How to Use Euronis: Settings and Testing

Author: Timofey Zuev

Dear Clients and Partners,

Today we will get acquainted with Euronis, a scalper that does not use averaging, but has some smart money management techniques. Euronis is a high-frequency trading algorithm that uses a popular technique such as "trading from price channel boundaries".

When to use Euronis

The use of price levels in trading is one of the most popular tactics in trading and not only in the foreign exchange market. A price level is a certain price of a financial asset, which for one reason or another is considered important to the market or to a particular trader. With this level in mind he tries to enter the market.

Price levels can be calculated using an algorithm, formula or historical data. They can also be used in trading in different ways, either on a breakout or a rebound.

The idea behind Euronis is that it only trades on rebound levels and only during quiet times, i.e. during the Pacific session, when market fluctuations are minimal. During the night, it is less likely that the price will change sharply. This allows the price corridor boundaries to be defined more accurately and trades to be closed with profits more often.

The Euronis advisor can also be used at any other time, but the developer does not recommend it.

What are the technical features of Euronis advisor?

The initial deposit size can be chosen according to your trading style, so all other parameters should be adjusted according to your trading balance.

Leverage should be set as high as possible, usually from 1:100 and above. Such leverage will be needed in case of a drawdown, when Euronis will need all the funds to be able to trade further.

Both major currency pairs and cross rates are suitable for trading. The former are EUR/USD, GBP/USD, USD/CHF and USD/CAD, the latter are EUR/CHF, EUR/GBP, CAD/CHF, EUR/CAD, GBP/CAD and GBP/CHF. It is recommended to trade on the M15 timeframe.

Euronis has a very interesting feature that allows you to trade cross rates through the American dollar. For example, you set Euronis on the EUR/CHF pair and activate the "trade via USD" function. In this case, Euronis will open corresponding positions on pairs that have USD in them, namely EUR/USD and USD/CHF. This method saves a lot on spread, which is very important for scalping.

How to test and optimise Euronis

Fully testing and optimising all the copies of Euronis would have taken a long time, so we settled on the oldest version available to us.

Euronis has enough recommended instruments to trade, so to save time we tested only the major currency pairs.

Testing Euronis on EUR/USD

We can see that the pound was tested with the best result, although the euro is considered the most popular trading instrument. Therefore, we performed optimization on the same section of the chart, but we only touched those parameters, which are responsible for the trading algorithm - SettingsNumber, LowRiskSettingsNumber and TimeRiskFactor.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

Three Indicators Trading Strategy: Detailed Description

Author: Andrey Goilov

Dear Clients and Partners,

Today we're going to talk about the Three Indicators strategy. It's based on the use of tools such as the Accelerator Oscillator, the Awesome Oscillator, and the Parabolic SAR.

The idea is to try to catch the beginning of an impulse, and earn money on this movement. Trading is done only on the major currency pairs, and on an hourly timeframe.

We will show you how to combine signals from the three indicators, in an attempt to catch the beginning of an impulse long before it forms a reversal on the price chart. We will study the intricacies of this procedure, and detail the rules for opening and closing positions.

How to set up the three indicators

The processing of signals according to the "Three Indicators" strategy could take hours or days. It all depends on the size of the potential profit: the bigger it is, the higher the risk and the longer the waiting time.

Now let's talk about the indicators:

1. The Awesome Oscillator is used with standard parameters. Traders note its similarity to the MACD indicator: it shows the difference between simple moving averages with periods of 34 and 5. It is represented by a histogram that changes colour when moving averages are crossed, with green indicating an uptrend, and red a downtrend.

2. The Accelerator Oscillator is also added with the standard parameters. It is calculated taking into account the values of the Awesome Oscillator and displays the acceleration and deceleration of the driving force. In most cases, traders trade in the direction of the histogram: if its colour is red – you should not buy, if it is green – do not consider selling.

3. The Parabolic SAR represents points that are above or below the price. The trend is said to be upward as long as the dots are below the price chart. If the price breaks through the indicator and a point appears above, then the trend changes downward, which means you should sell. Often traders use the Parabolic SAR to place a floating Stop Loss: if the indicator point is broken by the price, this means the market is changing direction, and the trade should be closed.

