Metatrader 4 is a dynamic and adaptive trading system allowing the user to focus on the automation of trading strategies and systems. The trading terminal has long been associated with PC, and has had limited application on other Hardware platforms like Mac. Vantage FX in conjunction with CodeWeavers is offering the ability to use Metatrader on Mac. CrossOver is their technology that bridges the gap between PC and Mac. Users can install the software and run their favourite windows based programs in Mac or Linux. As Metatrader 4 was built for the windows environment, the CrossOver technology allows for full integration and the running of automated trading systems called EAs. [Read more...]
Forex Leverage
December 22, 2010 By Leave a Comment
The growth in Foreign Exchange can be attributed to the dynamic of margin or leverage trading. Defined as the amount of capital that is borrowed based on a pre existing cash balance, leverage allows the trader to command larger positions in the forex market. Sometimes referred to as margin, many professional or institutional traders focus on using leverage to unlock capital for investment purposes and diversification of portfolio holdings. To truly understand the concept, we have outlined two different examples below. [Read more...]
Overtrading
December 15, 2010 By Leave a Comment
Overtrading is a significant problem that many traders experience. In many cases the degree of overtrading varies and can depend on the financial product, leverage and risk level of the trader. Discipline or lack of discipline plays an important role in defining whether someone is overtrading. There are a number of reasons why people overtrade, including financial and psychological. Industry studies have shown that overtrading in many cases is due to personality traits and not a consequence of financial mis-management. [Read more...]
Importance of Stop Loss in Trading
December 8, 2010 By 1 Comment
Stop Loss orders are a key component in the trading process. The recent global financial crisis has proved the importance of this statement, with many financial instruments experiencing substantial devaluations. A stop loss order, or sometimes referred to as a conditional placement, can be broken into different categories based on a traders requirements. [Read more...]
How Do Bollinger Bands Work?
December 5, 2010 By 1 Comment
Bollinger Bands are a unique trading pattern / indicator that are used in conjunction with other parameters in defining the trend of a financial instrument. Discovered by John Bollinger, the concept of Bollinger bands has become extremely popular in the trading circles in the last decade. Based on the relative movement of a price pattern, Bollinger bands focus on defining t he range over a certain period. Defined by three key indicator levels, which include a Moving Average point, and two standard deviation windows either side of the MA, the indicator is used as a complimentary analyser. [Read more...]
What Is Volatility Trading?
November 25, 2010 By 1 Comment
Volatility trading is an alternative sophisticated style of trading that has become popular with hedge funds and institutions over the last decade. It is a broad term used with many financial instruments, in which each trader has their own style of volatility trading. In the institutional or hedge fund world, volatility is used as a measure of calculation to determine significant arbitrage opportunities. Commonly used with Exchange Traded Options and Shares, this strategy focuses on keeping a neutral risk position (ie delta neutral) and waiting for a change or mispricing in the option value to make a profit. The windows of opportunities are very narrow and require substantial bank roll to profit from such an approach.
The most common form of volatility trading can be adapted to all financial instruments. This style of trading focuses on pricing the volatility at a historical point to the relative or current volatility. Changes, or spikes, can indicate a number of possible factors including – economic policy, monetary policy, consumer sentiment, mispricing etc. Volatility traders will use this period to determine their position quantities and holding parameters.
The key question with volatility trading, is how traders know when to execute an order. There are a number of technical tools which assist in the decision making process. These include:
VIX Technical Analysis
The VIX or Volatility Index has become significantly popular since the global financial crisis. Although it only tracks the option volatility of the S&P500, most traders highlight that this Chicago Board of Options Index is important in determining volatility levels. The significant weight of the S&P500 on the world markets is testament to this fact. VIX is determined by the weighted average of options pricing in the S&P500. These spikes would only occur if there was significant volatility in the underlying stock. The chart below highlights the volatility levels in the VIX since 1990. As is apparent on the chart, the recent economic events, saw record levels of volatility come into the markets.
