Trade Balance: How to Use It in Forex

 

This article is devoted to trade balance, its influence on the national currency, and to using it for Forex trading.

What is Trade Balance?

Trade Balance, or International Trade, is a macroeconomic index that demonstrates the difference between the added up prices of all exported goods and added up prices of all goods imported in the country over a certain period. In other words, this is the difference between export and import volumes in monetary terms. Trade balance is one of the key indicators of competitiveness of goods and services produced in the country.

Trade Balance = Export - Import

Depending on which index is bigger, Trade Balance can be positive or negative:

• Trade surplus appears when export exceeds import.
• Trade deficit means that import exceeds export.

Countries present their Trade Balance monthly. It accounts for seasons and has several categories:

• Consumer goods
• Food
• Raw materials and Industrial supplies
• Autos
• Capital goods
• Other merchandise.

As a rule, for Forex trading you need the overall balance without specific details. You can find changes in the Trade Balance on the Economic Calendar.

How does Trade Balance influence the national currency?

Trade Balance has a direct influence on the exchange rate of the national currency. Current dynamics of the import-export ratio that it demonstrates has a direct connection with both local and foreign currencies. The country has to use international currency reserves paying for import and, on the contrary, its trade partners form demand for the national currency to pay for the goods they buy

A country suffering a trade deficit (where import exceeds export) needs access to lots of foreign currency to cover up for import expenses. Falling demand for the national currency alongside growing demand for foreign money has a negative influence on the local money. A decrease in export volumes might lead to an increase in sack leaves in industry and growth of unemployment, which will also make national currency cost less.

Trading surplus, on the contrary, has a good influence on the national currency. A country that exports more goods than it imports will enjoy stable demand for its currency from international trade partners. Increased demand for exported goods leads to the expansion of production, which in turn, means new workplaces and stimulates consumer spending. As a result, the exchange rate of the national currency grows.

 

Using Trade Balance in Forex

You can use Trade Balance for playing in Forex as any other important economic index of a country. See below two trading options.

Long-term trading

This is an approach for investors that requires a large capital and long investment time. Such trading uses fundamental analysis that evaluates changes in Trade Balance alongside other important economic indices: CB rates, GDP, unemployment rate, inflation indices, industrial production, etc.

Positive dynamics (growth of surplus) will confirm good perspectives of the national currency. If other fundamental indices agree, the growth of surplus will increase chances of the currency for growth an heat up interest towards it. Buying the currency, investors will form an uptrend.

Negative dynamics (trade deficit), on the contrary, warns of a possible decrease in the rate of the national currency. If other indices are also negative, an increase in the deficit makes a decline in the currency exchange rate even more probable, and investors will start selling to buy more promising ones. As a result, the market will form a downtrend.

 

Short-term trade

This is the easiest and most accessible way of using the index in Forex. It is based on the short-term influence of publisher Trade Balance on the rate of the currency. In other words, this is about trading news, as they say. Unexpected growth of surplus can cause temporary growth of the currency, and an increase of deficit can provoke falling. This impulse can be caught in trading.

For such trading, you will need to analyze the price chart and decide where and how to make a trade after the news emerges. Use tech analysis here as it will show the nearest strong support and resistance levels, price patterns, and other instruments you can use.

 

Bottom line

Trade Balance is an important macroeconomic indicator that represents the export against import ratio of the country. Publication of this index can influence the national currency a lot.

Trade Balance can be used for long-term trading (alongside other indicators) and short-term trading on news.

GBP/USD drops to fresh one-month low, eyes 200-day SMA around mid-1.1900s

 7 February 2023, 15:48 

 

• GBP/USD turns lower for the fourth successive day and drops to a fresh one-month low.
• Hawkish Fed expectations, a softer risk tone underpins the USD and exerts some pressure.
• Traders look forward to Fed Chair Jerome Powell’s speech for some meaningful impetus.

The GBP/USD pair attracts fresh sellers following an intraday uptick to the 1.2055 area and turns lower for the fourth successive day on Tuesday. Spot prices drop to a fresh one-month low heading into the North American session, with bears now eyeing to challenge a technically significant 200-day SMA near mid-1.1900s.

The US Dollar reverses an intraday dip and holds steady near a one-month peak touched on Monday, which, in turn, is seen exerting downward pressure on the GBP/USD pair. The upbeat US monthly jobs data (NFP) released last week fueled speculations that the Federal Reserve (Fed) will stick to its hawkish stance. This, in turn, remains supportive of a modest intraday uptick in the US Treasury bond yields and acts as a tailwind for the greenback.

