expectations for a rate ceiling to 4.5% from 4.75% in November.

GBPUSD trading plan today 

Thus, unlike the Fed, which will soon pause the process of monetary restriction, or the ECB, whose determination in the fight against inflation is not in doubt, the Bank of England is uncertain. It could easily surprise investors with a smaller increase in the bank rate, which will send down the GBPUSD towards 1.225 and 1.22. If the UK regulator meets the market expectations, then medium-term buy targets will remain at 1.268 and 1.28.

Price chart of GBPUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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Average True Range – the ATR Indicator: improve your trading with volatility measure

2023.01.31 2023.01.31
Average True Range – the ATR Indicator: improve your trading with volatility measurelogo

The ATR (Average True Range) indicator is a useful tool that measures volatility levels. 

The ATR indicator meaning tells us how much the price has changed in a current period compared with previous periods. It is used in trend strategies to assess a trend reversal probability and determine the moment when the market starts a new trend. It also serves to place Stop Loss and Take Profit orders and is used for estimating the range’s width when trading results based on channel strategies. 

The technical indicator is included by default in many trading platforms and applied as an auxiliary indicator combined with Price Action and oscillators.

The article covers the following subjects:

What is ATR: average true range full definition

Technical analysis indicators can be divided into three groups:

The ATR Forex market indicator is often considered to be an oscillator as it helps us define new trend reversal points. If the indicator covers over 75% of its average distance in a fixed time period, there can be a reversal. Unlike oscillators, it hasn’t got the “0” and “100” limits that define overbought and oversold territories. Thus, the ATR indicator is a specific technical indicator that combines the three groups’ features.

The Average True Range was first introduced by J. Welles Wilder in 1978. 

J. Welles Wilder also developed such popular tools as Parabolic SAR and RSI. The technical indicator was first meant for futures markets, which are much more volatile than stock markets. Then it grew so popular that it was included in trading platforms (including trading Forex, trading CFDs, and working with other complex instruments) as a basic one. 

J. Welles Wilder created the ATR indicator for one purpose: determining market high and low volatility.

Average true range trading is rarely applied to manual strategies, but it is often used for forming trading advisors’ automatic risk management trading systems. This technical indicator doesn’t measure a trend’s strength and cannot forecast price movements. It only estimates market high and low volatility. 

That said, the average true range is the indispensable tool for setting profit target levels, stop placement orders, and determining the width of price channels in channel and range strategies (strategies used for trading retracements and breakouts).

The ATR indicator is NOT used for:

determining a price market direction;

searching for a divergence;

it can sometimes indicate reversal points;

it is used for measuring price ranges and the nature of their trend changes.

 

The indicator’s main signal is the following: when the indicator grows, an asset’s volatility grows. The classic error is to link the indicator’s growth to price growth. The ATR indicator doesn’t show the price’s direction either. When it grows, the price line may rise or fall. It’s the price volatility range that increases.

What is Average True Range?

ATR measures volatility over a certain period. It compares:

 Then it takes the greatest of those values and averages them out based on the arithmetic mean.

The indicator’s relatively low values can be read as follows:

The market is flat. The price moves in the same range, and the average difference between highs and lows doesn’t change. However, we cannot estimate the range’s width where the price fluctuates using the ATR indicator.

The market trend is slow. The price grows or falls, but the difference between neighboring candles isn’t significant.

The indicator’s leading signal is a sharp increase in its readings that indicates a rising difference in candlestick extremums. The candles’ bodies and shadows are growing, and the price’s angle of ascent relative to the horizontal axis becomes bigger. At the same time, the price range may remain the same. Volatility growth means that the price covers the same distance faster.

Example of using the average true range indicator:

There’s a small downtrend in the market; the ATR (Average True Range) value is small. 

Then, there’s a sharp high volatility splash: the price range is growing sharply over a short time period. The Average True Range is rising steeply. Next, a slow uptrend begins. Although the distance between the trend’s start and top is many times bigger than the volatile segment’s range, the ATR (Average True Range) is reducing because the trend has been developing over a certain time period.

ATR indicator formula

There are three formulas how to calculate ATR true range:

The difference between a current candle’s extremums (high and low). The current candle’s high less low.

Absolute value of the current Max (High) less the previous value of the close. |High — (Close-1)|.

Absolute value of the current period Min (Low) less the previous value of the close. |Low — (Close-1)|.

 

Then we take the greatest value of those and calculate the ATR indicator’s readings. Here’s the formula:

ATR = Moving Average (TR, m) 

where TR is the greatest value out of the three differences and m is an averaging period. Moving average is the arithmetic mean of a given set of values.

Average True Range calculation

Now let’s find out how to calculate the ATR true range value to better understand its work principle. I remind you that the Average True Range is the greatest value of the following: current period high minus current low; absolute value of current high minus previous close; absolute value of current low minus previous close. The indicator compares those three values for two neighboring candles. The period is the number of candles considered. 

For example, if the period’s value is 1, the ATR indicator will compute the difference of prices for the latest candle. It will compare its High/Low, and the difference between the candle’s High/Low and the previous close of the candle. So, with period “1”, two candles are considered. For example:

The difference between high and low: 1.2121 – 1.2117 = 0.0004, or four points for 4-digit quotes. That is the greatest value of the three possible remainders. 

The print screen shows that the value is identical to ATR true range calculation. “0.0004” means that the average true range is four points for one candle period. 

If we take period 2, the three latest candles will be considered. The two values for the ultimate and the penultimate candles are averaged: they are summed and divided by two, according to the arithmetic mean.

The longer the period, the more candles are considered, and the smoother the ATR line gets. However, remember that ATR reacts slower to price moves when the period gets longer.

How can volatility indicator help while trading?

This useful indicator identifies the moment when the price range starts enlarging sharply. This feature can be used for the following purposes:

To form short-term strategies. A sharp volatility surge is a perfect moment for scalping. You can check my article Forex scalping to learn more about this type of Forex market strategy.

To decide in your trading strategy in which direction a trade should be opened. If the Average True Range covered half its mean range, it’s probably too late to open a trade in the market direction of the trend, and you’d better wait for a reversal.

To determine price targets. Take Profit is placed at the volatility range limit or within the range. If the Average True Range is 60 points, Take Profit can be set at 45-50 points relative to the opening price.

To determine Stop Loss levels. Stop Loss is placed outside the price high and low volatility range and linked to the ATR correction multiplier. ATR correction multipliers are calculated separately for each specific asset.

 

What Does ATR Indicator Tell You?

The ATR indicator has got just one signal: it rises or falls. The higher the ATR line is, the more volatile the market is, and the faster the trend line moves from one range limit to the other.

In segment 1, the indicator is moving horizontally. It means the market is flat: the amplitude of price fluctuations and candlesticks’ size are small.

In segment 2, the ATR value is surging, and the indicator starts growing. It means volatility is increasing, and we should look for an entry point. As the ATR doesn’t indicate a price direction, we shall determine it ourselves. For example, draw support and resistance levels through the flat range’s extremums and open a trade in a breakout direction.

In segment 3, there remains high volatility, but the trend is changing direction. A trader’s task is to catch the price line reversal on time and reverse the trade when volatility is still high.

In segment 4, the indicator is returning to its lowest values in a flat range. It means volatility is declining; the pace of price changes is slowing down; the amplitude where the price fluctuates is decreasing; the candles’ bodies are becoming shorter than the candles in segments 2 and 3. That can indicate a flat market or a trend slowdown. In our case, we have a slow downtrend. It’s a signal for swing-traders and scalpers to exit the market.

 

Here’s how we can use the ATR’s signal about a rise in volatility:

 A new trend’s start is a signal to open a short-term trade to catch the fastest price movement in either direction over a short period. It’s one of the options for scalpers.

A sharp increase in the price movement amplitude is a signal to exit the market or increase stop placement orders’ value. Suppose we have a medium- or long-term trade, and the stop order value was calculated based on the maximum possible drawdown, according to our own risk management rules. We see that the volatility is growing sharply. We have two options: to close the trade earlier before the price reaches the stop level or top up our retail investor accounts, increase the stop value, and wait for a temporary drawdown to end. Without a robust trading strategy, there is a high risk of losing money rapidly.

This volatility indicator doesn’t point to overbought/oversold areas, so its readings are estimated compared to the readings over prior ATR periods by zooming out the chart. Volatility levels don’t depend on a price direction. The ATR line can be rising, while the price can be moving up or down.

Day trading ATR

Large time frames are usually used for preliminary analysis. The main time frame can be H1, and the time frame analyzed can be D1.

Example: let’s use ATR and see how it measures volatility for the USDCAD on the daily time frame.

With period 14, the value is 0.0077. It means that the price’s average true range is 77 points over the last 14 trading days. Switch to the H1 time frame and check how far the price moved since 00:00 up to this moment:

The daily range’s open price at 00:00 is 1.26799 (rounded to 1.2680); the current period price is 1.2661. There’s a powerful downtrend that other indicators can confirm too. The price fluctuates down by almost 20 points, with average volatility being 77 points. Theoretically, if the price line has not covered 50% of the average true range, we can open a trade in the trend direction. The market entry point for a short position is the current candle.

If the price has covered over 50% of the ATR, wait for a while. Think about opening a trade in the opposite direction of the trend if the price covers 70%-80% of the daily ATR. This method isn’t flawless, but it can be one of the options when determining market entry points and the price direction.

The ATR Indicator in MT4

The Average True Range indicator is one of the basic ones in MetaTrader 4 and MetaTrader 5. You can find it in the “Indicators/Oscillators” menu.

ATR true range settings for MT4

In the ATR settings Period is the main parameter. Using the same window, you can set Maximum and Minimum levels. That’s convenient for visually comparing previous periods’ volatility with a current period’s one. Memorizing values isn’t convenient: it’s easier to set the levels and check deviations from a current value by scrolling the chart. The chart will display only the time limits specified in the ATR settings.

You can fix the value of the level in the “Levels” tab, and it will be displayed as a horizontal line in the chart. For example, as the red line in the print screen below. 

One of the drawbacks of displaying the indicator in МТ4 is that only the current value is shown next to its name (the blue rectangle), and it won’t have significant change when you’re scrolling. You can put the cursor on a point and wait for a pop-up window or activate the “Data Window” (Ctrl+D). Both options aren’t convenient to me.

The Visualization tab shows how the indicator will be displayed on a selected time frame. For example, you’re analyzing the chart on several time frames, and you need ATR on the daily time frame. You tick D1, and the indicator will disappear when you switch to other time frames.

There are various modifications of the indicator on the Internet. You can download ATR Ratio on the MQL5 site (Short-term ATR / Long-term ATR ratio).

The template can be added to the platform. Please let me know if you want to learn more about those modifications and work strategies based on them.

ATR settings on LiteFinance’s online platform

How you can find how to manage the ATR settings on LiteFinance’s platform:

Go to “For Beginners/Open a demo account” in the homepage’s upper menu. You will be automatically redirected to a free demo account on LiteFinance’s online platform. Registration isn’t necessary.

Click “Trade” in the left menu. Choose your trading financial instruments. Let’s say the EURUSD pair in the “Currencies” tab.

On the price chart that appears, click on “Indicators” and select “Average True Range.”

ATR settings on LiteFinance’s online platform

There are a few ATR settings:

1. Depth (period)

The default value is 14, which means the indicator uses the last 14 candlesticks. For short periods up to M15, it is recommended to increase that period. For time frames longer than H4 – decrease that period. For example, many traders prefer period 7 for the D1 time frame.

An asset’s peculiarities should also be considered: some pairs are more volatile than others. So, it would be wise to shorten the period for low values of assets’ volatility to increase the indicator’s sensitivity to price changes.

2. Smoothing

It’s about the type of MA that the indicators are based on. There are four options. This parameter doesn’t influence the ATR line’s plotting significantly, but the value can vary, and that can be a decisive moment for high-precision strategies.

3. Accuracy

The parameter varies from 0 to 8 and sets the number of digits after the decimal point. 

You can change the line color in the “Style” tab. 

In contrast to MT4, you can see the indicator’s value by placing a mouse pointer to it.

How to use ATR indicator

Average True range is most often used in the following cases:

To determine Stop Loss levels. Volatility levels outline the range of price movements. The limits of that range can be a reference point.

To determine flat periods. If the ATR value is low when compared with average volatility, the market is flat.

To identify the end of a trend. The farther the price line goes beyond the ATR limits, the likelier it is to stop.

Placing Stop Loss orders

Stop orders are usually placed in the area of local extremums with a slight indent. The question is how to correctly identify local extremums and not let price noise trigger stop orders.

To place stop orders using ATR, we need to do the following:

Draw support and resistance levels through the most evident extremums on a short time frame (М5-М15).

Add/subtract 2*ATR to/from the price value of the candle’s ultimate extremum. The value you get is a Stop Loss level. The multiplier “2” should be adjusted to each specific pair. At least 1.5 ATR is recommended. The best ATR Stop Loss multiplier for time frames starting from H1 is “3”.

There’s a different method: place a stop order at the level when opening a trade. Subtract or add a few points from that value for filtering. To place Take Profit, switch to a bigger time frame and check the financial instruments’ level there.

This method works the best on short time frames with price noise — the price line’s chaotic, unpredictable price movements in either direction. Using the indicator allows us to place stop orders at a safe level, providing for price noise.

Example

During a downtrend, draw a resistance level to open a trade after its breakout, confirmed by the pattern. Open a long position on a pullback. Minimum price — 1.19588, ATR — 0.0005 or five points. Multiply 0.0005 by two and subtract the value from the minimum price. You’ll get the Stop Loss level of 1.19488. As the print screen shows, the price line didn’t get to that level. It tested the level of 1.19516 and then reversed upwards.

Flat filter

You earn from a trending currency pair with medium daily volatility of 80 points. I got this number using a volatility calculator. If current period volatility is less than 50% of that range, the market can be considered flat. So, if the value is less than 40 points, we don’t search for entry points using trend strategies as any direction of quotes will hardly last for a long time.

It’s hard to say if it’s reasonable to follow that scheme. First, the value of 50% is conventional and should be readjusted to each particular pair. Second, the market can be trending on smaller time frames. 

The instrument’s drawbacks are lags, which is true of all moving averages. The longer the period, the less sensitive the instrument is to current price changes. For example, if you set the period at 50, the indicator will consider 50 last candlesticks. If the price changes sharply on the two or three last candles, such trend changes will be absorbed by the previous candles’ values. On the other hand, a short time frame can produce a lot of false trading signals. So, all the minuses of moving averages are typical here too.

Example:

The EURUSD’s average volatility over the past performance during the week was 44.25 points.

The ATR current value on 4-digit quotes was 61 points on the daily chart. As the current volatility is higher than average, the market isn’t flat, and the current trend is a bit stronger than the weekly one.

Determining potential trend reversal points

The bigger the indicator wave’s amplitude is relative to its previous values, the likelier the price line is to reverse.

Example

A relatively low ATR value couldn’t say if there was a trend on the daily chart. There was an uptrend, but its pace was so slow that the Average True Range couldn’t identify it.

The indicator’s steep growth indicates that market volatility is rising: the price’s angle of ascent is increasing, and the price is changing faster. The trader only needs to predict the trend’s direction. 

