ActivTrades is proud to support International Women’s Day 2017.
To celebrate, ActivTrades will run webinars presented by leading financial experts.
There will also be a range of insightful daily articles, discussing key economic events, trading psychology and ways to develop as a trader.
Reserve your place today
What Is Forex?
Foreign Exchange, often abbreviated to Forex or FX, is the exchange of one currency for another at an agreed rate.
With average global turnover in excess of $5 trillion a day, Forex is the world’s biggest market. But Forex rates don’t stand still.
They constantly fluctuate according to whatever factors are driving market
sentiment at any one time.
Political events and economic data can be key drivers of currencies while chartists will look to their charts to identify key levels and trends to help inform their views of a currency’s direction. And it’s precisely the need to make rational decisions, rather than impulsive ones, which arguably could make Forex trading attractive to women. While currency trading has historically been seen as a male preserve, testosterone-fuelled impulsiveness and spontaneity are no guarantees of success. A more detached and thoughtful approach might be a better one. With International Women’s Day approaching on March 8, it is worth remembering that nothing more is more international than the Foreign Exchange market. It is the world at your fingertips.
Written by Neal Kimberley, External Currency Analyst
What Is Financial Trading?
The financial markets are rarely out of the headlines, and affect our daily lives very often in a direct way. Whether it is the level of the stock market which can impact on our savings and pensions, or the value of the Great British Pound which determines what the price of our groceries on the High Street as well as goods and service.
As well as this, bond markets affect interest rates, mortgages and the housing market. Given the information overload on all these matters, there will be few of us who do not have an opinion on where the FTSE 100, or Pound/Dollar, or even where Oil and Gold prices are heading.
What Is Spread betting?
Spread betting is a way of betting on the financial markets, in a tax free way under current rules.
Put simply, you can translate a view that the London stock market index – the FTSE 100 – may rise 100 points into a bet, at say £1 a point.
For every point that goes in your favour you will make £1 and the same is the case if it falls. You can also bet on a fall in the same way and hence profit from a sell off, something which is normally bad news if you own shares.
But it is not just the stock market you can bet on, most shares, currencies and commodities can be bet on, both on the buy and sell side (shorting), where it is just the change in price you are dealing with, without the cost of having to buy physical shares or the underlying market. Therefore, an account can be set up with just a few hundred Pounds, rather than thousands which may be required to build up a portfolio.
Written by Zak Mir, Financial Analyst.
What are CFDs?
Known as Contracts for Difference they originated in the hedge fund industry and have been adopted by retail investors since the year 2000.
For a relatively small initial outlay they allow one to back one’s view on whether a financial instrument may go up or down in value, tax free. The most popular ones are based on major stock indices, foreign exchange, and precious metals. They are not listed on a stock market but are traded over the counter (OTC) directly between the individual and their chosen broker. Since 2013 some CFDs are centrally cleared by LCH Clearnet in line with European Union directives encouraging this.
Like other derivatives they involve leverage so one can start off with just a little capital which is ‘multiplied up’ by the method; this gives ‘more bang for one’s buck’. But it also means that it’s possible to lose more than one’s initial investment. Therefore, it is important to be cautious and to avoid overtrading. Buying a CFD means going ‘long’, ‘short’ means selling, and you can keep the position for as long as you want; only you can decide when you want to liquidate and be ‘square’.
Nicole Elliott, Technical Analyst
Have you got the psychological edge?
Looking at your trading behavior can give surprising insights that most traders are not aware of. We call it psychological edge.
Here are few questions you should be able to answer about your trading:
• Trade Sequence – How does your first trade of the day compare to your 2nd, 3rd or 20th?
• Time Between Trades – How often do you jump back into the market too quickly as a reaction to a previous trade, and is that losing you money?
• Winning / Losing Streaks – If you close a series of winners are you more likely to give it back? Or if you close losers do you panic and trade recklessly?
Once you can measure your behaviour, it could help to achieve your goals. It’s not easy to change behaviour overnight, but it is easy to compensate.
1. Put larger size on your highest performing habits, and reduce size on your weaknesses.
2. Sometimes, just knowing about a specific weakness is enough to help you manage it
3. Tune into your feelings, and learn to name them. Acknowledging a revenge trade is half the battle to being able to step away from it.
Written by Ann Hunt, External Trading Risk Manager
What is Fundamental Analysis?
Traders use fundamental analysis to understand the intrinsic value of an asset.
The intrinsic value is the asset’s true fair value – and this true fair value can be very different from the assets last trade price.
To calculate the intrinsic value, fundamental traders consider the basic supply and demand factors at play within the market. For an individual stock this could be the firm’s current revenue and growth expectations.
For commodities like corn futures, this could be the size of this year’s crop supply and demand from China. Currency traders look at interest rates and macroeconomic data like unemployment data.Let’s consider the case of a forex trader looking at EUR/USD, which today trades at 1.06 currently.
