Forex Market VS Stock Market
Almost everyone is aware of the stock market. The trading theory of the stock market is that the possible price increase is to buy the product at a lower price and sell it at a higher price. And the difference between the middle price is the profit. In this way, the market moves with different trading rules.
Below we discuss some of the differences and advantages of the domestic stock market with the Forex market.
- Forex is basically the largest financial market in the world with a daily turnover high.
- The traditional stock market is a small market that is confined within a country.
- The Forex market can be traded 24 hours a day, 5 days a week.
- Traditional stock markets cannot be traded for more than 5 hours 5 days a week.
- Forex market is a spot trading market, you can buy/sell immediately by making a deposit.
- If you want to buy and sell shares in the traditional stock market, you have to wait for 2-3 days.
- In the Forex market, a broker's loan can be taken on a specific trading volume scale, without having to repay.
- The traditional stock market takes no advantage in this regard. Obliged to repay the loan.
- It is possible to trade with minimal investment in the Forex market.
- It is not possible to trade in the traditional stock market without a certain investment.
- You can take profit by trading in both up and down markets of the Forex market, that is, you can trade in a buy order and you can trade in a sell order.
- You can only buy by trading in the traditional stock market.
- Your trades in the Forex market you can do everything from order make to close cash profit at your own account software completely at home.
- If you want to cash profit in the traditional stock market, you have to wait with check requisition.
- You can test your skills before going for live trading through a demo account in the Forex market.
- There is no such method in the traditional stock market.
- Since trading in the Forex market takes 24 hours, Ananya can do the work at the time of her choice.
- In the traditional stock market, there is no opportunity to trade outside the broker's allotted time of 5 hours daily.
- There is no broker commission for trading open in the Forex market.
- Traditional stock markets do not have broker commissions for both open and closed trades.
- If you need to go out for work in Forex trading, you can manage trading on mobile.
- The traditional stock market does not have this advantage as it is dependent on the broker.
- Since Forex is a global market, it rolls in 4 time sessions so that every currency is active in the market.
- No such thing is possible in the traditional stock market.
It is possible to trade in the Forex market with the traditional stock market with many such advantages. That is why a large number of people in the world prefer Forex to stocks as a trading business.
I want to continue on with my look back on some of the pearls of wisdom from Richard Donchian.There are so many things that were valid decades ago that are still applicable to the trading of today.These two Donchian wisdom’s center around volume however markets such as Forex, being a market without a central exchange, don’t have an accurate measure of volume.Trading Tip: Many traders who like to incorporate volume will use the currency futures markets in their analysis but execute in the spot market.That being said, there are quite a few traders who don’t use volume for any reason citing that they could not find any statistical edge using volume. Instead, the term “that’s different” is used which simply indicates that something unusual has happened compared to recent price action.When something different happens, trading opportunities are looked for. I am going to use charts without volume so you can see how you can use the “that’s different” term in relation to two more Donchian guidelines.Volume Climax Without Volume IndicatorDonchian talks about looking for a volume climax especially when the markets have made extended runs. They can be tricky because there are times that what looks like a climax, is really renewed interest in the instrument you are watching.Ensuring that price has advanced for a length of time can be a variable in your trading plan that you need to see before thinking that the climax may signal a change of state of the market.Trading Tip: Just because the market “blows off”, it does not necessarily mean that a reversal is taking place. Markets rarely immediately reverse but tend to balance out before changing direction.This chart shows a market that has been in a steady run up for quite a while. It’s not in this graphic but the market has been making the stair stepping trend pattern of higher highs and lows. Suddenly, price rockets to the upside and eventually rolls over. Also highlighted on this chart with the red circles is a pattern that is called “3 pushes”. While this is one is a little sloppy, combined with the “that’s different” pattern, and occurring after the market breaks out of a range (again just off this chart), I think it is worthwhile to show.At times it can be difficult to differentiate between a climax move and just a strong thrust that sets up a good pullback trade.The key is to look for some type of price action that shows that the lengthy move is coming to an end as in the candle I’ve highlighted with a green arrow in the previous chart.I find the blow off type of action very useful when using a multiple time-frame approach.For example: This chart shows your standard trend-lines and the break through the bottom plus the “that’s different” look of the three preceding red candles, can alert you to be cautious on the lower time-frame. Looking at the smaller chart laid on top, if you were short after the flag you’d be able to see that the strong move down is actually not just strong selling interest but possibly the end of the move. That would have you either tightening up the stop or getting out when the market begins to turn.Follow The Volume Of DirectionWhen price moves from advancing to a period of dull price action, you can get a great position and be in for the meat of