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[Vlad RF]

How to Trade the GBP/USD Currency Pair?

Author: Igor Sayadov

Dear Clients and Partners,​

GBP/USD (Great Britain pound vs US dollar) is a major currency pair, which means it is one of the main and liquid Forex assets alongside EUR/USD, USD/CHF, AUD/USD, USD/JPY, and others. There is evidence that it takes from 12% to 17% of the total market trade turnover.

The base currency is the British pound and the quote one – the US dollar. This means that when the pair is growing, the pound is getting stronger while the USD is weakening.

Many call the British pound one of the most aggressive currencies in the financial market, and this is what creates high volatility in the pair. The behavior of these quotations is often unpredictable; they create a lot of false breakaways of support/resistance levels on the chart.

In this article, we will speak in more detail about the history of the pair, describe the factors that influence its behavior, and suggest a simple trading strategy.

Short history of GBP/USD

The full name of the British national currency is the sterling pound. The history of the currency dates back to the year 775. As long as the relationship between Britain and its colonies was developing, the necessity to pay for goods and overseas transportation emerged.

One version of where the name “sterling pound” comes from the method of coinage at those times. They used silver, and 1 pound of silver produced 240 coins. They started being called “sterling”, and this term was officially accepted for the currency in 1694.

As for the GBP/USD pair, its second non-official name – Cable – is derived from a real cable stretched along the bottom of the Atlantic Ocean for uninterrupted exchange of the pair’s quotations.

Now let us switch from history to the meat.

What does influence the GBP/USD quotations?

The main driver of GBP/USD behavior is macroeconomic data and indices from Great Britain. However, there are two more factors

• The general situation in the currency market
• The difference between interest rates in Great Britain and the USA.

The credit and monetary policy of the Central bank of England is the key element that forms the pound quotations in the world currency market. After Brexit, the CB took some measures for the stabilization and restoration of the GBP rate in the global market, which are still active.

The main “leverage” of the BoE for controlling the GBP rate is the interest rate decisions. When the rate increases, the pound gets stronger. When the rate declines, the British currency weakens.

Other economic events from the Foggy Albion influence the GBP/USD rate as well. Among them such things as:

• GDP information, published once in 3 months;
• The Consumer Price Index. It demonstrates the inflation rate that directly influences the decision on the key interest rate;
• The number of unemployment claims;
• The PMI.

How to trade GBP/USD?

To work successfully with the pair, you need to figure out and understand its peculiarities, including the period of its peak activity.

The average daily volatility level is 100-140 points. Trade is most active during the American and European trading sessions.

To trade GBP/USD, any type of analysis and signals will do – from simple fundamental analysis to technical indicators.

The most passive period for the pair is the Asian session (because in Europe, it is night) – at that time, volatility remains within 30 points.

Most often, the British pound behaves unpredictably and/or ambiguously: it might drop when everyone expects growth, and vice versa. The price might react to some news immediately but also might lag and do it gradually.

Trading GBP/USD by fundamental analysis

We have already discussed the main economic events that influence the currency pair. The trader only needs to check the economic calendar accurately and remain in course of the main economic events from Great Britain and the USA.

The high volatility of the pair might further increase when certain economic news is published; at such times, be extra attentive and do not dismiss the idea of using Stop Losses. To trade GBP/USD by fundamental analysis you can use both short-term (intraday) and medium-term strategies.

Example

Check the chart of the pair at the moment when Brexit was announced on June 23rd 2016.

The falling started right after the referendum and lasted for 3 months. The market slumped by over 4,000 points.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

 

[RoboForex Contest]

Dear traders!

This week, RoboForex's project called ContestFX offers you the following competitions on demo accounts:

The 122nd competition of "Demo Forex", which is ending in May.
The 312th competition of "Week with CFD" has started today.
445th competition of "Trade Day" will start on 02.06.2021 at 12:00.
361st competition of "KingSize MT5" will start on 03.06.2021 at 20:00.

It's not necessary to invest your personal savings in Forex trading - to receive funds as a reward to your real trading account, it's enough to become one of the winners of our competitions and start earning by using them.

Do not miss your chance!

Sincerely,
RoboForex Contest

 

[Vlad RF]

How to Use MyFxBook for Trading in Forex

Author: Andrey Goilov

Dear Clients and Partners,​

Not every trader analyzes their work, thus depriving themselves of a good way to improve their trading results. Experienced market players insist on scrutinizing every trade; however, this is hard to do without special programs.

