How Does Stock Market Ticker Work?
A stock market ticker is a banner that contains a constant scrolling of current stock prices. It provides real time information about the stock market.
When it comes to market information, especially when something urgent is happening in the market, usually the stock market ticker will provide that info.
There is so much trading that goes on in today’s markets that the stock price listed for any given company is likely to change at least a little each time it comes around again on the ticker.
Most of the stocks have a certain amount of delay while some are truly running in real time. You will have to pay a fee if you want to get the actual up to date numbers.
It is not necessary for many investors to have the exact real time prices, unless they are day trading where they need to sell or buy quickly during the day.
Through many source online or an online brokerage account, you can actually set up your own stock market ticker to simply show which information you’re interested in. You may want to just keep an eye on the stocks that you have invested in.
While you’re considering a purchase, you may want to keep an eye on a single stock with all the breaking news and any other information as soon as you can buy it.
A third popular option is to set up a ticker with stocks from a specific area that you are interested in, like tech stocks for example, or oil companies. Or car companies, if you like watching numbers sinking fast!
In conclusion, the stock market ticker is a very useful investing tool that can inform you quickly when something has changed. By that you will be alerted and search more information from other sources and find out what has caused a stock go down or go up.
Money Management in Currency Trading (Part I)
Before you open an account with a forex broker and start trading live, you should know that the most important thing for you is good money management. Money management means how much of your portfolio, you are willing to risk on a single trade. How many contracts your risk tolerance warrants?
The important thing in trading is to learn how you can improve your investment results by making small changes to your trading strategies. Good money management rules can make the difference between becoming a successful investor in the long run or an unsuccessful one.
Have you ever played poker? If not, watched it being played online or on TV! If you have then you will never see a good poker player play all his/her cards on a single bet. Good poker players know that by risking only a small percentage of their money on a single bet, they can win and lose. But he/she will still play the next hand. If he/she puts everything on the table on a single bet; it will have to be a 100% sure bet. An impossible thing, you can never be 100% sure. Life is full of probabilities. Nothing is for sure.
Forex trading is far more complicated than playing poker. You are dealing with hundreds of unknown variables that affect the markets instead of only 52 cards. To succeed in forex trading, you must understand and implement the money management principles.
Many pitfalls will cross your way while trading. As a trader you should be constantly aware of two emotions; greed and fear. In case you win a trade, you will become greedy and would want to risk more to make one big win. You would want to strike it rich in one or two trades. This will drive you to take more and more risk.
When you lose a trade, you become afraid to risk enough of your money on the next trade. Fear takes over and impairs your decision making, making you lose confidence in your judgment and decision making. Lets see how fear and greed can play havoc with your trading.
Lets suppose you have a run of successful trades. You are feeling overconfident and you are not satisfied by risking only 2% of your account on a single trade. You want to risk more on the trade. The more you have in a trade, the more you will make if you are right. You increase your risk to 5%, you win. You increase it further to 10%, you once again win. You finally decide to put 25% of your equity at risk on a next trade, but misfortune strikes. Your successful run comes to an end. You lose.
Suppose you had a $100,000 trading account and you had foolishly risked 25% or $25,000 on one trade that you desperately wanted to win. Losing $25,000 means you have only $75,000 in your account now after your loss. How much you need to make to get back the original balance of $100,000; you need to make $25,000 again to go back to the original balance. It means you will have to make 25,000/75,000= 33%, so you risked 25% but now you will need to make 33% to get back your original amount.
Many investors once they lose a trade become desperate and try to risk more to recover their original loss. They end up losing more and more and very soon those investors destroy their accounts. Most of them are out of trading forever soon. There are other traders who try to reduce risk even more on making a losing trade; eventually they lose any opportunity for meaningful growth in their accounts.
Use Pivot Points Using Pivot Points What Are Pivot Points? Pivot Point Trading
Pivot points work as a filter in all markets that have established ranges. They should be taken as powerful leading indicators in your technical analysis tool kit. Most of the other indicators used in technical analysis are lagging. Lag means they only inform you about the price action that has already taken place.
Pivot points tell you about the future price action. They are calculated based on a simple mathematical formula that determines the next time periods range based on the previous time periods data. It includes the low, the high and the closing price for that trading session.