ATR reaching the maximum and reversing means that volatility has started to fall. Note that the trend changed its direction while the indicator line was growing. Let me remind you that the Average True Range doesn’t indicate price directions; it only shows a relative price change speed. The indicator’s return to its current lows means that the price change speed is declining: the market is becoming flat or trending slower.

There’s another way to identify pivot points. The average true range value is compared with the distance that the price has covered from the beginning of a time frame to the present moment. A shorter time frame is used for comparison.

Example. Let’s take as 100% the H1 ATR value, which shows a price movement’s average true range over the past hour. Then switch to the one-minute time frame and find where the current H1 time frame begins. Estimate the price distance covered up to the present moment.

If the price line went farther than 70%, a reversal is highly likely to happen. Think about opening an opposite position.

 If the price line covered less than 30% of the distance, think about opening a trade in the trend direction.

If the distance varies from 30% to 70% of the range, take your time.

Those values are just a reference point. They are specific to each particular asset.

ATR trading strategies

Trading on several time frames using levels and ATR. Most strategies have already been described above. I’ll show you how to use them in practice.

Step 1. Daily time frame analysis

Open the GBPUSD’s daily chart and check the trend.

The chart shows a strong, steady trend that started after a dramatic drawdown. Note a sharp ATR surge during the downtrend: one could profit from short positions there. A smooth uptrend continues; there are several consecutive growing candles with small bodies. The ATR indicates there’s no strong volatility. That means the price is expected to continue rising smoothly. The ATR value is 92 points.

Step 2. Short-term time frame analysis

Then switch to the M15 chart and check how many points the price has covered since the daily opening.

The opening price was 1.38988 at 00:00. By the morning, the price gained almost 55 points and then came back. ATR indicates high volatility. As the daily range is 92 points and the price isn’t far from the start, we can presume that the uptrend will continue.

Step 3. Opening of a trade

Let’s sum up: we decided to open a long position because:

There’s a slow uptrend with low volatility on the daily time frame.

The M15 time frame is showing a resistance level from which the price has just pulled back upwards.

The price has covered nearly 50% of its daily volatility and partly corrected back to the daily range’s start point.

So, I open a trade at 1.39236 (almost 25% of the daily range equal to 92 points). Stop Loss: current ATR*2, which equals 14 points. A multiplier of 3 would probably be better: Stop Loss would be located a bit below the opening price of 1.38988. Take Profit: 75% of daily ATR.

The volume of a position should be determined individually and depends on your goals and deposit.

Close the trade based on Take Profit or when a clear reversal pattern appears. I don’t think it will appear before the daily ATR reaches 50%, though. The profit target is 5 USD.

Step 4. Closing a trade

4.1. Conservative scenario

Everyone has their own profit targets, but I’d recommend that beginner traders shouldn’t wait for Take Profit to trigger and should fix current profit targets at the first reversal.

If you see that the price cannot decide its direction during a high volatility period, like in this market conditions, close the trade. Closing price: 1.39385. Profits in 2.5 hours: around 15 points minus spreads.

4.2. Aggressive scenario

The target is to make the most profits based on the ATR theory. I’m not in a hurry to close a trade, and I hold it. As a result, it closed at Stop Loss at minus 1.51 USD. The market analysis revealed a mistake. The market volatility is still high, but there was a clear trend shift. The arrow in the print screen below marks the opening point.

The daily candlestick is downward. So, I open a counter trade using the same principle: the opening price at 00:00 (1.38988) marks the beginning of the volatility range, but the trend is downward now. The volume can be doubled.

It took me 30 minutes to claw back the loss from the previous trade and earn 0.5 USD. I fixed the profit from the second trade for psychological reasons: to cover the previous loss.

Key points:

The ATR indicator shows current volatility shifts. However, the examples proved that the price could change its direction within a few hours. That can be used in Swing trading strategies.

To calculate Stop Loss for a short time frame, we’d better use multipliers equal to or less than 2. I’m open to further discussions regarding the issue, though.

There are two market exit strategies. The first one suggests exiting at the first trend reversal. The other one implies using Take Profit calculated based on ATR. If a trade hasn’t closed by the end of the day, close it manually. If a trade is closed at Stop Loss, try to open a counter position.

You can use hedging or Trailing Stop.

ATR Trailing Stop Loss

Trailing Stop Loss is a Stop Loss order that follows the price in the direction of a trade and stays at the taken level if the price reverses.

Volatility is measured only by the price range over a fixed time frame. The price can move in any direction. If we open a trade and place a regular Stop Loss order when the price went outside a flat range, we can have the following scenario: the price reaches fast the opposite limit of the volatility range and gets back. Here’s an example in the print screen below.

Average True Range starts growing, and we can open a long position in point 1. If a trader is eyeing the chart all the time, he/she will close the trade based on patterns in point 2. If he/she misses that moment, he/she will lose profits and make losses in point 3. The price will have gone through the entire volatility range and backward within a few hours. 

Using ATR Trailing Stop allows us to fix at least some parts of profit and avoid closing a trade at loss during high volatility. Theoretically, the Trailing stop’s value is ATR*k, where “k” is a volatility multiplier set manually. Most often, it’s “2”, “2.5” or “3”: the higher the time frame, the bigger the multiplier.

The same example: a long position is opened at 1.26776 in point 1 and secured with Trailing Stop set at 2*0.0006, i.e., 12 points, which equals the ATR value registered at the trade’s opening. If the trade is secured with Trailing Stop, it will be automatically closed in point 2. If we deduct spreads, the profit will be around 15-17 points on 4-digit quotes in two hours. Without Trailing Stop, the trade would have been closed at 12-point loss plus spreads.

How to set Trailing Stop on LiteFinance’s platform:

Set the position sizing of a trade and open it in one click.

Open the “Portfolio” menu in the lower part of your platform and click “Edit”.

Set Trailing Stop in the window that opens.

ATR stock trading

The instrument’s application to the stock market is the same. Average True Range estimates trading activity and most traders’ interest in a stock. If the indicator’s value is growing, volatility and trade volumes are growing too. If the value is low, the market is flat. In addition to ATR, you can use the volume indicator or the depth of market (DOM) in MT5 to check powerful support and resistance levels.

The indicator is even more useful when financial reports, press releases, or other stats are published. It helps us to see:

Market reaction – how fast and violently the market reacts to the news.

Market volatility levels concerning specific newsworthy occurrences; what type of news provokes a stronger market reaction.

Volatility degree: how long a high volatility period lasts after statistics are released.

Correlation: which releases are interrelated? For example, will Apple’s financial reports affect other technological companies’ quotes?

Another important aid will be the Economic calendar and financial calendar. Have a try and use ATR on the Tesla (TSLA) chart, for example.

Downsides of ATR

The Average True Range has got some downsides too:

Limited area of application. It doesn’t show asset’s price directions or provide forecasts. It only estimates general volatility levels compared with previous periods.

Lags. Specific average true range formula. Volatility can start growing, but the indicator’s value will still be low. Lagging can last across 1-2 candlesticks.

Though ATR belongs to the oscillators group, it’s best applied in combination with Stochastic, MACD, and other oscillators. Also, short periods will work better: the period of 12-14 is optimum on the H1 time frame.

Key points

Volatility indicators are necessary for professional trading. They aren’t informative enough for beginner traders to appreciate them more than other tools. Nevertheless, it’s worth mentioning as some may need them for developing their trading strategies. 

Would you like to download the ATR indicator free? Don’t hustle. It’s a basic indicator on MT4 and MT5 platforms, and you can get used to it on demo retail investor accounts. If ATR isn’t there for some reason, you can reinstall the platform or copy the setup file from the MQL/Indicators folder from the platform installed on another computer. You can also find ATR on LiteFinance’s platform integrated into the Client Area. You don’t need to install it.

I hope this article has been useful for you. If you’ve got any questions left, ask them in the comments section. Good luck in trading!

P.S. Did you like my article? Share it in social networks: it will be the best “thank you” 🙂

Ask me questions and comment below. I’ll be glad to answer your questions and give necessary explanations.

Useful links:

I recommend trying to trade with a reliable broker here. The system allows you to trade by yourself or copy successful traders from all across the globe.Use my promo-code BLOG for getting deposit bonus 50% on LiteFinance platform. Just enter this code in the appropriate field while depositing your trading account.Telegram chat for traders: https://t.me/litefinancebrokerchat. We are sharing the signals and trading experienceTelegram channel with high-quality analytics, Forex reviews, training articles, and other useful things for traders https://t.me/liteforex

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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Economic calendar for the week 30.01.2023 – 05.02.2023

2023.01.30 2023.01.30
Economic calendar for the week 30.01.2023 – 05.02.2023logo

Review of the main events of the Forex economic calendar for the next trading week (30.01.2023 – 05.02.2023)

Thanks to the strengthening on Thursday and Friday, the dollar managed to end the week in positive territory with its DXY index demonstrating a modest gain of about 20 points. The past week, which was the last full trading week of the month, turned out to be extremely volatile and full of releases of important macro statistics. Next week promises to be no less interesting, with plenty of trading opportunities. In its course, the world’s 3 largest central banks (the Fed, the Bank of England, the ECB) will decide on interest rates. From the ECB and the Bank of England, market participants expect an increase in interest rates by 0.50%, but from the Fed – only by 0.25%. The leaders of the US Central Bank may go for the same increase in March, but then they will probably take a break to assess the impact of the measures taken on inflation and the economy. The probability of such moves is estimated by market participants at about 70%, according to CME Group. This development puts pressure on the dollar, despite the very positive macro data coming out of the US lately.

The next week will end with the publication of key data from the US labor market: the US Department of Labor will present a monthly report for January. In addition, next week, market participants will pay attention to the publication of important macro statistics from Germany, the Eurozone, New Zealand, and China.

* during the coming week, new events may be added to the calendar and / or some scheduled events may be cancelled.

** GMT time

Monday, January 30

07:00 EUR Germany GDP for the 4th quarter (preliminary release)

GDP is considered the most important indicator of the overall health of the economy. The growing trend of the GDP indicator is considered positive for the national currency. The German economy is the locomotive of the entire European economy. A high value of the GDP indicator is considered a positive factor for the EUR, and a low value is considered a negative one.

The growth of the European and German economies slowed down sharply in 2019, and in 2022 the European economy has entered a recession in many respects. The risk of a coronavirus pandemic, and then a military conflict in Ukraine added to domestic political risks after Brexit.

If the GDP data turns out to be weaker than the forecast, this will put even more downward pressure on the euro. Better-than-expected data may strengthen the euro in the short term. However, the risks for the euro are directed towards its further weakening.

Forecast: German GDP growth in the 4th quarter of 2022 was 0%.

Tuesday, January 31

00:30 AUDRetail Sales Index

Retail Sales Index is published monthly by the Australian Bureau of Statistics and measures total retail sales. The index is often considered an indicator of consumer confidence and reflects the state of the retail sector in the short term. The growth of the index is usually a positive factor for the AUD; a decrease in the indicator will negatively affect the AUD. Previous index value (for November) was +1.4% (after a decrease of -0.2% and growth of +0.6%, +0.6%, +1.3%, +0.2% in previous months, in April by +0.9%, in March by +1.6%, in February and January 2022 by +1.8%). If the data turns out to be weaker than the previous value, the AUD may drop sharply in the short term, but if it’s above the previous values, the AUD is likely to strengthen.

Forecast for December: -0.3%.

01:00 CNY China Manufacturing and Services PMI from the China Logistics and Procurement Federation (CFLP)

This indicator is an important indicator of the state of the Chinese economy as a whole. A result above 50 is seen as positive and strengthens the CNY, while one below 50 is negative for the yuan. Previous values: 47.0 in November, 49.2 in October, 50.1 in September, 49.4 in August, 49.6 in May, 47.4 in April, 50.2 in February, 50.1 in January .

The relative growth of the index and the value of 50 should have a positive effect on the CNY. The data above the value of 50 indicate an increase in activity, which has a positive effect on the quotes of the national currency. Otherwise, and if the value of the indicator is below 50, the yan will be under pressure and probably will decrease. Forecast for December: 49.7.

Services PMI assesses the state of the services sector in the Chinese economy. A result above 50 is considered positive and strengthens the yuan. Previous values: 41.6 in November, 48.7 in October, 50.6 in September, 52.6 in August, 47.8 in May, 41.9 in April, 51.6 in February, 51.1 in January .

Despite the relative decline, the indicator is still above 50, which is likely to have a positive impact on the yuan quotes. Otherwise, and if the value of the indicator is below 50, the yuan will be under pressure and probably will decrease.

Forecast for December: 51.0.

07:00 EUR Retail sales in Germany

Retail sales is the main indicator of consumer spending in Germany showing the change in retail sales. A high result strengthens the euro, and vice versa, a low result weakens it. Previous values: +1.1% (-5.9% yoy), -2.8% (-5.0% yoy), +0.9% (-0.9% yoy) , -1.3% (-4.3% YoY), +1.9% (-2.6% YoY), -1.5% (-9.6% YoY), + 1.2% (+1.1% YoY), -5.4% (-0.4% YoY), +0.9% (-1.7% YoY), +0, 2% (+6.9% YoY), -0.2% (+10.1% YoY) in January 2022.

The data speaks of the unstable recovery of this sector of the German economy. Data better than the forecast and / or the previous value is likely to have a positive impact on the euro, but only in the short term. Forecast for December: +0.2% (-4.3% in annual terms).

10:00 EUR Eurozone GDP for the 4th quarter (first estimate)

GDP is considered an indicator of the overall health of the economy. The growing trend of the GDP indicator is considered positive for the EUR; a low result weakens the EUR.

Recently, macro data from the Eurozone have been indicating a gradual recovery in the growth rate of the European economy after a sharp drop in early 2020.

Thus, according to the forecast of economists, the Eurozone GDP is expected to have contracted in the 4th quarter of 2022 by -0.1%, but seen an increase of +2.2% in annual terms after an increase of +0.7% (+4.0% in yoy) in 3Q, +0.8% (+4.1% yoy) in 2Q 2022, +0.6% (+5.4% yoy in 1st Q4, +0.3% (+4.6% YoY) in Q4, +2.2% (+3.9% YoY) in Q3, +2.2% (+14.3% YoY) in Q2 and down -0.3% (-1.3% YoY) in Q1 2021.

If the data turns out to be weaker than the forecast and / or previous values, the euro may decline. Better-than-expected data may strengthen the euro in the short term, although the full recovery of the European economy, even to pre-crisis levels, is still far away.

Preliminary estimate for the 4th quarter: -0.1% (+2.2% in annual terms).

13:00 EUR Harmonized Index of Consumer Prices (HICP) in Germany (preliminary release)

This index is published by the EU Statistics Office and is calculated on the basis of a statistical method agreed between all EU countries. It is an indicator for assessing inflation and is used by the Governing Council of the ECB to assess the level of price stability. A positive result strengthens the EUR, a negative result weakens it.

Previous indicator values: +9.6% in December, +11.3% in November, +11.6% in October, +10.9% in September, +8.8% in August, +8.5% in July, +8.2% in June, +8.7% in May, +7.8% in April, +7.6% in March, +5.5% in February, +5.1% in January 2022 year (in annual terms). If the data for January turns out to be better than the previous values, the euro may strengthen in the short term. The growth of the indicator is a positive factor for the euro. The data suggests mounting inflationary pressures in Germany, which in turn is putting pressure on the ECB to tighten its monetary policy. Data worse than the previous value will have a negative impact on the euro.

