To trade with and without expiration – What should you know

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Why young people should pursue a career in international trade!

Domestic career prospects—for young Canadians in particular—currently leave a lot to be desired.

Everyone knows a young person with an education who is currently struggling to break into the professional world. The reality is, this situation can be changed for these individuals if they take the right steps to build a global career.

With many opportunities and a diverse set of global trade occupations, such careers are both feasible and desirable options for people with a wide variety of passions, skills and career goals.

Increasing the number of young people working in these careers can also help to solve one of Canada’s other biggest challenges:

Our country is rapidly falling behind in the race for international trade.

Canada’s exports are now $40 billion lower than what they should be, according to the Governor of the Bank of Canada. There are also now 9,000 fewer companies engaging in export than at the start of the recession.

In comparison, nearly 25,000 more U.S. SMEs exported in 2020 than in 2007-2008, at the beginning of the recession.

For those of us in international trade, we see Canada falling behind on a daily basis. In China, Australia is, “Eating our lunch,” to quote former Deputy Prime Minister John Manley, who I had the opportunity to hear speak as he moderated a Canada 2020 discussion on this very topic.

While Canada is making progress in its trade relationship with China and signing agreements, Australia signed an FTA with China in 2020, giving them an advantage over Canada.

A smaller number of exporting Canadian businesses also places a greater reliance on those who are still involved in international trade.

While there are just over 1.16 million SMEs in Canada, just 41,000 of them currently export, or about 3.5 percent. In comparison, just over 302,000 of the 5.66 million American SMEs currently export, or 5.3 percent.

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The need for the number of Canadian companies involved in trade is then further seen when one notes that Canada’s trade is equivalent to 60 percent of its national GDP, compared to 29.8 percent of the U.S. GDP.

Canada is therefore relying on a segment of businesses just two-thirds the size of their American equivalent to produce double the percentage of the nation’s GDP, an unsettling statistic for Canada’s long-term economic future.

Canada’s youth unemployment—which is currently at around 13 percent—and Canada’s international trade performance are major issues facing the Canadian economy.

In order to solve the question of job security for Canadian youth on a long-term basis, we need to present Canada’s current international trade issues as opportunities for fruitful employment and advancement. By solving the former issue, Canada can make significant strides to solving the latter and surpassing many of its international competitors.

As we work towards a long-term solution, we need to do a much better job as a country; business, government, industry, education and youth must all be involved.

One of the biggest struggles facing these businesses point out is that they struggle to find individuals with the knowledge, skills and experience to fill their current HR gaps and help them to continue growing globally.

The solution requires training, programs and initiatives targeted squarely at the youngest members of society to give them the skills necessary to truly enable Canada to fly on the world stage.

Why should you pursue a career in international trade?

The reason why anyone should pursue something is because they have a passion for it. For you young people wondering what you should choose to do with your career, international trade is an opportunity.

The opportunity presented in joining the international trade field is a huge one, and the need is there, not just in Canada but also in virtually every country in the world.

When global business is put into perspective and held up against other career choices, it is an exciting option.

As a career, it offers you the opportunity to be a constant learner, to work in a changing environment, and to face challenges that enable you to make a real impact on the company or organization for which you work.

  • Travel: The opportunity to explore new cultures and markets, looking for new products and services, or buyers to purchase them. I have had the great opportunity to travel extensively through China, Malaysia, Singapore, Costa Rica, Panama, Colombia, Ecuador and Indonesia. I even had the opportunity to participate in the APEC CEO Summit in Honolulu. The trick is to make sure you always take a few hours and go explore the area instead of staying in the hotel!
  • Change: With the fast moving global economy, it is your opportunity to play a role in it. Very few days at work will ever be the same. In 2020 I was a leader on a project to bring 25 Chinese youth to Canada to learn how we do business. This was an example of global business development at Global Vision.
  • Passion: Every sector of the economy needs to trade. From hockey gear, to financial services, and insurance. There are opportunities for you to work with products and services you are passionate about. In my time travelling and learning about other cultures I have had to learn quickly about value-added agriculture products, and I developed a passion for them. Perhaps this is because I enjoy eating—but also because Canadian agriculture products are absolutely superior in the global context. They represent quality, and an opportunity for our country to dominate in a market.

