Trading strategies

Expert Advisors are programs which are configured to execute trades or read market price movements. When a parameter is met or triggered, it commands the EA to open or close trades on your behalf whilst you are otherwise engaged or sleeping. EAs are compatible to be used on the Metatrader 4 and 5 systems.

Algorithmic trading is a method of executing orders using automated pre-programmed trading instructions accounting for variables such as time, price, and volume. This type of trading attempts to leverage the speed and computational resources of computers relative to human traders. In the twenty-first century, algorithmic trading has been gaining traction with both retail and institutional traders.

It is widely used by investment banks, pension funds, mutual funds, hedge funds that may need to spread out the execution of a larger order or perform trades too fast for human traders to react to. It is now also widely available to retail clients. A study in 2019 showed that around 92% of trading in the Forex market was performed by trading algorithms rather than humans.

What are the advantages of using EA’s? Timesaving – The Forex market is open 24 hours. As a trader you are always looking for an opening in the market for you to execute an order, however, as a human you need to be able to sleep to operate normally, especially if you want to live a healthy life.

With an EA in place, you can time the market, set alerts, watch various markets simultaneously, set open and close trades yourself or allow it to open and close trades on your behalf. For a lot of forex traders who’d like to profit from market movements during a particular trading session but are stuck in a different time zone, using an expert advisor means that they don’t need to worry about trading sleep for pips. Emotionless Trading – The market is wholly affected by emotion, whether the emotion makes you want to buy or sell an asset is down to how you understand the information or how you perceive the charts.

With emotion you can either be gripped in a circle of greed or a loss of confidence which can cloud your thinking and deviate from a trusted strategy. An EA does not suffer from these as it just needs to meet various mathematical parameters to work. Expert advisors are wired to stick to system commands and take valid trade signals, without feeling pain from losses or joy from wins.

Backtesting - Another advantage of having an expert advisor is the ease of conducting backtests, particularly on an MT4 platform. In fact, Babypips have a short tutorial on how to backtest and EA on MT4 and you’d be surprised to know that it just takes a few clicks to see how a system fared over several years. This is mainly used, to make sure that the EA you have acquired, works in the way you want it to work before letting it loose on your live account with real money at stake.

Quick and Flexible – EAs can open and close trades in a blink of an eye; whilst humans tend to second guess these actions by taking price movements and reading indicators, an EA is built to take these decisions with mathematical precision. Depending on the EA you are also able to check multiple markets and have various EAs on one system at the same time. Some of these features are also extremely useful for short term traders who trade on smaller movements of 1 – minute to 5 – minutes charts.

Human Error and Accessibility – Human error have cost many a trader in years past, opening the wrong direction on trades, making the size of the position too big or too small, or opening a trade whilst misreading the technical can all have a negative effect on your trading experience. Having an EA can limit these errors as EAs are programmed to your specifications and they would never deviate from that, unless they are not set properly to begin with, but this is the reason why you would always backtest! EAs are available with a decent variety and with great accessibility to these programs, it is no hard to see why they are becoming the automated popular choice for traders.

In my follow up article on this subject, I will talk about the use of a VPS and popular EAs. If you like to incorporate your MT4/5 systems with EAs, you can talk to one of our Account Managers who will be happy to talk you through the process, feel free to contact us on +61 3 8566 7680 or email me directly on christianr@gomarkets.com Sources: Tradersunion.com, IG, Wikipedia, Babypips.

Trading FOREX, equities, commodities, and any other asset can be an emotional rollercoaster. With so many different emotions and external factors difficulties impacting a trade, it is crucial that before any trade is executed a trading plan is produced to minimise the impact of the ‘noise’. Generating the Idea The first step to any plan is to generate a trading idea.

Trade ideas, come from one of three sources. A fundamental source, a technical source, or a mix of both. What does this mean exactly?

Well, when generating ideas from a fundamental perspective, a trader can generate idea based on economic events, monetary policy from a Central bank or company relevant information just to name a few. From a technical perspective, a trader may find that an asset is trading near a potential support or resistance level or developing into a breakout pattern. Alternatively, the price may have touched an important moving average which indicates it may be ready to trade.

