Posts Tagged “oanda”
In the last post of the Ask the Expert series, Scott Boyd and Dean Popplewell began chiseling away at a question we received about spotting trend reversal. Today they will focus on another facet of trend reversal: using Bollinger Bands.
Traders have long understood the relationship between volatility and trends. Volatility – that is, the degree by which an exchange rate varies over time – tends to increase as a market trend gathers momentum. This is because traders are buying and selling in greater frequency as they attempt to get in on the trend. However, as the trend nears the end of its run and traders slow their activity, volatility naturally declines.
Because volatility provides immediate feedback on the level of market activity, it is an important technical indicator. One of the most common methods of measuring forex volatility is through the use of Bollinger Bands placed over a price chart as demonstrated below:
Bollinger Bands show changes in market volatility through the width of the two bands formed by the three lines, and the more volatile the currency pair price, the wider the bands grow. In the example above, you can see the bands widening as the price decreases until it reaches a point where the bands suddenly narrow. This indicates that volatility has quickly tailed off which means that market activity has reduced.
Coming as it does following a price decline, this is a strong indication that the rate is likely to increase as market participants consider the new market price. If the price finds support and buyers come in at the current price, the bands will widen in response to the increased activity.
You can learn more about Bollinger Bands on the OANDA fxTrade website.
Next time we’ll continue discussion of spotting trend reversal by looking at different price patterns. Okogba Papa Woyin-Emi (who sent in this question via Facebook), you have been keeping our expert panel busy answering this one! Have questions for Scott and Dean? Send them to us via Facebook and Twitter. We are excited to see what you come up with.
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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.
------- Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.
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Welcome back to our Ask the Expert series with Oanda’s Scott Boyd and Dean Popplewell. This week’s question comes from our Facebook page:
Okogba Papa Woyin-Emi asked “What are the best ways to spot trend reversal?”
Great question, and not one that can be answered fully in a single post. So we’re going to tackle this important topic in multiple phases, starting with… spotting trend reversal using Relative Strength Index:
Regardless of individual trading strategies, all traders share a common goal – identifying as early as possible, potential trend reversal points. The earlier you can get in on a reversal, the greater the potential for profit. Unfortunately, it is also true that the earlier you act, the greater the chance that what you thought was a trend reversal is really just a fluctuation and once the tend resumes, you may suddenly find yourself on the wrong side of the trend!
To help avoid this scenario, there are several approaches you can take to improve your analysis of the current market trend. Generally speaking, analysis falls into one of two types – fundamental analysis and technical analysis. Fundamental analysis consists of news events such as central bank actions or the latest unemployment figures. The rule of thumb is that when news is seen as a positive sign for a country’s economy, the currency tends to perform better. While the correlation between economic performance and exchange rates is helpful when defining an overall trading strategy, this approach offers little insight into potential reversal points.
This is where technical analysis comes in. Technical analysis involves the use of charts and historical prices in an attempt to determine future prices and over the years, a whole host of technical indicators have been developed. We don’t have room to discuss them all here, but we’ll cover a few our favorite indicators and show you how they can be incorporated into your own studies.
Relative Strength Index
The Relative Strength Index (RSI) calculates the total average losses and gains for a currency pair and uses this information to determine the strength of the latest price in relation to the previous price. A numerical value is determined as part of the RSI calculation and this number is plotted on a chart segmented from 0 to 100 and placed at the bottom of a price chart as illustrated below:
If the RSI value falls in the 30 or under range in the chart, it is considered undersold suggesting that the market could soon start buying the currency pair thereby pushing the rate higher. A reading of 70 or higher on the RSI scale is considered overbought and identifies a potential opportunity to short the currency pair ahead of a falling exchange rate.
In addition to the undersold and overbought designations, traders also look for what are known as centerline cross-overs. When the RSI crosses over and above the center line (50 on the scale), the buyers are winning and upwards momentum is gaining. When the RSI crosses under and below the centerline, the sellers are gaining and the downwards trend is gaining momentum.
For more detailed information on these and other technical indicators, we invite you to check out OANDA’s fxTrade technical analysis tutorial.
We’ll have more on this topic soon, including how to spot trend reversal using Bollinger Bands and different price chart patterns. Have questions for Scott and Dean? Send them to us via Facebook and Twitter. We are excited to see what you come up with.
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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.
------- Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.
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We asked our Facebook fans to submit their questions for our Ask the Experts series. We gathered a lot of great questions—and don’t worry, we’ll get to them all in due time—and passed them along to our experts, none other than Scott Boyd and Dean Popplewell of Oanda. So here’s this week’s question:
Mani Mohseni asked “What is the Ichimoku Cloud strategy?”
Well Mani, here is your answer, brought to you by Scott and Dean:
At first glance, the Ichimoku Kinki Hyo – or Ichimoku Cloud – may seem nothing more than a dizzying array of lines and colors. In reality, it is actually a very clever indicator that provides feedback on support and resistance levels, trend direction, and trend strength.