An example of buying with the Three Indicators strategy

Consider the situation on the EUR/USD chart on 3 October 2022. On a large bullish candlestick, the Parabolic SAR has positioned a point below the indicator chart. The Awesome Oscillator and Accelerator Oscillator histogram bars immediately became green on two indicators, so we mark the candlestick as the "signal".

We open the trade at the opening of the next candlestick at 18:00 at 0.9813. We set the Stop Loss below the level of the "signal" candlestick at the price of 0.9756. Take Profit is equal to the Stop Loss size of 57 points, and set at 0.9870. The profit made 57 points; the price reached this target within 16 hours.

If the second variant of trade closing had been applied, when it was necessary to wait for the Awesome Oscillator and Accelerator Oscillator histogram bars to change colour from green to red, then the trade would have had to be closed at the price of 0.9819. The profit would be only six points.

Example of a Three Indicator Strategy sale

Let's look at the EUR/USD chart for 26 January 2022. The price had been declining for some time, but could not leave the limits of the sideways correction. The support level of 1.1260 is broken and a signal from the Parabolic SAR is formed: a point appears above the price chart.

On the Awesome Oscillator and Accelerator Oscillator, the bar graphs have changed colour from green to red. Mark this candlestick as the "signal" candlestick. We can open a deal when the next candlestick opens at 1.1254 at 22:00 terminal time

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

Scalping Strategy with EMA

Dear Clients and Partners,

This article is a review of a trading strategy based on a combination of moving averages under - "Scalping Strategy with EMA". Its tactics imply quickly closing profitable positions on minute and five-minute charts. For such active work we need tools with minimal spreads. Every point of profit is important, therefore the major currency pairs EUR/USD, GBP/USD, AUD/USD, USD/CAD are used.

The strategy will clearly show how to combine signals from three moving averages with different periods, the total number of which on the chart will be 38. We will detail the rules for opening positions, adding to the short term trend and closing options.

Adding Scalping Strategy Indicators with EMA

Only EMA indicators with different periods should be added to the chart. Traders usually use this tool to determine the trend on the market - if the price is above the EMA line, then the trend is bullish and a buy is anticipated. If the price is under the EMA line, then it is a bearish trend and you are supposed to sell.

The very crossing of the lines of the indicator will also give a signal to open positions, if the EMA with a smaller period crosses the EMA with a larger period downwards - it is a signal for the development of the downward movement. If there is a crossing of EMA with a smaller period and EMA with a larger period from the bottom upwards - it is a signal for an upward movement.

Often, even a test of the EMA line signals an imminent breakaway from it and the continuation of the existing trend. In our case, 38 lines of the EMA indicator will form support and resistance areas on the chart, the test of which the price will be a signal to open a position.

How to open a buy position on an EMA scalping strategy

The rules of the strategy imply several options for opening buy positions. For example, if a trend is developing, the tactic allows you to work in the direction of this trend, instead of just entering only at the beginning of its formation. This is a significant advantage of the scalping strategy, because you do not have to wait for the trend to change, just identify the trend and work according to the proposed rules.

Let's look at the basic rules for opening a long position on the M1 chart:

The first long position is opened when the purple EMA lines cross the green EMA lines from top to bottom.

Conclusion

The EMA scalping strategy is a unique tactic where 38 indicators are used at once. The entry rules are quite simple, although they differ from the usual use of moving averages. In this strategy, a sell position is opened when the fast EMA crosses the slow one from the bottom upwards. A buy position is opened when the fast one crosses the slow one from above downwards.

The strategy also provides an opportunity to work in the direction of the prevailing trend, which is a significant plus, because there is no need to wait for a trend change to open positions. On the downside, it should be noted that the size of the Stop Loss is somewhat disappointing, as it turns out to be larger than Take Profit, which is not always right from the risk management point of view.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

How to Trade the Bat Pattern

Dear Clients and Partners,

In this review we will get acquainted with the popular harmonic pattern "Bat". We will learn how to find it on the price chart and what trading signals it gives. We will consider the rules and examples of its formation.

Description of the “Bat” pattern

The harmonic Bat pattern is a 5-point graphical pattern formed by taking into account certain Fibonacci ratios. It was introduced by Scott Carney in 2001. The figure has a similar structure to the Gartley's Butterfly, but they differ in Fibonacci ratios.

It has five points (X, A, B, C and D) and four price swings (XA, AB, BC and CD). The last point in the pattern is D, which is a potential reversal zone. Its appearance is seen as a signal to open buy or sell positions.