Traders can also put these ideas together to come up with even more robust trading ideas. Background economic factors and sector analysis Before entering a trade, a good trader should have at the very least a rudimentary understanding of the relevant sector or economic factors that may influence the trade. For example, a trader decides to trade the AUDUSD currency pair.

The trader has seen that the price is approaching a short-term support point and decides to buy the pair expecting the price to bounce of the level. However, the trader is not aware that the Federal Reserve has just increased interest rates which has increased the value of the USD. Consequently, the price goes against the trader.

Technical breakdown Prior to entering any trade, the trader should analyse the price chart and set up relevant support and resistance levels. This allows the trader to have a clear idea of key supply and demand zones for the asset before the emotions of the actual trade become prevalent. To effectively go about this step, support and resistance levels can be analysed on multiple time frames to gain an even greater edge. [caption id="attachment_272243" align="alignnone" width="2560"] Business Team Investment Entrepreneur Trading discussing and analysis graph stock market trading,stock chart concept[/caption] Entry condition Having a trade idea is one aspect however having a clear entry criterion will help reduce the impact of emotion when watching the trade unfold.

Some examples of potential entries conditions can be related to a break and retest of a certain level for an entry or waiting for a specific candlestick pattern. Furthermore, an entry may also be defined by a disproportionate increase in volume supporting a breakout. Exit Conditions Like determining entry conditions having pre planned exit points can improve the management of emotions during also trade whilst also enhancing risk management.

Setting take profit targets/stop loss areas will help ensure that a trade is well structured even before initiating the trade. Having pre-determined exit points can also help determine if a trade is worth entering in the first place as it allows for a determination of the potential risk reward before execution. Risk management No matter whether the trade is a scalp, swing trade or longer-term investment, each should have clear risk management guidelines.

Good risk management involves the use of stop losses and correct sizing of a trade. One method that can be effective is to have a maximum amount of the total account that you are willing to lose per trade. This could be a percentage figure or a fixed amount.

For example, if the total account size is $10,000 and you decide that the maximum loss per trade is 1%. This means that the maximum loss per trade would be $100. The next step is to then set stop loss.

The stop loss in many cases should be independent of the actual maximum risk amount. The stop loss level should be calculated before the sizing. Once the stop loss is set the size of the trade can be determined.

Risk management is perhaps the most crucial element of the trading plan because minimising losses is crucial to any long-term success in trading. Whilst having a clear trading plan will not guarantee success it will help remove many behavioral biases that can impact on a trade.

Imagine having access to technical analysis across all the major markets, updated around the clock in real-time and of the same calibre that investment banks around the world receive daily. Then consider having all your favourite Forex and Commodity markets analysed with a trade entry, exit, profit taking levels and a price projection. And what if you could have the analysis running live on your MT4 charts providing trading opportunities throughout your trading day, allowing you to focus on your position sizing?

It may sound like a pipedream, but in fact, this is what you have sitting at your fingertips for those who qualify (don’t worry, qualification is quite simple). What we are talking about is the technical analysis service provided by the research house, Trading Central, and they have been helping traders with their service since 1999. So who are Trading Central and how can they help me?

Trading Central is an independent and leading provider of financial research and technical analysis of financial products. Their approach is simple yet very affective – they combine a technical analysis approach to determine price targets using a range of trading indicators. They now provide their services to more than 100 global financial institutions in 30 countries around the globe.

We are proud to say we have partnered with Trading Central as a result of their proven track record in delivering high-quality analysis of the financial markets and in particular, they extensively cover the Forex and Commodity markets for qualified GO Markets clients. Top 3 ways you can benefit from their research 1. Daily Newsletters with trade alerts Delivered twice a day, the daily Forex technical analysis e­mail service provides you with visual and technical analysis newsletters that detail trading strategies, predictions, commentaries as well as key levels (support, resistance, target, stop pivots) on multiple time frames.

The newsletter provides short to medium term analysis on the following products: AUDUSD, EURJPY, EURUSD, GBPUSD, USDJPY, HANG SENG, SPI 200, & SPOT GOLD. We regularly get feedback on how handy it is to have the key pivot points outlined clearly on each of the instruments they analyse. 2. Web Portal / Research Platform Access Trading Central’s global research directly through the Trading Central web portal.