Forecast: +10.0% in January.

21:45 NZD Employment rate. Unemployment rate (Q4)

The employment rate reflects the quarterly change in the number of employed New Zealanders. The growth of the indicator has a positive impact on consumer spending, which stimulates economic growth. A high value is positive for NZD, while a low value is negative.

Previous values: +1.3% in Q3, 0% in Q2 2022, +0.1% in Q1 and Q4, +2.0% in Q3, +1.0% in Q2, +0.6% in Q1 2021.

Also at the same time, the New Zealand Bureau of Statistics publishes a report on the unemployment rate – an indicator that assesses the share of the unemployed population to the total number of able-bodied citizens. Growth of the indicator indicates the weakness of the labor market, which leads to a weakening of the national economy. A decrease in the indicator is a positive factor for the NZD.

Forecast: New Zealand unemployment in Q4 2022 was at 3.3% (against 3.3% in Q2 and Q3, 3.2% in Q1 and Q4, 3.4% in Q3, 4.0% in Q2, 4.7% in Q1 2021).

If other indicators of the New Zealand Bureau of Statistics report come out with a deterioration, this is likely to negatively affect the NZD. Worse-than-expected data will have an even stronger negative impact on the NZD.

Wednesday, February 1

10:00 EUR Consumer Price Index. Core Consumer Price Index (preliminary release)

Consumer Price Index (CPI) is published by Eurostat and measures the change in prices of a selected basket of goods and services over a given period. The index is a key indicator for assessing inflation and changing consumer preferences. A positive result strengthens the EUR, a negative result weakens it.

Previous values: +9.2% in December, +10.1% in November, +10.6% in October, +9.9% in September, +9.1% in August, +8.6% in June , +8.1% in May, +7.4% in April and March, +5.9% in February, +5.1% in January, +5.0% in December. If the data turns out to be worse than the forecast, the euro may short-term, but sharply decline. Data better than the forecast and / or the previous value may strengthen the euro in the short term. The target level of consumer inflation of the ECB is slightly below 2.0%, and the data indicate an acceleration of inflation in the Eurozone.

Core Consumer Price Index (Core CPI) determines the change in prices of a selected basket of goods and services over a given period and is a key indicator for assessing inflation and changing consumer preferences. Food and energy are excluded from this indicator for a more accurate estimate. A high result strengthens the EUR, while a low result weakens it. In January 2022, Core CPI increased by +2.3%, in February – by +2.7%, in March – by +2.9%, in April – by +3.5%, in May – by +3 .8%, in June – by +3.7%, in August – by +4.3%, in September – by +4.8%, in October – by +5.0%, in November – by +5 .0%, in December – by +5.2%.

 If the data for January 2023 turns out to be worse than the previous value or forecast, this may negatively affect the euro. If the data turns out to be better than the forecast or the previous value, the euro is likely to react with an increase. Core inflation in the Eurozone is accelerating, which is positive (under normal economic conditions) for the euro.

13:15 USD ADP National Employment Report

Usually, the ADP report on the level of employment in the private sector has a strong impact on the market and dollar quotes. An increase in the value of this indicator has a positive effect on the dollar. The US private sector is expected to grow by 86,000 in January (against April, 425,000 in March, 375,000 in February, 372,000 in January 2022, by 807,000 in December, 534,000 in November, 571,000 in October, 568,000 in September, 374,000 in August, 330,000 in July, 692,000 in June, 978,000 in May, 742,000 in April, 517,000 in March, 117,000 in February, 174,000 in January 2021). The relative growth of the indicator may have a positive impact on the dollar quotes, and the relative decline of the indicator can affect it negatively. The market reaction may be negative, and the dollar may decline if the data also turns out to be worse than the forecast.

Millions of Americans have previously been laid off due to the coronavirus pandemic and related quarantine measures. Most of the layoffs were concentrated in the tourism and retail sectors. Other important sectors of the economy also suffered. The ADP previously reported that the most significant drop in employment was recently recorded in the construction sector and the financial services sector.

Although the ADP report does not have a direct correlation with the US Department of Labor official data on the labor market, which will be published on Friday, the ADP report is often its harbinger, having a noticeable impact on the market.

15:00 USD US Manufacturing PMI (from ISM)

The US Manufacturing PMI published by the Institute for Supply Management (ISM) is an important indicator of the state of the US economy as a whole. A result above 50 is considered positive and strengthens the USD, while one below 50 is considered negative for the US dollar.

Forecast: 48.2 in January (against 48.4 in December, 49.0 in November, 50.2 in October, 50.9 in September, 52.8 in August, 53.0 in June, 56.1 in May , 55.4 in April, 57.1 in March, 58.6 in February, 57.6 in January). The index is above the level of 50 and, despite the relative decline, has a relatively high value, which is likely to support the dollar. The data above the value of 50 indicate an acceleration of activity, which has a positive effect on the quotes of the national currency. If the indicator falls below the forecast and especially below the value of 50, the dollar may sharply weaken in the short term.

19:00 USD The Fed’s interest rate decision. The Fed’s monetary policy statement

In 2020, the dollar was declining, because investors were withdrawing funds from safe-haven assets, buying riskier and more profitable assets of the stock market, which continued to grow despite the threat of a second wave of the coronavirus epidemic and the associated economic slowdown. The role of the dollar as a defensive asset also declined. However, in 2021 the situation has changed – the dollar strengthened. Now market participants are waiting for the US central bank to continue the cycle of tightening monetary policy, but at an even slower pace.

As expected, at this meeting the rate will be raised again (by 0.25% to 4.75%). During the publication of the rate decision, volatility may rise sharply throughout the financial market, primarily in the US stock market and in dollar quotes, especially if the rate decision differs from the forecast or unexpected statements are made by the Fed leaders.

Powell’s comments could affect both short-term and long-term USD trading. A more hawkish stance on the Fed’s monetary policy is seen as positive and strengthens the US dollar, while a more cautious stance is seen as negative for the USD. Investors want to hear Powell’s opinion on the Fed’s plans for this year.

19:30 USD Press conference of the FOMC (Federal Open Market Committee of the US Federal Reserve)

The press conference of the Federal Open Market Committee of the US Federal Reserve lasts about an hour. The first part presents the ruling, followed by a series of questions and answers that can increase market volatility. Any unexpected statements by Powell on the Fed’s monetary policy will cause an increase in volatility in dollar quotes and in the US stock market.

Thursday, February 2

12:00 GBP Bank of England interest rate decision. Minutes of the meeting of the Bank of England. Planned volume of asset purchases by the Bank of England. Monetary Policy Report

At the December meeting, the Bank of England unexpectedly raised its key interest rate to 0.25%, becoming the first leading central bank to increase the cost of borrowing since the start of the coronavirus pandemic. In February, the interest rate was raised to 0.50%, in March to 0.75%, in May to 1.00%, and in December to 3.50%. Members of the Monetary Policy Committee felt that raising the cost of borrowing in a strong labor market to curb price increases was entirely appropriate. At the same time, further tightening of monetary policy may be required to bring inflation to the target level of 2.0%.

It is expected that at this meeting the Bank of England will again raise the interest rate to 4.0%. However, despite the high level of inflation in the country and the fact that positive macro data is coming from the UK, the interest rate may remain at the same level of 3.50%, given the situation in Ukraine. Such a decision could cause a weakening of the pound.

Also at this time, the minutes of the Monetary Policy Committee (MPC) of the Bank of England are published with the votes “for” and “against” the increase / decrease in the interest rate. The main risks for the UK after Brexit are associated with expectations of a slowdown in the country’s economic growth, as well as with a large current account deficit in the UK’s balance of payments.

The intrigue about the further actions of the Bank of England remains. And in trading the pound and FTSE100 index futures, there are plenty of trading opportunities during the publication of the bank’s rate decision.

Also at the same time we expect the publication of the report of the Bank of England on monetary policy containing an assessment of economic prospects and inflation. At this time, the volatility in the pound quotes can rise sharply. One of the main benchmarks for the Bank of England regarding the prospects for monetary policy in the UK, in addition to GDP, is the inflation rate. If the tone of the report is soft, then the British stock market will receive support, and the pound will fall. Conversely, the report’s tough rhetoric on curbing inflation, which implies a further increase in the interest rate in the UK, will lead to a strengthening of the pound.

12:30 GBP Speech by Bank of England Governor Andrew Bailey

Financial market participants are waiting for Andrew Bailey to clarify the situation regarding the future policy of the UK central bank. Volatility usually rises sharply during speeches by the head of the Bank of England in the quotes of the pound and the FTSE London Stock Exchange index if he gives any hints of tightening or easing monetary policy of the Bank of England. Probably, Andrew Bailey will also give explanations regarding the decision made by the Bank of England on the interest rate and touch upon the state and prospects of the British economy after Brexit against the backdrop of a sharp rise in energy prices and inflation. If Bailey does not touch on monetary policy issues, the reaction to his speech will be weak.

13:15 EUR ECB interest rate decision

The ECB will publish its decision on the key rate and on the deposit rate. The ECB’s tight stance on inflation and the level of key interest rates contributes to the strengthening of the euro, a soft position and rate cuts weaken the euro. Given the high level of inflation in the Eurozone, according to the ECB management, the balance of risks for the economic outlook for the Eurozone “remains skewed to the negative side.”

“The Governing Council believes that interest rates will still need to be raised significantly … in order to ensure a timely return of inflation to a medium-term target of 2%,” the ECB said in a statement following the December meeting.

Speaking at the World Economic Forum in Davos in January 2023, the ECB President Christine Lagarde said that “inflation expectations are not easing” and “the ECB will continue to raise rates.” In her opinion, “inflation is too high”, and “the ECB intends to bring it down to 2% in a timely manner.”

The ECB believes that GDP growth may decline, including due to the energy crisis in the EU, high uncertainty, weakening global economic activity and tightening financing conditions. However, the recession should not drag on too long, although strong growth is not expected either.

“In the near future, growth will recover as the current headwinds ease. Overall, Eurosystem staff forecast economic growth of 3.4% in 2022, 0.5% in 2023, 1.9% in 2024 and 1.8% in 2025,” said the statement based on the results of the December meeting.

Thus, if we follow this signal from the head of the ECB, as a result of this meeting, the key interest rate will be raised again, most likely by 0.25%, but other, tougher decisions are possible too (increase by 0.5% or even by 0.75%). The ECB deposit rate for commercial banks is also likely to be raised.

Well, since inflation in the Eurozone is still unacceptably high for the leaders of the ECB, they may announce an increase in interest rates at the next meetings.

Perhaps this will also be mentioned in the accompanying statements of the leaders of the ECB.

13:45 EUR Press conference of the ECB. ECB Monetary Policy Statement

The press conference will be of major interest to market participants. In its course, a surge in volatility is possible not only in euro quotes, but also in the entire financial market, if the ECB leaders make unexpected statements. The ECB leaders will assess the current economic situation in the Eurozone and comment on the bank’s decision on rates. In previous years, as a result of some meetings of the ECB and subsequent press conferences, the euro exchange rate changed by 3% -5% in a short time.

A soft tone of statements will have a negative impact on the euro. And, on the contrary, a tough tone of the speech of the ECB management regarding the monetary policy of the central bank will strengthen the euro.

Friday, February 3

13:30 USD Average hourly wages. Non-farm Payrolls. Unemployment rate

These are the most important indicators of the state of the labor market in the US in January. Forecast: +0.3% (against +0.3% in December, +0.6% in November, +0.4% in October, +0.3% in September and August, +0.5% in July , +0.3% in June, May and April, +0.4% in March, 0% in February, +0.7% in January 2022, +0.6% in December, +0.3% in November, +0.4% in October, +0.6% in September and August 2021) / +0.175 million (against +0.233 million in December, +0.263 million in November, +0.261 million in October, +0.263 million in September, +0.315 in August, +0.528 million in July, +0.372 million in June, +0.390 million in May, +0.428 million in April, +0.431 million, +0.678 million in February, +0.467 million in January 2022, + 0.199 million in December, +0.210 million in November, +0.531 million in October, +0.194 million in September, +0.235 million in August 2021) / 3.6% (against 3.5% in December, 3.7% in November and October, 3.5% in September, 3.7% in August, 3.5% in July, 3.6% in June, May, April and March, 3.8% in February, 4.0% in January 2022, 3.9% in December, 4.2% in November, 4.6% in October, 4.8% in September, 5.2% in August 2021), respectively.

In general, the indicators can be described as quite positive, if not encouraging, apart from the NFP section. Market participants may sharply react negatively to its weak value. Nevertheless, it is often difficult to predict the market reaction to the publication of indicators, because many indicators for previous periods are subject to revision. Now it will be even more difficult to do this, since the economic situation in the US and many other major economies remains controversial with increased risks of recession and high inflation. In any case, when the data from the US labor market is published, a surge in volatility is expected in trading not only in USD, but throughout the financial market. Cautious investors might prefer to stay out of the market during this period of time.

15:00 USD US Services PMI (from ISM)

This indicator assesses the state of the services sector in the US economy. These services sectors (unlike the manufacturing sector) have virtually no impact on the country’s GDP.

A result above 50 is seen as positive for the USD. Forecast for January: 53.0 (against 49.6 in December, 56.5 in November, 54.4 in October, 56.9 in August, 56.7 in July, 55.3 in June, 55.9 in May , 57.1 in April, 58.3 in March, 56.5 in February, 59.9 in January, 62.0 in December), which is likely to have a generally positive impact on the USD. However, the relative decline of the index, and especially below the value of 50, may negatively affect the dollar in the short term.

Price chart of EURUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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How to trade crypto

2023.01.27 2023.01.27
How to trade cryptologo

Despite the closure of some cryptocurrency exchanges and the protracted decline in the value of digital assets, crypto trading is still popular. There are new players who want to start trading cryptocurrency and make money on it.

In this article, we will look at the structure of the virtual currency market, its operation and price formation, as well as the main trading platforms. You will learn how to trade cryptocurrencies and what to take into account when analyzing crypto markets, and get investment tips and efficient earning schemes.

The article covers the following subjects:

What is Cryptocurrency Trading

Let’s look at what crypto trading is and how it is different from other types of trading.

At its core, trading on the cryptocurrency market is very similar to working with CFDs, stocks or currency pairs. The main difference is that cryptocurrencies are used as the trading instrument.

The essence of crypto trading is buying digital currency and then selling it at a higher price. So a crypto trader’s job is quite similar to that of their colleagues on the currency or stock market.

Crypto markets are often analyzed with the same technical analysis methods as the fiat currency markets. Many traders prefer to trade bitcoin based on trading volume and indicators and often use modified classic trading strategies.

However, from the point of view of fundamental analysis, the cryptocurrency market can present a few challenges. Digital assets can fluctuate dramatically due to various events: deviation from the project development plan, forks, an increase or decrease in exchange trading fees, a sharp change in the popularity of the coin among miners, etc.

At the same time, cryptocurrency quotes are highly dependent on the dynamics of the price of bitcoin. This digital asset occupies a large part of the market: about 50% of all transactions are carried out with bitcoin. Therefore, BTC is the underlying market that sets the trend for the entire industry.

