European Markets Start the Week Upward

European equity markets start the week up as  the US and China are making progress in their negotiations, said US Treasury Secretary Steven Mnuchin. Furthermore, European stock markets moved higher at the start of the session, taking advantage of the latest encouraging signs on the evolution of Sino-US trade negotiations and the global economic situation. The Empire State manufacturing indicator rebounded stronger than expected on Monday. A trade agreement thus appears very close between the first two world economic powers.

In addition, companies have generally delivered better than expected results since the start of the earnings season, but forecasts remain mixed, like IBM or Netflix.

Investors are on the lookout for any signal that confirms the recovery in March or on the contrary would strengthen the fear of recession.

Investors will be watching the US corporate earnings season, including Citigroup and Goldman Sachs on Monday.In Europe, a series of important economic indicators is expected this week with the PMI culminating Thursday. On Tuesday, the main European economic meetings are the British job market (10:30) and the Zew index of economic sentiment in Germany (11am). In the United States, the session will be punctuated by the figures of industrial production (15:15), a Robert Kaplan speech of the Fed (20h) and the results of companies: Bank of America, Blackrock, J & J and United Health before the opening as well as Netflix and IBM after closing.

The rise of the euro to more than $ 1.17 does not benefit metals in the commodities market. Brent’s barrel also sank at $ 71 after hitting a high since early November at nearly $ 72.

Forex Risk Management, The Introductory

We are here attacking the first lesson of what we call “the work of the trader”, ie everything that does not strictly concern the analysis … If you ask yourself what trading can ask for as competence to apart from the analysis, you are in the right place.

What is risk management?
Risk management, also known as money management, refers to a set of rules and principles that will allow you to maximize the efficiency of your operations, and avoid taking too many risks, or at least risks that are not mastered.

For some people, these principles will seem obvious. However, keep in mind that when you really invest your money, you do not think so lucidly. We are won by stress, fear, and hope , which can sometimes “pollute” our ability to make rational and effective decisions.

This is where risk management comes in.

In fact, by setting strict rules in advance , we manage to overcome the difficulties caused by emotions such as fear or hope, two of your greatest enemies when it comes to trading on Forex.

Risk management is a somewhat tidy concept, so we are going to teach you here the most indispensable notions, the ones you will need directly at the beginning of your trading career.

Managing your capital

Main rule: do not use too much of your capital

Here, the notion of available margin is paramount. As a reminder, the margin available is the amount on which you can intervene, taking into account the leverage effect. For example, if you made a deposit of $ 1,000 on your account and you use a leverage of 100, your available margin is $ 100,000.

However, you should never use too much of your available margin, be wary of the leverage allowed.

For example, in the previous case, if you take a big position relative to your capital, for example on 50000 units, each variation of 1 pip will represent 5 dollars.

So, with 100 pips in the opposite direction of your position, you are already losing $ 500, which is half of your capital .

And once you reach 200 lost pips, your capital has gone up, and you’re going through what’s called a “margin call,” which means that the broker automatically cuts your position and your account is at zero …

There are no precise rules to know what proportion of its available margin should be used, but in the present case (deposit of $ 1000, leverage of 100), it seems advisable to limit oneself to positions of 10,000 units, where the value of the pip is 1 dollar over EUR / USD.

By prudently using your capital, you will be able to cope in the event of a transient change to your position. You will be able to hold the position until the trend becomes favorable again (if you have good reason to think that your position is always wise and you have simply made a timing error).

To conclude, do not be too greedy . Admittedly, the bigger the position, the faster and faster the gains, but we must not forget that it also works with the losses!

Pay patiently for gains on reasonable positions, increase your capital, then increase the size of your positions, this is the best way to be sure to last in trading.

Risk management of positions with stops and limits

We have previously learned to manage our capital, now learn how to manage our positions. In this field, the notions of Stops and Limits are paramount. Let’s start with the definitions:

Stop: We call stop the limit of maximum latent loss that is fixed. This is the threshold from which we consider that we were wrong in our position, and that our analysis is false.

That is, we cut our positions as soon as the stop is reached. For example, you buy EUR / USD at 1.3060: If your stop is 10 pips, you will set it at 1.3050, and cut your position at this price.

Limit: A limit is the opposite of a stop. This is the goal of gain that we set. This is the threshold from which we consider that it is wiser to cash out your winnings than to hold the position. Specifically, with a limit of 10 pips, if you buy EUR / USD at 1.3060, you will sell at 1.3070.

Stops and limits can be defined “orally” or automatically , which we recommend.

You can automatically place stop and limit orders on your platforms, so that positions are automatically closed if they have reached the stop or limit.

The usefulness of stops and limits
The interest is obvious in the case of stops: Avoid being caught in the game of “it’s good, it’ll go back” , because by doing so, you will drag long losing positions, which will undermine your margin and therefore your ability investment.

Our opinion is that if the courses go in the wrong direction, it is better to accept it and move on . Things move very quickly on the Forex, and it is better to accept to have been wrong than to wait for the courses back up and to let go of opportunities.

For limits, it will be to avoid being “too greedy” waiting too long before taking his winnings on a winning position. Many traders doing this have been surprised by the speed at which prices fall after a spike …

An old stock market adage says that trees never go up to heaven, and it is better to take profits early than to wait too long and face a brutal turnaround that will wipe out your winnings.

We strongly advise you to place your auto-stop stop and limit orders right after your position statement, and not to touch it anymore . Once the position is taken, we are not so lucid, and we may be tempted to disregard the rules we have set, which is usually a bad idea.

In addition, with automatic stops and limits, you will not have to monitor the position closely, which is more comfortable.

How to choose stops and limits?

Firstly, we must know that the more we invest in the short term, the more our stops and limits will have to be tight. Then everything depends on your strategy, everything depends on the risks you want to take …

However, it will be necessary to ensure that your limits are always wider than your stops.