If you dont know what is a range, then a range is the high and low of a given time period. Markets are just people buying and selling. The high represent the buyers exuberant bullishness. The low represents the sellers pessimistic bearishness for that particular trading session.
A pivot point is that special line drawn in sand where most traders turn from being bearish to bullish or bullish to bearish. These points are used in currency trading to tell if the market sentiment has shifted from being positive/long to negative/short. If the price is trading above the point, you should take a long position. And if the price is trading below the pivot point, you should take a short position.
Now lets calculate the pivot point for one trading session. Pivot= (Low+High+Close)/3. You can use a 4 hr chart to calculate the pivot point for the next session. Just plug in the values of low, high and close for the 4 hour session to calculate the next pivot point. Thus you can have 2 pivot points for each 8 hour session and 6 pivot points for the 24 hour session.
Take a long position as long as the price stays above the pivot point and trade a short position as long as the price is below the pivot point. The thinking behind the pivot points is simple yet powerful and highly useful. If the buyers are willing to pay more for a currency pair now than they were 4 hours ago, than at least for the time being the markets are bullish. Conversely, if the buyers are not interested in buying for the time being than for the time being the market will stay bearish.
Pivot point work like a filter for you. Accept only buy entry signal if the price is trading above the pivot point. And only accept the sell signal if the price is trading below the pivot point. We have used the example of 4 hour charts. You can also use daily, weekly and monthly charts.
Pivot point will help you determine the entry and exit for each position. They can also be used in conjunction with other technical methods. Pivot point analysis is a robust, time tested and a reliable market analysis tool.
Many new currency traders and even experienced traders ignore learning pivot points considering them complicated. Nothing is far from the truth. They are very easy to use. Learn how to determine the market sentiments in any timeframe you want to trade with pivot points. But always keep this in your mind; these points are only a guide, they should not be taken as the Holy Grail. Pivot points can help you filter out excess information and avoid analysis paralysis from information overload.
Oil and Currency Trading
Wall Street watches oil prices like a hawk. Remember the early part of 2008 when oil prices skyrocketed from near $70 to almost $150 within a few months. This was more than a 100% increase in oil prices. Many hedge funds heavily betted on the increase in oil prices and made a windfall.
It is being studied whether the increase in the oil prices was due to speculation by the hedge funds. When the stock markets crashed in the middle of 2008, most of the hedge funds had to liquidate their investments in crude oil futures to cover the redemption pressure on them. Oil prices collapsed. Oil prices are down now due to low consumer demand because of the global recession. But it is being predicted by the experts that with a recovery in the global economy, the oil demand will rise and the prices will go up again. Oil demand in China and India plays a major role now.
As oil prices go up, consumers are forced to spend more on oil. The more they spend on oil, the less they can spend on other products. The less they spend on other products, the less profit companies make. Declining profits made by these companies mean declining stock prices.
The opposite is also true. The less the oil prices become, the more Wall Street becomes optimistic about the profit potential of companies. This increased optimism leads to increase in stock prices. Two large futures exchanges are used to determine the prices of oil. They are the New York Mercantile Exchange (NYME) and the International Petroleum Exchange (IPE).
Historically, rising oil prices have been associated with falling stock markets. NYME is where most of the crude oil futures are traded. By monitoring the movement of the crude oil futures in NYME, you can develop a feel of the future economic situation of the United States. Since oil is heavily traded in US Dollar, this affects the US Dollar. The net effect is however a bit complicated.
Lets take a look at it more closely to understand the two effects that pull USD with oil. When oil prices increase, the demand for US Dollar also increases. Most of the countries need US Dollar to pay for their oil imports. High demand for US Dollar means that it should appreciate.
But this is not the whole story. Increased oil prices also take its toll on the US economy. The question is which effect is more important for the forex markets.
The effect varies for different currency pairs. Suppose you are watching a currency pair that involves the USD and a currency representing a country that does well during the times of high oil prices. Take Canada that has huge oil reserves after Saudi Arabia. The effect would be depreciation in the value of USD/CAD pair. US imports more oil from Canada than any other country. And if you are watching a currency pair that involves USD and a currency whose economy is harmed by the rising oil prices, the demand for USD will rise.
So some currencies have positive correlation with oil prices and other currencies have negative correlation with rising oil prices. The currency pair CAD/JPY shows the strongest reaction to rising oil prices. Japan imports almost 100% oil.