Cryptocurrency markets structure

Like trading on the foreign exchange or stock market, crypto trading is a zero-sum game. Participants who want to buy and sell crypto are connected within the same particular exchange. The platform on which the trades take place charges a commission for the exchange of cryptocurrencies as part of the transaction.

WIthin a single transaction, one of the participants makes a profit, and the other incurs losses. The value of a digital asset is constantly changing. Therefore, if you sell a cryptocurrency during its growth, you will lose and the buyer will profit. And vice versa: by selling bitcoin during a price decrease, the seller will get a profit, and the buyer will incur losses.

As on Forex or when trading stock CFDs, exchange participants try to sell cryptocurrencies at a higher price and buy at a lower price. The exchange collects all orders from crypto traders in the order book. If the parameters of two separate orders are the same, the crypto exchange makes a transaction. If there are no offers for the order, the platform offers to buy at the current price.

What is blockchain?

Now that you know what crypto trading is, it’s time to take a deeper look at how digital currencies and the cryptocurrency market work.

Each cryptocurrency is built based on blockchain – a continuous chain of digital blocks containing information. A copy of the chain is stored in each node – a separate computer. The chain is built according to the rules laid down by the developers. The connection between blocks is formed both by their sequential numbering and by recording in each block of its own hash sum and the hash sum of its predecessor. To change the information in the network, you need to edit the following blocks in each node. In theory, such edits are impossible with a large number of nodes from validators – independent participants in the blockchain responsible for verifying transactions.

The first technologies of distributed computing and decentralized information storage appeared in the 90s. However, blockchain was first used by Satoshi Nakamoto in the Bitcoin network to create a new generation financial system. The diagram below clearly shows the difference between a decentralized blockchain network and a centralized data storage system.

What is cryptocurrency mining?

Mining is the process of extracting bitcoin and other virtual currencies. It involves solving cryptographic problems. As a result of successful calculations, a new block of transactions is added to the blockchain, initiating the release of a certain amount of cryptocurrency.

The constancy of the price of assets on the cryptocurrency market is supported not only by the willingness of participants to buy and sell coins. The rate of crypto assets also depends on the need to spend considerable real money and mining resources (purchase and maintenance of computing equipment, search and rental of premises, power costs).

However, during the period of market growth, all costs are offset by the profits from cryptocurrency trading. Therefore, both novice investors and large companies are engaged in mining.

Market size and liquidity

It is important for investors to buy and sell digital currencies at any time and in any volume. Otherwise, what is the point of profit if it cannot be converted into real resources? Therefore, when choosing a virtual currency, active traders pay attention to the market volume and liquidity of the instrument.

If we take the total volume of the cryptocurrency market, it is rather small compared to Forex, CFDs, or shares. Bitcoin at its peak reached a capitalization of $1.3 trillion. And the entire cryptocurrency market was estimated at $3 trillion at its peak. For comparison, on the stock market, the capitalization of the New York Stock Exchange alone is more than $23 trillion.

At the same time, the markets of popular cryptocurrencies are liquid enough so that users can buy and sell an unlimited number of coins.

The chart above shows spot trading volumes on the best crypto exchanges in the world according to THE BLOCK.

What moves cryptocurrency markets?

Supply and demand affect spot trading and the value of cryptocurrencies more than, for example, the stock market. This explains why the cryptocurrency market is very volatile.

However, crypto is an instrument of decentralized finance. It is not affected by political and economic processes, or the state of the economy of a particular country or region, unlike traditional markets which are highly dependent on the above factors.

Other factors affecting the crypto market:

market capitalization;

cryptocurrency trading on global crypto exchanges, integration into trading platforms and e-commerce systems;

sentiments of large companies, media and experienced crypto traders towards the coin;

news events that form a vulnerability or risk tolerance.

Is cryptocurrency a good investment?

Investing in cryptocurrency is still a promising direction. Crypto traders can pursue various investment objectives. For example, trading in a new active market or risk diversification by increasing the number of markets with weak correlation. Another option is to trade stocks of companies like Coinbase, Block, and PayPal. You can also invest in one of the major crypto exchanges that facilitate trading in cryptocurrency futures.

One of the advantages of crypto markets is that in many countries cryptocurrency trading is not taxed. One should keep in mind however that crypto exchanges charge trading fees, similar to brokerage fees when trading futures, currency pairs and other instruments.

Now let’s figure out how novice investors can invest in cryptocurrency, where to buy and sell coins, and what tools can increase your earnings.

Who is Investing in Cryptocurrency

Do you know how many people invest in cryptocurrency? Almost every owner of a trading account with a brokerage company has tried cryptocurrency trading at least once.

Permanent participants of crypto exchanges are referred to as crypto traders. They can trade one cryptocurrency or pairs: bitcoin to ethereum or bitcoin to ripple. Some investors only work with altcoins – any cryptocurrencies except BTC. Many traders choose to trade on crypto exchanges in pairs consisting of a cryptocurrency and one of the fiat currencies, for example, BTCMXN – bitcoin to Mexican peso.

Another important question: how old does one need to be to trade cryptocurrencies? It all depends on the country you live in since most cryptocurrency exchanges follow national laws. In some countries, for example, you can trade on a crypto exchange from the age of 14 if you have the written consent of your parents. You can also find bitcoin ATMs and buy crypto at any age making payments by debit card or in cash. However, there aren’t many such ATMs.

What is Traded in Crypto Market

Before you start trading cryptocurrencies, choose the tools and platforms that you will use in your trading. Traders usually choose cryptocurrency exchanges.

If you pass verification on a centralized exchange, you can simultaneously use crypto wallets and bank accounts.

Another option is to trade CFDs and derivatives with a broker. CFDs are suitable for traders who prefer short-term trading strategies. This type of crypto trading is interesting because you can make a profit from a decrease in the value of the asset.

Crypto trading pairs

Cryptocurrency pairs are the basic instruments for crypto trading. Beginners are advised to use trading pairs with bitcoin and one of the fiat currencies at first.

Advanced traders can choose to trade on crypto exchanges in pairs consisting of a highly liquid cryptocurrency (for example, Bitcoin or Ethereum) and one of the altcoins. Ripple, Dash, Monero, Bitcoin Cash and other digital assets, except for BTC, are considered leading altcoins. In pursuit of high volatility, experienced traders are starting to use only altcoins for trading on the crypto market.

You can also buy and sell cryptocurrencies through a broker. Trading on an exchange is basically exchanging one cryptocurrency for another with higher trading fees. Trading on the crypto market through a broker allows you to save on commissions. The process of trading cryptocurrency pairs on the platform is as straightforward as sending an order to sell or buy.

Trading on cryptocurrency exchanges and with brokers carries a high risk. Therefore, it is necessary to do an in-depth technical analysis of each virtual currency separately.

Cryptocurrency derivatives

Cryptocurrency derivatives allow you to make transactions on the market without owning coins. Derivatives include bitcoin futures, swaps, and options. They give you more flexibility than classic trading. You can use dozens of trading strategies to earn money, and margin trading with a large leverage allows you to significantly increase the number of coins in just a few trades.

But such trading is always a high risk if the trader does not follow risk management and money management rules. Margin trading with a large leverage can surprise you with quick profits, but even a small number of losing trades in such conditions can quickly empty your deposit. Therefore, only active traders choose derivatives trading.

Cryptocurrency CFDs

Cryptocurrency CFD trading involves betting on how the value of a crypto asset will change in the future. CFD is considered a derivative, therefore it has both the advantages and disadvantages of these instruments.

On the LiteFinance online platform, you can start trading dozens of different cryptocurrencies and CFDs with flexible leverage. This allows you to make purchases safer, balancing the level of risk and potential profit. Novice traders should choose the lowest leverage to trade crypto CFDs: this way you will limit the amount of profit, but also reduce the risks of possible losses. Active traders can choose margin trading with a large leverage to get a large profit from each successful trade.

How to Trade Cryptocurrency for Beginners

Beginning traders often ask how to start trading cryptocurrencies, CFDs or crypto options. I would strongly advise them not to rush it.

Before investing in cryptocurrency, a novice trader should:

learn to analyze price charts and trading volumes;

learn to analyze past performance and identify patterns in the history of quotes;

learn how to enter into buy and sell trades and monitor price changes;

find profitable trading strategies.

Basics of Cryptocurrency Trading

To start trading cryptocurrency, you need to follow a few steps:

sign up with one of the cryptocurrency exchanges. Beginning traders are advised to choose well-known trading platforms with transparent trading conditions and lower trading fees. An alternative way is to register with a broker, such as LiteFinance, which provides access to cryptocurrency derivatives.

Deposit funds to your exchange account with a credit or debit card, bank transfer or any other method. This should be an amount you don’t mind losing.

Choose a cryptocurrency and start trading.

Quotes of digital currencies are always in motion, this is one of the distinguishing features of the market. On the one hand, there are a lot of opportunities for earning, on the other, additional risks. Therefore, beginners need to understand the principles of exchanges and the market, learn the basics of cryptocurrency trading and margin trading. And only then start trading.

What is a Pip in Cryptocurrency Trading

A pip is the smallest movement in the price of a cryptocurrency. The name itself is an abbreviation of the phrase “percentage in point.” Even a novice crypto trader can determine the value of a pip: just look at the last decimal digit in the quotes.

What is a Lot in Cryptocurrency Trading

Brokers trade in lots – batches of cryptocurrency tokens. Crypto trading pros know that digital currencies are very volatile, so they recommend starting trading in small volumes.

What is Spread in cryptocurrency trading

Spread in trading is the difference between the bid price (Bid) and the ask price (Ask). If you take an asset on the exchange at a market price, you will buy it at the current Ask price, and if you sell it, then at the Bid price. The spread is often perceived in trading as the trading fees of a crypto exchange or a broker.

What is Spread in Cryptocurrency Trading

Crypto trading with leverage is a way to increase earnings by increasing the trade volume without spending your own funds. Leverage is a service of borrowing funds from your broker to open a trade. The broker charges trading fees for it. With LiteFinance, crypto trading is available with a leverage of 1:1,000, i.e. the borrowed amount will be equal to 1,000 times the deposit amount.

What is Margin in Cryptocurrency Trading

Crypto margin trading is trading with leverage. The term margin means the part of the deposit that the user deposited by bank transfer to the account of the trading platform and uses as collateral to secure the leverage.

Margin is usually displayed as a percentage of the trade volume. For example, if 1,000 tokens are involved in the opening of a position, with a margin of 10%, the trader will deposit only 100 tokens. Knowing the size of the margin, the trader can calculate the broker’s trading fees.

Learn How to Place Trades and Read Charts

Before you start trading crypto pairs or CFDs, you need to learn patterns for crypto trading and know how to analyze charts using indicators and follow news.

This is the LiteFinance trading platform. The best crypto exchanges offer more or less the same tools for buying and selling cryptocurrency and analyzing charts.

Market research methods in crypto trading:

Fundamental analysis involves price forecasting based on the news and financial performance of a cryptocurrency. Analysis of market sentiment allows you to find out how market participants feel about a particular asset – whether the price is expected to rise or fall. Traders monitor market demand on trading floors and take notice of promising trends.

Technical analysis involves the study of market charts based on historical data and trading volumes. Traders identify chart patterns and analyze indicator values.

Study Psychology of Trading

Trading psychology is important no matter where you trade: on cryptocurrency exchanges, Forex, or the stock market. All exchange users are subject to emotional behavior.

Traders buy and sell under the influence of both logical and emotional factors: hopes for the growth of quotes, news, fear of losses, desire for success, etc.

One example of emotional trading is the so-called “locked-in traders”. Trying to avoid losses, they do not close their positions when signs of a reversal appear. And then they keep hoping that the price will still start moving in the right direction. As a result, they exit with a big loss when all hopes collapse.

The most important component in trading is controlling your emotions. You can achieve stable profits only with consistent analysis and a cool head.

In the LiteFinance online platform, you can use the best crypto trading indicators for free!

Choose Your Crypto Exchange

There are a lot of trading platforms with unique features. There are centralized exchanges and decentralized exchanges with an internal trading account. Some exchanges charge high trading fees. On some platforms, you can even trade cryptocurrencies on a demo account with virtual funds without risk.

It is quite impossible to describe the nuances of well-known crypto exchanges in a single review, so I will highlight the main features of platforms:

Custodial exchanges have an internal exchange account, while non-custodial exchanges do not store clients’ assets.

Support of fiat money. You can buy cryptocurrency for fiat money on any cryptocurrency exchange. Some exchanges also support crypto trading with fiat money, and allow you to pay trading fees with fiat money.

Access to spot (classic) trading, futures (with or without expiration), CFDs, margin trading, options, indices.

Regulation by government agencies, taxes and other non-trading fees.

Does the crypto exchange require user verification and KYC?

Support of English, French, Russian and other languages.

Trading fees – what they are charged for, how much, payment methods.

Explore the benefits of different platforms and choose the best crypto exchange for you.

In addition to well-known crypto assets, LiteFinance allows you to trade other types of instruments: currency pairs, stocks, precious metals, stock indices. Other the advantages of the platform include low trading fees and a large leverage of 1:1000. For beginners, LiteFinance offers to open a demo account for free and without trading fees: you can practice trading skills or try out trading strategies without the risk of losing your funds.

Make a Crypto Trading Plan

In order to get a stable income from your trading on cryptocurrency exchanges, you need to develop a trading plan. It must contain at least two items:

The simplest example of a trading plan is to sell a certain amount of bitcoin if the price rises by $1,000. And if quotes fall to $30,000, then you sell all the accumulated coins.

Also, your trading method may include market entry points. For example, you open a trade when the price rises to a certain level or reverses with a simultaneous increase in trading volumes.

Over time, your trading plan will become more complex and at some stage will turn into a crypto trading strategy. Professional traders go one step further by using bots to trade cryptocurrencies. This allows you to save time and find new trading opportunities.

Basic Crypto Trading Strategies

You don’t have to develop your own cryptocurrency trading strategy, especially if you are just learning crypto trading. There are many methods based on fundamental and technical analysis that can be employed immediately.

The classic cryptocurrency trading strategy is a comprehensive trading plan, which spells out the rules for entering the market, limiting the trade size, reacting to price movements (stop loss, take profit, trailing stop), as well as methods and conditions for closing positions.

Below I will talk about working crypto trading strategies for different trading styles. For example, an intraday trading strategy aims to make quick profits. The strategy using leverage is aimed at a multiple increase in earnings. We will also consider an automated strategy that will allow you to automatically open and close trades.

Day trading crypto

This is a basic trading strategy for active crypto trading. On crypto exchanges, where quotes change around the clock, the concept of day trading is very arbitrary. In this case, intraday trading just means opening short-term trades.

Cryptocurrency day trading rules:

trades are opened and closed within one trading day;

constant monitoring of prices, market signals and risk assessment;

setting minimum stop losses to reduce potential losses. Trading goals are limited and easily achieved.

The best cryptocurrencies for day trading are Bitcoin and Ethereum as these assets have the largest trading volumes. For intraday trading, it is better to choose a crypto exchange with a low trading fee for opening positions, as you will have to open many trades.

Scalping crypto

This is probably the fastest trading strategy. It involves making a profit from high-frequency algorithmic trading.