If all of that sounds exciting, then perhaps it is time to consider a career in international business.

A few programs, which I am familiar with, are listed below to help you get on your way.

Solutions in education

Ultimately, the solution lies in educating yourself to be able to take up the baton. Here are a few organizations, programs and opportunities which exist (there are more) for young people to get started on the road towards a career in international trade.

All of these programs and their offerings actually complement one another, and represent unique opportunities, thus the best solution could be a combination of the below.

  • Global Vision – Junior Team Canada: Prior to launching Atlantic Trade Linx, I had the opportunity to work for Global Vision as a Project Manager on the organization’s Junior Team Canada Program. And prior to that, I was involved with the organization as a student ‘Ambassador’. The program was founded in 1991 by Terry Clifford, a former Member of Parliament from London, Ontario, to help young Canadians 16-25 gain hands-on trade-mission experience by doing work for Canadian SMEs.
  • Training and professional certification: There are a number of professional training and certification programs you can go through in order to gain knowledge, skills and accreditation for a career in international trade. The FITT program offers the CITP®|FIBP® designation, and its training courses are delivered in partnership with institutions from coast to coast in Canada and around the world, as well as online. This enables you to easily work and train at your convenience.
  • Foreign service: If you want to help sell the business or brand of an entire country, then perhaps this is the place for you. It could also be suitable if you want to work internationally in the field of politics and trade, helping to craft and negotiate trade deals and navigate relations with other countries. You can learn more about the specifics here.
  • International business (with a study abroad option): Many universities and colleges offer international business programs. How does one pick the right program. The answer is to look at the program components, looking for opportunities to spend time working on your degree in another country or market which you are passionate about. This will give you hands on cultural and linguistic experience, making you highly desirable to companies and businesses doing business abroad.

Ultimately, the key to success is choosing to pursue the dream.

There is a large opportunity in the market for individuals who have the skills necessary to help companies, especially helping SMEs enter new foreign markets and sell their products to the world.

The question is, are you ready to take up the challenge?

What other questions do you have about pursuing a career in international trade?

Traders: Which Markets Should You Trade?

As technology increases and trading innovation continues, the world is seeing an expansion in the types of trading instruments that can be used. Even seemingly separate markets are attempting to steal each other’s market share. For example, a person no longer needs to buy gold physically or even from a futures contract, they can simply buy an exchange traded fund (ETF) to participate in the movement of gold prices. Considering that similar scenarios are possible with currencies, commodities, stocks and other investments, traders can fine tune how they trade and tailor it more to their individual circumstances.

TUTORIAL: Trading Systems

Markets, Markets, Markets
Depending on education and experience, a person may not even be totally aware of the investments or trading vehicles that are accessible with a click of the mouse. Even while avoiding abstract and illiquid markets, traders can find trades within many different markets:

Stock Market: This well known market simply involves buying/shorting shares of a company.

ETF Market: Funds representing all sorts of sectors, industries, currencies and commodities. Trading similar to stocks, these funds can be bought and sold rapidly or held long term.

Forex Market: The largest market in the world. The forex market facilitates the exchange of one currency for another currency. Currencies are always traded in pairs, with many potential combinations available, but only some of which are very liquid.

Options Market: A market which allows participants to undertake positions in the derivative of an asset. Therefore, the option is not ownership of an underlying asset (though rights and obligations exist), but the option price (along with other inputs) fluctuates with the value (or lack of) that the underlying asset is providing.