In contrast, the Bank of England last week signalled that it was close to pausing the current rate-hiking cycle. In fact, the UK central bank removed the phrase that they would "respond forcefully, as necessary". Furthermore, BoE Governor Andrew Bailey said that inflation will fall more rapidly during the second half of 2023. This, in turn, is seen weighing on the British Pound and contributing to the offered tone surrounding the GBP/USD pair.

Apart from this, the prevalent cautious market mood - amid looming recession risks - further benefits the greenback's relative safe-haven status against its British counterpart. Tuesday's intraday slide could also be attributed to some technical selling below the 1.2000 psychological mark. This, in turn, supports prospects for an extension of the depreciating move, though traders might wait for Fed Chair Jerome Powell's speech for a fresh impetus.

Investors will closely scrutinize Powell's comments on inflation and monetary policy for clues about the Fed's future rate-hike path. This, in turn, will play a key role in influencing the near-term USD price dynamics and produce some meaningful trading opportunities around the GBP/USD pair in the absence of any relevant market-moving economic releases.

EUR/USD Price Analysis: Decline could pick up pace below 1.0770

 7 February 2023, 15:31 

 

• EUR/USD adds to the ongoing bearish move and drops below 1.0700.
• Extra decline appears in the pipeline below the 1.0770 region.

EUR/USD remains well on the defensive and drops to new lows in the sub-1.0700 zone on Tuesday.

The pair has recently broken below the 3-month support line near 1.0770, and this now allows for the downtrend to gather extra impulse in the near term. Against that, the next interim support comes at the 55-day SMA at 1.0662, while the breach of this region could open the door to a deeper retracement to the 2023 low at 1.0481 (January 6).

In the longer run, the constructive view remains unchanged while above the 200-day SMA, today at 1.0319.

EUR/USD daily chart

 

8 qualities of a successful trader

 

Many traders suppose that a profitable strategy will certainly lead them to success. However, they forget that the main part of a trade is a person. Why people who use the same strategy come to different results? Everything depends on their behavior and attitude. We gathered the most useful qualities of successful traders.

1. Be confident. Your strategy can be super profitable. However, if you are not sure in your actions, you will definitely lose. Follow your tactics no matter what. Do not change your targets when it seems that the trade is not profitable. If you are sure in your trading system, nothing can disturb you. Remember that confidence comes from constant practice.

2. Be calm. The movement of the market cannot be predicted with 100% accuracy. You should be prepared for any scenario. Otherwise, panic will lead you to wrong decisions. Every successful trader knows what to do if the market goes against him/her. Be aware of all possible movements of the price and stay calm.

3. It may seem stupid but a lot of traders, especially novices, forget about this simple rule: be yourself! Trade reflects trader’s personality. Every trader has his/her own trading goals. As a result, his/her behavior in the market pursues those goals. If you follow someone’s trading strategy without understanding it, you are supposed to lose. Focus on your personal aims, decide how much risk you can take and keep learning.

4. An additional advice to the previous statement: be independent. Media influences our opinions and decisions a lot. However, while trading you should learn to disregard this noise and stick to your own judgment. To avoid external influence, develop your own experience: watch how the market reacts to news releases and events and track which technical patterns really work. These observations will give you the ability to analyze the market and make your own conclusions.

 

5. Be simple. Do not mix independence with ego. This problem relates mostly to novices. After the first profitable trade, they become sure that they already are gurus and know how to trade. However, such perception will lead to losses. You need to realize that you won’t be able to change the market’s direction. If you see that the price moves not in the direction you supposed, and the new trend is confirmed by unshakable evidence, do not hesitate to change your trade idea, so not let your losses run.

6. Be curious. Successful traders always improve their skills; they never stop studying. The easiest way to improve your trading skills is to analyze your previous trades. Moreover, read more books written by successful traders and learn new features of the technical analysis.

7. Be accurate. As we said in the previous advice, you can improve your skills by analyzing your previous trades. To do it, make notes. Write down your actions, profits, and losses. It will help you avoid mistakes in the future.

8. Be optimistic. Only with an optimistic attitude, you can become a successful trader. A trade is not possible without losses. If you overreact to your negative profit, it will bring insecurity to your trade. Take your losses into consideration only as a good lesson but do not focus on them.

To learn more about trading 

 

Common mistakes of Forex traders

 

“Only fools learn from their mistakes, the wise man learns from the mistakes of others.” Have you ever heard this saying?

We have gathered the most common mistakes that traders make. Avoid your own mistakes, learn from the faults of others!

1. "Fail to plan and you plan to fail"

Everyone knows that it is quite difficult to do something without planning. We will tell you even more: it is impossible to trade without a plan.