Your winning positions must earn you more than you lose your losing positions.

But this principle alone is not enough to properly position its stops and its limits. Indeed, the risk management intervenes in the choice of the levels on which one will set its stops and its limits, but the analysis also intervenes.

Conclusion

To conclude, risk management aims to help you overcome psychological errors, mistakes that can lead you to make your emotions. But for that, it is also essential to know each other well, to know the psychological biases that the trader is often subjected to: This is the subject of the following lesson.

Economic Indicator, Essential Classification

An economic indicator is a numerical number/figure that reflects a specific component of a financial action/activity of a sector or a nation. This measurement is freely distributed at regular interims by public or private statistical research institutions.

The Classification of Type

There are many economic indicators known in this field. However, this can be classified according to its importance and the impact they have to a business sector at the time of announcement. We recognize three classes of indicators as follows:

  • Leading/Advanced
  • Coincidental
  • Delayed

 

1 – Advanced

These data reflect the actual economic action at ahead of time. They make it conceivable to envision changes in economic trend.

They are hard to investigate since they envision economic movement. Combined with other data, they can or refute certain trends. For instance, a great consumer confidence index figure may suggest higher future consumption, however this trend will be affirmed or turned around with other lagged indicators.

 

2 – Coincidental

These are the most followed data release which assess the actual economic action at the time of announcement. These measurements/figures follow the economic activity as a whole. They permit at an offered minute to take the proportion of of economic activity. They are less complex to analyze than the advance/leading indicators.

 

3 – The delayed

These statistics are based on data already passed so more easily calculable. They measure past economic activity. These data confirm or refute an economic trend. Their publications have a direct impact on the market economy.

 

Every trader should know groups of economic indicators which in this case are included in fundamental analysis. By knowing this grouping, the trader can act appropriately in anticipating each release of certain economic news. Even for a technical trader, it doesn’t hurt to know this grouping so that it can help when he analyzes the currency chart.

Introduction to Fundamental Forex Analysis

One of the oldest methods of analysis in the economics is fundamental analysis (FA). This facet of the analysis is much less easily applicable to trading. Concretely, FA focuses on considering the economic-fundamentals of the currency/foreign-exchange (forex), i.e the circumstance of financial aspects among various nations (that might be different continent as well). For this, we rely on several factors factors such as (firstly and essentially) the foreign national banks’ interest-rates, and economic—monetary  and financial— statistics. Hypothetically, if the economy of such nation is progressing nicely, investors should be encouraged to invest their fund to the currency, and in the meantime increases its price.

 

The Influence of (CB-central-bank) Interest Rates

CB’s rates are the foundation of the economy of particular nation. By the national banks rates, one can figure the loan rates of both the individuals and the companies, which may impacts the local economy.

This rates have two inverse impacts on the forex market: the shorter and more extended term influence.

If interest rates are low, credit is cheap. Businesses are therefore encouraged to invest, and households are encouraged to spend. If the rates are low, saving becomes less attractive. This situation is somehow generating growth. If interest rates are high, credit is more expensive and less accessible. It is therefore less profitable to invest for companies, and household consumption is constrained. In addition, the high remuneration of savings encourages them to spare as opposed to spend. This situation tends to dampen growth and rising prices

However, interest rates additionally have directly affect the forex market. Indeed, when the rate of a national bank is increasing, local currency turns out to be increasingly attractive since the deposits in this currency, cash are better remunerated.

Conversely, low interest rates result in less deposit installments, and therefore, keeping the currency is less appealing.

By this means, a drop in ECB rates, for instance, will have descending effect on the EUR / USD at the time of the announcement, as well as a rise in the Federal Reserve’s rate. . With the same contextual means, a rise in ECB rates will have a short-term raising effect on the EUR / USD, as well as a drop in the Fed’s rates.

It ought to likewise be noticed that to the degree that monetary standards are quoted in pairs, we must look at the rate-differential between both pairing currencies, the one with the best rate having a comparative advantage.

Higher rates in the United States than in Europe should therefore have a negative influence on the EUR / USD pair, while higher European rates would benefit the Euro and therefore lead to a rise in the EUR / USD pair.

Interest rates are therefore the economic pillars of the forex, the foundations of the global economy.

However, rates are not changed often, so operators rely on other data to analyze and forecast currency movements. This is what we will see below.

 

Influence of economic statistics

Numerous economic statistics are published every day: Unemployment rate, GDP, manufacturing indices, industry orders, consumer morale, etc., etc.

It is therefore a question of measuring all the factors having an influence on the economy. Normally, if a statistic is satisfactory, it should benefit the corresponding currency.

It should also be noted that some statistics are more influential than others. For example, weekly statistics are less important than monthly statistics, which themselves are less important than quarterly statistics.

To know if a statistic is influential or not, do not forget to check our forex economic calendar. We also draw your attention to the fact that statistical publications are often the occasion for violent movements. We will have to remain cautious about these figures.

 

The notion of consensus

the notion of consensus is paramount when one tries to predict the influence of a statistic on a currency. Indeed, several agencies conduct surveys before statistics publications, to find out what economists and traders anticipate.

Thus, very bad or very good statistics will have little influence if the consensus had anticipated it.

Conversely, a statistic that may appear satisfactory may have a negative impact if the market had hoped for even better!

 

How to take into account FA as a novice forex trader?

So we quickly understand that it can be difficult to rely on FA to make short-term trading decisions. However, some tips are to be deduced from these notions.

What you must remember:  Statistics and interest rates can be very influential on the forex. It is therefore advisable to remain cautious when they are published.

Either try to take advantage of the influence of statistics, which we think is very risky!

For more information on FA and news trading, we invite you to discover our dedicated section.