InstaForexBlog

Fear and greediness on Forex

InstaForex Company warns all traders that work at Forex currency market is not only highprofitable, but also highrisky business. Therefore, we advice every participant of the exchange market to follow the definite psychological canons. If you adhere to them or at least remember them, you will able distinctly decrease risk constituent that will have an affect on your work efficiency.

All emotions inherent in us – fear, greed, hope and etc. – in a fast rhythm of stock trading exert the determinative influence upon trader’s behavior. Weak and self-confident, avid and sluggish – all these people are doomed to become victims of the market. Awareness of your own capabilities and preferences, positive and negative qualities can help you to avoid bankruptcy. If you add to this faculty for appropriate appreciation of mental state and suitable behavior of market crowd, the success is guaranteed to you.

The driving force, which makes us work at speculative financial markets, is greed. If your greed is minor, you will not make a lot of deals, losing many good moments. In this case it is recommended to find another occupation that is more composed. If your greed passes all bounds, you will try hard to make as many bargains as possible, exposing yourself to the risk of unclear outlooks. You should better play in casino; it will be congenial for your nature and cheaper for your wallet. The result of avidity’s action will be motivation to the bargaining.

Revealing of are you playing or not under pressure of the greedy vehemence is possible with the help of the following signals. If a trader asks others: “What do you think about this?” If he tells others about his opened positions. If the trader does not have a plan of work, which is made before bargaining, - all this shows that the trader works most probably under pressure of the vehemence, not the mind. The best vehemence drug is making a plan of deals arranging (the financial activity plan).

Next factor advancing the trader to conclude deals a hope for making profit. Of course, activity goal is to earn money. But when the hope dominates under the calculation, you risk to overestimate your own abilities in the situation analysis and make out a mountain (your dream) of a molehill (the reality). The hope should be under the calculation and greed.

The fear appears when you get losses. Some are paralyzed by fear and they can not stop on time and lose everything. Others are forced by the fear to move and sometimes arrange interlocking deals that usually just quicken bankruptcy.

In the critical moment it is better to do something than let the grass grow under your feet and watch how beautiful dreams vanish with the quotations changing. At the same time oppose convulsive actions of a nervous choleric subject to reasonable and systematic steps for overcoming the crisis. Operate right according to the plan made by you before the position opening (accordingly before the fear emerges).

Some traders’ mistakes are unordinary at all. They are based on mental state of the bug. Often a trader, who got a great profit for the certain time frame, leans that all his trades during the passed time period was made at the DEMO-account. The given mistake can also be related to initial fear of real operating.

The article is added by Dmitriy Golynskiy,
Clients' relationship manager

Day-by-day trading

Everybody knows that Forex does not sleep and does not close. Since the rise in Asia till the sunset in New York bargains are made on Forex. Here is the question: what does Forex intraday trade constitute, if, in fact, trading sessions are held without breaks during the whole week? That is why technically intraday trade is a deal closed when trader does not sleep. Also a deal can be considered as intraday if it is sealed or closed during the trading sessions at the Asian, European or American stock markets.

Informally intraday trading is an indicator of trader’s mastery and experience level. Thus, for example, a newbie trader wants to jump into the market, win and go out. More experienced intraday trader prefers wait till the market comes to him. The newbie player takes intraday trade as alternative of the deep market analysis. Whereas, the experienced trader knows that intraday trade itself is a result of its analysis.

A history of your intraday trade plays an essential role. You see, starting analysis, probing a position where a price is testing a trading pattern, the key support or resistance levels of Fibonacci, trend line or moving average. In the ordinary sense, your next trading day takes its trading models reasoning from the previous days if not weeks.

Finding of your next intraday deals is the result of some decision-making rules application. The actual condition for trade signal receiving is waiting till the right confirmative moment. The next important step consists in deciding what direction the next deal will have. Will it be “buy” or “sell”? Choosing the direction of your next deal you do not try to forecast the market at all. You wait till the market comes to you itself.

The attractive feature of Forex market is concerned with plenty of opportunities for trading during a day.

Let’s try to determine how many good trading chances does intraday currency trader have during one day. Sensitiveness analysis would show that we have 6 major currency pairs (EURUSD, GBPUSD, USDCHF, USDJPY, USDCAD, AUDUSD), and at least the 2 most widespread cross pairs (EURGBP и EURJPY). This provides us with 8 pairs for intraday trade.