To define the Ichimoku Cloud, A total of five components are calculated. These are placed on a price chart as five individual lines and include:
- Tenkan-Sen (Conversion Line)
- Kijun-Sen (Base Line)
- Chikou Span (Lagging Span)
- Senkou Span A (Tenkan-Sen + Kijun-Sen)
- Senkou Span B (Highest high price + Lowest low price)
The “cloud” is formed by the Senkou Span A and Senkou Span B lines with Senkou Span A (green line) representing one boundary of the cloud and Senkou Span B (yellow line) forming the other boundary. When placed on a price chart, the Ichimoku Cloud appears as follows:
Identifying Trends with Ichimoku Clouds
There are two basic ways that traders use the Ichimoku Cloud to identify trends. The first one compares the current market price (the grey min / max line in this price chart) with the cloud formed by the Senkou Span A and Senkou Span B lines. When the price is rising above the cloud, the trend remains positive as the buyers outnumber the sellers – when the price is below the cloud, the sellers are winning over the buyers.
The color of the cloud itself has significance. In the example above, the cloud is shaded green to indicate a rising trend, and yellow when the trend is falling. Note that most trading platforms enable you to set your own colors for all these elements.
In addition to the position of the price within the cloud, traders look for buy and sell signals generated by crossovers. For example, when the Tenkan-sen line crosses over and above the Kijun-sen, this is considered a buy signal. A sell signal results when the Tenkan-sen crosses under and below the Kijun-sen. This works because the Kijun-sen is calculated using more of the most recent prices than the Tenkan-sen. This means the Kijun-sen reacts more slowly to price changes than the Tenkan-san and when it is crossed by the Tenkan-san, it indicates increasing momentum in the current trend.
This concept should seem very familiar to those who work with multiple moving averages where traders typically employ a fast moving average and a slower moving average. When the fast moving average catches and crosses over the slower moving average, a buy or sell signal is generated depending on the direction of the crossover.
Finally, the Chikou Span provides insight into the strength of a buy or sell signal. Like the Kijun-sen, the Chikou Span – known as the Lagging Span – reacts more slowly to price changes. If the Chikou Span is below the current price, the sell side still has momentum, but if the Chikou Span is above the current price, momentum is with the buyers.
This illustrates just some of the analysis feedback provided by the Ichimoku Cloud. You can learn more about the Ichimoku Kinko Hyo and other forex indicators at the OANDA fxTrade website.
Have questions for Scott and Dean? Send them to us via Facebook and Twitter. We are excited to see what you come up with.
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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.
------- Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.
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This is the first week under the new CFTC rules restricting leverage for holders of US retail forex trading accounts to 50:1 for the major trading pairs and 20:1 for minor ones (see Asaf’s post and an earlier one of mine on the subject). Obviously, there are implications for certain traders because of the change (probably not the vast majority, though), but one of the more interesting aspects of it all is the reporting the brokers must now do regarding the performance of their brokerage customers. They now have to disclose to new account holders the % of customers who have made and lost money. Forex Magnates has gotten hold of these reports for most of the brokers servicing the US customer base and presented the information from them here.
Profitability
The common mantra in retail forex trading is that 95% of all traders fail. Of course we don’t really know what “fail” means or over what timeframe this is meant to cover. The figures from the brokers are equally subject to some “Yeah, but” type questioning. According to the Q3 figures, about 25% of brokerage customers are profitable, if you don’t include Oanda.
The problem we have here is that we really don’t know what these numbers mean in terms of long-run trader profitability. The % profitable figure is very likely to demonstrate a survivor bias whereby traders who crash and burn will eventually fall out of the study, as the reporting only includes accounts where trades have actually been made. Obviously, if you’ve lost all your money or become so disheartened by poor performance that you stop trading all together, you’re not going to be counted.
Then we have the question of Oanda, which shows WAY better customer profitability than the others. Are they using a different calculation methodology? Does the fact that they pay interest on your margin balance influence the reporting? I ask because an account that does no trades but still has a balance will end the quarter profitable because of the interest earned. I don’t know if those daily interest payments are transactions which make an account “active” or not. I’d love to hear from someone at Oanda whether that’s the case. If not, then we have a very significant question as to what makes Oanda customers more profitable. Is it somehow a function of the 50:1 leverage they’ve always had? If so, it starts to make the CFTC decision look a lot better.
The demise of US retail forex trading
The other thing we can look at in these reports is the actual number of active customer accounts each broker has. Folks have been howling about the pending destruction of the US forex business every since the NFA came through with its FIFO and no-hedging rules last year. The broker reports don’t go back that far, so we can’t see what impact was had where folks shipping their accounts overseas might have had, but since many of those accounts are now coming back, and will thus be included in the broker Q4 numbers we may get some idea.
We can perhaps get an idea what the CFTC leverage restrictions may have done to US broker accounts, though. The initial proposal of a 10:1 leverage limit hit the markets at the start of this year, with the announcement of the final 50:1 cap coming in August. The table below outlines the impact.
Notice that in the first quarter of the year there was a 5% reduction in active broker accounts. Thereafter, though, the decline has only been 1% in each of the last two quarters. I’m reluctant to call that any kind of major problem, and it will be very interesting to see if the forced-repatriation of accounts from foreign lands that is happening will actually result in a positive impact on the numbers for this quarter, especially for those brokers who have had the biggest drop in US accounts.
