<h1 dir="ltr">What are financial markets?</h1>
<ol>
<li dir="ltr" aria-level="1">
What are financial markets?
</li>
<li dir="ltr" aria-level="1">
Types of assets:
</li>
<ul>
<li dir="ltr" aria-level="2">
Forex
</li>
<li dir="ltr" aria-level="2">
Cryptocurrencies
</li>
<li dir="ltr" aria-level="2">
CFDs (Contracts for Difference)
</li>
</ul>
<li dir="ltr" aria-level="1">
What influences market movements?
</li>
<li dir="ltr" aria-level="1">
Who participates in the markets?
</li>
<li dir="ltr" aria-level="1">
Bull and bear markets
</li>
<li dir="ltr" aria-level="1">
Volatility and its importance
</li>
<li dir="ltr" aria-level="1">
Liquidity and its impact on trading
</li>
</ol>
 Financial markets are places where buyers and sellers meet to trade various assets, such as currencies, cryptocurrencies, and CFDs. These markets facilitate capital flow and provide opportunities for investing and trading.
In the past, financial markets were accessible only to large corporations and institutions. Today, thanks to technological advancements, they are available to the general public as well.
&nbsp;
<h3 dir="ltr">Types of assets</h3>
<h4 dir="ltr">Forex</h4>
The forex (foreign exchange) market is a global exchange where currencies such as USD, EUR, and GBP are traded. This market operates continuously during the workweek and offers numerous opportunities due to its high liquidity.
<h4 dir="ltr">Cryptocurrencies</h4>
Digital currencies like Bitcoin and Ethereum have revolutionized the financial world. Cryptocurrency markets are known for their high volatility, which can lead to significant profits but also increased risks.
<h4 dir="ltr">CFDs (Contracts for difference)</h4>
CFDs are financial instruments that allow you to speculate on the price movements of various assets, such as forex and cryptocurrencies, without owning them directly.
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<h3 dir="ltr">What influences market movements?</h3>
Prices in financial markets are influenced by several factors, including supply and demand. Key aspects include:
<ul>
<li dir="ltr" aria-level="1">
Economic data: Reports on employment or inflation can significantly impact the markets.
</li>
<li dir="ltr" aria-level="1">
Central bank policies: Changes in interest rates influence the value of currencies in forex markets.
</li>
<li dir="ltr" aria-level="1">
News and events: Announcements about cryptocurrency regulations or technological advancements can quickly shift market sentiment.
</li>
</ul>
&nbsp;
<h3 dir="ltr">Who participates in the markets?</h3>
A wide range of traders and investors operate in financial markets:
<ul>
<li dir="ltr" aria-level="1">
Retail Traders &ndash; Individuals investing their own money.
</li>
<li dir="ltr" aria-level="1">
Brokers &ndash; Professionals facilitating trades.
</li>
<li dir="ltr" aria-level="1">
Financial Institutions &ndash; Large companies like hedge funds or asset managers.
</li>
</ul>
&nbsp;
<h3 dir="ltr">Bull and bear markets</h3>
Financial markets are often driven by two main directions:
<ul>
<li dir="ltr" aria-level="1">
Bull Market: Characterized by rising prices as investors expect positive developments and buy assets.
</li>
<li dir="ltr" aria-level="1">
Bear Market: Occurs when prices decline due to pessimistic outlooks and increased selling activity.
</li>
</ul>
For example, when the number of bulls on a market exceeds the number of bears, prices are likely to rise. Conversely, a dominance of bears can lead to falling prices.
&nbsp;
<h3 dir="ltr">Volatility and its importance</h3>
Volatility represents the extent to which the price of an asset fluctuates over a given period. Cryptocurrency and forex markets are highly volatile, providing more opportunities for profit but also greater risk.
Example: The price of Bitcoin might increase by 10% or drop by 15% in a single day, creating opportunities for quick gains but also potential losses. Forex markets are usually less volatile, but significant economic events, such as central bank announcements, can cause sharp currency movements.
&nbsp;
<h3 dir="ltr">Liquidity and its impact on trading</h3>
Liquidity refers to how quickly and easily an asset can be bought or sold without significantly affecting its price.
Example: Forex markets, such as EUR/USD, are highly liquid &ndash; trades are executed quickly with minimal price differences. On the other hand, lesser-known cryptocurrencies may have low liquidity, making them harder to trade and causing significant price changes with each trade.
High liquidity is advantageous for traders seeking fast and efficient trades, whereas low liquidity may introduce additional risk.
&nbsp;

What are financial markets?

<h1 dir="ltr">What is forex?</h1>
&nbsp;
Forex (foreign exchange market), often referred to as FX, is the largest and most liquid financial market in the world. In 2022, the daily trading volume of the forex market exceeded $7.5 trillion, far surpassing stock markets, which averaged around $553 billion per day.
&nbsp;
<ol>
<li dir="ltr" aria-level="1">
What is forex?
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
What is forex trading?
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
How does forex trading work?
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Who trades on the forex market?
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
How is forex traded?
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Why trade forex?
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Is forex trading right for you?
</li>
</ol>
&nbsp;
<h3 dir="ltr">What is forex trading?</h3>
&nbsp;
Forex trading involves the buying and selling of global currencies. This process allows individuals, businesses, and government institutions to pay for goods and services in other countries. For instance, when you exchange money for a vacation, you are participating in the forex market.
&nbsp;
However, most forex transactions are not for practical purposes. Speculative traders aim to profit from fluctuations in exchange rates by predicting whether one currency will strengthen or weaken against another.
&nbsp;
<h3 dir="ltr">How does forex trading work?</h3>
&nbsp;
Forex is traded in pairs &ndash; you exchange one currency for another. For example, when trading EUR/USD, you are buying euros while simultaneously selling US dollars.
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
If the value of the euro rises against the dollar, you profit.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
If the value of the euro falls against the dollar, you incur a loss.
</li>
</ul>
&nbsp;
Currencies never rise or fall all at once. The strengthening of one currency always corresponds to the weakening of another, so traders analyze which currency is likely to strengthen relative to another and trade accordingly.
&nbsp;
<h3 dir="ltr">Who trades on the forex market?</h3>
&nbsp;
The forex market is utilized by a wide range of participants:
&nbsp;
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Companies: Exchange currencies to support their international operations.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Central banks: Regulate their currency values through buying and selling.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Banks: Dominate global forex trading, with the top 10 banks accounting for two-thirds of total trading volume.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Retail traders: Individuals who enter the forex market to take advantage of short-term price movements. 
</li>
</ul>
<h3 dir="ltr">How is Forex traded?</h3>
&nbsp;
Forex trading differs from other markets in that there is no central exchange. Instead, currencies are traded through continuous interbank transactions around the world. The forex market operates 24 hours a day during the workweek, giving traders uninterrupted access to price movements.
&nbsp;
Each currency is represented by a three-letter code:
&nbsp;
<img src="https://direct.y4trade.com/assets/f251c1ba-4665-414d-8014-6415a0e24d95.svg?width=600&amp;height=390" alt="Currency">
<h3 dir="ltr">&nbsp;</h3>
<h3 dir="ltr">Why trade forex?</h3>
&nbsp;
<ul>
<li dir="ltr" role="presentation">Speculate on Rising or Falling Prices: Unlike stocks, where you can only profit from price increases, forex allows you to profit from both rising and falling prices.</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" role="presentation">High Liquidity: A constant flow of buyers and sellers ensures low costs and quick trade execution.</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" role="presentation">Accessibility: The market is open 24 hours a day during the workweek, offering flexibility for traders.</li>
</ul>
&nbsp;
<h3 dir="ltr">Is forex trading right for you?</h3>
&nbsp;
Forex trading may be suitable for investors who:
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Prefer Short-Term Opportunities: Forex positions are often held for a few days or weeks, with some traders executing trades in minutes or hours.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Make Their Own Decisions: Most brokers provide platforms for trade execution only, without offering advice.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Want to Diversify Their Portfolio: Currency trading offers exposure to global markets.
</li>
</ul>
&nbsp;

What is forex?

<h1 dir="ltr">Forex trading</h1>
When trading on the foreign exchange market, you buy or sell currency pairs such as EUR/USD, GBP/USD, or USD/JPY. Let&rsquo;s take a closer look at the structure of currency pairs.
&nbsp;
The first currency in the pair is called the base currency. The second currency is known as the quote currency (or counter currency). The exchange rate at which the pair is traded shows how much of the quote currency is needed to purchase one unit of the base currency. 
&nbsp;
<ol>
<li dir="ltr" aria-level="1">
Going long in Forex 
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Short selling in Forex 
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
What is a Pip? 
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Forex and leverage 
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Currency Pairs 
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
What influences forex markets? 
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
How to make your first forex trade
</li>
</ol>
 
&nbsp;
<h3 dir="ltr">Example of a quote and base currency</h3>
Let&rsquo;s imagine EUR/USD is trading at 1.3010. The base currency is the euro, and the quote currency is the US dollar. This means that to purchase one euro, you need 1.3010 dollars.
&nbsp;
<h3 dir="ltr">Going long on forex</h3>
Traders on the foreign exchange market aim to profit from changes in the exchange rates of currency pairs. If you expect the US dollar to gain value against the euro, you can buy EUR/USD to capitalize on this movement.
&nbsp;
Example of a long EUR/USD position
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
EUR/USD is trading at 1.3010.
</li>
<li dir="ltr" aria-level="1">
You purchase 10,000 euros, which equals 13,010 USD.
</li>
<li dir="ltr" aria-level="1">
EUR/USD rises to 1.3110.
</li>
<li dir="ltr" aria-level="1">
You sell 10,000 euros for 13,110 USD, making a profit of 100 USD. If EUR/USD falls to 1.2910, you would incur a loss of 100 USD.
</li>
</ul>
&nbsp;
<h3 dir="ltr">Short selling on forex</h3>
In forex trading, you don&rsquo;t only have to buy currency pairs. If you believe the base currency will lose value against the quote currency, you can sell the pair instead.
&nbsp;
Selling a forex pair means buying the quote currency by selling the base currency.
&nbsp;
This creates a position that generates a profit when the value of the pair decreases&mdash;this is called a short position. This trading method is popular in forex because it involves no additional costs or restrictions.
&nbsp;
Example of a short EUR/USD Position
<ul>
<li dir="ltr" aria-level="1">
EUR/USD is trading at 1.3010.
</li>
<li dir="ltr" aria-level="1">
By selling 10,000 euros, you receive 13,010 USD.
</li>
<li dir="ltr" aria-level="1">
EUR/USD falls to 1.2902.
</li>
<li dir="ltr" aria-level="1">
You sell 12,902 USD to repurchase 10,000 euros, making a profit of 108 USD. If EUR/USD rises instead, you would incur a loss.
</li>
</ul>
&nbsp;
<h3 dir="ltr">What is a Pip?</h3>
A pip represents the smallest possible price movement in a forex pair. In most forex pairs, a pip is defined as a one-digit movement in the fourth decimal place. For instance, if EUR/USD rises from 1.0717 to 1.0718, it has moved up by one pip.
&nbsp;
An exception to this rule applies to pairs where the quote currency is the Japanese yen (JPY). In these cases, a pip corresponds to a one-digit movement in the second decimal place. For example, if USD/JPY falls from 110.08 to 110.03, it has moved down by five pips. This is because the yen has a comparatively lower value than other major currencies.
&nbsp;
Fractional Pips
 In addition to standard pips, a fifth decimal place is often displayed. These are known as fractional pips or pipettes, and they are sometimes written in smaller text to distinguish them from standard pips.
&nbsp;
How to calculate Pip Value
 A pip is worth 0.0001 (or 0.01%) of one unit of the quote currency. To earn one unit of the quote currency for each pip movement, you must trade 10,000 units of the base currency. This amount is called the lot size.
&nbsp;
Example: To earn 1 USD for every pip movement in EUR/USD, you need to trade the equivalent of 10,000 EUR.
&nbsp;
For currency pairs with the yen, a pip is worth 0.01 of the base currency. If you trade 10,000 USD in USD/JPY, a one-pip movement equals a gain or loss of 100 JPY. If USD/JPY is trading at 110.00, the pip value is equivalent to 0.91 USD, calculated as ((1 pip / 110.00) x 10,000 USD).
&nbsp;
Example of pip value in USD/JPY
<ul>
<li dir="ltr" aria-level="1">
USD/JPY is trading at 110.00.
</li>
<li dir="ltr" aria-level="1">
You trade 10,000 USD, which equals 1,100,000 JPY.
</li>
<li dir="ltr" aria-level="1">
USD/JPY rises to 111.00.
</li>
<li dir="ltr" aria-level="1">
You sell at 1,110,000 JPY, making a profit of 10,000 JPY.
</li>
<li dir="ltr" aria-level="1">
This equals 90.01 USD (10,000 JPY / 111.00). If USD/JPY falls by 100 pips, you would incur a loss of 10,000 JPY.
</li>
</ul>
&nbsp;
<h3 dir="ltr">Forex and leverage</h3>
As you may have noticed, a pip has a small value in real terms. This is why most individual traders use leverage to maximize the impact of price fluctuations in forex.
&nbsp;
Leverage allows traders to control a much larger position by depositing only a small portion of their own capital (called margin). This enables retail investors to open short-term forex positions without tying up large amounts of money.
&nbsp;
However, leverage increases both potential profits and potential losses, so careful risk management is essential.
&nbsp;
<h3 dir="ltr">Currency pairs</h3>
Currency pairs are grouped into three categories based on their popularity and trade volume: major, minor, and exotic.
&nbsp;
Major currency pairs
 Major pairs represent the most frequently traded currencies, accounting for approximately 85% of the total forex market. High liquidity makes trading these pairs cheaper compared to minor pairs.
&nbsp;
The most frequently traded major pairs include:
<ul>
<li dir="ltr" aria-level="1">
EUR/USD &ndash; euro vs US dollar
</li>
<li dir="ltr" aria-level="1">
USD/JPY &ndash; US dollar vs Japanese yen
</li>
<li dir="ltr" aria-level="1">
GBP/USD &ndash; British pound vs US dollar
</li>
<li dir="ltr" aria-level="1">
AUD/USD &ndash; Australian dollar vs US dollar
</li>
<li dir="ltr" aria-level="1">
USD/CHF &ndash; US dollar vs Swiss franc
</li>
<li dir="ltr" aria-level="1">
USD/CAD &ndash; US dollar vs Canadian dollar
</li>
</ul>
&nbsp;
EUR/USD is the most popular pair, making up approximately 28% of all forex trades. All major pairs include the US dollar.
&nbsp;
Summary of abbreviations and nicknames:
<ul>
<li dir="ltr" aria-level="1">
EUR/USD &ndash; Euro-dollar
</li>
<li dir="ltr" aria-level="1">
USD/JPY &ndash; Dollar-yen
</li>
<li dir="ltr" aria-level="1">
GBP/USD &ndash; Cable
</li>
<li dir="ltr" aria-level="1">
AUD/USD &ndash; Aussie
</li>
<li dir="ltr" aria-level="1">
USD/CHF &ndash; Swissy
</li>
<li dir="ltr" aria-level="1">
USD/CAD &ndash; Loonie
</li>
</ul>
&nbsp;
What influences forex markets?
&nbsp;
The value of currency pairs can change throughout the day due to various factors, including:
<ul>
<li dir="ltr" aria-level="1">
Economic data
</li>
<li dir="ltr" aria-level="1">
Central banks
</li>
<li dir="ltr" aria-level="1">
Politics
</li>
</ul>
&nbsp;
Economic data: Currencies often reflect the economic health of their respective countries. Key indicators like inflation, unemployment, trade balances, and wage levels can significantly impact market volatility.
&nbsp;
Central banks: These institutions influence currencies by adjusting interest rates or monetary supply. They can also intervene by directly buying or selling their currency to stabilize its value.
&nbsp;
Politics: Political uncertainty or events can strongly impact currency markets. For instance, the US dollar is often considered a safe-haven currency, so its value typically rises during global crises.
&nbsp;
Even seemingly minor events, such as a finance minister&rsquo;s speech, can cause significant price movements.
&nbsp;
<h3 dir="ltr">How to make your first forex trade</h3>
Now that you have some basic knowledge about forex, you can make your first trade. If you have a demo account on the FOREX.com platform, follow these steps to open a practice trade. If you don&rsquo;t have one yet, registration is quick and free. Open a demo account.
&nbsp;
Alternatively, if you want to trade on live markets, you can open a live account.
&nbsp;
Choose a currency pair
 Beginners often focus on major pairs like EUR/USD, USD/CAD, or GBP/USD. However, you can trade any pair available on the platform, as long as you have sufficient virtual funds in your demo account. Search for "EUR/USD" on the demo platform.
&nbsp;
Analyze the market
 Analyze whether to take a long or short position and choose your strategy. You can review historical and current charts, monitor economic news, or use technical indicators. Review the latest news about EUR/USD and look for signals of potential price movement.
&nbsp;
Read the quote
 Forex pairs always display two prices:
Bid price &ndash; the price at which you can sell the pair.
Ask price &ndash; the price at which you can buy the pair.
&nbsp;
The difference between these prices is called the spread, which represents the cost of trading. Spreads may vary between brokers.
&nbsp;
Click on the market name (e.g., EUR/USD) to view the trade ticket.
&nbsp;
Set the trade size and choose your position
 The size of your trade determines the amount of the base currency you are trading and the value of each pip movement.
&nbsp;
<ul>
<li dir="ltr" role="presentation">Select Buy if you expect the base currency to rise in value against the quote currency.</li>
<li dir="ltr" role="presentation">Select Sell if you expect the base currency to fall in value against the quote currency.</li>
<li dir="ltr" role="presentation">Choose a size of 1,000 units (a mini lot) and click Place Trade to open your position.</li>
</ul>
&nbsp;
Monitor and close your trade
 To close a forex trade, you trade in the opposite direction of how you opened it. If you opened with a buy trade, you close with a sell trade, and vice versa. Navigate to your open positions to see your current profit or loss. When you&rsquo;re ready to close the position, click Close next to EUR/USD to sell 1,000 EUR/USD.
&nbsp;

Forex trading

<h1 dir="ltr">Commodity trading</h1>
Commodities are essential to the global economy&mdash;and humanity as a whole. At FOREX.com, we offer trading opportunities in various commodities, including two of the largest on the market: gold and silver. In the next lesson, we&rsquo;ll take a closer look at how trading them works.
&nbsp;
Let&rsquo;s explore how companies and traders buy and sell energy, agricultural products, precious metals, and more.
<h3 dir="ltr">What are commodities?</h3>
<ul>
<li dir="ltr" aria-level="1">
Soft vs. hard commodities
</li>
<li dir="ltr" aria-level="1">
Categories of commodities
</li>
<li dir="ltr" aria-level="1">
Who trades commodities?
</li>
</ul>
&nbsp;
<h3 dir="ltr">What are commodities?</h3>
Commodities are natural products consumed or used by people, animals, or industries, such as oil, sugar, gold, and wheat. These products have been traded for thousands of years, feeding people and livestock, powering production, and more.
&nbsp;
Commodity trading remains just as crucial today, with commodities playing a key role in the global economy. They are the building blocks of the modern economy, making them an attractive prospect for many traders.
&nbsp;
<h3 dir="ltr">Defining commodities</h3>
Producers, consumers, and speculators trade billions of dollars in commodities every day. To facilitate such trading, it is essential for buyers and sellers to be assured that every asset meets standard size and quality.
&nbsp;
For this reason, all traded commodities must be fungible. This means they can be exchanged for another item of the same kind, regardless of origin.
&nbsp;
For example, a gold bar mined in South Africa must have the same quality and size as a gold bar mined in Australia. This ensures that commodity traders can focus on trading without having to inspect or evaluate each item individually.
&nbsp;
If a product is not fungible&mdash;such as clothing or electronics&mdash;it cannot be traded as a commodity.
&nbsp;
<h3 dir="ltr">Soft vs. hard commodities</h3>
Commodities can be divided into two main groups: soft and hard.
&nbsp;
Soft commodities are goods grown or raised for human or animal consumption. These products are cultivated in different parts of the world but are never mined or extracted.
&nbsp;
Hard commodities, on the other hand, are raw materials extracted, mined, or pumped from the earth. They are the backbone of industrial production, powering machines and providing essential resources.
&nbsp;
<h3 dir="ltr">Categories of commodities</h3>
In addition to being classified as soft or hard, commodities are often grouped into three main categories: energy, agricultural products, and metals.
&nbsp;
A table comparing these three types of commodities would include examples such as metals, agricultural products (also called "softs"), and energy resources. 
&nbsp;
<img class="centerImage" src="https://direct.y4trade.com/assets/be7b0a34-8ac3-4cb1-9f6e-d6b6d61e606c.svg?width=600&amp;height=400" alt="Commodities Markets ">
<h3 dir="ltr">Energy</h3>
Energy commodities are extracted from the earth. Their prices can significantly influence the global economy, and their value is often determined by the state of the economy. For instance, a growing economy can lead to increased demand for oil, driving its price up. <img src="https://direct.y4trade.com/assets/27e8a416-6e44-412b-9eef-ae88ee964225.png?width=800&amp;height=200" alt="Wti Vs Brent"> 
&nbsp;
Examples:
<ul>
<li dir="ltr" aria-level="1">
American oil (WTI or NYMEX)
</li>
<li dir="ltr" aria-level="1">
European oil (Brent)
</li>
<li dir="ltr" aria-level="1">
Natural gas
</li>
</ul>
&nbsp;
WTI vs. Brent
 Did you know that the oil market has various segments because oil quality differs by region?
&nbsp;
The two main types are West Texas Intermediate (WTI, American oil) and Brent Crude (oil from the UK). While their prices are often similar, they are not identical.
&nbsp;
<h3 dir="ltr">Agriculture</h3>
Agricultural commodities form the basis of global food supplies for both humans and animals. These products are grown or bred and are less popular among traders compared to energy or metals. Weather conditions and spoilage often significantly impact their prices, leading to considerable price volatility.
&nbsp;
Examples of soft commodities:
<ul>
<li dir="ltr" aria-level="1">
Coffee
</li>
<li dir="ltr" aria-level="1">
Corn
</li>
<li dir="ltr" aria-level="1">
Cotton
</li>
<li dir="ltr" aria-level="1">
Orange juice
</li>
<li dir="ltr" aria-level="1">
Soybean oil
</li>
<li dir="ltr" aria-level="1">
Wheat
</li>
</ul>
&nbsp;
<h3 dir="ltr">Metals</h3>
Metals are divided into two main groups: precious metals (like gold, silver, or platinum) and industrial metals (like aluminum, lead, or copper). Investors worldwide consider gold a "safe haven," meaning its price often rises during uncertain times. On the other hand, the prices of industrial metals are driven by demand from industries that use them in production.
&nbsp;
Examples of Hard Commodities:
<ul>
<li dir="ltr" aria-level="1">
Copper
</li>
<li dir="ltr" aria-level="1">
Gold
</li>
<li dir="ltr" aria-level="1">
Palladium
</li>
<li dir="ltr" aria-level="1">
Platinum
</li>
<li dir="ltr" aria-level="1">
Silver
</li>
</ul>
&nbsp;
<h3 dir="ltr">Who trades commodities?</h3>
There are four main types of participants in the commodity market. Each has different goals and requirements for trading:
<ul>
<li dir="ltr" aria-level="1">
Producers
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Consumers
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Speculators
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Hedgers
</li>
</ul>
Producers are companies that produce or extract commodities. For example, farmers grow soft commodities, while miners and oil companies focus on hard commodities. Their goal is to secure the highest possible price for their products and guarantee income in advance.
&nbsp;
Consumers buy products from producers and use them. For instance, the jewelry industry is one of the largest consumers of gold, while airlines consume large quantities of oil. If consumer demand for a commodity decreases, its price will likely drop as well.
&nbsp;
Speculators aim to profit from the price volatility of commodities without intending to own any physical assets. Instead, they trade through derivatives like futures or options.
&nbsp;
Commodities often move inversely to other markets, such as stocks or bonds. For example, a stock market crash can increase the price of gold. Hedgers are investors who use this relationship to protect their stock or bond portfolios from adverse market movements.
&nbsp;

Commodity Trading

<h1 dir="ltr">Index Trading</h1>
 Trading indices allows you to gain exposure to hundreds of stocks at once. This lesson will cover how indices work and the ways you can start buying and selling them.
<ol>
<li style="font-weight: bold;">How do stock indices work?</li>
<li dir="ltr" style="font-weight: bold;" role="presentation">Market capitalization vs. price-weighted indices</li>
<li dir="ltr" style="font-weight: bold;" role="presentation">Index checklist</li>
<li dir="ltr" style="font-weight: bold;" role="presentation">What drives an index?</li>
<li dir="ltr" style="font-weight: bold;" role="presentation">How to trade indices?</li>
</ol>
<h3 dir="ltr">How do stock indices work?</h3>
An index consists of multiple stocks, and their performance determines the index's value.
&nbsp;
However, it's a bit more complex.
&nbsp;
Each index is managed by various organizations, such as banks or financial service providers. For instance, the NYSE is managed by Intercontinental Exchange. Each index has its own criteria for determining which stocks to include, defined either by a committee or a specific methodology.
&nbsp;
Indices also use different methods to calculate their daily value. The two most common approaches are market capitalization weighting and price weighting.
&nbsp;
<h3 dir="ltr">Market capitalization vs. Price-Weighted Indices</h3>
<h4 dir="ltr">Market Capitalization Indices</h4>
Market capitalization-based indices use the total market value of the companies in the index to determine their impact on the index's overall movements. Larger companies with higher market value will have a greater influence on the index's daily changes.
This calculation method is used for most stock indices.
&nbsp;
Examples:
<ul>
<li dir="ltr" aria-level="1">
S&amp;P 500
</li>
<li dir="ltr" aria-level="1">
FTSE 100
</li>
<li dir="ltr" aria-level="1">
NASDAQ
</li>
</ul>
&nbsp;
<h4 dir="ltr">Price-weighted indices</h4>
Price-weighted indices determine the influence of individual companies on the index based on their stock prices. Companies with higher stock prices will have a more significant effect on these indices.
&nbsp;
To calculate the value of a price-weighted index, sum up the stock prices of all the companies in the index and divide them by the total number of stocks.
&nbsp;
Examples:
<ul>
<li dir="ltr" aria-level="1">
Dow Jones
</li>
<li dir="ltr" aria-level="1">
Nikkei 225
</li>
</ul>
&nbsp;
Note: The composition of an index is not fixed and may change over time.
&nbsp;
<h3 dir="ltr">Index checklist</h3>
Before trading indices, ensure you understand the following points:
<ul>
<li dir="ltr" aria-level="1">
Index composition: Which companies are included?
</li>
<li dir="ltr" aria-level="1">
Frequency of changes: How often is the index reviewed (known as rebalancing)?
</li>
<li dir="ltr" aria-level="1">
Rules for adjustments: What criteria are used to add or remove companies from the index?
</li>
</ul>
&nbsp;
<h3 dir="ltr">What drives index values?</h3>
The price of a stock index changes based on the movements of the stocks it tracks. Consider these factors when assessing what may influence stock markets:
&nbsp;
1. Political climate: Political events can significantly impact stock values. Elections may lead to policy changes that can either benefit or hinder businesses. International tensions can result in tariffs or other trade restrictions.
&nbsp;
&nbsp;2. Company announcements: Key events, such as appointing a new CEO, mergers, or earnings reports from major companies, often affect the value of the indices that include those stocks.
&nbsp;
3. Economic data: Indicators like employment figures, central bank announcements, or inflation rates provide insight into the economy's health. Strong economies typically see higher demand for stocks.
&nbsp;
4. Industry news: Major headlines impacting several large companies within a sector (e.g., banking or mining) can also influence the broader index that includes them.
&nbsp;
<h3 dir="ltr">How to trade indices?</h3>
Unlike stocks or forex, an index is merely a calculation&mdash;it does not represent a physical asset you can directly buy or sell. However, several financial derivatives allow you to take a position on index price movements without owning hundreds of individual stocks.
&nbsp;
For instance, on the FOREX.com platform, you can trade over 15 global indices via CFDs (Contracts for Difference).
&nbsp;
<h3 dir="ltr">Example of trading Dow Jones&nbsp;</h3>
Scenario: You hear that two major companies plan to merge. You believe the Dow Jones index will rise, so you decide to take a long position on Wall Street.
&nbsp;
Finding the Market: Locate the Wall Street index on the platform and click on its name to open the trading ticket.
&nbsp;
Deciding to Buy or Sell:
&nbsp;
Buy: If you expect the Wall Street index to rise, you take a position that profits as the index increases.
Sell: If you expect the index to fall, you take a position that profits as the index decreases.
&nbsp;
Determining trade size: The number of CFDs you trade determines your potential profit or loss. For instance, buying one CFD means gaining or losing $1 for every point the Wall Street index moves.
&nbsp;
Example:
<ul>
<li dir="ltr" aria-level="1">
If the Wall Street index gains 50 points and you close your position, your profit will be (50 x 5 CFDs) $250.
</li>
<li dir="ltr" aria-level="1">
However, if the index falls by 50 points, your loss will be $250.
</li>
<li dir="ltr" aria-level="1">
Closing the Trade: To close your position, execute the opposite trade to the one you opened. If you initially bought five CFDs, you now sell five CFDs on Wall Street to realize your profit or loss.
</li>
</ul>
&nbsp;

 Index Trading

<h1 dir="ltr">How stock markets work</h1>
<ol>
<li dir="ltr" aria-level="1">
Trading stocks
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Where does stock trading happen?
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
What are brokers?
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
How do companies go public?
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Ticker symbols
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Market capitalization
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
What affects stock prices?
</li>
</ol>
<h3 dir="ltr" role="presentation">Trading stocks</h3>
In this lesson, we&rsquo;ll explore how global exchanges facilitate billions of dollars worth of stock trades daily&mdash;and how you can become part of the stock markets.
<h3 dir="ltr">Where does stock trading happen?</h3>
Stocks are traded on exchanges during designated trading hours. Exchanges are platforms specifically designed for the buying and selling of stocks. Nearly every country in the world has a stock exchange for publicly traded companies, with some countries hosting multiple exchanges.
&nbsp;
However, exchanges are not open around the clock. Stocks can only be bought and sold during the specific opening hours of the exchange where they are listed.
<h4 dir="ltr">Overview of major exchanges:</h4>
&nbsp;
<img src="https://direct.y4trade.com/assets/3bfb769d-e497-49d4-bcbe-ceab74413ca0.png?width=600&amp;height=400" alt="Major Exchanges 01">
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
NYSE (New York stock exchange) Country: USA Hours: 9:30 AM &ndash; 4:00 PM (New York time) The NYSE is the largest exchange globally by market capitalization, with the total value of listed companies exceeding $30 trillion. Established in 1792, notable listings include Coca-Cola, Goldman Sachs, and Walmart.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
NASDAQ Country: USA Hours: 9:30 AM &ndash; 4:00 PM (New York time) Located in New York, NASDAQ is the world&rsquo;s second-largest exchange, known for its focus on technology. Founded in the 1970s, it lists giants like Apple, Microsoft, and Amazon.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Tokyo Stock Exchange (TSE) Country: Japan Hours: 9:00 AM &ndash; 11:30 AM and 12:30 PM &ndash; 3:00 PM (Tokyo time) The largest exchange in Asia, the TSE lists companies like Nintendo, Softbank, and Honda.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
London Stock Exchange (LSE) Country: United Kingdom Hours: 8:00 AM &ndash; 4:40 PM (London time) The LSE is one of the oldest exchanges globally, with a history spanning over 450 years.
</li>
</ul>
<h3 dir="ltr">&nbsp;</h3>
<h3 dir="ltr">What are brokers?</h3>
Stockbrokers are companies that execute stock investments on behalf of their clients. Exchanges impose rules determining who can directly trade on them, which is why most individual investors use brokers.
&nbsp;
Types of brokers:
<ol>
<li dir="ltr" aria-level="1">
Execution-only brokers: Act solely on your instructions.
</li>
<li dir="ltr" aria-level="1">
Advisory brokers: Provide trade recommendations based on expertise.
</li>
<li dir="ltr" aria-level="1">
Discretionary brokers: Manage trades independently without client input.
</li>
</ol>
&nbsp;
<h3 dir="ltr">IPO (Initial Public Offering)</h3>
When a private company decides to go public, it undergoes an IPO. This is when a company issues its shares to the public for the first time.
&nbsp;
IPOs often generate excitement as they allow retail investors to invest in a company for the first time. Public companies must meet stricter regulations compared to private firms, so preparing for an IPO can take time.
&nbsp;
The IPO Process Includes:
<ol>
<li dir="ltr" aria-level="1">
Preparation: The company ensures compliance with regulations.
</li>
<li dir="ltr" aria-level="1">
Setting Share Prices: Shares are offered at a fixed price.
</li>
<li dir="ltr" aria-level="1">
Trading: Once listed, shares can be bought and sold on the exchange.
</li>
</ol>
&nbsp;
<h3 dir="ltr">Ticker symbols</h3>
Listed stock prices are displayed as tickers. A ticker symbol is a short abbreviation representing a company&rsquo;s stock. For example, Apple&rsquo;s ticker is NASDAQ: AAPL, and Lloyds Banking Group is LSE: LLOY.
&nbsp;
<h3 dir="ltr">Market capitalization</h3>
Market capitalization (market cap) represents the total value of a company&rsquo;s outstanding shares. It is calculated as:
&nbsp;
Market Cap = Total Shares Outstanding &times; Current Stock Price
&nbsp;
<h3 dir="ltr">What affects stock prices?</h3>
Stock prices constantly fluctuate due to demand changes in economies, industries, and companies.
<ul>
<li dir="ltr" aria-level="1">
Company earnings: Public companies regularly report financial results. Quarterly and annual reports provide insights into performance and future prospects.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Company news: Positive or negative headlines, such as product announcements, leadership changes, or scandals, can impact demand. For example, Volkswagen&rsquo;s 2015 emissions scandal caused a sharp drop in its stock price.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
External factors: News related to the economy, industry, partners, or trade conditions affects demand and stock prices. Stocks in the same sector often react similarly to economic news.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Corporate actions: Events like mergers, director trading, rights issues, buybacks, special dividends, or stock splits significantly influence stock prices. 
</li>
</ul>
&nbsp;

How stock markets work

<h1 dir="ltr">Trading metals: Gold and silver</h1>
Trading oil, gold, or silver does not require handling large amounts of physical stock. Let&rsquo;s explore how futures and options exchanges facilitate global commodity trading.
<ol>
<li dir="ltr" aria-level="1">
How is metal trading conducted?
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
What drives the prices of gold and silver?
</li>
</ol>
&nbsp;
<h3 dir="ltr">How is metal trading conducted?</h3>
There are three primary methods for trading metals: via the spot market, through futures and options, or as forex pairs.
<h4 dir="ltr">Spot market</h4>
The spot market is for those seeking immediate delivery of purchased assets. Transactions are settled based on the current price, known as the spot price, and the buyer receives their assets as soon as the trade is finalized.
<h4 dir="ltr">Futures and options</h4>
Most speculators do not aim to physically acquire the commodities they trade, as this would require significant infrastructure. Instead, they use derivatives like futures and options, enabling them to trade gold and silver without physical ownership of the assets.
<ul>
<li dir="ltr" aria-level="1">
Futures: These are contracts where a trader agrees to buy or sell a specified quantity of a commodity at a predetermined price on a future date.
</li>
<li dir="ltr" aria-level="1">
Options: These provide the right (but not the obligation) to buy or sell a commodity at a set price before the contract expires.
</li>
</ul>
Futures and options prices fluctuate based on movements in the spot market. These tools allow traders to profit from rising (long position) or falling (short position) commodity prices without needing physical delivery, as contracts are usually sold before expiration.
&nbsp;
&nbsp;
Forex pairs
Metals can also be traded as forex pairs. For example, the XAU/USD pair represents gold against the US dollar. This works similarly to currency trading:
<ul>
<li dir="ltr" aria-level="1">
Buying creates a long position, where you purchase XAU (gold) by selling USD.
</li>
<li dir="ltr" aria-level="1">
Selling creates a short position, where you purchase USD by selling gold.
</li>
</ul>
Gold and silver pairs are derived from their spot prices, but no physical ownership occurs during trading.
&nbsp;
<h3 dir="ltr">What drives the prices of gold and silver?</h3>
Like other markets, gold and silver prices are influenced by supply and demand, but the factors affecting them differ from most other commodities.
<h4 dir="ltr">Demand for gold and silver</h4>
Silver:
 Silver boasts the highest electrical conductivity of any metal, making it essential for batteries and electronics. Demand for silver is rising, especially in industries focused on green energy. Additionally, silver is popular in dentistry and tableware due to its antibacterial properties.
&nbsp;
Gold:
 Gold is often viewed as a "safe haven" asset, maintaining its value during economic downturns and market turbulence. While silver shares a similar status, it is not considered as reliable as gold.
&nbsp;
<h3 dir="ltr">Real interest rates</h3>
Low real interest rates:
 When real interest rates (nominal rate minus inflation) are low, investments like cash and bonds offer minimal or negative returns. This prompts investors to seek alternative assets like gold to protect their wealth.
&nbsp;
High real interest rates:
 Conversely, high real interest rates make cash and bonds more attractive, reducing demand for gold, which has limited industrial use.
&nbsp;
A simple way to monitor real interest rates in the US is by observing yields from Treasury Inflation-Protected Securities (TIPS), which are safeguarded against inflation.
&nbsp;
<h3 dir="ltr">Increased demand</h3>
During periods of economic uncertainty&mdash;such as the COVID-19 pandemic in 2020&mdash;investors gravitate toward safer assets. The increased demand for gold during this time led to a significant rise in its price, as market speculators sought to mitigate risks.
&nbsp;
<h3 dir="ltr">Gold and the US dollar</h3>
One of the most debated topics among gold traders is the relationship between gold and the US dollar. Since gold is priced in USD, it is often assumed that the two assets are inversely correlated&mdash;meaning when the dollar strengthens, gold prices fall, and vice versa.
&nbsp;
However, this simplified view of the correlation is not always accurate. During periods of financial stress, both assets may rise simultaneously. Such situations occur during times of economic uncertainty when traders perceive both gold and the US dollar as safe havens, driving up demand for both assets.
&nbsp;
<h3 dir="ltr">Supply of gold and silver</h3>
Gold and silver supplies are determined by global companies that mine, refine, and sell these metals.
&nbsp;
Gold:
 The available supply of gold is limited. Current estimates suggest that all mineable gold could be exhausted by 2070. However, this potential scarcity is offset by the fact that gold is rarely consumed. Almost all gold ever mined still exists in usable form. As a result, the total available supply of gold should continue to grow until mining ceases completely.
&nbsp;
Silver:
 Silver is often mined as a byproduct of other metals, such as copper or lead. Therefore, its supply can increase when demand for these base metals is high.
&nbsp;

Trading metals: Gold and silver

<h1 dir="ltr">What are bear and bull markets?</h1>
In short, a bear market refers to a period when prices decline, while a bull market refers to a period when prices rise.
&nbsp;
Bull and Bear Markets in the USA
<ul>
<li dir="ltr" aria-level="1">
What characterizes a bull market?
</li>
<li dir="ltr" aria-level="1">
What characterizes a bear market?
</li>
</ul>
&nbsp;
<h3>What characterizes a bull market?</h3>
&nbsp;
When the market is in a bullish phase, investors demonstrate an increased willingness to invest their money. Confidence in the market is high, leading to greater risk appetite.
&nbsp;
This results in growth across various markets, particularly in stock markets. Growth is also evident in currencies such as the Australian dollar (AUD), Canadian dollar (CAD), New Zealand dollar (NZD), and emerging market currencies. Conversely, during bull markets, the value of so-called safe-haven currencies like the Japanese yen (JPY), Swiss franc (CHF), and, in some cases, the US dollar tends to decline.
&nbsp;
Why is a bull market important to you?
&nbsp;
One of the main advantages of forex trading is the ability to profit in both bull and bear markets. Forex trading always occurs in pairs, meaning that when one currency weakens, the other strengthens. This dynamic allows traders to capitalize on both rising and falling markets.
&nbsp;
Paying attention to bull and bear markets is crucial because these conditions often dictate trends in the forex market. Understanding market trends can help traders make more informed decisions about managing risk and timing their trades.
&nbsp;
In a bull market, traders usually aim to buy during rising prices so they can sell when they believe the market has reached its peak.
&nbsp;
<h3>What characterizes a bear market?</h3>
&nbsp;
Bear markets are characterized by downward trends as investors sell riskier assets such as stocks and less liquid currencies, including those of emerging markets.
&nbsp;
Traders on a bear market often look for opportunities to enter the market during declining prices with the goal of buying when they believe the market has bottomed out.
&nbsp;
Safe-haven currencies like the US dollar (USD) and Japanese yen (JPY) tend to strengthen during a bear market. Demand for these currencies increases as riskier assets are sold off and investors seek safer alternatives.
&nbsp;
Why is a bear market important to you?
&nbsp;
One of the main advantages of forex trading is the opportunity to profit in markets regardless of whether prices are rising or falling. This is because forex trading always takes place in pairs&mdash;when one currency weakens, the other strengthens. This allows traders to benefit from movements in both rising and falling markets.
&nbsp;
Monitoring bull and bear markets is essential because these markets can influence key trends in the forex market. Understanding these trends can help you make more effective decisions about managing risk and better timing your trades.
&nbsp;

What are bear and bull markets?