A trading plan is a set of rules that consists of your trading strategy and money management strategy. A plan will help you determine when to enter a trade, how to exit an unsuccessful trade, time to reach your target, the amount of money to risk. Without this knowledge, you will definitely lose.

2. Not having a Stop Loss

Even if you are 100% sure of your profit targets, you should better set a Stop Loss. The Forex market is highly volatile, and urgent news can lead to the turn of the trade. In January 2015, the Swiss National Bank suddenly abandoned the cap on the franc’s value against the euro, and EUR/CHF fell by 30%. This event took everyone by surprise. Many traders who didn’t have Stop Loss orders in place suffered great losses. If you do not have a Stop Loss, you may just miss the moment of the turn that will lead to a disaster.

3. Adding to an unprofitable trade

Sometimes traders are so sure in their trading targets that they are blind to the reality. Imagine that you opened a buy order, but the market moved down. You, however, are so sure that you made the right thing that you increase the size of your position in hope that the price will soon reverse up. In a situation like you just multiply losses. If you have an open position, you lose the ability to make unbiased judgments and your actions become chaotic. As a result, never add to a losing trade.

A similar thing happens when a trader increases Stop Loss during an unprofitable trade so that the trade doesn’t close with a loss. Stick to your initial decision. Otherwise, your loss may become bigger. If it was a wrong decision, analyze what went wrong after the trade closed, learn from this trade and use this knowledge to make a better trade next time.

4. Lack of risk management

Traders who do not manage their risks, risk losing everything. Traders can’t allow themselves to think only about profits. You should always count how much money you risk losing per trade and per day. If you keep your potential losses limited, you will be able to stay in the market for a long time and thus have many more opportunities to earn. Stick to the rule: 1% risk per trade. Nothing should distract you from this rule.

 

5. Ignoring news releases

Every trader knows that certain events and data releases affect the Forex market. If the actual economic indicators differ from the forecast levels, currency pairs become very volatile. As a result, all traders, even those who choose not to trade on news, have to take into account the news. Ignoring the news is a serious mistake that can be easily avoided if you plan your trades and consult the economic calendar.

6. Correlated pairs

Traders often try to take multiple day trades, but many of them don’t take into account currency correlations. It may seem you have good chances to earn money on several pairs but be careful: if you see a similar trade setup in multiple pairs, it’s likely that they are correlated. So it means you can win or lose on all of them at the same time. For example, USD/CHF and USD/JPY have a significant direct correlation: when the first one goes up, the second one will likely strengthen as well. So, when you buy both pairs at the same time you double your risk.

7. Trying to avenge yourself

Losses are hard for everyone, especially newbies, so they try to have a revenge on the market. Usually, revenge trades are 2-3 times bigger than a previous losing trade. As a result, they lose even more. Losses are inevitable. Focus your energy not on the revenge trading but on the analyzing of the unsuccessful trade and improve it in the future.

8. Lacking education

The lack of the education leads to the trading blindness and losses. If you want to have profitable trades, you should always improve your skills. If your goal is to be a successful trader, read educational books, learn new indicators and practice new strategies.

To make a conclusion, you will definitely make different mistakes while trading. There is one more saying: if you are not making mistakes then you are not doing anything. However, if you avoid the common mistakes mentioned in this article, your trading will become successful faster.

Do you know what candlesticks tell you?

 Candlestick charting is a popular technical analysis tool used in finance to represent the price movement of an asset, such as stocks or currency, over a certain period of time. There are several types of candlesticks that can indicate the balance of power between buyers and sellers in the market.

✔️ Candlesticks with buyers in total control: This type of candlestick shows that buyers have completely dominated the market and pushed prices up. The candlestick is typically green or white and its body is long.
✔️ Candlesticks with buyers in control: This type of candlestick shows that buyers have the upper hand, but not as strongly as in the first type. The body of the candlestick is shorter and there may be some upper shadow.
✔️ Candlesticks with active sellers but stronger buyers: This type of candlestick shows that while sellers are trying to push prices down, buyers are able to keep prices up. The candlestick has a long upper shadow and a short lower shadow.
 ✔️ Candlesticks with buyers winning but showing weakness: This type of candlestick shows that buyers were able to push prices up, but only slightly and with difficulty. The body of the candlestick is short and there may be a long upper shadow.
✔️ Candlesticks with sellers in total control: This type of candlestick shows that sellers have completely dominated the market and pushed prices down. The candlestick is typically red or black and its body is long.
✔️ Candlesticks with sellers in control: This type of candlestick shows that sellers have the upper hand, but not as strongly as in the fifth type. The body of the candlestick is shorter and there may be some lower shadow.
✔️Candlesticks with active buyers but stronger sellers: This type of candlestick shows that while buyers are trying to push prices up, sellers are able to keep prices down. The candlestick has a long lower shadow and a short upper shadow.
✔️ Candlesticks with sellers winning but showing weakness: This type of candlestick shows that sellers were able to push prices down, but only slightly and with difficulty. The body of the candlestick is short and there may be a long lower shadow.

