Don’t Miss This "Tip" That a Currency Pair Might be Reversing
First and foremost a trader should determine the direction that the market has been taking the pair over time…the longer term trend. Once that is determined, the trader can then look for entry signals in the direction of that trend as that will be the direction that offers the greater likelihood of success.
As we look at our 4 hour chart of the EURJPY below, we can see that the pair is in an uptrend (has a bullish bias) as price is trading above the 200 Simple Moving Average and, at the time of this chart, the EUR was stronger than the JPY.
So, if the pair is in an uptrend (bullish bias), we would want to look for candlesticks and candlestick patterns that demonstrate a potential for a bullish reversal. That would be a reversal by price action back in the direction of the trend.
On the chart above we would be looking at the Hammer Candlesticks, Doji, Bullish Engulfing pattern and the Morning Star pattern for that bullish reversal signal. When we see these candlesticks and patterns forming at the end of a retracement, a support level, this is a “tip” the price action may very well reverse back in the direction of the overall trend. Again, nothing in trading is a certainty but these patterns can provide us with a trading edge, the tip that we are looking for.
What if the pair is in a downtrend?
On the chart above I have also included some of the patterns that we would look for that would indicate that price action may be reversing to the downside after a reversal (pullback) to a level of resistance. Those patterns would be the Shooting Star, Bearish Engulfing, Doji, Evening Star and the Spinning Top.
While in most cases on this chart price action did reverse to the downside after these patterns showed up on the chart, the higher probability trade will still exist in the direction of the trend.
While it is not necessary to discard your indicator of choice in favor of candlestick patterns, using these patterns in conjunction with your indicator, be it MACD, Stochastics, RSI, etc., can provide an additional tip when it comes to looking for a pair to reverse its direction.
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How Commodities Traded Are: Commodities have been an instrument of exchange from long ago. in earlier times goats and cattle have been sold in exchange of money or grain. What is a commodity | How Commodities Traded? Anything that can be used as a sellable good or that could be exchanged in terms of money, or some financial favour is termed as a commodity. For example, primary sector products like crops, e.g., wheat, maize, barley, etc. or a dairy product like milk, meat, etc. or it could be oil and natural gas. As we have learned about what are commodities, let us get a more in-depth analysis of how the commodities traded? The answer is commodities are traded in two basic ways: one is through the exchange, and one is direct. The direct way is the one which is used from primitive time’s, i.e. one get money in exchange of goods without the involvement of any third party. And the other way is used by the investors or brokers, more preferably to enhance their portfolio, in this method goods are exchanged through exchange markets. For example, if we want to import some electronic goods from abroad, then this can’t be brought directly from the supplier. It has to be brought only after paying exchange duties that we term as customs duties. How Can We Compare Commodity Market With Share Market? Apart from the above discussion investors prefer to trade in commodity markets along with share markets because commodity markets generally trend opposite to the share markets. And as they totally depend on demand and supply variations, hence they are very difficult to predict for future trade scenarios. What is Commodity Index? A commodity index is a measuring tool with which a trader can see the changing market prices of commodities in international or local markets w.r.t. Demand and supply and accordingly take an early action to change its business strategy for-profit cause. What are Commodity Markets? The commodity markets are the market places that deal in commodity exchange trades. What is FIX in Commodity Trading? Before 1992 there were only NYSE in which trade was made by brokers only. It was not easy for an individual to directly trade in these markets. Also, it wasn’t easy to trace one’s current ranking in the stock market. So after 1992, electronic commodity trading has started to make it easy to access the real-time position of a trader in stock markets and commodity markets by using FIX (financial information exchange) protocol. Using FIX protocol via online medium, a trader can quickly check its position in the market and changing market prices of commodities in a real-time. After getting the basic idea of commodities and markets, you must be thinking of how to trade in commodity markets, so here are some fundamental steps down below: - First, decide about the market, i.e. choose which product or good you can trade well and churn out the profit. There are numerous things to trade on like gold, oil and natural gas and CFD’s. - Second is to decide whether you want to buy or sell a commodity? That is you can buy an entity for a long time if you think the price of the same will rise later on. And sell the commodity in a short while when you think the price of that commodity is going to decrease in the near future. - The third is deciding your trade size, aka spread betting. Just plan on how many types of CFD‘s and till what point movements you want to trade. If you want to assure you against trade loss risks, then you can choose any of the listed stop-loss order. Among all of the stop-loss orders, the GSLOs (guaranteed stop-loss order) insures you from loss by taking some premium, and the premium is returned to the trader if the GLSO is not fired. - Forth is to monitor your position on a real-time and exit at a safe exit point where you earn a profit. Now, after understanding about trading techniques, let us know trading contracts in commodity markets. Types of Contracts Two types of contracts are used in commodity dealings. i.e. forward contracts and futures contracts. Forward contracts: these contracts are signed at fix price at that time and abide to pay on a fix future date just after delivery of goods. This type of contracts is signed between farmers and crop buyers. Future contracts: In this type of contracts product quality, quantity, its grade is already fixed, and the price factor is the only one which is left variable as per the future market fluctuations. This type of trade contract is conventional in purchasing crude oil etc. Conclusion – How Commodities Trade It is suggested that if you want to understand more about commodity trading, then you will have to jump into the market and see the real-time activities. If you start with small amounts and followed risk management strategies, then you will get benefited from this.