When we look closely at every graphical interval of a currency pair for getting a trading signal, we greatly increase potential for deals. Intraday trading at Forex market can often provide more trading opportunities than in a medium-term outlook. A market participant doesn’t has to catch any deal, he/she should choose carefully from the number of existing chances. A trader must sift out potential bargains, searching for patterns and choosing the key time interval. A great idea is to focus on the trend lines and channels in any time frames.

The newbie trader can make it a rule to determine trading opportunities using 4-hour time frame. This period is rather long so that the price could develop wider ranges acceptable for trading. During 4-hour time frame currency pairs often show ranges that provide the distance apart the resistance and support levels enough for reaching intraday trading goals.

In that way if we evaluate that we can intend on 2 trading chances for a currency pair during the given 4-hour period, then we can await in common 16 trading opportunities that can justify closing of the deal.

If we closely analyze these opportunities and choose only 1 deal during the 4-hour span of time, then we have more than enough to consider Forex intraday trading as serious chance.
There is nothing unordinary in cluster effect advent, when an operation with one currency pair is accompanied by operations with all other pairs, and suddenly nearly the same time numerous opportunities appear. Otherwise, distribution of the trading chances is not accidental, that is why patience in waiting of the best chance is the determinative skill.

Eventually, bargaining is a logical conclusion of analysis, but it is not spontaneous action. Whereas, there is no one common rule regarding what trading signal is to choose, we can diminish conditions in such a way that a deal will be rational and supported by combination of the technical factors.

Any day trading models, that can make you wish to arrange a deal, appear on Forex market. The experienced traders wait for deals with a high probability, if they are sure the deal will work. The mental state and optimism also can support trader’s confidence.

In the long run, profit and losses statistics will show if you follow up the deal or if you trade for win. Either you seek after grasping a quick gain for paying for your dinner at a restaurant or trade for mortgage payment, intraday payment on Forex has a potential for achieving different trading aims because of its market patterns.

Forex intraday trading offers a wide spectrum of trading opportunities, but it requires a lot from the trader. Currency exchange trader who wants to be successful, must be armed with the arsenal of technical instruments and have a set of the distinct rules.

The article is added by Evgeniy Galaev,
Chief Manager of the Client Relations Department

Fundamental technical research

Plenty of forums about Forex-trading are full of threads where traders try to answer the same question: what is better? Fundamental or technical analysis?

In my opinion the answer to this question even does not exist. In many respects it is because the question as itself does not contain a correct comparison of two equivalent issues. That is why I would like to take up both types of analysis separately. Of course I will not be able to avoid oblique compares.

Fundamental analysis is based on the information of one kind, and technical one considers another data. There are also differences in fields of application of each analysis’s types. Fundamental research is made during a long-term period, and technical analysis - short-term.

It is not a secret, that fundamental factors are crucial macroeconomic indicators of the national economy state. These indicators influence on participants of exchange market and on currencies’ rates. Looking it another way, fundamental analysis studies all the economical indices, which affect the price of an investment object of in distinction with the technical analysis of trend patterns on graphics. However, not each adherent of fundamental analysis remember, that it is necessary to note one and all the economical indicators. Basic among them are:

- Interest rates

- Money supply

- Unemployment

- Non farm Payrolls

- Gross National Product

- Gross Domestic Product

- Consumer Price Index

- Producer Price Index

- Trade Balance

- Jobless Claims

- Industrial Production

- Capacity Utilization

- ISM

- Personal Income

- Car Sales

- Retail Sales

- Durable Goods Orders

- Consumer Confidence

- New Home Sales

- Construction Spending

- Factory Orders

- Business Inventories

It is necessary to understand that to interpret economic indexes is not an easy job. The person should have good economic education, analytical mind in order to make qualified conclusions on the basis of fundamental analysis. Interpretation of indexes by newbies in the way like “the level of industrial production in USA increases that is why US dollar rate rises” has nothing in common with qualified analysis and forecast. Only professional analytics who read regularly records and press-releases, communicate with people from trading and investing fields are able to examine all indexes in complex. However, do not give your attempts to master fundamental analysis up for lost. Even basic fundamental analysis based on small experience and common knowledge in economic may help to “catch” trend, sometimes even long-term one. Unlike fundamental analysis, technical analysis studies predictable events inside of trading process with the help of trend indicators which are seen among lines at chat. Trend models and figures of technical analysis are formed from these lines. It is possible to forecast prices movement at chats with the help of trends method. 

