Here’s What You Need to Know about "Overbought" and "Oversold"
If you are cooking something and you check on it and you see that it is “overdone”, what is your immediate reaction? Exactly…you take the dish out of the oven. Remove it from what caused its current overdone state and the sooner the better.
What if your car’s engine is “overheated”? Same deal…you do what it takes to get the engine cooled down. Immediately stop doing what caused the engine to become overheated in the first place.
Given these natural reactions, it is easy to see why the initial and almost immediate reaction by many newer traders to an overbought or oversold trading scenario is to do the opposite in that case as well.
They reason that since many buy (long) orders moved price up and pushed the indicator into overbought territory, we must do the opposite and take a short (sell) position. Conversely, if many sell orders caused price to drop and the indicator to move into oversold territory we must begin to take long positions. It’s almost as though they expect price to snap back like a rubber band when it reaches these overextended zones.
Well…what is the proper reaction for casseroles and car engines is not necessarily the right reaction when trading.
When an indicator goes into the Overbought/Oversold areas, remember that it can remain there for quite some time. Just because the RSI or Slow Stochastics indicator reads Overbought for example, does not mean that price action on the pair is like a tightly compressed spring that is going to immediately snap back toward the Oversold area.
Let’s take a look at the Daily chart of the NZDJPY below for an example on this…
Notice on this chart that the first time Slow Stochastics went above 80 into the Overbought area, price continued to go up for another 780+ pips and Stochastics stayed overbought the entire time. Clearly a trader who went short when it first went into Overbought territory would have missed out on a great move. They also would have gotten stopped out of their short position in fairly short order.
To see an example of where price retreats when Slow Stochastics goes into Overbought territory we need to look no further than the area labeled “A” on the chart. In this case the candlesticks around “A”, dojis, spinning tops, shooting star and a hammer, indicate the potential for a pullback.
The point to be made is that either scenario can play out so don’t have a knee jerk reaction to the Overbought and Oversold areas of an indicator.
Only take entry signals from an indicator that is in the direction of the longer term trend.
For example, if the trend has been strong and prolonged to the upside, it stands to reason that the indicator will be in Overbought territory since it reflects the bullish push of price action. To take a short position at that point would be to trade against the trend and that would be introducing more risk into the trade.
As important it is to know how to trade, it is more important to know when to trade in terms of the forex market timing. Forex market is a worldwide online market with no time limits when you consider the whole world as your base. The markets are active through the week except for a Saturday giving you five and a half trading days every week; taking into consideration the time zones. You can trade anytime in any market! But, to maximize the yield of the trade, the hours you decide to trade do matter.You should focus on trading when you can make the highest profit, which is when the activity and the volume of transactions are the highest. The first point to understand is that there is no day or night for the forex market, it is an online market which begins in one country and ends in another. When it is night here, it is day somewhere else, the forex market is open there. That would mean at any given point of time, someone somewhere in this world is transacting in the forex market.Another point to consider is that the business markets between countries do coincide; this is when there is an increase in activity and volume of transactions. The forex market starts in New Zealand on a Sunday then the forex markets begins its journey of activity through Australia, Asia, Middle East, Europe throughout the week to end in US on a Friday evening. There are time periods when the European especially United Kingdom and United States forex markets coincide. These are the peak time frames with maximum movement, volume and opportunities. The United Kingdom and United States forex market constitute 50% of all forex transactions there.The major forex markets around the world are London, New York and Tokyo. The major chunk; nearly two-thirds of trading happens in the hours when the US and UK forex markets overlap. This answers the actual question that was being asked “What are the hours that you should be trading? There are two time periods when the major forex markets around the world overlap, one is between 2.00 to 4.00a.m EST ( i.e. Asia or European ) and between 8.00a.m to 12.00p.m EST( North American or European ). These are the best period to actually trade in the forex market. In United States, taking into consideration the time zone, the best time to do business would be early morning or late at night to be precise. You can always do trade wherever you are in the world, by just calculating the differences in time zones.So remember you can always do business any time, literally anywhere. You now know the best hours to trade but you can always buy or sell at any other time.As they say, the world is your playground especially when it comes to the forex market. No other market gives you that kind of freedom or leverage with time and place.