Contract for Difference (CFD): A hybrid of the stock, forex and options market that allows participants to place trades in a derivative product based on an underlying asset. Generally the CFD does not have an expiry date, premium or commission (see broker’s terms and conditions), but does require the participant generally pay a larger bid/ask spread than what would be seen in the actual physical market for a product. (To learn more about CFDs, see Instead of Stocks, Trade A CFD.)

While there are other markets, these markets are all now easily accessible from home to just about anyone with an internet connection. Each market offers different advantages and disadvantages. Because of this many traders may decide to trade only one market because they feel it suits one aspect of their life or they lack knowledge of available markets. This could mean that traders are not taking advantage of the correct market given their trading style.

Which Markets to Trade?
The style of trading employed, financial resources, location and what time of day a person trades (or wants to trade), can all play a role in which markets will be best suited to the individual. Since some of these markets may not be familiar we will look at two common trader groups and how they could implement the use of other markets to improve their trading. It is important to be aware of such alternatives, as they may provide for some fine tuning which can result in better results over the long run.

Alternative Markets For Day Traders
Since 2000 there has been a steady increase in the amount of turnover in the foreign exchange markets. This has meant an increase in the number of day traders opening accounts with forex and CFD brokers, which have also increased in number. The main lure is that minimal investment is required. Accounts can often be opened for as little as $100-$1000 and will allow individuals to day trade global currencies, indexes and commodities. With the forex market the trader is actually exchanging one currency for another, possibly in an account denominated in yet another currency. It seems nice – low barriers to entry, generally no commission (but a spread is paid), high leverage (high risk/high reward) and free trading tools such as charts and research. But there are alternatives if one wants to trade forex or CFDs, which can encompass just about every other market. (Check out Day Trading Strategies for beginners to learn about some common strategies.)

Exchange traded funds now allow traders to partake in the currency moves by making trades on the stock exchange. While opening a day trading stock/ETF account will require more capital, there are advantages in that ETFs themselves can be leveraged or unleveraged. This means someone who wants to take on additional risk/reward for each incremental price movement can do so by buying a “3X bull” ETF for example. Also, with an ETF, a trader is not required to pay the spread. Instead, they can sit on the bid or offer providing liquidity and thus collecting ECN rebates (offsetting commissions, or providing additional profit). This is very advantageous in currency pairs with limited movement, or when the trader wishes to implement a scalping strategy.

ETFs also allow a trader to partake in other markets such as the movement of oil gold, silver or stock indexes; traders can move out of the CFD market and begin trading ETFs as well, providing them with a greater range of products. Depending on trading style, using ETFs, CFDs and the forex market may be wise. Different instruments can be used to hedge or take advantage of disconnects in price such as a currency pair moving without the corresponding ETF moving (or vice versa).

Alternative Markets For Long Term Investors
Commodities often attract long term investors, yet they may be unfamiliar with futures markets and so they have not participated directly in the movements of commodities such as gold, silver or platinum. Also, it is unlikely they have different currency exposure. And while they may have considered options trading, the time-framed nature of the instrument does not appeal to their trading plan.

Here is another opportunity where understanding different markets can open new doors even for conservative investors who make few trades. After learning about the different markets, the forex market can be used to gain currency exposure. ETFs can also be used to gain currency exposure, as well as participate in the price movements of gold, oil, silver or even other global economies. CFDs can be used by long term traders since the bid/ask spread is minimal over the time frame and they provide some of the benefits of options, but without the expiry date. For instance, large blue chip stocks are often available via CFDs. The stock is not actually owned, which allows for the participation in price movements with less capital in use (because high leverage can be used if desired), but the CFD does not provide voting rights or any of the perks associated with ownership of a piece of that company. When trading any instrument it is important to be aware of taxes and how the instruments fit into overall objectives, including retirement. Each instrument may be treated slightly different; therefore it is wise to seek out the advice of a professional.