After analyzing the supply of Euros (taken from ECB policy statements) and the demand for Euros (using recent trade activity between the US and Euro-zone) the trader determines that the EUR has an intrinsic value of 1.00 EUR/USD.
With the current trade price at just 1.06 EUR/USD, the trader believes the market has undervalued the EUR. Expecting the value of the EUR to decrease with respect to the USD, the trader sells EUR and buys USD. Fundamental analysis is also used by traders across asset classes, sectors and instruments.
Written by Malte Kaub, Expert Trader
What is Technical Analysis?
Well here’s the academic definition: the discipline for forecasting the future direction of prices through the study of past market data, primarily price and volume.
That’s all well and good, but what does that mean to a new trader? In one word, technical analysis relates to charts.
The idea is that ‘the past price movement’ is an ‘indication of the likely future direction’.
Like weather forecasting, technical analysis does not result in absolute predictions about the future. Instead, technical analysis can help traders and investors anticipate what is ‘likely’ to happen to prices over time. Technical analysis uses a wide variety of charts that show price over time.
Traders who use technical analysis are often referred to as ‘chartists’. It is one of their basic assumptions that the present price accurately reflects all the information known about that instrument, and therefore reflects the true fair value of that instrument. Their other assumption is that price changes are not entirely random, allowing market trends and reversals to be identified, and therefore used for trading decisions.
For new traders, it is worth remembering that any form of analysis is simply a decision-making framework that allows us to make one of three simple decisions. Will I be:
– a buyer?
– a seller?
– or stay on the side-lines?
Written by Paul Wallace, Expert Trader
Trading and behaviour. What’s the correlation?
Human behaviour drives the markets and the success of individuals in any chosen careers.
By understanding how you behave and why, you can start to adapt your behaviour to have more favourable outcomes.
It is commonly purported that to trade successfully, you need to be unemotional and controlled, like a
machine. But what is meant by trading unsuccessfully? This is really where the importance of attitude and behaviour will shape your actions and therefore influence the financial outcomes. Do you feel panic? Are you a risk-taker? How do you feel when you experience profit and loss? Allegedly, you should feel the same for every trade you take. In reality that just isn’t true. Human psychology demonstrates that there is an emotional reaction to losing and winning and it is how we use coping mechanism and those mechanisms available to us that dictate how we react.
Losing at anything often brings on feelings of guilt, anger and shame. This is why some traders take it as a reflection on themselves e.g. that they aren’t good enough and it impacts their self-worth, others revenge trade in anger and others do nothing and stop trading altogether. These negative behaviours could lead to negative trades. However, once recognised within yourself, you can take back the control and power to improve by addressing the challenges you face. From early childhood, children take pleasure in winning and will manipulate games, lie and change the rules to their advantage to win. Apply this to adult traders and you’ll see them making short cuts with their strategies and not sticking to their plans if they think it will lead to a quick profit. This is particularly prevalent in temperamentally impulsive individuals. Those who work on a more disciplined approach to how they trade and take a step by step approach, tend to be more consistent traders and are thought to survive in the long-term.
Written by Catherine Stott, External Mind Coach
Male and Female Traders
Reckless risk-taking has been blamed for market crashes in recent years and the trading environment is ‘too male’ according to research by Eckel and Fullbrunn in 2015.
Consequently, there is a call for a more balanced gender ratio to help balance the markets.
But what difference does having a higher percentage of male traders make? You’ve heard the age old anecdote that women diligently read instruction manuals whereas men ignore them and try to work out how to put some flat pack furniture together on their own. You’ve heard the expression that men won’t stop and ask for directions whereas women are more willing to ask for help……. well behind these anecdotes and sayings, it turns out there is some truth in it with research revealing that women are better at sticking to plans and men are more likely to take risks. The University of Leicester’s Department of Economics, whose research considered the interaction of traders with the financial markets and examined hormonal effects during trading, found that women earned more money than their male counterparts, but men were more likely to take bigger risks due to increased testosterone. Dr Ladley concluded that this research indicates that increasing the number of female traders and having a more balanced gender mix could lead to a reduction of market crashes.
Written by Catherine Stott, External Mind Coach
Mind Training – why is it important and exercises to try
Mind training is crucial for everyone, not just traders. However, the benefits that traders can gain from mind training can be a game-changer.
You can train your mind to enhance discipline, overcome emotional issues that you might be facing, reduce stress, cope with a variety of outcomes from your trades and learn to welcome and accept abundance. Here are two quick exercises to try:
1 – Three Minute Mindfulness. Stick 3 minutes on a timer. Close your eyes and focus on breathing in and out at a nice slow rhythm. Focus on each breath you take and every time a thought pops into your mind, just let it drift off and go back to placing your full attention on your breathing. Every time a thought pops into your mind, take your awareness back to your breathing. You may have to do this many times when you first start, but eventually you’ll be able to spend most of that 3 minutes with your mind focused only on the breath. This is good because it helps quieten your mind and bring you back to a state of calm. You can practice this daily and also use it when you have finished a trade before you take the next trade, or even when looking for trades if you are finding this stressful.