The value of a country's currency is dependent on many factors that will cause it to fluctuate, relative to other world currencies. Higher interest rates can attract foreign investment, while lower rates cause investors to look elsewhere for better returns. The economic health of a country, both current and predicted, also plays a key role. Recent events, such as the 2008 financial meltdown in the U.S. and the economic crisis in Greece, have sent shockwaves throughout the world and affected the valuations of the major world currencies. The trading of currencies takes place on the foreign exchange market. Without a central headquarters, it consists of an electronic network with major trading centers located in places like the U.S., U.K. and Japan. This facilitates international investment and trade through real-time conversion of one country's currency into that of another country. Most exporters expect to be paid in their own currency, but may accept U.S. dollars, which are widely accepted throughout the world.Currency SpeculationLike stocks and other investments, there is speculation in currency trading, both long and short. In a process known as "carry trade," low-yield currencies are borrowed and then invested in high-yield currencies. This weakens the borrowed currency, since it is sold and converted into other currencies. The risk of this trade is that the value of the borrowed currency may rise at the time you need to pay it back. (Trade 10 of the most popular currency pairs risk free on our NEW forex simulator, FXtrader.)Prior to the implosion of the credit bubble in the U.S., low interest rates in Japan prompted significant carry trade using the yen as the borrowed currency. This contributed to the U.S. housing bubble as the yen was used to fund high levels of subprime lending.Market PsychologyCurrencies rise and fall as a function of their perceived value against all other currencies. Changes in market psychology are driven by a multitude of factors within a country, including: prevailing economic conditions, standing in international trade, balance of trade status, financial and economic policies, political uncertainties, commodity prices, debt levels and natural or man-caused disasters.Floating currencies are publicly traded and are subject to the same ups and downs of the traditional equity markets. Volatility in the forex market has increased over the past couple of years, as events have unfolded in the U.S. and Europe. Hedging is used by some investors to minimize the risks associated with exchange volatility. Risk is offset by simultaneously establishing positions in more than one currency. For example, if a company is doing business in the U.S. and Japan, it might have positions in both dollars and yen to diminish the impact of currency fluctuations between the two countries.Currency PerformanceThe five most heavily traded currencies in the world are typically the U.S. dollar, British pound, euro, Japanese yen, and Swiss franc. Two statistical evaluations are presented below to track performance of these five currencies and five other major currencies. The left column shows the change in value against the Swiss franc, which is considered a relatively neutral measure of comparative value. The right column shows the change in value of the same currencies against the U.S. dollar. The time span for both calculations is January 19, 2010 through May 26, 2010.Currency Value Change VersusSwiss Franc U.S. DollarEuro (EUR)-4% -16%British Pound (GBP) -2% -13%Swiss Franc (CHF) - -12%Australian Dollar (AUD) 1% -10%Russian Rouble (RUB) 6% -5%Indian Rupee (INR) 8% -3%Canadian Dollar (CAD) 8% -3%Chinese Yuan (CNY) 11% 0%American Dollar (USD) 11% -Japanese Yen (JPY) 11% 0%The five currencies hit hardest this year are the euro, pound, Swiss franc, Australian dollar and rouble. The data shows that the strongest currencies during this period were the U.S. dollar, yuan and yen. Outside of the European Union, the United States, China and Japan also have the three largest economies as measured by GDP.The euro has been battered by the financial crisis in Greece and the uncertainty surrounding the other countries tagged as "PIIGS." This group, comprised of Portugal, Italy, Ireland, Greece and Spain, are all facing economic and debt problems that have driven investors away from the euro. The weak euro may actually help Greece because its exports will appear more attractive to countries outside the European Union.The Bottom LineWhile the U.S. certainly has its own debt problems, its currency and government-issued securities are considered relatively safe havens. Along with China and Japan, the American economy is still viewed as one of the strongest places to invest capital. How the U.S. deals with its growing debt will undoubtedly play a large role in the future value of its currency.