Scalpers execute trades within minutes or even seconds. They open dozens and even hundreds of positions in a day, so crypto trading bots are often used in trading. For scalpers, it is important that the cryptocurrency exchange has a low trading fee for opening trades, otherwise a significant part of the income would be wasted on crypto exchange fees.

Leverage trading crypto

We already know what leverage is in cryptocurrency trading and how it helps to increase your earnings. Now let’s talk about trading itself.

Leverage multiplies the potential profit, but the possible losses also increase. Therefore, a leveraged strategy involves careful risk management.

Main rules of margin trading:

Multiple confirmation of signals – to open a position, you should use at least two signals confirming each other.

Minimizing losses by setting stop loss orders close to the entry point and trailing stop orders with a minimum step.

Short-term open positions. With leverage, you trade on borrowed funds and must pay interest on the loan daily. An open position with a large leverage can potentially become unprofitable even if the price moves according to the forecast. The exchange charges a percentage for leverage from the amount of margin, which increases the risk of the position closing by stop-out.

Novice traders should start trading with a small leverage – this way the risks of losing funds are lower. Then you can gradually increase the leverage to a comfortable level.

Automated Trading

This trading strategy involves using bots for cryptocurrency trading. This saves the trader’s time – all routine operations will be performed by the bot.

Cryptocurrency trading algorithms are used to perform the following tasks:

trading signals – detection, prioritization, elimination of false signals;

entering the market – determining entry points, choosing position size depending on the risks;

trading goals and risk management – setting take profits and stop losses, averaging positions when reaching support and resistance levels;

position hedging.

A well-written trading bot can do your routine work, but you cannot fully rely on a trading algorithm. You need to at least test it on different markets, monitor the execution in live trading, keep statistics and collect data to improve the bot.

Swing trading crypto

In the article “What is swing trading? The best strategies, indicators and signals for trading” we talked in detail about this trading strategy, as well as how to use it on the cryptocurrency exchange. Here we will only briefly touch on the nuances of the method.

Swing trading is a long-term strategy in which positions can be held for several days or even a week. It does not necessarily take into account the trading fees of the exchange. Unlike an intraday strategy, swing trading does not require constant attention. The strategy allows for the use of cryptocurrencies with low volatility.

Technical analysis is used for market research, since the effect of 90% of the news will not show during the trading week. However, it is the news that leads to losses for swing traders. An initially profitable position can quickly become unprofitable after the release of important media reports. Therefore, swing strategy is employed by crypto traders who are ready to take risks for the sake of high earnings.

Position trading crypto

This is a trading method with an even longer horizon. With this strategy, you are supposed to hold positions for several weeks, months or even years. The strategy is more like direct investment in securities, but you can open short positions.

For position crypto trading, choose highly liquid assets so that the daily trading fees of the exchange do not eat up most of the profits. You should also use minimum leverage. The strategy does not require you to actively monitor the market, so news can quickly lead to serious losses with high leverage.

Position trading itself involves searching for a global trend on large timeframes and opening positions in its direction. Minor price fluctuations that occur within one or several days are not taken into account.

Enter after the first rollback, when support and resistance levels are broken, or when other long-term trend signals appear. Take profit when you’ve reached your long-term goals, which are usually determined by support or resistance levels.

Arbitrage trading crypto

Arbitrage trading involves buying securities on one market and reselling them at a premium on another. In our case, the trader buys cryptocurrency on one exchange and then resells it at a higher price on another.

For example, a coin costs $20,000 on Binance and $20,500 on Coinbase. Therefore, you can buy this cryptocurrency on Binance and then sell it for more on Coinbase.

This approach takes into account unexpected price fluctuations as they can eat up the projected profits or even lead to losses. Therefore, it is better to sell the cryptocurrency immediately after purchase. During periods of high volatility, engaging in arbitrage trading is not recommended.

The traders should also take trading fees into consideration. If the difference in the prices is small, the fees can eliminate all the profits. Check the size of the fees on exchanges and take them into account when calculating potential income.

Dollar Cost Averaging

One of the challenges of technical analysis is predicting market entry points. For this, an alternative method was invented – dollar cost averaging.

All the actions can be divided into two stages:

If the price is declining, buy the cryptocurrency in price intervals tied either to the Fibonacci numbers or through a fixed value.

If the price is rising, close the position in part or completely when a fixed percentage of profitability or a certain price mark is reached.

This strategy is simple to execute and suitable for beginner traders. You will also avoid stressful decisions when choosing the right moment to open a position. However, the trader will still have to decide when to sell the accumulated assets.

When You Can Trade Crypto

Trading is most profitable during periods of high liquidity. For traditional assets, trading volumes are at the highest during the operation time of the stock exchanges.

The peculiar quality of crypto trading is that virtual currency markets are open 24/7. But on weekends and holidays, the activity of large players decreases. This happens for two reasons:

Therefore, the best time to trade cryptocurrencies is Monday to Friday. The daily peak of activity is usually at 14:00 UTC. There are also technical breaks that each platform takes at different times. However, they usually do not last long – from 5 to 20 minutes.

Why Invest in Cryptocurrency

People who are not familiar with the world of cryptocurrencies often ask: “Why invest in cryptocurrencies when there are classic trading instruments?”. The main advantage of digital asset trading is increased volatility. This is a good opportunity to earn money, but the risks are much higher.

Almost every day there is a new cryptocurrency available for investment. In recent years, crypto trading has significantly expanded its horizons, which cannot be said about other types of trading.

Crypto vs Forex

Crypto and currency trading have a lot in common, but there are also differences.

Both markets involve trading in currency pairs. Digital currencies are traded on the crypto market, while fiat currencies are traded on Forex. Hence the two main differences. The first one is trading time: crypto can be traded around the clock 7 days a week, but on Forex, active trading takes place Monday to Friday during the operating time of stock exchanges. The second difference is that the volatility of cryptocurrencies is much higher.

The chart above shows the ATR volatility indicator for the BTCUSD pair.

Compare it to the most volatile fiat pair EURUSD.

Quotes of cryptocurrencies and fiat currencies depend on the demand for them. However, while the rate of crypto assets is determined by the popularity and development of the blockchain platform, classical currencies largely depend on the decisions of central banks, financial authorities of the issuing countries, their economies, and the policies of international financial institutions.

Fundamental analysis is significantly different for the above two types of assets in terms of factors affecting the price of assets. However, in technical analysis the methods and tools are the same: trends, support and resistance levels, trading volumes, and indicators.

Parameter

Cryptocurrency

Fiat currency

Type

Decentralized

Centralized

Trading time

24/7

Monday-Friday, high volatility during stock exchange hours

Volatility

High

Medium

Fundamental analysis

Buyer demand, mining activity, project news, FUD (fear, uncertainty and doubt of investors and traders)

The state of the global economy, as well as the economy of the issuer’s country; monetary policy of countries and international institutions; demand; often correlates with energy resources

Technical analysis

+

+

Market sentiment/psychology

+

+

Crypto vs Stocks

When choosing whether you should invest in cryptocurrencies or stocks, remember that these types of financial instruments are significantly different. Let’s start with the basics: cryptocurrency is a digital (virtual) asset that exists in the form of information. Shares are securities of real-life companies and enterprises.

When buying a security, the investor becomes a co-owner of the company. Therefore, in addition to direct earnings on changes in the price of the asset, they can profit from dividends and influence the company’s policy. In some crypto projects, token holders can also influence the further development of the blockchain through voting.

There are other differences as well:

Parameter

Cryptocurrency

Stocks

Liquidity

+

+

Type

Virtual asset

Securities of real-life companies

Earnings

From changes in quotes

From asset price changes and dividends.

Volatility

High

Medium

Fundamental analysis

Buyer demand, mining activity, project news, FUD (fear, uncertainty and doubt of investors and traders)

The state of the global economy, as well as the economy of the issuer’s country; monetary policy of countries and international institutions; demand; often correlates with energy resources

Technical analysis

+

+

Market sentiment/psychology

+

+

Advantages of crypto trading

High market volatility. Competent trading provides a good income in a short time.

A wide range of trading instruments. New projects appear regularly.

Decentralized trading system with a high level of security.

Cryptocurrency trading is available for investors with a small capital.

The rapid development of the industry and its introduction into various areas of life provides good opportunities for investors.

Crypto trading is available at any time, even on weekends.

A variety of trading platforms from classic exchanges to brokers.

Prices can be predicted using fundamental and technical analysis, and quotes can also be predicted by market sentiment.

Cryptocurrency can be easily exchanged for fiat currencies.

Minimal control by financial institutions. Low dependence on global economic processes.

Cryptocurrency Risks & Opportunities

The decentralized trading system provides crypto trading with a certain freedom. The cryptocurrency market is not tied to classical financial institutions, it is weakly influenced by economic processes and regulatory authorities. On the other hand, virtual currencies are unregulated and very unpredictable assets that develop according to the rules that are completely new for classical analysis.

Market volatility has both advantages and disadvantages. Along with high potential profits, crypto trading carries great risks, especially when trading on margin. Without knowing the basics of crypto analysis, novice investors can lose their funds in just a few unsuccessful trades. You need to be careful when trading cryptocurrencies.

Another point to consider is operational security. All transactions in the cryptocurrency market are final and cannot be cancelled. This allows shady exchanges and brokers to make quick cash at the expense of newbies. However, if you only work with trusted sites, the risk of being deceived is minimal.

Cryptocurrency assets trading FAQs

How do I start trading on crypto?

To start trading cryptocurrency, follow three simple steps:

1. Choose a crypto exchange or a broker that lists digital currencies, for example, LiteFinance.

2. Register a personal account.

3. Make a deposit and make the first trade.

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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Best way of using Forex pivot point indicator in trading

2023.01.26 2023.01.26
Best way of using Forex pivot point indicator in tradinglogo

One of the essential things in successful trading is the ability to identify the key support and resistance levels and determine the pivotal points where the overall trend is likely to reverse. A good way to calculate important psychological levels is the Pivot Points indicator. Depending on the method of plotting pivot points specified in the settings, the indicator automatically draws several support and resistance levels at High (Max), Low (Min), and Close prices. Read on, and you will learn the pivot point levels definition, Pivot Points indicator, the principle of plotting pivot points, and the trading systems based on the Pivot Points indicator.

The article covers the following subjects:

What are pivot points?

What is a pivot point? First, let us define pivot point levels. Pivot is a French borrowing that slowly evolved grammatically in English, which literary means “a turn.” Pivot points are the reversal points or levels where the price rebounds and starts moving in the opposite direction. Differently put, Pivot is the level where the bullish trend will turn bearish and vice versa. 

The indicator will be of use for Forex traders who:

Determines entry and exit points according to the support and resistance levels.

Chooses the method to calculate the length of stop loss and take profit.

Uses trading strategies within a trading range.

The principles of drawing Forex pivot points levels according to highs and lows are subjective. However, if you use horizontal levels built according to a specific mathematical formula, you will get a tool with a clear-cut interpretation. These are Pivot lines.

Types of Pivot Points

The classic formula for plotting stock pivot points involves using pivot points trading strategy based on the average of three types of prices — candlestick highs, lows, and closing prices. The difference between other pivot point formulas and the classic one is in the number of lines drawn, the use of additional correction factors, weighting factors.

1. Classic pivot point calculation formula: you need to calculate pivot points’ six horizontal lines: three resistance levels (R1-R3) and three pivot support levels (S1-S3). The calculation formula of the central stock Pivot point is the arithmetic mean of three types of prices.

Pivot = (Max + Min + Close)/3

R1 = Pivot + (Pivot – Min) 

R2 = Pivot + (Max – Min) 

R3 = Max + 2*(Pivot – Min) 

S1 = Pivot – (Max – Pivot) 

S2 = Pivot – (Max – Min) 

S3 = Min – 2*(Max – Pivot)

Max and Min are actual high and actual low; Close is the closing price.

2. Fibonacci pivot points. Fibonacci ratios are used to calculate the levels of deviation from the classic (floor) Pivot point. The calculation formula of the floor pivot line is the same as the classic one.

Pivot = (Max + Min + Close)/3

R1 = Pivot + (R*0,382) 

R2 = Pivot + (R*0,618)

R3 = Pivot + (R*1,00)

R4 = Pivot + (R*1,618) 

S1 = Pivot – (R*0,382) 

S2 = Pivot – (R*0,618)

S3 = Pivot – (R*1,00)

S4 = Pivot – (R*1,618)

R = Max – Min 

3. The Camarilla pivot point. The formula includes four support and four resistance levels without the basic pivot point. Ratios are included in the calculation, due to which the price contacts the levels more often. Therefore, Camarilla pivot points are often recommended for scalping and short-term Forex traders.

R1 = (Max – Min)*1,1/12 + Close

R2 = (Max – Min)*1,1/6 + Close

R3 = (Max – Min)*1,1/4 + Close

R4 = (Max – Min)*1,1/2 + Close 

S1 = Close – (Max – Min)*1,1/12 

S2 = Close – (Max – Min)*1,1/6 

S3 = Close – (Max – Min)*1,1/4 

S4 = Close – (Max – Min)*1,1/2

4. Woodie’s pivot points. The calculation formula is similar to the standard pivot points. However, standard calculators use four levels instead of six. Besides, the calculation for Woodie’s pivot points differs from other pivots because it places a greater weighting on recent price action data than other variations.

Pivot = (Max + Min + 2*Close)/4

R1 = Pivot + (Pivot – Min) 

R2 = Pivot + (Max – Min) 

S1 = Pivot – (Max – Pivot) 

S2 = Pivot – (Max – Min) 

5. DeMark Pivot points. Demark pivots compute only the upper resistance level and the lower support line. The approach to what is pivot point and the calculation of the base level is also different.

If Closing price is less than Open, Pivot = Max + 2*Min + Close

If Close is greater than Open, Pivot = 2*Max + Min + Close 

If Close = Open, Pivot = Max + Min + 2*Close

S1 = Pivot/2 – Min 

R1 = Pivot/2 + Max

There is no single “best” indicator. Each calculation method could be the best for a particular situation and particular asset. You can define the relevant Pivot calculation method only by testing your trading strategy. Read more about testing Forex trading strategies in the article devoted to the MT4 strategy tester.

Using pivot points in Forex trading

The Forex Pivot Points indicator builds the following horizontal levels:

The ideal Forex market situation is considered to be when the candlestick opens below the P points, the price rises, slows down a little at the R1 point, gradually reaches the R2 point, and reverses.  

The strategy of pivot points trading is based on the idea that the price action tends to return to the previous trading day’s close more often than to go beyond the prior trading day range. Therefore, it is recommended to enter the D1 timeframe in the indicator settings. This means that the levels for the next trading day will be calculated based on the prior trading day closed candlestick.

It is clear from the screenshot that the daily timeframe is in the indicator settings, the chart timeframe is H1. It means that the indicator will draw new horizontal levels every 24 hours. If you set the H4 in the chart, the levels will be updated every six hours; if you choose the D1 timeframe in the chart, the levels won’t be drawn.

The signals of the Pivot Point technical indicator:

The price action recent swing highs and lows are between the R1 and S1 points, and the Forex market crosses the Pivot point in both directions several times. This signals that the market is trading flat.

The price action breaks out points S3 or R3 — there is a strong downtrend or uptrend in the Forex market.