Receive up-to-the-minute technical analysis on forex, indices and precious metals as Trading Central provides updates throughout the trading day. If you’re a regular technical analysis user who knows what you are looking for, the web portal is a quick and easy way to search for intra-day, short and mid-term updates. There’s a ‘search box’ for instant access, or you can select a report on individual asset classes (Indices, Forex and Commodities).

For those traders who have specific criteria, the web portal has pre-made filters allowing for a quick search and the ability to customise the screen. In addition, you are able to have instant access to the information that matters to you by creating a customizable watch list. 3. Technical Analysis Plug In The Technical Analysis plug-in in MT4 is a user friendly interface offering actionable content and customizable timeframes, allowing traders to fill in orders and program trades based on levels provided by Trading Central.

The MT4 plugin displays Trading Central’s technical analysis strategies, views and market commentaries, as well as Trading Central’s key levels (support, resistance, targets, stop pivots) directly on your MT4 platform. It also allows you to execute orders directly from your MT4 charts based on the levels provided by Trading Central. So whether you’re a novice or an experienced trader, Trading Central can be used to either provide original trade ideas, or provide a handy second opinion.

Many traders utilise shares or options amongst their investment strategies either for income or capital growth. One key factor that such traders may consider in their choice of specific markets to trade is liquidity, with a higher trading volume impacting positively on the ability to get in and out of trades at a fair price. Others may find the choice to trade specific companies or sectors not as well represented in their local market.

For many therefore, the breadth of choice and liquidity may make this market the preferred market to trade. Like any type of trading, sustainable results require a depth of knowledge and commitment to trading an individual tried and tested system. This system should include in depth reference to risk management throughout.

However, due to the choice of market, a trader can make regular profit and yet lose this (and potentially more) through the currency risks associated with trading in US dollars rather than, for example, their base currency of Australian dollars or GB pounds. Holding a significant position in US shares or options means that many traders have exposure to positions in tens of thousands in USD. So what is the currency risk?

The reality is that profits can be ‘used up’, or losses can be compounded, by adverse currency movements. The reason for this is simple. Let’s assume that your currency is AUD and it is transferred into USD for trading purposes.

The exchange value when converted back to the original currency at some time in the future will be dependent not only on trading results but on the movement of AUD versus USD. While your money is in your account in USD, weakness in AUD will mean a greater worth in AUD when converted back, whereas a lesser conversion worth will result if there is AUD strength while your money is sitting is USD. Let’s give an example...

See below a daily chart of AUD/USD for the last 3 years. Note the price from the end of January 2018 at a level of 0.8134. The price at Nov 2019 was at 0.6776 so a difference of 0.1358 So, an investment to fund a trading account of AUD$30,000 would have equalled an original USD value of $24,402.

With the movement in the currency alone over this period (assuming no movement in share price) the value of the account when transferred back into AUD would have risen to $36,007.59 or in other words a 20.03% increase. So, in this case the underlying currency movement was of benefit. However, if this positive currency outcome is the case when there is USD strength (when your trading capital is in USD), with the same AUDUSD currency movement in the other direction, the loss could be 20.03%.

This would mean that you would have had to profit by this 20.03% in your trades simply to breakeven. This WAS the case if you look at a chart from the beginning of Jan 2016 to Aug 2017. More than this of course, if you have lost $6007.59 on a similar price move in the other direction, broke even on your trades during that period, so your equivalent AUD value is $23,992.41, your trading return would have to be now 25% profit to recover the original capital level simple because of currency movement.

Bear in mind, of course we have chosen only a $30,000 example, some of you may have considerably more than this in the market (and so considerably more currency risk) than the example we have given. Risk management of your hedge Although you are entering a low margin requirement Forex position due to the leverage associated with Forex, we cannot understate the importance of a full understanding of the implications of this. Should the AUD move lower still (as we explained above in looking at what has happened since January 2018), the value of your hedge may move significantly.