11 Best CFD Trading Brokers – with Comparing Guide: (CFD – Contract for Difference): The simple the above terminology sounds, the more complicated it is. For a beginner in online trading, it might become challenging to understand CFD clearly. CFD (contract for difference) is a contract between two parties that provides traders with a chance to earn from the price movements of the assets. The main catch here is one need not own the underlying asset in it; instead, the trader speculates over the prices of different financial instruments. CFDs work with shares, indices, forex, and commodities. This popular derivative product offers a trader high leverage, which means the assets can be traded through a small margin only. This popular trading method has gained popularity in the last few years because of various benefits. Now, for those who are a little confused or want to know how CFD works! Here is a good example! How Does CFD Work? Suppose a share is trading at the price of $100/120 (Bid/Ask Price); you decide to trade through CFD. So, you need to buy the share at an asking price of $120. Suppose you want to buy 100 shares. Simple trading would require you to pay $100×100 = $10,000. But, in CFD trading, you just need to pay a certain margin percentage (suppose 2% in this case) of the total trade. Thus, instead of $10,000, you just need to pay $200. Sounds amazing? We would say read the full example first. Now, if the prices went up by 20% and start trading at $120/$144, then you can open your financial assets for trade and earn huge profits by just paying a small margin. But, what if the prices went down? Yes, the losses would also be huge here. Because the probability of winning is uncertain, and as it maximizes the profits with just a small amount, it also can do the same with losses. Does it still sound impressive? Okay! So, this was an example to help you understand CFD. Now, let us move to our main section of this write-up, i.e. nine best CFD trading platforms of all time. 9 All-Time Best CFD Trading Platforms 1. Pepperstone Based in Australia, but very well established in the UK. Pepperstone is a well known FCA regulated CFD broker in the UK and provides one of the best CFD trading services, until today. Comparing Pepperstone to other brokers, it might not be able to offer you more number of assets than its counterparts. However, it compensates this drawback by providing a high liquidity ratio of 500:1 to its traders. Isn’t that amazing? With just a minimum deposit amount of $200, you can sign up for a standard or razor account, as per your needs. 2. XTB Probably one of the most reputed CFD brokers we have in the list. XTB is based in London and Warsaw both and is a worldwide established CFD as well as Forex broker. This giant is not only regulated by the UK’s FCA and Polish financial service authority but also on the Warsaw stock exchange. Thus, you don’t need to worry about the authenticity or the security of your money with XTB. And this fantastic broker doesn’t just end here; it has one of the lowest CFD trading fees with an excellent user interface. Get yourself registered now! 3. City Index Working for more than three decades, City Index is also a well-established name in the trading market. City Index is the branding name of finance company GAIN capital, which is a New York stock exchange-listed firm. Apart from this, it regulates under the financial authorities of Singapore, UK, Australia, and many more. Thus, the concern for security and safety would eradicate here. Talking about pros and cons, City Index doesn’t have an appealing, user-friendly desktop platform and also has a limited number of instruments for trading. However, various research tools, low trading fees, and easy account opening procedure are some of the advantages you will get with City Index. 4. XM If you are one who was looking for a broker with a plethora of assets and instruments, then XM is for you. With more than 1000 assets on their list, it is leading the broker’s chart today. Their assets list includes currencies, commodities, stocks, energies, and a lot more. So, it is an excellent option to diversify your portfolio. And it doesn’t just end here; XM also claims that “their 99.35% of all trades implement in less than a second.” Want more? With XM you can start your trading account with just a minimum deposit of $5. 