In the uptrend, the price, following a correction, runs into resistance R and breaks it out upside. This is a signal of the trend continuation, and one could enter a long. It is relevant to enter a short in the situation when the price breaks out the support level S in a downtrend.

An example of a trading strategy according to the Pivot Points.

1 – The first rising green candlestick almost reaches the P level, the second rising candlestick closes higher than P. It is too early to suggest a trend, as the price hasn’t broken out of the R1 level.

2 – The price rebounds and breaks out the support level S1. One could enter a long with a take profit at S2. The Price breaks out S2 and corrects towards S1. Expect a signal, as the uptrend could continue.

3 – There appears to be a pin bar. It is a reversal pattern, so one could enter a short trade. Take profit is S2 and S1.

4 – There appears a candlestick looking like a pin bar and a Doji. It is time to be ready to open a long position with a take profit at S1 or S2.

5 – new reversal down after the price touches the horizontal level.

6 – new reversal up after the price touches the level. 

How to add the Pivot Points indicator to MT4?

The Pivot Points indicator is not included in the standard indicator list. You can install it on the platform after you have downloaded its installation package on the Internet.

1. Write “download pivot points indicator MT4” in the Google search string. A few notes:

The versions offered by different websites can differ. You can download several versions and choose the most appropriate.

Give preference to investment blogs, sites with updated information, and many tabs as sources. This will eliminate the possibility of a virus in the running file.

Do not download the file if you are asked to enter your personal information.

The extension of the downloaded indicator file is .ex4.

2. Go to your MT4, open the File menu, and click on “Open Data Folder.”

Open the “MQL4/Indicators” directory, paste the indicator file into the “Indicators” folder.

3. Start or restart the MT4. To find the indicator go to “Insert/Indicators/Custom.”

Indicator settings:

You can choose one of the five calculation methods, the number of levels, interval, calculation period.

How to use the Pivot Points on the LiteFinance platform?

Unlike the MetaTrader, the LiteFinance terminal already has the Pivot Points indicator in the standard list.

1. Run the terminal. If you haven’t yet registered, you can try trading with the indicator without registration on a demo account. On the website’s main page, click on “For Beginners/Open a demo account” in the top menu.

2. Open the trading chart of any asset and click on the “Indicators” tab.

There are two tools named Pivot Points in the list.

Pivot Points High/Low. The indicator marks price action extremes in the price chart and displays the recent High/Low values. You specify the calculation period in the settings; it is the number of candlesticks analyzed to define the extreme. The shorter the period, the more extreme prices will be shown by the indicator, but they still will be significant. You can set separate periods for highs and lows.

The tool helps you define the local and the key potential support and resistance levels.

Pivot Points Standard. You can choose any calculation period in the settings, classic, Woodie’s, Camarilla, etc.

The indicator helps to calculate the most likely price pivot points. For example, you can attach several indicators to the chart with different calculation methods. If the likely support and resistance levels, determined with different methods, coincide, they could serve as the key levels.

Pivot point trading strategies

Trading by Pivot Points. Below, you will find several examples of using the Pivot Points indicator to get confirming signals, defining the likely trend reversal points.

Trading strategy based on the Pivot Points in the GBP/USD chart

As I noted in the above example, one had better use several methods to identify the support and resistance levels. If the levels, provided by different tools, coincide or are close to each other, and the price is moving near the control zone, even a newbie can consider entering the next trade. So, in the case of sterling, plotting the Fibonacci pivot points levels and the consolidation of the GBPUSD pair near the zones of their combination with the Pivot levels indicate that the trading decision is correct.

Fibonacci and Pivots in the GBP/USD chart

The combination of Pivot levels with such a technical analysis indicator as a descending or ascending trading channel seems to be quite effective. A breakout of the upper border of the first of them on the daily GBP/USD chart near 1.26 will increase the chance of the pound’s continued rally against the US dollar.

Pivot point formula — how to calculate the indicator

The calculation formulas for the major types of Pivot Points are presented above. One should know the calculation theory at least to understand the construction principle. In real trading, nobody calculates the levels manually. Professional traders employ either indicators, automatically building reference points according to the input parameters, or calculators. An example of a pivot points calculator is on the Investing website.

The calculator displays the levels drawn according to each method and the difference in the calculated values.

Another variant is to study the values of the calculated horizontal levels for each currency pair. You can find them in the section “Technical/Pivot Points.” You can choose the timeframe in the table.

How to calculate Pivot Points in Excel?

If you do not trust the calculators of analytical portals and downloaded indicators, you can use Excel to find out turning points. In Excel, you can see the formula and correct it at your discretion. Download quotes for Pivot Point from MT4 in the appropriate format or enter them manually. The template of the Excel spreadsheet for Pivot Points can be downloaded here.

What Do Pivot Points Tell You?

How to trade using Pivot Points:

It determines the points of potential level breakout or trend reversal. If one of the important levels is broken out, the price is likely to go further towards the next level. If the trend has reversed, the price could be corrected at least to the previous trading day level.

It considers psychological effects. The crowd effect is triggered. If many traders simultaneously set, for example, take profits at the R2 level according to the Pivot Point trading strategy on an uptrend, the trend will turn at R2. Therefore, it is not the Pivots indicator that predicts the trend reversal, it is the behaviour of many traders, using the tool, that becomes a reason for the price swing highs and lows.

It helps to determine the levels for take profit, stop loss, pending orders.

Pivot Point is also a tool to trade according to important levels or channel strategies based on Bollinger Bands or Keltner Channel. It is not worse or better than other tools, it is a complementary indicator, although it also has its soft points. The Pivots indicator could be used in scalping when the price is moving between the levels, trend trading on the level breakouts.

Pivot Points: pros and cons

Advantages of Pivot Point:

It automatically calculates the most likely price turning points according to different methods.

It is well combined with other confirming tools: Fibonacci levels, trading channel indicators, reversal patterns.

It is suitable for strategies employing pending orders. The indicator helps to calculate reference levels which the price is likely to hit or break out and follow with a reversal.

Drawbacks of Pivot Point:

To reduce the likelihood of an error, use several instruments to determine turning points on the base of the previous day. For example, draw the levels according to highs/lows, follow chart patterns, add channel indicators. The more levels coincide with the Pivot Points data, the more likely is the prediction to be correct.

Support & Resistance Levels

The rules to use Pivots in Forex trading are similar to trading Fibonacci levels or support/resistance levels. If the price is above the P line, the central pivot level, it should continue rising. If the price is below the P level, it should continue falling. The nearest turning points are R1 and S1. If the price breaks out one of these levels, the next target levels are R2, S2. The further the price breaks away from the middle line P, the greater the pre market volatility and the greater the likelihood of a price reversal to the center level. Therefore, points R3, S3 are considered the most important. Their breakout indicates a strong movement. But more often, the price reverses to P.

Example:

At the beginning of the period, the price was above the P line, confirming the uptrend. Next, the price breaks out the R2 level but closes a little higher, signaling a strong level. At the next candlesticks, the R3 serves as a strong resistance level, and the price has almost touched it and started to consolidate again close to R2. If it is a correction, the price could go to R3 and higher. If the price covers at least 50% of the distance between R1 and R2, we could consider a downtrend with the first target around the P level in the current trading situation.

Pivot points key takeaways

Pivot Points are horizontal key levels, which professional traders use to determine the entry point. The level breakout signals one to enter a trade in the trend direction. If the price rebounds from the level, there could start a correction or a counter-trend. 

The Pivot point is based on the average of the high, low, and closing prices of the prior trading day or period. It helps to determine the potential pivot levels for the current trading day.

The Pivots indicator draws key levels in the chart according to several methods, classic, Woodie’s, Camarilla, Fibonacci, DeMark’s. The choice of the Pivot levels calculation method depends on the trading strategy, pre market situation, and trading asset. 

Pivot point stock trading and trading Forex. Interpretation of the Pivots indicator’s signals. If the price is moving between R1 and S1, the market is trading flat. If the price breaks out level R2 or R3 upside, the trend is up. If the market breaks out S2 or S3 downside, the downtrend is signaled. One can also employ the Pivot Points indicator in swing trading. For example, a correction to the uptrend starts at the R3 level, and the trade is entered at the end of the correction at R2.

Pivot Point trading: summary

Pivot Points are one of the great leading indicators that helps one identify support and resistance levels. The combination of Pivots with other technical analysis tools allows developing profitable trading strategies. Pivot Point is a supplementary tool used together with trend trading or channel trading strategies. The advantage is that you don’t have to calculate the levels manually. The drawback is that the Pivots indicator doesn’t draw trendlines, indicating only horizontal levels. When trading with Pivot Points, take into account fundamentals, confirm the trend reversal using other tools, chart patterns.

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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Ascending Triangle Chart Pattern: Definition, How to Trade it

2023.01.24 2023.01.24
Ascending Triangle Chart Pattern: Definition, How to Trade itlogo

The ascending triangle chart pattern came to us from Western technical analysis.

The formation of an ascending triangle pattern on the chart warns traders of an imminent upward impulse breakout.

The pattern is characterized by “squeezing” the price from below. That is, the highs remain at the same level while the lows increase, “pressing” the price to the upper border. After that, there is an upward impulse breakout and the destruction of the counter resistance. Momentum gives confidence to market participants and signals a continuation of an uptrend line or a bearish trend reversal.

The ascending triangle pattern has a well-functioning trading system with specific market entry/exit points, as well as determining the stop loss level. Below, I will deal in detail with how to trade ascending triangle. 

The article covers the following subjects:

What Is an Ascending Triangle Chart Pattern?

The ascending triangle pattern is a price growth pattern, which is constructed in the form of a rising triangle. That is, quotes are moving in an accumulative upward channel, in which the resistance line remains unchanged, and the support level is gradually growing, increasing the lows of the asset price.

In trading, this model can be found relatively often in any financial market, including the cryptocurrency market, Forex, the stock, and commodity markets. In addition, this chart pattern is one of the most commonly used patterns and can be employed in day trading.

What Does the Ascending Triangle Pattern Tell You

An ascending triangle in the chart signals an increase in the asset price by a given range. A rising triangle is more likely to work out in an uptrend than in a downtrend. This is due to the fact that in an uptrend, the market is more dominated by bullish power and volume.

Rising lows in the ascending triangle pattern warn traders that the buying pressure is gradually increasing, and this, in turn, signals potential long entries in the market. 

The breakout of the upper resistance gives a high probability of continued growth in the price, especially if the broken resistance line is successfully tested and the price bounces up.

Examples of Ascending Triangle Pattern

Let us consider an example of an ascending triangle pattern in the daily chart of Apple Inc. stocks.

Following a downtrend, a long-term bullish trend starts in the market. As you see, the price chart has drawn an ascending triangle characterized by a flat resistance level and a rising support line. 

The bulls tried to overcome the resistance level framed by the bears several times, “squeezing” the price from the bottom up. This, in turn, gave the pattern a price springing effect, which subsequently allowed buyers to break through the ceiling and head higher.

After the impulse breakout of the resistance, the asset accumulated at the same level for a short time, that is, the bulls formed a new foothold for the next rally.

Next, the breakout price level was tested, and the market continued to grow rapidly.

The price movement along the pattern is determined by its height, that is, from the low point of the support level to the high point of the resistance level.

How to Identify Bullish Ascending Triangle Pattern

It is not difficult to detect an ascending triangle in the chart since the contour of a right-angled triangle located horizontally is visually clearly traced.

To reliably determine the ascending triangle formation, it is enough to identify the following characteristic features of the price chart pattern:

This is a bullish pattern, which is usually formed in an upward sloping trendline as a trend continuation pattern. However, the figure can also form at the low of a downtrend as a reversal pattern, which promises a quick change in trend to bullish;

The horizontal resistance line must be united by at least two points that are approximately at the same level. Between these two points, a correction low of the price should be formed;

The support level must be connected by at least two consecutive separated points. In addition, each subsequent minimum must be higher than the previous one. Otherwise, the pattern will not be true;

An ascending triangle pattern is more likely to work out in long timeframes, for example, weekly or monthly ones. However, one could use this formation in day trading or timeframes of several days;

Trading volumes tend to rise during the pattern formation. It is preferable when the volume rises at the moment of the resistance breakout, but it is not a necessary condition;

The pattern is confirmed by the breakdown of the upper horizontal line. At this moment, the broken resistance line is a new foothold for the bulls, that is, a new support level. Subsequently, corrective testing of the broken level may take place exactly to this mark;

The profit target of the ascending triangle pattern is determined by the height of the wide part of the formation.

Rising Triangle Pattern Measuring Technique

If all the criteria and characteristic features of the pattern are met, it is necessary to measure the potential profit target for the pattern before entering a buy trade.

To determine the likely price movement according to the pattern, you can use the usual tools built into the LiteFinance online trading terminal, namely the “Price Range.”

Having identified an ascending triangle in the price chart, it is necessary to draw it and stretch the “Price Range” tool from the beginning of the ascending lower trend line, that is, from the lowest point of the triangle pattern to the resistance line. After that, you need to duplicate the tool using the “Clone” function and apply it from the level of the resistance line breakout to the expected profit target.

It is illustrated in the H4 ETHUSD price chart below.

Ascending Triangle vs Descending Triangle

The main difference between the ascending and descending triangles is the price movement direction.

The Ascending Triangle is a bullish pattern. The support line for buyers is sloping upwards, while the resistance level is the upper horizontal line. At this time, the bulls push the price from bottom to top for a further price breakout of the resistance line.

A Descending Triangle is a falling bearish price pattern that is directed down.

The upper line in the descending triangle is directed downwards, while the lower line is horizontal. In this situation, the bears “squeeze” the price from top to bottom for a price breakout of the lower line.

Ascending Triangle vs Rising wedge

The ascending triangle pattern is very similar to the rising wedge pattern, which is why many traders, especially beginners, confuse them.

It is important to emphasize that the ascending triangle is a growth pattern, which usually means an uptrend continuation. Conversely, a rising wedge refers to reversal patterns. It appears at the high of an uptrend and means the price movement reversal downwards. 

The difference between these two figures is that the triangle pattern has a horizontal upper trendline and an ascending trendline at the bottom, while the wedge forms as an ascending narrowing channel.

In the ascending triangle, the price breaks the horizontal line upwards, while in the rising wedge, there is an impulse breakout of the upper line downside.

Another important difference is trading volumes. With a rising wedge, trading and pattern formation occurs on increased volumes. In contrast, in the formation of an ascending triangle, volumes are minimal and can only increase when the upper resistance is broken.

Psychology of the Ascending Triangle

Any price action reflects the current psychological state of the market, or rather the psychology of traders.

In the case of an ascending triangle pattern, the bulls move the price up to the formed horizontal resistance. At this point, the selling pressure increases, and the price begins to turn around. However, buyers are determined to push the price up. Thus, the lower upward sloping trendline is rising, and each subsequent low is higher than the previous one. Bulls and bears are moving toward each other and meet at the resistance level. 

As a rule, when the price approaches the upper line, volumes increase, and already here, it is determined who is stronger, bulls or bears.

The resistance breakout upside means the victory of the bulls. However, another situation may arise when the price target begins to decline intensively, breaking through all previous lows. This can only mean one thing: the bears have won this battle and intend to increase the selling pressure, driving the price down.