<h1>Market gaps and slippage</h1>
 Market gaps and slippage are among the most common risks traders encounter regularly.
 In previous chapters, you learned how to mitigate these risks using stop and limit orders. However, these tools can also be leveraged to gain advantages. Read on to discover how to effectively trade around gaps and slippage.
&nbsp;
<h3 dir="ltr">What are market gaps?</h3>
Every trader has a different approach to risk tolerance.
&nbsp;
Gaps represent abrupt price movements during which no trading occurs. These gaps can be either upward or downward. In the forex market, gaps primarily occur over the weekend when the market is closed. However, gaps can also appear in shorter timeframes, such as on a minute chart or immediately following significant news announcements. 
&nbsp;
<img class="centerImage" src="https://direct.y4trade.com/assets/899da433-fb21-403c-87cb-9ca8e9dcb67b.png?width=600&amp;height=400" alt="Gap">
&nbsp;
Examples of situations where gaps may occur:
<ul>
<li dir="ltr" aria-level="1">
When unexpected economic data is released.
</li>
<li dir="ltr" aria-level="1">
Following major announcements, particularly global or unforeseen events.
</li>
<li dir="ltr" aria-level="1">
When the market reopens after a weekend or holiday, especially if significant news was announced during the closure.
</li>
</ul>
&nbsp;
Why are gaps important?
 Gaps can provide insights into market sentiment. For example:
<ul>
<li dir="ltr" aria-level="1">
An upward gap indicates no sellers were willing to trade at that price level.
</li>
<li dir="ltr" aria-level="1">
A downward gap suggests no buyers were willing to trade at that price level.
</li>
</ul>
It&rsquo;s essential to be aware of gaps as they can cause stop orders to be skipped, leading to execution at a worse price than expected.
&nbsp;
Sometimes, gaps result in corrective price action, meaning prices may reverse and "fill" the gap after it occurs.
&nbsp;
How to use gaps to your advantage
 When a gap occurs, it&rsquo;s often wise to stay out of the market. Gaps may indicate strength in the direction of the movement or may "close" as prices reverse to the level where the gap started. If a gap appears just before entering a trade, it might be prudent to reconsider or cancel the trade altogether.
&nbsp;
Gap up trading (EUR/JPY, 1hour) 
&nbsp;
<img src="https://direct.y4trade.com/assets/e8b18d34-72d3-4d49-bd02-1f179aab6bc5.png?width=600&amp;height=400" alt="Filled Gap">
&nbsp;
Gap down trading (EUR/JPY, 1 hour)
&nbsp;
<img src="https://direct.y4trade.com/assets/71235165-6e3b-4fbf-8da5-24594dd4b07c.png?width=600&amp;height=400" alt="Gap Filled">
<h4 dir="ltr">What is slippage?</h4>
Slippage is the difference between the expected price of a trade and the actual price at which it is executed. Market gaps can cause slippage, affecting stop and limit orders and leading to execution at a price different from what was intended.
&nbsp;
Slippage can be either positive or negative, depending on the market's movement. It most commonly occurs during sudden changes in the bid-ask spread. For instance: You attempt to buy EUR/USD at 1.3650. However, following a positive FOMC announcement boosting the US dollar, volatility hits EUR/USD. While your order is being executed, the bid price jumps 10 pips to 1.3660, resulting in your trade being filled at a higher price than anticipated.
&nbsp;
<h4 dir="ltr">How to minimize slippage</h4>
Although it&rsquo;s impossible to avoid spread-related costs entirely in forex trading, you can take steps to reduce the risk of slippage.
&nbsp;
<img src="https://direct.y4trade.com/assets/462bead7-8cd7-42ea-aef3-3b4fceaf3e52.png?width=600&amp;height=400" alt="Slippage">
<ul>
<li dir="ltr" aria-level="1">
Use limit orders: Setting limit orders ensures that trades are executed only at the specified price or better, minimizing the risk of negative slippage while allowing for positive slippage.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Trade during stable times: Avoid trading during major events like FOMC or NFP announcements. This strategy gives you breathing room and helps avoid trading during the market&rsquo;s most volatile moments when slippage is most likely.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Focus on liquid currencies: Trading major and minor currency pairs, which are known for their stability, can help reduce slippage. These pairs are generally less volatile than their exotic counterparts.
</li>
</ul>
&nbsp;

Market gaps and slippage

<h1 dir="ltr">Six steps for effective risk management</h1>
 Creating a risk management plan for trading might initially seem like a daunting task. However, these six tips will help you develop a trading strategy that aligns with your trading style:
<ol>
<li dir="ltr" aria-level="1">
Define your risk tolerance
</li>
<li dir="ltr" aria-level="1">
Adjust the size of each position
</li>
<li dir="ltr" aria-level="1">
Set proper timing
</li>
<li dir="ltr" aria-level="1">
Avoid weekend gaps
</li>
<li dir="ltr" aria-level="1">
Stay updated with the latest news
</li>
<li dir="ltr" aria-level="1">
Trade within your financial limits
</li>
</ol>
&nbsp;
<h3 dir="ltr">1. Define your risk tolerance</h3>
Every trader has an individual level of risk tolerance.
 Trading instructors often recommend risking between 1% and 5% of your total trading account value per trade. However, the exact percentage should depend on your personal comfort level and trading style.
&nbsp;
As you gain more confidence in your trading system, you might feel tempted to increase the risk, but be cautious not to go too high.
&nbsp;
Remember, the goal of trading is to generate returns or preserve enough resources for future trades.
&nbsp;
The table below illustrates how different risk percentages can affect the number of consecutive losses that could potentially deplete your trading account:
&nbsp;
<img src="https://direct.y4trade.com/assets/34c4733f-ce2c-423c-bdd5-a2e679777400.png?width=600&amp;height=400" alt="Risk Tolerance">
&nbsp;
Example:&nbsp;If you trade once per day and risk 10% of your account balance per trade, ten consecutive losses could theoretically wipe out your account. On the other hand, if you risk only 2% per trade, it would take 50 consecutive losses to bring your account to zero.
&nbsp;
<h3 dir="ltr">2. Adjust the size of each position</h3>
Once you know how much you are willing to risk on a single trade, the next step is to determine the size of your positions.
&nbsp;
Finding the right balance is crucial. If you're risking $100 per trade, trading a standard lot size in the EUR/USD pair (100,000 units) might not be a wise choice. For instance, if the pair drops from 1.1300 to 1.1200, you would already hit your risk tolerance for that position.
&nbsp;
One of the easiest ways to ensure you're staying within your desired risk amount is by adjusting the size of your positions.
&nbsp;
For example:
<ul>
<li dir="ltr" aria-level="1">
A standard lot in currency trading equals 100,000 units, translating to $10 per pip in the EUR/USD pair.
</li>
<li dir="ltr" aria-level="1">
Conversely, a mini lot is 10,000 units, offering smaller exposure.
</li>
</ul>
&nbsp;
Example:&nbsp;Standard Lot vs. Mini Lot
&nbsp;
<img src="https://direct.y4trade.com/assets/96558664-08fd-4dcd-8f9d-a7dff9288892.png?width=600&amp;height=400" alt=" Standard Lot Vs. Mini Lot">
&nbsp;
The ability to adjust risk levels according to your preferences and strategies can be a determining factor in achieving trading success.
&nbsp;
<h3 dir="ltr">3. Set the right timing</h3>
If you don&rsquo;t plan to build or purchase an advanced trading algorithm, you will need to actively trade on your own to seize market opportunities. Since many markets operate 24 hours a day, it's essential to decide how much time you can dedicate to trading daily &ndash; and determine the hours that work best for you.
&nbsp;
Proper timing also helps you maintain the right mindset, which is crucial for effective risk management. For example, trading at 3:00 AM may not result in the most thoughtful decisions.
&nbsp;
Using exit orders
 Exit orders, such as stop-loss or take-profit orders, are valuable tools for managing risk when you cannot fully focus on the markets.
&nbsp;
Setting alerts
 Some traders use alerts to notify them when their positions approach predefined maximum loss levels or profit targets. These tools allow you to maintain control over your trades even when you&rsquo;re not actively monitoring the markets.
&nbsp;
<h3 dir="ltr">4. Avoid Weekend Gaps</h3>
The most popular markets in the US close trading on Friday afternoon at 5:00 PM ET. Traders take a break for the weekend, and charts worldwide seem "frozen," as if prices remain unchanged until the next trading session begins. However, this static image doesn&rsquo;t reflect the actual market activity during the weekend. Prices continue to shift and may undergo significant movements by the time trading resumes.
&nbsp;
As noted in the lesson on exit orders, weekend gaps can push prices beyond your stop-loss threshold. To mitigate this risk, it&rsquo;s essential to include measures for handling weekend gaps in your risk management plan. One simple strategy is closing your positions on Friday afternoon to avoid unforeseen losses.
&nbsp;
Although market gaps don&rsquo;t occur every day, they can happen and often bring unexpected surprises. As shown in the example below, gaps can be substantial and may even bypass your stop-loss entirely if it&rsquo;s set within the gap range. To reduce these risks, consider closing trades before the weekend or leveraging gap movements through a gap trading strategy.
&nbsp;
<img src="https://direct.y4trade.com/assets/82a57498-7b33-418a-b829-24487f56c7d7.png?width=600&amp;height=400" alt=" Avoid Weekend Gaps">
<h3 dir="ltr">&nbsp;</h3>
<h3 dir="ltr">5. Stay updated on news</h3>
News events can have a significant impact on forex markets. Certain announcements&mdash;such as employment data, inflation reports, or central bank decisions&mdash;can trigger exceptionally sharp market movements. These events may even create sudden price gaps, even while the market is open and active.
&nbsp;
Similar to weekend gaps, these sudden shifts can bypass your stop-loss orders or profit targets, often within seconds of major news releases. Unless your strategy specifically involves taking on the risks associated with trading during news events, engaging in trades during such volatile periods demands careful risk management.
<h3 dir="ltr">&nbsp;</h3>
<h3 dir="ltr">6. Trade Within Your Financial Means</h3>
A well-known rule in trading is: never invest more than you can afford to lose. This principle is widely emphasized because it is rooted in sound logic.
&nbsp;
Trading is inherently risky and unpredictable. Putting your life savings at the mercy of ever-changing market dynamics is rarely a wise decision. Therefore, it is essential to invest your funds thoughtfully, with care and consistency, to safeguard your hard-earned capital.
&nbsp;

Six steps for effective risk management

<h1 dir="ltr">Using orders for risk management</h1>
Types of orders play a fundamental role in your arsenal for managing trading risks and should form the foundation of your trading approach. However, it&rsquo;s essential to understand that orders alone cannot guarantee loss limitation&mdash;they need to be part of a broader trading strategy.
&nbsp;
The primary benefit of setting different orders on your open positions is their ability to keep you aligned with your trading strategy. When markets heat up, decision-making can become challenging. It&rsquo;s often tempting to let losses run or close winning trades prematurely.
&nbsp;
A well-structured risk management plan should clearly define when to exit each position&mdash;whether profitable or not. Different order types ensure trades are closed at your predetermined levels, taking the emotional burden of decision-making off your shoulders.
&nbsp;
Let&rsquo;s dive into the most commonly used order types for managing risk:
<ul>
<li dir="ltr" aria-level="1">
Limit Orders
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Stop Orders
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Trailing Stop Orders
</li>
</ul>
&nbsp;
<h3 dir="ltr">Limit orders</h3>
Limit orders, also known as take-profit orders, are primarily designed to secure your profits. Being in a profitable position is an exhilarating experience. However, emotions - positive or negative - can be a double - edged sword in trading.
&nbsp;
Traders with winning positions often face two significant challenges:
<ol>
<li dir="ltr" aria-level="1">
Reluctance to exit at the right level: Exiting a winning trade can be difficult. Why end something that feels so rewarding?
</li>
<li dir="ltr" aria-level="1">
Closing too soon: Conversely, some traders rush to realize their profits prematurely, fearing that they might lose them if the trade isn&rsquo;t closed.
</li>
</ol>
Example of Take-Profit Orders: Take-profit orders can help traders maintain discipline by automatically closing trades at pre-set profit targets, encouraging them to stick to their strategy.
&nbsp;
<img src="https://direct.y4trade.com/assets/4d2c2747-1d43-4387-af51-c00119eac881.png?width=600&amp;height=400" alt="Sell&nbsp;Limit">
&nbsp;
<img src="https://direct.y4trade.com/assets/b44f33fc-acad-4071-9f6c-9c3e89da2b2e.png?width=600&amp;height=400" alt="Buy limit to enter">
&nbsp;
While a touch of greed and fear can be healthy motivators in trading, when these emotions drive irrational decisions, they can lead to losses. Take-profit orders act as safeguards against such impulses.
<h3 dir="ltr">&nbsp;</h3>
<h3 dir="ltr">Stop orders</h3>
Stop orders, commonly referred to as stop-loss orders, are perhaps the most widely used tools for limiting losses and managing downside risk.
&nbsp;
Under pressure, our minds can play tricks&mdash;especially when money is at stake. Stop-loss orders help enforce discipline, particularly when a trade is in the red. Entering a trade without a stop-loss order exposes you to the psychological trap of "just one more chance," where you hold on, hoping for a market reversal, instead of acknowledging a misstep.
&nbsp;
Stop-loss orders also protect against sudden market reversals, especially when you&rsquo;re unable to manually close your position.
&nbsp;
Beware of slippage: Stop-loss orders are executed at the market price, which may differ slightly from your intended level due to slippage. Despite this, they remain an invaluable tool for maintaining risk control and minimizing losses.
&nbsp;
<h3 dir="ltr">Trailing stops</h3>
Trailing stops offer a unique advantage in your risk management strategy by limiting downside risks while protecting upside gains.
&nbsp;
Sometimes, traders aim to maximize profits by keeping trades open longer but still want to limit potential losses. Trailing stops can be ideal in such scenarios, dynamically protecting gains as markets move in your favor and capping losses if they reverse.
&nbsp;
Unlike standard stop or limit orders, trailing stops let you specify a distance (in pips) from the current market price rather than a fixed level. This distance adjusts automatically as the market moves in your favor. If the market moves against you, the order triggers at the nearest available price based on market liquidity.
&nbsp;
How to use trailing stops:
<ul>
<li dir="ltr" aria-level="1">
Set a trailing stop when opening a position, much like a standard stop-loss.
</li>
<li dir="ltr" aria-level="1">
Define your maximum acceptable loss, ensuring the trailing stop will close the position if the market moves unfavorably.
</li>
</ul>
&nbsp;
Potential drawbacks of trailing stops:
 Trailing stops aren&rsquo;t always ideal, particularly in volatile markets. Price fluctuations might trigger the stop prematurely, preventing the trade from reaching its profit target.
&nbsp;
Example:
 Imagine buying EUR/USD and setting a trailing stop 15 pips away:
<ul>
<li dir="ltr" aria-level="1">
If the price rises and then drops by 15 pips, the trailing stop closes your position.
</li>
<li dir="ltr" aria-level="1">
With a standard stop-loss, the trade would remain open, potentially reaching your profit target.
</li>
</ul>
&nbsp;
<h3 dir="ltr">Key takeaways</h3>
When crafting a risk management plan, carefully consider which tools to use in various scenarios. Proper application of stop-loss, take-profit, and trailing stop orders can significantly impact your overall trading success.
&nbsp;

Using orders for risk management

<h1 dir="ltr">Long-term trading strategies</h1>
If you're looking to generate returns from a few highly profitable trades, you likely fall into the category of medium- or long-term traders. There are many strategies for this approach, but in this article, we&rsquo;ll focus on two of the most common ones: position trading and swing trading.
<ol>
<li dir="ltr" aria-level="1">
What is position trading?
</li>
<li dir="ltr" aria-level="1">
How do position traders identify opportunities?
</li>
<li dir="ltr" aria-level="1">
What is swing trading?
</li>
<li dir="ltr" aria-level="1">
How do swing traders find opportunities?
</li>
</ol>
&nbsp;
<h3 dir="ltr">What is position trading?</h3>
Position trading is a strategy focused on opening a limited number of trades aimed at achieving consistent profits over an extended period. This strategy serves as the foundation of traditional investing, but it is also popular among leveraged traders.
<ul>
<li dir="ltr" aria-level="1">
Type: Position trading
</li>
<li dir="ltr" aria-level="1">
Timeframe: Medium to long-term
</li>
<li dir="ltr" aria-level="1">
Method for finding trades: Primarily fundamental analysis
</li>
<li dir="ltr" aria-level="1">
Required skills: Patience, emotional discipline
</li>
</ul>
A typical trade in this strategy might involve buying shares of a company expected to grow over the coming months or years. Profits may not materialize immediately, with a target return of 10% or higher. This approach can involve greater risk per trade as it targets broader profit margins.
&nbsp;
Leveraged traders can also short markets as part of a position strategy. This requires identifying assets expected to decline in value over the long term.
&nbsp;
For those using leverage, quarterly forward trades can help avoid overnight financing costs. However, traders must ensure they maintain sufficient margin in their accounts to cover adverse market movements. Since positions are held for extended periods, temporary price declines are to be expected.
&nbsp;
<h3 dir="ltr">How do position traders identify opportunities?</h3>
Position traders look for markets with long-term growth potential. They typically rely on fundamental analysis, examining data and facts surrounding specific assets to identify undervalued opportunities.
&nbsp;
Even successful trades may require time to achieve the desired return, with potential price volatility along the way. Therefore, position traders need to remain calm and patient.
&nbsp;
<h3 dir="ltr">Comparison: Position trading vs. Trend trading</h3>
Trend trading is a popular alternative to position trading. Instead of searching for undervalued assets, trend traders aim to identify emerging market trends and "ride" these trends for as long as they last.
<ul>
<li dir="ltr" aria-level="1">
Analysis: Trend trading relies on technical analysis to detect higher highs or lower lows, signaling a new trend.
</li>
<li dir="ltr" aria-level="1">
Styles: This strategy can target both short-term and long-term trends, offering flexibility for different trading timeframes.
</li>
</ul>
Both strategies have their merits and can cater to different types of traders, depending on their preferences and goals.
&nbsp;
<h3 dir="ltr">What is swing trading?</h3>
Swing trading is a strategy aimed at capitalizing on price fluctuations within broader market movements. Swing traders execute trades more frequently than position traders, holding positions for only a few days to weeks.
<ul>
<li dir="ltr" aria-level="1">
Type: Swing trading
</li>
<li dir="ltr" aria-level="1">
Timeframe: Medium-Term
</li>
<li dir="ltr" aria-level="1">
Method for finding trades: Primarily Technical Analysis
</li>
<li dir="ltr" aria-level="1">
Required skills: Proficiency in Technical Indicators
</li>
</ul>
Swing traders aim to profit from smaller segments of larger market trends. Even during strong bullish or bearish trends, most assets experience significant price action against the prevailing trend. Swing trading leverages these fluctuations to generate returns.
<h3 dir="ltr">&nbsp;</h3>
<h3 dir="ltr">Example of swing trading:</h3>
Imagine that the FTSE 100 oscillates between 6000 and 6400 points over several months. This movement would rarely appear as a straight line on a chart. Instead, there would be days or weeks of downward action due to competition between buyers and sellers.
&nbsp;
Swing traders seek to capitalize on these smaller movements, opening positions at the start of a "swing" or minor trend and keeping them open until the trend reverses.
&nbsp;
<h3 dir="ltr">How do swing traders find opportunities?</h3>
Like trend trading, swing trading often involves using technical indicators to decide when to enter and exit positions. A common technique is identifying support and resistance areas where prices typically reverse direction.
&nbsp;
&nbsp;
&nbsp;

Long-term trading strategies

<h1 dir="ltr">Day Trading</h1>
Day trading is a popular method of speculating in financial markets. This article explains what day trading involves, which markets are best suited for it, and introduces two effective strategies.
<ul>
<li dir="ltr" aria-level="1">
What is day trading?
</li>
<li dir="ltr" aria-level="1">
Which markets can you day trade?
</li>
<li dir="ltr" aria-level="1">
How to find suitable day trades?
</li>
<li dir="ltr" aria-level="1">
Day trading strategies
</li>
<li dir="ltr" aria-level="1">
How to start day trading in forex
</li>
<li dir="ltr" aria-level="1">
Conclusion
</li>
</ul>
<h3 dir="ltr">What is day trading?</h3>
Day trading is a trading strategy in which traders open and close positions within a single trading day. The number of trades depends on individual preferences &ndash; some traders make one or fewer trades per session, while others seize multiple opportunities and trade more frequently.
&nbsp;
Since trades are open for only a short period, day traders aim to profit from small price fluctuations in highly liquid markets.
<ul>
<li dir="ltr" aria-level="1">
Type: Day trading
</li>
<li dir="ltr" aria-level="1">
Timeframe: Short-term
</li>
<li dir="ltr" aria-level="1">
Trade Identification: Technical analysis
</li>
<li dir="ltr" aria-level="1">
Required Skills: Time availability, strong nerves
</li>
</ul>
Benefits of day trading
 One of the main benefits of day trading is eliminating risks and costs associated with holding positions overnight. Day traders avoid sharp price movements outside trading hours and don't have to pay overnight financing fees.
&nbsp;
Time commitment
 Day trading requires a significant time investment to monitor markets. Although some traders use mobile apps and automated orders like stop loss and take profit to save time, market analysis and quick decision-making remain key.
&nbsp;
Skills required
 Day trading is dynamic and requires expertise, quick reactions, and the ability to handle stress effectively. It&rsquo;s not suitable for everyone. Successful day traders must respond swiftly to market movements while controlling emotions, even under pressure. This approach aims for small but repeated gains, which can add up to significant profits.
&nbsp;

Day Trading

<h1 dir="ltr">Risk management</h1>
Risk is an integral part of daily trading &ndash; without the willingness to allocate risk capital, no returns can be expected. Modern traders have access to numerous tools that allow them to effectively manage risk and maintain control over their positions.
<ol>
<li dir="ltr" aria-level="1">
What does trading risk involve?
</li>
<li dir="ltr" aria-level="1">
How to develop a risk management plan?
</li>
<li dir="ltr" aria-level="1">
Five key principles to remember
</li>
</ol>
&nbsp;
<h3 dir="ltr">What does trading risk involve?</h3>
Trading risk refers to the possibility that your returns may fall below expectations or that you may incur a loss of the capital invested in a position. This could include a slight reduction in profits, a total loss of the investment, or being forced to close a position under unfavorable conditions.
&nbsp;
Since no trader can accurately predict all market movements, having a well-crafted risk management plan is crucial, especially when trading with leverage, which amplifies both gains and losses.
&nbsp;
<h4 dir="ltr">Three main types of trading risks:</h4>
&nbsp;
Market Risk
<ul>
<li style="list-style-type: none;">
<ul>
<li dir="ltr" aria-level="2">
Market risk is the most common type of risk, arising from adverse price movements in assets. This is the primary risk traders aim to mitigate.
</li>
<li dir="ltr" aria-level="2">
Control measures: Understand the factors that affect market prices. For example:
<ul>
<li dir="ltr" aria-level="3">
Stocks: Interest rates, forex rates, and other macroeconomic factors.
</li>
<li dir="ltr" aria-level="3">
Forex: Political stability and economic data.
</li>
</ul>
</li>
<li dir="ltr" aria-level="2">
Tools like stop-loss and take-profit orders are essential, even for experienced traders who know their market well.
</li>
</ul>
</li>
</ul>
&nbsp;
Liquidity Risk
<ul>
<li style="list-style-type: none;">
<ul>
<li dir="ltr" aria-level="2">
Liquidity risk occurs when you cannot quickly close a position, potentially leading to reduced profits or losses.
</li>
<li dir="ltr" aria-level="2">
Example: You own shares in a lesser-known company, XYZ &amp; Co., and want to sell them, but there are no buyers. To offload the shares, you may have to sell them at a lower price.
</li>
<li dir="ltr" aria-level="2">
Solution: When trading CFDs or forex with market makers like FOREX.com, liquidity is usually managed effectively as you don&rsquo;t physically own the assets, but rather trade based on their value.
</li>
</ul>
</li>
</ul>
&nbsp;
Systemic Risk
<ul>
<li dir="ltr" aria-level="2">
Systemic risk refers to broader financial system issues that can affect the entire market.
</li>
<li dir="ltr" aria-level="2">
Example: A global market crash causing widespread declines in stocks, indices, and other assets.
</li>
<li dir="ltr" aria-level="2">
Mitigation: Diversify trades across different assets and regions to reduce the impact of market-wide crashes. However, thorough research into each market is necessary before trading.
</li>
</ul>
&nbsp;
&nbsp;
<h3 dir="ltr">How to develop a risk management plan</h3>
Effective risk management relies on a well-developed plan that considers all aspects of trading, from identifying opportunities to determining position size and exit strategies. Below are the key steps your plan should include:
<h4 dir="ltr">1. Exit strategy</h4>
<ul>
<li dir="ltr" aria-level="1">
Determine your "pain point," or the maximum loss you are willing and able to accept from a specific trade, before entering the market. Letting losses exceed this threshold can lead to serious problems.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Defining maximum loss: For each trade, set a specific amount or percentage you are prepared to lose. This discipline helps eliminate emotional decision-making.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Avoid common mistakes: A frequent mistake traders make is holding on to losing trades in the hope that the market will turn in their favor, often leading to greater losses.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Using stop-loss orders: Consider setting stop-loss orders on all trades. These automated tools protect you from exceeding your limits and help minimize risk.
</li>
</ul>
&nbsp;
A good risk management plan is built on discipline and clearly defined boundaries. Establishing an exit strategy before entering the market and consistently adhering to your rules can help protect your capital and increase the likelihood of long-term success.
<h4 dir="ltr">2. Position sizing</h4>
Position sizing is a key practice among professional traders, involving the pre-determination of how much capital to allocate to each trading opportunity. This technique enables effective risk control and reduces potential losses.
<ul>
<li dir="ltr" aria-level="1">
Determining position size: Before initiating your first live trade, calculate the optimal position size based on your account balance. For instance, a $10,000 account will use smaller positions than a $1,000,000 account.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Risk control: Regardless of your capital size, adjust position sizes to avoid significant losses. This approach promotes the long-term sustainability of your trades.
</li>
</ul>
&nbsp;
<h4 dir="ltr">3. Evaluating opportunities</h4>
Carefully evaluate trading opportunities before entering a new position.
<ul>
<li dir="ltr" aria-level="1">
Creating a trading plan: A detailed trading plan is essential for success. It should include identifying opportunities, entry and exit strategies, and risk limits.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Avoid emotional decisions: Do not open trades impulsively or under the influence of emotions like excitement, greed, or fear. Trading based on random impulses often leads to unnecessary losses.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Rational trade entries: Rapid market movements are not always a valid reason to trade. Ensure your decisions are based on thorough analysis rather than a fear of "missing out."
</li>
</ul>
&nbsp;
<h3 dir="ltr">Five key principles to remember</h3>
Trade in line with the trend
&nbsp;
Follow the current market direction and take advantage of its momentum. Choosing the path of least resistance often yields better results.
&nbsp;
Have a clear entry and exit strategy
&nbsp;
Define specific rules for opening and closing trades to eliminate uncertainty and confusion.
&nbsp;
Control risk and act decisively
&nbsp;
Maintain discipline in protecting your capital. Your priority is to stay in the market long enough to seize future opportunities.
&nbsp;
Trade rationally, not emotionally
&nbsp;
Avoid impulsive decisions driven by emotions like fear, greed, or overexcitement. Make logical, analysis-based decisions.
&nbsp;
Avoid trading during scheduled news events
&nbsp;
News events can cause unpredictable volatility. Ensure that unanticipated price swings do not jeopardize your strategy before entering the market.
&nbsp;

Risk management

<h1 dir="ltr">Trading strategies</h1>
Your approach to financial markets fundamentally affects the way you trade. It determines your choice of strategies, methods for managing risk, and other key factors.
 In this course, we will explore how to select trading strategies and risk management approaches that best suit your trading style. However, before diving into the details, it is essential to clearly define your trading strategy.
<h3 dir="ltr">Which Trading Strategy Should You Choose?</h3>
<ul>
<li dir="ltr" aria-level="1">
Types of Trades
</li>
<li dir="ltr" aria-level="1">
Key Differences at a Glance
</li>
</ul>
<h3 dir="ltr">Which Trading Strategy Should You Choose?</h3>
Every trader has their own unique style, which depends on their goals and the time they are willing to dedicate to trading. A critical factor in selecting a strategy is how frequently you want to trade and how long you plan to keep your positions open.
&nbsp;
Long-term traders open only a few positions per quarter, hold them for several months, and aim for profits of 10% or more.
&nbsp;
Day traders, on the other hand, open multiple positions daily, hold them for a few minutes to hours, and seek to profit from smaller market movements using leverage.
&nbsp;
Short-term and medium-term traders fall somewhere between these two approaches. They often use a combination of different strategies that align with their trading objectives.
 Comparison of trading strategies: 
&nbsp;
<img src="https://direct.y4trade.com/assets/92516e0b-b273-45c8-9f04-61fde5733139.png?width=600&amp;height=400" alt="Comparison of Trading Strategies ">
&nbsp;
Types of trades
Your trading style also influences the types of trades you will use. Traditional investing often involves long-term asset holding with the goal of generating profits. For leveraged products like CFDs, various types of trades are available to match different strategies.
<h3 dir="ltr">Daily CFDs:</h3>
<ul>
<li dir="ltr" aria-level="1">
Short-term trades: Positions can be held for a few days or weeks.
</li>
<li dir="ltr" aria-level="1">
Lower spreads: Tighter spreads compared to forwards.
</li>
<li dir="ltr" aria-level="1">
Overnight financing: A fee is charged if positions remain open after the market closes.
</li>
<li dir="ltr" aria-level="1">
No expiration: Daily CFDs do not have a set expiration date.
</li>
</ul>
<h3 dir="ltr">Forwards:</h3>
<ul>
<li dir="ltr" aria-level="1">
Longer-term trades: Suitable for holding positions for several weeks to months.
</li>
<li dir="ltr" aria-level="1">
Wider spreads: Financing costs are already included in the spread.
</li>
<li dir="ltr" aria-level="1">
No overnight fees: No additional costs are incurred for overnight financing.
</li>
</ul>
&nbsp;
&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <img src="https://direct.y4trade.com/assets/7a330de5-b5f6-451a-9958-e1bf481828ee.png?width=580&amp;height=400" alt="Differences at a Glance">
&nbsp;

Trading strategies

<h1>How to trade CFDs</h1>
<ol>
<li dir="ltr" aria-level="1">
CFD Trading Process
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Steps to Trade CFDs
<ul>
<li dir="ltr" style="font-weight: bold;" aria-level="2">
Understand what CFD trading is
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="2">
Set up a trading account
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="2">
Choose a CFD market
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="2">
Decide to buy (long) or sell (short)
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="2">
Determine the number of CFDs to trade
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="2">
Add stop and limit orders
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="2">
Monitor your CFD trade
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="2">
Close the trade position
</li>
</ul>
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Frequently Asked Questions
</li>
</ol>
&nbsp;
<h3 dir="ltr">CFD trading process</h3>
Before starting CFD trading, it&rsquo;s essential to understand how these contracts function. Once you grasp the basics, decide whether to open a long position (speculating on a price increase) or a short position (speculating on a price decrease), and determine the number of contracts you wish to trade. Your profits or losses will only materialize once you close the position.
&nbsp;
CFDs are highly versatile instruments, offering opportunities to profit in rising or falling markets, utilize leverage, and trade various assets round the clock. To make the most of CFD trading, it&rsquo;s crucial to start on the right foot.
&nbsp;
Follow these seven steps to open your first CFD position today!
&nbsp;
<h3 dir="ltr">Steps to trade CFDs</h3>
&nbsp;
Understand what CFDs are
<ul>
<li dir="ltr" role="presentation">
<ol>
<li dir="ltr" aria-level="1">
Understand What CFDs Are CFDs, or contracts for difference, allow you to trade financial derivatives where you speculate on the price movement of an asset&mdash;such as a stock, index, or commodity&mdash;without owning the asset itself. 
</li>
<ul>
<li dir="ltr" aria-level="2">
For example, if you wish to invest in the DAX, buying a DAX CFD means you profit if the price rises by 100 points (earning &euro;100). Conversely, if the price falls by 100 points, you lose &euro;100.
</li>
<li dir="ltr" aria-level="2">
CFDs let you speculate on both rising (long positions) and falling (short positions) prices.
</li>
</ul>
<li dir="ltr" aria-level="1">
Set Up a Trading Account To trade CFDs, you&rsquo;ll need a trading account that gives you access to markets and tools to manage your positions. 
</li>
<ul>
<li dir="ltr" aria-level="2">
Demo Account: A demo account allows you to practice with virtual funds (e.g., $50,000) and explore the markets without risk. Real price movements provide a safe training environment.
</li>
<li dir="ltr" aria-level="2">
Live Account: When ready to trade with real money, you can open a live account. The setup process typically takes a few minutes. Once you fund your account, you can start trading immediately.
</li>
</ul>
<li dir="ltr" aria-level="1">
Choose a CFD Market One of the key advantages of CFDs is the vast selection of markets available. 
</li>
<ul>
<li dir="ltr" aria-level="2">
Variety: Platforms like y4trade offer contracts on hundreds of markets, including stocks, indices, and commodities&mdash;all accessible from a single platform.
</li>
<li dir="ltr" aria-level="2">
Research Tools: Utilize advanced tools such as news reports, analysis, technical indicators, and alerts to find suitable trading opportunities.
</li>
<li dir="ltr" aria-level="2">
Market Access: Search for your chosen market directly on the platform or app to view current prices, charts, and additional information before opening your position.
</li>
</ul>
<li dir="ltr" aria-level="1">
Decide to Buy (Long) or Sell (Short) CFD trading allows you to profit from both rising and falling markets. 
</li>
<ul>
<li dir="ltr" aria-level="2">
Two Prices: Each CFD market has a bid price (sell) and an ask price (buy). The difference between them, called the spread, reflects market conditions.
</li>
<li dir="ltr" aria-level="2">
When to Buy: If you expect the market value to increase, choose a long position by buying at the ask price.
</li>
<li dir="ltr" aria-level="2">
When to Sell: If you anticipate the market will decrease, opt for a short position by selling at the bid price.
</li>
<ul>
<li dir="ltr" aria-level="3">
A short position means you profit from a price drop but incur a loss if the price rises.
</li>
</ul>
</ul>
<li dir="ltr" aria-level="1">
Determine the Number of CFDs to Trade After selecting your market and deciding on long or short, determine the size of your position. The trade volume depends on the number of contracts you want to buy or sell. 
</li>
<ul>
<li dir="ltr" aria-level="2">
Contract Size: Each CFD represents a specific quantity of the underlying asset. For instance, one CFD on a stock typically equals one share.
</li>
<li dir="ltr" aria-level="2">
Currency: Trades are conducted in the base currency of the market. For example, profits or losses on U.S. stocks are calculated in USD.
</li>
<li dir="ltr" aria-level="2">
Margin Requirements: CFDs use leverage, meaning you only need a fraction of the total trade value (known as margin) to open a position. The margin depends on your trade's value, calculated using the y4trade margin calculator.
</li>
</ul>
<li dir="ltr" aria-level="1">
Add Stop and Limit Orders Effective risk management is essential when trading CFDs. 
</li>
<ul>
<li dir="ltr" aria-level="2">
Stop-Loss Order: Automatically closes your position at a specified level to limit losses. A stop-loss is typically set below the current market price for long positions or above it for short positions.
</li>
<li dir="ltr" aria-level="2">
Limit Order: Closes your position at a more favorable price to secure profits.
</li>
<li dir="ltr" aria-level="2">
Stop-loss and limit orders can be placed when opening your trade or added later through the y4trade platform.
</li>
</ul>
<li dir="ltr" aria-level="1">
After setting up your risk management strategy, click "Place Trade" to activate your position. 
</li>
<li dir="ltr" aria-level="1">
Monitor and Close the Trade Once your trade is active, your profit or loss will adjust in real-time based on market movements. 
</li>
<ul>
<li dir="ltr" aria-level="2">
Monitoring: Track price fluctuations, check real-time profit/loss updates, and manage your position through the platform or mobile app.
</li>
<li dir="ltr" aria-level="2">
Managing Orders: Add or adjust stop-loss and limit orders as needed to reflect changing market conditions.
</li>
</ul>
<li dir="ltr" aria-level="1">
Close the Trade Position To close a CFD trade, execute the opposite action of your original trade: 
</li>
<ul>
<li dir="ltr" aria-level="2">
Example: If you bought 500 CFDs to open, you would sell 500 CFDs to close. 
</li>
<li dir="ltr" aria-level="2">
Simply click "Close Position" in the y4trade platform. 
</li>
<li dir="ltr" aria-level="2">
Calculating Profit or Loss: 
</li>
<ul>
<li dir="ltr" aria-level="3">
Subtract the opening price from the closing price (or vice versa for short positions).
</li>
<li dir="ltr" aria-level="3">
Multiply the result by the size of your position.
</li>
<li dir="ltr" aria-level="3">
Factor in all associated costs.
</li>
</ul>
</ul>
</ol>
10. Once closed, your net profit or loss will be reflected in your account balance. </li>
</ul>
&nbsp;
Subtract the opening price from the closing price (or vice versa for short positions).
Multiply the result by the size of your position.
Factor in all associated costs.
Example: If you bought 500 CFDs to open, you would sell 500 CFDs to close. 
Simply click "Close Position" in the y4trade platform. 
Calculating profit or loss: 
Once closed, your net profit or loss will be reflected in your account balance. &nbsp;
<h3 dir="ltr">Frequently asked questions</h3>
What is the best platform for trading CFDs?
 The best platform depends on individual preferences. It&rsquo;s advisable to try several options to determine the one that suits you best.
With y4trade, you can access:
<ul>
<li dir="ltr" aria-level="1">
A web trading platform.
</li>
<li dir="ltr" aria-level="1">
Mobile apps for Android and iPhone.
</li>
<li dir="ltr" aria-level="1">
MetaTrader 4 or 5.
</li>
</ul>
&nbsp;
What&rsquo;s the difference between CFDs and investing?
 Both CFDs and traditional investing grant market access, but they differ in operation:
<ul>
<li dir="ltr" aria-level="1">
Investing: You purchase and hold assets, aiming to sell them for a profit.
</li>
<li dir="ltr" aria-level="1">
CFDs: You never own the asset but speculate on its price movements.
</li>
</ul>
&nbsp;
Advantages of CFDs over investing:
<ul>
<li dir="ltr" aria-level="1">
Trade on margin.
</li>
<li dir="ltr" aria-level="1">
Profit from falling markets (short positions).
</li>
<li dir="ltr" aria-level="1">
Greater flexibility in trading.
</li>
</ul>
&nbsp;