5. IG Talking about trading brokers and IG doesn’t come in the list, that’s quite difficult. IG claims that it is one of the largest CFD traders in the world in terms of revenue, and also has access to over 16000+ markets, which is impressive. Now coming to safety & security, then there’s nothing safer than this platform. It is licensed by a plethora of financial authorities and a member of NFA too. Based in London, UK, it offers instrument trading in cryptocurrencies, forex, shares, indices, ETFs, and a lot more. 6. CMC Working for more than three decades, this is also a multi-asset brokerage giant. It is not only a good option for CFD but also is excellent for spread betting, Forex, indices, treasuries, etc. Why should it be on your list? Their in-house market analyses team will help you understand and examine news and events. FCA regulated, London stock exchange-listed, 9000+ asset trading options, different accounts at one time, etc. are only some of the features! 7. Plus 500 One of the leading CFD traders, maybe because of its low brokerage fees. You will also get a free demo trading account to ace your skills. The Israel based organization is well-established in the UK and regulated by FCA. But, other than CFD, you will not get the option for direct forex trading here. However, CFD is supported for 2000+ instruments, including stocks, commodities, forex, etc. For a beginner CFD trader, it can be a viable option as there is no commission and shallow charges for trading. Something Extra: Plus 500 is also a big sponsor of Atletico Madrid in La Liga. 8. FxPro Now, here comes the most innovative CFD trader on our list. FxPro is the first broker to provide a C-trading platform to users. And don’t worry about the authenticity, because it also bagged the award for “Most Trusted Forex Brand UK 2017.” Easy and fast trades and a plethora of options to trade CFDs including energies, metals, futures, commodities, etc. And not just this, you just need to deposit a minimum $100 to trade, and you’ll get access to their analysis tools too. 9. ActivTrades ActivTrades can be the best CFD trading platform for small and medium traders. These kinds of traders require a higher degree of control and less trading cost. ActivTrades is a well-known institution in this regard. Its services include high flexibility, low swapping fees, no extra costs, and option to trade micro-lots too. Not only this, but it was also awarded, “Best Online Trading Service” in 2018. And yes, it is also regulated by FCA. So, this was the list of best CFD brokers in the UK. These brokers are shortlisted by experts and are all genuine and authentic. But, just knowing the names of brokers is not enough. We need to compare all of them and decide which one is best for us. Therefore, below is a 7 point list on comparing criteria for CFD traders. Consider each one of them while choosing your desired broker. How To Compare Brokers? #1. Spread/ Commission: It is the difference between the selling and buying price of the asset. The lesser it is, the profitable it is for you. #2. Leverage: Leverage is the facility that allows a trader to transact a significant amount of deals by paying smaller margins. High ratio provides high profits as well as high losses. Choose wisely here. #3. Deposit and Withdrawal options: Deposit and withdrawal options should be vast in number. Your desired payment option should also be available at a reasonable cost. #4. Support: The customer support team should be responsive and quick; otherwise, it can create a lot of chaos. #5. Education: In addition to trading, a broker also should make you aware of different trading strategies through video tutorials and articles. #6. Regulation: A broker needs to be regulated by financial authorities of different countries. It denotes the authenticity and trustworthiness of the broker. #7. Mobile App: If your broker has a mobile application for trading, then it becomes much more comfortable and convenient to trade. Compare the brokers on these points and choose as per your requirements. If you have some other criteria in your mind, just let us know in the comment section. Now, time to wrap it up all. Conclusion Today, we have a plethora of CFD trading brokers offering many lucrative services. These brokers differ by the number of instruments and types of CFDs available with them for trading. But, people should not fall into these lucrative prey. Instead, the safety, security, and privacy should be on top of people’s requirement list. The comparing guide will help you immensely in this. Remember, CFDs essence lies in their margin trading advantage. Thus, analyzing the margin options is essential. Apart from all of that, a good CFD broker has access to different markets, offers vast trading tools, and is open to trading strategies. But, For now, Have a Nice Day!