If we look at using the analogy of an insurance policy in trying to explain the concept, the maximum risk is the initial “premium” paid in this case. However, with any Forex position there is obviously the risk of losing more than your original investment. Additionally, you are trading your shares/options in a different account and hence there must be the ability to money manage between the two accounts.

Our team can guide you further on these important issues. One last thing… Although we cannot advise when it is right for you, if at all, to put in a currency hedge, it is worthwhile raising the question about what the current AUDUSD chart is telling you now technically. Additionally, with the potential for further US rate cuts, and if you believe there will be some resolution to trade tariff wars between the US and China, both events have the potential to strengthen AUD (and so weaken your USD capital).

If invested in USD based trading for some time you have benefitted, logically, it is not unreasonable to consider whether it is worth ‘locking’ some of this in. So, what can you do? Your choices are twofold. 1.

Allow your invested trading capital to be subjected to the risks associated with underlying currency movements or, 2. Hedge the currency risks with a non-expiring Forex position. If option “2” looks attractive, the reality is you can: • Mitigate the risk through consideration of a Forex hedge. • Attempt to optimise your hedge by timing its placement and exit i.e. use technical landmarks, to decide when to get in and out of a hedge. (Please note: a hedge is for insurance purpose and so although there may be merit in timing entry and exit, we are not suggesting you trade in and out of a hedge on a regular basis).

Learn how to reduce the risk We are happy not only to show you how but guide you step by step in how to set this up. There are a couple of practical issues you would need to have in place to manage this well but again we can go through these to enable you to make the right decision for you. If you think this might be for you, then simply connect with us at mike.smith@gomarkets.com and we will arrange for one of our account team to discuss a currency hedge that may be a fit for you.

Irrespective of what vehicle you are choosing to trade (Forex, CFDs, share CFDs ), position sizing is a crucial part of your trading risk management. It is position sizing, along with effective exit strategies, that have an undoubted major impact on your trading results both now and going forward. At a basic level, the following are part of a position sizing system: a.

Identify a tolerable risk level per trade based on your account size (often 1-3%) meaning you aim to keep any loss sustained within this tolerable limit. b. Using any stop level for specific trades and your tolerable limit to work out how many lots/contacts you can enter to achieve this goal. c. Ensuring you are not inadvertently over-positioning in one market idea (e.g. broad-based USD strength or weakness, by entering multiple trades across currency pairs/ commodity CFDs that will multiply the impact of USD movement).

But what then? How do we explore refining our position sizing to potential optimise results? Here are two initial ideas for potential testing… Idea 1 – Position sizing according to volatility When exploring using volatility for any trading decision it is not just the level but potentially, more importantly, the direction of the volatility i.e. increasing/decreasing.

Volatility is often seen as a reflection of market certainty but perhaps consider volatility as a measure of the likelihood that an asset e.g. Fx pair, is more likely to move away from its current position (and that can be either positively or negatively of course). Logically, therefore, increasing volatility in either direction could represent an increase in risk (and of course visa versa).

Consequently, it is not unreasonable to consider altering your tolerable risk level according to this. So, for example, if your standard is 2% of account capital on any one trade, if you were to implement this as an idea, increasing volatility could mean a decrease in risk level to 1% and decrease to 3%. The challenge, of course, is to determine a method through which you can determine this change.

The ATR is a volatility measure commonly used and would be a potential tool that can assist. Of course, the other aspect is to choose the timeframe to measure this variable. Logically, the shortest timeframe should be the timeframe you are trading but there may be wisdom in looking at longer-term timeframes also.

Idea 2 – Ensure that trail stops account for your tolerable risk level. Arguably a common mistake made by many traders is to view trades on their P/L and make decisions on the fact they are “up” on the deal and as long as the trade is closed before getting back to breakeven then they have a win. An alternative and logically an advanced approach is your net worth in the market is where it is right NOW and hence any pullback in any position is a “loss” from your current place.

This is the rationale behind trailing a stop in an attempt to still have access to the further upside (“letting your profits run”) whilst capping any pullback to a new an improved level to that of your initial stop. There are many ways of trailing a stop e.g. retracement, price/MA cross but again would it not make sense to use your tolerable risk level as part of your trail stop equation. So lets see, for example, use an account size of $10,000 and you are trading a 2% maximum risk level to set your initial stop.