How to trade CFDs

<h1>Explanation of buying and selling</h1>
The process of buying and selling is fundamental to trading. It determines the value of an asset and the profit or loss you can achieve.
&nbsp;
As explained in the course Introduction to Financial Markets, the ratio between buyers (bulls) and sellers (bears) at any given time influences the price of the market.
&nbsp;
When most participants are trying to sell, supply exceeds demand, and the price of the asset decreases. Conversely, if there are more buyers, demand surpasses supply, and the price rises.
&nbsp;
 Buying and selling, however, is not just about determining prices &ndash; it is a critical part of day-to-day trading.
<h3 dir="ltr">Trading with Buying and Selling</h3>
<ul>
<li dir="ltr" aria-level="1">Supply and demand: How it works</li>
<li dir="ltr" aria-level="1">What is a spread?</li>
</ul>
<h3 dir="ltr">&nbsp;</h3>
The core idea of trading is to generate profit based on the difference between the price at which you open a position and the price at which you close it.
&nbsp;
Imagine you decide to invest in the USD/CAD currency pair, which currently stands at 1.2779.
&nbsp;
If USD/CAD rises to 1.2979, it means the US dollar has strengthened against the Canadian dollar. Your profit or loss will depend on the extent of the price movement&mdash;in this case, 200 points. If you buy 10,000 units of USD/CAD, you would gain $200.
&nbsp;
Conversely, if USD/CAD falls by the same 200 points, you would lose $200.
&nbsp;
<img src="https://direct.y4trade.com/assets/6829e49e-3c51-4707-8f19-024f80e8a3a3.png?width=600&amp;height=400" alt="Conversely, if Usdcad Falls by the Same 200 Points, You Wold Lose $200.">
<h3 dir="ltr">Supply and demand: How it works</h3>
When observing financial markets, you will always notice two prices displayed. The price on the left represents the bid (supply), while the price on the right indicates the ask (demand), sometimes referred to as the offer.
<ul>
<li dir="ltr" aria-level="1">
Selling: If you are selling, your transaction is based on the bid price.
</li>
<li dir="ltr" aria-level="1">
Buying: If you are buying, the trade is executed at the ask price.
</li>
</ul>
The bid price is always slightly lower than the current market value, while the ask price is marginally higher. This difference is referred to as the spread.
&nbsp;
<img src="https://direct.y4trade.com/assets/4f209107-4003-4b0e-8d0a-1148b89b3b33.png?width=600&amp;height=400" alt="Spread">
<h3 dir="ltr">What is a spread?</h3>
A spread represents the difference between the bid and ask prices and plays a crucial role in determining potential profit or loss in a trade.
&nbsp;
Let&rsquo;s consider an example: If EUR/USD is at&nbsp;1.1259, the bid price might be 1.1257, and the ask price 1.1260. If you choose to buy EUR/USD, you would open your position at the ask price of 1.1260.
&nbsp;
To make a profit, the bid price for EUR/USD must exceed&nbsp;1.1261. If the market moves up by 2 pips to 1.1261, but the bid price remains at 1.1259, you would still close the trade without any profit or with a slight loss.
&nbsp;

Explanation of buying and selling

<h1 dir="ltr">Introduction to short selling</h1>
In the past, investors could only profit from markets where prices were rising, but today, you can profit from price declines as well.
<ol>
<li dir="ltr" aria-level="1">
What is short selling?
</li>
<li dir="ltr" aria-level="1">
Short selling of stocks
</li>
<li dir="ltr" aria-level="1">
Short selling with derivatives
</li>
<li dir="ltr" aria-level="1">
Hedging with short positions
</li>
<li dir="ltr" aria-level="1">
Risks of short selling
</li>
</ol>
<h3 dir="ltr">What is short selling?</h3>
 Short selling is a trading strategy that allows you to profit when the price of an asset declines. Typically, trading is associated with "buying low and selling high." While this is an effective way to make a profit, it is not the only option. "Selling high and buying low" is equally effective.
&nbsp;
To open a short position, you trade at the bid price instead of the ask price. When you decide to close the position, you buy back at the ask price, which is the exact opposite of how traditional trading works.
&nbsp;
Short selling is not limited to currency pairs, as we showed in the "Forex Trading" lesson. You can also short stocks and many other markets. Let's see how short selling works with stocks.
<h3 dir="ltr">Short selling stocks</h3>
&nbsp;
When short selling stocks with a broker, you sell the stocks to open your position. Since you don't physically own these shares, your broker lends them to you and sells them on your behalf. The proceeds from the sale are then credited to your trading account.
&nbsp;
When you decide to close your trade, the broker uses the cash in your account to purchase shares at the current price. If the shares are cheaper than when you sold them, the difference between the selling and buying price is your profit.
&nbsp;
Example of Short Selling ABC Corp. Stocks:
 Imagine ABC Corp. shares are trading at $100 per share. You expect the price to decline, so you decide to short 100 shares. Your broker lends you the shares and sells them at the current price of $100 per share, giving you $10,000. A few days later, the price of ABC Corp. shares drops to $90 per share. You decide to close your position and buy back 100 shares at $90 per share, costing you $9,000. The difference between the price you sold the shares at ($10,000) and the price you bought them back at ($9,000) is your profit of $1,000.
&nbsp;
However, it is important to note that short selling is a risky strategy. If the price of the shares increases instead of decreasing, you could incur a loss. For example, if the price of ABC Corp. shares rises to $110 per share, you would have to buy them back at this higher price, resulting in a loss of $1,000.
&nbsp;
Thus, when short selling, it is crucial to thoroughly analyze the market and set clear rules for risk management.
&nbsp;
<h3>Short selling with derivatives</h3>
 Sometimes, it can be difficult to find a broker that allows individual traders to short sell stocks. However, with derivatives like CFDs (Contract for Difference), you can trade on a price decline without actually owning the asset. With CFDs, you can go long or short without the need to borrow shares.
&nbsp;
Furthermore, short selling with CFDs is not limited to stocks. You can short any market where CFDs are available, such as forex, commodities, stock indices, and more.
&nbsp;
Opening a short position with CFDs is the opposite of opening a long position. You decide how many CFDs you want to sell and trade at the bid price. Then, when you want to close the trade, you buy the same number of CFDs at the ask price.
&nbsp;
<h3 dir="ltr">Hedging with short positions</h3>
 One of the main reasons traders opt for short selling is to use it as a hedging tool. Hedging is essentially a way to protect yourself against negative market movements. When you choose to short as a form of hedging, you open a position that can make a profit if your original long position incurs a loss.
&nbsp;
Imagine you own Dow Jones stocks in your investment portfolio but are concerned that the market might decline, such as during a potential bear phase. In this case, you could short (sell) five CFD contracts on Wall Street. If U.S. stocks do indeed fall, your losses from the stocks may be partially offset by the gains from the CFD positions you opened.
<h3 dir="ltr">Risks of short selling</h3>
 When purchasing most financial instruments, you know exactly what your maximum potential loss could be. For example, if you invest $5,000 in gold, the biggest risk is that gold could become worthless overnight, and you would lose your $5,000 investment.
&nbsp;
However, with short selling, there is no limit to how much the price of an asset can rise. If you decide to short sell stocks and their price rises, you could lose your entire invested capital.
&nbsp;
Imagine you short sell stocks of a company that is in trouble, and the price is $50 per share. The best-case scenario is that the price of the stocks falls to zero. On the other hand, if news breaks that another company is interested in buying it, the stock price could rise significantly above $100 per share in a single day.
&nbsp;
Example of short selling risks
&nbsp;
Using risk management tools like stop-loss orders and limits is crucial when you decide to take a short position. These tools help protect against uncontrolled losses. We will discuss these tools in more detail later in the course.
&nbsp;
Short selling can also bring additional costs associated with borrowing the assets from the broker to open the trade, which can affect the overall profitability of the trade.
&nbsp;

Introduction to short selling

<h1 dir="ltr">Basics of using leverage in trading</h1>
Leverage is a tool that allows traders to control larger positions in the market with less of their own capital. This way, they can potentially increase their profits but also their losses. It is important to understand how leverage works in order to effectively manage the risks associated with its use.
<ol>
<li>What is leverage? </li>
<li>What is margin? </li>
<li>Costs of leverage: Overnight financing</li>
</ol>
<h3 dir="ltr">What is leverage?</h3>
 Leverage is a mechanism that allows traders to control larger positions in the market than their own capital would otherwise permit. This means that with a smaller amount of personal funds, they can trade larger volumes. This effect can increase potential profits, but also losses.
&nbsp;
<h3 dir="ltr">What is margin?</h3>
 Margin is the amount of money a trader must deposit into their trading account as collateral to open a position. It is a percentage of the total value of the trade and serves as a guarantee for the broker that the trader has sufficient funds to cover potential losses.
&nbsp;
<h3 dir="ltr">Leverage costs: Overnight financing</h3>
 When using leverage, a broker may charge fees for financing the position overnight. These fees are known as swap or rollover fees, and they depend on the difference in interest rates between the two currencies in the currency pair you are trading. These costs can accumulate if you hold the position for a longer period.
&nbsp;
Example of leverage usage:
 Imagine you have &euro;1,000 and use a leverage ratio of 1:10. This means you can control a position worth &euro;10,000. If the asset price increases by 1%, your profit will be &euro;100. However, if the price drops by 1%, your loss will be &euro;100, which is equal to your initial capital. This example demonstrates how leverage can amplify both potential profits and losses.
&nbsp;
Understanding leverage and margin in trading
 It is essential to fully understand how leverage and margin work so that you can effectively manage the risks associated with their use in trading.
&nbsp;

Basics of using leverage in trading

<h1 dir="ltr">How to open a CFD position</h1>
Before you start trading CFDs, it is recommended to first practice buying and selling using a demo account. Click here to open one now or log in here.
Here are five simple steps to open your first CFD position:
<ol>
<li dir="ltr" aria-level="1">
Choose your market
</li>
<li dir="ltr" aria-level="1">
Decide whether you want to go long or short
</li>
<li dir="ltr" aria-level="1">
Determine the size of your trade
</li>
<li dir="ltr" aria-level="1">
Set stop-loss and take-profit orders
</li>
<li dir="ltr" aria-level="1">
Monitor your trade and close the position
</li>
</ol>
&nbsp;
<h3>1. Choose your market</h3>
There are many tools that can help you find a trade that matches your trading preferences.
&nbsp;
To get up-to-date information about the markets, it is useful to follow financial news and analyses. Popular markets among beginner traders include major currency pairs, large stock indices, and blue-chip stocks.
 Choose the asset you want to trade and use the search function on the platform to find it in the list.
<h3 dir="ltr">2. Decide whether you want to go long or short</h3>
 Now it's time to decide whether the market you've chosen is expected to rise (bullish) or fall (bearish). Traders make decisions based on various factors &mdash; fundamental analysts focus on economic data and news, while technical traders primarily focus on price charts.
&nbsp;
On the platform, you will see the buy (ask) and sell (bid) prices.
&nbsp;
If you think the asset price will go up, select buy; if you expect a drop, select sell.
 Click on the selected asset to open its ticket, where you can choose between buying or selling.
<h3 dir="ltr">3. Determine the size of your trade</h3>
 The number of CFDs you buy or sell will determine the value of your trades and how much you can earn or lose based on price movements in the market.
 The value of individual CFDs varies depending on the asset you are trading. For example, with stocks, a CFD is equivalent to buying or selling one share, while in the forex market, one CFD equals one lot. Additionally, your CFD trade may be valued in different currencies depending on the specific asset you're trading.
 Keep in mind that CFD trading is leveraged, so you don't need to deposit the full value of your trade upfront.
&nbsp;
Commission or spread?
&nbsp;
When opening a CFD position, you pay in different ways depending on the type of market you are trading. If you trade stocks via CFDs, you will usually pay a commission, similar to traditional investing in stocks through a broker.
<h3 dir="ltr">4. Set stop-loss and take-profit orders</h3>
Stop-loss and take-profit orders (also known as limits) are used to automatically close your trade when it reaches a predefined level. These orders are a key part of risk management.
 Set a stop-loss order to tell your broker to close your position if it reaches a certain loss level. On the other hand, a take-profit order will close your trade if the price reaches a level that brings you a profit. Decide on your target profit and maximum loss and set the stop-loss and take-profit orders accordingly.
<h3 dir="ltr">5. Monitor your trade and close the position</h3>
 Once your trade is open, you can monitor the current profit or loss on the "open positions" tab of your trading platform. As the market moves up or down, you will see how these price movements affect the value of your position.
 When you want to close the trade, you need to trade in the opposite direction to the one you opened. If you initially sold 15 CFDs, you will need to buy 15 CFDs to balance your position. Alternatively, if the price reaches your stop-loss or take-profit level, your position will close automatically.
 Monitor your open trade on the "open positions" tab of your platform. To close your position, trade in the opposite direction to how you opened it or simply click the "CLOSE" button.
&nbsp;

How to open a CFD position

<h1 dir="ltr">Limiting losses and securing profits</h1>
In addition to manually closing a trade at the current price using market orders, there are also exit orders that allow you to set the maximum loss or profit you are willing to accept.
<ol>
<li dir="ltr">What are exit orders? </li>
<li dir="ltr">What do such profits mean? </li>
<li dir="ltr">What are stop - loss orders? </li>
<li dir="ltr">Types of stop - loss orders </li>
<li dir="ltr">Other types of orders</li>
</ol>

<h3 dir="ltr">What are exit orders</h3>
 Exit orders work similarly to entry orders, but instead of automatically opening a position, you use them to instruct your broker or trading platform to close a trade when the market reaches the level you set. Just like with entry orders, exit orders can be set as stop-loss or take-profit orders.
&nbsp;
Exit orders are often referred to as "take-profit" orders for profit targets and "stop-loss" orders to limit losses. These orders are used to secure profit or minimize losses when a certain price level is reached.
<h3 dir="ltr">What are take profits?</h3>
Take-profit orders are exit orders that you set to automatically close your position when it reaches a predetermined price that is better than the current price of the underlying asset. These orders help you follow your trading strategy and prevent you from constantly monitoring the market, which could lead to hasty decisions.
 Imagine you are investing in XYZ company&rsquo;s stock, currently trading at $100 per share. You decide to set a take-profit order at $110. If the stock price reaches this value, the order will be triggered automatically and your shares will be sold at the market price, realizing a profit of $10 per share.
<h3 dir="ltr">What are stop-loss orders?</h3>
 Stop-loss orders are tools that allow traders to automatically close a position when the price of an asset reaches a predetermined level, thus limiting potential loss. This order is a key element of risk management, as it helps protect capital from unpredictable market movements.
 For example, if you open a buy position on EUR/USD at a price of 1.2200 and want to limit your loss to 30 pips, you set a stop-loss order at 1.2170. If the price drops to this level, the position will be automatically closed, minimizing the loss.
 In addition to static stop-loss orders, there are dynamic orders, such as trailing stops, that adjust to the price movement in favor of the trader, helping to secure profits under favorable market conditions.
<h3 dir="ltr">Types of stop-loss orders</h3>
 There are two main types of stop-loss orders available when trading: standard and trailing (dynamic).
Standard stop-loss orders
 A standard stop-loss order is set at a specific price level below or above the current market price. If the market reaches this level, the order is triggered, and the position is automatically closed, limiting potential loss.
&nbsp;
Trailing stop-loss orders
 A trailing stop-loss order is a dynamic tool that automatically adjusts to market movement in favor of the trader. If the market moves in the expected direction, the trailing stop moves in the same direction, securing profits while protecting against potential losses if the market reverses. Example of using a trailing stop-loss order
 Imagine you open a buy position on the EUR/USD currency pair at a price of 1.1000 and set a trailing stop order 50 pips below this price, at 1.0950. If the price rises to 1.1050, the trailing stop will automatically adjust to 1.1000, ensuring that if the price drops to this level, you won&rsquo;t incur a loss.
Using stop-loss orders is crucial for effective risk management and capital protection in trading.
<h3 dir="ltr">Other types of orders</h3>
These are the most common types of orders used, but there are several others that offer additional flexibility when trading.
&nbsp;
One-Cancels-Other (OCO) orders
 One-Cancels-Other (OCO) orders allow you to enter two orders simultaneously. If one of these orders is activated, the other is automatically canceled.
 This type of order is especially useful for setting both stop-loss and take-profit on an open position. If one of the orders is triggered, the other will be automatically canceled, preventing an accidental trade.&nbsp;Most brokers, including y4trade, automatically set stop-loss and take-profit as OCO orders.
&nbsp;
You can also use an OCO order when opening a new position.
 Imagine you expect a significant move in the EUR/USD market but are unsure if it will go up or down. You can set a stop entry order 10 pips above the current price and a limit entry order 10 pips below. If the EUR/USD price moves 10 pips in either direction, a trade will be automatically opened, and the other order will be canceled.
&nbsp;
If-Then orders
 If-Then orders are essentially two-step orders, where the second order is executed only after the conditions of the first order are met.
 These orders are commonly used to create an entry order that also has an attached exit order. Once your entry order is triggered, a stop-loss or take-profit order (or both) is automatically created.
 If-Then orders provide traders with more flexibility and peace of mind. You don&rsquo;t have to monitor the markets 24/7 to protect your position, and you can set multiple outcomes to ensure the best possible result for your trade.
&nbsp;

Limiting losses and securing profits

<h1>Tips for beginner forex traders</h1>
<ol>
<li dir="ltr" aria-level="1">
Understand the markets
</li>
<li dir="ltr" aria-level="1">
Create a trading plan and stick to it
</li>
<li dir="ltr" aria-level="1">
Gain experience
</li>
<li dir="ltr" aria-level="1">
Try to predict "market conditions"
</li>
<li dir="ltr" aria-level="1">
Know your limits
</li>
<li dir="ltr" aria-level="1">
Know when it's time to take a break
</li>
<li dir="ltr" aria-level="1">
Keep your emotions in check
</li>
<li dir="ltr" aria-level="1">
Proceed slowly and steadily
</li>
<li dir="ltr" aria-level="1">
Don't be afraid to try new things
</li>
<li dir="ltr" aria-level="1">
Choose the right broker for you
</li>
</ol>
<h3 dir="ltr">1.Understand the markets</h3>
Invest time in studying currency pairs and the factors that influence their movements. A thorough understanding of the markets will help you better predict their behavior.
<h3 dir="ltr">2.Create a trading plan and stick to it</h3>
Set clear goals, risk tolerance, and trading methodology. Sticking to your plan will help you maintain discipline and minimize impulsive decisions.
<h3 dir="ltr">3.Gain experience</h3>
Use demo accounts to test your strategies in real market conditions without risking your own capital.
<h3 dir="ltr">4.Try to predict "market conditions"</h3>
Combine fundamental and technical analysis to identify potential trading opportunities. Use tools like Fibonacci retracements and other indicators to better understand market trends.
<h3 dir="ltr">5.Know your limits</h3>
Determine how much you're willing to risk on a single trade and never exceed this limit. This way, you protect your capital from reckless losses.
<h3 dir="ltr">6.Know when it's time to take a break</h3>
Use stop-loss and take-profit orders to automatically close positions when predetermined price levels are reached. Trailing stop orders will help you protect profits under favorable market conditions.
<h3 dir="ltr">7.Keep your emotions in check</h3>
Avoid impulsive trading in response to short-term market movements. Stick to your trading plan and don&rsquo;t let emotions influence your decisions.
<h3 dir="ltr">8.Proceed slowly and steadily</h3>
Consistency is key. Focus on long-term success and avoid attempts at quick profits that can lead to significant losses.
<h3 dir="ltr">9.Don&rsquo;t be afraid to try new things</h3>
If your trading strategies aren&rsquo;t working as expected, be prepared to adjust them. Flexibility will help you respond to changing market conditions.
<h3 dir="ltr">10.Choose the right broker</h3>
Choose a broker with a good reputation, competitive fees, and quality customer support. A thorough broker selection is the foundation for successful trading.
&nbsp;

Tips for beginner forex traders

<ol>
<li dir="ltr">What is an order?</li>
<li dir="ltr">Market orders</li>
<li dir="ltr">Entry orders</li>
<li dir="ltr">Order validity</li>
</ol>
In trading, you open and close positions using orders.
<h3 dir="ltr">What is an order?</h3>
A command is an instruction to execute a trade. It is used to notify your broker or trading provider when you want to open or close positions. There are various types of orders, and understanding how they work is crucial for a better understanding of the markets.
 In the past, investors placed orders with brokers over the phone, but with the rise of online trading, most traders now use online trading platforms.
 If you have used a demo account for buying and selling as part of Trading Academy, you have placed orders.
 Let&rsquo;s look at the basic types of orders used in everyday trading, starting with the simplest type: market orders.
<h3 dir="ltr">Market order</h3>
A market order is an instruction to execute a trade immediately at the best available price at the time. If the EUR/USD is at the level of 1.0745/1.0746, using a market order means that your trade will be executed as close as possible to this price.
 Market orders can be used to open or close a position.
<h3 dir="ltr">Entry orders</h3>
What if you don&rsquo;t want to trade at the current market price? For example, you might think that buying EUR/USD is a great opportunity &ndash; but only if it drops to 1.0699. You could watch the EUR/USD and open a market order when it reaches that level, or you could use an entry order.
 Entry orders automatically open a position when the market reaches the level you have set.
 This is especially useful for traders who want to buy/sell at a specific price and do not have time to constantly monitor the markets until this level is reached.
There are four types of entry orders: buy stops, buy limits, sell stops, and sell limits.
Buy
<ul>
<li dir="ltr" aria-level="1">
Buy stops: This instructs your broker to open a long position when the market reaches a price above the current price.
</li>
<li dir="ltr" aria-level="1">
Buy limits: This instructs your broker to open a long position when the market reaches a price below the current price.
</li>
</ul>
Sell
<ul>
<li dir="ltr" aria-level="1">
Sell stops: This instructs your broker to open a short position when the market reaches a price below the current price.
</li>
<li dir="ltr" aria-level="1">
Sell limits: This instructs your broker to open a short position when the market reaches a price above the current price.
</li>
</ul>
&nbsp;
Stops vs. Limits
 In orders, you will often hear the terms "stop" and "limit."
<ul>
<li dir="ltr" aria-level="1">
Stop means an instruction to execute the trade at a price worse than the current price.
</li>
<li dir="ltr" aria-level="1">
Limit means an instruction to execute the trade at a price more favorable than the current price.
</li>
</ul>
However, "worse" or "favorable" does not necessarily mean "lower" or "higher." For example, with a buy limit, the favorable price is below the current price (the lower, the better), but with a sell limit, the favorable price is above the current price.
&nbsp;
Good until when?
 In addition to deciding the direction of the trade, the quantity, and the level, you have the option to determine how long your entry order will remain active until it is canceled by your provider. On the FOREX.com platform, there are three options: Good 'til Canceled (GTC), Good 'til End of Day (GTD), and Good 'til Time (GTT).
&nbsp;
Good 'til canceled (GTC)
 If you choose this option, your entry order will remain active until you manually cancel it, the market expires, or it triggers. This could mean that the order remains active for weeks or months after it is first placed.
&nbsp;
Good 'til end of day (GTD)
 Orders with this option are automatically canceled at the end of the trading day. This is useful if you think the opportunity you selected won&rsquo;t last. With GTD, you don&rsquo;t need to worry about forgetting to cancel your order and ending up with an unwanted trade.
&nbsp;
Good 'til time (GTT)
 This type of order provides maximum flexibility by allowing you to choose the exact time and date that you want your order to remain active. If the market reaches the level you have set within this timeframe, your order will trigger. If not, the order will be canceled.
&nbsp;

Commands for opening positions in trading

<h1 dir="ltr">How to create a forex trading plan</h1>
 A trading plan is an essential tool for forex traders.
&nbsp;
In stressful market situations, you don&rsquo;t want to rely solely on your instincts. Having a clearly defined and written trading plan makes it much easier to stay focused on your goals, maintain discipline and consistency, and keep losses under control while avoiding impulsive decisions.
&nbsp;
Use the guide below to create your 9-step forex trading plan:
&nbsp;
<h3 dir="ltr">9 Steps to an effective trading plan</h3>
<ol>
<li dir="ltr" aria-level="1">
Assess your skills and experience
</li>
<li dir="ltr" aria-level="1">
Choose a trading style that suits you
</li>
<li dir="ltr" aria-level="1">
Consider trading hours and market volatility
</li>
<li dir="ltr" aria-level="1">
Always use stop-loss and limit orders
</li>
<li dir="ltr" aria-level="1">
Determine the currency pairs to focus on
</li>
<li dir="ltr" aria-level="1">
Plan for rollover rates
</li>
<li dir="ltr" aria-level="1">
Regularly adjust and adapt your plan
</li>
<li dir="ltr" aria-level="1">
Follow regulatory rules in the countries where you trade
</li>
<li dir="ltr" aria-level="1">
Pay attention to trading details and administration
</li>
</ol>
&nbsp;
<h3 dir="ltr">TIP:</h3>
A trading plan is useless if you don&rsquo;t follow it! Many traders spend a lot of time developing a strategy but quickly abandon it once they start trading. Success comes only when you stick to your plan and don&rsquo;t deviate from it in every unexpected market situation.
 
<h3 dir="ltr">Assess your skills and experience</h3>
Before creating a trading plan, take a step back and evaluate your market knowledge, goals, and weaknesses. The more tailored your plan is to your individual abilities, the higher your chances of long-term success.
&nbsp;
<h3 dir="ltr">Expertise</h3>
Start by assessing your level of market knowledge to ensure that you don&rsquo;t take on trades beyond your experience.
<ul>
<li dir="ltr" aria-level="1">
Are you a complete beginner? Advanced options strategies or complex trading techniques may not be the best place to start.
</li>
<li dir="ltr" aria-level="1">
Do you prefer specific markets? Focus on a few assets or currency pairs that suit you best rather than trying to trade everything at once.
</li>
<li dir="ltr" aria-level="1">
Adapt your plan to your confidence level &ndash; As you gain experience, you can always refine and expand your plan.
</li>
</ul>
&nbsp;
<h3 dir="ltr">Goals</h3>
Why are you trading? If your only goal is "to make money," that may not be a well-thought-out reason.
<ul>
<li dir="ltr" aria-level="1">
Are you looking for additional income for retirement?
</li>
<li dir="ltr" aria-level="1">
Do you want to start a new career in trading?
</li>
<li dir="ltr" aria-level="1">
Are you aiming to free up more time for family and personal activities?
</li>
</ul>
Whatever your ultimate goal is, your trading plan should align with your motivation.
Tip: One of the best ways to plan is to start from your goal and work backward. Visualize where you want to be in 10 years and set yearly milestones to help you get there.
&nbsp;
<h3 dir="ltr">Strengths and weaknesses</h3>
To make your plan practical, it should leverage your strengths and minimize your weaknesses.
<ul>
<li dir="ltr" aria-level="1">
Struggle with constantly monitoring the market? Consider day trading instead of holding overnight positions.
</li>
<li dir="ltr" aria-level="1">
Lack patience for long-term trades? Focus on scalping or intraday strategies.
</li>
<li dir="ltr" aria-level="1">
Have difficulty making quick decisions under pressure? Swing trading or position trading may be a better fit.
</li>
</ul>
As you gain more experience, you will better understand your strengths and weaknesses. That&rsquo;s why it&rsquo;s essential to regularly review and adjust your trading plan.
 
<h3 dir="ltr">2. Choose a trading style that suits you</h3>
After assessing your knowledge, goals, strengths, and weaknesses, you should be able to determine which trading style best fits your personality and lifestyle.
&nbsp;
Which trading style is best for you?
<ul>
<li dir="ltr" aria-level="1">
Position trading &ndash; If you focus on long-term returns and don&rsquo;t want to spend too much time trading daily, position trading could be an ideal strategy for you.
</li>
<li dir="ltr" aria-level="1">
Swing trading &ndash; Best for traders who hold trades for several days or weeks to capitalize on medium-term market movements.
</li>
<li dir="ltr" aria-level="1">
Day trading &ndash; If you plan to trade full-time and want to avoid overnight positions (and financing fees), day trading is a good choice.
</li>
<li dir="ltr" aria-level="1">
Scalping &ndash; Ideal for traders who focus on short-term trades lasting from minutes to a few hours, profiting from small price movements.
</li>
</ul>
&nbsp;
Each trading style has its own advantages and disadvantages, so it's crucial to choose one that aligns with your time availability, risk tolerance, and market strategy.
<h3> 3. Consider trading hours and market volatility</h3>
Although the forex market operates 24 hours a day, 5 days a week, there are specific periods of higher activity that can significantly impact price movements and trading conditions.
&nbsp;
Key trading sessions and their impact
<ul>
<li dir="ltr" aria-level="1">
London and European session &ndash; When European markets open, trading volume increases, as institutional traders enter the forex market.
</li>
<li dir="ltr" aria-level="1">
New York session &ndash; After the New York open, trading volume rises again, as U.S. banks and investment funds participate.
</li>
</ul>
&nbsp;
Low volatility and risks of trading at the wrong time
<ul>
<li dir="ltr" aria-level="1">
Break between the New York close and Sydney open &ndash; This period has low trading volume, which can lead to wider spreads, market stagnation, and less accurate trade executions.
</li>
<li dir="ltr" aria-level="1">
Trading in low volatility &ndash; When markets move sideways without a clear direction, there is a risk of "market noise", where small price fluctuations can result in unnecessary losses.
</li>
</ul>
&nbsp;
Trade at the right time
&nbsp;
If your trading plan isn&rsquo;t delivering expected results, it could be due to trading at the wrong time. Therefore, it&rsquo;s essential to align your trading strategies with the most active market hours, maximizing profit potential and reducing the risk of poor trade entries.
&nbsp;
<h3 dir="ltr">4. Always use stop-loss and limit orders</h3>
The fast-moving nature of the forex market means that stop-loss and limit orders should be a part of every trade.
&nbsp;
Why are stop-loss and limit orders essential?
&nbsp;
✔ Protection against large losses &ndash; A stop-loss helps minimize risk when the market moves against you. ✔ Securing profits &ndash; Limit orders automatically close your trade at a target profit level. ✔ Eliminating emotional trading &ndash; Automated orders prevent impulsive decisions.
&nbsp;
How to properly set stop-loss and limits?
<ul>
<li dir="ltr" aria-level="1">
Define maximum risk per trade &ndash; Within your trading plan, set a maximum acceptable loss per position.
</li>
<li dir="ltr" aria-level="1">
Always use a stop-loss &ndash; This prevents unlimited losses in case of a sudden market movement.
</li>
<li dir="ltr" aria-level="1">
Set profit limits &ndash; Determine your target profit level, where the trade will automatically close.
</li>
</ul>
&nbsp;
Personal safety mechanism
&nbsp;
Beyond using a stop-loss, consider setting a personal circuit breaker, which prevents further trading after reaching a certain daily loss (e.g., 5% of capital).
&nbsp;
This approach helps control risk, protect capital, and maintain long-term profitability.
&nbsp;
<h3 dir="ltr"> 5. Determine the Currency Pairs to Focus On</h3>
As part of your trading plan, it&rsquo;s important to choose the currency pairs you will trade.
&nbsp;
Why is selecting currency pairs important?
&nbsp;
✔ Major currency pairs have tight and stable spreads because they are the most liquid. ✔ Focusing on a limited number of pairs allows for better analysis and specialization. ✔ Customizing your economic calendar &ndash; You can filter medium and high-impact news that affects only your selected pairs.
&nbsp;
Currency correlations and their importance
&nbsp;
Since forex is traded in pairs, some markets strongly influence each other. This means that the movement of one pair can indicate the movement of another.
<h4 dir="ltr">Example of currency correlation:</h4>
<ul>
<li dir="ltr" aria-level="1">EUR/USD and USD/CHF have a negative correlation &ndash; when EUR/USD rises, USD/CHF tends to fall, and vice versa.</li>
</ul>
&nbsp;
How to use currency correlations in trading?
&nbsp;
✔ Better risk management &ndash; If you hold multiple positions in highly correlated pairs, a strong market move can affect all trades in the same direction, increasing risk. ✔ Portfolio diversification &ndash; If you want to avoid excessive exposure to similar risks, you can avoid trading pairs that move in the same way.
&nbsp;
Choosing the right currency pairs enhances your trading strategy&rsquo;s effectiveness and helps minimize unnecessary risk.
<h3> 6. Plan for Rollover Rates</h3>
When trading currency pairs, you are essentially borrowing one currency to buy another. Rollover rates (swaps) represent the interest charge or credit applied when holding a position overnight.
&nbsp;
How do rollover rates work?
&nbsp;
✔ Interest charges are calculated based on the difference between the interest rates of the two traded currencies. ✔ If you hold a position overnight, your broker may either charge or pay you interest, depending on the trade direction.
&nbsp;
Example of rollover rates
If the swap rates for EUR/USD are 0.817 / 1.28 for a long position (buy) of 10,000 units:
<ul>
<li dir="ltr" aria-level="1">
Holding a long position (buying EUR/USD) &rarr; You would be charged -1.28 USD per night.
</li>
<li dir="ltr" aria-level="1">
Holding a short position (selling EUR/USD) &rarr; You would earn +0.82 USD per night.
</li>
</ul>
&nbsp;
Why is planning for rollover rates important?
&nbsp;
✔ Reduce trading costs &ndash; If you want to avoid high rollover fees, you can close trades before the end of the trading day. ✔ Take advantage of positive swaps &ndash; In some cases, you can profit from holding overnight positions when trading in the direction of a favorable interest rate differential. ✔ Minimize unexpected charges &ndash; If you hold positions long-term, you must factor in the impact of rollover rates on your overall profitability.
Rollover rates can affect your trading costs and long-term returns, so it&rsquo;s important to consider them in your trading plan.
<h3> 7. Regularly Adjust and Adapt Your Plan</h3>
During your first few months of live forex trading, you will encounter various market conditions and unexpected events. In some cases, your trading plan may work perfectly, while in others, it may not deliver the expected results.
&nbsp;
Why is adjusting your trading plan important?
&nbsp;
✔ Learn from your mistakes &ndash; Adapting your plan helps you minimize repeated trading errors. ✔ Build on your successes &ndash; Identify the strategies that work best for you and refine them. ✔ Adapt to changing market conditions &ndash; Forex is dynamic, so your trading plan should evolve alongside the market.
&nbsp;
Trading journal &ndash; Your best tool for improvement
&nbsp;
Many successful traders&nbsp;keep a trading journal to track:
<ul>
<li>Wins and losses &ndash; Which trades were successful and why?</li>
<li>Emotions during trading &ndash; Do you make impulsive decisions? How do you react after a losing trade?</li>
<li>Market conditions &ndash; Were there high trading volumes? Did an unexpected economic event occur? </li>
</ul>
&nbsp;
Tracking and analyzing your trades allows you to objectively evaluate and improve your strategy, increasing your chances of long-term success.
<h3 dir="ltr">8. Follow regulatory rules in the countries where you trade</h3>
Regulatory authorities set trading rules for forex markets, including leverage limits and margin requirements. These regulations impact which currency pairs you can trade and the account size you can manage.
&nbsp;
Why is it important to understand regulations?
&nbsp;
✔ Leverage restrictions &ndash; Some countries impose maximum leverage limits, affecting your ability to manage large positions. ✔ Capital protection &ndash; Regulations are designed to protect traders from excessive risk and unfair broker practices. ✔ Tax obligations &ndash; Different jurisdictions have varied tax laws on forex profits, so it&rsquo;s essential to be aware of them.
&nbsp;
Choosing a reliable broker
&nbsp;
The most trustworthy forex brokers are regulated in all the countries where they operate and where their clients reside. Reputable firms work with regulatory authorities in each country to ensure transparency and legal compliance.
Before you start trading, verify that your broker is properly regulated and meets the requirements of the country you are trading from. Doing so provides a higher level of security and protection for your funds.
<h3 dir="ltr">9. Pay attention to trading details and administration</h3>
The final step in creating a successful forex trading plan is to include all critical details that will help you maintain discipline and consistency.
&nbsp;
What should your trading plan include?
<ul>
<li dir="ltr">Which markets will you trade?</li>
<li dir="ltr">When will you trade? (timeframes, trading hours)</li>
<li dir="ltr">How much capital will you allocate to each position?</li>
<li dir="ltr">Where will you set stop-loss and limit orders?</li>
</ul>
&nbsp;
Trading checklist &ndash; your practical tool
&nbsp;
Creating a trading checklist helps you stick to your plan and reinforces why you are trading. Your checklist should cover:
✔ Steps for identifying trading opportunities ✔ Opening and managing trades ✔ Rules for exiting the market
&nbsp;
A well-structured checklist reduces impulsive decisions, keeps your trading process systematic, and enhances long-term profitability.
&nbsp;
<img src="https://direct.y4trade.com/assets/44643d52-4349-4c49-ba98-239f7c7209d7.png?width=600&amp;height=400" alt="Trading Checklist">
&nbsp;
Trading journal &ndash; a tool for performance improvement
&nbsp;
Keeping a trading journal allows you to track your progress, identify mistakes, and refine your trading strategy.
&nbsp;
What should your trading journal include?
<ul>
<li dir="ltr">Reason for Each Trade &ndash; Why did you enter the trade?</li>
<li dir="ltr">Profit Target and Maximum Loss &ndash; What were your expectations?</li>
<li dir="ltr">Entry and Exit Levels &ndash; Where did you open and close your position?</li>
<li dir="ltr">Emotions at Entry and Exit &ndash; Were your decisions rational?</li>
</ul>
How can a trading journal help you?
<ul>
<li dir="ltr">Ensures consistency &ndash; Helps you determine if you are following your plan.</li>
<li dir="ltr">Analyzes mistakes &ndash; Allows you to spot errors and adjust your strategy accordingly.</li>
<li dir="ltr">Builds discipline &ndash; Strengthens your trading habits and improves profitability.</li>
</ul>
Recording your trades and sticking to your trading plan is the key to long-term success in forex trading.
&nbsp;