This chart pattern is formed on a variety of timeframes. Often it represents a correction area, after the end of which the preceding trend is likely to continue. For more reliable signals, this pattern can be used in conjunction with classic means of technical analysis - trend lines, support and resistance levels.

Rules for shaping the “Bat” pattern

Like many other harmonic patterns, the Bat is defined by Fibonacci ratios. There are automated ways to find this pattern on the chart - special indicators. But you can also determine it yourself, knowing the rules of formation:

• XA is the first impulse of the price movement on the chart.

• AB - correction from the first XA movement, ranging from 38.2% to 50%.

• BC - can range from 38.2% to 88.6% of the wavelength of AB.

• CD, the final wave, is an extension of 161.8% to 261.8% of the BC section and ends at about the 88.6% correction level of the XA wave.

• The emergence of the D-point is the final stage of formation.

How a bullish Bat pattern is formed

• Wave XA is formed as a result of an upward price impulse.

• The price then reverses in AB and corrects from 38.2% to 50% of the XA segment.

• On the BC section, price reverses again and rises to 38.2-88.6% of the AB wave.

• In the final CD phase, the price reverses downwards and reaches approximately 88.6% of the first XA impulse.

• After the formation of the pattern, quotes are expected to rise from point D.

Rules for trading the bullish Bat pattern

• A buy position can be opened once the D-point has been formed and quotations have started to reverse upwards.

• The Stop Loss should be placed just below the pattern low at point X.

• The Take Profit can be based on the B point, the C point or the maximum value of the pattern at the A point.

Example of bullish trading in the Bat pattern

A pattern has formed on the H1 chart of the GBP/USD currency pair. After the start of the upward movement from point D, a buy position can be opened. Stop Loss is placed just below point X, profit taking targets are points A, B, C and higher if there is a strong upward movement.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

Is the Interest Rate Growth Cycle Coming to an End?

Dear Clients and Partners,

Market participants expect that the US Federal Reserve (Fed) monetary policy tightening cycle is coming to an end. The US inflation rate eased to 7.7% in October, further strengthening the belief that the regulator's head, Jerome Powell, will soften his rhetoric. Against this background, the S&P 500 index (US500) is up 15% in two months.

Is there really any reason for optimism? In this article, we will try to analyse what is happening to the US economy now, what parameters Mr. Powell is focusing on, why the inflation rate fell in October, and whether there is a chance that this dynamic will continue in the future.

What parameters does Jerome Powell monitor?

After the COVID-19 pandemic crisis, we saw a sharp rise in inflation. At the time, many investors were saying that it was time to raise the interest rate, otherwise, it would not be possible to control inflation with monetary means.

In his speeches, Jerome Powell said that inflation is temporary, there is no need to rush to tighten the monetary policy, and the interest rate hike will start after unemployment has fallen to 2019 levels.

In March 2022, the unemployment rate fell to 3.8% in line with pre-crisis levels, and the Fed started a cycle of interest rate hikes already in April.

Many market participants are now wondering when the Fed will bring its monetary policy tightening cycle to an end. On 3 November, Jerome Powell said: "Before rates peak, we need to see a sustained decline in inflation and a series of declining monthly figures will be good evidence of that. Continued rate hikes will be needed to have a sufficiently restrictive effect on the economy and bring inflation back to the Fed's 2% target."

This means that one month's data would not change anything, while all the attention of the head of the regulatory body is currently not on the labour market, but on the inflation rate.

Has the US economy suffered from the Fed’s actions?

A further interest rate hike could bring down the US economy – this is the view increasingly being relayed by the media. If we look at the rate increase, it has risen from 0.25% to 4% in 7 months. Such an increase was only seen in the 1970s during the economic crisis, which was accompanied by high inflation.

The first thing we will look at when seeking to find out whether the US economy has been hurt by the Fed's actions is the labour market. Yes, large companies – like Meta Platforms Inc. (NASDAQ: META), Tesla Inc. (NASDAQ: TSLA), and Snap Inc. (NYSE: SNAP) – have reported layoffs, but if we take a look at the number of layoffs in the country, we can see that the figure has been declining since 2021.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

Main Order Types on MetaTrader

Author : Victor Gryazin

Dear Clients and Partners,

This overview is devoted to the main types of orders used on MetaTrader platforms. Orders serve to open and close positions, limit losses and take the profit.