2 – Write down how you think you should feel and act when trading. Then when you are looking for a trade set up and taking a trade, write down how you are feeling physically, mentally and emotionally. Write down how you feel again once the trade has been completed. Look at the difference between what you think you should be doing, what is actually happening and then design your own visualisation thinking about what you actually want to be thinking or feeling. This will help programme your mind towards direct action. You could even write reminders on post-it notes and put them in prominent places or make sure you read them every day before you start trading.
Written by Catherine Stott, External Mind Coach
Managing your money. Sounds simple doesn’t it, but when it comes to managing and growing a trading or investment account this is one of the most important and often least understood topics for a trader and investor, especially if you are just starting out.
Money management is the process of budgeting, saving, investing, spending or otherwise in overseeing the cash usage of an individual or group.
When you fund your trading and investment account one of the first things you must understand is the nature of RISK. I could write a whole book on this subject but fortunately an excellent book on this very subject, called “Against The Gods – The Remarkable Story of Risk” by Peter L Bernstein is where I learnt much of what I apply to our Hedge Fund today, as well the remarkable knowledge imparted to me by the late, Tom Williams, Inventor of Volume Spread Analysis and a former syndicate trader.
One of the key takeaways from Bernstein’s bestselling book, is that in today’s modern world there are some remarkable tools available to us all which can help us mitigate risk to the best of our availability. So when I am asked by a new trader or investor to summarize what I mean by money management, I tell them that this is simply the preservation of your capital investment in the market or markets you are trading or investing in, backed up by a written trading plan, a strategy or strategies that have been tested in simulation mode and a detailed analysis of each trade or investment.
Keeping a track of your equity curve and knowing when things are working well and when they are not working well allows you to adjust to market conditions and to diversify if required.
A written and committed too trading plan is vital in my opinion and in the thousands of online and live seminars I have hosted I always ask who has a written trading plan and I am always surprised how few people have taken the time to write one.
Trading is a business not a hobby. Fail to plan, plan to fail. You are going to be participating in one of the biggest businesses in the world, trading and investing, so be prepared.
In summary, trading and investing can be very daunting to start with but with the right approach to risk you are starting in the right place.
Money management cannot ensure that you always make spectacular returns, but it could help you limit your losses and maximize your gains through efficient diversification.
Gavin Holmes, Head Trader
US-Japan yield spread
Naohiko Miyata, Chief Technical Analyst at Mitsubishi UFJ Morgan Stanley Securities (MUMSS) has been taking a fresh look at dollar/yen in light of the recent widening out of the 10 year US-Japan yield spread in the US’s favour as markets have re-priced the chances of the Fed hiking rates in March. Arguing that the 10 year spread has “has risen out of the descending wedge pattern that began in December” Miyata believes “the spread could widen again and exceed levels reached in December.” “This would of course fuel dollar strengthening/yen weakening,” MUMSS added before providing some technical analysis based on their reading of the dollar/yen (USDJPY) chart. While traders will have their own views, MUMSS believes a “breach of 114.96 could mean upside to 120.” Miyata’s detailed analysis argues that “the USD/JPY dipped to 111.60 at one point on 7 February, but the decline ended with support around 111.16 (derived using the Golden Ratio). We believe wave iv, the decline from 118.66 (15 Dec 2016), has run its course.” MUMSS analysis “suggests that the low at 111.60 completes a reverse head-and-shoulders pattern for the USD/JPY” and argues that a “rise through 114.96 (15 Feb) would lift it through the neckline of the formation. This could mean increased momentum for the rise (wave v), allowing the rate to test 118.66 over the near term” concluding MUMSS believes “the USD/JPY could approach 120 sometime soon.” Traders will recall that 120 is the precise level recently mentioned by Japan’s Finance Minister as the point below which the yen could not be characterised as weak.
Written by Neal Kimberley, External Currency Analyst.
The importance of having a strategy
As a trader there is one major cornerstone to your trading – the ability to define the difference between a high probability and low probability trade. High probability trading is what makes trading a skill and
we do this using a strategy; a set of rules and conditions that, if the market meets them, we can take a trade safe in the knowledge that we have done our analysis.
All traders start their day with market analysis, assessing what position the market is in and where we are likely to see key support, resistance and turning points. Entering your chosen market requires a different set of analysis and strategies allow a trader to concentrate, to hone in on particular markets and then wait for the most opportune moment to enter a trade. Trading is not just about going short or long, it is as much about timing as it is about fundamental direction. A good strategy can be the difference between profit and loss on a trade.
Dr. Andrew Lumsden Groom – Economic Analyst
Quote of the Day
“The difference between successful people and others is how long they spend time feeling sorry for themselves ”
Qualified hypnotherapist, Catherine Stott, explains the importance of psychology in financial trading and teaches ways to help practice and improve[…]
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