How to create a forex trading plan

<h1 dir="ltr">Six most common mistakes in forex trading</h1>
Forex trading can be exciting and profitable, but it can also be frustrating if you make avoidable mistakes. Whether you are a beginner or an experienced trader, avoiding these common pitfalls can help you maintain stability and improve your long-term results.
&nbsp;
Most common mistakes in forex trading
<ol>
<li dir="ltr" aria-level="1">
Lack of preparation and insufficient analysis
</li>
<li dir="ltr" aria-level="1">
Taking on too much risk compared to available capital
</li>
<li dir="ltr" aria-level="1">
Trading without protective mechanisms (Stop-Loss, Risk Management)
</li>
<li dir="ltr" aria-level="1">
Impulsive reactions to market movements
</li>
<li dir="ltr" aria-level="1">
Trading without a clear strategy
</li>
<li dir="ltr" aria-level="1">
Letting emotions influence decision-making
</li>
</ol>
By avoiding these common mistakes, you can increase your chances of long-term success and manage your trades more effectively.
<h3 dir="ltr">1. Lack of preparation and insufficient analysis</h3>
Currency pairs are influenced by the economies of individual countries and can react to various factors, such as economic data, geopolitical events, or central bank statements. Since the forex market operates continuously five days a week, price movements are constant and unpredictable.
&nbsp;
Why is market analysis essential before trading?
<ul>
<li dir="ltr" aria-level="1">
Conduct thorough research before every trade to understand the factors affecting price movements.
</li>
<li dir="ltr" aria-level="1">
Monitor economic events such as GDP reports, interest rate decisions, and employment data, as they can significantly impact the market.
</li>
<li dir="ltr" aria-level="1">
Knowing that an event will happen is not enough &ndash; it's crucial to anticipate how the market might react.
</li>
<li dir="ltr" aria-level="1">
Compare technical analysis with fundamental factors to validate your trading strategy.
</li>
</ul>
Failing to prepare and ignoring market analysis can lead to unnecessary losses. Proper preparation increases the likelihood of successful trades and helps avoid unexpected risks.
<h3 dir="ltr">2. Taking on too much risk compared to available capital</h3>
One of the most common mistakes new traders make is misunderstanding leverage. Many fail to realize that misusing leverage can lead to significantly higher losses than expected. That&rsquo;s why it is crucial to understand concepts like margin and leverage to avoid putting more capital at risk than originally planned.
&nbsp;
How to properly manage risk?
<ul>
<li dir="ltr" aria-level="1">
Set a maximum percentage of your capital that you are willing to risk on a single trade. Most traders limit risk to 1% to 3% of their account.
</li>
<li dir="ltr" aria-level="1">
If you have $50,000 in capital and are willing to risk a maximum of 2% per trade, you should not risk more than $1,000 at a time.
</li>
<li dir="ltr" aria-level="1">
Once you set this limit, stick to it and do not exceed it, even if a trade is not going as expected.
</li>
</ul>
Proper risk management helps protect your capital and prevents large losses that could quickly force you out of the market.
<h3 dir="ltr">3. Trading without protective mechanisms (Stop-Loss, Risk Management)</h3>
The forex market is constantly changing, and it is impossible to monitor it 24 hours a day. That&rsquo;s why using stop-loss and limit orders is essential, as they allow for automatic trade execution at predetermined price levels.
&nbsp;
Why are protective mechanisms important?
<ul>
<li dir="ltr" aria-level="1">
Ensure trades are executed even when you are not actively monitoring the platform.
</li>
<li dir="ltr" aria-level="1">
Help prevent impulsive decisions that may be driven by emotions.
</li>
<li dir="ltr" aria-level="1">
Force you to plan your exit strategy in advance, which is crucial for effective risk management.
</li>
</ul>
Understanding the limitations of stop-loss orders
&nbsp;
While stop-loss and limit orders are valuable tools, they do not completely eliminate risk. Market gaps can cause orders to be executed at a less favorable price than expected.
&nbsp;
Despite this, using protective mechanisms is crucial for minimizing unexpected losses and maintaining long-term trading stability.
<h3 dir="ltr">4. Impulsive reactions to market movements</h3>
Losses can be frustrating and may trigger emotional and irrational decisions, causing you to deviate from your trading plan.
&nbsp;
Many traders react impulsively after a loss, attempting to immediately recover losses with new trades, often without proper analysis. This approach, however, typically leads to even greater losses.
&nbsp;
How to avoid impulsive trading?
<ul>
<li dir="ltr" aria-level="1">
Accept that losses are a natural part of trading &ndash; No trader can always have successful trades.
</li>
<li dir="ltr" aria-level="1">
Stick to your trading plan and avoid entering trades just to recover lost money quickly.
</li>
<li dir="ltr" aria-level="1">
Regularly evaluate your strategy &ndash; If you consistently struggle, it&rsquo;s better to adjust your plan rather than make impulsive decisions.
</li>
</ul>
Discipline and patience are the keys to long-term success. Learning to control your emotions will help you make rational trading decisions, leading to more consistent results.
<h3 dir="ltr">5. Trading without a clear strategy</h3>
Investing real capital without a well-thought-out trading plan is just as risky as trading without a strategy at all. Testing new methods directly with real money can lead to unnecessary losses.
&nbsp;
How to validate your strategy before live trading?
<ul>
<li dir="ltr" aria-level="1">
Use a demo account &ndash; Before trading with real money, test your strategy in a demo account with virtual funds.
</li>
<li dir="ltr" aria-level="1">
Familiarize yourself with the trading platform &ndash; Practicing allows you to learn how to use the tools and features of the platform, helping you avoid unnecessary mistakes.
</li>
<li dir="ltr" aria-level="1">
Simulate real market conditions &ndash; While trading with virtual money doesn&rsquo;t create the same emotional pressure as real trading, it helps you analyze your reactions to losing trades and learn from mistakes without risk.
</li>
</ul>
Without a clear strategy and thorough testing, trading can lead to disorganized decisions and unnecessary losses. Validating your plan on a demo account is a crucial step toward long-term profitability.
<h3 dir="ltr">6. Letting emotions influence decision-making</h3>
Forex trading can be mentally demanding because the market moves continuously, and emotions like stress, fear, and greed can impact your decisions. Maintaining emotional control is essential for long-term success.
&nbsp;
How to prevent emotion-driven trading?
<ul>
<li dir="ltr" aria-level="1">
Plan ahead &ndash; Set clear entry and exit rules and use stop-loss and limit orders to minimize impulsive decisions.
</li>
<li dir="ltr" aria-level="1">
Stick to your trading plan &ndash; Experienced traders do not deviate from their strategy and trade consistently, regardless of wins or losses.
</li>
<li dir="ltr" aria-level="1">
Focus on long-term goals &ndash; Successful traders do not react emotionally to every trade but see it as part of their overall strategy.
</li>
</ul>
Always trade within your skill level and financial capacity to build confidence in your strategy. Once you have mastered discipline and consistency, you can start increasing your position sizes and capital gradually.
&nbsp;

Six most common mistakes in forex trading

<h1 dir="ltr">Improving trade entry</h1>
Precise timing of trade entries is crucial for successful trading. In this lesson, we will explore three techniques that can help improve the timing of your trades and increase your success rate.
&nbsp;
Once you have a well-structured trading plan, it is essential to enhance the way you enter positions. Proper timing can significantly boost profits and limit losses. If you consistently trade at the right time and in the right direction, your win rate will gradually improve.
&nbsp;
There are multiple methods to refine trade entries. In this lesson, we will focus on three key approaches:
<ol>
<li dir="ltr" aria-level="1">
Breakout trading&nbsp;
</li>
<li dir="ltr" aria-level="1">
Testing across timeframes&nbsp;
</li>
<li dir="ltr" aria-level="1">
A broader market perspective&nbsp;
</li>
</ol>
By applying these techniques, you will gain better control over trade timing and enhance your trading efficiency.
<h3 dir="ltr">Breakout trading</h3>
As we have learned in technical analysis, "the trend is your friend." By utilizing breakouts and pullbacks, you can enter trades at the beginning of trends rather than joining them when they are already at their peak.
&nbsp;
How do breakouts work?
&nbsp;
The market does not move in a straight line &ndash; even in strong uptrends, temporary price drops occur, and in downtrends, small bullish movements can be seen.
&nbsp;
These short-term counter-trend movements are called pullbacks and typically form around support and resistance levels.
&nbsp;
Technical analysis of pullbacks
&nbsp;
Breakouts occur when the market breaks through a key level &ndash; either support or resistance. Once the breakout is confirmed, it signals that the original trend is resuming.
&nbsp;
This makes breakouts ideal entry points, allowing traders to open buy (long) or sell (short) positions when the price moves beyond a crucial level.
&nbsp;
Technical analysis of breakout trading
&nbsp;
A general rule is that the more times a support or resistance level is tested, the stronger the price movement following its breakout is likely to be.
&nbsp;
Beware of false breakouts (Fakeouts)
&nbsp;
Not every breakout means the market will continue in the same direction. Sometimes, the price briefly moves beyond a level and then reverses back &ndash; this is known as a fakeout.
&nbsp;
Risk management in breakout trading
&nbsp;
To protect yourself from false breakouts, proper risk management is essential:
<ul>
<li dir="ltr" aria-level="1">
Set a stop-loss just below the breakout level &ndash; If a fakeout occurs, your position will automatically close with minimal loss.
</li>
<li dir="ltr" aria-level="1">
Wait for breakout confirmation &ndash; Ensure that the price sustains the new level before entering a trade.
</li>
</ul>
&nbsp;
Breakout trading is a popular strategy that helps traders enter trends efficiently. However, to use it successfully, it is crucial to analyze the market correctly and manage risk effectively.
<h3 dir="ltr">Testing across timeframes</h3>
In the previous lesson, we learned that frequently switching between multiple timeframes may not be the best trading strategy. However, using one or two additional timeframes to confirm trends can significantly increase the probability of successful trades.
&nbsp;
How does multi-timeframe testing work?
&nbsp;
Imagine you are trading the AUD/USD currency pair and using a four-hour chart to identify trading opportunities. On the chart, you spot a pullback, which you believe could lead to a breakout.
<ul>
<li dir="ltr" aria-level="1">
Verifying the broader trend: Check the daily chart to determine how long the current bullish or bearish trend has been in place. Observe whether the market has tested key support or resistance levels multiple times.
</li>
<li dir="ltr" aria-level="1">
A detailed micro-level view: To get a better understanding of the current market conditions, review a 10-minute chart to see whether buyers or sellers are in control during the current trading period.
</li>
</ul>
Why is testing across timeframes useful?
<ul>
<li dir="ltr">Confirms the primary trend &ndash; Before entering a trade, you can verify that your position aligns with the broader market trend.</li>
<li dir="ltr">Minimizes false signals&nbsp;&ndash; Short-term price movements can be misleading, but longer timeframes can help identify the true market direction.</li>
<li dir="ltr">Improves trade entry and exit timing &ndash; By using shorter timeframes, you can pinpoint the best levels for trade execution.</li>
</ul>
Testing across multiple timeframes is a simple yet effective technique that can enhance your trade accuracy and reduce the risk of poor entries.
<h3 dir="ltr">A broader market perspective</h3>
The final tip for improving trade entries is to ensure that you have a clear understanding of the broader market context in which you are trading.
This includes:
<ul>
<li dir="ltr" aria-level="1">
Identifying the main trend &ndash; Is the current trend stable, or is it just beginning to form?
</li>
<li dir="ltr" aria-level="1">
Analyzing fundamental factors &ndash; What economic reports or events could impact volatility in the short term?
</li>
</ul>
Taking a holistic approach allows you to identify potential risks that you might otherwise overlook.
&nbsp;
Tracking market conditions
&nbsp;
It is useful to define market conditions that best match your trading style.
<ul>
<li dir="ltr" aria-level="1">
Keeping a trading journal helps you track patterns and trends that appear in your most successful trades.
</li>
<li dir="ltr" aria-level="1">
You may discover that you achieve better results in specific types of markets, such as:
</li>
<ul>
<li dir="ltr" aria-level="2">
Swing trading markets
</li>
<li dir="ltr" aria-level="2">
Low-volatility markets
</li>
<li dir="ltr" aria-level="2">
Range-bound markets
</li>
</ul>
</ul>
Key market conditions to monitor
&nbsp;
When analyzing the broader market, consider tracking:
<ul>
<li dir="ltr" aria-level="1">
Long-term trend &ndash; Is the market currently bullish, bearish, or neutral?
</li>
<li dir="ltr" aria-level="1">
Central bank policy &ndash; Are there expected changes in interest rates or monetary policy?
</li>
<li dir="ltr" aria-level="1">
Upcoming economic events &ndash; What key news releases could impact the market in the next few hours or days?
</li>
</ul>
By considering the broader market when planning trade entries, you can increase the likelihood of successful trades while minimizing unnecessary risks.
&nbsp;

Improving trade entry

<h1 dir="ltr">Risk-reward ratio</h1>
Experienced traders never enter a trade without a clear plan for where they will exit, regardless of whether the trade results in a profit or a loss.
To determine their exit points, they use the risk-reward ratio, which helps them effectively manage capital and minimize losses.
<ol>
<li dir="ltr" aria-level="1">What is the risk-reward ratio?</li>
<li dir="ltr" aria-level="1">Selecting trading opportunities</li>
<li dir="ltr" aria-level="1">Closing positions</li>
</ol>
<h3> What is the risk-reward ratio?</h3>
The risk-reward ratio is a fundamental component of successful trading. It helps traders determine the level of risk they are willing to accept for each trade and the expected profit needed to justify that risk.
&nbsp;
This ratio influences two key aspects of daily trading:
<ul>
<li dir="ltr" aria-level="1">
Deciding whether to take a trading opportunity or pass on it
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Determining the exit point to secure a profit or minimize a loss
</li>
</ul>
<h3 dir="ltr">Selecting trading opportunities</h3>
When using the risk-reward ratio, you should only open trades that align with your trading plan.
&nbsp;
There is no universal risk-reward ratio that suits every trader. To determine your ideal ratio, consider two key factors: the realistic expected profit per trade and the probability of successful trades. Finding the right balance between these two elements is crucial for long-term profitability.
&nbsp;
Risk-reward trading example
&nbsp;
If you set a 1:1 ratio, it means your expected profit equals the amount you are risking. For example, if your maximum possible loss is $250, your target profit should also be $250.
In this scenario, you would need a win rate higher than 50% to remain profitable. Since each losing trade cancels out a winning trade, this approach leaves little room for error.
&nbsp;
<img src="https://direct.y4trade.com/assets/25e3555f-5923-4780-bd5a-294c08757812.png?width=600&amp;height=400" alt="Risk Reward Trading Example">
&nbsp;
If you use a&nbsp;1:2 ratio, it means your potential profit is twice the amount you are risking.
&nbsp;
In this case, you&nbsp;don&rsquo;t need to be right in 50% of trades to be profitable. It would take two losing trades to cancel out one winning trade, giving you more flexibility to manage losing streaks and still maintain overall profitability.
&nbsp;
<img src="https://direct.y4trade.com/assets/98cbc181-1f47-4f97-9a20-3c4878251356.png?width=600&amp;height=400" alt="Overall Profitability">
<h3 dir="ltr">Closing positions</h3>
To effectively manage risk, it is essential to use stop-loss orders for every trade.
&nbsp;
Setting a stop-loss
A stop-loss should be placed at a level where your market prediction would be considered incorrect.
<ul>
<li dir="ltr" aria-level="1">
If you trade based on pullbacks and breakouts, set your stop-loss at the level where a fakeout would be confirmed.
</li>
<li dir="ltr" aria-level="1">
Another approach is to position your stop-loss just below the last support level (for long trades) or above the last resistance level (for short trades).
</li>
<li dir="ltr" aria-level="1">
This strategy ensures that if the market moves against you, losses are minimized and your capital remains protected.
</li>
</ul>
Taking profits
Once your stop-loss is in place, the level at which you exit the trade with profit depends on your&nbsp;risk-reward ratio.
<ul>
<li dir="ltr" aria-level="1">
For example, if your risk-reward ratio is 1:2 and your stop-loss is set 20 pips below your entry price, your take-profit target should be set at 40 pips.
</li>
</ul>
Properly setting both stop-loss and take-profit orders ensures a disciplined trading approach, helping to minimize risks while maximizing potential gains.
 <img src="https://direct.y4trade.com/assets/bae70fd8-6ec1-4e40-82b1-13035103ee04.png?width=600&amp;height=400" alt=" Maximizing Potential Gains">
&nbsp;
You may consider adding a take-profit order, which will automatically close your position at a predefined profit level. This order allows you to secure your gains if the market reaches your target, eliminating the need for constant price monitoring.
&nbsp;
How much can you risk?
&nbsp;
The risk-reward ratio is a crucial tool for effective trading, but on its own, it won&rsquo;t prevent significant losses if you risk too much on each trade.
&nbsp;
As explained in the risk management lesson, allocating too high a percentage of your capital to a single position can quickly deplete your account:
<ul>
<li dir="ltr" aria-level="1">
If you risk 10% of your capital per trade, just ten consecutive losing trades could wipe out your entire account.
</li>
<li dir="ltr" aria-level="1">
By reducing your risk to 2% per trade, you create a much larger financial buffer to withstand losing streaks and recover from losses.
</li>
</ul>
Proper risk management ensures the long-term sustainability of your trading strategy and helps prevent significant financial setbacks.
&nbsp;

Risk-reward ratio

<h1 dir="ltr">Operational profits</h1>
One of the fundamental rules of trading is to minimize losses as quickly as possible while letting profits grow. But how do successful traders put this into practice?
&nbsp;
Letting a profitable trade run is a simple concept&mdash;if the market moves in your favor, you keep the position open to maximize returns. However, the longer you hold a trade, the greater the risk that the market will reverse against you, turning a profit into a loss.
&nbsp;
In a fast-moving market, making the right decision can be challenging. You don&rsquo;t want to close a trade too early and miss out on additional potential profits, but at the same time, you don&rsquo;t want to hold a position too long and risk losing your gains.
&nbsp;
The best approach is to stick to your trading plan. For beginners, it can be difficult to let winning trades reach their planned target, let alone keep them open for even longer.
&nbsp;
However, if you notice that you could increase your profits by extending the duration of your trades, you might want to consider active position management.
<ol>
<li dir="ltr" aria-level="1">Active position management</li>
<li dir="ltr" aria-level="1">When should you move the stop-loss?</li>
<li dir="ltr" aria-level="1">Scaling into and out of trades</li>
</ol>
<h3>Active position management</h3>
Actively managing open trades requires a more dynamic approach than simply following a passive trading plan. Instead of closing a trade as soon as it reaches the target profit or maximum loss, you can adjust your strategy based on current market conditions.
&nbsp;
One of the most commonly used methods is trailing the stop-loss. As your trade moves into profit, you can gradually adjust the stop-loss closer to the current price, which:
<ul>
<li>Reduces risk &ndash; The closer the stop-loss is to the current price, the smaller the potential loss.</li>
<li>Locks in profits &ndash; If the market reverses, your trade closes with a profit instead of a loss.</li>
<li>Maximizes returns &ndash; Allows the trade to develop into a larger gain while minimizing downside risk.</li>
</ul>
Important rule for adjusting stop-loss
<ul>
<li dir="ltr" style="font-weight: bold;" role="presentation">For a long (buy) position, move the stop-loss only upward.</li>
<li dir="ltr" style="font-weight: bold;" role="presentation">For a short (sell) position, move the stop-loss only downward.</li>
</ul>
Mistake to avoid
&nbsp;
Never move the stop-loss in the opposite direction (e.g., lowering it in a buy trade) to "give the trade more room." This exposes you to unnecessary large losses.
&nbsp;
Example of active position management:
<ol>
<li>You open a buy position on gold at&nbsp;$1,900, setting a stop-loss at $1,860 and a take-profit at $1,980.</li>
<li>The price rises to $1,940, so you move your stop-loss to $1,900 (breakeven) and take-profit to $2,020.</li>
<li>If the price falls back to $1,900, the trade closes with no loss.</li>
<li>If gold continues rising, you keep adjusting the stop-loss higher, securing profits while allowing further upside potential.</li>
</ol>
&nbsp;
<img src="https://direct.y4trade.com/assets/5008c78f-5454-421a-bbdb-49229621592b.png?width=600&amp;height=400" alt="Example of Active Position Management">
This approach allows you to manage trades flexibly while still protecting your capital from unnecessary losses.
<h3 dir="ltr">When should you move the stop loss?</h3>
Some traders adjust the stop loss only when certain conditions are met. For example, they might wait for the market to reach a new price level, break a key support or resistance level, or enter a period of consolidation.
&nbsp;
Other traders set specific rules for adjusting the stop loss. For instance, they might move the stop loss whenever the price moves by 50% of the total initial risk.
&nbsp;
<img src="https://direct.y4trade.com/assets/21f554d4-2434-4e50-8640-72c868059fd8.png?width=600&amp;height=400" alt="When Should You Move the Stop Loss">
In our previous example, your total risk (1900 - 1860) is 40 points. If you decide to move the stop loss by 50% of the total risk, it means that for every 20-point upward price movement, you will increase your stop loss by 20 points.
<h3 dir="ltr">Scaling in and out of trades</h3>
<ul>
<li dir="ltr" aria-level="1">
Another strategy to increase profits or secure returns is position scaling.
</li>
<li dir="ltr" aria-level="1">
Scaling into a trade involves adding new positions in a market that is moving in your favor, thereby increasing your exposure.
</li>
<li dir="ltr" aria-level="1">
Scaling out of a trade means gradually closing parts of your open position to lock in profits before the market turns against you.
</li>
</ul>
&nbsp;

Operational profits

<h1 dir="ltr">Tips for trading volatility</h1>
Volatility can be very attractive to traders &ndash; it offers an opportunity for quick profits if you are willing to take on greater risk. When markets start to become volatile, here are some tips to help you stay profitable while minimizing risk:
<ol>
<li dir="ltr">Use Trendlines</li>
<li dir="ltr">Don&rsquo;t Just Follow the Crowd</li>
<li dir="ltr">React to News in Time</li>
<li dir="ltr">Focus on Filling the Gaps</li>
<li dir="ltr">Don&rsquo;t Be Afraid to Take Risks</li>
</ol>
<h3>Use trendlines</h3>
 Trendlines are a very valuable tool when trading volatility. They help you ignore market noise and focus on the main trend, even when the market is going through significant fluctuations. 
<img src="https://direct.y4trade.com/assets/1a9127c4-1623-46c0-a337-e1e23235aa77.png?width=600&amp;height=400" alt="Use Trendlines">
&nbsp;
Before opening a position in a volatile market, it is a good idea to draw a few trendlines to get a clear overview of the overall trend. It is also important to identify key support and resistance levels &ndash; remember, a level that was previously support may later act as resistance, and vice versa.
<h3 dir="ltr">Don't just follow the crowd</h3>
&nbsp;
One of the main causes of market volatility is the so-called herd mentality.
&nbsp;
As more and more traders enter a position in an asset, its price moves higher. This leads other traders to join in, further fueling the trend.
&nbsp;
While trading on these trends can be profitable, it is not wise to trade solely due to FOMO (fear of missing out on an opportunity). Instead, you should conduct thorough research and assess the situation. When the herd mentality shifts, the market can quickly reverse direction.
&nbsp;
<img src="https://direct.y4trade.com/assets/5a41a275-d36b-4dd3-8a61-5343720c1765.png?width=600&amp;height=400" alt="Fomo">
&nbsp;
Of course, you may also take the opposite view if you believe the trend is unjustified. However, markets can remain irrational for a long time, so trading against the trend should be carefully considered and in line with your trading plan.
<h3 dir="ltr">React to news promptly</h3>
 When significant events occur in the market, such as NFP releases, interest rate announcements, or other important news, it may be wise to avoid trading in these markets. However, if you decide to take advantage of these events for trading, it is important to open your position before the data release itself. To succeed, you must conduct thorough research to understand how the specific news will impact the markets you are trading.
 It is also advisable to check other related reports that could give you a hint about how the market will behave. For example, when trading NFP, you might look at ADP employment reports, jobless claims, and other factors that could influence the final numbers.
 Once you can accurately estimate where the news could lead, you can adjust your trading strategy accordingly. However, keep in mind that analyst expectations might already be priced in. If analysts have predicted the outcome correctly, volatility might not be significant.
<h3 dir="ltr">Focus on gap filling</h3>
 Markets can experience jumps between different prices during the closure of trading overnight or over the weekend. After such jumps, gaps are often filled when the price returns to the previous closing price. 
&nbsp;
<img src="https://direct.y4trade.com/assets/8b75a936-d85a-4fe0-a3e9-a1f510c93792.png?width=600&amp;height=400" alt="Focus on Gap Filling">
&nbsp;
In the case of AUD/USD, over the weekend, the price dropped by 35 points due to negative economic news from China. However, during the next 12 hours, the price increased again and returned to its original level.
&nbsp;
A simple way to trade volatility is to look for these gaps and trade with the expectation that the price will return to the level before the gap. However, like with any trading strategy, this is not guaranteed. Therefore, it is essential to remember to set stop-loss and take-profit orders at reasonable levels to protect your capital.
<h3 dir="ltr">Don't be afraid to take risks</h3>
 Trading around major economic events can be an exciting way to capitalize on market volatility. Announcements of economic reports can lead to significant price movements, offering both opportunities for profit and risks. Therefore, it is crucial to prepare in advance.
&nbsp;
One of the key strategies for successful trading is to place your trade before the official release of the report. This involves the ability to make an informed prediction about the direction the market might move, based on expectations and assumptions.
&nbsp;
An example of this strategy could be trading around the U.S. non-farm payrolls (NFP) data. USD/JPY is usually very sensitive to this economic data: if the data is weak, USD/JPY tends to drop, while strong data causes the price to rise.
&nbsp;
Before the release of reports like NFP, analysts publish forecasts that provide insight into expected data. These expectations are important because the market may have already priced them in. If the expectations are met, a large price movement is unlikely. However, if the report significantly exceeds or falls short of expectations, it could cause a sharp price shift.
&nbsp;
There are also other economic indicators that measure employment and provide clues about what to expect from the main release, such as the NFP. By combining data from these prior reports, we can get a better understanding of what the final numbers may reveal.
&nbsp;
<img src="https://direct.y4trade.com/assets/542f3ada-0881-48bf-991a-f4842baddc91.png?width=600&amp;height=400" alt="Us Employment Leading Indicators Before Nfp">
&nbsp;
Since the anticipated estimate was incorrect, it would be logical to sell USD/JPY before the report is released. Of course, it&rsquo;s crucial to set stop-loss and limit orders, as managing an incorrect estimate properly is essential to protect your capital.
&nbsp;
The NFP report is not the only one that can be utilized in this way. For example, you could collect consumer confidence data to predict U.S. retail sales or analyze inflation data to estimate the stance the central bank will take on monetary policy. The possibilities are practically endless.
&nbsp;

Tips for trading volatility

<h1 dir="ltr">Advantages of trading CFDs</h1>
Let&rsquo;s take a look at the advantages of trading CFDs, so you can decide whether you want to start trading contracts for difference today.
<ol>
<li dir="ltr">What are the advantages of trading CFDs?</li>
<li dir="ltr" aria-level="1">
Profit from falling markets
</li>
<li dir="ltr" aria-level="1">
Protect your capital
</li>
<li dir="ltr" aria-level="1">
Similarity to traditional trading
</li>
<li dir="ltr" aria-level="1">
Ability to trade stocks, indices, forex, and other instruments
</li>
<li dir="ltr" aria-level="1">
Hedging potential with CFDs
</li>
</ol>
&nbsp;
<h3>What are the advantages of trading CFDs?</h3>
Trading CFDs offers access to a wide range of markets, the opportunity to use leverage, and flexibility for short selling, which explains why it has become so popular in recent years. However, if you&rsquo;re still deciding, here&rsquo;s a simple guide on how to start trading CFDs.
&nbsp;
<h3>Profit from falling markets</h3>
The main difference between CFDs and traditional trading is that when trading CFDs, you do not own the underlying asset. This brings several advantages, including the ability to trade both rising and falling markets.
&nbsp;
To open a short position with CFDs, you simply sell the desired number of contracts. When you decide to close the trade, you buy back the same number of CFDs.
&nbsp;
This approach allows you to profit from price declines in the markets, expanding your trading opportunities.
&nbsp;
Imagine you've analyzed a stock and believe its price will decrease. Instead of searching for other opportunities, you can short the stock using CFDs, which will earn you a profit if the price falls. However, if the price rises, you will face a loss.
&nbsp;
Unlike traditional investing, when shorting CFDs, you do not need to borrow any shares. This process is similar to opening a long position but in reverse. And you can sell any market that you would otherwise buy, including stocks, indices, commodities, or bonds.
&nbsp;
<h3>Capital preservation</h3>
One of the advantages of not owning the assets you trade is the use of leverage. Leverage allows you to open positions without paying the full value of the asset &ndash; instead, you pay a margin, which is a deposit.
&nbsp;
This system works by speculating on price movements, rather than directly owning the assets.
&nbsp;
For example, if you want to trade 100,000 USD on the USD/CAD pair, you only need to deposit 1,700 USD. This way, you don&rsquo;t have to tie up all your capital in a few positions.
&nbsp;
However, it&rsquo;s important to note that your profit or loss will depend on the full value of the 100,000 USD. If the USD/CAD price moves 5% against you, you&rsquo;ll lose 5,000 USD, which represents a large portion of your margin. Therefore, it's crucial to use risk management tools like stop-loss orders, take-profit, and guaranteed stops.
&nbsp;
<h3>Similarity to traditional trading</h3>
CFDs are not the only instrument that allows trading on financial markets without the direct purchase of assets. There are several other derivatives (depending on the country's legislation), such as futures, options, and spread betting.
&nbsp;
However, if you are accustomed to traditional trading and investing, CFDs may be somewhat more familiar to you than other derivatives. This is because, when trading CFDs, you buy and sell contracts designed to closely mirror the price movements of the underlying assets.
&nbsp;
A single CFD usually represents a standard trading unit of the underlying asset. When determining the position size, you decide how many contracts you want to buy or sell.
&nbsp;
For example, if you want to trade the equivalent of 50 shares of Unilever, you simply buy 50 Unilever stock CFDs. If you want to short one lot of the NZD/USD pair, you simply sell a CFD on NZD/USD.
&nbsp;
<h3>Trade stocks, indices, forex and more</h3>
CFD brokers typically offer access to a wide range of assets, meaning you're not limited to a single type of market. On platforms like y4trade.com, you can trade:
&nbsp;
Stocks, including major companies like Apple and Amazon
&nbsp;
Popular global stock indices, such as the S&amp;P 500, DAX, and more
&nbsp;
Various forex pairs, from major to minor and exotic
&nbsp;
Commodities like gold, silver, and other key resources
&nbsp;
Additionally, each market is accessible from a single platform, making it easy and quick to switch between different markets. With just a few clicks, you can start trading.
<h3 dir="ltr" role="presentation">Hedge with CFDs</h3>
Remember, CFDs can also be used to open short positions. In addition to profiting from falling markets, this is also a useful tool to balance risks in case of negative movements in your portfolio.
&nbsp;
For example, if you own 1,000 shares of American Airlines but are concerned that a sudden rise in oil prices in the short term could negatively affect the company&rsquo;s performance, you could sell the shares. However, this would mean closing your position.
&nbsp;
Alternatively, using CFDs, you can open a short position on 1,000 shares of American Airlines. If negative movements occur in your portfolio, your short CFD position will provide a profit that can offset the loss from other investments.
&nbsp;
If the airline's stock starts to rise again, simply close your CFD position, realizing a profit or minimizing a loss.
&nbsp;

Advantages of trading CFDs

<h1 dir="ltr">CFD leverage and margin</h1>
Leverage is a key feature of trading Contracts for Difference (CFD) &ndash; it allows you to open positions by paying only a fraction of their full value, known as your margin. Let's take a closer look at how leverage works in CFD trading.
<ol>
<li dir="ltr" aria-level="1">
What is leverage in CFD trading?
</li>
<li dir="ltr" aria-level="1">
How does leverage work in CFD?
</li>
<li dir="ltr" aria-level="1">What is CFD margin?</li>
<li dir="ltr" aria-level="1">
Margin Calculation
</li>
<li dir="ltr" aria-level="1">
Cost of leverage in CFD
</li>
<li dir="ltr" aria-level="1">
How to manage CFD risks
</li>
</ol>
&nbsp;
<h3 dir="ltr">What is leverage in CFD trading?</h3>
Leverage in CFD trading allows you to trade larger positions than you could afford by paying the full value of the underlying assets. Instead, you pay only a fraction of the position's value, known as the margin, which acts as a deposit required to open the trade.
&nbsp;
Leverage can significantly increase your potential profits, but it also amplifies the risk of losses. Before you decide to trade on margin, it's important to understand how leverage works and to know how to manage your risks, for example, through the use of stop-loss orders.
&nbsp;
<h3 dir="ltr">How leverage works in CFD</h3>
Leverage in CFD trading works by allowing you to trade based on speculation about price movements, rather than owning the actual asset. This means that you don&rsquo;t need to pay the full value of the asset you're trading, but only a certain amount as margin, which allows you to open a larger position.
&nbsp;
For example, if you want to trade 10 contracts on the S&amp;P 500 index when the price is at 4500 points, the total value of your position will be (10 * 4500) = 45,000 USD. However, to open the trade, you will only need to pay the margin, not the total value.
&nbsp;
Even though you&rsquo;re only paying the margin, your profit or loss will be calculated based on the full value of the position. For each point the S&amp;P 500 index moves up, you will earn 10 USD, and for each point it moves down, you will lose 10 USD.
<h3 dir="ltr">&nbsp;</h3>
Advantages of leverage
&nbsp;
Trading with leverage allows you to gain the same market exposure with a lower initial investment. This means that you don&rsquo;t have to pay the full value of the trade to open a position, but only a small fraction, leaving you with more funds for other investments.
&nbsp;
In our example, when trading a position worth 45,000 USD, you would only need to pay 5% of this value, which is 2,250 USD, freeing up the remaining 42,750 USD for other purposes.
&nbsp;
Leverage can help increase your returns if the market moves in the direction you anticipated. This means that even a small market movement can significantly impact your profits. On the other hand, if the market moves against you, leverage will also amplify your losses. Therefore, it is crucial to manage risk effectively to avoid losses that could jeopardize your capital.
&nbsp;
Example of CFD usage: Stock trading vs CFD trading
&nbsp;
To better understand how leveraged CFDs work in practice, let&rsquo;s look at a specific example.
&nbsp;
Let&rsquo;s assume you want to trade 1000 shares of XYZ company, which has a current share price of 25 USD. You can either directly invest in XYZ shares through a broker or you can buy 100 CFDs on XYZ shares.
&nbsp;
In both cases, the total value of your position will be the same: (25 * 100) = 2,500 USD.
&nbsp;
<img src="https://direct.y4trade.com/assets/135aed9d-6aca-478e-86ea-2909b6b6dbf6.png?width=600&amp;height=400" alt="Cfd Leverage Example">
&nbsp;
The margin requirement for trading XYZ shares is 30%. This means that when trading CFDs, you only need to pay 750 USD to open this position, instead of the full amount of 2,500 USD.
&nbsp;
Leveraged trading allows you to utilize this margin, freeing up additional funds that you can use for other trades.
&nbsp;
How leverage increases profits
When the price of XYZ shares rises to 26 USD following strong earnings, you decide to close your trade.
&nbsp;
In both cases &mdash; with a traditional broker or with CFD trading &mdash; you would make a profit of (26-25 * 1000) = 1,000 USD. However, the return on investment for your CFD trade would be much higher.
&nbsp;
Why? Because you only used 750 USD to open the position with CFD. This means the return on investment would be 13.3%, while with traditional trading, where you would have to invest the full 2,500 USD, the return would be only 4%.
&nbsp;
<img src="https://direct.y4trade.com/assets/851e1a09-f5fc-4007-951d-28b73d5417d7.png?width=600&amp;height=400" alt="How Leverage Magnifies Profits">
&nbsp;
How leverage increases losses
&nbsp;
This is how leverage works when you make a profit &mdash; the same principle applies if you end up with a loss.
&nbsp;
Let&rsquo;s say your trade with XYZ shares was unsuccessful, and you decide to close the position with a loss of 100 USD. In this case, the return on your investment when trading CFDs would be -13.3%, because you invested 750 USD and lost 100 USD.
&nbsp;
On the other hand, with traditional stock trading, the return would only be -4%, as you invested the full amount of 2,500 USD and lost 100 USD.
&nbsp;
Therefore, using leverage increased your losses, as the risk is magnified in the same way as profits.
&nbsp;
<img src="https://direct.y4trade.com/assets/ffa8cf3c-40cb-48df-93a9-79f4129bd481.png?width=600&amp;height=400" alt="How Leverage Magnifies Losses">
<h3 dir="ltr">What is CFD margin?</h3>
CFD margin is the amount you must have in your trading account in order to open a position on a contract for difference. It may also be referred to as the margin requirement or market margin factor.
&nbsp;
Margin factors can vary between different markets and are usually expressed as percentages. This percentage will show you what portion of the total value of your position you need to pay as a deposit. Generally, the higher the margin requirement, the more volatile or less liquid the market is.
&nbsp;
Margin call and closing levels
&nbsp;
To keep your leveraged trade open, you must have sufficient funds in your account to cover the margin at all times &ndash; especially if your position is in a loss.
&nbsp;
Imagine you have deposited the required $750 to buy CFD shares of XYZ. If the price of XYZ shares drops and your position reaches a loss of $50, your account will only have $700 left, which is insufficient to cover the margin requirement.
&nbsp;
This situation is called a margin call, and it may lead to the closure or liquidation of your positions. On y4trade.com, positions are closed if the account balance falls below 100% of the required trading margin.
&nbsp;
To avoid position liquidation, you should always ensure you have enough funds in your account to cover the maximum potential loss while you decide to keep your position open.
&nbsp;
<img src="https://direct.y4trade.com/assets/2bbb13e0-cb37-4f6d-bbfc-0daf35103fff.png?width=600&amp;height=400" alt="Margin Call">
<h3 dir="ltr">Margin calculation</h3>
To calculate the required margin for any position, you need to know its total size and the margin requirement. For example, if you want to buy 5 CFD UK 100 at 6800 and the margin factor for UK 100 is 15%:
<ul>
<li dir="ltr" aria-level="1">
The total size of your position is (5 * 6800) = 34,000 GBP.
</li>
<li dir="ltr" aria-level="1">
15% of 34,000 is 5,100 GBP.
</li>
<li dir="ltr" aria-level="1">
You need 5,100 GBP, converted to your base currency, in your account as margin.
</li>
</ul>
However, you don't need to do this calculation manually &ndash; every time you open a position on the y4trade.com platform, you'll see the required margin displayed in the contract ticket.
&nbsp;
Maintaining open positions
&nbsp;
When you have multiple positions open simultaneously, monitoring your total margin requirements can become complex.
<ul>
<li dir="ltr" aria-level="1">
If the indicator is above 200%, you have sufficient funds to maintain your open positions.
</li>
<li dir="ltr" aria-level="1">
If the indicator drops below 200%, you risk your position continuing to decline, and it may be automatically closed.
</li>
<li dir="ltr" aria-level="1">
If the indicator falls below 100%, you no longer have enough funds in your account to cover the total margin. If the indicator drops below 120%, a warning symbol will appear next to the indicator.
</li>
</ul>
&nbsp;
What to do if you're close to liquidation
&nbsp;
If you're approaching liquidation, you have three potential options:
<ol>
<li dir="ltr" aria-level="1">
Close your position: Acknowledge the loss and reduce your total margin requirement.
</li>
<li dir="ltr" aria-level="1">
Partially close your positions: Reduce the size of your positions to free up some of your capital on the account.
</li>
<li dir="ltr" aria-level="1">
Add more funds to your account: You&rsquo;ll need to cover the margin shortfall and may want to add additional funds to maintain any further potential losses.
</li>
</ol>
&nbsp;
<h3 dir="ltr">Costs of trading with leverage</h3>
In addition to margin, there are other costs that you&rsquo;ll need to cover when trading leveraged CFDs. The main one is overnight financing.
&nbsp;
When you trade with leverage, your provider essentially lends you funds to cover the full size of your position. Overnight financing represents the cost of keeping this loan open for more than one trading day.
&nbsp;
<h3 dir="ltr">How to&nbsp; manage CFD risks</h3>
1. Use Margin Wisely When sizing CFD positions, it's usually a good idea to be cautious instead of using all your available capital for margin. As mentioned earlier, failing to do so may quickly put you at risk of liquidation. Many traders limit their risk to only 1% or 2% of their total funds for each trade. This way, you can endure multiple losses without facing a margin call.
&nbsp;
2. Use Stop Orders Stop orders automatically close a trade when it reaches a certain loss level, helping to limit your risk on that position. You can add stop orders through the ticket or to an existing trade. It's important to remember that the price at which your position closes may differ from the price at which you set the stop order if there's a market gap. Gaps can occur when the market experiences high volatility, or when markets reopen after being closed (e.g., after the weekend), meaning the closing price may differ from the set trigger price.
&nbsp;
3. Use CFDs for Hedging Since CFDs allow you to short-sell and potentially profit from falling market prices, traders sometimes use them as a hedging tool to offset losses in their portfolios. For example, if you have a long-term portfolio but feel that your investments are at short-term risk, you can use CFDs to mitigate potential short-term losses by hedging your position. In this way, if the value of your portfolio falls, the profit from your CFD position will help offset these losses, allowing you to maintain your portfolio without significant reduction in its overall value.
&nbsp;
In this way, if the value of your portfolio declines, the profit from the CFD will help offset these losses, allowing you to maintain your portfolio without experiencing a significant decrease in its overall value.
&nbsp;