Main order types in trading

For trading in financial markets, there are two main types of orders used:

Market order is the simplest and most understandable of all. This is an order to sell or buy the asset at the current market price immediately. The priority of the order is obligatory execution, if only there is enough liquidity in the market. Positions open (or close) at once. When volatility is high, so-called "slips" occur, which means the actual execution price differs from the Bid or Ask price at the ordering moment.

Limit order is an order to sell or buy the asset at the specified price. Limit orders will not allow making trades at a worse price than said in the order, yet it is not guaranteed that the order will be executed. In other words, the order will be executed only if there is the limit (or best) price in the market. If otherwise, the order will not be executed.

Based on these two orders, there have been creates several order types on MetaTrader platforms. On other platforms, things might work differently.

Opening orders

Buy Limit

This is a limit order to buy the asset at a price no worse than the specified one. Also, this order can be used when you need to limit the price of a not most liquid asset you are buying.

For example, when Brent oil price is $80, while the trader wants it cheaper — at $70 — they can place a pending Buy Limit order at the desirable price level. The position will open as soon as the Ask price reaches the specified level.

Sell Limit

This is a limit order to sell the asset at a price no lower than the one set in the order. This type can be used when you need to limit the selling price of a non-liquid asset.

For example, if gold now costs $1,800, and the trader wants to sell it when the price reaches $2,000, they can place a Sell Limit order at this level. As soon as the Bid price reaches the desired level, a selling position will open.

Closing orders

After a position is open, the trader needs to specify its closing conditions. As a rule, there are two options: Take Profit for a price going as forecast and Stop Loss for a price going against the trader.

Take Profit

Take Profit is a pending order that closes the position without trader's participation. A placed order automatically closes a gaining position as soon as the price reaches the specified level.

For example, the trader buys Brent oil at $70 and expects it to grow to $100 in the nearest future, where they will close the position with a profit. Hence, they can place a Take Profit at $100, and the position will close automatically, as soon as the quotations reach the level.

Margin Call and Stop Out

There are also such important phenomena as Margin Call and Stop Out.

Margin Call

This is a notification by which the broker informs the trader that due to the current losses in all open positions the money on the account is not enough to sustain those positions. The trader then needs either to deposit their account or close some of the positions, otherwise a Stop Out might follow.

Stop Out

Stop Out means forced closing of losing positions by the broker at the current market price when the ratio of the trader's capital to margin reaches a critical level (set by the broker). After the positions close, the trader's deposit will get corrected according to the losses they suffered. Losing positions will keep closing until the said ratio exceeds the Stop Out level.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

How to Create an Investment Portfolio on Forex?

Author : Anna Rostova

Dear Clients and Partners,

How to become an investor? Where to start and what is an investment portfolio? Let’s try to see into the matter and find out what exactly a person, who decided to start investing, should do.

An investment portfolio is a set of financial instruments. The purpose of acquiring such instruments is of course making profit in the future. Options, stocks, futures, metals, real estate, currencies, and many other assets – all of them can be considered as financial instruments.

The purpose of any investor is getting maximum profit while incurring minimum risks. Unfortunately, it doesn’t always happen this way. In order to balance possible profit and losses, investors diversify their assets, which means that they don’t invest all their money in one particular instrument, and allocate their funds into several different items.

Investment portfolio on Forex

For example, we’ve decided to create an investment portfolio using the instruments traded on the forex market (it’s possible and happens quite often). What we do in this case is the following: decide on the invested sum and the profit we’d like to receive, and then explore, explore, and once again explore all available options.

Let’s get into more details. First of all, we must decide on the amount of funds we’d like to invest in this project and the amount of profit we’d like to receive. It makes sense to set minimum thresholds and not try to get all at once. There are several types of investment portfolios, with the most popular being conservative and aggressive. The first one implies getting a small positive result with minimum (if possible) risks. One shouldn’t expect this investment portfolio type to yield extra high profit – your profit will increase slowly. The second type is an aggressive investing, which may earn you a lot of money, but risks and possible losses in this case are much higher as well.

When investing in instruments of the currency market, investors supposedly create an aggressive type of portfolio. It happens because most of currencies and metals are highly volatile, in other words, their prices are very mobile and this fact can be successfully used to get investment revenue.