Selling pressure usually rises when negative news and data are released that directly relate to the traded asset.

How to Trade the Ascending Triangle

There are several methods to trade the ascending triangle in technical analysis. Let us look at some of them.

Method №1

Let’s consider the classic trading method in the formation of the ascending triangle pattern on the example of the EURUSD daily chart.

Below, you can see a bullish chart pattern. The asset price draws a long resistance line, from which the price bounced three times. However, the price lows gradually increase, forming a rising lower trendline as a strong support level. That is, the bulls confirmed their intention, and the price breaks through the resistance area.

On the fourth try, the bulls succeed, and the price breaks out the level from bottom to top. At this moment, one should enter a long trade. The stop loss is set a little lower within the triangle according to risk management rules. 

The target profit is defined by the height of the triangle itself. Attach the Price Range tool to the chart and determine the level that the price should potentially reach. Draw a line and set a take profit. 

Method №2

You can use a more conservative trading strategy to trade ascending triangle. 

The essence of trading with this method is to expect a retest of the broken-out resistance level. Let’s take a closer look at the four-hour chart of Apple Inc. stock. 

You can see from the chart below that bulls break out the resistance level, and the price is corrected down to test the broken-out level. 

In this case, it is important to expect the retest of the level and, having made sure that the bulls consolidated the price above, enter a long. 

A stop loss is set a little lower in the triangle. The reference could be the candlestick, from which the upward movement has started following the breakout. The potential price movement is defined by the maximum height of the triangle. 

Method №3

Another profitable strategy to trade ascending triangles is to set a perpendicular line and build a symmetrical triangle.

Let us have a look at the four-hour BTCUSD chart. 

The figure below shows the formation of an ascending triangle. In this case, as well as in others, it is important to wait for the breakout of the resistance level. After that, you can open a long position. At the same time, the stop loss should be set according to the rules of risk management a little lower in the triangle itself.

In order to determine the take profit level, it is necessary to set a perpendicular line opposite the rising support line from the beginning of the resistance and construct a symmetrical triangle.

In this case, you can determine the expected profit target level in the trade.

Advantages and Limitations of Using Ascending Triangle Pattern

Like other price patterns, the ascending triangles have their advantages and disadvantages.

Benefits:

the ascending triangle can be used when trading any financial instrument. The pattern can be found both in the stock market and in the Forex, the cryptocurrency market, and the commodity market;

an ascending triangle pattern can appear in any timeframe, both long-term and short-term. In addition, many traders use this pattern in day trading;

due to its ease of detecting and trading, the pattern can be used by beginners, as there are clear criteria for entering and exiting a trade;

you do not need any complicated indicators or additional tools to trade an ascending triangle pattern. It is enough to know the basic rules of pattern formation and its typical features.

Drawbacks:

the ascending triangle pattern does not always give correct and accurate signals, in particular, this applies to its formation in a downtrend. Due to decreasing trading volumes in a downtrend, bulls do not always have the strength to turn the price up. Thus, a bullish trap for buyers is formed in the chart, which gives the wrong signal to buy, forming false breakouts;

due to its structure, the triangle can take a long time to form on the chart before a good entry point according to the pattern appears. Therefore, when trading, it is better to use pending orders to buy, as there is a risk of missing a good entry point during an impulse upside breakout of the resistance level by the price;

there is a risk of confusing the ascending triangles pattern with the rising wedge, a bullish-to-bearish reversal pattern, because a perfect triangle rarely appears in the price chart.

Conclusion

Summing up, I would like to outline the following key takeaways:

The ascending triangle signals the price growth;

The pattern can be met in different timeframes and financial instruments;

The pattern can mean an uptrend continuation or a downtrend reversal upward;

The formation has clear features and rules to enter and exit trades, as well as set stop-losses and take-profits;

However, the pattern could indicate false breakouts, causing even experienced traders to lose money.

Therefore, before trading on a real account, you can test your skills and gain experience in trading without any risks on a free LiteFinance demo account. This account provides a wide range of financial instruments for risk-free real-time trading.

Ascending Triangle Trading FAQs

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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Short-term analysis for oil, gold, and EURUSD for 23.01.2023

2023.01.23 2023.01.23
Short-term analysis for oil, gold, and EURUSD for 23.01.2023logo

I welcome my fellow traders! I have made a price forecast for US Crude, XAUUSD, and EURUSD using a combination of margin zones methodology and technical analysis. Based on the market analysis, I suggest entry signals for intraday traders.

The EURUSD  broke through the high of January 18. 

Oil price forecast for today: USCrude analysis

The oil short-term uptrend continues. The upside target is the high of January 18. The second target is Target Zone 84.17 – 83.12.

If the Target Zone is broken out upside, the next buy target will be the Gold Zone 86.97 – 86.62.

Last week, the price tested support (A) 79.15 – 78.80. A buy pattern emerged in the zone. Today, I recommend holding long trades entered according to the pattern with the above-indicated targets.

USCrude trading ideas for today:

Hold up purchases entered at support (А) 79.15 – 78.80. TakeProfit: 82.60. StopLoss: according to the pattern rules.

Gold price forecast for today: XAUUSD analysis

Last week, the gold price reached the Target Zone 1940 – 1933. The short-term uptrend continues. The market hasn’t broken out the Target Zone, and the price is currently being corrected. The correction target could be the new support (A) 1902 – 1899. When the zone is tested, I suggest entering new purchases with a target at the high of January 20.

If the price continues rising and breaks out the Target Zone, the next upside target will be the Gold Zone 1971 – 1968.

The trend border moves to the zone of 1885 – 1880.

XAUUSD trading ideas for today:

Buy according to the pattern at support (А) 1902 – 1899. TakeProfit: 1936. StopLoss: according to the pattern rules.

Buy according to the pattern at support (В) 1885 – 1880. TakeProfit: 1936. StopLoss: according to the pattern rules.

Euro/Dollar forecast for today: EURUSD analysis

The EURUSD price has broken through the high of January 18; the scenario to buy at support (A) 1.0781 – 1.0770 has worked out. The next upside target is the Target Zone 1.0985 – 1.0964.

It is relevant to enter new purchases on the correction towards strong support levels. Strong support zones are support (A) 1.0820 – 1.0810 and support (В) 1.0767 – 1.0752.

To enter purchases, there must be a buy pattern to confirm the entry point. The first upside target will be today’s high.

EURUSD trading ideas for today:

Buy according to the pattern at support (А) 1.0820 – 1.0810. TakeProfit: 1.0925. StopLoss: according to the pattern rules.

Buy according to the pattern at support (В) 1.0767 – 1.0752. TakeProfit: 1.0925. StopLoss: according to the pattern rules.

P.S. Did you like my article? Share it in social networks: it will be the best “thank you” 🙂

Ask me questions and comment below. I’ll be glad to answer your questions and give necessary explanations.

Useful links:

I recommend trying to trade with a reliable broker here. The system allows you to trade by yourself or copy successful traders from all across the globe.Use my promo-code BLOG for getting deposit bonus 50% on LiteFinance platform. Just enter this code in the appropriate field while depositing your trading account.Telegram chat for traders: https://t.me/litefinancebrokerchat. We are sharing the signals and trading experienceTelegram channel with high-quality analytics, Forex reviews, training articles, and other useful things for traders https://t.me/liteforex

Price chart of EURUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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Heikin-Ashi Candles

2023.01.20 2023.01.20
Heikin-Ashi Candleslogo

The Heikin-Ashi chart looks very similar to your usual Japanese candlesticks, which are an extremely popular and convenient technical analysis tool. However, Heiken-Ashi is calculated based on a unique formula, which is completely different from the standard one. Today, I’m going to tell you how the Heiken-Ashi bars work, and how they differ from Japanese candlesticks, how to read their signals, and how to trade in the Forex market.

The article covers the following subjects:

What Are Heikin-Ashi Candlesticks?

“Heikin Ashi” means “average bar” in Japanese. Interestingly, there is no correct spelling of this phrase in the Latin alphabet. Some well-known technical traders and publications use “Heikin-Ashi”. Others use “Heiken-Ashi.”

The indicator is used to filter out market noise. This stems from the unusual design of the Heikin-Ashi candlestick – it is built by averaging four parameters: open, close, max, and min (maximum and minimum price data values).

To put it differently, the standard Japanese bar chart is redrawn into an average price form with minor price data fluctuations smoothed out. Therefore, for simplicity’s sake, Heiken-Ashi can be called a kind of candlestick moving average.

The upper part of the EURUSD chart shows traditional Japanese candlesticks, and the lower part shows the Heiken-Ashi. By comparing them visually, you can see that the lower chart is smoother. It shows no gaps, and many bars are opened closer to the middle level of the previous bars.

By the way, you can only access Heikin-Ashi candlestick charts in the online terminal. You can open it in any browser without logging in. In the MetaTrader 4 platform, this tool looks like an indicator placed over a candlestick chart. I’m going to describe how to use it below.

The Heikin-Ashi typical candlestick chart is often used as a trend indicator. Moreover, the Price Action reversal patterns developed for traditional candlestick charts can give powerful signals as well.

Another feature of the indicator is the latency in calculations. New Heiken-Ashi bars are only formed after the following Japanese candlesticks appear on the Ashi charts. Therefore, the tool is very efficient for highly volatile assets on small timeframes.

Some of the currency pairs that fit the description are CADJPY or GBPJPY. For these pairs, using the Heikin-Ashi will effectively remove noise and prevent false breakouts and market trends reversal signals.

What Is the Heiken-Ashi Indicator?

In MetaTrader 4, you can add Heikin-Ashi candlestick charts for free since it’s included in the standard set. So, you don’t need to download it elsewhere.

The tool works best with a moving average. This way, it will not be drawn on top of Japanese candlesticks. On the contrary, it will make the Heikin Ashi chart easier to understand and show smoothed Heikin Ashi candles of the indicator.

For comparison, here is what the Heikin-Ashi candles look like in the online terminal. Comparing this Heikin Ashi chart and MT4, you can see that Japanese candlesticks have been completely replaced on the price chart.

How Does Heiken-Ashi Work?

The Heikin-Ashi traditional candlestick chart smoothing is performed by averaging four parameters of Japanese candlesticks: open, close, max, and min.

Each of these four parameters is formed as follows:

Open – (open + close of the previous bar)/2.

Close – (open + high + low + close of the current bar)/4.

Max (or High) – the highest value of the current period’s Heikin Ashi high, or the current period’s Heikin-Ashi open or close.

Min (or Heikin Ashi Low) – the lowest value of the current period’s low, or the current period’s Heikin-Ashi open or close.

 

Now you know how to calculate Heikin-Ashi bars. Therefore, you understand that the extremum of HA-bars can vary in both directions compared to the Japanese candlestick in the same positions. Beginners often overlook this fact and place stops at the extremes of Heikin-Ashi bars.

The body of an HA candle has the same value as the Japanese ones and indicates the current balance of power in the market. A white or green bar means a bullish market, and a black or red bar points to a bearish market.

Japanese Candlesticks vs. Heikin-Ashi Candles

Japanese Candlesticks

Heikin-Ashi Candles

Long shadows

Short shadows

The body starts near the close of the previous bar.

The body starts approximately in the middle of the previous bar.

The bars show the real price situation.

Due to smoothing, the bars are formed with a slight lag, reflecting the trend rather than the exact price movement.

At first glance, Heikin-Ashi technique vs a normal candlestick chart is the same. But if you look closely, you will notice one crucial difference – smoothed bars have lower wicks, and the max may not reach the actual extremum of the candlestick. At the same time, the body of each Heikin-Ashi bar starts near the middle point of the former bar.

There is one more thing: because of smoothing, the Heikin-Ashi indications have a slight lag. To illustrate, I compared the two candlestick charts – the Heikin-Ashi technique on the left and the Japanese candlesticks on the right.

The colored circles point to the areas with the biggest differences. You can clearly see the lag in the first red circle. The Japanese candlestick has already formed a long red body, while the HA candlestick is still green. Later on, we will cover how to find such differences and what to do with them.

How to Read Heiken-Ashi Candles

Knowing the Heikin-Ashi technique secrets, you can determine both the current bullish or bearish trend and its starting and ending points. If there is a minimal shadow (or no shadow at all)with a steady rise or fall in prices, it’s an important sign.

This signal indicates the trend’s strength and that it will continue in the near future. So, with a steady bearish movement, you can see a drop in the upper shadow, and with a stable bullish – in the lower shadow.

The bar’s open level is an indirect sign of a stable movement in a certain direction. In this case, it is in the middle of the previous bar. The third piece of evidence supporting the price direction is the candles’ color. If such Heikin-Ashi candlestick charts mostly show rising bars (green candles in the online terminal), the trend is bullish. If there are falling bars (red candles), it’s bearish.

An indirect indication of the trend’s strength is the ratio of the bar sizes. If each new candle’s body is larger than the previous one, the trend’s strength increases. If the bars are progressively getting smaller, especially together with increasing shadows, expect the movement in the current price direction to end soon.

The image above shows a trend. Note that almost all bars have small lower wicks. It also meets another condition – the forming bars predominantly have the same color. When the trend’s strength increases, candlestick bodies become larger, and before and during short-term corrections, they become smaller.

In trend trading, most traders enter the market after a series of identical bars. For example, three Heiken-Ashi candles of the same color and direction can be the conditions for opening a position.

Additional indicators can be used as another way of determining the right time to enter the market. Most of them work well both for Heiken-Ashi and a traditional candlestick chart. For example, during a reverse, the touch or crossover of the Bollinger Band can be used as a signal. I’ve covered this in more detail in the article “Forex Bollinger Bands Indicator.”

Regardless of the method, it’s important to remember that bars are calculated with a formula. Therefore, their bodies and extremums don’t reflect real price values. Now, let’s take a look at the Heikin-Ashi data formula!

Heikin-Ashi Formula – Heiken-Ashi Candle Calculation

To draw the HA-bar, the indicator needs to define four candlestick parameters:

Here are the Heikin-Ashi data calculation formulas:

The HA-Open for the first candlestick is a regular bar’s opening price. For the second candlestick,

HA-Open = (HA-Open (-1) + HA-Close (-1)) / 2,

where “-1” is the values ​​of the previous bar.

HA-Close = (Open (0) + High (0) + Low (0) + Close (0)) / 4.

Here, “0” denotes the current bar, and if there’s no “HA” prefix, the calculation is based on its actual values.

HA-High = Maximum of the High (0), HA-Open (0) or HA-Close (0)

HA-Low = Minimum of the HA Low (0), HA-Open (0) or HA-Close (0)

The picture above shows where to take the values of bullish and bearish bars. Remember that for bullish Heikin Ashi candlesticks, the max is at the top and the min is at the bottom, while for bearish Heikin Ashi candlesticks, it’s the other way around. So, reading depends on the price’s direction.

How to Calculate Heikin-Ashi in Excel

For a full understanding, I prepared an Excel calculator that you can download here.

After clicking on the link, click on the arrow-shaped icon in the upper right corner.

The design of the calculator is very simple – the purple cells on the left side of the table need to be filled in with:

The date (you can just specify the order number);

The opening and closing levels, and high and Heikin Ashi low levels of the Japanese candlestick.

Important! Delete the existing values ​​before entering your own.