CFD leverage and margin

<h1 dir="ltr">Costs of trading CFDs</h1>
Here you will learn about the costs associated with CFD trading, including situations when you will pay a commission for CFDs, which markets are commission-free, how overnight financing works, and more.
<ol>
<li dir="ltr">Commission vs. Financing</li>
<li dir="ltr">Overnight Financing</li>
<li dir="ltr">Rolling CFD Futures</li>
</ol>
<h3 dir="ltr"> Commission vs. financing</h3>
When trading CFDs, there are two main methods for charging costs when opening or closing a trade: commission or spread. Which method applies depends on the type of assets you are trading:
<ul>
<li dir="ltr" aria-level="1">
Indices and Commodities: These markets do not require a commission. Instead, you only pay the spread, which is the difference between the buying and selling price.
</li>
<li dir="ltr" aria-level="1">
Stock CFDs: A commission is charged for these positions, which is calculated based on the total value of the trade.
</li>
</ul>
&nbsp;
What is a CFD commission?
&nbsp;
A CFD commission is typically charged when opening and closing a position on a Contract for Difference (CFD) on stocks. The amount of the commission you pay depends on where your stock is listed. There is also a minimum commission. For most stocks, the fees are as follows:
&nbsp;
<img src="https://direct.y4trade.com/assets/2e94e77f-4f3b-4fe6-b9b5-13a00c780cd3.png?width=600&amp;height=400" alt="What Is a Cfd Commission">
&nbsp;
Example of CFD commission
&nbsp;
Let's say you want to buy 250 Walmart CFD shares, with the stock price at 135 USD. The total value of your position would be (250 * 135 USD) = 33,750 USD. Walmart has a commission of 1.8 CPS, so you would pay (1.8 * 250), which equals 4.5 USD. Since this amount is below the minimum threshold, you will pay the minimum commission of 10 USD.
&nbsp;
<img src="https://direct.y4trade.com/assets/57b46cd9-613c-4188-abc4-e818a4a2546b.png?width=600&amp;height=400" alt="Example of Cfd Commission">
&nbsp;
Spreads on CFDs
&nbsp;
You trade based on the bid price to sell the market.
 You trade at the ask price to buy the market.
 The spread is the difference between the sell and buy price. For asset classes without commission, the spread is essentially your cost of trading on the market. The tighter the spread, the faster the trade can potentially move into profitable territory.
 For stock CFDs, the spread simply reflects the difference between the buy and sell price of the underlying market.
&nbsp;
<h3 dir="ltr">Overnight financing</h3>
Overnight financing is a fee you pay for keeping a CFD position open for longer than one day. Essentially, it&rsquo;s an interest charge to cover the cost of leverage you&rsquo;re using overnight. You can also think of it as a carrying cost.
&nbsp;
For CFDs with an expiration date (forwards), no financing fee is charged. Instead, these contracts have wider spreads because the carrying costs are included in the price.
&nbsp;
Overnight financing is charged at your instrument's base rate + 2.5% for long positions. Alternatively, for short positions, you will "receive" a rate of -2.5%. The percentage is calculated based on the size of your trade at the end of the day and divided by 365 to obtain the daily rate.
&nbsp;
Here are the reference rates for markets in EUR, GBP, JPY, SGD, and USD:
&nbsp;
<img src="https://direct.y4trade.com/assets/30c4a12d-5598-4a41-bf44-a5cd393508f6.png?width=600&amp;height=400" alt="Benchmark">
&nbsp;
However, if the base interest rates are low, for short positions, instead of being paid, a daily financing fee will be charged to you. Example of CFD financing:&nbsp;
&nbsp;
Example of CFD Financing: Let's say you decided to buy three CFDs on the UK 100 at 7310. The trade performs well and its price rises to 7340 by the end of the day. However, it is still far from your target price of 7380. You decide to leave the position open overnight.
&nbsp;
The value of your position at the end is (7340 * 3) = 22,020. To calculate your overnight financing, add 2.5% to the current SONIA rate, multiply this percentage by 22,020, and then divide the result by 365.
&nbsp;
If the SONIA rate is 0.25%, then:
&nbsp;
0.25% + 2.5% = 2.75% 2.75% * 22,020 = 605.55 605.55 / 365 = 1.65 GBP
&nbsp;
Your overnight financing fee will be 1.65 GBP, which will be converted to your account's base currency.
&nbsp;
<img src="https://direct.y4trade.com/assets/0cf2d8ab-33fe-4376-8e58-fd6f73bac11a.png?width=600&amp;height=400" alt="Financing on a Long Cfd Position">
<h3 dir="ltr">Rolling CFD futures</h3>
When futures contracts approach their expiration, you have the option to roll your trade into the next contract, if you wish. This process can be done by checking the automatic rolling option on the order ticket. For this transfer, you will pay half of the spread.
&nbsp;
If you are long, your position will be closed at the middle price and then opened in the next contract at the buying price.
&nbsp;
If you are short, your position will be closed at the middle price and reopened at the selling price in the next month.
&nbsp;
Rolling into the next contract is cheaper than manually closing and reopening a trade. When you manually close and reopen a trade, you pay the full spread, while with "rolling," you only pay half.
&nbsp;
For example, if you decided to roll your long March CFD position in XYZ into the next contract, you will save on costs by paying only half of the spread.
&nbsp;
<img src="https://direct.y4trade.com/assets/3f5ee057-9bc4-4f8a-b2f9-b362c5b27547.png?width=600&amp;height=400" alt="Futures Contract Rollover">
&nbsp;
At the time of rolling, the price of the March contract is 630 / 635, and the price of the June contract is 640 / 645. Your long CFD position is closed at the March middle price of 633 and automatically reopened at the June buying price of 645.
&nbsp;
Any profit or loss from this transaction will be automatically recorded on your account.
&nbsp;
If you were to close the trade manually, you would close the position at 630 and then reopen it at 645, paying the wider spread. Rolling saves you costs because you only pay half of the spread.
&nbsp;

Costs of trading CFDs

<h1 dir="ltr">CFDs on shares</h1>
CFDs on shares are financial instruments that allow you to speculate on the price movement of shares of specific companies. We explain exactly how they work.
<ol>
<li dir="ltr">How to trade share CFDs?</li>
<li dir="ltr">Difference between CFD trading and investing &ndash; which is more advantageous for me?</li>
<li dir="ltr">What does going long or short mean?</li>
<li dir="ltr">Who trades CFDs?</li>
<li dir="ltr">How does leverage work in share CFDs?</li>
<li dir="ltr">Which shares can be speculated with CFDs?</li>
<li dir="ltr">Example of trading share CFDs</li>
</ol>
<h3 dir="ltr">How to trade share CFDs?</h3>
A Contract for Difference (CFD) represents an agreement between the trader and the broker where the trader speculates on the price movement of a specific share. At any moment, two prices are available &ndash; the buy price and the sell price. If the trader expects the share price to rise, they decide to buy. Conversely, if they expect a decline, they choose to sell.
 The key thing to realize is that when trading CFDs, you do not actually own or buy the shares of the company. You achieve profit by correctly predicting the price movement and timely closing the contract with the broker. If the price moves in the opposite direction than you expected, the trade results in a loss.
&nbsp;
Difference between CFD trading and investing &ndash; which is more advantageous for me? Share CFDs and traditional investing are two different strategies in financial markets, each with its own advantages.
 CFD trading is suitable if you want to:
<ul>
<li dir="ltr" aria-level="1">
Use financial leverage 
</li>
<li dir="ltr" aria-level="1">
Speculate on both price rises and falls (long and short positions) Traditional investing is the better choice if: 
</li>
<li dir="ltr" aria-level="1">
You are ready to invest the full value of the asset upfront 
</li>
<li dir="ltr" aria-level="1">
You want to actually own shares or other assets It depends on your goals and risk tolerance. 
</li>
</ul>
<h3>What does going long or short mean?</h3>
When trading share CFDs, you have two options:
<ul>
<li dir="ltr" aria-level="1">
Long position (Long) &ndash; means buying CFDs expecting the share price to rise. If the price increases, you make a profit. 
</li>
<li dir="ltr" aria-level="1">
Short position (Short) &ndash; means selling CFDs aiming to profit from a decline in the underlying asset&rsquo;s price. This strategy is especially useful in bear markets. Regardless of whether you anticipate price increases or decreases, CFD trading is quick and simple &ndash; you just need to correctly predict the market direction and open the trade with a single click. 
</li>
</ul>
<h3 dir="ltr">Who trades CFDs?</h3>
 CFDs are popular mainly among active traders who open multiple positions and constantly monitor market developments. Unlike traditional investors who buy shares for months or years aiming for long-term returns, CFD traders often speculate on price movements in a short timeframe &ndash; sometimes even within a single day.
 However, that does not mean CFDs cannot be used for longer-term strategies. Some traders hold positions open for several weeks or months.
Main advantages of CFDs compared to traditional investing:
<ul>
<li dir="ltr" aria-level="1">
Financial leverage &ndash; ability to trade larger capital volumes 
</li>
<li dir="ltr" aria-level="1">
Short positions (short selling) &ndash; ability to profit even from price declines 
</li>
<li dir="ltr" aria-level="1">
Broad market access &ndash; trading different assets from one account 
</li>
</ul>
<h3 dir="ltr">How does leverage work in share CFDs?</h3>
 Leverage is one of the main features of share CFD trading, allowing you to trade larger positions than you could with direct share purchase. Although leverage is common in forex trading, it also plays a key role in share CFDs.
 How leverage works in practice:
&nbsp;
When trading CFDs, you do not need to deposit the full position value, only a part of it &ndash; the margin. Margin requirements (MMR) for share CFDs are usually higher than for other assets. For example:
<ul>
<li dir="ltr" aria-level="1">
If MMR is 40%, your available leverage is 2.5:1 (100 &divide; 40). That means to open a position worth 10,000 USD, you only need 4,000 USD of your own capital. 
</li>
</ul>
Advantages and risks of leverage:
<ul>
<li dir="ltr" aria-level="1">
Profit potential &ndash; you gain 100% of the profit from a correct trade, even if you invested only part of the position value. 
</li>
<li dir="ltr" aria-level="1">
Risk of losses &ndash; you also bear 100% of potential losses, which can quickly result in losing all your capital if the market moves against you. Therefore, risk management is essential when trading with leverage. It is recommended to use tools such as: 
</li>
<li dir="ltr" aria-level="1">
Stop‑loss orders &ndash; limit the maximum loss on a trade 
</li>
<li dir="ltr" aria-level="1">
Take‑profit orders &ndash; lock in profit when the target price is reached 
</li>
<li dir="ltr" aria-level="1">
Guaranteed stop‑losses &ndash; protect against large losses even during market volatility Trading with leverage offers higher profit potential but also higher loss risk. Thus, it&rsquo;s important to always monitor margin requirements and have sufficient account reserves to avoid forced position closure. 
</li>
</ul>
Which shares can I trade?
&nbsp;
When trading share CFDs, you have access to thousands of leading international companies, including firms from the USA, the UK, and other emerging markets. This allows you to diversify your portfolio and speculate on price movements in various regions. Key factors when trading share CFDs:
<ul>
<li dir="ltr" aria-level="1">
Variable spreads &ndash; buy price is always slightly higher than sell price 
</li>
<li dir="ltr" aria-level="1">
Low commissions &ndash; for example 0.05% per trade (with a minimum fee) 
</li>
<li dir="ltr" aria-level="1">
Trading hours &ndash; markets vary by region, e.g., London (GMT) is five hours ahead of New York (ET) A wide range of shares gives traders flexibility to create their own strategy. It is important to monitor time zone differences between markets and actively manage positions. 
</li>
</ul>
<h3 dir="ltr">Trading share CFDs: Example</h3>
 Let&rsquo;s assume IBM shares are currently trading with a sell/buy price of 150 USD/155 USD.
&nbsp;
Opening the position:
&nbsp;
You decide to buy 10 CFD contracts on IBM shares, expecting the price to rise. The total position value is 1,550 USD (10 &times; 155 USD).
 The minimum margin requirement (MMR) for IBM CFDs on the FOREX.com platform is 5%.
 This means you only need to deposit 77 USD (5% of 1,550 USD) to open this position.
 Closing the position and profit calculation:
 One week later, it turns out you were right &ndash; the IBM price rises and new sell/buy prices are 180 USD/187 USD.
 You decide to close the trade by selling at 180 USD (new sell price).
 The price moved 25 points in your favor (180‑155).
 Total profit: 25 USD &times; 10 units = 250 USD (minus commissions).
 This example illustrates how you can profit from share price movement using CFD trading while leveraging leverage to open a larger position with less initial capital.
<h3 dir="ltr">&nbsp;</h3>
<h3 dir="ltr">How to start trading CFDs on Y4Trade.com</h3>
 If you understand the risks of CFD trading, are ready to invest, you can open an account on Y4Trade.com.
 You can first try with a free demo account valid for 90 days. It provides 50,000 USD in virtual capital to test various strategies and monitor market movements without risking real money.
&nbsp;
CFD trading steps:
<ol>
<li dir="ltr" aria-level="1">
Choose the share you wish to trade. 
</li>
<li dir="ltr" aria-level="1">
Open a position: 
</li>
<ul>
<li dir="ltr" aria-level="2">
Buy (long) if you expect the price to rise 
</li>
<li dir="ltr" aria-level="2">
Sell (short) if you expect the price to fall 
</li>
</ul>
<li dir="ltr" aria-level="1">
Monitor your open position and consider adding stop‑loss and take‑profit orders for risk and profit management. 
</li>
<li dir="ltr" aria-level="1">
If the trade doesn&rsquo;t close automatically via your set limits, you can close it at any time manually.
</li>
</ol>
&nbsp;

CFDs on shares

<h1 dir="ltr">Understanding technical analysis</h1>
Some traders identify themselves by the way they find trading opportunities. In this course, we will focus on one of the most popular methods &ndash; technical analysis.
<ol>
<li dir="ltr">What is technical analysis?</li>
<li dir="ltr">Basics of technical analysis</li>
<li dir="ltr">Advantages of technical analysis</li>
<li dir="ltr">Disadvantages of technical analysis</li>
<li dir="ltr">Key concepts of technical analysis </li>
</ol>
<h3 dir="ltr"> What is Technical Analysis?</h3>
Technical analysis is an approach to identifying trades based on the analysis of price charts. Traders use these charts to predict market movements and determine optimal entry and exit points for trades.
&nbsp;
Technical analysis vs. fundamental analysis
&nbsp;
Technical analysis and fundamental analysis are the two main methods traders use to evaluate markets and identify trading opportunities. While they differ in approach, both play a role in trading.
<ul>
<li dir="ltr" aria-level="1">
Technical analysis focuses solely on price movements and chart patterns, ignoring other factors.
</li>
<li dir="ltr" aria-level="1">
Fundamental analysis examines economic indicators, financial reports, and news to understand what drives market prices.
</li>
</ul>
Some traders combine both approaches. You can use fundamental analysis to identify undervalued markets and technical analysis to time entry and exit points.
&nbsp;
On the other hand, some traders rely exclusively on one method&mdash;technical traders base decisions purely on charts, while fundamental traders focus on economic data.
&nbsp;
New Approaches &ndash; In recent years, alternative methods like market sentiment analysis and statistical analysis have gained popularity. However, most traders still prefer one of the two traditional methods.
&nbsp;
<img src="https://direct.y4trade.com/assets/ef0c8030-0585-450c-81d3-d1b8735e7a9a.png?width=600&amp;height=400" alt="Types of Analysis">
<h3 dir="ltr">Basics of technical analysis</h3>
No trader can predict future market movements with certainty. Instead, they use available data to make an informed estimate of price movements for their chosen asset while assessing risk relative to potential reward.
&nbsp;
Purely technical traders believe that all the necessary information for determining future market direction is embedded in price charts. They analyze historical price movements and patterns to identify probable future scenarios.
&nbsp;
Order in chaos
&nbsp;
The foundations of technical analysis are partly based on chaos theory, which suggests that even in seemingly random market movements, identifiable patterns tend to repeat. Technical traders do not use these patterns for precise predictions but rather to estimate the probability of a certain market movement.
&nbsp;
Based on this probability, they decide whether a trade is worth the associated risk.
&nbsp;
A price chart provides an overview of overall market sentiment, which traders combine with historical data to determine the likely future trend.
&nbsp;
For example, if the EUR/USD pair experiences a strong rally followed by a consolidation phase, a technical trader may interpret this as a signal that bullish sentiment is weakening. If similar patterns in the past frequently led to price reversals, the trader might see this as an opportunity to open a short position.
<h3 dir="ltr">Advantages of technical analysis</h3>
One of the main advantages of technical analysis is its neutrality and versatility. It can be applied to any financial instrument and time frame without relying on analytical forecasts. Whether you engage in forex scalping or long-term stock investing, technical analysis can help you identify and plan trades.
&nbsp;
It also provides a reliable method for determining entry and exit points for trading positions.
&nbsp;
As we&rsquo;ve seen, markets do not move in a straight line. Prices often follow a zigzag pattern, moving sideways, upward, or downward. If you can properly time your trades using technical analysis within these movements, you can maximize your potential profit.
&nbsp;
<img src="https://direct.y4trade.com/assets/724dd00f-f2a5-47f5-b1be-e99d5ad6de48.png?width=600&amp;height=400" alt="Advantages of Technical Analysis">
&nbsp;
Or, even better, you can use technical analysis to identify the moment when overall market sentiment shifts. This allows you to catch the beginning of a new trend or exit in time during a market reversal.
<h3 dir="ltr">Disadvantages of technical analysis</h3>
Despite its popularity, technical analysis has several drawbacks:
<ul>
<li dir="ltr" aria-level="1">
Subjectivity in interpretation: Different analysts may reach different conclusions based on the same charts, leading to ambiguous decisions.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Delayed signals: Technical indicators often react to market changes with a lag, which can result in traders entering or exiting positions too late.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Ignoring fundamental factors: Technical analysis primarily focuses on price movements and volume, disregarding fundamental data such as economic indicators and company financials, which can significantly impact the market.
</li>
</ul>
<h3 dir="ltr">Key terms in technical analysis</h3>
Understanding the following terms is essential for effective technical analysis:
<ul>
<li dir="ltr" aria-level="1">
Trends: The long-term direction of an asset's price, which can be upward (uptrend), downward (downtrend), or sideways (sideways trend).
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Support and Resistance: Price levels on a chart where an asset tends to reverse or consolidate. Support is a level where price tends to stop falling, while resistance is a level where price struggles to rise further.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Candlestick Patterns: Chart patterns formed by price movements over a specific period, helping to identify potential trend reversals or continuations.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Indicators: Mathematical calculations based on price and volume data that provide insights into potential future price movements. Common indicators include moving averages, RSI (Relative Strength Index), and MACD (Moving Average Convergence Divergence).
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Trading Volume: The number of assets traded over a specific period, which can indicate the strength or weakness of a trend.
</li>
</ul>
&nbsp;
Mastering these concepts is fundamental to effectively using technical analysis in financial market trading.
&nbsp;

Understanding Technical Analysis

<h1>Explained technical indicators</h1>
 The final component of technical tools that we will cover in this course is technical indicators.
<h3 dir="ltr">What are technical indicators?</h3>
Technical indicators are mathematical formulas applied to price and volume data, helping traders analyze market trends, identify potential trading opportunities, and make informed decisions. These tools enable traders to recognize patterns and estimate future price movements.
<h3 dir="ltr">Disadvantages of using Technical Indicators</h3>
Although technical indicators can be useful, they also have limitations. Many of them provide delayed signals, meaning they respond to price movements rather than predicting them in advance.
&nbsp;
Additionally, different traders may interpret the same indicator differently, leading to subjective decision-making.
&nbsp;
Relying solely on indicators without considering broader market conditions can result in misleading signals and unsuccessful trades.
<h3 dir="ltr">What are technical indicators?</h3>
Technical indicators are analytical tools applied to a market price chart. They use mathematical calculations and formulas to provide deeper insights into asset price movements. Instead of relying solely on patterns formed by current prices, they offer an additional perspective that helps traders make informed decisions.
&nbsp;
There are hundreds of different technical indicators, with new ones continuously being developed. However, they generally fall into two main categories:
<h3 dir="ltr">Technical indicators for trending markets</h3>
These indicators help traders stay on the right side of the market when assets are in a bullish (rising) or bearish (falling) trend.
Examples:
<ul>
<li dir="ltr" aria-level="1">
Moving Averages
</li>
<li dir="ltr" aria-level="1">
MACD (Moving Average Convergence Divergence)
</li>
</ul>
<h3 dir="ltr">Technical indicators for non-trending markets</h3>
Indicators for non-trending markets help identify situations where an asset is temporarily overbought or oversold, which may signal a potential price reversal.
Examples:
<ul>
<li dir="ltr" aria-level="1">
Stochastic Oscillator
</li>
<li dir="ltr" aria-level="1">
RSI (Relative Strength Index)
</li>
</ul>
&nbsp;
Many traders use technical indicators to better time their trade entries and exits. Others rely on them to measure the strength of existing trends, helping them assess whether a given opportunity is worth the risk.
&nbsp;
Essentially, technical indicators automate complex calculations directly on the chart. While the underlying formulas can be intricate, the key is to learn how to accurately interpret the signals they generate.
<h3 dir="ltr">Do you need technical indicators?</h3>
For some traders, technical indicators are essential&mdash;they believe that a chart without them lacks sufficient insight and enhance it with various tools such as trend lines and oscillators.
&nbsp;
On the other hand, experienced investors often analyze price action without any additional tools.
&nbsp;
While technical indicators are not a necessity, they can be a valuable method for market analysis and identifying new trading opportunities.
<h3 dir="ltr">Disadvantages of using technical indicators</h3>
Since technical indicators rely on historical market prices, most of them lag behind current market movements. This means that by the time a trader acts on their signals in real-time, the trading opportunity may already be gone.
&nbsp;
Like any other trading tool, indicators are not 100% reliable and should be used with caution.
&nbsp;
Another drawback is subjectivity&mdash;two different traders may interpret the same indicator in completely different ways, leading to varying decisions.
&nbsp;
In the next lesson, we will focus on three of the most commonly used indicators, but before that, we will take a closer look at one of the most popular tools in technical analysis&mdash;moving averages.
&nbsp;
&nbsp;

Explained technical indicators

<h1 dir="ltr">&nbsp;3 Key technical indicators</h1>
Among the wide range of technical indicators, some are significantly more popular among traders than others. Here are three of the most commonly used ones that you can try out in your demo account on Y4Trade.com:
<ol>
<li dir="ltr" aria-level="1">
Bollinger Bands
</li>
<li dir="ltr" aria-level="1">
Relative Strength Index (RSI)
</li>
<li dir="ltr" aria-level="1">
Stochastic Oscillator
</li>
</ol>
<h3 dir="ltr">Bollinger bands</h3>
Bollinger Bands are a technical indicator that extends the use of moving averages by adding two lines at a distance of two standard deviations from the market average. This tool helps traders visualize market volatility and determine whether a trend is likely to continue or reverse.
&nbsp;
Bollinger Bands consist of three main lines:
<ul>
<li dir="ltr" aria-level="1">
Middle line &ndash; the moving average of the given market
</li>
<li dir="ltr" aria-level="1">
Upper band &ndash; two standard deviations above the moving average
</li>
<li dir="ltr" aria-level="1">
Lower band &ndash; two standard deviations below the moving average
</li>
</ul>
Standard deviation measures how far prices are from the average. Widely spaced bands indicate high volatility, while closely spaced bands signal a calmer market.
&nbsp;
Like other technical indicators, Bollinger Bands can be adjusted to fit a trading style by modifying the length of the moving average or changing the number of standard deviations.
&nbsp;
Trading with bollinger bands
&nbsp;
There are multiple ways to interpret Bollinger Bands. The most common method involves observing how close the current market price is to one of the bands.
&nbsp;
<img src="https://direct.y4trade.com/assets/461eff02-e2d9-4d1c-bf02-d44d940b66a0.png?width=600&amp;height=400" alt="Trading With Bollinger Bands">
&nbsp;
Bollinger Bands can be applied to trading charts in any time frame, making them useful for both day traders and long-term investors. They are particularly effective in trending markets when the price approaches or exceeds the opposite band, which may signal a potential trend reversal.
 
<h3 dir="ltr">Relative strength index (RSI)</h3>
Another method for determining whether a market is overbought or oversold is by using the Relative Strength Index (RSI) indicator. Similar to MACD, RSI is displayed at the bottom of the chart as a line that moves above and below a scale.
&nbsp;
<img src="https://direct.y4trade.com/assets/13d786f8-7bad-4d53-84ea-2e34147691ba.png?width=600&amp;height=400" alt="Oversold Overbought">
&nbsp;
RSI compares the average number of days an asset closes with a gain to the average number of days it closes with a loss. This calculation is then displayed on a scale from 1 to 100. 
&nbsp;
<img src="https://direct.y4trade.com/assets/61f6c2a1-b851-4a51-b327-4ef0bcff9b0b.png?width=600&amp;height=400" alt="Rsi">
&nbsp;
RSI is typically used with a period of 9, 14, or 25 calendar days (7, 10, or 20 trading days). The more days included in the calculation, the less volatile the resulting indicator value will be.
&nbsp;
Trading with RSI
&nbsp;
A typical way to interpret the Relative Strength Index (RSI) is that a value below 20 indicates the market is oversold, while a value above 80 signals that it is overbought.
&nbsp;
Similar to Bollinger Bands, if a market in a strong uptrend reaches an RSI above 80, it may indicate an impending trend reversal. Likewise, if RSI drops below 20, it could suggest a potential end to a downward trend.
&nbsp;
However, these signals are not guarantees of movement, so caution is necessary when using them.
<h3 dir="ltr">Stochastic oscillator</h3>
The Stochastic Oscillator functions similarly to RSI but with one key difference. Instead of averaging the number of up and down days, it compares an asset's closing price to its average price over a given period.
&nbsp;
Like other indicators, the Stochastic Oscillator is used to identify overbought and oversold markets, helping traders find suitable entry and exit points.
&nbsp;
How the stochastic oscillator works
&nbsp;
The Stochastic Oscillator consists of two main lines displayed in a sub-chart:
<ul>
<li dir="ltr" aria-level="1">
%K Line &ndash; Compares today&rsquo;s closing price to the trading range over the past 14 days.
</li>
<li dir="ltr" aria-level="1">
%D Line &ndash; Serves as a signal line. It is a five-day simple moving average (SMA) of the %K line.
</li>
</ul>
<h4 dir="ltr">Calculation of the % K line:</h4>
<ol>
<li dir="ltr" aria-level="1">
Subtract the lowest market price over the past 14 days (excluding today) from today&rsquo;s closing price.
</li>
<li dir="ltr" aria-level="1">
Multiply the result by 100.
</li>
<li dir="ltr" aria-level="1">
Divide this value by the price range over the past 14 days (highest price &ndash; lowest price).
</li>
</ol>
This method generates a value within the range of 0 to 100, which is then used to identify potential trading signals.
&nbsp;
<img src="https://direct.y4trade.com/assets/330a692d-e758-4ca8-8be2-0f2526616bdc.png?width=600&amp;height=400" alt="Potential Trading Signals">
&nbsp;
As with most technical indicators, it is not necessary to use the exact 14-day Stochastic. You can adjust the number of periods tracked according to your trading style and preferences.
&nbsp;
Trading with the stochastic oscillator
&nbsp;
The Stochastic Oscillator is similar to RSI in that values above 80 indicate an overbought market, while values below 20 suggest an oversold market. Additionally, it can be used to identify crossovers, similar to MACD.
&nbsp;
Many traders combine both approaches&mdash;waiting for a crossover between the oscillator lines when the indicator is already in extreme zones. For example, if the %K line crosses above 80 and then drops below the %D line, it can be a strong sell signal.
&nbsp;

 3 Key technical indicators

<h1>Introduction to technical analysis charts</h1>
Charts are among the fundamental tools of every trader using technical analysis. Let&rsquo;s take a look at how they work, the most important types of charts, and how to understand price movement at first glance.
<ol>
<li>Price vs. Time</li>
<li>Types of Technical Analysis Charts</li>
<li>How to Read a Candlestick Chart</li>
</ol>
<h3 dir="ltr">Price vs. Time</h3>
Every trading chart always contains two basic axes &ndash; price and time. Time is located on the horizontal axis (x). Price is represented on the vertical axis (y). This method of visualization allows traders to observe how the price has developed over time and to identify patterns in market behavior.
&nbsp;
<img src="https://direct.y4trade.com/assets/6e2d8f95-08cd-4b7c-ad1b-0c74650744f9.png?width=600&amp;height=400" alt="Price Vs. Time">
&nbsp;
Charts allow traders to choose which time period they want to analyze.
 For a short-term view, a five-minute or 60-minute chart can be used. For example, in a five-minute chart, each point represents five minutes of price movement.
 For longer-term trading such as position or swing trading, it may be more appropriate to look at a broader time frame &ndash; from a week to a month or even a full year.
The choice of the right time interval depends on the trading strategy and investment horizon.
&nbsp;
Example &ndash; ten-minute EUR/USD chart
&nbsp;
In this ten-minute chart of the EUR/USD currency pair, each candlestick represents ten minutes of trading activity, allowing for a more detailed view of short-term price movements.
&nbsp;
<img src="https://direct.y4trade.com/assets/1cc9cc34-089b-4365-8cb0-dcababc5b30e.png?width=600&amp;height=400" alt="Ten Minute Eurusd Chart">
&nbsp;
In this weekly chart, each candlestick represents five days of trading activity, providing an overview of longer-term trends and market developments. 
&nbsp;
<img src="https://direct.y4trade.com/assets/f46563c6-928c-4632-9024-7c6bf11115bb.png?width=600&amp;height=400" alt="5 Days Eurusd Chart">
&nbsp;
You can also choose which type of price you want to track in the chart.
 Most charts are set by default to display the mid-price, but you can adjust it to show either the bid price (selling) or the ask price (buying), depending on your needs.
&nbsp;
<h3 dir="ltr">Types of technical analysis charts</h3>
 In technical analysis, there are three main types of charts: line (mountain), bar, and candlestick. Line charts are essentially simple price charts that show the overall price movement over a selected period.
 However, this type of chart does not reveal all the details. For example, if you're analyzing a 60-minute timeframe, each point will only show the last recorded price in that 60-minute interval. To see what happened during that period, you&rsquo;ll need to switch to a shorter timeframe.
 Bar and candlestick charts offer much more detailed information. They show the high, low, opening, and closing prices for a specific period.
 The main difference between the two lies in visual presentation, though both provide very similar data about price development.
&nbsp;
Bar Charts
&nbsp;
Bar charts represent price movement as a series of vertical lines, each with two small horizontal ticks on the sides. This format clearly shows the price range for the given period and also identifies the opening and closing prices.
&nbsp;
<img src="https://direct.y4trade.com/assets/33197ec2-2135-41c0-9991-4effa5a7fea2.png?width=600&amp;height=400" alt="Bar Charts">
&nbsp;
Candlestick Charts
&nbsp;
Candlestick charts display price movement using a wider body (the &ldquo;candle&rdquo;), which represents the opening and closing prices. Thin lines extending from the top and bottom of the candle, called &ldquo;wicks&rdquo; or &ldquo;shadows,&rdquo; indicate the highest and lowest prices reached during the selected time interval.
&nbsp;
<img src="https://direct.y4trade.com/assets/b773a644-e158-4b68-adbf-b19de7fbbeea.png?width=600&amp;height=400" alt="Candlestick Charts">
&nbsp;
At Y4Trade Academy, we focus on using candlestick charts &ndash; the most popular chart type among traders.
 However, the choice between bar and candlestick charts is ultimately a matter of personal preference. Try both types in your demo on Y4Trade.com and decide which one helps you recognize price patterns more effectively.
&nbsp;
More advanced traders may also use sophisticated chart types such as Heikin Ashi, Renko, or point-and-figure charts. These tools allow for better trend isolation and can assist in predicting potential future price movements.
<h3 dir="ltr">How to read a candlestick chart</h3>
 Candlestick charts display price movement using three main components:
<ul>
<li dir="ltr" aria-level="1">
Candle color &ndash; indicates whether the price increased or decreased during the period. 
</li>
<li dir="ltr" aria-level="1">
Candle body &ndash; represents the range between the opening and closing price. 
</li>
<li dir="ltr" aria-level="1">
Wicks (shadows) &ndash; show the highest and lowest price reached within the selected time interval.
</li>
</ul>
&nbsp;
Candle color
&nbsp;
The color of a candlestick helps determine whether the price action during the period was bullish (rising) or bearish (falling).
 A green candle indicates upward movement &ndash; the closing price was higher than the opening price.
 A red candle indicates downward movement &ndash; the closing price was lower than the opening price.
In some charts, you may also see:
<ul>
<li dir="ltr" aria-level="1">White candles to represent rising trends. </li>
<li dir="ltr" aria-level="1">Black candles to represent falling trends. The color scheme depends on chart settings and trader preferences. </li>
</ul>
Real body
&nbsp;
The real body of a candlestick shows where most of the price action occurred during the given period. The top and bottom of the body represent the opening and closing prices. For a bullish (green) candle, the market opened lower and closed higher:
<ul>
<li dir="ltr" aria-level="1">The opening price is at the bottom of the body. </li>
<li dir="ltr" aria-level="1">The closing price is at the top of the body. For a bearish (red) candle, the situation is reversed: </li>
<li dir="ltr" aria-level="1">The opening price is at the top of the body. </li>
<li dir="ltr" aria-level="1">The closing price is at the bottom of the body. The real body helps traders understand where most trading was concentrated during the selected time interval. </li>
</ul>
Upper and lower wick
 The upper and lower wicks of a candlestick show the highest and lowest prices the market reached during the trading period.
<ul>
<li dir="ltr" aria-level="1">The upper wick represents the highest price the asset reached during that time. </li>
<li dir="ltr" aria-level="1">The lower wick shows the lowest price recorded. </li>
</ul>
These wicks provide valuable insight into price action:
<ul>
<li dir="ltr" aria-level="1">A candle with a long upper wick and a small body indicates that the price rose significantly during the session but then pulled back near the opening level. </li>
<li dir="ltr" aria-level="1">A candle without wicks suggests that all trading occurred between the opening and closing prices, which may signal a strong trend with little volatility. </li>
</ul>
By analyzing these three components (body, upper wick, lower wick), traders can gain a deeper understanding of market behavior during a given period.
 <img src="https://direct.y4trade.com/assets/0411cc16-ee88-4c28-a576-4c2b9f56bf0b.png?width=600&amp;height=400" alt="How to Read a Candlestick Chart"> 
Technical traders believe that patterns formed by one or more candlesticks can provide important insights into the future direction of the market.
 These formations help identify potential reversals or trend continuations and are a fundamental part of technical analysis.
&nbsp;