the price move.So what do you look for in the period of dullness?This is another guideline that can be a little tricky when not actually watching the volume indicator. It relies on watching a few patterns emerge on the chart that may indicate that there is a buildup of either buying or selling pressure.There are three things that I personally look for and they are:1. Failure test of the low/high of the range2. A buildup of a range of price3. A continuation of the move with a higher time-frame contextLet’s break down this chart and for context, we are coming into this off an uptrend on this time frame. I used a weekly chart for clarity but the daily chart shows the range in better detail. We are also overextended on a higher time frame so while not a perfect trading example, it’s the concept that is important.The #1 black line indicates the bottom of the red candle which at that time represented a the bottom of a small range. You can see the test of the low and price was soundly rejected and would have made a tempting trade location.Price didn’t follow through and often times moves beyond the current extremes just represent an expansion of the range as seen with #2.We get a smaller range indicated at #3 that is inside of the bigger expanded range. The location is key as we see that range forming in the upper half of the larger range. Finding a trade location inside of this smaller range given the location and same time frame context, is not a bad play. You get a favorable position in this example prior to the break out of price.However, as mentioned previously, the larger time frame does appear over extended and at this point, a reversal candle has formed on the higher time frame.Blow-Off And Direction TradingThe key for the over-extension and possible climax is looking for price to print a “that’s different” look to it. When this occurs after a steady state run in either direction, you can either look for a position in the opposite direction or using the higher time frame, filter out a trade that may be at a dangerous point in time.The second type explained above, for me, is used to get into the current trend unless higher time frame context spells something different. I look for an obvious pause in price and a sign that price is rejecting, in this case, lower prices.Failing that, a smaller range forming near the extreme of the range can often make a great location to get into the market.While these may not be exactly what Donchian was talking about, I wanted to show that even without volume, the chart itself can often spell out what you need to know.I encourage you to break out your charts and see if you can identify commonalities in various instruments to not only verify this information, but perhaps also build upon your own trading plan.
Consumer Price Index, CPI for short is a measure of the change in the weighted average of prices from a basket of consumer goods and services considered essential.CPI is calculated by tracking the price changes for each of the items in the basket of goods and weighted in importance.Inflation data is primarily comprised of two measures:* Headline inflation: This inflation reading tracks the overall changes and includes energy prices which are volatile* Core inflation: This inflation reading strips out the volatile energy prices and food and gives a clearer picture of the price changes in the basket of goodsThe headline inflation data is usually more volatile compared to the Core inflation rate and has the ability to predict core inflation. The headline inflation is designed to be a best measure of inflation and it is this headline inflation which is usually targeted by Central Bankers.CPI or inflation data is an important economic release which has the potential to move the short term markets as well as shape monetary policy decisions. After all most central banks have an inflation-targeting mandate.CPI or Inflation data is released on a monthly basis with some countries releasing flash or preliminary inflation data ahead (EU) of their time.Typically CPI data released is for the month gone by and is also measured annually for both the core and the headline inflation data.Countries such as New Zealand and Australia prefer to keep the inflation data on a quarterly basis which offers a less volatile and clearer view on changes in consumer prices.Some countries also tend to use their own measure of inflation. For example in the Eurozone, HICP or Harmonized Index of Consumer Prices is used, while the US besides the CPI, PCE or Personal Consumption Expenditure data is also used.Although the terms may sound different, they track the same underlying changes in consumer prices with differences in the way the prices are measured.Why is Consumer Price Index an important economic report?The CPI or consumer price index report is an important economic indicator as it signals how quickly prices are rising or falling. When consumer prices rise, it signals inflation, but when prices fail to rise or drop, it signals a period of deflation.Central bankers use consumer inflation as a gauge to raise/cut/hold interest rates, which acts as a lever to stimulate or hold back consumer spending which in turn influences inflation.As a result, CPI data is closed watched as strong or prolonged increase or decline in inflation usually results in some Central Bank acting on monetary policy.Most central banks today build their monetary policy around inflation targeting. This means that the Central Banks have a specific target inflation rate to achieve, which is usually 2%, or in some cases, within a band of 2% – 3%.Interest rates and monetary policy tools are used in accordance with maintaining the price stability.Impact of CPI data release on the forex marketsIn the currency or forex markets, CPI data is closed watched. This report has gained a lot more significance ever since oil prices started a steady decline making it more difficult for Central Banks to target the 2.0% mandated inflation growth.Many banks have had to cut interest rates, some into negative as well as having to use other tools such as quantitative easing in efforts to stoke