Forex Market - Probability of Better Return on Risk

Forex Market - Probability of Better Return on Risk

There are more reasons why you want to trade forex beyond currency diversification. Once you do some homework, you will realize that the Forex market is among the richest asset classes for traders and investors.


Forex market: the best return on risk

Trading in or investing in the Forex market offers some of the best return/risk opportunities for any financial market. If you know how to use it, you can take advantage of it. The availability of leverage, i.e. the use of borrowed funds to control large blocks of currencies and thus amplifying profits and in return losses if things do not go as planned, the Forex market creates the unparalleled potential for those who have limited capital in trading, they learn how to control At the risk of negative. For example, with a leverage of 1: 100, a 1% movement means 100% of the profit. This also means a 100 percent loss.


This allows us to make big profits on small price movements in the Forex market. However, as mentioned above, this also means:


  • For every single dollar you encounter, you can control $ 100.

  • For every $ 1,000, you can control $ 100,000.

Most of the following articles revolve around how to minimize the risk of large losses while increasing the odds of delivering profits. It includes learning to shorten losing trades and letting the winner pass through so you can be profitable even if you are wrong in most of your trades.


The best trading hours in the Forex market

The Forex market is trading in a seamless session 24 hours, 5 days a week, from Sunday 5:15 pm EST until Friday 5:00 pm EST. Therefore, those with work or family obligations can trade the entire Forex market whenever appropriate.


Forex Market: the lowest costs to start trading

Trading in the Forex market is among the lowest entry costs or starting in terms of money and time from any other financial market, in terms of commercial capital and training/equipment costs, as follows: Unlike most markets, you do not need several thousand dollars to start. This is because, in the Forex market, we can trade leverage, usually 1: 100 or more.


In theory, you can often start at less than $ 100. However, you will learn that you will reduce your risk and have more chances to profit by starting with at least a few thousand dollars (or its equivalent) if possible. As we will see later, the sizes of the small deals available from micro and small accounts allow those with limited funds to trade in smaller trades, which keeps the percentage of capital/risk in trading low acceptable. More on that later.


Training and equipment costs: Trading companies in the Forex market usually provide full-featured trading platforms and free data summaries, and provide the best trading company you can choose. A comprehensive archive of free training materials and market analysis. With online stock trading companies, traders usually need to maintain minimum balances or minimum trading volumes to get free high-quality trading platforms and charts from their brokers or access to worthwhile research.


Free demo trading accounts: Even better than that, they usually provide full-featured demo accounts and demo accounts allow smart beginners to simulate most of the trading and exercise experience using virtual money until they feel ready and able to risk their real capital.


Low transaction costs: Most Forex brokers charge no fees, commissions, or hidden fees. They earn their money from spreads, called spreads, the difference between the bid and ask price, usually a few pips or even less, from the price. Depending on the lot sizes traded, the two-point cost difference, the total of four points for opening and closing a trade, can range from $ 0.40 to $ 40. In general, transaction costs are very competitive compared to the costs of online stockbrokers.


The Forex market provides the best liquidity

The liquid market is the market that has many buyers and sellers. The more buyers and sellers the more at any moment, the more likely you will get a fair price in the market when buying or selling. The more liquidity in the market, the less likely that some of the less prominent orders or players will be able to move prices in unexpected moves.


In fact, unlike equity markets, even the biggest players will have trouble monopolizing price movements in major currency pairs after a few hours. There are two exceptions to this: a few central banks and retorted Forex companies. Fortunately, swap trading companies can be identified and avoided with some research, and the risks of central bank intervention are usually known or to be discovered soon after the first accident, which puts the markets cautious. The more liquidity in the market, the easier it is to obtain profits.


Prices are more fair and stable and less susceptible to sudden and unpredictable movements. You should generally avoid trading in low-liquidity markets, except in rare cases when trying to enter into bargaining prices offered by those desperate to close a trade. Trading volumes on the foreign exchange markets exceed the size of shares. The latest estimates indicate that the average daily volume of foreign exchange trading is about $ 4.71 trillion, of which retail retailers alone represent about $ 1.5 trillion. This huge trading volume, which lasts 24 hours a day, means that abundant buyers and sellers are usually present at any time. This means that you are more likely to get a fair price regardless of when you buy or sell. This means that you rarely see a partial implementation, in which cases you can only buy or sell part of your intended order.


The warnings are better in the Forex market than others

The Forex market often reacts to changing conditions ahead of other markets, providing an advanced warning of the values of potential trend changes. As we will learn later, some currencies tend to move in the same direction as "risky assets" such as stocks or commodities, and others tend to act as "safe haven" assets such as bonds. When these relationships break down, this could also be a warning of a change in direction in relation to other markets.