Introduction to technical analysis charts

<h1 dir="ltr">Candlestick and chart patterns</h1>
Let&rsquo;s take a look at how traders use candlestick patterns on charts to better understand and predict market movements.
<ol>
<li dir="ltr" aria-level="1">
What are patterns?
</li>
<li dir="ltr" aria-level="1">
Trading with patterns
</li>
<li dir="ltr" aria-level="1">
Candlestick patterns
</li>
<ul>
<li dir="ltr" aria-level="2">
Doji
</li>
<li dir="ltr" aria-level="2">
Wide bar
</li>
<li dir="ltr" aria-level="2">
Hammer
</li>
<li dir="ltr" aria-level="2">
Morning star
</li>
</ul>
<li dir="ltr" aria-level="1">
Chart patterns
</li>
<ul>
<li dir="ltr" aria-level="2">
Triangle
</li>
<li dir="ltr" aria-level="2">
Symmetrical triangles, flags, and wedges
</li>
</ul>
</ol>
&nbsp;
<h3 dir="ltr">What are patterns?</h3>
Patterns are distinct formations that appear on charts. Traders use them for quick analysis of market behavior and to gain important insights into potential future developments &ndash; which helps them make decisions about trading strategies.
&nbsp;
Technical analysis is based on the assumption that chart patterns repeat themselves, which usually leads to similar price movements.
&nbsp;
For example, if in 90% of cases in the past, a sharp rise was followed by a consolidation phase and subsequent market decline, a trader might predict that another downward reversal is approaching when the market recovers and then weakens.
&nbsp;
<h3 dir="ltr">Trading with patterns</h3>
Although patterns can help predict price movements, they do not provide certainty about the market&rsquo;s future direction. Therefore, most traders wait for confirmation of the expected move &ndash; whether it&rsquo;s the start of a new trend, a reversal, or a continuation &ndash; before entering a trade.
&nbsp;
In practice, this means they monitor the market for several periods to check if it behaves as anticipated.
&nbsp;
As always, cautious trading and effective risk management play a crucial role.
&nbsp;
Patterns formed by one or more candlesticks provide a quick view of price movement and can indicate the likely future market direction. Below are some of the most significant examples.
<h3 dir="ltr">Candlestick patterns</h3>
Candlestick patterns are formed from one or more individual candlesticks displayed on the chart.
&nbsp;
<img src="https://direct.y4trade.com/assets/d129b4d1-3dce-4b2d-820c-7b715a93dd2a.png?width=600&amp;height=400" alt="Candlestick Patterns">
&nbsp;
Doji
&nbsp;
Doji is considered a neutral pattern that indicates indecision between bulls and bears. There are three main types of Doji:
<ul>
<li dir="ltr" aria-level="1">
Long-legged Doji
</li>
<li dir="ltr" aria-level="1">
Gravestone Doji
</li>
<li dir="ltr" aria-level="1">
Dragonfly Doji
</li>
</ul>
&nbsp;
<img src="https://direct.y4trade.com/assets/f5126c23-71d3-4f20-984c-9bc6a02010fa.png?width=600&amp;height=400" alt="Doji">
Long-legged doji
<ul>
<li dir="ltr" aria-level="1">
This type of Doji shows a high level of indecision, as both buyers and sellers pushed the market up and down, but ultimately they canceled each other out.
</li>
</ul>
&nbsp;
Gravestone doji
<ul>
<li dir="ltr" aria-level="1">
This pattern suggests that buyers initially pushed prices higher, but sellers took control and pushed prices back down, creating a formation resembling a gravestone.
</li>
</ul>
&nbsp;
Dragonfly doji
<ul>
<li dir="ltr" aria-level="1">
In this type of Doji, the scenario is the opposite &ndash; sellers pushed the market lower, but then buyers took control and pulled the market back up.
</li>
</ul>
&nbsp;
<img src="https://direct.y4trade.com/assets/36db9037-cb77-4a19-a9f6-c774a9758097.png?width=600&amp;height=400" alt="Gravestone Doji">
&nbsp;
A Doji is a pattern that forms during a single trading session, meaning it consists of just one candlestick. However, it becomes much more useful when analyzed in a broader context.
&nbsp;
For example, if a red gravestone doji appears after a long uptrend, it may indicate that a trend reversal is approaching.
&nbsp;
<img src="https://direct.y4trade.com/assets/b0369b54-e6a7-4221-ac63-699ab0949d18.png?width=1536&amp;height=1024" alt="20250710 2127 Pozadie a Sviečky Remix 01jztwtev1ec8b3mnk4078c0k7">
&nbsp;
Let's look at what can happen during a four-hour gravestone doji to see how it plays out in practice.
&nbsp;
At the beginning of the trading session, the market continued to rise. However, later on, sellers took control and pushed the price back to the opening level. If this negative sentiment continues, it could indicate that it might be a good time for a short trade.
&nbsp;
Wide range bar
&nbsp;
A wide range bar looks exactly as its name suggests. It is a long bar that is at least two to three times longer than the other candlesticks surrounding it on the chart.
&nbsp;
<img src="https://direct.y4trade.com/assets/049dca35-a8a5-49a8-8338-4ba81d223d00.png?width=600&amp;height=400" alt="Wide Ranging Bar">
&nbsp;
Wide Range Bars
&nbsp;
Wide range bars signal strong momentum in the direction the bar moves. This means that either buying&nbsp;or selling sentiment is dominating, which is often the result of important news, although this is not always the case.
&nbsp;
Trading with a wide range bar can be tempting because it indicates clear volatility and sentiment in the market. However, it is often better to take a step back. These bars may suggest that any prior pattern may no longer hold, and support and resistance levels could be broken if the sentiment is strong enough.
&nbsp;
Hammer
&nbsp;
A hammer candlestick has a small body, a long lower wick, and a small or nonexistent upper wick. It can be either red or green and forms after a downtrend. Hammers are considered a signal that the bearish trend may reverse, and a reversal could occur.
&nbsp;
Hammers can look like any of the following candlesticks:
&nbsp;
<img src="https://direct.y4trade.com/assets/c3715a44-781b-4bc2-801a-d9b1f8427433.png?width=600&amp;height=400" alt="Hammer">
&nbsp;
Hammers not only resemble a hammer in appearance, but they also get their name from how they form &ndash; during this pattern, the market "kills" its bottom, only to rebound upward. Similar to the dragonfly doji, the hammer suggests that buyers overcame the strong selling sentiment before the end of the trading session.
&nbsp;
When looking for hammers, it is important to pay attention to the length of the lower wick, as this length can indicate the strength of the formation. Ideally, the wick should be two to three times longer than the body of the candlestick.
&nbsp;
<img src="https://direct.y4trade.com/assets/0a082472-8b3b-4e05-8705-004662f92afa.png?width=600&amp;height=400" alt="Hammer Long Time">
&nbsp;
If a hammer appears at the end of a bullish run, but does not form as a bearish pattern, it is a reversal pattern that signals the potential end of an upward trend. This pattern is not called a hammer but is referred to as the hanging man.
&nbsp;
In the hanging man, during the trading session, sellers took control to push the price lower. Buyers then tried to push the price back up, but failed to surpass the opening price. This indicates that the buying sentiment may no longer be strong enough to maintain the upward trend.
<h3 dir="ltr">Did you know?</h3>
There are several other one-session patterns that can be useful:
<ul>
<li dir="ltr" aria-level="1">
Spinning tops are similar to long-legged doji, but they have a wider body.
</li>
<li dir="ltr" aria-level="1">
Marubozu are full-body candlesticks with no wicks.
</li>
</ul>
Inverted hammer and falling star
&nbsp;
You can also look for inverted hammers or falling stars. These patterns are also reversal formations that appear at the end of a bearish run and signal the potential end of a downward trend.
&nbsp;
<img src="https://direct.y4trade.com/assets/3106b3b0-b49b-4e23-81b5-38fd5c55b379.png?width=600&amp;height=400" alt="Inverted Hammer and Falling Star">
&nbsp;
If an inverted hammer appears after a rally, it is called a falling star. This pattern is often considered a&nbsp;signal that the upward trend may be nearing its end.
&nbsp;
<img src="https://direct.y4trade.com/assets/e58b04a5-2ad9-490e-9f05-ac5e77e9ae2b.png?width=600&amp;height=400" alt="Shooting Star">
&nbsp;
Confirming hammers
&nbsp;
It is not wise to immediately enter a trade when a hammer appears. Instead, it's better to wait for confirmation of the trend reversal. The easiest way to confirm a hammer is to check if the previous trend continues in the next trading session. If it does, it means the hammer was unsuccessful and the trend is continuing.
&nbsp;
Morning star
&nbsp;
The Morning Star is a commonly used three-candlestick pattern that suggests a downtrend may be ending and a reversal is approaching.
&nbsp;
The Morning Star consists of three candlesticks:
<ol>
<li dir="ltr" aria-level="1">
A long red candle
</li>
<li dir="ltr" aria-level="1">
A small red or green candle, which is below the gap of the previous session's close
</li>
<li dir="ltr" aria-level="1">
A long green candle
</li>
</ol>
If the second candle is a Doji, the likelihood of a trend reversal increases. The trend is considered stronger if the last candle closes above the close of the second candle.
&nbsp;
<img src="https://direct.y4trade.com/assets/72be38ea-6a81-48db-9d87-f597596d8140.png?width=600&amp;height=400" alt="Morning Star Vs. Morning Doji">
&nbsp;
The Morning Star begins with an unbroken downtrend, shown by a long red candle and a gap into the next session. However, the second candle suggests indecision, which may signal that a reversal is approaching. The long green candle that follows confirms that a trend reversal is on the way. 
<h3 dir="ltr">Chart patterns</h3>
Chart patterns form over multiple trading sessions, so they tend to be longer than candlestick patterns.
&nbsp;
Triangle
&nbsp;
One of the easiest chart patterns to recognize is the triangle pattern. There are three types of triangles to watch for:
<ul>
<li dir="ltr" aria-level="1">
Ascending triangle
</li>
<li dir="ltr" aria-level="1">
Descending triangle
</li>
<li dir="ltr" aria-level="1">
Symmetrical triangle
</li>
</ul>
&nbsp;
<img src="https://direct.y4trade.com/assets/e8c78460-ffea-4ddd-aac3-5dbce6ec0bd5.png?width=600&amp;height=400" alt="Triangle">
&nbsp;
In an ascending triangle, the bottom gradually rises, indicating an upward trendline. However, the trend stalls because the market fails to reach new highs. Instead, it consistently bounces off a strong resistance level.
&nbsp;
Ascending triangles, which often occur after significant upward trends, are continuation patterns. If the market breaks through the resistance level, a new rally could form.
&nbsp;
However, if the market drops below the lower trendline, the pattern is considered invalid.
&nbsp;
Descending triangles are the exact opposite of ascending ones. After a downward trend, the market encounters a strong support level, but the resistance is falling. If support breaks, a new bearish run could emerge.
&nbsp;
Trading with triangles
&nbsp;
The easiest way to trade a triangle pattern is to place an entry order just above the resistance level (for an ascending triangle) or just below the support level (for a descending triangle). You can then trade based on the emerging price action.
&nbsp;
It is often a good idea to place a stop order just behind the opposite trendline. This way, if the pattern fails, your position will be automatically closed.
&nbsp;
<img src="https://direct.y4trade.com/assets/7857dabc-a11f-4384-8beb-f724775fd010.png?width=600&amp;height=400" alt="Triangle Stop Loss">
&nbsp;
Symmetrical triangles, flags, and wedges
&nbsp;
Although symmetrical triangles, flags, and wedges look slightly different, they are similar in how they function. These three patterns are formed by two trendlines that indicate indecision in the market. If either trendline is broken, it can lead to a new rally in that direction.
&nbsp;
In a symmetrical triangle, two trendlines converge towards each other. The first connects a series of lower highs, while the second connects a series of higher lows.
&nbsp;
<img src="https://direct.y4trade.com/assets/41bf4518-f79d-4881-be7c-1bb14401bd97.png?width=600&amp;height=400" alt="Symmetrical Triangle">
&nbsp;
In a wedge, two trendlines converge towards each other and are inclined in the same general direction.
<ul>
<li dir="ltr" aria-level="1">
In an ascending wedge, both the upper and lower trendlines are slanted upwards.
</li>
<li dir="ltr" aria-level="1">
In a descending wedge, both the trendlines slope downwards.
</li>
</ul>
&nbsp;
<img src="https://direct.y4trade.com/assets/f20101e1-667b-4d9d-8c6f-2d3b9411cdaa.png?width=600&amp;height=400" alt="Rising Wedge Vs. Falling Wedge">
&nbsp;
In a flag, two trendlines run parallel, either sloping downward (for a bullish flag) or upward (for a bearish flag).
<ul>
<li dir="ltr" aria-level="1">
Bullish flags appear after a strong upward movement, signaling a potential continuation of the rise.
</li>
<li dir="ltr" aria-level="1">
Bearish flags appear after a downtrend, suggesting the possibility of further decline.
</li>
</ul>
&nbsp;
<img src="https://direct.y4trade.com/assets/900e6b7f-e8ee-4ece-b4bc-ee15ce905001.png?width=600&amp;height=400" alt="Bullish Flag Vs.bearish Flag">
&nbsp;
Trading consolidation patterns
&nbsp;
In all of these patterns, the market is in a consolidation phase, often accompanied by decreasing volatility and trading volume.
 During the pattern's formation, the market cannot decide whether to go up or down. Once either trendline is broken, a significant move in the direction of the breakout may occur.
<ul>
<li dir="ltr" aria-level="1">
If the market breaks upward, it could signal the start of a rally.
</li>
<li dir="ltr" aria-level="1">
If the market breaks downward, it might indicate a bearish escape.
</li>
</ul>
Trading these patterns involves entering a position when the market breaks one of the trendlines. As always, it is wise to place a stop order just behind the opposite trendline, in case the move does not unfold as expected.
&nbsp;
<img src="https://direct.y4trade.com/assets/1a3c44bf-d98a-4dd5-a658-218222fc2367.png?width=600&amp;height=400" alt="Trading Consolidation Patterns">

Candlestick and chart patterns

Japanese Candlesticks

<h1 dir="ltr">Currency correlation in forex trading</h1>
Financial markets rarely operate independently. Movements in one asset often influence others, leading to situations where some prices rise while others fall.
&nbsp;
This phenomenon is known as market correlation. While it can be useful for identifying trading opportunities, it may also increase risk if not handled carefully. However, understanding the principles of correlation in the forex market can help you effectively reduce overall risk.
<h3 dir="ltr">Key Topics:</h3>
<ol>
<li dir="ltr" aria-level="1">
What is market correlation?
</li>
<li dir="ltr" aria-level="1">
Types of correlations
</li>
<li dir="ltr" aria-level="1">
Example of currency correlation
</li>
<li dir="ltr" aria-level="1">
Currency pairs with high correlation
</li>
<li dir="ltr" aria-level="1">
Importance of correlations in trading
</li>
<li dir="ltr" aria-level="1">
Commodity correlations
</li>
<li dir="ltr" aria-level="1">
Relationship between currencies and stocks
</li>
<li dir="ltr" aria-level="1">
Practical tips for trading with currency correlation
</li>
</ol>
This overview provides the foundation for understanding how correlations work and how to use them effectively in trading.
<h3 dir="ltr">What is market correlation?</h3>
Market correlation measures the extent to which the movements of different assets influence one another. It can refer to specific markets, sectors, or entire asset classes. However, it&rsquo;s important to note that correlations are not fixed and may change over time.
<h4 dir="ltr">Correlation in percentages:</h4>
<ul>
<li dir="ltr" aria-level="1">
100% correlation: Represents a perfect correlation where two markets always move in the same direction. If one market rises, the other follows.
</li>
<li dir="ltr" aria-level="1">
50% correlation: Indicates that the markets generally move in the same direction, but their movements are not always perfectly aligned.
</li>
</ul>
&nbsp;
<h3 dir="ltr">Types of correlations</h3>
Correlations can be categorized into three types:
<ol>
<li dir="ltr" aria-level="1">
Positive correlation: Two markets move in the same direction. If one rises, the other also rises.
</li>
<li dir="ltr" aria-level="1">
Negative correlation: Market movements are opposite. When one rises, the other falls.
</li>
<li dir="ltr" aria-level="1">
No correlation: There is no significant relationship between the movements of the two markets; they are independent.
</li>
</ol>
Understanding these correlations is key to effective risk management and optimizing trading strategies.
&nbsp;
<h3 dir="ltr">Measuring correlations</h3>
Correlations are expressed on a scale from -100% to 100% and fall into five main categories:
<ul>
<li dir="ltr" aria-level="1">
-60% to -100% &ndash; Strong negative correlation: Two markets move in opposite directions. If one rises, the other falls.
</li>
<li dir="ltr" aria-level="1">
-20% to -60% &ndash; Moderate negative correlation: Markets tend to move oppositely, but not always in perfect synchronization.
</li>
<li dir="ltr" aria-level="1">
-20% to 20% &ndash; Essentially uncorrelated: There is no meaningful relationship between the movements of the two markets.
</li>
<li dir="ltr" aria-level="1">
20% to 60% &ndash; Moderate positive correlation: Markets generally move in the same direction, though not perfectly aligned.
</li>
<li dir="ltr" aria-level="1">
60% to 100% &ndash; Strong positive correlation: The movements of the two markets are very similar. If one rises, the other usually follows.
</li>
</ul>
This framework helps traders and investors better understand relationships between assets and utilize correlations when planning strategies.
&nbsp;
<h3 dir="ltr">Example of currency correlation</h3>
Current correlation coefficients for the EUR/USD pair with other major currency pairs may vary depending on the time frame and market conditions. Precise and up-to-date data on these correlations can be obtained through specialized financial platforms or analytical tools offering real-time statistics and charts.
&nbsp;
For example, the National Bank of Slovakia provides exchange rate charts that can serve as a foundation for analyzing correlations between different currency pairs. For more detailed analysis and precise correlation coefficients, it is advisable to use specialized analytical tools or platforms providing such data in real time.
&nbsp;
<img src="https://direct.y4trade.com/assets/fd051ad3-7d08-4c20-a67a-dbbe456b55d4.png?width=600&amp;height=400" alt="Correlation With Eurusb">
&nbsp;
These data suggest that EUR/USD has a strong positive correlation with GBP/USD, meaning they often move in the same direction. Conversely, EUR/USD has a strong negative correlation with USD/CHF, indicating they move in opposite directions. The correlation with USD/JPY is weaker and negative, meaning their movements are less closely related.
&nbsp;
You can find up-to-date correlation data on platforms like Myfxbook.com. Note: Correlation coefficients may change over time depending on market conditions. Regularly monitoring current data is essential.
&nbsp;
<h3 dir="ltr">Currency pairs with high correlation</h3>
Highly correlated currency pairs include EUR/USD and GBP/USD due to close economic and geographic ties between the eurozone and the United Kingdom. This connection is further supported by the fact that both pairs share USD as the counter currency, meaning any change in the dollar affects both pairs simultaneously.
<h4 dir="ltr">Examples of correlated pairs</h4>
<ul>
<li dir="ltr" aria-level="1">
EUR/USD and GBP/USD: These pairs often move in sync due to the regions&rsquo; proximity and economic cooperation.
</li>
<li dir="ltr" aria-level="1">
EUR/USD and AUD/USD: The Australian dollar tends to correlate with EUR/USD, mainly due to global market trends and trade relationships.
</li>
<li dir="ltr" aria-level="1">
EUR/USD and NZD/USD: The New Zealand dollar shows a similar correlation with EUR/USD, as both pairs are influenced by USD movements and broader market conditions.
</li>
</ul>
<h4 dir="ltr">Why These Pairs Correlate:</h4>
<ol>
<li dir="ltr" aria-level="1">
Economic links: The eurozone and the UK are closely connected through trade and economic ties.
</li>
<li dir="ltr" aria-level="1">
Counter currency USD: All listed pairs have USD as the counter currency, so any strengthening or weakening of the dollar impacts all pairs similarly.
</li>
<li dir="ltr" aria-level="1">
Global market factors: Risk sentiment on global markets often influences currencies like AUD and NZD similarly to EUR, resulting in comparable movements.
</li>
</ol>
&nbsp;
<h3 dir="ltr">Importance of correlations in trading</h3>
Correlations significantly affect your overall risk and final outcomes. Their impact can be negative, primarily because they disrupt portfolio diversification. If markets are strongly correlated, movements in one can influence your entire portfolio.
<h4 dir="ltr">Risks associated with correlations:</h4>
<ul>
<li dir="ltr" aria-level="1">
Example: If you hold short positions in two markets with a 75% positive correlation, a bearish trend in one will likely result in a similar decline in the other. This increases the risk of losing capital on both positions simultaneously.
</li>
<li dir="ltr" aria-level="1">
Increased portfolio risk: Holding multiple correlated positions can result in much higher risk than it may initially seem, as movements in one market affect others.
</li>
</ul>
<h4 dir="ltr">How to mitigate correlation risks:</h4>
<ul>
<li dir="ltr" aria-level="1">
Analyze markets that correlate with one another.
</li>
<li dir="ltr" aria-level="1">
Identify markets that can enhance portfolio diversification.
</li>
<li dir="ltr" aria-level="1">
Pay attention to volatility, which can amplify correlations and increase overall risk.
</li>
</ul>
&nbsp;
Profiting from correlations
Correlations can also be leveraged for profitable trading:
<ul>
<li dir="ltr" aria-level="1">
Arbitrage strategy: When trading stocks or forex, look for correlated markets. If one market deviates from the norm, you can anticipate its return to standard levels and take a suitable trading position.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Forex example: If EUR/USD and GBP/USD have a strong positive correlation, you can trade with the expectation that movements in one pair will mirror those in the other.
</li>
</ul>
&nbsp;
Volatility and correlations
&nbsp;
In times of high volatility, markets tend to correlate more strongly, which can:
<ol>
<li dir="ltr" aria-level="1">
Increase your overall risk.
</li>
<li dir="ltr" aria-level="1">
Challenge portfolio diversification.
</li>
</ol>
Careful monitoring of correlations and volatility is crucial for effective risk management and taking advantage of trading opportunities.
&nbsp;
<h3 dir="ltr">Commodity correlations</h3>
Some market correlations are short-term, while others persist for years and show stability. However, it&rsquo;s important to remember that lasting correlation between two assets is never guaranteed. Here are a few well-known examples useful for trading:
<h4 dir="ltr">1. USD and Gold:</h4>
One of the most well-known correlations is between the US dollar and gold. As gold is priced in dollars, its value often depends on the strength of the currency. A stronger dollar tends to push gold prices down, creating a significant negative correlation.
<h4 dir="ltr">2. AUD/USD and Copper:</h4>
Certain currencies are closely tied to specific commodities. For instance, the Australian dollar (AUD) is closely linked to copper prices, as Australia is a major exporter of metals. The value of AUD/USD often mirrors movements in copper prices.
<h4 dir="ltr">3. USD/NOK and Brent Crude Oil:</h4>
USD/NOK has an inverse relationship with Brent crude oil prices. Norway, as one of the leading oil exporters, relies heavily on its oil revenue&mdash;Brent crude accounted for a significant portion of its GDP.
&nbsp;
<h3 dir="ltr">Relationship between currencies and stocks</h3>
The correlation between currency pairs and stock markets reveals interesting interconnections. While this relationship can be complex, certain trends are observable:
<ul>
<li dir="ltr" aria-level="1">
UK example: A declining British pound often leads to a rise in the FTSE 100 index. This is because many companies in the index generate significant revenue in dollars. When these revenues are converted back into a weaker pound, their value increases.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
US example: A weaker US dollar increases export earnings when converted to dollars, while a stronger dollar reduces the competitiveness of US companies&rsquo; international profits, potentially impacting stock performance negatively.
</li>
</ul>
&nbsp;
Trade and export context
&nbsp;
Companies more dependent on exports can benefit from a weaker currency, while expensive imports can negatively affect their costs. It is crucial to analyze a company&rsquo;s business model and geographic revenue distribution when assessing such impacts.
&nbsp;
This comprehensive overview of correlations between currencies, commodities, and stock markets provides a deeper understanding of these relationships, which can be instrumental in making better trading decisions.
&nbsp;
Imports and exports &ndash; a broader context
&nbsp;
Companies heavily reliant on exports can benefit from a weaker currency, as their products become more competitively priced on the global market. Conversely, higher import costs due to a weaker currency can negatively impact their expenses. Therefore, when analyzing companies, it is essential to examine their business models and geographical distribution of revenue.
&nbsp;
This overview of correlations between currencies, commodities, and stock markets provides deeper insights into their interrelationships, which can support more effective trading decisions.
&nbsp;
<h3 dir="ltr">Currency correlation: Practical tips for trading</h3>
Correlations between currency pairs can fluctuate over time, making it vital to analyze them over both short-term and long-term periods. Using correlation coefficient indicators available on trading platforms like FOREX.com can help you better understand the current relationships between markets.
&nbsp;
<h3 dir="ltr">Trading with currency correlation: Practical tips</h3>
<h4 dir="ltr">Current state of correlation:</h4>
<ul>
<li dir="ltr" aria-level="1">
Determine whether markets are currently correlated and assess the strength of this relationship.
</li>
<li dir="ltr" aria-level="1">
Monitor whether one market influences another, and if price deviations occur, wait for the alignment to stabilize.
</li>
</ul>
Example: If one market reaches new highs while another remains range-bound, it might be wiser to wait until the correlation stabilizes before entering a trade.
&nbsp;
<h4 dir="ltr">Inverse correlated markets:</h4>
Trading on inversely correlated markets can sometimes result in trades canceling each other out. However, these strategies can be useful for hedging against short-term risks.
&nbsp;
Example: Combining EUR/USD with USD/CHF can mitigate the impact of adverse movements, as these pairs historically exhibit a negative correlation.
&nbsp;
<h4 dir="ltr">Commodity correlation</h4>
Currency pairs like AUD/USD traditionally have a positive correlation with gold prices. As a major exporter of gold, Australia&rsquo;s currency can be influenced by its gold production capacity and global demand.
&nbsp;
Tip: Traders leveraging this correlation should monitor factors affecting gold mining and trends in global demand for gold.
&nbsp;
Effective use of correlations in trading
Utilizing correlations effectively requires not only understanding the relationships between markets but also grasping the underlying factors influencing these relationships. Continuously monitor how correlations evolve and adjust your strategies based on prevailing market conditions.
&nbsp;

Currency correlation in forex trading

<h1>How to react to news events with open trades</h1>
<ol>
<li dir="ltr">Prepare ahead of time</li>
<li dir="ltr">Stick to your trading plan</li>
<li dir="ltr">Reassess risk-to-reward ratios</li>
<li dir="ltr">Consider adjusting your stop-loss</li>
</ol>
Mastering your reaction to news events is a crucial part of trading. This lesson provides four essential steps to mitigate risk during news-driven market events, along with practical advice.
&nbsp;
Sooner or later, your open positions will likely face volatility triggered by major events. Whether it&rsquo;s an NFP release, unexpected interest rate changes, or political news, every trader needs to be ready for market reactions.
&nbsp;
With proper preparation, you can minimize risks and handle these situations effectively. Follow these four steps to maintain control over your trades during news events.
&nbsp;
<h3 dir="ltr">Prepare ahead of time</h3>
Preparation is the cornerstone of handling news events effectively. The most significant events that cause market volatility&mdash;such as interest rate decisions or economic data releases&mdash;are often scheduled well in advance. Monitoring all key factors related to your traded markets can give you an edge.
<h4 dir="ltr">"Buy the rumor, sell the news"</h4>
Markets often price in expectations before an event. For instance, if weak NFP results are expected to hurt the US dollar, this will likely already be reflected in the USD/JPY price. Closing your position after the announcement may not be effective.
&nbsp;
However, economic data can still surprise. If actual data is significantly better or worse than expected, volatility is likely. For example, if weak NFP numbers exceed negative expectations, USD/JPY may weaken further. Conversely, if the numbers are less bad than anticipated, USD/JPY may rise.
&nbsp;
<h3 dir="ltr">Stick to your trading plan</h3>
What should you do when unexpected news events shake the markets?
&nbsp;
Even if you cannot prepare in advance for unforeseen events, you can have a pre-defined strategy. Incorporate a plan for handling unexpected news into your trading strategy. The better prepared you are, the less stressful it will be when sudden volatility strikes.
&nbsp;
<h4 dir="ltr">Avoid panic and impulsive actions</h4>
Closing all your positions in panic may cause more harm than good. During peak volatility, the market can experience adverse price slippage.
Instead, consider these options:
<ul>
<li dir="ltr" aria-level="1">
Partial position closure: Reduce your market exposure while leaving room for a potential market recovery.
</li>
<li dir="ltr" aria-level="1">
Hedging: Open a trade in an inversely correlated pair to minimize risk.
</li>
<li dir="ltr" aria-level="1">
Tighten risk management: Adjust stop-loss levels or implement other protective measures.
</li>
<li dir="ltr" aria-level="1">
Wait it out: If you believe the volatility is temporary, consider holding your position without intervention.
</li>
</ul>
If the situation requires closing your position, don&rsquo;t hesitate. A smaller loss now can prevent larger problems later. Thoughtful and disciplined decision-making is key.
&nbsp;
<h3 dir="ltr">Reassess risk-to-reward ratios</h3>
Major news events can shift the factors that initially led you to open a trade. It&rsquo;s essential to reassess whether your current positions still offer a favorable risk-to-reward ratio.
<h4 dir="ltr">Evaluate the current situation</h4>
You might have a trade that&rsquo;s close to hitting its target profit, but if you&rsquo;re not actively managing your positions, things can quickly change.
&nbsp;
Take a moment to analyze whether the risk you&rsquo;re carrying still justifies the potential reward. If the potential reward no longer outweighs the risk, adjust your strategy&mdash;but you don&rsquo;t necessarily have to close the position immediately.
&nbsp;
Maintaining control over the situation and acting thoughtfully based on current market conditions is crucial.
&nbsp;
<h3 dir="ltr">Consider adjusting your stop-loss</h3>
If you decide to keep your position open, one of the most effective ways to manage risk-to-reward is by adjusting your stop-loss.
<h4 dir="ltr">Be careful with placement</h4>
In times of heightened volatility, it&rsquo;s critical to carefully consider where to place your stop-loss:
<ul>
<li dir="ltr" aria-level="1">
Too close to the current price: This could result in premature closure due to normal price fluctuations.
</li>
<li dir="ltr" aria-level="1">
Adequate space: Providing some flexibility may help you maintain your position.
</li>
</ul>
Ensure that your adjustment accounts for the overall risk of the trade and aligns with your trading plan.
&nbsp;
<img src="https://direct.y4trade.com/assets/af23fa92-378e-40d8-aae6-8164e3279669.png?width=600&amp;height=400" alt="Be Careful With Placement">
&nbsp;
If in doubt, exit the position
&nbsp;
If you&rsquo;re unsure about your ability to manage the risks associated with the current situation, consider closing the trade. Remember, there will always be new trading opportunities unaffected by unexpected events. A long-term strategy should take precedence over short-term risks.
&nbsp;
Tips: How to trade during news events
<h4 dir="ltr">Don&rsquo;t follow the crowd</h4>
News events can trigger significant price movements, often leading to sharp spikes or drops. If you allow yourself to be overly influenced by these moves, you risk buying at the market&rsquo;s peak or selling at its lowest point.
<ul>
<li dir="ltr" aria-level="1">
In periods of high volatility, it&rsquo;s best to stick to your trading plan and avoid impulsive decisions.
</li>
</ul>
&nbsp;
<h4 dir="ltr">Take a roader perspective</h4>
Market reactions to news are not always intuitive. For example:
<ul>
<li dir="ltr" aria-level="1">
Poor corporate earnings may paradoxically lead to a rise in stock prices.
</li>
<li dir="ltr" aria-level="1">
Rising interest rates could cause a currency to weaken.
</li>
</ul>
Market prices are influenced by a wide array of interconnected factors, which may not always be immediately clear. If you don&rsquo;t understand the cause of a significant price move, take time to research and learn for the future.
&nbsp;
<h4 dir="ltr">Stay committed to your strategy</h4>
A news event might be a valid reason to reassess your positions, but it shouldn&rsquo;t automatically lead to exiting them.
<ul>
<li dir="ltr" aria-level="1">
If you still believe in the trading opportunity you identified, don&rsquo;t abandon the position solely due to negative headlines.
</li>
<li dir="ltr" aria-level="1">
Sometimes, a short-term dip caused by news can present an opportunity to increase your position at a better price before the market resumes its original trend.
</li>
</ul>
&nbsp;

How to react to news events with open trades

<h1 dir="ltr">Gradual building and exiting of trades</h1>
Instead of entering and exiting positions all at once, many traders choose to build or reduce positions gradually as a way to manage risk effectively.
 This approach can be implemented in two ways: gradual building of positions or gradual reduction of positions.
<ol>
<li dir="ltr" aria-level="1">
What does gradual building of positions mean?
</li>
<li dir="ltr" aria-level="1">
How to build positions gradually
</li>
<li dir="ltr" aria-level="1">
Advantages and disadvantages of gradual building of positions
</li>
<li dir="ltr" aria-level="1">
What does gradual reduction of positions mean?
</li>
<li dir="ltr" aria-level="1">
How to gradually reduce positions
</li>
<li dir="ltr" aria-level="1">
Gradual reduction after reaching a profit target
</li>
</ol>
&nbsp;
<h3 dir="ltr">What does gradual building of positions mean?</h3>
Gradual building of positions (scaling in) is a strategy where you start a trade with a small exposure and incrementally add more investments. This approach helps reduce risk, as any loss from a failed trade will be smaller compared to committing your entire capital at once.
&nbsp;
<h3 dir="ltr">How to build positions gradually</h3>
To effectively build your positions:
<ol>
<li dir="ltr" aria-level="1">
Define multiple entry levels instead of relying on a single one.
</li>
<li dir="ltr" aria-level="1">
Open your position at the first level with a smaller size and add capital at subsequent levels.
</li>
</ol>
This method is particularly helpful if you identify two potential entry points:
<ul>
<li dir="ltr" aria-level="1">
The first point offers higher profit potential but comes with greater risk.
</li>
<li dir="ltr" aria-level="1">
The second point is safer but has lower profit potential.
</li>
</ul>
&nbsp;
Example of adding to a position
&nbsp;
To take advantage of both opportunities:
<ul>
<li dir="ltr" aria-level="1">
Open your initial position when you believe the trend is just beginning to form.
</li>
<li dir="ltr" aria-level="1">
Add capital to the position as the trade becomes profitable.
</li>
</ul>
&nbsp;
Three key rules for gradual building of positions
&nbsp;
1.Plan entries in advance
&nbsp;
Before adding capital to a position, clearly define your target entry levels. Avoid impulsively adding to a winning trade. Instead, identify key support and resistance zones that signal a continuation of the trend if breached.
&nbsp;
2.Monitor risk-to-reward ratio
&nbsp;
Each addition of capital increases your exposure and therefore your risk. The market will move further from your original stop-loss level and closer to the profit target.
&nbsp;
<img src="https://direct.y4trade.com/assets/fe9dc316-0855-4f98-b419-18c369cd1525.png?width=600&amp;height=400" alt="Risk Reward Analysis Table">
&nbsp;
Example:
&nbsp;
When increasing exposure by 100% at each new entry level, the risk-to-reward ratio can worsen.
<h4 dir="ltr">How toaddress this issue</h4>
&nbsp;
You can resolve this problem with a simple adjustment: moving the stop loss.
&nbsp;
3. Move your stop loss to manage risk
&nbsp;
Each time you increase your position size, adjust your stop loss to keep the overall risk under control.
&nbsp;
This ensures that even as you scale into the trade, your potential losses remain manageable, and your position aligns with your risk management strategy.
&nbsp;
Example of adjustment:
&nbsp;
By moving the stop loss to a higher level, you minimize the overall risk associated with the trade.
&nbsp;
Benefits of this technique:
<ol>
<li dir="ltr" aria-level="1">
Risk Reduction: Adjusting your stop loss as you scale into a trade reduces the total potential loss.
</li>
<li dir="ltr" aria-level="1">
Securing Profits: This approach locks in a portion of the profits already made, ensuring that you protect your gains while still allowing room for potential further growth.
</li>
</ol>
This method enhances the potential return from the trade while maintaining disciplined risk management.
&nbsp;
<img src="https://direct.y4trade.com/assets/48e37d67-6a59-4f88-ba0b-3f5e136f5fed.png?width=600&amp;height=400" alt="Maintaining Disciplined Risk Management.">
&nbsp;
By adhering to these rules, you can effectively manage risk while maximizing returns from gradual position building.
&nbsp;
<h3 dir="ltr">Advantages and disadvantages of gradual position building</h3>
<h4 dir="ltr">Advantages</h4>
Gradual position building offers three key benefits:
<ol>
<li dir="ltr" aria-level="1">
Reduced pressure for perfect entry You don't need to worry about timing your entry perfectly every time.
</li>
<li dir="ltr" aria-level="1">
Higher returns with minimal additional risk Enables targeting higher profits without significantly increasing risk, provided you follow the guidelines outlined earlier.
</li>
<li dir="ltr" aria-level="1">
More effective exposure management By reducing exposure with each additional trade, you minimize risk. This approach allows you to open multiple positions, build on successful ones, and close losing ones. Known as "pyramiding," this strategy is particularly effective in strongly trending markets. Gradual position building also promotes diversification and allows you to test new trading strategies with lower capital risk if they prove unsuccessful.
</li>
</ol>
<h4 dir="ltr">Disadvantages</h4>
Despite its benefits, gradual position building comes with certain drawbacks:
<ol>
<li dir="ltr" aria-level="1">
Risk of exceeding trade budget You must ensure that the final entry doesn&rsquo;t result in exceeding your maximum risk tolerance. For instance, if you allocate 3% of your trading balance to a single trade, you shouldn&rsquo;t surpass this limit. Plan your entries in advance&mdash;such as dividing the allocation into three levels of 1% each&mdash;to keep your risk under control.
</li>
<li dir="ltr" aria-level="1">
Unsuitability for short-term traders This strategy is not ideal for day traders or scalpers, where profit targets are small and strong trends are not a requirement.
</li>
</ol>
<h3 dir="ltr">&nbsp;</h3>
<h3 dir="ltr">What does gradual position reduction mean?</h3>
Gradual position reduction is the opposite of position building&mdash;it involves partially closing positions instead of liquidating them entirely.
&nbsp;
By closing a portion of your position, you can secure some profits while keeping the remaining portion open. This approach, often referred to as "locking in profits," reduces the psychological pressure of trying to exit a trade at the "perfect" level.
<h3 dir="ltr">&nbsp;</h3>
<h3 dir="ltr">How to gradually reduce positions</h3>
If you want to reduce the size of a trade, you can partially close your position while keeping the rest open. This allows you to realize some profits without fully exiting the trade.
<h4 dir="ltr">Example of gradual position reduction</h4>
&nbsp;
Imagine you have an open long position on EUR/USD with a current profit of $500. However, you're concerned that the market may reverse before reaching your target profit.
&nbsp;
1. First step: Close half of your position, securing a profit of $250.
&nbsp;
2. Next step: If EUR/USD continues to rise, your remaining position generates additional profits. But if concerns about a potential market reversal persist, you close another half of the remaining position.
&nbsp;
3. Outcome: This method allows you to gradually close your position, lock in profits, and reduce your risk until the trade is fully closed.
&nbsp;
Benefits of gradual position reduction
&nbsp;
1. Risk Reduction: Gradually lowering your exposure to the market decreases the potential for loss.
&nbsp;
2. Profit Realization: Secures a portion of your gains in case of a market reversal.
&nbsp;
3. Flexibility: Allows for further profit potential if the market continues to move in your favor.
&nbsp;
This strategy helps manage trades more effectively while alleviating the stress of sudden market reversals.
&nbsp;
<img src="https://direct.y4trade.com/assets/7b89022a-e976-445a-8e7b-58bff8b8efe5.png?width=600&amp;height=400" alt="Stress of Sudden Market Reversals">
&nbsp;
Just as with gradual position building, it is advisable to adjust the stop loss when reducing the size of your trades. Moving the stop loss closer to the current market price can help minimize risk and, in some cases, even create a "risk-free" trade.
&nbsp;
Balancing risk and reward
&nbsp;
If you were to leave your entire position open, the potential final profit might be greater. However, this comes with a significantly higher risk of loss in the event of a sudden market reversal. Gradual reduction allows you to lock in a portion of your gains while safeguarding your capital.
&nbsp;
Important tip
&nbsp;
Do not expand losses: If your position is in a loss and you are considering a partial exit, it is better to close it entirely. Holding onto losing trades can increase overall risk and tie up capital that could be used for new trading opportunities.
&nbsp;
Gradually reducing trades is an effective risk management tool, but it requires careful planning and discipline.
<h3 dir="ltr">Gradual reduction after reaching a profit target</h3>
In the earlier example, we partially closed a position to reduce risk. While this approach is effective, it is not the only reason to scale down.
<h4 dir="ltr">Increasing gains after reaching a target</h4>
If your position reaches the predetermined profit target but you believe the market may continue to move in your favor, scaling can help maximize potential returns.
&nbsp;
Approach:
Close the majority of your position to secure profits, while leaving a smaller portion open to benefit from a continuing trend. This strategy is commonly referred to as a "running profit."
<ul>
<li dir="ltr" aria-level="1">
If the market reverses: You can close the remaining portion of your position to retain the secured gains.
</li>
<li dir="ltr" aria-level="1">
If the trend continues: You stand to gain additional profits without exposing your entire position to unnecessary risk.
</li>
</ul>
<h4 dir="ltr">Securing profits with a stop loss</h4>
After reaching your profit target, consider adjusting your stop loss to a level near the original target. This adjustment minimizes potential losses while allowing for further gains:
<ul>
<li dir="ltr" aria-level="1">
If the market moves in your favor: You gain additional returns.
</li>
<li dir="ltr" aria-level="1">
If the market reverses: You safeguard the profits made before scaling down.
</li>
</ul>
Gradual reduction after reaching a profit target enables you to benefit from further market movements without jeopardizing the gains already secured. This is a crucial tool for optimizing trading strategies.
&nbsp;