consumer spending and thus push inflation higher.A good example of the importance of inflation data can be the Bank of Japan and the European Central Bank, which struggled to push inflation back to the mandated target.When monthly a quarterly inflation report shows a spike or declines further, the markets are quick to speculate what policy action the Central Banks could take based on the information available.Example of trading the CPI releaseEurozone CPI (2014 & 2015)The Eurozone's annual inflation rate was in a steady decline for most of 2014, at one point falling below zero. The ECB vowed to bring inflation back to its 2.0% target and prepared the markets thereafter that it would consider cutting interest rates to historic lows, cut rates on bank deposit rates and purchase sovereign bonds via the QE program to spur lending.The chart below shows the Eurozone inflation rate between 2014 January and 2015 December. It was in January 2015 that the ECB announced a massive €60 billion monthly bond purchase program to stoke inflation. Eurozone Inflation Rate 2014 – 2015 The Euro fell sharply since the ECB announced its intentions, falling from highs of $1.39 to hit $1.12 before the ECB officially announced the dovish monetary policy decision.To summarize the key points about CPI and how to trade the report:* Inflation is a measure of the price change in a basket of goods. Inflation is measured as a headline and core inflation which strips the volatile food and energy components* CPI is released on a monthly and quarterly basis, in some cases as a preliminary estimate. The data is released for the previous month* While monthly dispersions occur, the annualized inflation rate is what matters* CPI might have strong or negligible impact depending on the monetary policy conditions* On the very short term, a surprise in inflation can lead to some intraday trading opportunities
Many people who have decided to enter the forex trading should educate themselves first. It is very important to know even the basics to gain success, but this is no guarantee, not by a long shot, you need to know more than the basics to even have a fighting chance of succeeding. There are different ways to learn forex trading. You can join online services, enroll in a forex trading school, become an apprentice of a forex trader, or do it alone. However, doing it alone involves a lot of risks especially for beginners. For novice traders, it is much better to choose the safer ways of learning. You are going to benefit from experienced instructors who are already trading forex in real times. In this manner, you are being acquainted with the real market conditions. You are given the chance to see the actual processes and decisions which you can later on adopt. Nevertheless, it is your own strategy that will win you up.There are six simple steps that novice traders can follow to achieve success in the forex markets.1. Right attitude. The traders who are successful in trading forex takes on the attitude of doing what it takes to achieve success. This stresses that success lies on the person who are trading forex itself. It does not matter if you read forex trading tip sheets or listen to a forex guru. It will become invalid if you don’t possess the right attitude for success.You can conduct experiments on your own for two weeks together with other novice traders. They are often called as turtles. Learning forex trading is avoiding the trap of believing that you can actually gain success by following someone else. Just get the right knowledge and develop a strategy of your own.2. Right method. It should involve long term trends. Keep in mind that the trend on big currencies lasts for months or even for years. It is your responsibility to lock yourself into these trends to make huge profits. It is best suggested to use the breakout methods to catch long-term trends. This method is already proven by leading trading systems. Good software is also recommended for use. It allows the trader to test the trading method that was chosen and later on trade it on real times.You need to know proper charting and mapping. There is already available software that will aid you regarding market moves. It will allow you to calculate the best times for selling or buying when you are able to read forex market charts.3. Right discipline. The traders should discipline themselves by strictly following on their developed methods even when losing period’s strikes. It could teach them new techniques on how to survive the forex markets even when downfalls strike.4. Right knowledge. The traders can quickly learn the breakout method, however, they should also overcome psychological pitfalls involved in forex trading. It is recommended to read motivational books that mainly focus on this matter.5. Take the risks. The common mistake done by most Forex traders is trying to restrict the risks. In the end they may suffer great losses because they are being blocked out in the forex market. The trader’s direction is right however the trade does not have enough room for downsides. Always remember that in forex trading risks lays the rewards. There is a difference between rushing in taking risks which are already calculated. It only allows you to wait for the right opportunity.6. Trading in isolation. The trader should learn this to keep focused. Remember that if you are open to the views and opinions of others, it may discourage you if you find it very different. It does not necessarily mean you follow the opinion agreed upon by many traders, because most often, many traders acquire losses.Forex market is considered the largest market in the world. It is operational twenty four hours a day, five days a week. Its processes are been carried out in real times without boundaries. The trader’s success also depends on the right decision making. Learning forex trading have no barriers and entry points so you need to have better understanding before plunging into business. Although some people suggest that learning forex while trading is the best, but it is always your decision to choose the best way to learn that will suit your needs.