Figure: VIX Chart since 1990 (source: Wikimedia)
Chaikin Volatility
This is a less known technical indicator focusing on the differences between short and long term moving averages. The chaikin volatility indicator focuses on subtracting the longer term moving average from the short term accumulation / distrubtion moving average. Not a popular indicator due to its complexity, the chaikin volatility chart is quite useful when used in conjunction with the VIX chart.
Volatility is a key measure of market sentiment and can be used effectively as a trading strategy. A number of important factors to keep in mind when volatility trading include: leverage (heightened forms of leverage during price swings can cause substantial losses and gains), and risk management (stop losses are extremely important during severe levels of volatility in the markets).
For more information on online forex trading, please visit Vantage FX.
Fibonacci Forex Trading
April 30, 2010 By Leave a Comment
Fibonacci was a 12th century Italian mathematician who successfully introduced Hindu and Arabic mathematical principals to the west. He is probably most famous for have introduced Fibonacci number sequence which was Hindu in origin. The sequence consisted of numbers which were generated by the formula n = n-1 + n-2. 1, 1, 2, 3, 5, 8 were classic Fibonacci numbers. These Fibonacci numbers were first used in his book Liber Abaci as a way of predicting the ideal population of rabbits.
Later, mathematicians and scientists discovered that the Fibonacci number sequence was not only useful and mathematically interesting but also, in fact, occurred in various patterns of nature. These ratios occurred in flowers, in tree rings, and seashells. They also occurred in social behavior, particularly buying patterns in financial markets. Moreover, the ratio of two numbers together represented the “golden mean.”
The first person to observe this was R. N. Elliot who developed a wave principal. This principal asserted that human behavior occurred in waves of optimism and pessimism with the dominant or motive waves occurring in the first, third, and fifth waves. What Elliot realized was that his wave theory numbers were a Fibonacci sequence. It is important to note that Elliott developed his market model before he realized that it reflected the Fibonacci sequence almost perfectly.
Critics have accused Elliot and others who have applied Fibonnaci principals to financial markets as nothing more the numerologist or “number mystics.” They claim there is no factual basis for why human behavior would follow neat mathematical sequences. Supporters argue that the Fibonacci principal represents a kind of natural ratio that is inherently selected because it is a mathematical representation of a certain kind of natural efficiency. Fractals and spirals are just the way all things tend to naturally grow. They represent a kind of biological/ psychological efficiency. The 5-3 pattern of the Elliot wave/Fibonnaci theory is argued to be the natural pattern of growth.
While the Fibonacci ratio occurs commonly in physical objects in the natural world such as flowers, branches and mammalian bodies does this have anything to with how humans make financial decisions? Well, it turn out it does. Given a value neutral situation psychological test the 62:38 ratio appears again and again, suggesting a bias towards optimism. This was recently observed by scientists in a wide range of human decisions about uncertainty and even voting patterns. Here the Fibonacci sequence is concretely seen in cognitive behavior and not simply physical attributes in the natural world.
How it is used?
Financial analysts use Fibonacci retracements and Fibonacci profit targets to know when to buy and sell based on Fibonacci/Elliot wave sequences as well as retracements and other ratios of Fibonacci numbers. These predication can be accurate as high as 70% of the time or so in the hands of a competent analyst.
The way most apply the Fibonacci sequence to forecast future market trends is by using the Fibonacci retracements. This makes use of Fibonacci ratios or the various ratios obtained by dividing succeeding Fibonacci numbers. The most significant ratios applied in Fibonacci analysis using Fibonacci retracements are the numbers 0.618, 0.5, and 0.382. A 0.382 Fibonacci retracement, for example, means a continuation of the primary trend be it upward or downwards while a 0.618 retracement indicates a complete change in the market direction. This info is used to determine appropriate times to buy and sell.
For more information on forex trading online visit the Vantage FX website.