The blue cells show where the values are automatically calculated when you fill in the purple cells, so you don’t need to enter anything.

On the right, you will see the updated Heikin-Ashi candlestick chart, similar to the one drawn in the LiteFinance terminal.

Heiken-Ashi Candles Models

When trading Heiken-Ashi, candlestick patterns are often used to determine the right time to enter the market. In this article, I’ll describe the most popular patterns with the most accurate Heiken-Ashi signals:

Doji;

Cross;

Hammer;

Falling star;

High wave.

The image above shows all the listed Heiken-Ashi patterns, and you can use it as a cheat sheet. Black candles are the same as red candles while empty candles stand for green candles.

Now let’s take a closer look at each pattern.

Heiken-Ashi Doji

This forms when the opening and closing prices are almost the same. At this moment, bulls and bears are equally strong, showing uncertainty in the market. Therefore, when Doji appears at the top of an uptrend, prepare to open a short position, and at the bottom of a bearish trend, open a long trade. To maximize reliability, combine Doji with an oscillator, such as Stochastic.

On the EURJPY Heikin Ashi chart, Doji candlesticks are marked with a blue oval. Note that the body is very small and looks like a narrow strip.

Cross

The Harami Cross (or, simply, the Cross) belongs to powerful reverse patterns. It helps determine a trend’s end and the beginning of a new one. This pattern consists of two candlesticks. The first has a fairly large body, and the second is small, similar to Doji. At the same time, the second bar shouldn’t exceed the first one.

Above is an example of a cross. Please note that the second HA candle has a small body and is located within the range of the previous one.

Hammer

The Hammer, also sometimes called the Hanging Man, is a pattern with small bodies, small or no upper shadows, and long lower shadows. During an uptrend, the pattern is referred to as the Hanging Man. During a downtrend, it’s called the Hammer. In technical analysis, these patterns signify overbought or oversold conditions. Therefore, they indicate that a trend reversal is highly probable. Unlike Japanese candlesticks, HA Hammer can only be red candles or black, regardless of where it’s formed relative to the market trends.

In the chart above, the Hammer is marked with a blue oval. It has no upper shadow, and the lower one is elongated. After the pattern is formed, the bearish trend pauses and then changes to the bullish one.

Shooting Star

This pattern looks like a shooting star or comet, hence the name. It appears at the top of a strong bullish trend and signals a downward reversal very soon. Remember a few simple rules to identify it accurately:

As with the Hammer, the HA shooting star is only a bullish green/white candlestick, even though it usually forms just before a bearish reversal.

In the chart above, the blue oval shows a shooting star. This bar has no lower shadow, and its body is about three times smaller than the upper shadow/tail.

High Wave

High waves are bars with long and roughly equal upper and lower shadows. They can be of any color. Such patterns, like Doji, indicate the balance of buyers and sellers and may be the first signal of a bullish or bearish trend movement that is coming to its end.

The Heikin Ashi chart shows an example of a high wave. Its shadows are many times larger than the body and are approximately the same in length.

Heikin-Ashi Trends

In terms of Heikin-Ashi vs. candle, it’s easier to detect a trend direction with Heikin-Ashi while also getting better trading results. Experienced traders look at several factors at once:

The body’s length and its change over time;

The ratio between the body’s size and shadows;

Whether the bullish or bearish movement is predominant;

The direction of price movement.

Below, I will give step-by-step instructions on how to identify trends (bullish and bearish) with these signs.

Bullish Heikin-Ashi Trend

The bullish trend direction matches the following conditions:

The price momentum is going up.

There are mostly green candles that look like upward bars on the chart.

If the bars’ bodies increase over time, the bullish movement intensifies and vice versa. Small bodies signify the trend is ending soon.

With a strong, stable upward movement, Heiken-Ashi candlesticks form small or no lower shadows.

 

The XAUUSD chart shows a bullish trend direction where the consecutive colored candles are. At first, there are almost no lower tails (indicated by the green arrow). Before the upward movement ends, this changes and nearly every bar shows a lower shadow.

Bearish Heikin-Ashi Trend

The bearish trend direction follows these rules:

The price momentum is going down.

The chart is filled with red candles that look like falling bars.

If the bars’ bodies increase over time, the bearish movement increases, and vice versa. Small bodies signify that the trend is ending soon.

In a strong, stable downtrend, candles have small or no upper shadows.

There is a strong downward trend at first (marked with a red arrow). Bars form without upper tails, and the narrowing begins just before a short-term correction. The next stage (marked with a blue arrow) shows an even more drastic narrowing that ends with the Doji.

Heiken-Ashi patterns

There are other patterns that help predict market behavior in the near future. Most often, Heiken-Ashi forms the so-called expanding triangles and wedges. Let’s take a look at them.

With the figure above the Heikin Ashi chart shows an example of different patterns.

Triangles

This is the most common pattern in Heiken-Ashi. The borders are akin to support and resistance levels. If the upper border is broken during the previous uptrend, open a long position since the uptrend will continue. If the price breaks the lower border, expect a reversal, and open a short position. The opposite is true with a bearish trend.

On the S&P500 chart, purple lines show the triangle boundaries. Later on, the price breaks the upper border (green circle). At this point, you can open a long position (green line).

Wedges

This pattern is also often seen on the Heiken-Ashi chart and looks like a narrowing triangle. There are two types:

Rising – moving upward, forming before a bearish trend.

Falling – moving downward and preceding an upward reversal.

A falling wedge is marked with purple lines. Therefore, expect an upward reversal. Our predictions are confirmed when the price breaks the upper border (green circle). At this point, the buying pressure starts to rise and you can open a buy trade (green line).

Heikin-Ashi Candlesticks Trend Analysis Example

Let’s master the trend analysis using Heikin-Ashi traditional candlestick charts on the BTCUSD chart.

After a long-term bearish movement there is a high wave (blue oval)  where the green concecutive colored candles begin. As described above, this is a reversal pattern. So, we can expect a strong uptrend.

The next bar is rising, and its body is larger than the previous high. Therefore, our next step is to open a sale (blue line). Set the stop loss at the nearest local minimum (red line).

After a short-term upward movement, the price goes down. But we don’t see any signals of a reversal, and the bar itself doesn’t have a large range (purple circle). Instead of closing, monitor the market because the drop in the Heikin-Ashi chart may be a short-term correction.

Pay attention to the area marked with a red circle. Here, almost every Heiken-Ashi candlesticks has a noticeable lower tail. This could be a sign of the upward movement ending.

A bit later, there is a powerful reversal signal – a Double Doji (green oval). Two consecutive bars have a small body surrounded by bigger Heikin Ashi candlesticks and long lower and upper shadows. At the close of the red candle, exit the market with a profit (green line).

How to Use the Heiken-Ashi Indicator in Forex Trading

Now, let’s look at Heiken-Ashi candlestick chart on Forex trading. Any currency pairs that show a long-term trend movement can be profitable instruments.

To use it in the LiteFinance online terminal, click on the candlestick icon and select “Heiken-Ashi”. In MetaTrader, the process is about the same. Let me tell you more about adding an indicator to MT4.

The goal of Heiken-Ashi trading is to identify long-term, stable trends and search for chart patterns on HA-bars. Due to lesser price noise on the Heikin-Ashi traditional charts, it’s much easier than on Japanese Ashi candlesticks. At the same time, remember that stop loss and take profit shouldn’t be placed based on the ashi candlesticks’ extremum. For this, I recommend using classic bars or Japanese candlesticks to avoid losing money rapidly from a wrong exit signal.

Heikin-Ashi Trading Strategy

Let’s examine the first Heiken-Ashi strategy, which involves a step-by-step market analysis:

Determine stable directional movement;

Detect a change in the movement direction;

Confirm a reversal using patterns;

Open a position;

Set a stop loss;

Set a take profit.

Let’s take a closer look at the strategy using the GBPUSD currency pair.

Step 1. Identify the strong downtrend. Use the signs from the “Bearish Heikin-Ashi Trend” section. Here, there are more red candles that formed with small or no upper tails.

Step 2. We see an upward bar (purple oval). Take a closer look at the nearby bars to detect a reversal signal where the las few candles of the bearish trend are formed.

Step 3. Detect Price Action patterns or reversal patterns using technical analysis. The first reversal pattern is the last red Hammer bar (black oval where the last of the red candles is shaped).

It is followed by a long Doji (black oval). Two reversal patterns in a row rarely happen. At the same time, they give enough confidence to go for an aggressive market entry.

Step 4. Enter a buy position at the opening of the next candle after the Doji (blue line).

Step 5. Set a stop loss at the nearest local minimum of the Japanese candlestick. Optionally, set a trailing stop if it fits your risk management system to avoid losing money rapidly.

Step 6. In the classic Heiken-Ashi strategy, exit the market when there is located at the close of the candlestick chart the first downward candle. In our case, the first red bar is also a sign of a trend reversal. The tails are long compared to the body on either side, which indicates a battle between bulls and bears. So, after the bar closes, exit the market with a good profit.

Heiken-Ashi Scalping Strategy

Smoothing makes the HA charts appear uniform, which is why choosing to use Heiken-Ashi is great for scalping.

Heiken-Ashi’s scalping strategy involves a very simple analysis. In particular, if the next bar forms in the desired direction by the Price Action signal, it’s enough to enter. Let’s look at the example of the AUDUSD currency pair.

There is a downtrend after a strong and long uptrend, and the lower tail is much larger than the upper one (blue circle). This can be an indirect signal for a trend reversal. Note that a few bars before, the situation was pointing to a reversal, but the trend continued for some time. In Heiken-Ashi scalping, such situations aren’t rare. So, when trading, you should set stop losses close to the position’s opening level and strictly follow your money management strategy.

As the next candle opens the selling pressure rises, and it is a good time to enter a sell trade (blue line). Set stop loss at the nearby Heikin Ashi high (red line). Also, if the local maximum is far from the opening price, set the stop to a level lower.

As the trend develops, the HA-candles’ bodies slowly increase and gradually decrease before the downward movement ends. At last, we can see a Doji. Taking this signal into account, exit the market with a profit at the opening of the next candle.

Ichimoku and Heiken-Аshi

The strategy for swing trading Heiken-Ashi is a combination of the Ichimoku charting method and the HA candlestick analysis. If you’re not familiar with Ichimoku, I recommend reading the “Ichimoku Cloud Indicator in Forex Explained” article. This indicator is self-sufficient for trading and offers a set of signals for successful trading. Heiken-Ashi formula only helps to filter out useless price noise and eliminate false signals. Together, these instruments work well on any currency pair. The optimal timeframe is H4 or similar ones. For successful trading, I suggest using the Ichimoku Kinko Hyo indicator standard settings 9, 26, 52.

Conditions for opening a buy trade are:

The bar exists from the Kumo cloud and closes above it.

Tenkan Sen exceeds Kijun Sen.

Chico Span is above the actual price chart in an upward trend.

Senkou Span A exceeds Senkou Span B.

The Heiken-Ashi has a green candle.

 

Conditions for opening a sell trade are:

The bar exits the Kumo cloud down and closes below it.

Tenkan Sen drops below Kijun Sen.

Chico Span is below the actual price chart in a strong downtrend.

Senkou Span A is below Senkou Span B.

The Heiken-Ashi is represented with red candlesticks.

 

Stop loss is usually set at the nearest local minimum of the Japanese candlestick. Since this Heiken-Ashi strategy involves trend following, consider a trailing stop.

The exit from the market takes place in two cases:

Let’s take EURJPY as an example.

Pay attention to the blue oval on the chart. The bar is above the Kumo cloud. Tenkan Sen (yellow curve) exceeds Kijun Sen (purple curve).

Chico Span (blue line) is above the bar and directed upwards. To show that the Chico Span lows are rising, I connected them with a black line. Senkou Span A (green curve) exceeds Senkou Span B (red curve). The Heiken-Ashi is depicted with the green candle.

Since the buying pressure begins to rise and all conditions for a buy trade are met, open a position at the Heikin Ashi close to the bar marked with a blue oval (blue line). Set a stop loss at the closest Heikin Ashi low of the Japanese candlestick and a trailing stop with an offset (distance between the entry level and the stop loss).

After a price rollback by a specified amount, a trailing stop is triggered. As a result, the long position is closed with a profit.

How to use Heiken-Ashi Indicator With MT4

The Heiken-Ashi MT4 indicator is the standard set, so you don’t need to download it.

To add the indicator to the chart, open the View tab in the MT4 main menu. Select “Indicators” – “Custom” – “Heiken Ashi”.

This will open the indicator settings. To add it to the chart with default parameters, click “OK”. Most of the parameters are the same as for other indicators. I talked about them in detail in “Bollinger Bands Indicator in Forex Explained”.

Now, let’s see how to use the Heiken-Ashi indicator. By default, it’s shown over Japanese traditional candlesticks like in the image above. This isn’t very convenient since the indicator overlaps with the usual bars, not replacing them like in the online terminal.

Because of this, I recommend installing lines instead of candles.

Another peculiarity is setting green for bullish bars. If you use a black background, there is no need to change anything. With a white background, growing candles will merge. However, even with the right settings, I think the way that you use Heikin-Ashi charting tool becomes less informative. Because of it, I prefer using the LiteFinance terminal.

Benefits and Limitations

Let’s consider the pros and cons of Heiken-Ashi:

Pros

Cons

The HA charts become clearer visually. The amount of market noise is much lower.

Due to its design, candles reflect the market with a slight lag.

Easy to use

The number of candlestick patterns and Price Action signals is inferior to Japanese traditional candlesticks.

Indicators based on Heiken-Ashi give less false signals.

Signals may lag more than on Japanese candlesticks.

It makes it easy to trade on small timeframes, so it is great for scalping.

 

HA candles can be used in almost any trading system.

 

Heikin-Ashi vs Renko

In the image above, you can see that Renko chart fully realizes the goal of filtering out market noise. Renko bricks don’t show patterns like Japanese traditional candlesticks or take time into account. They react exclusively to price data changes in points for a certain period of time. The market picture is often visually different from Heiken-Ashi candles because Renko doesn’t consider sideways price movements. On the Renko chart, there are no black ovals for the market flat.

Renko’s huge disadvantage is that most indicators won’t show an accurate picture.

Find more information about Renko standard candlestick charts here.

Comparing the market noise filtering, Heikin-Ashi charts is a perfect balance of Renko chart and Japanese candlesticks. However, the ability to use Heikin-Ashi candlestick charts with indicators is a big plus.

Heikin-Ashi indicator FAQ

Summary

Japanese technical traders have made a big contribution to stock trading. Heikin-Ashi indicator is a prime example that even a very handy tool like candlesticks can be improved.

If your trading system often provides false signals due to market noise, Heiken-Ashi can be a solution. At the same time, don’t forget that smoothed Heikin Ashi candles are not an all-encompassing technical analysis tool. It should only be used with candlestick pattern analysis and additional indicators. In the article, we analyzed Ichimoku’s example, but I recommend experimenting on your own and trying Heikin-Ashi candlestick trading strategies with other ones that you’re familiar with. Consider including the ones already described in the LiteFinance blog! Subscribe and receive plenty of useful information first-hand from the best analysts and traders.

That’s all.

Take care of yourself and your money!

Yours faithfully,

Michael @Hypov

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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