Adherents of the technical analysis hold by an opinion that fundamental analysis has already taken into account by the market and included to the price. That is why price chat studying is enough for technical analysis forecast. In other words technical analysis is a part of fundamental analysis.

In spite of some simplifying of the real situation - time shift from the moment of information receipt to the moment of its influence on a price is not taken into consideration - this is difficult to question. Technical analysis is a short-term analysis and price always moves in one direction. Three types of trends are distinguished:

“Bullish” trend – prices move up. The definition “bullish” was arisen in a similar way to a metaphor “a bull which raises a price on his horns”. This is situation on price chat when assets’ prices take support level as starting point and set new price maximum. Support and resistance lines are directed up.

“Bearish” trend – prices move down. In this case, a bear crushes a price down falling on it by its body. The situation is reversed to the previous one, prices go to the resistance level, push themselves away from it every time set new minimum, so trend will be directed down.

Sideways trend – there is no definite movement of the price. In this situation the prices are “closed” in some range and go from the line of resistance to the support line and back without new maximum or minimum set. Usually such movement is called “flat”, rarer “whipsaw”.

It should be mentioned that long “flat” is an indicator of price storm at the market – strong movement of the price to some direction.

As a rule prices do not move linearly up or down. However, trend line is directed up when we have bullish trend and prices grow quicker than fall. Quite opposite thing happens when we have bearish trend.

Consequently basic laws of trend construction may be deduced:

-         “active trend with more possibility will continue when change its direction”, or

-         “trend will move in one and the same direction till becomes weaker”.

However, do not use oscillators during heavy trend because they are designed for short trends, when long-term fall takes place oscillators signal about resell and advise to buy but the fall is far from bottom. That is why it is more reasonable to trade trends and oscillators use during sideways trends. 

Technical analysis is based on unchanging laws of physics, economy and psychology in different historical periods. Other words those rules which work in the past work in the present and will work in the future. That is why this statement gives traders, who use technical analysis, basis with a big likelihood ratio forecast future while trading trend.

Summing up, I must say that there is no need to divide fundamental and technical analysis into correct and incorrect, effective and ineffective, useful and useless. Both types of analysis complement one another. Fundamental lets count the perspectives of the movement main direction and technical lets start and finish trading in time.

The article is added by Vladimir Syrov,
Chief development manager

FOREX and time for trading

Nowadays Stock Exchanges of London, New York, Tokyo and Sidney are the main marketmakers in the world. These points of flow of funds crosses provide more than third part of currency dealings.

Even though working time of FOREX market is not limited (24 hours a day, 7 days a week) and not attached to any stock exchange, activity and quiet hours are observed in the exchange market. The given patches are concerned to intersection of working time of the world stock exchange. Thus for example a period from 1:00 pm till 5:00 pm (GMT 0) is time for trading session together on the largest New York change and on the second in terms of volume, London stock exchange. The most activity in the market is to be observed at these particular 4 hours and, consequently, after market volatility increase, risk level for market participants also rises. However, just in this period of the storm, not calm, you can earn the highest profit, thank’s in the largest part to strong wind swinging rates of exchage. That is why traders following agressive manner of trade choose for themselves periods of highest activity on FOREX.

But in the way if you are adherent of conservative trading methodic and minimization of risk is your priority, then the most comfortable time for your trades is patch from 22:00 till 00:00 (GMT 0), when only Sydney exchange works all over the world. At the same time I should point to the fact, that in this period you can as well not to loose great sums from your account as not to catch a really big fish. In the other side, for better minimization of even small losses you can use very simple instruments of heging.

Experts advice newbies to start their careers in FOREX at the hours of lowest activity. It is great time to try the whole existing market instruments, trace back trends and practice various strategies. But sooner or later shoal will get on your wick and you would like to enter “big waters”.

The article is added by Alexander Demkin,
chief-dealer