There is no centralized control or monopoly on the movement of Forex market prices

In most stock markets, a specialist is a single entity that acts as a buyer and seller of last resort and controls the spread, which is the difference between the bid and asks the price of a particular stock. Although in theory it is organized and supervised to prevent it from exploiting this ability to manipulate prices at the expense of the trading audience, the professionals are experts in knowing when they can get a degree from this and forcing you to buy at a higher price or sell at a lower price. In the Forex market, not a single specialist regulates the prices of individual currency pairs. Instead, multiple exchanges and brokers compete for your business. Although the lack of centralization of exchanges can complicate regulation, competition and easy access to pricing information have brought competitive prices.


In the Forex market, you can profit from high prices as well as low prices

Just as it is easier to rowing with the stream compared to rowing against it, it is easier to trend in the Forex market. Unlike stocks (and other financial markets), in the Forex market, it is easy to get profit from bearish markets as well as in emerging markets. This is a huge advantage for the Forex market. During an uptrend, when prices rise, traders buy the asset in the hope of selling it at a higher price. They try to buy at a low price and sell at a high price, which is the classic way most people look at investing.


During a downtrend, when prices are down, it is easy to profit by trading with this downtrend. Therefore, more experienced traders try to take advantage of this bearish momentum and short sell; That is, selling borrowed assets in the hope of later repurchasing them at a lower price, keeping the difference - for example, selling shares for $ 100 a share, buying them at $ 80 later, returning them to the broker, and earning $ 20 per share. However, most exchanges are controlled and regulated by those who have an interest in keeping stock prices high with short selling restrictions and huge costs.


The Forex market is less dangerous than others

Most traders believe that the Forex market is excessively risky due to a combination of:


1. High failure rates due to novice traders who have failed in their educational duties and understand the risks associated with high leverage commonly used in most Forex trading.


2. Brokers who failed to provide adequate training to deal with the risks of using the leverage. However, you can reduce and manage risks. over there:


Brokers, such as, who allow you to set your leverage according to what you can work with, will provide guidance at the appropriate level.

Uncommon ways to trade forex, which are not more dangerous than ETFs or stocks.

A variety of technologies to reduce risk in Forex trading, as well as new tools for trading the simpler and safer.

As we will see more, making foreign exchange trading can be easier than in stocks and other traditional asset markets, especially in bear markets. However, you need to do your homework, especially if trading with leverage, which adds to the risk and reward ratio. Part of that homework is learning more conservative and simpler methods that make it easier to succeed in Forex more than the most common. Until recently, there was no single source for learning this most conservative and sensitive Forex. This is the only source for combining these methods in one set of articles.


MACD indicator How to use the MACD indicator in Forex trading


Know more about the MACD indicator! And how the MACD helps you to "predict" market turning points, increase your profit rate, and identify strong moves before they actually happen.


What is the MACD indicator?

Mathcad Indicator (abbreviation of Moving Average Convergence / Divergence oscillator) Movers, the MACD is one of the simplest and most effective momentum indicators available. The MACD converts the next two Forex trend indicators, the moving averages one fast and the other slow, to a momentum oscillator by subtracting the fast-moving average from the slow average. The result of this calculation gives the best indicator that you can track the trend and momentum.


The MACD indicator fluctuates above and below the zero lines as moving averages converge, intersect, and diverge at this line. Traders can search for signal line crossovers, average crossovers, and variations to generate signals. This is because the MACD indicator is unlimited, and therefore may not be particularly useful for determining overbought levels and oversold levels.


Here is an example chart for the MACD indicator:


MACD indicator


Calculate the MACD indicator:

The MACD indicator is calculated from the 12-day exponential moving line (EMA) which is below the 26-day moving average. Closing prices are used for these moving averages. The 9-day exponential moving average of the MACD line is drawn as a signal and a line for turns. The MACD indicator is the difference between its MACD and its EMA for 9 days, which is the signal line. The graph is positive when the MACD line is above the signal line and negative when the MACD line is below the signal line.


Values of 12, 26, and 9 are the typical settings used with the MACD indicator, although other values can be replaced according to your trading style and goals.


MACD trading signals:

As its name suggests, the MACD indicator is about the convergence and the deviation of the moving average. Convergence occurs when moving averages move toward one another. Variation occurs when moving averages move away from each other. The shorter moving average (12 days) is faster and more responsible for most of the MACD movements. The longer moving average (26 days) is slower and less responsive to price changes in the underlying securities.


