Forex trading,foreign exchange market 11


How can we easily understand the meaning of each candle in forex trading?

Candlestick charts have enjoyed continued use among traders because of the wide range of trading information they offer, along with a design that makes them easy to read and interpret.


The chart received its name because its markers, or indicators, have a body shaped like a candle, with a line on top that resembles a wick. These candles also have a "wick" on the bottom end as well.
On the chart, each candlestick includes an open, high, low and close price for the time frame. The trader sets the time frame of each candle. For example, to see the high, low, open and close price over a five-minute period, a trader would set the time frame of the candlestick chart to 5 minutes.
Every five minutes a new candlestick is created, and it takes five minutes to complete before another one begins. Candlesticks also show the current price, whether the price moved up or down over the time frame, and the price range the asset covered in that time.




What are candlesticks in forex?
  • Forex candlesticks provide a range of information about currency price movements, helping to inform trading strategies
  • Trading forex using candlestick charts is a useful skill to have and can be applied to all markets
What could possibly be more important to a technical forex trader than price charts? Forex charts are defaulted with candlesticks which differ greatly from the more traditional bar chart and the more exotic renko charts. These forex candlestick charts help to inform an FX trader’s perception of price movements - and therefore shape opinions of trends, determine entries, and more.

All currency traders should be knowledgeable of forex candlesticks and what they indicate. After learning how to analyze forex candlesticks, traders often find they can identify many different types of price action far more efficiently, compared to using other charts. The added advantage of forex candlestick analysis is that the same method applies to candlestick charts for all financial markets.
Forex candlesticks explained

There are three specific points that create a candlestick, the open, the close, and the wicks. The candle will turn green/blue (the color depends on the chart settings) if the close price is above the open. The candle will turn red if the close price is below the open.

If you have the chart on a daily setting each candle represents one day, with the open price being the first price traded for the day and the close price being the last price traded for the day.

Reading and Interpreting a Candlestick Chart

You can read and interpret candlestick charts as follows, based on price activity:

Open Price

The open represents the first price traded during the candlestick, indicated by either the top or bottom of the body. If a price trends up, it has a green candlestick, and downward-trending price candlesticks turn red. The color changes depending on whether the price sits above, in green, or below, in red, the open price during the time frame of the candlestick.

High Price

The high is the highest price traded during the candlestick, indicated by the top of the tail that occurs above the body, called the upper tail. If the open was the highest price during the time frame then there will be no upper tail.

Low Price

The low shows the lowest price traded during the candlestick, indicated by the bottom of the tail that occurs below the body, called the lower tail. If the open was the lowest price during the time frame, then there will be no lower tail.

Close Price

The close is the last price traded during the candlestick, indicated by either the top or bottom of the body. Again, the upward candlesticks show as green, and the downward candlesticks show as red. The color indicates whether the closing price or last price if the candlestick hasn't yet completed, is above or below the open price.
While a candle forms, but before it completes, it constantly changes as the price moves. The open stays the same, but until the candle completes, the high, low and close could all change. The color may also change while a candlestick forms.
It may go from green to red, for example, if the current price is above the open price, but then drops below it. When the time frame for the candle ends, the last price is the closing price, and then the candle can no longer change. A new bar forms to show how the price moves over the next time segment.



The image below shows a blue candle with a close price above the open and a red candle with the close below the open.

Direction

You can see the direction the price moved during the time frame of the candle, by the color of the candlestick. If the candlestick is green, then the price closed above where it opened. If the candlestick is red, the price closed below where it opened. These represent upward and downward movements, respectively. Traders often use green and red as common candlestick colors, but the colors can be altered to suit a trader's visual preference. Other common colors include white or blue for upward movement, and black (on a light background) for downward movement.

Range

The price difference between the upper and lower tails shows the range the price moved during the time frame of the candlestick. The range is calculated by subtracting the high from the low (Range = High - Low). Wide-ranging bars indicate a lot of volatility, while candlesticks with a small range indicate complacency and a lack of volatility. 

Practice Reading the Charts

You can practice reading candlesticks by opening a demo trading account or play around with candlesticks on free web-based charting platforms. Set the chart type to candlestick, and then select a 1-minute time frame. This allows you to see a new candlestick every minute, and give you a good idea of how they work.
Learning how to read candlesticks and other chart types can help you learn how to day trade. Once you're comfortable with reading the charts, study other aspects of technical analysis and develop your own trading strategy. You can also learn how to use candlesticks to look for trading opportunities based on candlestick patterns, such as the engulfing candlestick pattern.