Unfortunately, even MetaTrader 4 does not store the whole history of trades, though it would be quite useful to assess your profitability month by month on different stages of the market. Many make substantial money on the growing market, for example, while the falling market yields them less success.

MyFxBook is an online platform meant for mathematical and statistical analysis of the trader’s account. Results of analysis can later be shared.

In this article, I describe the opportunities provided by MyFxBook, as well as explain how to add the service to your trading platform and analyze your results.

Why is MyFxBook good for a trader?

First of all, by analyzing their trading history with a vast range of MyFxBook functions, the trader gets:

• An assessment of their overall profitability in percent. They can also assess their daily or weekly profitability depending on their needs, and set up a corresponding profitability chart.
• A drawdown assessment in percent with a chart, representing the periods of the deepest slumps.
• Additional indices of profitability, including average profit/loss of a period, the best/worst trade of a period.
• Other mathematical values of their trading activity.

After you register on the platform and log your trading account onto it, you may start analyzing trades. In your profile, you will see your daily and weekly profitability, the number of trades a day/week/month/year and their overall volume, the ratio of profitable and losing positions, your profit in points, etc.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

 

[Vlad RF]

What Is Pairs Trading and How to Use It?

Author: Victor Gryazin

Dear Clients and Partners,​

Pairs trading is a market-neutral trading strategy that implies buying and selling similar (correlating) trading assets simultaneously.

This method is equally valid for the currency, stock, and commodity markets. The hardest part of this method is choosing the type of assets.

In this article, I will tell you about the main principles of pairs trading, describe basic ways of choosing your instruments, and give examples of using the strategy in the real market.

What is the gist of pairs trading?

Pairs trading is a method based on trading two correlating financial instruments simultaneously in opposite directions.

Correlation is a statistical link between two or more values (assets). It can be direct and inverse. In the first case, one asset basically repeats all the movements of the other one. If the correlation is inverse, the charts of two instruments are mirror-like.

As an example of direct correlation, take the behavior of oil prices and stock prices of oil companies. When oil prices grow, stocks also grow. And vice versa: when oil prices are falling, correlation will stay in place, only in the opposite direction.

However, each oil company will grow or fall in its own way, faster or slower. This temporary divergence of prices can be used for pairs trading.

The strategy of pairs trading uses the principle of balance: it presumes that divergences of correlating instruments tend to return to their average values. Such divergences happen after some important fundamental events: changes in interest rates by Central banks, corporate events, etc.

To trade by the strategy, find a highly correlating pair of financial instruments, one of which has grown/fallen compared to the other. We expect the correlation to restore with time, after which you will close the position.

How to choose instruments for pairs trading?

Choosing assets for this strategy implies using fundamental and technical analysis, as well as statistical calculations. On the whole, you can start to look for instruments for pairs trading among:

• The stocks of companies of one market sector;
• Contracts for similar instruments: Brent and WTI oil, gold and silver, etc.
• Interconnected currencies.

A popular way to evaluate interconnection of two instruments is Pearson’s correlation coefficient. The higher it is, the more it is possible that they will be moving in one direction. Also, we use the notion of cointegration, which is a statistical property of two or more variables that demonstrates the stability of their interrelation.

In this article, I will try not to overwhelm you with mathematical calculations, opting for choosing the assets by graphic analysis. However, mind that this is just one way of choosing instruments for graphic trading, and not the most precise one.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

 

[RoboForex Contest]

Dear traders!

At the very beginning of summer, the ContestFX project invites you to participate in our regular demo competitions:

The 123rd competition of "Demo Forex" and 313th competition of "Week with CFD" have just started.
446th competition of "Trade Day" will start on 09.06.2021 at 12:00.
362nd competition of "KingSize MT5" will start on 10.06.2021 at 20:00.

We remind you that in order to participate in any of the competitions, it is enough to register on our site and join the competitions you like in a couple of mouse clicks. You'll become a contender for solid cash prizes and receive them to your real trading account in case of victory.

Join us, it won't be boring!