Gradual building and exiting of trades

&nbsp;
<h1 dir="ltr">&nbsp;ABCD Pattern</h1>
Fibonacci ratios are not just used for determining support and resistance levels; they also form the foundation for some significant chart patterns, including the ABCD pattern.
<ol>
<li dir="ltr" aria-level="1">
What is the ABCD pattern?
</li>
<li dir="ltr" aria-level="1">
How to identify the ABCD pattern
</li>
<li dir="ltr" aria-level="1">
Extensions of the ABCD pattern
</li>
<li dir="ltr" aria-level="1">
Fundamental rules of the ABCD pattern
</li>
<li dir="ltr" aria-level="1">
Bullish ABCD pattern (Buy at point D)
</li>
<li dir="ltr" aria-level="1">
Bearish ABCD pattern (Sell at point D)
</li>
<li dir="ltr" aria-level="1">
ABCD pattern fact sheet
</li>
</ol>
&nbsp;
<h3 dir="ltr">What is the ABCD pattern?</h3>
The ABCD pattern is a geometric chart pattern consisting of three consecutive price swings. This pattern resembles a diagonal lightning bolt and often signals a potential trading opportunity.
&nbsp;
It is a highly useful pattern as it reflects the rhythmic movement typical in financial markets. The ABCD pattern consists of four key points on the chart:
<ul>
<li dir="ltr" aria-level="1">
Point A: A new trend begins to form.
</li>
<li dir="ltr" aria-level="1">
Point B: The market experiences a retracement.
</li>
<li dir="ltr" aria-level="1">
Point C: The initial trend resumes.
</li>
<li dir="ltr" aria-level="1">
Point D: A further correction that offers a trading opportunity.
</li>
</ul>
This pattern can be applied for both buying and selling and is effective across various markets (forex, stocks, commodities, and more). It works in all market conditions (ranging, bullish, or bearish trends) and is suitable for any time frame.
&nbsp;
<h4 dir="ltr">Example of a bearish ABCD pattern:</h4>
Markets naturally tend to repeat the ABCD pattern, which can often be observed in trading charts.
&nbsp;
<img src="https://direct.y4trade.com/assets/6416af35-62a1-4758-a946-e8544af5df55.png?width=600&amp;height=400" alt="Bearish Abcd Pattern">
<h4 dir="ltr">&nbsp;</h4>
<h4 dir="ltr">Example of a repeating ABCD price pattern</h4>
In this example, you can observe that some patterns converge, creating a stronger trading signal compared to individual standalone ABCD patterns.
&nbsp;
<img src="https://direct.y4trade.com/assets/705c3707-3b5e-480c-8c68-5fe90ebfcaea.png?width=600&amp;height=400" alt="Example of a Repeating Abcd Price Pattern ">
<h3 dir="ltr">&nbsp;</h3>
<h3 dir="ltr">How to identify the ABCD pattern</h3>
To identify the ABCD pattern, traders focus on the movements between its points, often referred to as "legs." The AB and CD legs represent movements in the direction of the main trend, while BC serves as a corrective retracement.
&nbsp;
Each leg typically lasts 3 to 13 bars. If you encounter an ABCD pattern where the legs extend beyond 13 bars, it may be helpful to switch to a longer time frame to verify whether the pattern aligns with the trend or Fibonacci levels.
&nbsp;
Once you believe you&rsquo;ve identified an ABCD pattern, the next step is to apply Fibonacci ratios. These ratios help confirm the pattern's validity and determine where it is likely to complete. This is crucial for timing your trade entry accurately.
&nbsp;
<img src="https://direct.y4trade.com/assets/653c0993-38fb-4025-9a77-7b585fa6891c.png?width=600&amp;height=400" alt="Classic Abcd">
&nbsp;
Classic ABCD pattern
&nbsp;
In a classic ABCD pattern, the BC leg should represent a retracement of 61.8% or 78.6% of the AB leg. By applying a Fibonacci retracement to the movement from A to B, you should observe that BC ends near one of these levels.
<h4 dir="ltr">Alternative ratios</h4>
In strongly trending markets, the BC retracement may be smaller, approximately 38.2% or 50% of AB.
&nbsp;
Following this, the CD leg should extend to 127.2% or 161.8% of BC. If you identify a bearish ABCD pattern, the CD leg represents a suitable level to open a sell position. For a bullish ABCD pattern, point D may be an optimal entry point for a buy trade.
&nbsp;
<h3 dir="ltr" role="presentation">Extensions of the ABCD pattern</h3>
<h4 dir="ltr">Occasionally, you may come across a variation of the ABCD pattern known as the extended ABCD pattern. In this scenario, the CD leg is significantly longer than the AB leg, specifically extending by 127.2% or 161.8% of the AB leg's length, rather than being proportional to BC.</h4>
<h4 dir="ltr">Visualization of the Extended ABCD Pattern:</h4>
&nbsp;
<img src="https://direct.y4trade.com/assets/d4333000-dd21-4d00-a966-c7e46a90dd78.png?width=600&amp;height=400" alt="Abcd Extension">
&nbsp;
In this model, the extension is evident in the elongation of the CD leg, which creates a distinct trading opportunity compared to the classic pattern.
&nbsp;
Basic rules of the ABCD pattern
&nbsp;
When identifying and validating the ABCD pattern, it is essential to follow a set of rules to ensure accurate recognition.
&nbsp;
Key rule:
&nbsp;
Ideally, the time and length of the AB and CD legs should be approximately equal&mdash;unless dealing with an extended ABCD pattern.
&nbsp;
<img src="https://direct.y4trade.com/assets/a9ddb35f-5ba3-457d-b61b-8e6a56442c59.png?width=600&amp;height=400" alt="Ab=cd">
&nbsp;
Additional rules:
<ul>
<li dir="ltr" aria-level="1">
A to B: The market should not exceed the levels of points A or B.
</li>
<li dir="ltr" aria-level="1">
B to C: The market should not go beyond points B or C.
</li>
<li dir="ltr" aria-level="1">
C to D: The market should not surpass points C or D.
</li>
</ul>
Specific rules for bullish and bearish patterns:
&nbsp;
Bullish ABCD pattern:
<ul>
<li dir="ltr" aria-level="1">
Point C must be lower than A.
</li>
<li dir="ltr" aria-level="1">
Point D must be lower than B.
</li>
</ul>
Bearish ABCD pattern:
<ul>
<li dir="ltr" aria-level="1">
Point C must be higher than A.
</li>
<li dir="ltr" aria-level="1">
Point D must be higher than B.
</li>
</ul>
Adhering to these rules helps traders accurately identify valid ABCD patterns and distinguish between classic and extended versions, increasing the success rate of trades based on these models.
<h3 dir="ltr">&nbsp;</h3>
<h3 dir="ltr">Bullish ABCD pattern (Buying at point D)</h3>
The ABCD pattern is a valuable indicator for traders seeking entry opportunities during trend corrections and recoveries. To identify a bullish ABCD pattern, it is crucial to follow these rules and steps:
<h4 dir="ltr">1. Identifying the AB Leg:</h4>
<ul>
<li dir="ltr" aria-level="1">
Point A: Represents a significant high and serves as the starting point of the move.
</li>
<li dir="ltr" aria-level="1">
Point B: Indicates a significant low, marking the first major drop.
</li>
<li dir="ltr" aria-level="1">
Rule: During the movement from A to B, there should be no highs above point A and no lows below point B.
</li>
</ul>
&nbsp;
<h4 dir="ltr">2. Finding the BC leg:</h4>
<ul>
<li dir="ltr" aria-level="1">
Point C: Must be lower than point A, signaling a correction upward.
</li>
<li dir="ltr" aria-level="1">
Rule: During the movement from B to C, there should be no lows below point B and no highs above point C.
</li>
<li dir="ltr" aria-level="1">
Fibonacci ratios:
</li>
<ul>
<li dir="ltr" aria-level="2">
Ideally, the BC leg should retrace 61.8% or 78.6% of AB.
</li>
<li dir="ltr" aria-level="2">
On strongly trending markets, BC may only retrace 38.2% or 50% of AB.
</li>
</ul>
</ul>
&nbsp;
<h4 dir="ltr">3. Drawing the CD leg:</h4>
<ul>
<li dir="ltr" aria-level="1">
Point D: Must be lower than point B, indicating a new market low.
</li>
<li dir="ltr" aria-level="1">
Rule: During the movement from C to D, there should be no highs above point C and no lows below point D.
</li>
<li dir="ltr" aria-level="1">
Completion levels for point D:
</li>
<ul>
<li dir="ltr" aria-level="2">
The length of CD can equal AB.
</li>
<li dir="ltr" aria-level="2">
CD can measure 127.2% or 161.8% of AB.
</li>
<li dir="ltr" aria-level="2">
CD can measure 127.2% or 161.8% of BC.
</li>
</ul>
<li dir="ltr" aria-level="1">
Time completion for point D:
</li>
<ul>
<li dir="ltr" aria-level="2">
The time for CD can equal the time for AB.
</li>
<li dir="ltr" aria-level="2">
CD can take 61.8% or 78.6% of AB's time.
</li>
<li dir="ltr" aria-level="2">
CD can take 127.2% or 161.8% of AB's time.
</li>
</ul>
</ul>
&nbsp;
<h4 dir="ltr">4. Validating the pattern:</h4>
<ul>
<li dir="ltr" aria-level="1">
Convergence of factors: Look for a combination of Fibonacci levels, trend lines, and other indicators to confirm the pattern.
</li>
<li dir="ltr" aria-level="1">
Wide candlesticks or price gaps: Notice significant price movements in the CD leg, especially near point D.
</li>
</ul>
&nbsp;
<h4 dir="ltr">5. Interpretation:</h4>
<ul>
<li dir="ltr" aria-level="1">
Point D as an entry point: Traders can consider point D as an entry point for buying, anticipating an upward trend.
</li>
<li dir="ltr" aria-level="1">
Extensions at 127.2% or 161.8%: These levels can signal a strong continuing trend if prices extend to these levels.
</li>
</ul>
&nbsp;
Visualization of the chart
&nbsp;
The following chart illustrates a simple example of a bullish ABCD pattern:
<ul>
<li dir="ltr" aria-level="1">
AB leg: Depicts the initial market decline.
</li>
<li dir="ltr" aria-level="1">
BC leg: Shows the market correction upward, ending below point A.
</li>
<li dir="ltr" aria-level="1">
CD leg: Represents the final decline, completing below point B.
</li>
<li dir="ltr" aria-level="1">
Point D: Highlights an opportunity to enter the market, expecting an upward trend.
</li>
</ul>
This chart aids traders in understanding the structure and rules of the bullish ABCD pattern, emphasizing the points where the most profitable opportunities may arise.
&nbsp;
<img src="https://direct.y4trade.com/assets/6550fc8e-985b-4f4c-82c8-2ea47e0aac44.png?width=600&amp;height=400" alt="Bullish Abcd Pattern">
<h3 dir="ltr">&nbsp;</h3>
<h3 dir="ltr">Bearish ABCD pattern (Selling at point D)</h3>
The bearish ABCD pattern represents a structure of movements on a financial chart, signaling a potential selling opportunity at point D. This formation is based on Fibonacci ratios and provides critical cues for traders.
&nbsp;
Example Breakdown:
<h4 dir="ltr">1. Identifying the AB Leg:</h4>
<ul>
<li dir="ltr" aria-level="1">
Point A: A significantly low price.
</li>
<li dir="ltr" aria-level="1">
Point B: A significantly high price.
</li>
<li dir="ltr" aria-level="1">
Movement from A to B: No lows below point A and no highs above point B.
</li>
</ul>
&nbsp;
<h4 dir="ltr">2. Finding the BC Leg:</h4>
<ul>
<li dir="ltr" aria-level="1">
Point C: Must be higher than point A, indicating a retracement upward.
</li>
<li dir="ltr" aria-level="1">
Movement from B to C: No highs above point B and no lows below point C.
</li>
<li dir="ltr" aria-level="1">
Fibonacci ratios:
</li>
<ul>
<li dir="ltr" aria-level="2">
Ideally, BC will retrace 61.8% or 78.6% of AB.
</li>
<li dir="ltr" aria-level="2">
On strongly trending markets, BC may retrace only 38.2% or 50% of AB.
</li>
</ul>
</ul>
&nbsp;
<h4 dir="ltr">3. Creating the CD Leg:</h4>
<ul>
<li dir="ltr" aria-level="1">
Point D: Must be higher than point B, signaling a new high.
</li>
<li dir="ltr" aria-level="1">
Movement from C to D: No lows below point C and no highs above point D.
</li>
<li dir="ltr" aria-level="1">
Length of CD:
</li>
<ul>
<li dir="ltr" aria-level="2">
CD may equal AB.
</li>
<li dir="ltr" aria-level="2">
CD may extend 127.2% or 161.8% of AB.
</li>
<li dir="ltr" aria-level="2">
CD may extend 127.2% or 161.8% of BC.
</li>
</ul>
</ul>
<h3 dir="ltr">&nbsp;</h3>
Key steps for trading the bearish ABCD pattern
<ul>
<li dir="ltr" aria-level="1">
Fibonacci levels: Observe the Fibonacci retracements and extensions to confirm the pattern.
</li>
<li dir="ltr" aria-level="1">
Trend convergence: Look for alignment of trends and other confirming signals near point D.
</li>
<li dir="ltr" aria-level="1">
Price action signals: Watch for prominent candlesticks or price gaps near point D, which may indicate a strong trending market.
</li>
</ul>
This pattern is a valuable tool for identifying selling opportunities, particularly in markets showing clear trend extensions and retracements. By following these steps, traders can better position themselves to capitalize on bearish market movements.
&nbsp;
Based on the chart, a sell position is optimal at point D, with Fibonacci levels providing additional confirmation. Ensure that each step in the analysis is carefully followed as depicted on the chart.
&nbsp;
<img src="https://direct.y4trade.com/assets/66d88778-793b-44b1-b754-0b351553c27f.png?width=600&amp;height=400" alt="Bearish Abcd Pattern">
&nbsp;
Based on the chart, a sell position is optimal at point D, with Fibonacci levels providing additional confirmation. Ensure that each step in the analysis is carefully followed as depicted on the chart.
<h3 dir="ltr">Overview of the ABCD pattern</h3>
<h4 dir="ltr">&nbsp;</h4>
<h4 dir="ltr"><img src="https://direct.y4trade.com/assets/a5657c17-f98a-4b51-b607-f966d81e5b70.png?width=600&amp;height=400" alt="Abcd Pattern Fact Sheet"></h4>

 ABCD Pattern

<h1 dir="ltr">Andrew's Pitchfork</h1>
Tracking market trends can often be complex due to numerous fluctuations within a broader movement. Andrew's pitchfork is a valuable tool that enables traders to identify and visualize deviations from the primary trend. This indicator creates a channel with levels of support, resistance, and a central line, providing critical insights into market direction.
<ol>
<li dir="ltr">What is Andrew's Pitchfork?</li>
<li dir="ltr">How to create Andrew's Pitchfork?</li>
<li dir="ltr">Practical applications of Andrew's Pitchfork</li>
<li dir="ltr">Examples of using Andrew's Pitchfork in the market</li>
<li dir="ltr">Extending Andrew's Pitchfork</li>
<li dir="ltr">Overview of Andrew's Pitchfork</li>
</ol>
<h3 dir="ltr">What is Andrew's Pitchfork?</h3>
 Andrew's pitchfork is an analytical tool available in Y4Trade.com's trading charts. It consists of three parallel lines: a central line and two outer lines equidistant from it. It is used to identify potential levels of support and resistance, possible market breakouts, and other key points.
&nbsp;
 Andrew's pitchfork was developed by Alan Andrews in the 1960s as a way to predict how a market might deviate upward or downward from the primary trend. This tool helps traders better understand market dynamics and effectively plan their trading strategies.
<h3 dir="ltr">How to create Andrew's Pitchfork</h3>
 To draw Andrew's pitchfork, select three key points on the chart of a trending market:
<ul>
<li dir="ltr" aria-level="1">
Point A: The start of the trend, serving as the tool's origin point.
</li>
<li dir="ltr" aria-level="1">
Point B: The highest reaction point, where the market reaches a peak before forming a countertrend.
</li>
<li dir="ltr" aria-level="1">
Point C: The lowest reaction point, marking the end of the countertrend as the market reverses back toward the primary trend.
</li>
</ul>
&nbsp;
<img src="https://direct.y4trade.com/assets/f29229ea-672a-41f6-9f3a-452945b64480.png?width=600&amp;height=400" alt="Andrew&acute;s Pitchfork Simple Representation">
&nbsp;
Once these three points are selected, the tool automatically generates three parallel lines:
<ul>
<li dir="ltr" aria-level="1">
Central line: Represents the main direction of the trend.
</li>
<li dir="ltr" aria-level="1">
Upper and lower lines: Indicate potential areas of support and resistance.
</li>
</ul>
These lines resemble the shape of a pitchfork, explaining the name of this tool.
&nbsp;
TIP: You don&rsquo;t always need to select the points in the order A, B, C. If the lowest reaction (Point C) occurs before the highest reaction (Point B) on the chart, selecting the points in reverse order (C before B) will work just as reliably.
<h3 dir="ltr">Practical use of Andrew's Pitchfork</h3>
Once you've properly drawn Andrew's pitchfork, the central line (median) should reflect the general direction of the primary trend. The upper and lower lines then serve as key levels of support and resistance, which can push the price back toward the central line.
&nbsp;
Key Points:
<ul>
<li dir="ltr" aria-level="1">
Central line: It follows the main trend and often serves as a reference for market movements. Sometimes, it can also act as a level of support or resistance, even without interaction with the outer lines. 
</li>
<li dir="ltr" aria-level="1">
Upper and lower lines: They act as barriers, reflecting price movements back toward the median. When the price hits one of these lines and fails to break through, you can expect a return to the center of the channel. 
</li>
<li dir="ltr" aria-level="1">
Break of outer lines: If the price breaks through the upper or lower line, it could signal a break in the trend. This often suggests that the market may be approaching the end of the prevailing trend and could start a new trend movement. 
</li>
</ul>
By using Andrew's pitchfork, you can effectively identify not only the current trend but also potential reversal points on the market, making it a valuable tool for technical analysis.
&nbsp;
<h3 dir="ltr">Examples of Using Andrew's Pitchfork in the Market</h3>
<ol>
<li>Break above the upper trend line &ndash; Bullish fork</li>
</ol>
&nbsp;
<img src="https://direct.y4trade.com/assets/215ba9ba-7573-4e23-b28c-d718fc498867.png?width=600&amp;height=400" alt="Bullish Fork Example on Eurusd">
&nbsp;
Example of bullish pattern on EUR/USD
In this example, the market moved as follows:
<ol>
<li dir="ltr" aria-level="1">
Initial trend (Point A): The market started its upward trend at point A.
</li>
<li dir="ltr" aria-level="1">
Reactionary low (Point B): The price then reached a reactionary low at point B.
</li>
<li dir="ltr" aria-level="1">
Recovery and new high (Point C): From point B, the market recovered and reached a new high at point C, forming the three key points required to create the Andrew's Pitchfork.
</li>
</ol>
The lower trendline, which originates from point B, successfully predicted levels where the market bounced back several times, moving upward. However, when the price eventually broke through the upper resistance line originating from point C, a breakout occurred, and the market accelerated, pushing beyond the original trend boundaries.
&nbsp;
This example demonstrates how Andrew's Pitchfork can help identify critical support and resistance levels while signaling potential changes in the market trend. The breakout above the resistance line indicates that the market might be entering a new phase, which can be crucial for traders looking to capitalize on trend continuation.
&nbsp;
Breakdowns Below the Lower Trendline &ndash; Bearish Fork
&nbsp;
Example of bearish fork on USD/CAD
&nbsp;
Andrew's Pitchfork can be applied to both upward and downward trends. In this example, a bearish fork is illustrated on a market with a downward trend.
&nbsp;
Identification of points:
<ol>
<li dir="ltr" aria-level="1">The market first reached a significant low at Point B.</li>
<li dir="ltr" aria-level="1">Then, it reached a local peak at Point C, identifying the points needed to draw the pitchfork.</li>
</ol>
Use of the median line:
<ul>
<li dir="ltr" aria-level="1">The median line of the pitchfork initially acted as support, which the price reacted to several times.</li>
</ul>
Trendline Break:
<ul>
<li dir="ltr" aria-level="1">After the breakdown of the median line, the lower trendline, originating from Point B, could become a new support level, which traders could focus on.</li>
</ul>
The chart illustrates how the price reacts to the key pitchfork lines, with the median line providing support until it was broken. The price then shifted its focus to the lower trendline, reinforcing the idea of support and indicating a potential reversal in the trend.
&nbsp;
<img src="https://direct.y4trade.com/assets/b153d9a8-8b34-422d-9746-34730db21f46.png?width=600&amp;height=400" alt="Bearish Fork Example Usd:cad">
&nbsp;
This chart illustrates the Bearish Fork on USD/CAD. The median line of the pitchfork initially acted as support, but after it was broken, the lower trendline became the new support level. Such an approach helps traders identify potential entry or exit points in the market.​
<h3 dir="ltr">Extension of Andrew's Pitchfork</h3>
If the prevailing trend exceeds one of the outer lines (called "teeth") on the Andrew's pitchfork, it may indicate an acceleration of the trend. In such cases, it is appropriate to extend the channel with another parallel line that follows the new direction of the market.
&nbsp;
<img src="https://direct.y4trade.com/assets/8b0f93e1-3b42-4237-9a3a-a61b3b16c7b7.png?width=600&amp;height=400" alt="Anrew&acute;s Pitchfork With Extension">
&nbsp;
Procedure for Extending the Pitchfork:
<ol>
<li dir="ltr" aria-level="1">
Identify which of the outer lines has been broken &ndash; the upper or the lower.
</li>
<li dir="ltr" aria-level="1">
Draw a parallel line to the centerline that follows the direction of the broken trend.
</li>
<li dir="ltr" aria-level="1">
Place this line at a distance equal to the space between the centerline and the corresponding outer line.
</li>
</ol>
This extension helps capture the new boundaries of the market's movement and updates the framework for trading.
&nbsp;
<h3 dir="ltr">Andrew&acute;s Pitchfork overview</h3>
<h3 dir="ltr">&nbsp;</h3>
<h3 dir="ltr"><img src="https://direct.y4trade.com/assets/df835ddb-b42c-4cae-b151-0d00a3f4e6d3.png?width=600&amp;height=400" alt="Andrew&acute;s Pitcheork Overview"></h3>
&nbsp;
&nbsp;

Andrew's Pitchfork

<h1>Average True Range (ATR)</h1>
<ol>
<li dir="ltr">What is the Average True Range?</li>
<li dir="ltr">How is the Average True Range calculated?</li>
<li dir="ltr">Trading with the Average True Range</li>
<li dir="ltr">Overview of the Average True Range</li>
</ol>
The Average True Range (ATR) indicator is popular among technical traders as a tool for quickly assessing market volatility. Let's take a look at how it works.
<h3 dir="ltr">What is the Average True Range?</h3>
 The Average True Range (ATR) is a technical tool displayed as a single line beneath the market chart. When this line rises, it indicates that the market is experiencing higher volatility. Conversely, when it falls, volatility decreases.
&nbsp;
<img src="https://direct.y4trade.com/assets/698b3876-2ecc-4eaf-bd71-a2eafde0eeb0.png?width=600&amp;height=400" alt="Average True Range With 14 Period Moving Average">
&nbsp;
Standard ATR setting is 14, so it calculates the average true range over the last 14 periods. This average value is displayed as a dashed line.
&nbsp;
 ATR was originally designed for commodity markets, but today traders use it across various markets and asset classes.
<h3 dir="ltr">How is the Average True Range calculated?</h3>
 When calculating the Average True Range (ATR), three key values are used:
<ol>
<li dir="ltr" aria-level="1">
The difference between the current high and the low of the market.
</li>
<li dir="ltr" aria-level="1">
The difference between the current high and the previous close.
</li>
<li dir="ltr" aria-level="1">
The difference between the current low and the previous close.
</li>
</ol>
The largest of these three values represents the true range.
&nbsp;
Example: For USD/JPY, we have the following values:
<ul>
<li dir="ltr" aria-level="1">
Current high: 113.73
</li>
<li dir="ltr" aria-level="1">
Current low: 113.32
</li>
<li dir="ltr" aria-level="1">
Previous close: 113.98
</li>
</ul>
Now, we calculate the three values:
<ul>
<li dir="ltr" aria-level="1">
113.73 - 113.32 = 0.41
</li>
<li dir="ltr" aria-level="1">
113.73 - 113.98 = -0.25
</li>
<li dir="ltr" aria-level="1">
113.32 - 113.98 = -0.73
</li>
</ul>
The largest value is 0.73, which represents the true range for the given period.
&nbsp;
It doesn&rsquo;t matter that one of the numbers is negative &ndash; ATR considers the highest absolute value. By default, the ATR indicator calculates the true range over the last 14 periods, then converts this range into a moving average. This average is represented as a line on the chart.
&nbsp;
As with other indicators, you can adjust the ATR to include any number of periods, depending on your preference. Short-term traders often use ATR with 10 or fewer periods.
<h3 dir="ltr">Trading with the Average True Range</h3>
 As a volatility indicator, ATR is commonly used to evaluate trading opportunities &ndash; particularly in determining whether to trade and where to place stop-loss and take-profit orders.
&nbsp;
ATR and market movements
&nbsp;
ATR gives you a quick insight into how the market typically moves within a given period. This information is useful when deciding whether to act on a signal provided by another indicator. For example, if ATR shows the market usually moves by 20 points during a session and you spot a sell opportunity, but the market has already dropped by 25 points, it may be wise to reconsider the trade.
&nbsp;
Stops and limits with ATR
&nbsp;
ATR is also helpful in determining suitable levels for profit targets and stop-loss orders. If the market moves by 20 points a day, targeting 50 points in the current session may be unrealistic.
&nbsp;
 This indicator also assists in placing stop-loss orders. If the market is more volatile than usual, you may need to set the stop-loss further from the current price to avoid premature trade closure. However, keep in mind that this will increase the overall risk of the trade.
&nbsp;
<h3 dir="ltr">Overview of the Average True Range</h3>
&nbsp;
<img src="https://direct.y4trade.com/assets/6789d227-6249-45d9-97dc-aeef60deded7.png?width=600&amp;height=400" alt="Overview of the Average True Range">

Average True Range (ATR)

<h1 dir="ltr">Moving Averages (MAs)</h1>
&nbsp;
As mentioned in the previous section, moving averages are among the most commonly used tools for trend analysis in financial markets. Many technical indicators are built upon them.
&nbsp;
Moving averages (MAs) help smooth price movements over a certain period, providing a clearer view of the overall market direction without the noise of short-term fluctuations. They are calculated by averaging the closing prices of the market over a specified number of trading periods.
<h3 dir="ltr">&nbsp;</h3>
<h3 dir="ltr">How moving averages work</h3>
&nbsp;
A 20-day MA calculates the average value of the market over the past 20 days, giving a broader view of the trend.
 A 5-day MA considers the average price over the past 5 days, allowing it to respond more quickly to price movements.
 MAs can be calculated for any future period depending on the preferred trading strategy.
&nbsp;
Types of moving averages
&nbsp;
There are several types of&nbsp;moving averages, each calculating average values differently. The most commonly used are the Simple Moving Average (SMA) and Exponential Moving Average (EMA).
&nbsp;
The Simple Moving Average (SMA) is calculated by averaging the closing price of the market over a set period, with the result being based on the number of periods.
&nbsp;
 For example, if you wanted to calculate the 5-period SMA for the EUR/USD currency pair, you simply sum its closing prices over the past five periods (whether they are minutes, hours, or weeks) and divide the sum by five.
&nbsp;
Note: Longer time frame MAs provide a more stable view of the market and react more slowly, while shorter MAs are more sensitive to changes but may generate more false signals.
&nbsp;
<img src="https://direct.y4trade.com/assets/5a5353b6-abf6-4919-9a7c-e679c695c6f9.png?width=600&amp;height=400" alt="5 Day Sma">
&nbsp;
The calculation of the Exponential Moving Average (EMA) is somewhat more complex because it places greater emphasis on recent price movements. This makes the EMA more responsive to market changes compared to other moving averages.
&nbsp;
When you use a moving average on a price chart, it&nbsp;automatically updates with each new trading session. This results in a trendline that follows the price development of the asset being tracked.
&nbsp;
It&rsquo;s important to note that the more periods you include in the average calculation, the&nbsp;further the MA will be from the current price, as it responds more slowly to new price movements.
&nbsp;
<img src="https://direct.y4trade.com/assets/00606dd7-6197-47fd-90e1-12f94cc8aed2.png?width=600&amp;height=400" alt="10 Day Vs. 50 Day Sma">
&nbsp;
The most popular moving averages cover 5, 10, 20, 50, 100, and 200 days.
<h3 dir="ltr">&nbsp;</h3>
Trading with MAs
&nbsp;
In general, the market is considered bullish when the price is trading above the moving average, and bearish when it is trading below it. In addition, there are several other common signals that traders watch for when deciding to enter a position:
<ul>
<li dir="ltr" aria-level="1">
Buy signal &ndash; when the moving average is rising and moving upward.
</li>
<li dir="ltr" aria-level="1">
Buy signal &ndash; when the price closes above the moving average.
</li>
<li dir="ltr" aria-level="1">
Sell signal &ndash; when the moving average is falling and moving downward.
</li>
<li dir="ltr" aria-level="1">
Sell signal &ndash; when the price closes below the moving average.
</li>
</ul>
Traders often combine multiple MAs with different timeframes to better identify the trend direction and potential entry and exit points.
&nbsp;
<h3 dir="ltr">Moving average crossovers</h3>
One of the popular strategies in trading with moving averages is watching for crossovers, which occur when two different MAs cross each other. This method uses two moving averages with different timeframes:
<ul>
<li dir="ltr" aria-level="1">
Slower MA &ndash; has a longer timeframe, such as 50 days or more, reflecting the overall trend.
</li>
<li dir="ltr" aria-level="1">
Faster MA &ndash; uses a shorter timeframe, such as 15 days or fewer, reacting more sensitively to current price movements.
</li>
</ul>
A crossover occurs when the faster MA crosses the slower MA:
<ul>
<li dir="ltr" aria-level="1">
Bullish crossover (Golden Cross) &ndash; when the short-term MA crosses the long-term MA from below to above, signaling a potential upward trend.
</li>
<li dir="ltr" aria-level="1">
Bearish crossover (Death Cross) &ndash; when the short-term MA crosses the long-term MA from above to below, indicating a possible downward trend.
</li>
</ul>
The levels at which these crossovers occur may also serve as new support or resistance levels, which traders monitor when planning their entry and exit points for trades.
&nbsp;
<img src="https://direct.y4trade.com/assets/e30f8e6b-e555-4b3d-aeea-b666c32bdafa.png?width=600&amp;height=400" alt="Moving Average Crossovers">
&nbsp;
One of the disadvantages of using moving averages (MAs) is that they are lagging indicators. Since they are based on historical price data, they respond with a delay to current market movements.
&nbsp;
For this reason, MAs can provide false signals, especially in situations where the expected move has already ended by the time the indicator signals an entry into a trade. This can lead to delayed decisions and potentially reduce the effectiveness of the strategy.
&nbsp;
To minimize the risk of false signals, traders often combine MAs with other indicators, such as volume indicators or oscillators, which can provide additional confirmation of the trend.
&nbsp;
<h3 dir="ltr">MACD &ndash; Moving average convergence divergence</h3>
&nbsp;
In addition to using moving averages on their own, they form the basis for various technical indicators. MACD (Moving Average Convergence Divergence) is one of the most well-known tools that uses moving averages to identify the strength of a trend and potential reversals.
&nbsp;
When you activate the&nbsp;MACD indicator on a chart, it will appear in a separate panel, typically at the bottom of the screen. The indicator consists of three main components:
<ul>
<li dir="ltr" aria-level="1">
MACD Line &ndash; This is calculated by subtracting the 26-period EMA from the 12-period EMA.
</li>
<li dir="ltr" aria-level="1">
Signal Line &ndash; This is a 9-day EMA of the MACD line, used to smooth out signals.
</li>
<li dir="ltr" aria-level="1">
Histogram &ndash; This visually represents the difference between the MACD line and the signal line.
</li>
</ul>
<h3 dir="ltr">&nbsp;</h3>
<h3 dir="ltr">Interpreting the MACD:</h3>
<ul>
<li dir="ltr" aria-level="1">
If the 12-period EMA is higher than the 26-period EMA, the MACD line is positive, indicating a bullish trend.
</li>
<li dir="ltr" aria-level="1">
If the 26-period EMA is above the 12-period EMA, the MACD line is negative, signaling a possible decline.
</li>
</ul>
&nbsp;
Did You Know?
&nbsp;
The 12 and 26 days are the default settings for the MACD, but they can be customized according to your trading strategy and time frame.
<h3 dir="ltr">&nbsp;</h3>
<h3 dir="ltr">Trading with MACD</h3>
When trading with MACD, traders focus on three main signals:
<ol>
<li dir="ltr" aria-level="1">
MACD and Signal Line Crossovers
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Zero Line Crossovers
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Divergences
</li>
</ol>
&nbsp;
Crossovers, zero line crossings, and divergences in MACD
&nbsp;
Crossovery is one of the most commonly used signals in the MACD indicator. Just like with standard moving averages (MA), when the MACD line crosses the signal line, it can indicate a trend reversal.
<ul>
<li dir="ltr" aria-level="1">
If the MACD line crosses the signal line upwards, it is considered a bullish signal, indicating a possible uptrend.
</li>
<li dir="ltr" aria-level="1">
If the MACD line crosses the signal line downwards, it is a bearish signal, indicating a possible downtrend.
</li>
</ul>
Another important point to monitor is zero line crossovers. This refers to when the MACD line crosses the zero line:
<ul>
<li dir="ltr" aria-level="1">
If the MACD crosses below the zero line, it may indicate a bearish trend.
</li>
<li dir="ltr" aria-level="1">
If the MACD crosses above the zero line, it could signal the beginning of a bullish market.
</li>
</ul>
Divergences occur when the market moves in one direction but the MACD indicator does not follow it.
<ul>
<li dir="ltr" aria-level="1">
If the market makes a new high but the MACD does not reach higher values, it may form a bearish divergence, suggesting weakening momentum and a potential reversal.
</li>
<li dir="ltr" aria-level="1">
Conversely, if the market makes new lows but the MACD does not create lower values, this can signal a bullish divergence, forecasting a potential upward market reversal.
</li>
</ul>
This disconnect between the price and the indicator shows that the market and MACD are not in sync, which often leads to a trend reversal. Traders use these signals to better time their market entries and exits.
&nbsp;
<h3 dir="ltr">Important Note:</h3>
&nbsp;
It's crucial to keep in mind that moving averages (MAs) are lagging indicators, meaning they react to price movements with a delay. Since MACD is derived from moving averages, it can lag even further, which may cause some signals to come too late.
&nbsp;
For this reason, it's important to watch out for false signals and combine MACD with other analytical tools to confirm trends. Equally important is risk management&mdash;using stop-loss orders and setting appropriate risk management features can help minimize losses if the indicator turns out to be unreliable.
&nbsp;
<h3 dir="ltr">Profit target and risk-to-reward ratio</h3>
&nbsp;
When entering a trade, having a profit target is equally important. Traders use different approaches for setting profit targets:
<ul>
<li dir="ltr" aria-level="1">
Some traders choose a fixed profit target, such as twice the risk (risk-to-reward ratio of 1:2).
</li>
<li dir="ltr" aria-level="1">
Others wait for the EMA crossover to occur as an exit signal, but this might result in longer trade durations and uncertainty as the signal appears.
</li>
</ul>
In this scenario, a suitable profit target could be set to 15&ndash;20 pips with a stop-loss just below the EMA crossover, providing a risk-to-reward ratio of approximately 1:3.
&nbsp;
Other approaches to day trading
&nbsp;
Although this example uses moving averages, traders have other essential technical indicators and strategies at their disposal for day trading. Some of the most common include:
<ul>
<li dir="ltr" aria-level="1">
MACD &ndash; tracks momentum and potential trend reversals.
</li>
<li dir="ltr" aria-level="1">
RSI (Relative Strength Index) &ndash; measures overbought and oversold levels in the market.
</li>
<li dir="ltr" aria-level="1">
Fibonacci retracements &ndash; help identify key support and resistance levels.
</li>
</ul>
Each of these tools offers a unique perspective on price movement and can assist traders in identifying optimal entry and exit points in the market.
&nbsp;

Moving Averages (MAs)

<h1 dir="ltr">Support and resistance</h1>
 Support and resistance levels are a key element of technical analysis, providing important information about potential price reversal points.
<ol>
<li>What does support mean?</li>
<li>What does resistance mean?</li>
<li>Why are support and resistance levels significant?</li>
<li>The difference between major and less significant support and resistance levels</li>
<li>How can support turn into resistance? </li>
</ol>
<h3>What does support mean?</h3>
&nbsp;
Support represents a price level on the chart where the market bounces back during a decline. If the price of an asset is falling but always hits a certain limit that it doesn't break below, it means that the market reacts at this level, and the price bounces back upward from it.
&nbsp;
When the price reaches the support level, sellers are unable to push the price lower. This level might be seen as a buying opportunity, which often leads to a trend reversal upwards.
&nbsp;
<img src="https://direct.y4trade.com/assets/88394746-7897-4859-9bec-a1cf36536613.png?width=600&amp;height=400" alt="Support">
&nbsp;
Support represents a price level on the chart where the market bounces back during a decline. If the price of an asset is falling but always hits a certain limit that it doesn't break below, it means that the market reacts at this level, and the price bounces back upward from it.
&nbsp;
 When the price reaches the support level, sellers are unable to push the price lower. This level might be seen as a buying opportunity, which often leads to a trend reversal upwards.
&nbsp;
Support is not only found in declining markets
&nbsp;
Support levels can also form in rising markets, where after a small correction, the price finds support and continues moving upward. These areas can be identified on charts within the support range. They are often referred to as the base or the floor of the market.
<h3 dir="ltr">What does resistance mean?</h3>
 Resistance represents the price level that is best reached to form a new high. It is the exact opposite of support.
 When the price of an asset reaches this level, sellers enter the market, preventing further growth and pushing the price back down.
&nbsp;
<img src="https://direct.y4trade.com/assets/1166cdf0-e06b-4223-b16a-4802a2d52157.png?width=600&amp;height=397" alt="Resistance">
&nbsp;
Just like support, resistance levels can also occur in both bullish and bearish markets.
 They are often referred to as the price ceiling, which represents the boundary that the market struggles to break through.
&nbsp;
Occasionally, the market may be in a so-called range-bound state, meaning it is bouncing between support and resistance levels, unable to break out of this range.
&nbsp;
<img src="https://direct.y4trade.com/assets/9331bcbf-39cd-415b-a7c3-08a7cd46c617.png?width=600&amp;height=395" alt="Occasionally">
&nbsp;
<h3 dir="ltr" role="presentation">Why are support and resistance important?</h3>
 Many traders use support and resistance levels to better plan their entries and exits from trades.
<ul>
<li dir="ltr" aria-level="1">
A simple example could be a situation where the support level has been tested multiple times but has not been broken. This might signal a buying opportunity for traders.
</li>
<li dir="ltr" aria-level="1">
Opening a long position near support allows traders to profit if the market bounces back upward.
</li>
<li dir="ltr" aria-level="1">
Selling near the resistance level can be advantageous if the price starts to decline from this area, allowing traders to profit from a downward reversal.
</li>
</ul>
&nbsp;
<img src="https://direct.y4trade.com/assets/985358ef-788d-4e17-9226-b509b17edf6d.png?width=600&amp;height=398" alt="Major Resistance">
&nbsp;
When deciding to close a position, identifying a price level where a trend reversal might occur can help maximize profits or limit losses.
&nbsp;
However, it is important to note that support and resistance levels are not fixed and can be broken. If the market breaks through an established support or resistance area, it often continues moving toward the next significant level.
&nbsp;
This leads to the approach of entering a trade when support or resistance is broken, with the aim of trading the continuation of the move in the direction of the breakout.
&nbsp;
It&rsquo;s essential to keep in mind that no strategy is without risk. The market can be influenced by various factors that may cause unexpected price movements.
 