Creating a portfolio

Now let’s try to figuratively group several instruments for our portfolio. Of course, it will be approximate, because all investors have their own preferences. First off, we should start with those currency pairs, which are trading at lows: they are more likely to grow than those trading close to highs. When it comes to investments, it might be better to buy than sell.

After that, one should take the correlation into account, which is the way how currency pair movements depend on each other. From this point of view, it might be dangerous and unwise to buy two instruments that are trading in almost the same direction, because if they start falling, your losses may be doubled. On the other hand, buying two instruments that are moving in different directions might be rather dangerous and risky as well. For instance, in most cases EUR/USD and GBP/USD are moving in the same direction, so if we buy them in the same volume, both pairs will simultaneously be either profitable or loss-making. In this light, opening positions in these instruments in different directions is not a good idea, as the profit received from one of the pairs will only compensate losses incurred from the other one.

Long-term investments

So, what should we do then? The most viable option will be creating a long-term investment portfolio with currency pairs or metals, which are not correlated to each other. For this purpose, one may use cross rates as well, despite their spreads being quite wide. However, it won’t matter much for long-term or mid-term investments.

After your investment portfolio is created, it’s necessary to decide how to allocate your invested money, in percentage terms. For instance, you may equally divide your money into all instruments or invest more funds in some particular ones. In each case, investors make their own decisions, because there is no any universal schemes for this.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

Trading on Forex – A Primary Source of Income

Author: Dmitriy Gurkovskiy

Dear Clients and Partners,

There are a lot of discussions about trading within the boundlessness of the Internet, both in conventional businesses and state-financed organizations. People say and write a lot of different things. More often than not, they are sure that trading can’t be regarded as a primary source of income. Arguments in these judgment call are as follows: “No matter how professional, cold-blooded, or wise you are, all these personal qualities won’t help you if markets don’t give you a chance to earn money, because markets offer such chances only at some particular periods of time. And if you trade every day, you are doomed to failure.”

Forex stereotypes

Many people have similar views on the matter and say that trading may be considered only as some kind of a part-time activity in addition to one’s main day job, occupation or business, because like we’ve said before, markets offer chances to earn money only at some particular short periods of time, while the rest of the time is simply wasted. According to these discussions, to avoid wasting time one should think of trading as a secondary activity (income, earnings) or get a job at brokers, investments/asset management, etc. Independent, so called home-made, traders and investors are foretold only falling into a decline or losing all their money and going broke.

Of course, you can agree or disagree with this opinion, it’s your private stance. However, no one prohibits you to think of about a possibility of turning your personal trading activities on global financial market into something more than just a leisure, an opportunity to earn 100 extra bucks into a real business or a job that earns you considerable money. That’s why, I suggest you to decide on your approach to trading, its daily schedule, and the level of income you want to get from it to cover all your subsistence needs, because these are the criteria that you usually follow when starting your own business or applying for a job.

And of course, you have to make up your mind about an average weekly/monthly income. Probably, the income level issue may be the most essential for many of people, but it shouldn’t become a “stumbling block”, because trading is a complex matter, not a complexing one. Also, this issue may bring down to earth some beginners, who want to start trading with 100 USD and expecting to see 1,000 USD on their account balance at the end of the month. Yes, the reality is that stability and longevity on the market are controlled by modesty and common sense.

Trading system

Well, first things come first. If you plan a steady monthly income of 1,000-2,000 USD, you must have 10,000-20,000 USD on your account balance on the first day of trading. Of course, this level of income is possible if you trade very carefully and in a risk averse way. If you’re more advanced in risk management, you can start trading with 5,000 USD and hope for 1,000-1,500 USD a month. In other words, this is a basis for “home/couch” trading. Still, you must always remember that your entire work should be based directly on your trading system! It means that your trading system should adapt to all periods of market activity and earn 40-50 pips every day. Given this, we can assume that a daytrader’s standard trading volume is 0.2-0.4 lots.

Yes, it can! Your task reduces to find and track a trading instrument that can match this speed and distance and then just copy successful trades/deals. At the same time, you should realize that not all deals will be profitable, that’s why think of increasing profitable periods to cover losses suffered during drawdowns. If you survive this rhythm/schedule for at least 6 months, you can count on a glittering future and start your career as an asset management company in CopyFX and RAMM. You can create trader communities to attract investors and manage big money. This scaling, if not to say socializing, method, will help you to avoid risks of asocial burnout due to lack of social communication, which is a very common thing for retail traders and investors.

