Posts Tagged ‘futures’

EUR/USD Currency Pair

January 12th, 2019 Comments off

EUR/USD is the most liquid and the most popular currency pair among the forex traders. Trading currencies can be exciting and lucrative. Its a great market because of the way politics affect the trends. Elections, strikes, and sudden developments, both good and bad, can lead to significant trading profits if you stand ready to trade the euro is a convenient currency because it encompasses the policies and the economic activity and political environment of a volatile but predictable part of the world: Europe. EUR/USD is the most heavily traded currency pair in the global currency markets at the moment.

In the United States, where the free-market approach and a usually vigilant Federal Reserve make more frequent adjustments on interest rates. France, Italy, and Germany, the largest members of the European Union (EU), normally operate under high budget deficits and tend to keep their interest rates more stable.

Fed changes its interest rates frequently keeping in view its inflation and unemployment targets. The general tendency of the Fed is to make the dollar trend for very long periods of time in one general direction. Here are some general tendencies of the EUR/USD currency pair on which you need to keep tabs aside from the technical analysis:

1) Given Germanys history of hyperinflation in the first half of the 20th century and the repercussions of that period, namely the rise of Hitler, the European Central Bank (ECB) is almost fanatical about inflation. That means that the European Central Bank raises interest rates more easily than it lowers them.

– The European Central Banks actions become important when all other factors are equal, meaning politics are equally stable or unstable in the United States and Europe, and the two economies are growing. For example, if the U.S. economy is slowing down, money slowly starts to drift away from the dollar. In the past that meant money would move toward the Japanese yen; however, because the market knows that Japans central bank will sell yen, the default currency when the dollar weakens is often now the euro.

– The flip side is that the market often sells the euro during political problems in the region, especially when the European economy is slowing and the economy in the United Kingdom (UK), which often moves along with the U.S. economy, is showing signs of strength.

As a word of caution, its okay to form an opinion and have some expectations, but the final and only truth that should make you trade is what the charts are showing you. As usual, you want to closely monitor major currencies and the cross rates. The direction that counts is the one in which the market is heading.

It is always best to choose only two or three currency pairs and become a specialist in them. Two currency pairs that I would recommend for you are the EUR/USD and the GBP/USD. Both these currency pairs are highly liquid and very popular among the currency traders. Fundamental analysis can help you determine the strong/weak currency pair. Use fundamental analysis to determine if USD is expected to lose value and EUR is expected to gain more strength that means that the currency pair EUR/USD is perfectly timed for swing trading. Use technical analysis to make the entry and exit decision. Combining fundamental analysis with the technical analysis can give you the edge as a forex trader. Sometimes there is a fundamental shift in the direction of a currency pair. As long as you are not following a currency pair like EUR/USD on the daily basis, you wont be able to understand what is happening.

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Introduction to Trading Systems

November 29th, 2017 Comments off

A good trading system is about much more than just selecting stocks. Certainly that is important as well. However, a good trading system will provide the ability for you to protect against losses, manage your money, add proper leverage when necessary, and also select a stock selection maximizing your reward and minimizing your risk.

The guess work is taken out of the way for you. The stock is purchased when criteria is met, the amount of stock purchased is also based on certain criteria. The stock is sold when criteria met, and there are protective measures against a stock’s demise, and where possible and appropriate leverage is created to maximize the returns without taking on more risk than you can handle.

This trading system will be talked about in 5 additional parts in addition to this intro. This post is designed to explain the trading system, its functions and how it operates.

1) Exit strategy. Every good system trader will first know the exit strategy. It doesn’t matter what vehicle selection you use, if you have no exit strategy, you’re stuck. The trick is to understand that unless you want to get trapped in an investment you have to know when you’re getting out.

A good exit strategy has both loss protection, and profit taking, and sometimes even a 3rd stop. The first 2 might be a maximum loss, and a maximum gain before taking profits, while the 3rd one will be a trailing stop that rides the gains up, and will sell the remaining shares. There are other exit strategies such as hold forever and write covered calls against it to collect income, or protective puts in place of a stop-loss.

2) Protection. Although #1 covers most of the protection, there are several other ways to protect yourself. Protection is vital to allow you to stay in the game. Many people know that if you lose 20% you need a 25% gain to make up for it. Losses not only can result in a series of losses that wipe you out, but they also hinder your ability to gain in the future. a 95% loss for example requires a 2000% nearly impossible goal to make up for this loss. So even if you flip a coin and have a 50% chance of gaining 200% or 50% chance of losing 95% of it, you should probably not take it if all your money is at risk, because it doesn’t have the downside protection A series of wins followed by 1 loss would prevent your ability to stay in the game. Even though those odds SEEM fair, they are not without proper protection. Protection ensures that you won’t have that 95% loss, and it absolutely restricts that loss to a fixed amount, rather than take 100% risk.