It is important to note that interpreting candlestick charts is not an exact science and should be used in combination with other technical analysis tools and market indicators.

Learn more about candlestick patterns here 

 

8 Rules Successful Traders follows!

 🔥 Every trader follows some rules that help him achieve goals and targets. Here's our list, share your in the comments:

⚠️ Your capital is the only thing keeping you in trading. Set yourself a threshold of capital loss when you stop trading real money and start practicing on demo to prevent liquidation.

🛑 Did you lose 5%-15% of your capital in one day? Stop trading and think about the mistakes made. The market isn’t going anywhere, and you will always find a situation to trade.

💵  Trading is fun, entertaining, and enjoyable. However, it’s not a game, and you are not a gamer. Trading is a serious job that may make you financially free. Treat it like a business, where profit depends only on you.  

🧑‍🎓 The financial world is a dynamic and ever-changing place where you will be constantly finding new things and learning on mistakes. Don’t stop learning.

❌ Stop Losses are critical for almost all traders to succeed. Although Take Profits help you take your portion of the market, Stop Loss limits your casualties, thus, decreasing your chances of losing everything.

🌐 Found a great technical indicator? Test it! Managed to create or set up a trading robot? Great job! Technology is amazing for traders, use them in your favor.

📍 Can you call yourself a trader if you don’t have a trading plan? This set of rules explains everything in your trading: from entry and exit points to risk-reward ratio and other vital components. Never forget your trading plan.

😌 Always be ready to lose what you’re putting in the trade. Acceptance of this fact will make you more emotionally stable.

How to Scalp in Forex Market : A Simple Definitive Guide

In this overview, we will discuss what is scalping and whether this strategy suits everyone. Scalping is a popular method of short-term trading in Forex with the use of leverage and low spread.

What is scalping?

The definition of "Scalping" means a short-term intraday trading strategy with a short period of time.  Scalping make a lot of intraday trades – short and with modest goals. The technique consists of quickly “cutting” small profits off the price movement of certain instruments.

The option of availability of Leverage  has made scalping quite a popular strategy. A small fluctuation by a couple of points can bring the trader a serious profit thanks to large leverage. Scalping is perfect for traders with a small deposit that does not allow for long-term positional trading. For scalping, we use small timeframes: M1, M5, M15.

Unlike many other strategies, scalping requires much time and effort. You have to keep a close eye on the market the whole day, find entry points, and make trades. Potentially, scalping can bring large profits, but in practice, it requires a well-tried trading strategy and psychic and emotion stability.

Who is scalping suitable for?

Scalping does not suit everyone. The profitability of each trade is usually low, and a significant profit is reached by aggregating the small profits from multiple trades. A scalper must be patient to wait for their effort to bring fruit. To become a successful forex scalper, one needs self-control, attention, and discipline.

Scalping requires much more time and accuracy than any other strategy, such as swinging or trading the trend. A typical scalper opens and closes dozens of positions during a typical trading day. For some people, such a task might turn out overwhelming.

 Advantages and drawbacks of scalping

Let us have a look at the positive and negative sides of scalping in Forex.

The advantages of scalping

• The strategy is potentially profitable both in the short and long run;
• You do not need to wait for a trend to form in the market. You can scalp any time: by trading the trend or trading counter trend, or in a flat market condition;
• Market analysis becomes simpler. You use technical analysis and indicators to estimate short-term trends; fundamental factors are accounted for selectively;
• It is suitable for trading on small deposits. Thanks to leverage, you can open significant positions and make profits even on a moderate deposit.
  

 The main disadvantages of scalping

• Choosing a decent broker is difficult. You need advantageous trading conditions for scalping: minimal spreads and commission fees, no critical slippages. Not every broker can provide all this;
• An increased risk connected to large leverage: even a small market move against the trader can result in serious losses,  this is why you need to use the rules of risk management;
• You spend a lot of time and involve deeply in your trading. You have to keep an eye on the market constantly because you open dozens of positions. Scalping take up much of your energy and might end in a professional burn up.
  
• A limited number of available trading instruments. Not any instrument suits scalping. To decrease expenses from a large number of trades, choose assets with minimal spreads.
  