Again, we see Oanda as a major outlier. Rather than being about flat to lower in terms of customer accounts, it has seen a 20% rise in the last year. Considering Oanda does not do any marketing and has only every allowed a maximum 50:1 leverage, these are quite interesting figures. It leaves one to wonder if that reflects the fact that Oanda has no fixed lots, and thus allows very low capitalization customers to take part in the market without having to trade with very high leverage ratios. That’s just speculation at this point, though. We may never really know.
The point is that we probably haven’t seen the end for the US forex business, despite the doomsayers. We’ll want to wait to see the Q4 2010 figures for a better reading on customer accounts, though, because of those who would have moved accounts offshore away from CFTC oversight and those brought back from broker foreign affiliates.
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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.
------- Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.
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Here at Currensee we obviously believe that “trading together” is the best way to trade. Surrounding yourself with like-minded traders, traders with experience, and traders with unique strategies are some of the best ways to really immerse yourself in the currency trading culture. Because we have found that our community has benefited from the contributions and opinions of its members we figured it would be nice to develop an “Ask the Experts” panel. This panel has been created to help traders ask tough questions about the economy and Forex trading in general.
You’re probably thinking, what makes this panel an “expert” panel? I introduce to you Dean Popplewell and Scott Boyd from Oanda.
 Dean Popplewell has a wealth of forex experience: professional currency trader for 10 years, fixed income trader for four years, and head of the global trading desks at various financial institutions in Canada. Dean is OANDA’s resident currency analyst and has been writing OANDA’s daily forex blog since January 2007 as a way to share some of his forex experience with the OANDA community.
 As a content writer specializing in the financial sector, Scott Boyd has produced educational materials and conducted market analysis for several of Canada’s leading financial institutions. Scott now contributes articles to the OANDA blog and is keenly interested in the factors affecting global currency prices.
As you head over to the Oanda site and blog you’ll see many articles written by Dean and Scott. They have agreed to lend us their expertise to help our traders get a better understanding on the world of Forex. The panel will work as follows:
- Submit your question via comment to a post, on our Facebook Wall, in the Facebook discussion section, through the “Ask the Experts” discussion in the platform, or simply Tweet it
- We will pass on your questions to our team of experts, which will also include guest appearances from Currensee team members
- Once we have the answer(s) to your questions we’ll create a blog post about it so everyone can benefit
We’re exited to welcome Scott and Dean to our blogosphere. We hope you’ll ask great questions and in return we’ll provide great content.
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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.
------- Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.
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I am happy to announce that we’re the first and only social network to have an agreement with OANDA to properly support their traders via direct and real-time API access. We’ve had overwhelming response from OANDA traders who want to join Currensee but couldn’t…until now.
Starting today, OANDA traders can join Currensee for free, link their real Forex trading accounts and enjoy all the benefits that we provide our traders – sharing real positions in real time with other community members, leveraging the strategies to create an electronic trading journal, tweeting trades in real time, using social indicators to make more informed decisions and other free features. As Paul Jeszenszky, the Head of Marketing at OANDA said:
“OANDA believes Forex traders benefit from the power of online communities and open access to information. Currensee has shown a commitment to both and we’re glad our clients now have access to their platform.”
OANDA provides a transparent and very innovative service to their traders and we’re happy to have them join the Currensee revolution as a partner. We welcome OANDA traders to join currensee today at www.currensee.com/oanda.
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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.
------- Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.
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Part of our mission here at Currensee is to provide Forex traders the ability to participate in our platform experience, regardless of which broker they are using. On average, we spend about 20% of our engineering time on accommodating all the brokers and their proprietary APIs in order to give traders the ability to join right away. Supporting the various brokers out in the land of Forex has proven to be a challenging task even though the majority of the brokers see great value in what we do and provide tremendous help in achieving this goal.
Until now.
One broker we haven’t been able to partner with is Oanda. They do have an API which can be used by us to connect their traders to Currensee but they are unwilling to help us get it going after numerous attempts to contact them. When we finally did receive an automated message of some sort, they said that we are welcome to use the API but that the traders from Oanda that use the API will have to pay $600 to Oanda for this privilege. Are you serious?
Now, here at Currensee, we are providing a free service to traders. It seems odd to us that a broker would force its trader to pay for API usage and it’s certainly unacceptable by us to require this from our traders. We are also surprised because we thought that Oanda supported the idea of trader communities and networks and figured they’d be among the first to see the advantages of our Forex trading social network.
So, here’s the bottom line. If you are trading with Oanda and want to use Currensee you have two options. The first is to switch to a Currensee-friendly broker – we support a variety of brokers who are reliable and regulated including Alpari, dbFX, Forex.com, FXCM, FXDD, FX Solutions, IBfx, MB Trading, odl, PFG Best and TradeView Forex (see the full list of Currensee’s US and international supported brokers here). The second option is to write an email to Oanda and tell them that you want to use Currensee as it’s intended to be – free of charge to the broker. Either way, we hope to see all of you Oanda traders on Currensee soon.
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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.
------- Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.
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