Such forms of protections are writing calls, in this situation you are given a premium so if the stock tanks to zero in a worst case scenario you’d still end up with the premium, this is minimal protection, and only protects a marginal amount of decline before the losses continue. The other form of protection would be buying a protective put. This actually in fact does protect against catastrophic losses. The lower your stock goes if/when it crashes, the more you make from your put or puts. You are the one paying a small amount in order to protect against any sort of decline below the designated price. The lower this price, the cheaper the option. If a stock is at $50 and you buy a protective put at a strike price of 40, you will NOT be protected against losses from 50 to 40, but beyond that you will be protected to the downside.

These are somewhat more sophisticated forms of protection. Basic forms of protection are diversifying, and perhaps being short. If you buy a stock at $100, and you short one in the same sector at $100, if the whole sector goes up, you are betting not that the market will go up, not that the sector will go up, but that stock A that you are long will outperform stock B in a bull market, and stock B will under perform stock A in a down market. This offers protection although it may limit the gains as well, Plus, you actually have to be right in your thesis.

In addition, if you are short, and the stock market booms, you may get a margin call and be forced to sell. Also, if you do not use money management, you are at risk of a short term swing requiring you to sell all of your shares of the stock that went up, in order to pay for those that you were short that went up, and if you can’t cover your short, your entire account is in jeopardy of being wiped out.

So rather than being short, I recommend replacing it with buying put options, although this has lots of risks involving time decay as well that you must understand before investing. Using a business entity such as a C Corp or a LLC is another form of protection that can protect you potentially against higher taxes, and personal financial trouble such as a bankruptcy on your record if you intend on using forms of leverage such as loans.

3) Money Management and Control. A good trading system will have a form of control. it will allow you to not give up that control when things go bad. In other words, it allows you to manage your money. Money management is very important. Perhaps one of the most important things is position sizing. If you buy $10,00 of stock for one stock when you only have $10,000 in your account this is very poor money management. Continue to do this, and eventually you will suffer a large loss which will be great, and it will be very difficult to gain enough to make up for it. In addition, if the price goes lower depending on your system, you may want to give yourself flexibility. Extra cash on the sides is another form of money management. It doesn’t have to be cash per say, but some form of safety. Various forms of currency, sometimes some gold, bonds, and money market accounts that are all fairly liquid would be a few examples.

4) Leverage Leverage is about using your abilities to gain, the strength of your trading system and various tools to minimize risk, and increase gain. When you take on leverage, you should be able to reduce your position size in comparison to your capital, and still have a similar reward or gain.

Forms of leverage include options, the further out of money option you purchase, the more leverage you have if that stock does make a strong move. You can also sell options to raise capital to invest in some cases.

Another from of leverage is a loan. Whether it’s a credit card, a home equity loan, going on margin, or a business loan for an asset holding company, or even taking a company public and using the capital to invest, the idea is to gain money at x% and to invest it and make a greater return than x%. if you can do this, and manage money well, and protect yourself, Your gain is only limited to the amount of capital you can borrow at the maximum of slightly less than what you expect to gain. Generally however, if you use a loan, you should have a form of cash flow or income that will cover the costs of the loan just in case your investment goes wrong. That’s another form of money management while using leverage. Money management should be treated much differently under different forms of leverage.

5) Finally, the stock selection vehicle. You need some method to select your vehicle, based on this and your other factors you will determine time horizon and a methodology of trading. The system will help you choose your trading stocks, and exactly what to do with them. You can play around with different trading systems, but generally you should first attempt a good exit strategy and make sure your controls on parts 1-4 of your trading system are sound, and try tweaking them

Stock Trading Systems that are well defined will leave very little room for error. If you learn to use a trading system, you can choose to enhance the essential skills it takes to making your trading system better.

Unfortunately, many day traders are slaves to the computer screen and can miss a moment. Focus on building the better trading system, and not placing the better trade, and you will give yourself some valuable time. If you are really using a system, you don’t need to be the one to place the trades, and can instead higher someone to do the work for you. You can use that extra time to improve your system, or find new ways to invest, or learn how to become a better trader.

You can learn other tips like this at the System Trading|Stocks Trading Systems blog, which is full of tips for day trading, options, swing trading, momentum trading, and advice on building a trading system.

Maclin Vestor teaches about trading systems. You can learn more about system trading and find a Trading System that works for you at his blog.

The Trading Week Ahead For Day Traders And Swing Traders

December 10th, 2014 Comments off

As expected, the market ran to the top of the daily range last week, briefly pushing above S&P 1128 on Friday. Still it was a pretty quiet week with both the S&P and Nasdaq composite sitting contentedly on their respective 200 day ma’s until Friday’s gap up.

Evidently the market wanted to wait until after option expiration before it tipped its hand on the next move. The good news is that we’re in a great spot for a big move in one direction or the other. A break back under the 200 day ma (S&P 1116) could take us all the way down to the 1040 area, perhaps after a pause around 1089.

On the other hand, a move above Friday’s high (S&P 1131+) could trigger a move up to S&P 1172 or even the high for the year at around 1219. Given the weekly inverse head & shoulders in the S&P, I’d be inclined to look for the upside move.

While the S&P and Nasdaq both put in red bars on Friday, Kohl’s (KSS) managed to close green, even after running below Thursday’s low in the first 30 minutes on Friday. The strong close also put KSS above its prior daily pivot high with room above. Look for a long entry above Friday’s high (above $51). The stop could be placed under $50.35 from the 15 minute chart, or more conservatively under Friday’s low ($49.76). First target would be the 200 day ma ($51.85) and the second target would be the daily highs just over $53.