Candlestick Variations

After you're comfortable with the basics of candlesticks, you can make subtle changes to the candlestick settings in your charting platform, if desired. In the settings, choose whether to base the candlestick color on the open versus the close price, or whether to base it on the close versus the prior close.
You may also choose to see the candlesticks as hollow, with only the border of the candle colored, or show them with the body filled with color.
No right or wrong way exists to set up the charts. The chart setups become your personal preferences, based on how you wish to analyze the data and set up your trades.


 

What is a diamond pattern in a Forex trading chart?

The diamond top and bottom are reversal patterns. It represents a rally to a new high with a drop to a support level followed by a rally to make a new high and a quick decline, breaking the support level to make a higher low. The bounce from the higher low is then followed by a rally, but making a lower high instead. Once this behavior is identified, prices then break the trend line connecting the first and second lows and start to decline further.
In the case of a diamond bottom, prices follow the same pattern, but instead make a new low and a new high followed by subsequent higher low and lower high. The diamond top and bottom patterns, despite its fancy name merely exhibits the trading sentiment and a period of congestion before a new trend emerges, depending on the chart time frame that you are using. The diamond patterns are infrequent and therefore relatively rare to spot them. However, the most ideal places to find the diamond patterns is within the head and shoulders patterns or within the triangle patterns.


Diamond Bottom pattern

Figure 1 represents a diamond bottom pattern. The diamond shape seen is nothing but the short term trend lines connecting the peaks and troughs within the price action.

When prices break out of the established trend lines, the pattern is said to be successful. The minimum price target is the measured distance between the points B and C, projected from the break out of D.

Diamond Top pattern
The following chart, Figure 2 shows an illustration of a diamond top pattern. It works on the exact same principles of a diamond bottom pattern but in the opposite direction.

One of the easiest ways to identify these patterns are that they are formed either at the top of the trend or at the bottom of the trend. 

 Examples

The following chart, Figure 3 shows a diamond top pattern being formed. Here, we can see the intermediary highs and lows formed and the subsequent lower highs and higher lows. After break out from the trend line, prices decline well enough to reach the intended target of the measured distance between the peak and trough of the diamond top formation.



                                             Figure 3: Diamond Top Formation

The next chart, figure 4, shows an example of a diamond bottom formation. Here, we can find how price formed the high and low and then traded within these peaks and troughs forming a diamond pattern and eventually breaking out of the congestion zone. The break out was followed by a rapid rally reaching the projected target from the break out level. 


                                                 Figure 4: Diamond Bottom Trade Example 

As can be seen by the above examples of diamond top and bottom patterns, these are very reliable chart patterns to trade. Another benefit is that they offer a very low risk compared to the potential rewards for the trade, making this a very good stand alone trading strategy in itself.

The only problem with diamond patterns is that they are rare to find and in real time trading, a diamond pattern is qualified only after the break out. We know that with break outs, sometimes prices rally or decline very quickly without any retracements or pullbacks, which is a factor to consider when trading the diamond patterns.
For beginners, new to chart patterns will find it a bit difficult to spot these patterns on the chart as it takes a while to train the eye to draw the trend line correctly. Another point of mention is that with more real time trading examples, you won’t find the perfect text book described diamond tops and bottoms, which can also make it tricky to trade these patterns.
However, with due practice spotting the diamond tops and bottoms should become easy once you are familiar with this pattern.


Are OTC futures marked to market? 

What Is Mark to Market (MTM)?

Mark to market (MTM) is a measure of the fair value of accounts that can change over time, such as assets and liabilities. Mark to market aims to provide a realistic appraisal of an institution's or company's current financial situation.
In trading and investing, certain securities, such as futures and mutual funds, are also marked to market to show the current market value of these investments.

Understanding Mark to Market (MTM) and Mark to Market in Accounting

Mark to market is an accounting practice that involves recording the value of an asset to reflect its current market levels. At the end of the fiscal year, a company's annual financial statements must reflect the current market value of its accounts. For example, companies in the financial services industry may need to make adjustments to the assets account in the event that some borrowers default on their loans during the year. When these loans have been marked as bad debt, companies need to mark down their assets to the fair value. Also, a company that offers discounts to its customers in order to collect quickly on its accounts receivables will have to mark its current assets account to a lower value. Another good example of marking to market can be seen when a company issues bonds to lenders and investors. When interest rates rise, the bonds must be marked down since the lower coupon rates translate into a reduction in bond prices.