Trading & investing: Long ago in the history, there was only trading existed as people did exchange food for money and vice-versa according to their needs. So what is trading? In laymen term, we can understand that trading is just buying or selling things to earn a profit, according to modern-day theories. But in terms of stocks, trading is buying and selling of securities. And from where the term investment came into existence? Say for example: in earlier times when a wealthy person had to earn profit from his money, he purchases the land in exchange of the money and hold it for some years and as the rates of that property rise by the passing of time, and as there was the development of societies, they sell that land and earn a significant profit. That is how the philosophy of Investment came in the market. So the essential difference between trading and Investment is the Time Horizon, i.e. the holding time of the asset. In trading, short term holding of assets is performed to earn a profit, whereas, in Investment, the assets are purchased for returns and procured for a long duration getting big (expected). Now the question arises that which one of them is more profitable? So we are discussing them down below one by one with in-depth analysis. First, let us discuss which strategy is better in terms of risks: An investor bypass all the short term risks that are faced by the trader but in the same time frame a trader despite facing risks, make small profits out of descent of market. Which One Is Good For Instant Profit? For a quick profit, trading is considered as a best practice as in trading the money or commodity is held for a short time. So, if a person sees any downfall in the market, he can withdraw it from the market, and if there is a possible rise than by selling the commodity, a trader can earn an instant profit. Importance of Holding Time in Both Trading and Investing The longer you hold your asset, the longer you earn proverb may not hold good in case of a trader, as he draws benefit from short transactions by either selling on high prices during the rise of market or by buying commodities at low prices during the fall of the market. Protocols or Strategies Followed Both Investment of trading is made on behalf of different mindsets. Like an investment is done with a perspective of plans like retirement, marriage, education etc. and earned a fixed profit after completion of holding duration. So this may be considered good for those who have long term goals. In contrast, a trader has a mindset of earning quick profit from either a downfall or rise of the market. So, he invests his money and for a short time and as soon as he gets some profit, he withdraws his valuables or otherwise he can use stop-loss orders to minimise his risks. Trading is profitable if the money or commodities are invested for a short while. Profit Comparisons of Investor and a Trader A trader invests for a short span of time and aims to get a profit of say 10%, on his traded asset, but he is equally susceptible to market risks also, as he may end up with a total loss. In this condition, the total profit of a trader is Nil; instead, he incurs a loss. Whereas a trader aims to get a total of 10% profit over the maturity of his invested asset, but in comparison to the trader, he is not at all susceptible to the market fluctuations as the overall market conditions generally rise by default. So he gets a sure profit but after a long time. Conclusion – Trading & investing Finally, after all the above discussion, we have come to the point that an investor seeks more profit compared to a trader when he buys and holds the assets for a long time duration. In contrast, a trader gets profited by both ups and downs of the markets in small chunks even by holding his money for a short while. So we can say that if you want to plan for future returns, then Investment is the best way to get benefited from your assets and if you want to gain profit in a short while then trading is the best way to play in the market.