Sincerely,
RoboForex Contest

 

[Vlad RF]

How to Diversify Your Trading Portfolio? Basic Approach

Author: Maks Artemov

Dear Clients and Partners,​

Trading in financial markets can bring profit and losses in turns. There are plenty of reasons for losing money, starting with unpredictable behavior of assets and through an unwisely collected portfolio. This article is devoted to the latter reason, discussing basic approaches to diversifying your portfolio for decreasing risks and getting the maximum from the market.

We all know the saying: “Never put all the eggs in one basket”, and it perfectly describes the danger of undiversified portfolios. Putting all the eggs in one basket here means investing everything in one instrument and waiting for a profit. Practice shows that this strategy does not always work.

What is diversification?

In investment, diversification means distributing your investment capital among various financial instruments to decrease risks and increase profit. This approach helps to compensate for possible losses that emerge from a decline of one of your instruments by making a profit on your other instruments.

Until the 1950s, diversification principles in the stock market were limited by fundamental analysis (Graham and Dodd’s theory): people chose investment options by studying the business of issuers, almost neglecting risks.

In 1952, in the Journal of Finance there was published an article on collecting an investment portfolio by a young postgraduate Harry Markowitz. His ideas from the article and his PhD thesis became the base for the modern portfolio theory.

Markowitz described a fully mathematical approach to forming an investment portfolio that allows choosing assets based on the profit/risk ratio. In 1990, he won the Nobel prize for his research.
In this article, I will not describe Markowitz’s ideas or the statistical aspect of forming a portfolio because these are the topic for a different, much more detailed talk. Before starting such a talk, you will need to understand the basic principles of diversification to avoid putting all the eggs in one basket already at this stage.

Basic diversification principles for an investment portfolio

In the modern world, all the branches of the economy cannot be growing at once. Hence, investors need to distribute their capital in such a way that in the case of a slump of an asset or group of assets in one sector of the economy the portfolio still generated a profit.

The basic diversification principle presumes distributing your investment capital among the shares of companies from different branches of the economy, as well as among various financial instruments.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

 

[Vlad RF]

How to Trade with Bulls Power and Bears Power Indicators?

Author: Victor Gryazin

Dear Clients and Partners,​

This article is devoted to using two indicators: Bulls Power and Bears Power – in financial markets. These indicators are meant for measuring the strength of trends.

How do Bulls Power and Bears Power work?

These indicators were created by a famous trader and the author of the book “Elder Triple Screen” Alexander Elder. They help estimate the current power balance of buyers and sellers and catch the moment when bears/bulls are getting weaker. The combination of these indicators is also known as the Elder Ray.

Bulls Power demonstrates the strength of bulls in the market. It compares the highs with the Exponential Moving Average. If the Bulls Power histogram is above zero and growing, this means buyers are holding the price above the EMA, and bulls are now stronger than bears. And vice versa, if the histogram is declining, dropping below zero, this indicates the predominance of bears.

Bears Power, in its turn, demonstrates the strength of bears in the market. It compares the lows with the EMA. If the Bears Power histogram is below zero and declining, this means sellers are holding the price below the EMA, and bears are now stronger than bulls. However, if the histogram starts growing and rises above zero, this means bulls are in control of the market.

In essence, Bulls Power and Bears Power are irregular oscillators. They appear in separate windows under the price chart. They look like bar histograms with the central line at zero. To determine the direction of the active trend, Elder recommends adding to the chart an EMA (13), drawn by close prices.

Installing and setting up the indicators

Bulls Power and Bears Power are included in many popular trading terminals. To install the indicator to the chart of your financial instrument in MetaTrader 4 or MetaTrader 5, go to the Main Menu: Insert/Indicators/Oscillators/Bulls Power and Bears Power.

The formulae of the indicators look as follows:

• Bulls Power = HIGH - EMA (13)
• Bears Power = LOW - EMA (13)

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

 

[RoboForex Contest]

Dear traders!

This week, the RoboForex company's project called ContestFx invites everyone to participate in the following competition:

The 123rd competition of "Demo Forex" is running its second week.
The 314th competition of "Week with CFD" has kicked off today.
447th competition of "Trade Day" will start on 16.06.2021 at 12:00.
363rd competition of "KingSize MT5" will start on 17.06.2021 at 20:00.

If you haven't become a participant in our competitions yet, you need to go through a simple registration procedure just once. After that, any of your desired competitions will be available to you in just a couple of mouse clicks.

We're looking forward to your joining in and wish you good luck!