Conclusion

To put it shortly, one can draw the following conclusion: it is possible to turn trading into a primary source of income if you create your own strategy and abide by its rules. However, if you don’t have what it takes yet, I mean strategy, knowledge, skills, money, don’t rush to quit your job. Just continue practicing, accumulate experience and money.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

What is the Cost-of-Living Index?

Author : Victor Gryazin

Dear Clients and Partners,

In this article, we will look at the Cost-of-living index (COLI), and find out what it is useful for. We will look at what items of expenditure it takes into account, how it is calculated, and how it differs from the Consumer price index (CPI).

What is the cost-of-living index?

The Cost-of-living index (COLI) is a price index that captures changes in the relative cost of living over time and across regions. It characterises changes in the prices of consumer goods and services in relation to a fixed set of goods and services that make up the basket of goods and services for certain categories of the population.

COLI is an estimate of how much money a person needs to live in a certain place. It is therefore a widely used indicator to compare living standards in different regions.

The index is not an official government statistic but is calculated by various private companies around the world. This indicator can help a person determine whether the income or wages they receive are sufficient to cover basic expenses where they want to live and work.

How the cost-of-living index is calculated

There are many different methodologies that have been developed to calculate the cost of living index. The general formula compares the costs to the consumer of one year's prices with the equivalent costs of another year's prices. In a simplified format, it looks like this:

P = C(u,p1) / C(u,p0)

• P is the cost-of-living index

• C(u,p1) is the cost to the consumer for a given set of prices p1

• C(u,p0) is the cost to the consumer for a given set of prices p0

Many COLI calculations use a "base" cost of living, which is usually taken as 100. This base can be the cost of living in Chicago, for example, or an average of several regions. Other regions are measured in relation to the baseline. If it is 20% more expensive on average to live in New York than in the "base" city, the COLI for New York would be 120.

It is also important to consider the average income for the chosen region. For example, a city in the south of the US may have a lower cost of living than most cities on the east or west coasts. However, the average income in that southern city may be lower than the cost of living there.

The difference between COLI and CPI

The government and the Central Bank of a country are usually guided by changes in the official, regularly published Consumer Price Index (CPI) when estimating the rate of inflation. This is essentially the change in the value of a basket of basic goods and services chosen to measure price growth in the economy.

The COLI is a cost-of-living measure that more fully accounts for changes in consumption expenditure associated with current economic conditions. It estimates the entire set of goods and services consumed by households, also taking into account those received free of charge from government or non-profit institutions.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

What is Scalping on Forex?

Author : Dmitriy Gurkovskiy

Dear Clients and Partners,

Who in the world of trading hasn’t heard of scalping? Probably, you may know it as pipsing, but all traders surely heard a lot of different things about it, some of them tried it in practice, others are just going to, that’s why I guess it would be interesting to go into details of such thing as scalping.

Scalping definition

Let’s start with the definition. Scalping is a type of a trading strategy for trading on currency, stock and commodity markets. The distinctive feature of scalping is closing an order when the profit reaches several pips. This definition is offered by a lot of public trading-related web resources. In addition to that, some of they say that a scalping position is held from several second to several minutes. Under this approach to scalping, it may be regarded as an element of a high frequency trading.

We can go deep in the theme and “lift the curtain” over scalping, which is considered by many traders as almost perfect and advanced method of trading.

The question above helps expand the concept of scalping as it is, because the period of holding an order is too small, the profit may be almost equal to spread expenses, and the risk level for a position may by far exceed the potential benefit. In today’s technology intensive world, computers are vastly superior to enthusiasts of manual trading, but this competition allowed traders to expand the border of scalping as a trading instrument.

One should realize that there is a difference between scalping on the Forex and stock markets. In case of the former, traders use additional tools, such as Time & Sales and Depth of Market. Some Forex brokers make concessions and reduce commissions for scalpers. However, efficiency of scalping on stock markets even with additional helpers is rather questionable. The key thing in trading is the market liquidity, while scalping can be used even during periods of low volatility and liquidity.