Problems can arise when the market-based measurement does not accurately reflect the underlying asset's true value. This can occur when a company is forced to calculate the selling price of its assets or liabilities during unfavorable or volatile times, as during a financial crisis. For example, if liquidity is low or investors are fearful, the current selling price of a bank's assets could be much lower than the actual value. The result would be a lower shareholders' equity.

This issue was seen during the financial crisis of 2008/09 when the mortgage-backed securities (MBS) held as assets on banks' balance sheets could not be valued efficiently as the markets for these securities had disappeared. In April of 2009, however, the Financial Accounting Standards Board (FASB) voted on and approved new guidelines that would allow for the valuation to be based on a price that would be received in an orderly market rather than a forced liquidation, starting in the first quarter of 2009.

Mark to Market in Investing

In securities trading, mark to market involves recording the price or value of a security, portfolio, or account to reflect the current market value rather than book value. This is done most often in futures accounts to ensure that margin requirements are being met. If the current market value causes the margin account to fall below its required level, the trader will be faced with a margin call.

An exchange marks traders' accounts to their market values daily by settling the gains and losses that result due to changes in the value of the security. There are two counterparties on either side of a futures contract - a long trader and a short trader. The trader who holds the long position in the futures contract is usually bullish, while the trader shorting the contract is considered bearish. If at the end of the day, the futures contract entered into goes down in value, the long account will be debited and the short account credited to reflect the change in value of the derivative. Conversely, an increase in value results in a credit to the account holding the long position and a debit to the short futures account.

For example, to hedge against falling commodity prices, a wheat farmer takes a short position in 10 wheat futures contracts on November 21, 2017. Since each contract represents 5,000 bushels, the farmer is hedging against a price decline of 50,000 bushels of wheat. If the price of one contract is $4.50 on November 21, 2017, the wheat farmer's account will be credited with $4.50 x 50,000 bushels = $225,000.


Day  Futures Price   Change in Value Gain/Loss   Cumulative Gain/LossAccount Balance
1          $4.50225,000
2$4.55+0.05 -2,500-2,500222,500
3$4.53-0.02                       +1,000-1,500223,500
4$4.46-0.07+3,500+2,000227,000
5$4.39-0.07+3,500+5,500230,500

(Note that the Account Balance is marked daily using the Gain/Loss column, not the Cumulative Gain/Loss column).

Because the farmer has a short position in wheat futures, a fall in the value of the contract will result in a credit to his account. Likewise, an increase in value will result in a debit. For example, on Day 2, wheat futures increased by $4.55 - $4.50 = $0.05, resulting in a loss for the day of $0.05 x 50,000 bushels = $2,500. While this amount is debited from the farmer's account balance, the exact amount will be credited to the account of the trader on the other end of the transaction holding a long position on wheat futures.

The daily mark to market settlements will continue until the expiry date of the futures contract or until the farmer closes out his position by going long a contract with the same maturity.

Another security that is marked to market is mutual funds. Mutual funds are marked to market on a daily basis at the market close so that investors have a better idea of the fund's Net Asset Value (NAV).


What is trade enrichment?

Trade enrichment is the process of applying relevant information to the trade that is necessary to settle the trade correctly.

It has following elements:
  • Trade figuration, that is, calculating trade cash values
  • Trade comparison requirements and validation for counterparties; for example, some trades may not require confirmations to be sent if other trade agreement methods are in place. Trade confirmations to clients carry full details of the trade including fees, commission, and net money. The counterparty's information is not included on the client's confirmation
  • The selection of the relevant custodian details
  • The transmission of settlement instructions, for example, by SWIFT or fax
  • The reporting of trades to stock market regulators

In an automated environment, trade enrichment can be primarily achieved from the static data repository (this is referred to as static data defaulting). If any static data items are missing, the trade is treated as an exception with processing halted until the necessary information is added to the static data repository. 

Following trade capture within the settlement system, the details of a trade require enrichment.
Whether by manual or automated means, trade enrichment involves the selection, calculation and attachment to a trade of relevant information necessary to complete a number of essential actions, following capture of the basic trade details.
In an automated environment:
  • STP
  • efficient servicing of clients
  • avoidance of operational risk
  • minimising operational cost
cannot be achieved successfully unless trade enrichment is completed accurately and within the necessary deadlines.
In an automated environment, trade enrichment is achieved through defaulting relevant information automatically from the store of information within static data; this is commonly known as static data defaulting. Within this book, the term ‘trade enrichment’ refers generically to the enrichment of trades, whether achieved manually or automatically. The term static data defaulting refers only where trade enrichment is achieved automatically.
 

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