How to succeed in scalping?

To increase your chances for success, you will need the following.

1. A tried and reliable trading strategy

It is the main instrument of a scalper that helps to make a stable profit. You can make a random profit several times, but without a proven strategy, a trader is destined for misfortune in the long run. Hence, start with testing your strategy on a small deposit demo account.

2. A trustworthy broker with suitable trading conditions.

The trading conditions provided by the broker influence the results of scalping tangibly. Apart from being reliable and having a license, your broker should be loyal to scalpers and provide high-quality services. A high speed of order execution, low spreads and commission fees, acceptable slippages are the criteria that a scalper should check.

3. Suitable instruments

Not all instruments suit scalpers. The most popular ones in Forex and majors, because they boast minimal spreads and commission fees. You can also use certain cross-rates, as for exotic currency pairs, their spreads are too large.

4. Right time for trading

The timing to trade a trade is also important. Analyze your strategy and decide at what time of the day it works the best. Or, it may yield the best results during a certain session: Asian, Pacific, European, or American. If so, try to trade at this time.

5. Analyze your trading statistics

Investors say that you previous success does not guarantee success in the future. Hence, you need to analyze your trading regularly, shooting troubles. A useful instrument is a trader's diary. It can increase your discipline, find mistakes, and master your trading style.

Trading strategies for scalping

Nowadays, you can find plenty of scalping strategies on the net. Still, approach every strategy individually: one trader prefers an empty price chart, another one enjoys indicators, the third one sticks to automatic trading.

Choose your strategy based on your preferences and test it well on a demo account before trading for real. Now let us discuss three strategies meant for scalping.

 2 Moving Averages Scalping Strategy

This is a scalping strategy using 2 simple moving averages of 20 period and 50 period, a signal bar indicator (to observe trend strength) and in subwindow StepAbsoluteQQE indicator for filter entry and exit signal. It can use on 1m and 5m chart.

Example of the strategy setup :

Bottom line

Scalping is a popular way of trading in Forex. It helps to make a good profit even on small deposits but requires much effort and durability from the trader. You need all the conditions to be met (the strategy, broker, etc.) and to control risks to succeed.

 

 

 

 

 

 

 

 

 

Currency pairs volatility

 Following US FOMC rates announcement, here are some chart showing the big move after the news.

It is possible to trade the news to capture 20pips or more but expect bad slippage and re-quote from broker.

A brief Introduction About Regression Channel

 A regression channel is a technical analysis indicator that attempts to forecast where a stock might go next. Watch this video to learn how this indicator might help you determine potential entry signals and price targets, and what price to consider when setting a stop order. 

Watch the video :

Something Interesting to Read : Mastering the Market Cycle By Howard Marks

 

A Note to Readers from Howard Marks, author of Mastering the Market Cycle

Investors clearly could do much better if they knew what lies ahead. But they can’t. Few people can accurately predict what the future holds in store for the economy and markets, and fewer still know enough about these things to out-think and thus out-invest the general consensus of investors whose views are incorporated into – 'discounted by' – the market prices of securities. But we know economies and markets follow an up-and-down pattern called a cycle and, importantly, knowing where we currently stand with regard to the economic cycle and the market cycle can give us a better idea of what lies ahead. This is a process through which investors can get the odds on their side.

When the economy is just beginning to recover from a slowdown and the markets are picking themselves up off the floor after a bust, it’s highly likely that security prices haven’t been lifted to precarious levels by large doses of investor optimism.

Pleasant surprises are more likely to lie ahead than disappointments; investors will probably come to be persuaded of these things over time and thus become buyers; and their buying should cause security prices to rise. At such a point – when economies and markets are low in their cycles – good things are more likely to lie ahead than bad things.

Since security prices aren’t inflated, buying at that point is likely to make for significant appreciation and entail little risk.

And on the contrary, when the recovery and bull market have been rolling for a while, investors are likely to be feeling good, and their optimism is likely to be incorporated in security prices.

Thus prices may be at risky highs; disappointments are more likely to lie ahead than good news; and thus risk may be high and appreciation hard to come by. All these things mean that when we’re high in the cycle, the odds are against you. When others feel good and drive prices to highs, it’s time to cut risk and take some of your money off the table.

In all these things, the operative words are 'likely' and probable.' So while we can’t know what the future holds, we can have a better idea whether the wind is at our back or in our face. The best investors have a sense for where we stand in the cycle and thus whether it’s time to build more aggressiveness or more defensiveness into their portfolios. This book will teach you what cycles are, what causes their rise and fall, and thus how to tell what investment moves are most likely to succeed. 

 

Buy The Book Here