Bottom Line
It is important to be aware that alternatives are out there. This does not mean every alternative will be good for every individual, but using a combination of markets or fine tuning how we interact with those markets can have an impact on results. For some individuals this may mean they need to switch markets as their success is unlikely if they continue to do what they are doing. On the other hand, incorporating other markets may provide benefits like small changes in costs, capital outlays and risks that can have large effects over the long run. Becoming familiar with all the markets available will allow for more opportunities and potentially increased profits or reduced costs. (For related reading, take a look at 5 Equity Derivatives And How They Work.)

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Reading time: 9 minutes

Our guide on Forex vs Stocks will enable you to decide which is the better market for you to trade on. We will compare the general differences between them in terms of trading, trading options, liquidity, trading times, the focus of each market, margins, leverage, and more!

Anyone new to trading is likely to wonder, “which is better: Forex or stocks?” Let’s begin answering our question with a little economics 101. We find ourselves today in a low interest rate environment. Central banks around the world are still wrestling with low growth for the most part. Loose monetary policy has been their main answer over the years. So what’s the upshot for you?

Basically, leaving money in the bank does you little good. In many of the major economies, interest paid on savings is less than the rate of inflation. As a natural result, people are searching for better alternatives to invest their money into, such as the well-established financial markets of Forex and stocks. This article will consider the pros and cons of Forex trading and stock trading.

Forex Market vs. Stock Market

There is no hard or fast answer to the question of which is better. In the comparison of Forex vs. stocks, there will be benefits and drawbacks for each market. It ultimately comes down to how important those features are to you personally. Let’s take a look at an overview of each market first, and then we can move on to drawing some conclusions about Forex vs. stock trading.

The Forex market is decentralized. It represents a trading network of participants from around the world. The large players in the Forex market include investment banks, central banks, hedge funds, and commercial companies.

The stock market is the overarching name given to the combined group of buyers and sellers of shares, or stocks. Shares in a company, as the name suggests, offer a share in the ownership. Usually, though not always, these transactions are conducted on stock exchanges. In order to raise capital, many companies choose to float shares of their stock.

Stock exchanges provide a transparent, regulated, and convenient marketplace for buyers to conduct business with sellers. Trading on these exchanges has historically been conducted by “open outcry,” but the trend in recent years has been strongly toward electronic trading.

The stock market is immensely popular, but it is exceeded in size by the Forex market, which is the largest financial market in the world. When we weigh up the Forex market vs the stock market in terms of size, Forex takes the round. Why do we care about the size? The greater the size of the Forex market, the greater its liquidity will be.

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Forex or Stocks: Comparing Liquidity

The Forex market is extremely liquid. This is a result of the vast number of participants involved in trading at any given time. Large, popular stocks can also be very liquid. Vodafone and Microsoft are prime examples. Though once you move away from the blue chips, stocks can become significantly less liquid.

Why do we care about liquidity?

Liquidity makes it easier to trade an instrument. Generally speaking, superior liquidity tends to equate to proportionally tighter spreads, and lower transaction costs. Let’s consider an actual Forex trading vs stock trading example, and compare some typical costs. Let’s use Microsoft as our liquid share, and EUR/USD as our liquid currency pair.

When trading Microsoft, you would pay:

  • A market spread
  • Commission to your broker

The price of Microsoft (at the time of writing) is around $52 a share. The market spread might typically range anywhere from 2 cents to 5 cents for Microsoft in normal market conditions. This is a range of roughly 0.04% to 0.09%. Commission rates vary from broker to broker, but you might pay 10 cents per share. The commission is paid upon the opening and the closing of the trade.

Now let’s compare that to EUR/USD. The most common type of retail FX trading is on a spread basis with no commission. This is the way in which the Trade.MT4 account works. On such an account, you might pay 1 pip of spread to trade EUR/USD, with no commission. If you are interested in trading with Admiral Markets, it’s important to note there is a selection of account types available that offer a variety of services.