Watch for CAD/JPY currency pair, when oil prices are going to rise again. CAD is positively correlated with oil prices. JPY is negatively correlated. So CAD/JPY has the strongest reaction to the increase in oil prices. It can be a very good currency pair to trade during times of oil price boom.
Learning Fibonacci Retracements
Many traders and investors use Fibonacci ratios to project future levels of support and resistance calculated on previous price moves in forex markets. In simple words, past price movements in the forex market determine where the Fibonacci levels will be calculated.
Fibonacci analysis is used in determining and identifying the support and resistance levels during both the trend retracement and the trend continuations. It is based on a number of ratios derived from the Fibonacci sequence. This interesting and remarkable sequence was discovered by an Italian mathematician Leonardo Pisano in the 13th century.
The sequence starts with 0, 1 and 1. The next number in the sequence is determined by adding the previous two numbers. For example, if you take the first two numbers 0 &1, the next number will be 0+1=1. If you take the next two recent numbers, 1 & 1, the next number will be 1+1=2. So the Fibonacci sequence takes shape like this: 0,1,1,2,3,5,8,13,21,34,55.
The remarkable thing about this sequence is that the ratio of number at specific intervals would consistently be the same, no matter how high you count the numbers. Fibonacci sequence gives us two very important ratios. These two ratios appear over and over again in nature such as sunflowers, shells, pine cones etc. These two ratios also appear in forex markets.
The first ratio is 38.2%. It is calculated by dividing any number in the Fibonacci sequence by the number two places higher in the sequence. For example, in the above Fibonacci sequence, divide 21 by 55 (55 is two places higher than 21) you get 21/55=38.2%.
The second important ratio is 61.8%. It is obtained by dividing any number in the Fibonacci sequence by the next number in the sequence. For example, divide 34 by 55 (55 is the next number after 34), you get 34/54=61.8%.
Forex market trends dont go exactly in a straight line, up trends never go straight up and down trends never go straight down. The price will always trace along the way as buyers and sellers enter and exit the markets, the important question in every investors mind is how far these retracements will penetrate into the previous price movements. This is where the Fibonacci ratios are extensively applied and used.
Most forex traders use the three additional ratios of 0%, 50% and 100% in conjunction with the two primary Fibonacci ratios to round out the retracement analysis tools. Two secondary Fibonacci ratios, 161.8% and 261.8% are also used in the trend continuation projections. The ratio 161.8% is obtained by dividing any number in the sequence by the number preceding it. For example, in the above sequence dividing 55 by 34 gives 55/34=161.8%. Similarly the ratio 261.8% is obtained by dividing any number in the sequence by the two preceding it. For example, divide 55 by 21, you will get 55/21=261.8%.
Fibonacci ratios are used by currency traders and investors in making entry and exit decisions for each trade. The first ratio 38.2% is used as an entry point in a trending market. The ratio 0% is used as the exit point. The question that you may ask is what the reason markets react to these levels is. You should not forget currency markets are just investors and speculators buying and selling currencies. So if many investors and speculators start believing in a thing, it starts becoming a self fulfilling prophecy. As most of the investors use Fibonacci analysis in determining the support and resistance and placing there entry and exit orders based on these ratios, the markets starts reacting to these levels.
How to Identify Breaking Support and Resistance?
Support and resistance levels are used by investors and speculators to determine how far they believe a currency pair will move between the two levels. This also tells them at what points the price action may turn around due to the buying or selling pressure and start moving in the opposite direction.
Sometimes, the markets change direction due to a shift in some underlying fundamental factor. The market change of direction due to the shift in underlying economic factors is strong enough to cause a currency pair to break through a previously established support and resistance level. When a previous support and resistance level is broken by the markets, new support and resistance levels are established. However, the broken levels may still have some influence on the market in the future.
Sometimes there are attempted breakouts, this is also known as False Breakouts. With experience, it will become clear to you that prices do not always stop at exactly the same points each time. So if you are going to use strict requirements for your support and resistance, those levels may not hold up every time. This way, you are going to fake yourself out of a lot of valid price movements.
Even when you take all the precautions with your support and resistance levels, you may fall victim to a false breakout. Now, you will ask how I can tell when the price has truly broken through support and resistance in a new direction.