The MACD line oscillates above and below the zero lines, also known as the midline. These crossovers indicate that the 12-day EMA has crossed the EMA for 26 days. The direction depends, of course, on the direction of the intersection of the moving average. Positive MACD indicates that 12-day EMA is higher than 26-day EMA. Positive values increase due to shorter EMA spacing than longer EMA. This means that the bullish momentum is increasing. Negative MACD values indicate that the EMA for 12 days is less than the EMA for 26 days. Negative values increase as the shorter EMA length exceeds the longest EMA. This means that negative momentum is increasing.


MACD trading signals:


In the forex trading example above, the yellow zone shows the MACD line in the negative region as the EMA is trading for 12 days without the EMA that continues for 26 days. The initial crossover occurred at the end of September (black arrow) and the MACD moved to negative territory as the EMA moved 12 days away from the EMA that lasted for 26 days. The orange area highlights a period of positive MACD values, which is when the EMA is for 12 days above the EMA for 26 days. Note that the MACD indicator line remained below the value of "1" during this period (the red dotted line). This means that the distance between the EMA for 12 days and 26 days was the EMA less than one point, and that's not much difference.


MACD centerline crossover

Central crossovers in the average line for the next MACD are the most common. The cross of the bullish average line occurs when the MACD Line moves above the zero lines to become positive. This happens when the EMA moves 12 days above the EMA for 26 days. The cross of the falling average line occurs when the MACD line moves below the zero lines to become negative. This occurs when the EMA moves for 12 days without the EMA for 26 days.


Central crossovers can last in the middle of a few days or a few months, depending on the strength of the trend. The MACD remains positive as long as there is a continuous bullish trend. The MACD will remain negative when there is a steady downtrend. The following Pulte Homes (PHM) chart shows at least four central intersections in nine months. As you can see the resulting signals worked well due to strong trends with these central crossovers. 


MACD centerline crossover



MACD indicator breakthroughs:


Breakouts form when the MACD diverges from the price movement of the financial product. A bullish divergence is formed when the moving average records a downward movement and the MACD indicator forms the lowest decline. A lower SMA level confirms the current downtrend, but the lower MACD indicator shows lower bearish momentum. Despite the decline, the bearish momentum continues to outpace the bullish momentum as long as the MACD remains in negative territory, slow downward momentum may sometimes lead to a trend reversal or a major rally.

MACD indicator breakthroughs:


A downward divergence is formed when the MA averages up and the MACD line rises below it. A higher Rise in the moving average is normal for an uptrend, but the lowest rally in the MACD indicator shows less bullish momentum. Although the bullish momentum may be less, the bullish momentum still exceeds the bearish momentum as long as the MACD is positive. Sometimes bullish momentum may suggest a trend reversal or a significant drop.


The breakthroughs should be taken with caution. Downward breakouts are common in a strong uptrend, while bullish breakouts often occur in a strong downtrend. Usually, bullish trends begin with a strong advance resulting in an increase in the bullish momentum of the MACD indicator. Although the bullish trend continues, it continues at a slow pace and causes the MACD indicator to fall below its highs. The bullish momentum may not be strong, but it will continue to exceed the bearish momentum as long as the MACD line is above 0. The opposite occurs at the beginning of a strong bearish trend.


Last words about the MACD indicator

The MACD indicator is a distinct indicator because it combines momentum and trend in one indicator. This combination of trend and momentum can be applied to the daily, weekly, or monthly chart. The standard setting for the MACD sprinkler is the difference between EMAs 12 and 26 days. Technical analysis traders looking for more sensitivity may attempt to use a short-term moving average and a long term moving average. MACD (5,35,5) is so more sensitive than MACD (12,26,9) and maybe more suitable for weekly chart charts. Traders looking for a lower sensitivity might consider prolonging the moving averages. Less sensitive MACD will still swing above/below zero, but central crossovers in the moving average line and signal cross-sections will be less frequent.


The MACD is not particularly good for determining oversold levels. Although overbought or oversold levels can be set historically, the MACD indicator has no upper or lower limits to link its movement. During sharp moves, the MACD can continue to move beyond its historical limits.


Finally, remember that the MACD line is calculated using the actual difference between 2 moving averages. That means that the values of the MACD indicator depend on the price of the financial product. The values of the MACD indicator for shares of $ 20 may range from -1.5 to +1.5, while the values of the MACD index for $ 100 may range from -10 to +10. The MACD values cannot be compared to a group of products or financial instruments at different prices.

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