With EUR/USD trading at 1.1190, this is a round-trip transaction cost of 0.0001/1/1.1190. Want to know what that works out to as a percentage? It’s less than 0.01%. In the case of this ‘Forex vs stock market scenario’, Forex has the upper hand. The round-trip spread cost of trading the FX position is less than the market spread on the share. And there’s more: once you factor in the share commission, the FX trade is even more cost effective. You can also view real market prices with a Demo Trading Account, as well as a live account.

Source: MetaTrader 4 – Demo Account – Trade Terminal & Market Watch

Narrow vs. Wide Focus

Perhaps a key difference when it comes to Forex vs stocks is the scope of the trader’s focus. When looking at an individual share, you can get away with concentrating on a fairly narrow selection of variables. While you are likely to take note of wider trends, factors directly affecting the company in question will be more important, along with the market forces within its specific sector. Relatively narrow metrics, such as the company’s debt levels, cash flows, earnings guidance, and so on, will be of chief importance.

With Forex, the focus is wider. A currency reflects the aggregated performance of its whole economy. FX traders are therefore more interested in macroeconomics. The focus will be more on general indicators such as unemployment, inflation, and GDP (Gross Domestic Product) rather than on the performance of private sectors. When you trade an FX pair, you are trading two currencies at once. You will always be buying one currency, while selling the other currency in the pair.

A fundamental trader therefore, factors in the performance of not just one economy, but two. Of course, you may focus on technical strategies instead of looking at fundamentals.

Forex vs. Stocks: Trading Times

The FX market is a 24-hour market, and it has no single central location; therefore, participants are spread across the globe; and there is always a part of the market that is in business hours. Trading a listed stock is limited, for the most part. Stock traders must adhere to the hours of the stock exchange. However, several major exchanges have introduced some form of extended trading hours. Stock traders may be able to participate during pre-market, and after-market trading periods.

These were once the domain of institutional investors only. Advances in electronic trading have made it increasingly accessible by retail investors also. The catch is that extended trading sessions remain notably low volume and non-liquid. When comparing volumes across a 24-hour period, FX wins again. If you are looking to trade at any given time, the comparison of trading Forex vs stocks is a simple one – Forex is the clear winner.

Margin and Leverage

A big advantage in favour of Forex trading vs stock trading is the superior leverage offered by Forex brokers. If you are physically trading stock, you are likely trading without the benefit of leverage. If you trade stocks using CFDs (Contracts For Difference), you can trade on margin. Usually, the best kind of leverage offered is 1:10. It is not unusual for FX brokers to offer 1:50 leverage, while Admiral Markets offers leverage of up to 1:30 for retail clients, and 1:500 for professional clients.

You can find all the details regarding retail and professional terms, the benefits, and the trade offs for each client category on the Admiral Markets website.

This offers the convenience of being able to command a larger position for a given cash deposit. Of course, it is important to be aware of how big your underlying position actually is, and to fully understand the risks involved. Leverage can be a powerful tool, but it can also put a quick stop to your activities.

Forex Trading vs. Stocks: Conclusion

So which should you go for in 2020? – Forex or stocks? In trading, the bottom line is always to stick with what works. This means going with what works best for you. If you know more about one market than the other, you might be better off staying in your area of your expertise. If you are naturally more interested in individual companies, then it would make sense for you to trade stocks.

If you think more in terms of macroeconomics, FX may suit you better. If you don’t have a particular inclination, but are mindful of transaction costs, FX might be the way to go. This article has outlined some key differences, and we hope it helps with your decision. Whichever side you choose, you will be able to trade it with Admiral Markets as we offer the ability to trade on Forex, CFDs, ETFs, Stocks and more with MetaTrader 4 Supreme Edition.

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About Admiral Markets
Admiral Markets is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world’s most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

Technical indicators every trader should know

Success comes from knowledge – this is true for most things in life and especially Forex trading. To become successful, a trader needs to learn technical analysis. Technical indicators are a big part of technical analysis.