There are primarily two methods that you can use to filter out a false breakout with a true breakout. These two methods are setting price-amplitude benchmarks and identifying role reversals.
Setting price amplitude benchmarks involves analyzing a chart to see if you can identify any moments when the price momentarily poked through the prevailing support and resistance level before pulling back and once again adhering to the previous level.
The dips through the predetermined levels are usually short lived. You can draw a secondary support and resistance lines which you can then utilize as your price-amplitude benchmarks.
A price amplitude benchmark tells you that if the price breaks through the predetermined level but does not break through the benchmark, you dont need to worry about a change in the direction of the trend. However, if the price has enough momentum to breach the benchmark, it has a good chance of continuing in the new direction.
Identifying role reversals method involves watching the price action to see if support levels turn into resistance levels and resistance levels turn into support levels. Often, you will see the price action bounce off a level of resistance, then turn around and start heading lower and bounce off the previous resistance level.
When a resistance level is broken, that same level will turn into a support level. Conversely when a support level is broken, that same level will turn into a resistance level. What this tells is that you can use both the benchmark and the role reversal confirmations in your trading analysis.
Why You Should Trade the Crosses?
Finding the right currency pair to trade should be of utmost importance to you as an individual trader. As an individual trader you will only have $1000 to $10,000 at the most as equity in your trading account. Opportunity cost is a real cost for most individual traders. Funds committed to anyone position are funds that cannot be used for in other possibly more profitable trades.
In forex trading, almost all the currency pairs are linked to one another, one way or the other. As an individual trader, if you only trade US dollar, you risk missing promising trades and opportunities offered by other currency pairs.
Most of the trading in the currency markets is done through the direct buying/selling of USD. You should always keep an eye on the crosses while deciding about a trade in order to gauge the strength/weaknesses of a currency. This way you know which currency pair is the best to trade.
What are the crosses, you may ask? Currency pairs that do not involve the dollar are known as Crosses such as EUR/AUD, CHF/GBP, EUR/JPY, EUR/GBP etc. Almost 90% of the currency pairs that are actively traded in the forex markets involve the US dollar. In simple terms, over 90% of the all the currency trades have US Dollar on one side of the trade. So what is so special about a cross?
Lets make it clear. A reasonable way to trade equities is to trade from big to small. Suppose, you determine that the stock market is expected to rise. But since you have limited funds as individual investors, you need to choose your stocks carefully.
It would be good to look at the sector specific indices. Find the most promising sector. From there, you should look within that index. Find the most promising companies that are expected to perform well over the coming months. This big to small thinking is very solid. You need to think in the same manner while trading forex.
Movements in crosses should never be overlooked as they can often hide the footsteps of large players. For example, a major investor like Warren Buffet may be bullish on Euro due to some fundamental reasons. He may try to fly under the radar and buy Euros against Pound Sterling, Swiss Francs, and Yen etc. Warren Buffet is sometimes heavily involved in currency trading when he senses an opportunity. He has sometimes been successful and sometimes unsuccessful.
Crosses are extremely important to swing or momentum traders, they are used as forecasting tools to predict which currencies are leading the pack. Ignore the crosses and you will be stuck often with currency pairs that do not move at all.
Limited funds in your account means you should always try to choose the currency pair that is expected to move the most. But, how exactly can you come to a reasonable conclusion? By taking a look at the crosses!
Cross movements sometimes work to amplify the move of a major currency pair or sometimes these movements minimize the effects. For example, in EUR/USD currency pair, if Euro is dropping against USD but rising against the GBP also called Cable, the net effect would be to limit the size of the EUR/USD fall. If ERU/GBP is rising, it is an indication that the Euro is outperforming the British Pound.
Since you have limited funds, which currency pair is the best to chose? Any EUR/USD selling pressure is likely to be offset by the buying pressure of EUR/GBP. GBP/USD sales will likely to be amplified by the cross sales EUR/GBP.
Since, EUR/GBP is rising; it would be better to short GBP also called the Cable instead of Euro. In simple words, you should short the pair GBP/USD; the chances are you will make many pips as compared to shorting EUR/USD. If we had not done our homework and randomly picked one of the two currency pairs for shorting, we may have missed a good opportunity.