This means that your contract/lot size is based on your technical stop and $200. You have a position that is now up to $350 if you were to adopt this approach when you trail your stop you should ensure that it is placed at a level that would mean that the worst scenario would be that you would close the position at $150 profit. There are of course other advanced position sizing techniques you could test which will be the topic of an upcoming Inner Circle session.

Make sure that you are part of this through registering for these sessions so you can jump on board with this advanced trading education group to access the topics applicable to your trading development. In the meantime, we would be delighted, as always, to hear from you, so if you are using an advanced position sizing technique it would be great to hear from you at mike.smith@gomarkets.com

Trading Volume: General principles Many experienced traders (even those using a simple system will incorporate volume as part of their entry (common) and/or exit (less common) system. It is essential (as with any indicator) that you understand the role volume can and cannot play with suggestions of what is happening to market sentiment. So generally speaking, trading volume may offer some guidance as to whether market participants are changing sentiment towards the pricing of an asset, and if there is a price move, whether it may have a higher probability in continuing in that trend direction.

Many would consider it more “leading” than the majority of other indicators. Indeed, VSA (volume Spread Analysis) which is based on this principle is an approach used by many. In simple terms, a price move (either way) with higher traded volume is thought to be more robust in terms of trend continuation.

Whereas Lower volume with a price suggests market uncertainty or no interest. Trend reversal and retracement A trend reversal is, as the name suggests, sentiment moving from an established upwards trend to, a new trend forming in the opposite direction e.g. upwards to downwards trend (or visa versa). The risk of remaining in a trade that is reversing is loss of potential profit in that position if one delays exit.

A trend retracement, is a temporary pull back in price prior to continuation of that change in the same direction, often termed a trend pause). The risk of exiting a trade on a retracement is that you are missing out of the additional profit from a subsequent trend continuation move. This differentiation is important when the trader is considering an exit from a specific position.

For example, recognition a reversal from a uptrend to downtrend early would be beneficial when in a long trade. Whereas should the price move be a retracement then to continue to hold that position may prove to have a better outcome as the price subsequently moves higher. The challenge, of course, Is that ability to differentiate and identify through the use of technical “clues” what may be happening to market sentiment.

Is volume the “clue”? If one accepts the premise that level of volume is an indicator in terms of the potential strength of a price move, then can this be a “clue” as to whether the more likely outcome is reversal or retracement? See below for an hourly chart of USDJPY.

We have labelled the confirmed start of trend after a double top type of chart pattern through to the end of the trend and subsequent reversal. Note the lower volume of the two retracements (shown in blue highlight) and the subsequent higher volume as the trend ultimately reversed. In terms of trading actions logically one could consider the following: • Retracements may be a signal to trail a stop loss to the base of the retracement. • Increasing volume may be a signal to exit directly in anticipation of a confirmed reversal.

The Forex Volume Challenge? As many readers will be trading Forex it would remiss of us not to discuss the specific issue briefly with the volume seen on an MT4 platform. With shares (and the volume shown on Share CFD charts for example), the number of traded positions is managed and reported by the central exchanges (e.g.

ASX, NYSE). However, with FX there is no central exchange so the volume you see reflects the trades going through relevant liquidity providers. Additionally, Forex volume on MT4 measures a record of ticks rather than the number of lots traded.

One tick measures a single price change. As a price moves up and down this “tick volume” alters within the specific chart period. On the MT5 platform there is a option to choose so called “real volume” and yet it should still be borne in mind that compared to a stock exchange which theoretically shows all trades from the whole exchange this is not the case with Forex.

Hence, some may question as to whether the measured chart volume with Forex is sufficiently valid on which to make decisions (although theoretically the principle remains the same). The reality… Whatever your thoughts on this, arguably you could question the validity of any indicator. So, ultimately you use the same process for testing and subsequently potentially adding any indicator you may be considering the use of in your individual decision making i.e. back-test to justify a forward test and on evidence decide whether, and how to add volume to your trading decisions.

You challenge is to do the testing, and plant your flag as to whether you are to utilise this in your trading.