The problem is that, at first sight, names of technical indicators can sound unpleasantly complicated, for example, MACD, RSI or Stochastic. However, we recommend you not to judge a book by its cover. We will provide you with a fair and simple explanation of the most popular technical indicators. We guarantee that you will understand how to use them. Are you interested? Let’s start then!

Do technical indicators actually work?

We trade to get a positive result or, in other words, profit. Many beginner traders are eager to know whether technical indicators are able to give them good trading signals.

The truth is that technical indicators won’t automatically lead you to profit, but they will do a lot of work for you. There are no doubts that a skillful and experienced trader can achieve profit without indicators, but they can still help a lot.

In fact, technical indicators can do a few wonderful things:

  • show something that is not obvious;
  • help to find a trade idea;
  • save time for market analysis.

Every technical indicator is based on a mathematical formula. These formulas make fast calculations of various price parameters and then visualize the result on the chart. You don’t need to calculate anything yourself: just go to MetaTrader menu, click on “Insert” and then choose an indicator you would like to add to the chart.

At the same time, technical indicators make their calculations only on the basis of a price – the currency quotes, which are reordered in the trading software. As a result, indicators do have weak spots: they can give signals which lag behind the price (for example, the price has already fallen when the indicator finally gives a signal to sell).

The good news is that there are ways to get a lot of benefits from technical indicators. We are going to explain how to do it in the paragraph that follows.

The best technical indicators for Forex traders

Technical indicators are divided into several groups depending on their purpose. As purposes of the indicators are different, a trader needs not one, but a combination of several indicators to open a trade. In this article, we will tell about the 3 most popular technical indicators.

1. Moving Average – an indicator to identify the trend

Moving Average (MA) is a trend indicator. It helps to identify and follow the trend.

Technical principle: MA shows an average value of a price over a chosen time period.

In simple terms: Moving Average follows the price. This line helps to smooth the price volatility and get rid of the unwanted price “noise”, so that you focus on the main trend and not on corrections. It is necessary to understand that this indicator does not predict the future price, but outlines the current direction of the market.

Advantages of Moving Average:

  • identifies a direction of a trend;
  • finds trend reversals;
  • shows potential support and resistance levels.

Disadvantages of Moving Average:

  • lags behind the current price (will change more slowly than the price chart because the indicator is based on the past prices).

Tips:

  • There are 4 types of the Moving Averages – simple, exponential, linear weighted and smoothed. The difference between them is merely technical (how much weight is assigned to the latest data). We recommend you to use Simple Moving Average as most traders use this line.
  • The most popular time periods for MA are 200, 100, 50 and 20. 200-period MA may help to analyze a long-term “historical” trend, while the 20-period MA – to follow a short-term trend.

How to interpret

In short, a trend is bullish when the price of a currency pair is above the MA and bearish – when the price falls below. In addition, note how Moving Averages with different periods behave towards each other.

Upward bias is confirmed when a shorter-term MA (e.g. 50-period) rises above the longer-term MA (e.g. 100-period). And vice versa, a downward bias is confirmed when a shorter-term MA goes below the longer-term MA.

Conclusion

Moving Average shows whether to buy or sell a currency pair (buy in an uptrend, sell in a downtrend). MA won’t tell you at what level to open your trade (for that you’ll need other indicators). As a result, applying a trend indicator should be among the first steps of your technical analysis.

2. Bollinger Bands – an indicator to measure volatility

Bollinger Bands helps to measure market volatility (i.e. the degree of variation of a trading price).

Technical principle: Bollinger Bands consist of 3 lines. Each line (band) is an MA. The middle band is usually a 20-period SMA. It identifies trend direction – just like the MAs described above do. Upper and lower bands (or “volatility” bands) are shifted by two standard deviations above and below the middle band.