The housing sector has been struggling, but finding a clean pattern to short has been difficult. KB Home (KBH) has pulled back for several days, which could be a buy setup, but it moved below support Thursday and remained there Friday. This could set up a continuation short, with a stop over Friday’s high ($11.48) and an entry under Thursday’s low ($11.04). First target would be the bottom of the green breakout bar ($10.50) with potential for continuation down to $10 or $9.50. If KBH moves over $10.50 it could be traded to the long side as well.

As an educational and proprietary trading firm, Affinity Trading’s main focus has been to teach the art of online day trading via their 2-day courses and 5-day live trading labs. Come visit the Affinity web site today and see how you can become a professional Day Trader.

Options On Futures And Options Trading Witching Dates

November 23rd, 2014 Comments off

In the last decade, options trading is become popular among the general investing public. Options is a derivative contract that gives you the right but not the obligation to buy the underlying asset at a fixed price till a certain date.

Options get effected by volatility in the market as well as the time. You need to know certain dates that are very important if you are seriously into stock options. These dates are known as the Witching Dates. Now many people trade stocks. For them stock options should not be new. They can invest in stock options. However,stock options are a bit tricky.

Now options contracts are written for a specific period of time. All expire on the third Friday of the month of their expiry. Options contracts are available not only on stocks but also on futures. These options on futures expire on different dates. These dates are known as Double Witching Dates, Triple Witching Dates and Quadruple Witching Dates. So need to know what happens on these dates.

Now options contracts are written for a specific period of time. All expire on the third Friday of the month of their expiry. Options contracts are available not only on stocks but also on futures. These options on futures expire on different dates. These dates are known as Double Witching Dates, Triple Witching Dates and Quadruple Witching Dates. So need to know what happens on these dates.

Double Witching Days are those when any two of the different classes of options contracts like the stock options, stock index options or the stock index futures options expire. Triple Witching Days is when these three classes expire on the same date. This date is the third Friday in the last month of each quarter. Quadruple Witching Days are those when these three classes of options contracts expire along with the individual stock futures options.

Now stock options and stock index futures options are different contracts. You need to understand the difference between them. Now when you trade a stock index futures options contract, you need to first master trading that stock index futures contract.

So when you trade options you need to understand these options witching dates as they can affect your portfolio returns. Knowing these dates helps you to trade or not trade on that date keeping in view the options contract that you are trading.

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Regional Australian Hedge Funds

November 19th, 2014 Comments off

An investment fund open to a limited range of investors who undertake a wide range of investments and trading activities other than the traditional forms of investments is defined as the Hedge Fund. Every Hedge Fund usually comprises of its own unique investment strategies and caters to a broad range of investments including shares, commodities and debts.

Australia being one of the largest financial markets in the world has a highly competitive environment with an open and transparent business system possessing skilled and multilingual workforce has emerged as a strong competitor for the other major G7 countries. The nation boasts of an uninterrupted economic expansion at a rate well over the world average for the past 15 years.

With the Australian dollar being the sixth most actively traded currency in the world, right now the economy is being bolstered by an increasing number of firms locating their Asian time zone foreign exchange business in the country.

The Hedge Fund industry of Australia accounts to a total of $46.6 billion US dollars and has grown rapidly to become the largest in Asia. More assets are being controlled by the Hedge Fund managers in Australia when compared with the managers of Hong Kong and Singapore put together. This demonstrates the international fund management capabilities of the Australian Hedge Fund industry. This huge success can be attributed to the fact that the country is blessed with an access to a highly skilled, experienced and talented pool of workforce, sophisticated managed funds and an investment banking community. Another important aspect of the Australian Hedge Fund industry is the presence of strong service providers managing the risk assessments, unit pricings and other operational procedures within the sound governance structure that underpins the financial services industry of Australia.

The industry which covers both the regional as well as the global markets is growing at a rapid pace and the assets under management have tripled in the past 2 years. There are a total of 66 Hedge Fund managers in Australia which offers an extensive variety of strategies including event driven, relative-value, long/short, arbitrage, fixed income/credit, derivatives and futures. There are a total of 129 Hedge Fund products in Australia way ahead of the 92 in Singapore and 61 in Japan. A total of 12 Hedge Fund incubators are there which in addition to start up management and administrative services, offers seed capital too. Amazingly the Hedge Fund launches in Australia have low start-up and annual running costs. The annual recurring cost in Australia is also low compared to the other centers in Asia. The various investors in this particular industry are the Australian pension fund investors, high net-worth individuals and the retail investors. The service providers are the various prime brokers which includes the Citigroup, ABN AMRO, ANZ investment bank, Barclays Capital, JP Morgan to name a few.

With some recent taxation changes like the removal of ‘management of funds’ from the ‘blacklist’ of non-eligible business activities, increment in the Foreign Investment Fund balanced portfolio exemption threshold from 5% to 10% the growth of the Australian Hedge Fund industry is surely going to be pitch forked.

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