Archive for June, 2010

23.06.2010 Post in Trading

Besides reversal patterns on the charts of technical analysis of Forex market the figures of the trend continuation can be singled out. The trend figures illustrate a short period of the market correction. The most important figures of the market continuation are flags, pennants, triangles, wedges and rectangles. Below we will discuss every figure in detail.

Flags and Pennant

Flags and pennants are the most often models of the trend continuation, as a rule, they can be noticed in a very energetically developing trend. The dynamics of the flag and of the pennant have much in common. Both of these figures arise after a dynamic market movement, forming almost a straight line on the graph.

The figure actually is a pause in the trend development, during which the price is almost at one and the same level. A pennant looks as a small triangle on the chart whereas a flag is a short-term price range. After the figure has broken the curve, the prior trend continues, passing the distance equal to that of the figure.

Flag and pennant are the reliable trend continuation figures, when they are moving against the trend. Thus, a flag which is inclined downside gives a bullish signal. If the flag is inclined upwards, the signal is bearish. Before the emergence of the figure, the market activity is high. After the trend continuation pattern has arisen, the activity starts to fall. When the break happened, the activity is upturning again. Another feature of a flag is that when the market is lowering, the figures are being formed much faster, than during the ascending market. The appearance of these patterns on the actively expanding market denotes that a puncture is possible.

It should also be mentioned that flags and pennants are directed not against but along the prior trend and are more a trend retrace.

flag

Flag

pennant

Pennant

Unlike rebound figures, the figures of the trend continuation can very often denote the false direction of the trend. The things are more complicated with the figure of the trend reversal “triangle”.

Triangle

Triangles can be viewed as flags without flagpoles. Four types of triangles are distinguished: symmetrical, uprising, downfalling and expanding.

A symmetrical triangle is built by symmetrically converging support and resistance lines, drawn though at least four points. The symmetrical convergence of these lines reflects the existing on the currency market balance between demand and supply. Consequently, the breakthrough can emerge in any direction. But if there is a bullish symmetrical triangle, the break is likely to be directed like the previous trend, proving the name of triangle as a figure of trend continuation.

Triangle

Uprising Triangle

An uprising triangle is formed by the horizontal resistance line and the uprising support line. This figure demonstrates the situation when the demand exceeds the supply considerably. The break is upward, and further on the target is the price level which is positioned at a distance equal to the base of the triangle from the point of the break through.

Downfalling triangle

A downfalling triangle is a mirror reflection of the uprising one. It is formed by a horizontal support line and a declining resistance line. The figure illustrates the situation on the market when the supply is much higher than demand. The price breakthrough happens in this situation to the bottom. The trading volume is gradually declining in accordance to approaching the high, but it surges at the moment of the break.

Expanding Triangle

An expanding triangle, or megaphone, is an inverted image of any prior discussed triangles, where not the base of the triangle, but its corner is adjusted to the line of the prior trend. The change of the trading volume happens accordingly, the volume increases proportionally to the formation of the expanding triangle.

The break can be considered concluded if the close price was fixed outside the corresponding line, that is either above or below one of the triangle sides. After the break the curve is usually rebounding towards the punctured side.

Wedges

Wedge is closely related to the patterns of triangle and pennant. It is similar in form and the time of formation, but from the viewpoint of form and analysis, it resembles a pennant without a flagpole more. It’s usually broken through in the direction opposite to its incline, but coinciding with the direction of the prior trend. Depending on the trend, the wedge can be bullish or bearish. By the wedge on the chart it is possible to see only the trend continuation.

Wedge

Rectangles

The figure Rectangle demonstrates the market consolidation period. After its breakthrough, the currency is likely to continue the previous trend. But its disruption can, however, lead to the transition from the trend continuation to the recoil.

Rectangle

This figure is easily distinguished, and it can be considered as a small sideways trend. When it is formed along the up-trend and the price breaks though it upwards, the rectangle is called bullish.

Added by Andrey Misyuk,
InstaForex Clients’ relationship manager

17.06.2010 Post in Trading

The arbitrage concept means several ‘buy’ or ‘sell’ deals in order to profit from unequal prices of the same or resembling assets at the same time in different markets or in one market, but at different times.

Also there is the concept as Forex arbitrage. It is ‘buy’ or ‘sell’ operations made by a trader and a required further reverse deal for the purpose of making profit.

Controlling its risk, Forex arbitrage can be very beneficial. The meaning of Forex arbitrage is following: profit is made by mean of buying/selling of financial instruments at different times. In addition, a trader has opportunity to complete financial transaction in different market. Forex arbitrage means obligatory making both buy/sell deal in Forex and a reverse operation, which will bring a profit.

There are several types of arbitrage available. It is simple arbitrage, which involves using of just two currencies and a complicated type, which involves trading with three and more currencies.

Depending on what profit one can make there are following types of arbitrage:

– Temporary arbitrage is the most accepted type of arbitrage. Its meaning is in quotes difference of currency pairs at different times. The temporary arbitrage can be of two kinds:

1. “Purchase-Sale”. A trader buys a currency at a lower price in order to sell it at a higher price and get profit.

2. “Sale-Purchase”. Trader sells currency at higher price in order to buy at lower price in the future.

– Crossing arbitrage is one of the most complicated types of arbitrage. During the crossing arbitrage simultaneous synchronous exchange rates changing takes place in two pairs. Such cross-imbalances appear in Forex all the time.

– Intermarket arbitrage occurs in case of if you want to earn on exchange rates difference in different currency markets.

However, the using of Forex arbitrage is not always profitable, as in today’s conditions exchange rates in various exchanges do not differ often that does not allow traders to obtain additional profit.

The main essence of arbitrage is the complication of fixed-date buy/sell deals of currency options. The option must be executed without fail and its conditions depend on its type and the conditions of the contract.

In general, the choice of strategy depends on many factors related to each other, which trader must consider during the trading.

Added by Alexandr Kornilov,
InstaForex Clients’ relationship manager

10.06.2010 Post in Trading

There are two model of people’s activity –work or gaming. Game is always a risk, but in addition it is freedom of choice. Game can bring you huge winning and at the same time huge loss. However, it is insignificant how much efforts you spent for achieving the goal. So the main characteristic of a game is risk.

Work, on the contrary, is disciplined process, completely excluding any risks. The result of working process is salary.

Considering trade on the international currency market Forex, there cannot be any unambiguous answer for the question “What Forex is”. Everything depends on trader’s choice. Thinking of trading at Forex in terms of work, we can find many significant differences between it and usual working process. A trader does not have supervisors, position, career ladder, trader does not get fixed monthly salary, he does not need to go to the office every day. All this is both advantages and disadvantages of being a trader. It is not usual notion of work which everybody got used to.

Let’s now consider trading in the context of game. Opening and closing positions, traders parlay – what happens with the currency, whether its rate will move down or up. So having given correct forecast, trader gets profit, and, on the contrary, if he failed to predict changes on the market, he loses everything. It can be compared with casino but can not be called work.

As of today, many traders tend to suppose that trade on the international currency market Forex is work. The difference between casino game and trading on Forex consists in constant self-development, market analysis, basing on fundamental and technical factors of market behavior. A trader should monitor the quotations, follow the most important economic and political events in the world. And according to the information, he should make a decision on execution of operation.

If trader relies only on his intuition, the trading process adds up to casino game. If trading on Forex, you adhere to the basis of fundamental and technical analysis, you are always aware of economical and political situation in the world, estimate probable risks beforehand, then, undoubtedly, trade on the international market Forex is work.

Added by InstaForex Staff