Scalping strategies

Most scalping strategies are based on breakouts of support and resistance areas, for selling and buying respectively. Additional tools that are used by traders for determining support/resistance levels are line charts embedded in trading platforms (MT4, MT5, R WebTrader, etc), as well as fractal indicators, Parabolic SAR, and almost full range of Envelope-type indicators, which form mobile support/resistance levels taking into account volatility and averaged price movements per specified numbers of candlesticks.

The figure shows an example of scalping strategy using the VoltyChannel_Stop indicator. The logic of this system is based on a breakout of the indicator’s endpoint as a signal to open an order. The price movement range after the control level had been broken was from 4 to 34 pips, which is quite enough for a scalper. The only thing that may raise questions is where exactly every scalper intends to close their order.

In other words, possible profitability can be calculated in some specific range. We should also note that scalpers use quite large parts of their deposits in trading, from 10% to 50%. Depending on the opening/closing strategy, a scalper opens from 5 to 50 orders in case of constantly being in front of a computer and trading very actively. Consequently, we can calculate that scalper’s daily profitability may vary from 2% to 100%, but it requires a lot of work without any breaks.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

11 Rules of Effective Capital Management On Forex

Author : Timofey Zuev

Dear Clients and Partners,

There is no successful Forex player that has achieved a good and stable result without an efficient money management system. Wise and weighted up capital management allows for playing on the high-risk market thanks to marginal trading. In this article we are going to have a look a the main rules and principles of money management on Forex.

Rule № 1

The size of the margin must not exceed 10-15% of the deposit.

This rule helps calculate the margin for the orders to open. The remaining sum is necessary for normal work of the trader and for avoiding force majeure on the market: Forex may behave unexpectedly.

As for the suggested margin, its maximum size is not always the same. For example, Murphy suggested that it should not exceed 50%; however, other sources advise to stick to the margin amounting to 5 to 30% of the deposit. Anyway, the approach should go in line with the initial size of the deposit, as long as the smaller it is, the harder it is to go along the conservative way.

Rule № 2

The investment into one instrument or a group of assets with high correlation coefficient must not exceed 15% of the deposit.

This helps diversify risks and avoid strong dependence on the result of the trade.

On Forex there are groups of instruments as yen pairs, groups of allied currencies like EUR/USD и GBP/USD, AUD/USD и NZD/USD, metals like XAU and XAG and so on. Currency pairs of one group normally move in the same direction, slightly lagging behind one another. Thus, large investments into one instrument or the assets of one group go against the rules of risk control. The principles of efficient funds use are also to be kept in mind. Money should be allocated in such a way that a trade resulting in a large loss does not rid the trader of the whole deposit.

Rule № 3

Each instrument must imply a risk no bigger than 5% of the deposit.

This rule seems rather arguable, and its feasibility to a big part depends on the size of the trading capital. The risk of the trade may vary from several tenths of a percent to 10-20%. It does not relate to traders who do not regulate risks at all, the only limit being the size of their deposit.

If we turn to classics, Elder suggested 1.2-2.0% risk for one trade, Murphy – 5.0%.

Rule № 4

Define the level of diversification of instruments.

Regardless of diversification being one of the most efficient ways of protecting money, one should not overuse it. There should be a certain balance between concentration and diversification of assets. Excess diversity of the instruments used in trading makes the trader lose their concentration which may lead to untimely reaction to the market movements and a decrease of productivity.

Allocation of assets to 5-6 different instruments of various groups is considered most efficient. The bigger the coefficient of inverse correlation is, the higher is the diversification level.

Rule № 5

Put Stop Loss orders.

The main purpose of Stop Loss order is to limit the trader’s losses. Some put them every time opening a trade, others do so only for the time of their absence from their workplace. However, it is always worth remembering that Forex is an unpredictable market, and the movements of currency pairs can be sharp and quick. As a consequence, traders may suffer excessive losses, because they may not react in time, even sitting in front of the computer screen.

The size of a Stop Loss depends on two factors: the size of the loss that the trader is ready to suffer and the situation on the market.

Let me give you an example. The trader’s deposit is 1,000 USD. The risk of a trade is 5%. The volume of the trade is 0.02 lot. In such circumstances they can afford a loss of 50 USD, and in case the price is 0.1 USD per 0.01 lot for a pair, as, say, with GBPUSD, the Stop Loss should be no farther than 250 points from the entrance to the position.

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Sincerely,
RoboForex team