Sincerely,
RoboForex Contest

 

[Vlad RF]

MACD – Trading the Trend Strategy

Author: Andrey Goilov

Dear Clients and Partners,​

This trading method using Moving Averages works well with strong market movements. You must have already heard that trading the trend usually yields brilliant results; and if you add an oscillator, you get a full-scale trading strategy.

An indicator-based strategy is attractive because it has strict entry and exit rules. And if the trader uses graphic analysis, they usually have to analyze charts looking for price patterns, as well as subjectively evaluate the market situation.

Today, I will be telling you about a strategy used on M30 and H1. It allows placing close Stop Losses and trading intraday.

About the strategy MACD – Trading the Trend

The strategy is based on three Moving Averages, and MAs are the best indicator showing the market trend. Knowing the trend, you will know the direction of your work. As an additional signal source, the MACD is used. The strategy suits GBP/USD, AUD/USD, EUR/USD.

Parameters of the trading strategy

The strategy demonstrates the best results on H1 and M30. To get started, prepare the chart and add some indicators with certain parameters.

• MA (85) is a Linear Weighted MA with period 85, apply to: Low, color: blue.
• MA (75) is a Linear Weighted MA with period 75, apply to: Low, color: dark-blue.
• MA (5) is a Linear Weighted MA with period 5, apply to: Low, color: yellow.
• MACD (15, 26, 1) is the MACD with fast EMA (15), slow EMA (26), MACD SMA – 1.

A signal to buy by the strategy

The main signal to open a trade is a breakaway of the two slow MAs by the fast one, while the MACD will be used as an extra filter. The crossing of two MAs is a simple signal for a change of the trend. In this case, we expect a downtrend to come to an end and an uptrend to start, which means it is time to buy.

The parameters for entering a buying trend are as follows:

1. The MA (5) crosses the MA (85) and (75) from below, signifying a change of the trend.
2. The MACD values are above zero, indicating the presence of an uptrend.

Let us study an example with the currency pair NZD/USD. We see that the price was resting below the slow MAs, indicating a downtrend, but at some point it broke through the MAs, then the fast MA did the same, aiming upwards, indicating a change of a downtrend for an uptrend.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

 

[Vlad RF]

How to Trade Hanging Man and Inverted Hammer?

Author: Victor Gryazin

Dear Clients and Partners,​

This overview is devoted to two reversal patterns from candlestick analysis — the Hanging Man and Inverted Hammer. Appearing on the chart, the patterns might precede a correction or reversal.

How do the patterns form?

The Hanging Man and Inverted Hammer are candlestick analysis patterns. Candlestick analysis began in Japan, and Steve Nison, famous trader and analyst, became its active apologet. Being informative and very visual, candlestick analysis is fairly popular among traders.

How the Hanging Man forms

The Hanging Man reversal pattern forms at the price's highs after an ascending movent. The pattern looks like a candlestick with a small body (the color does not matter) with a small upper shadow or none at all — and an extremely long lower shadow, at least double the size of the body. The Japanese must, indeed, have seen the figure of a hanged person in this pattern and thus gave it such a grave name.

The idea of the Hanging Man is as follows. At some point, a massive sale of the asset happens; then buyers try to get the quotations back to the highs, which is indicated by the long lower shadow. A dubious moment comes: bears are active and ready to counter-attack but bulls still have the vigor and hope to win the battle.

The clue to who will win is the manner in which the candlestick following the Hanging Man closes. If this is a bearish candlestick with the close price below the Hanging Man's body, this means the reversal pattern has formed fully, so we may count on further falling. Otherwise, if bulls manage to close the day in their own favor, the pattern is not considered confirmed: the reversal signal is canceled, and the uptrend is likely to continue.

How the Inverted Hammer forms

The Inverted Hammer reversal pattern is a mirror reflection of the Hanging Man. It appears at the lows of the price chart in a downtrend. The pattern is a candlestick with a modest body (the color does not matter), with a small lower shadow or no shadow at all — and a very long upper shadow, at least twice as long as the body. It resembles a hammer with its handle looking up, which, naturally, gave the pattern its name.

The pattern works the following way. In a downtrend, active buying bursts out at some point, which is confirmed by the long upper shadow of the candlestick. The market becomes uncertain: bulls try to capture the in

Read more at R Blog - RoboForex

Sincerely,
RoboForex team