In simple terms: Bollinger Bands indicator puts the price in a kind of box between the two outside lines. The price is constantly revolving around the middle line. It can go and test levels beyond the outside lines, but only for a short period of time and it won’t be able to get far away. After such deviation from the center, the price will have to return back to the middle. You can also notice that during some periods of time Bollinger lines come closer together, while during other periods of time they spread and the range becomes wider. The narrower the range, the lower is market volatility and, vice versa, the bands widen when the market becomes more volatile.

Advantages of Bollinger Bands:

  • The indicator is actually great in a sideways market (when a currency pair is trading in a range). In this case, the lines of the indicator can be used as support and resistance levels, where traders can open their positions.

Disadvantages of Bollinger Bands:

  • During a strong trend, the price can spend a long time at one Bollinger line and not go to the opposite one. As a result, we don’t recommend Bollinger Bands for trending markets.

How to interpret

The closer the price approaches the upper band, the more overbought the currency pair becomes. To put it simply, by this time buyers have already made money on the advance of the price and close their trade to take profit. The result is that the overbought pair stops rising and turns down. The price’s rise above the upper band may be a selling signal, while a decline below the lower band – a buying signal.

The outer bands automatically widen when volatility increases and narrow when volatility decreases. High and low volatility periods usually follow each other, so the narrowing of the bands often means that the volatility is about to increase sharply.

Tips:

  • We don’t recommend to use Bollinger Bands without confirmation from other indicators/technical tools. Bollinger bands go well with candlestick patterns, trendlines, and other price actions signals.

Conclusion

Bollinger Bands work best when the market is not trending. This indicator can be a great basis for a trading system, but it alone is not enough: you’ll need to use other tools as well.

3. MACD – an indicator that shows the phase of the market

MACD (Moving Average Convergence/Divergence) measures the driving force behind the market. It shows when the market gets tired of moving in one direction and needs a rest (correction).

Technical principle: MACD histogram is the difference between a 26-period and 12-period exponential moving averages (EMA). It also includes a signal line (9-period moving average).

In simple terms: MACD is based on moving averages, but it involves some other formulas as well, so it belongs to a type of technical indicators known oscillators. Oscillators are shown in separate boxes below the price chart. After an oscillator rises to high levels, it has to turn back down. Usually so does the price chart. The difference is that while MACD needs to return close to 0 or lower, the price’s decline will likely be smaller. This is how MACD “predicts” the turns in price.

How to interpret

  1. Dramatic Rise/Fall. Sell when histogram bars start declining after a big advance. Buy when histogram bars start growing after a big decline.
  2. Crossovers between the histogram and the signal line can make market entries more precise. Buy when the MACD-histogram rises above the signal line. Sell when the MACD-histogram falls below the signal line.
  3. Zero line as additional confirmation. When MACD crosses the zero line, it also shows the strength of bulls or bears. Buy when the MACD-histogram rises above 0. Sell when the MACD-histogram falls below 0. Note though, that such signals are weaker than the previous ones.
  4. Divergence. If a price rises and a MACD falls, it means that the advance of the price is not confirmed by the indicator and the rally is about to end. On the contrary, if a price falls and MACD rises, a bullish turn in the near-term.

Tips

  • Crossovers between the histogram and the signal line are the best signal from MACD.
  • Hunt for divergences between MACD and the price: it’s a good indication of an upcoming correction.

Advantages of MACD:

  • MACD can be used both trending or ranging markets.
  • If you understood MACD, it will be easy for you to learn how other oscillators work: the principle is quite similar.

Disadvantages of MACD:

  • The indicator lags behind the price chart, so some signals come late and are not followed by the strong move of the market.

Conclusion

It’s good to have MACD on your chart as it measures both trend and momentum. It can be a strong part of a trading system, although we don’t recommend to make trading decisions based only on this indicator.

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  • Binomo
    Binomo

    Good Broker For Experienced Traders!

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