<h3 dir="ltr">The difference between major and less significant support and resistance levels</h3>
&nbsp;
Not all support and resistance levels have the same strength. Minor levels may temporarily slow down the price increase or decrease within the existing trend, but they do not stop it completely. A major level can be so significant that it can fully halt or even reverse the direction of the market.
&nbsp;
<img src="https://direct.y4trade.com/assets/6111e21a-5e44-47d1-99cc-2b132d29add3.png?width=600&amp;height=398" alt="Major Vs. Minor Support and Resistance Levels">
&nbsp;
The more times the market bounces off a support or resistance level, the stronger that level becomes
 For example, if a currency pair like EUR/USD repeatedly tries to go above 1.155 EUR but does not reverse downward, it could eventually become resistance. The more failed attempts or breakouts that happen, the more likely it is that this level will be seen as a key barrier to further growth.
&nbsp;
Traders' thinking often contributes to strengthening support and resistance levels. For instance, if EUR/USD bounces off 1.1965, many traders might start opening short positions in that area, further solidifying this price level as strong resistance.
&nbsp;
If the market successfully breaks through a significant level, it often continues moving in that direction, leading to a strong price movement. This phenomenon is called a breakout.
&nbsp;
That&rsquo;s almost everything about support and resistance, but there is one more important aspect to keep in mind.
&nbsp;
<h3 dir="ltr">Support can turn into resistance</h3>
 It is often the case that a support level in a declining market turns into resistance when the market sentiment changes. The previous resistance could then work as new support.
&nbsp;
Referring back to the earlier example, minor levels of resistance can turn into lower support levels and vice versa. This phenomenon can be useful when planning a trading strategy, as analyzing these price movements can give insights into where the market might go in the future.
&nbsp;

Support and resistance

<h1 dir="ltr">Trading with the Trend</h1>
&nbsp;
"The trend is your friend." This statement is one of the most common pieces of advice you will hear from experienced traders &ndash; and for a good reason. The market moves in certain directions, and understanding these movements can help traders better time their entries and exits from positions.
<ol>
<li dir="ltr">How to trade with trends?</li>
<li dir="ltr">Tools for identifying trends</li>
</ol>
<h3>&nbsp;</h3>
<h3>What is a Trend?</h3>
&nbsp;
A trend refers to the overall direction of the market's movement over a specific period. The market can develop in three main directions:
<ul>
<li dir="ltr" aria-level="1">
Upward (bullish trend) &ndash; when prices rise and the market shows increasing momentum.
</li>
<li dir="ltr" aria-level="1">
Downward (bearish trend) &ndash; when prices fall and the market moves downward.
</li>
<li>Sideways (range-bound trend) &ndash; when prices fluctuate within a certain range, with no clear upward or downward direction.</li>
</ul>
&nbsp;
<img src="https://direct.y4trade.com/assets/d72505fa-c9b0-4b84-aa3d-e3ff7949d4f0.png?width=600&amp;height=400" alt="What Is a Trend">
&nbsp;
Regardless of your chosen style, learning to identify and classify trends as they form can lead to successful trading.
Trends exist in three main types:
<ul>
<li dir="ltr">Primary (Major) Trends</li>
</ul>
 Represent the dominant direction of the market's movement over the long term. Can last from several months to several years.
<ul>
<li dir="ltr">Secondary (Intermediate) Trends</li>
</ul>
Occur within primary trends and represent temporary movements in the opposite direction. Last for a shorter period, such as a few weeks to months.
<ul>
<li dir="ltr" style="font-weight: bold;">Minor Trends</li>
</ul>
Appear over a short-term horizon, often within a single day or a few days. They are common in day trading and can be less predictable.
&nbsp;
<img src="https://direct.y4trade.com/assets/94a2b612-671b-430e-b386-33e51121360e.png?width=596&amp;height=400" alt="Minor Trend">
&nbsp;
For example, if the market has been rising significantly over the past 18 months, it is in a primary (major) upward trend. However, during this bullish trend, there may be a temporary stagnation or correction lasting several weeks or months before the market resumes its upward movement. This situation represents a secondary (intermediate) trend.
&nbsp;
 On an even shorter level, within a single day, there may be smaller upward or downward movements, known as minor trends, which occur within day trading. Thus, the market may experience short-term bullish or bearish fluctuations during the day, even though the overall direction remains unchanged.
&nbsp;
<h3 dir="ltr">How to Trade with Trends</h3>
&nbsp;
 The type of trend a trader follows depends on their trading strategy.
 Long-term investors, such as position traders, primarily focus on primary trends. They seek significant price movements that allow them to maximize profits over a longer period.
 Medium-term traders, like swing traders, focus on secondary trends that last from days to several weeks.
 Day traders and scalpers concentrate on short-term trends, monitoring minor price movements over the course of a single day or a few hours.
&nbsp;
Contrarian View
 It is not always necessary to trade in alignment with the trend &ndash; many traders opt for a contrarian approach. Instead of following the current market direction, they seek to identify potential reversals and profit from a trend change.
 However, with this approach, timing entries and exits is key to success. Being in the right phase of the trend and closing the position before a reversal can significantly increase profit margins.
<h3 dir="ltr">Tools for trend trading</h3>
 Technical analysts use various tools and indicators to help identify and classify trends.
&nbsp;
Trendlines
 One of the most suitable methods for determining bullish or bearish trends is through trendlines.
 They are applied to price charts to visually represent the direction and strength of the trend.
 Trendlines help reduce fluctuations in price action, allowing for a clearer view of the main trend.
 They filter out market noise, giving traders a better understanding of whether bulls or bears dominate the market.
&nbsp;
<img src="https://direct.y4trade.com/assets/69508edf-8102-4ff9-81a2-24877bd7e8ef.png?width=600&amp;height=397" alt="Sidways Trend">
&nbsp;
An upward trend can be identified when the price consistently creates higher highs and higher lows. To use a trendline on a chart where you anticipate an upward trend, follow these steps:
<ul>
<li dir="ltr" aria-level="1">
Draw a line connecting at least three of the lowest points in the market &ndash; these are points where the price reached a minimum and then began moving upward.
</li>
<li dir="ltr" aria-level="1">
If the trendline is ascending, it confirms the trend.
</li>
<li dir="ltr" aria-level="1">
The steeper the line, the stronger the trend.
</li>
</ul>
Conversely, downward trends are characterized by lower highs and lower lows. To identify a bearish trend, draw a line connecting at least three of the highest points, where the price reached a peak and then started to decline.
&nbsp;
 If the trendline is descending, it indicates a downward trend.
&nbsp;
 Although you can draw a trendline using only two points, at least three touches are needed to confirm the trend.
&nbsp;
<img src="https://direct.y4trade.com/assets/9de5b4f9-8283-4de4-8cb6-2c9e73587ef7.png?width=597&amp;height=400" alt="Minor Trend">
&nbsp;
Did you know?
 After a trend has already formed, its identification becomes easier. This is why attempting to catch the entire movement is often unrealistic. Most traders don&rsquo;t try to precisely time the market's top or bottom, but instead aim to capture as much of the trend as possible.
 If the trendlines are horizontal, it means the market is moving within a range (range-bound market), without a clear upward or downward direction.
 When the market respects its trendline, traders can take advantage of this by entering new trades, thereby maximizing profits within the trend.
&nbsp;
&nbsp;
Channels
 To identify channels, trendlines are used, with the channel formed by two parallel lines within which the market price moves.
 To draw a channel, connect the two highest points with a trendline and the two lowest points with another trendline.
 If the price moves between these two lines, you can trade within the channel &ndash; selling at the upper line and buying at the lower line.
&nbsp;
Patterns
 Many traders also use chart patterns to identify trends.
 When the market is in an uptrend or downtrend, its chart often resembles an ascending or descending staircase pattern.
 This means that each new high or low exceeds the previous one, confirming the continuation of the trend.
&nbsp;
<img src="https://direct.y4trade.com/assets/3221c897-e202-4709-8140-edc167295509.png?width=600&amp;height=400" alt="Pattern">
&nbsp;
There are many chart patterns that technical traders consider as signals of a potential continuation or reversal of a trend. The most common include triangles, flags, and wedges. These patterns are covered in more detail in the lesson on candlesticks and chart patterns.
&nbsp;
Volume
 Trading volume is a useful tool in identifying trends, as it shows the number of units of a given asset traded over a certain period.
 A strong volume during an uptrend indicates that the movement has strong support in buying and may continue.
 However, if the market is rising but volume is low, it could suggest that the trend lacks sufficient strength to sustain over the long term.
&nbsp;
Indicators
 Technical indicators can help traders better analyze market trends and time their trade entries.
<ul>
<li dir="ltr" aria-level="1">
Moving Averages (MA) &ndash; These calculate the average price over a specific period and can signal the beginning of a new trend.
</li>
<li dir="ltr" aria-level="1">
Relative Strength Index (RSI) &ndash; This measures the current price movement and helps identify overbought or oversold conditions in the market.
</li>
</ul>
Although indicators can be helpful in finding trading opportunities, they are not always necessary. Therefore, it is crucial to manage money and control risk to minimize potential losses.
&nbsp;

Trading with the Trend

<h1 dir="ltr">Forex Scalping</h1>
&nbsp;
Forex scalping is a trading technique that involves trading currencies on charts with very short time frames. It is a high-frequency and potentially profitable trading method, but it also comes with risks.
<ol>
<li dir="ltr" style="font-weight: bold;" aria-level="1">What is scalping in trading?</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">Is forex scalping profitable?</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">Forex scalping risk management</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">Forex scalping strategy</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">Finding the trend</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">Making the trade</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">Forex scalping</li>
</ol>
&nbsp;
<h3 dir="ltr">What is scalping in trading?</h3>
Scalping is a popular strategy that involves making numerous small profits every day. Scalpers open and close multiple positions during each trading session &ndash; some trades last only a minute or even seconds as they seek trading opportunities.
&nbsp;
Name: Scalping
&nbsp;
Timeframe: Very short-term
&nbsp;
Find trades using: Technical analysis
&nbsp;
Requires: A lot of time, strong nerves
&nbsp;
In scalping, traders aim to achieve small profits from most of their trades, focusing on a higher success rate compared to day or position trading. If the market moves in their favor, the trader will immediately open a position to capture the profit. On the other hand, if the market moves against them, they usually close the trade right away, accepting a small loss.
&nbsp;
Scalping is one of the most intense forms of day trading. It requires more time and a disciplined approach to avoid significant losses or missed profits. Since margins are very low, a single large loss can wipe out the profits from a series of successful trades.
&nbsp;
While long-term trading might last for months or even years, and swing trading provides profits over days or weeks, scalping trades last only a few minutes or even seconds.
&nbsp;
This means scalpers must remain fully focused on the charts and be able to react instantly to price movements. If they lose focus, they might miss out on opportunities that could bring a profit.
&nbsp;
The graph below provides a hypothetical view of scalping trade frequency, using the stochastic indicator to identify entry points on a one-minute chart. Notice that in less than three hours, five trades were made, and many scalpers trade even more frequently during the same time frame.
<h3 dir="ltr">&nbsp;</h3>
<h3 dir="ltr">Is forex scalping profitable?</h3>
&nbsp;
Forex scalping can be potentially profitable, just like any other trading time frame.
&nbsp;
Typically, a scalper aims to earn between five to ten pips per trade. But how does this translate into actual cash?
&nbsp;
Assume your average pip value is about $10. For every five pips in profit, you can make $50, and if you complete ten trades a day, this would result in $500. However, when determining profitability, you must also factor in losing trades &ndash; and as a scalper, there can be many of those.
&nbsp;
To maximize your chances of profitability, you can reduce the high volume of trades per day by implementing a strict exit strategy and risk management procedures. Entry and exit strategies can be supported by technical indicators that signal overbought or oversold conditions.
&nbsp;
<h3 dir="ltr">Forex scalping risk management</h3>
&nbsp;
To minimize risk when forex scalping, you must first ensure that you have a solid strategy in place. Given the fast-paced nature of short-term currency markets, a strong focus, quick reflexes, and a calm approach under pressure are also crucial.
&nbsp;
Just like with day trading, it is important to trade in liquid markets, such as EUR/USD, to reduce the risk of slippage (the inability to fill your trade at the price you want due to a lack of liquidity).
&nbsp;
Scalpers must also use strong risk management practices. This includes effectively placing stop-loss orders, which means that if the price moves too far in the wrong direction, your trade will be automatically closed.
&nbsp;
1% Rule
&nbsp;
You can also apply the following 1% rule, meaning that you should never risk more than 1% of your balance on any single trade idea. For example, if you&rsquo;re trading with an account balance of $20,000, $200 would be the maximum risk for each position.
&nbsp;
If you use a risk-to-reward ratio of 1:2, risking 1% means the trader aims to close their trades with a 2% profit. This would mean a profit of $400 on a $20,000 account balance, or a loss of $400 if the position moves against you.
&nbsp;
Meanwhile, the 1% rule advises that no more than 5% of the account balance should be at risk across all open trades. You should set percentages within your personal risk tolerance.
&nbsp;
<h3 dir="ltr">Forex scalping strategy</h3>
&nbsp;
As mentioned earlier, a successful strategy for forex scalping will involve frequent trades throughout the day, aiming for small profits during the most liquid times and using technical analysis where needed to assist with entry and exit points. Before opening a position, it&rsquo;s essential to identify market conditions in which new setups will arise. This can be done by analyzing multiple time frames to get a clearer view of price action.
&nbsp;
From there, the approach can vary depending on whether the market is trending, moving within a range, or preparing to break out. For this basic example, let&rsquo;s focus on a trending market.
&nbsp;
<h3 dir="ltr">Finding the trend</h3>
&nbsp;
When the market shows a prolonged movement in one direction, a trend can be identified. A downtrend is marked by a series of lower lows and lower highs, while an uptrend shows higher lows and higher highs. A broader trend can serve as a useful barometer for predicting potential price action on shorter time frames used in scalping.
&nbsp;
In the 5-minute chart below, you can see how the price moves above the exponential moving averages (EMA) for 8 and 34 periods. The shorter EMA also crosses above the longer period EMA, which can signal the start of an uptrend.
&nbsp;
<h3>Making the trade</h3>
&nbsp;
Now that a potential uptrend has been established, a shorter time frame can be used for opening and closing positions. In the 1-minute chart example below, an oversold stochastic signal is used to identify entry points.
&nbsp;
To confirm the trade, moving average crossovers can be utilized. When the 50-period EMA crosses above the 100-period EMA, and shortly after an oversold stochastic signal appears, a long position can be opened. In this scenario, you might set your stop-loss around 10 pips to effectively manage risk, with a potential target of double or triple the risk.
&nbsp;
In scalping, many positions of this type would be closed within minutes, or even less, depending on the information and market movements.
&nbsp;
While this example uses the stochastic indicator, a wide range of other technical indicators can also be helpful, such as Fibonacci retracements, MACD, and RSI. You can learn more about these tools in the Technical Analysis course.
&nbsp;
Scalping strategies can also be applied to markets where prices are mostly moving sideways. If the price is contained within a certain range, scalpers may find higher success than in trending markets, meaning they can take long positions near support levels and sell near resistance. Breakouts, when the price breaks through a defined support or resistance level, can also provide new momentum, which scalpers may be interested in trading.
&nbsp;
<h3 dir="ltr">Forex Scalping</h3>
&nbsp;
Scalping is risky: Use strong risk management.
<ul>
<li dir="ltr" aria-level="1">
Trade the most liquid currency markets during the most active times to minimize slippage.
</li>
<li dir="ltr" aria-level="1">
Use multiple time frames to assess broader trends.
</li>
<li dir="ltr" aria-level="1">
Use technical analysis to help with entries and exits.
</li>
</ul>
&nbsp;

Forex Scalping

<h1 dir="ltr">Forex Trading Strategies</h1>
&nbsp;
Just like in other markets, the forex market offers a wide range of trading strategies. In this text, we will focus on how to choose the right trading strategy for forex that best fits your needs and provide you with several additional strategies to try.
&nbsp;
<ol>
<li>Choosing a Forex Trading Strategy</li>
<li>Creating your own FX strategy with indicators</li>
</ol>
<h3 dir="ltr"> Choosing a forex trading strategy</h3>
&nbsp;
The main forex trading strategies are similar to those in other markets: scalping, day trading, swing trading, and position trading.
&nbsp;
Scalping and day trading
&nbsp;
Forex is particularly popular among scalpers and day traders due to the high volatility and liquidity often found in FX markets. This intense trading strategy can be very successful in currency markets, where the high number of traders means that new trading opportunities continuously arise.
&nbsp;
Most scalpers and day traders tend to focus on the major currency pairs, where liquidity is the highest.
&nbsp;
Swing trading
&nbsp;
It is not necessary to limit yourself to short-term strategies in forex. Many swing traders prefer to focus on one or two currency markets, seeking medium-term price fluctuations that can provide profitable opportunities.
&nbsp;
However, keep in mind that forex trading is leveraged, and increased leverage means increased risk.
&nbsp;
Position trading
&nbsp;
Position trading is also popular among forex traders who want to secure a long-term view on currency pairs. For example, if you believe the British pound might achieve significant gains against the euro and the US dollar over several months, you might go long GBP/USD and short EUR/GBP.
&nbsp;
Like with swing trading, you will want to be mindful of financing costs.
&nbsp;
Carry trading
&nbsp;
Carry trade is a popular strategy in the forex market that takes advantage of interest rate differentials to generate returns.
&nbsp;
The first step in creating a carry trade is to find a currency with a high-interest rate and one with a lower interest rate. You would then sell the lower-interest rate currency and buy the higher-interest rate currency, profiting from the interest rate differential.
&nbsp;
For example, let&rsquo;s say the US Federal Reserve sets an interest rate of 1.25%, while the ECB sets an interest rate of 0.00%. If you sell EUR/USD, you would (theoretically) profit from the 1.25% interest rate differential.
&nbsp;
Of course, you will need to earn enough profit to cover the cost of borrowing in EUR and stay reliable against the EUR/USD exchange rate, which could negate any profit from the interest rate differences.
&nbsp;
<h3 dir="ltr">Creating your own FX strategy with indicators</h3>
&nbsp;
You don't need to have a specific target area set for forex. Most of the strategies included in our Strategies and Risk and Advanced Trading Strategies courses will work effectively in the FX market as well.
&nbsp;
One approach to creating your own trading plan is to combine multiple technical indicators, which proves to be effective when trading in a trend.
&nbsp;
The right combination of indicators should:
<ul>
<li dir="ltr" aria-level="1">
Identify the trend,
</li>
<li dir="ltr" aria-level="1">
Confirm its direction,
</li>
<li dir="ltr" aria-level="1">
Suggest appropriate entry points,
</li>
<li dir="ltr" aria-level="1">
Indicate whether the market is overbought or oversold,
</li>
<li dir="ltr" aria-level="1">
Provide a signal to exit the trade.
</li>
</ul>
You can use updates from four indicators, each covering one of the following: trend tracking, trend confirmation, determining overbought/oversold conditions, and a signal for trade exit.
&nbsp;
On the Y4Trade.com platform, there is a wide range of indicators available &ndash; simply log in to your demo or live account and start testing which ones work best for you.
&nbsp;

Forex Trading Strategies

<h1 dir="ltr">Forex vs. Stocks</h1>
&nbsp;
Whether you're a complete beginner or already have advanced knowledge of trading, it's crucial to have a clear understanding of how the mechanisms of your trades work.
Financial markets can be confusing for newcomers, so it&rsquo;s important to educate yourself about different investment instruments. By reading the right materials and attending quality webinars &ndash; by the way, Y4Trade.com offers a wealth of on-demand educational resources &ndash; you can significantly boost your trading confidence.
This article compares forex (foreign exchange), which involves trading currencies (FX), and stocks, which represent ownership in a company and are commonly traded on exchanges.
&nbsp;
<h3 dir="ltr">Main differences between Forex and Stocks</h3>
<ul>
<li dir="ltr" aria-level="1">
Forex &ndash; High Liquidity: The forex market offers fast entry and special spreads.
</li>
<li dir="ltr" aria-level="1">
24/5 Trading: The forex market operates continuously from Monday to Friday.
</li>
<li dir="ltr" aria-level="1">
Leverage: In forex, you can trade with more capital than you actually have available.
</li>
<li dir="ltr" aria-level="1">
Forex Mechanics: Understanding the basic principles of the market and trading strategies is crucial.
</li>
</ul>
&nbsp;
&nbsp;
<h3 dir="ltr">What is the difference between Forex and Stocks?</h3>
&nbsp;
<h3 dir="ltr">Forex &ndash; Trading currencies</h3>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Every trade focuses on a currency pair, such as EUR/USD, USD/JPY, or AUD/USD.
</li>
<li dir="ltr" aria-level="1">
You are always buying one currency and selling another. For example, buying EUR/USD means you expect the euro to strengthen against the dollar.
</li>
<li dir="ltr" aria-level="1">
On the Y4Trade.com platform, you can trade over 80 currency pairs.
</li>
<li dir="ltr" aria-level="1">
The forex market is highly liquid and operates 24/5 (from Sunday 5:00 PM EST to Friday 5:00 PM EST).
</li>
<li dir="ltr" aria-level="1">
It is not necessary to use derivatives &ndash; you can trade currency pairs directly.
</li>
</ul>
&nbsp;
<h3 dir="ltr">Stocks &ndash; Investing in companies</h3>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
When trading stocks, you are buying a share in a specific company and expecting the price of its stock to rise.
</li>
<li dir="ltr" aria-level="1">
Traders can also use derivatives such as options and futures, offering flexibility, though they require advanced risk management skills.
</li>
<li dir="ltr" aria-level="1">
Short selling allows traders to speculate on a decline in the price of stocks without owning them.
</li>
<li dir="ltr" aria-level="1">
Stocks are traded during exchange hours, which are more limited compared to forex.
</li>
</ul>
&nbsp;
Forex stands out for continuous trading and high liquidity, while stocks offer opportunities to invest in companies and profit from their growth or decline via derivatives. The choice between forex and stocks depends on your trading strategy and preferred approach to the market.
<h3 dir="ltr">&nbsp;</h3>
<h3 dir="ltr">Forex: High liquidity and tight spreads</h3>
&nbsp;
The forex market is one of the most liquid markets in the world, with a daily trading volume exceeding $7.5 trillion. This high liquidity results in tight spreads &ndash; the small difference between the buy and sell price &ndash; which is particularly beneficial for short-term traders.
&nbsp;
Liquidity changes throughout the day, depending on the trading sessions of major global exchanges and the specific currency pair being traded.
&nbsp;
<h3 dir="ltr">Liquidity of Stocks vs. Forex</h3>
&nbsp;
Stocks are generally more liquid than some other asset classes, but not all stocks are equally actively traded. The most liquid stocks can be identified by their average daily trading volume, which may be in the millions or even hundreds of millions of shares.
On the other hand, less liquid stocks can be problematic, as selling them may not be as easy, and executing the trade quickly and at a low cost can be challenging.
&nbsp;
Advantage of Forex liquidity
&nbsp;
Traders who have primarily focused on stocks may be pleasantly surprised to discover that with major currency pairs in forex, it is very easy to enter and exit the market during times of high liquidity. This makes forex particularly appealing for a larger segment of traders who rely on efficient trade execution.
&nbsp;
24/5 Trading: Continuous movement in Forex markets
&nbsp;
When trading stocks, you are limited by the opening hours of the exchange on which they are listed. For example, the New York Stock Exchange (NYSE) operates from 9:30 AM to 4:00 PM ET, though some markets allow trading outside of these hours through derivative instruments.
However, forex offers a significant advantage &ndash; continuous access to the market. Trading occurs 24 hours a day, 5 days a week, from Sunday 5:00 PM ET (Monday 9:00 AM in Sydney) to Friday 5:00 PM ET (the market closes in New York).
This round-the-clock access provides traders with the flexibility to enter and exit trades at times that suit them. It's also crucial to set up Take Profit and Stop Loss orders to protect positions, especially when it's not possible to monitor the market constantly.
&nbsp;
<h3 dir="ltr">Leverage: Trading with greater buying power</h3>
&nbsp;
On Y4Trade.com, we offer leverage that allows traders to increase their trading power in the market. In practice, this means we lend you capital, allowing you to trade larger positions than you could with your own funds. Leverage is a powerful tool, but it&rsquo;s important to understand that it also increases risk.
Leverage is expressed as a ratio. For example:
<ul>
<li dir="ltr" aria-level="1">
With a leverage of 50:1, you can control $50,000 with a $1,000 deposit.
</li>
</ul>
A small portion of the capital is set aside as margin, which you need to maintain open positions.
While leverage exists in options and futures trading, it is especially popular and effective in forex, where it enables more efficient trading. However, it's essential to adhere to key margin requirements to avoid unexpected liquidation of your positions.
Regardless of the market you choose, it's crucial to understand your full exposure and have a clear risk management strategy in place.
&nbsp;
<h3 dir="ltr">Mechanics: The basics of Forex Trading</h3>
&nbsp;
If you're interested in forex, you're in the right place. At Y4Trade.com, you can try a demo account risk-free, which is the perfect way to familiarize yourself with the platform and understand how leverage works.
&nbsp;
With a demo account, you can experiment with setting up Take Profit and Stop Loss orders to manage your exposure in the market. The best part is, you can test everything without investing any of your own money.
&nbsp;
If you want to learn more, we have comprehensive educational materials to help you deepen your understanding of forex. And when you feel ready, you can fund a live account in just a few minutes.
&nbsp;
At Y4Trade.com, we provide you with all the necessary information to become a better trader. Follow daily analyses of major currency pairs, engage in trading discussions on social media, and get insights into the benefits and risks of forex trading.
&nbsp;

Forex vs. Stocks

<h1 dir="ltr">Emotion Management in Forex Trading</h1>
&nbsp;
Forex trading can evoke strong emotions. The constantly changing currency prices can create pressure, making it important to keep stress, greed, and other feelings under control in order to make rational decisions.
&nbsp;
Let&rsquo;s look at some unpleasant emotions that may accompany you while trading &ndash; and how to manage them effectively. 
<ol>
<li dir="ltr">Stress</li>
<li dir="ltr">Impatience</li>
<li dir="ltr">Fear of Missing Out (FOMO)</li>
<li dir="ltr">Worries and greed</li>
<li dir="ltr">Excessive self-confidence</li>
</ol>
&nbsp;
<h3 dir="ltr">Stress</h3>
&nbsp;
Forex trading can be mentally challenging. Prices are volatile, and significant market events can occur unexpectedly.
&nbsp;
If you feel stressed, the first step is to identify the root cause. You might be risking too much capital on a single trade or not having a well-thought-out risk management plan.
&nbsp;
The best way to prevent stress is thorough preparation. If you have a clear strategy for various market situations, you&rsquo;ll be able to react rationally even in challenging moments.
&nbsp;
We will address creating an effective trading plan later in this course.
&nbsp;
<h3 dir="ltr">2. Impatience</h3>
 Although prices on Forex change frequently, much of the time is spent waiting for the right moment to enter or exit the market. In such moments, impatience may arise, leading to premature decisions. You cannot force a trade that doesn&rsquo;t align with your strategy or meet the pre-set conditions. If you let impatience take over, you risk unnecessary losses. One solution is to automate trading using orders. Pre-set orders allow you to track your goals without constantly monitoring the markets.
&nbsp;
<h3 dir="ltr">3. Fear of missing out (FOMO)</h3>
 Fear of missing out occurs when you see a potential opportunity but miss the ideal timing &ndash; either entering too late or having already reached your daily risk limit.
&nbsp;
FOMO often arises when you see other traders flocking into a trend. You are faced with a decision: join the crowd or stay disciplined and perform further analysis? 
The solution is a clearly defined plan and sticking to it long-term. Experienced traders don&rsquo;t let emotions take control, but instead, they stick to their strategy.&nbsp;
&nbsp;
Sometimes, you may miss out on a profitable opportunity, but by minimizing the risk of large losses, this is a win in the long run.
&nbsp;
<h3 dir="ltr">4. Fear and Greed</h3>
&nbsp;
Fear and greed influence not only market behavior but also your individual decisions.
&nbsp;
A common mistake among traders is keeping losing positions open, hoping the market will turn, while closing profitable trades too early out of fear of losing the gains.
&nbsp;
This approach can impact your results. An effective solution is to use stop-loss and take-profit orders. These automatically protect your capital and also help keep you focused on your trading plan, preventing hasty decisions.
&nbsp;
<h3 dir="ltr">5. Overconfidence</h3>
&nbsp;
When you experience several successful trades in a row and your strategy aligns with the current market conditions, it can lead to confirmation bias. This often results in overtrading, which can ultimately harm your results.
&nbsp;
Experienced traders know that success lies in discipline and decisiveness. They stick to their rules and trade systematically, regardless of whether they have a winning or losing day. Their approach is mechanical, not emotional.
&nbsp;
The best strategy is to trade within your means and capabilities. Before increasing your trading volume, ensure that you have built stable confidence in your system and have a clearly defined risk management plan.
&nbsp;

Emotion management in forex trading

<h1>Swing trading in forex</h1>
&nbsp;
<ol>
<li dir="ltr">What is Swing Trading?</li>
<li dir="ltr">Example of a Swing Trade: NZD/USD</li>
<li dir="ltr">How Do Swing Traders Identify Opportunities? </li>
</ol>
Forex trading doesn&rsquo;t have to be limited to short-term trades. There is also a strategy with a multi-day horizon &ndash; swing trading. Let&rsquo;s explore its principles and how it works.
&nbsp;
<h3 dir="ltr">What is swing trading?</h3>
 Swing trading is a trading strategy focused on taking advantage of short-term price fluctuations within larger market trends. Traders look for opportunities with a timeframe ranging from a few days to weeks, which distinguishes them from day traders who close positions within a single day and from position traders who hold positions for months or years.
&nbsp;
Key characteristics of swing trading: 
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Timeframe: Medium-term (days to weeks) Method of identifying trades: Primarily technical analysis
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Essential knowledge: Technical indicators
</li>
</ul>
&nbsp;
Swing traders aim to profit from smaller moves within a longer trend. Even when the market is in a strong upward (bullish) or downward (bearish) trend, prices often experience short-term corrections. Swing trades take advantage of these deviations to enter and exit trades.
&nbsp;
Example of swing trading
 Let&rsquo;s imagine that GBP/USD rises over the course of several months from 1.3245 to 1.3478. However, this move doesn&rsquo;t look like a perfectly straight line &ndash; the market moves up and down, with active fluctuations in control.
&nbsp;
Swing traders look for the start of these smaller moves (called swings) and enter positions that they hold until the market shows a reversal signal. Their goal is to profit from these short-term price fluctuations while the trend continues in the original direction.
&nbsp;
Swing trading in forex
 Swing trading in Forex can be very profitable.
 Unlike major investors, swing traders are not concerned with the fundamental value of a currency. The goal is to take advantage of short-term price fluctuations &ndash; entering at temporary lows and exiting at trend peaks.
&nbsp;
Forex offers ideal conditions for this, thanks to:
 ✔ High liquidity &ndash; allowing for easy entry and exit from trades ✔ Tight spreads &ndash; with trading hours ✔ Continuous trading &ndash; the market operates 24 hours a day during business days
&nbsp;
These factors make swing trading an effective way to trade in the forex market.
&nbsp;
<h3 dir="ltr">Example of a Swing Trade: NZD/USD</h3>
&nbsp;
Here is a graphical example of swing trading on the NZD/USD currency pair, where the overall trend represents the declining value of the New Zealand dollar, but the swing trade captures a temporary upward movement. This type of trade allows the trader to take advantage of moves against the main trend.
&nbsp;
Such situations are common in swing trading, where short-term moves against the long-term trend are used to generate profit.
&nbsp;
<img src="https://direct.y4trade.com/assets/e80da693-560f-4e19-af7b-f18d8ce4b09b.png?width=600&amp;height=396" alt="Swing Trade on Nzdusd in a Downtrend">
&nbsp;
Downtrend: Indicates the main downtrend.
Swing up: Indicates a swing trade upwards &ndash; a temporary price rebound, which could be suitable for a short-term long trade.
Typical Strategy: Buy at the bottom of the rebound and exit at the temporary peak, before the price returns to the main trend.
 Looking for consolidation
&nbsp;
Take a closer look at the chart. The red arrow marks the point where the downtrend occurred. After a prolonged decline, you can notice that the price briefly stabilized before the swing rebound upward (green area).
&nbsp;
This type of consolidation is a common indicator that traders watch for swing trading opportunities. We are not focused on the short-term movement of NZD/USD, but rather on the probability of an upward movement.
&nbsp;
Therefore, the red arrow indicates a moment that could be considered an ideal point for buying NZD. This scenario is an example of "buying the dip," a strategy that traders use to profit from short-term price fluctuations.
&nbsp;
Closing the trade
&nbsp;
Initially, NZD/USD continued to decline, but then a rebound occurred upward, as shown by the green area. The price adjusted during this period, which allowed swing traders to extend their trades.
 A trader who entered the market at the swing rebound zone (green area) and subsequently closed the trade at its higher point could have made a profit from the short-term movement.
 This example highlights the importance of timing and discipline. If the trader had waited for further growth, they could have missed out on profits, as after the rebound, the price returned to the downtrend, which continued in the following days. Therefore, it is crucial to trade with a clear plan and avoid emotional decisions. Past price movements do not guarantee future results, so managing risk properly and sticking to your trading plan is essential.
&nbsp;
<h3 dir="ltr">How do swing traders find opportunities?</h3>
&nbsp;
Similar to scalping, swing traders often use technical indicators to determine optimal entry and exit points for trades. One of the main strategies is identifying support and resistance zones, which can signal potential price reversals. 
We will explore this topic in more detail in the Technical Analysis course, but here we will introduce one of the most commonly used indicators in swing trading &ndash; the RSI (Relative Strength Index). 
Below, you can see a chart of the EUR/USD currency pair, with the RSI indicator displayed underneath. Traders use this indicator to identify overbought and oversold areas &ndash; signals for entering or exiting the market.
&nbsp;
<img src="https://direct.y4trade.com/assets/63df9852-762b-4c49-a0d6-18ddecc6c366.png?width=600&amp;height=398" alt="Eurusd With Rsi Indicator">
&nbsp;
RSI (Relative Strength Index) is a momentum oscillator that measures the speed and change of price movements. RSI values range from 0 to 100. Traditionally:
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
If RSI crosses above 70, the market is considered overbought and a decline may follow.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
If RSI falls below 30, the market is oversold and a rebound is expected.
</li>
</ul>
&nbsp;
In the chart above, the purple line represents the RSI, and the 30-70 range marks a neutral zone, where the market is neither oversold nor overbought.
&nbsp;
However, when RSI drops below 30 or rises above 70, green and red bodies appear, indicating suitable trading opportunities for swing traders. These moments are ideal for entering a trade, as they signal potential trend reversals.
&nbsp;
Buying in an oversold market
&nbsp;
Let&rsquo;s look at the two green circles on the chart. The lower circle shows that the RSI dropped below 30, indicating that the market is oversold. At this moment, a buy trade is appropriate, as a significant rebound is likely, as predicted by the RSI.
&nbsp;
Selling in an overbought market
&nbsp;
Later, the market enters the overbought zone, which is shown by the blue circle. Opening a short trade at this point could yield a clean profit, as the market may then decline.
&nbsp;
Although RSI provides valuable signals, it is not a tool that always guarantees profits. The red circle on the chart shows another dip into the overbought zone, but this time it didn&rsquo;t result in the expected rebound, as the market continued in a bearish trend.
 When trading, it's important to remember that even the best traders are not always right. The key to success is taking the time to make the right decisions and manage risk when a trade doesn&rsquo;t go as expected.
&nbsp;
Swing trading
 Swing trading represents a medium-term strategy that lies between day trading and position trading. Swing traders focus on smaller price movements within larger trends, attempting to take advantage of short-term fluctuations within the range of trends.
 In swing trading, you can use various tools, such as the RSI (Relative Strength Index), to identify technical opportunities and optimize your trading decisions.
&nbsp;
&nbsp;

Swing trading in forex

<h1 dir="ltr">What affects currency markets?</h1>
&nbsp;
Currency pairs constantly change due to various factors. This is why foreign exchange markets are highly sought after by traders.
&nbsp;
 To gain a better understanding of the forex market, it&rsquo;s important to know what can initiate a new trend in the right markets. Here are the most important factors related to volatility in forex &ndash; starting with the most significant, central banks.
&nbsp;
<ol>
<li dir="ltr" aria-level="1">
Central Bank and Forex
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Other Factors that Affect Markets 
</li>
</ol>
&nbsp;
<h3 dir="ltr">Central bank and Forex</h3>
&nbsp;
As mentioned in the fundamental analysis course, central banks play a significant role in various financial markets. However, their influence on currencies is one of the most direct.
&nbsp;
 While the analysis focuses on technical aspects, it is important to know what central banks, which control the currencies you trade, are planning. To get started, here are the factors to watch for when trading USD, EUR, or JPY.
&nbsp;
USD
&nbsp;
The US dollar is by far the most traded currency. It appears in all major currency pairs, is the world&rsquo;s reserve currency, and forms the foundation of financial markets.
&nbsp;
 This means that every popular forex pair is significantly influenced by the actions of the Federal Reserve System (Fed). The most important thing to monitor is the decision of the Federal Open Market Committee (FOMC), which meets eight times a year and sets the key interest rate for the US.
&nbsp;
 Markets focus on any signals regarding interest rates. If an interest rate hike is expected in the US, it can lead to a strengthening of the USD. Conversely, if a rate cut is anticipated, the dollar may weaken.
&nbsp;
 Keep an eye on CPI (Consumer Price Index) data and non-farm payrolls. Why? Because employment is a primary target for the Fed and future economic growth. High employment can lead to interest rate hikes, while low employment may result in rate cuts.
&nbsp;
 There is potential for USD movements to affect various pairs differently depending on whether the dollar is the base or quote currency.
&nbsp;
EUR
&nbsp;
The euro is the second most traded currency in the market, primarily because it forms half of the EUR/USD pair, which dominates global forex trading. The euro is also part of important currency pairs like EUR/GBP and EUR/CHF.
&nbsp;
 While the US is managed by the Federal Reserve System, the European Union has its own central bank, the European Central Bank (ECB). Key are the meetings of the ECB&rsquo;s Governing Council, which occur every six weeks and make decisions regarding interest rates that national central banks (NCBs) use in cooperation with commercial banks.
&nbsp;
JPY
&nbsp;
Central banks do not only influence currencies through interest rates. Sometimes, a currency's value can be detrimental to the economy, leading to central bank intervention.
&nbsp;
 Japan's economy is heavily reliant on exports. Countries with high exports generally do not want their currency to appreciate too much, as it can harm the competitiveness of their exported goods.
&nbsp;
If the JPY becomes too strong against the USD, Japanese exporters earn significantly less. They may need to raise their prices, potentially leading to a decline in overall sales. In this case, the Bank of Japan might intervene by flooding the market with JPY through cash releases. This surplus of supply would likely cause the yen to depreciate, resulting in an increase in the USD/JPY exchange rate.
&nbsp;
Using intervention is particularly challenging because, unlike interest rate changes, these actions are typically only reported after they occur.
&nbsp;
However, there can be signs that intervention is imminent, especially if the central bank repeatedly states that its currency is historically overvalued. Timing is difficult to predict and is usually a surprise.
&nbsp;
<img src="https://direct.y4trade.com/assets/ea37c6a2-5106-47a3-a24f-ecb57de8e80c.png?width=600&amp;height=400" alt="Jpy">
&nbsp;
<h3 dir="ltr">Other factors to watch for</h3>
&nbsp;
1. Government Announcements
 Governments are responsible for fiscal policies that have a significant impact on currency values. For example, if a government plans to finance a new infrastructure project, it will likely need to borrow money in the form of bonds that it sells to investors.
 Fiscal stimuli are approved by governments, and sometimes a stimulus law must first be approved through a vote. It's important to stay informed about the latest developments so you don&rsquo;t miss these critical decisions.
&nbsp;
2. Market Sentiment
 In its simplest form, fear can cause a declining market to turn into full panic, while greed can turn a rising market into reckless, wild buying.
 An example of this was the eurozone crisis, particularly in Greece in 2010, which led to a massive sell-off of the euro as fear dominated investor thinking. Later, however, greed increased the currency's value, negatively impacting employment and inflation. The European Central Bank had to intervene to devalue the euro through various market mechanisms.
 While it's easy to observe the effects of fear and greed after they have played out on the markets, it&rsquo;s very difficult to predict when these factors will manifest in real time.
&nbsp;
3. News
 Not all news has the same impact on markets.
 As a general rule, employment reports affect markets more than manufacturing data, and retail sales data has a greater impact than money supply reports.
 An economic calendar is a great tool to help you determine which news events have the greatest influence. While not all significant news will immediately impact the markets, those with the most potential to do so are usually predictable, and monitoring them can provide a significant advantage for you as a trader.
&nbsp;

What affects currency markets?

<h1 dir="ltr">How corporate events affect stocks</h1>
&nbsp;
When trading stocks, it&rsquo;s important to keep an eye on events related to specific companies. These events can directly impact the value of your open positions.
&nbsp;
<ol>
<li dir="ltr" aria-level="1">
What are corporate events?
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Dividends
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Shareholder rights issues
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Mergers and acquisitions
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Stock splits and consolidations
</li>
</ol>
<h3 dir="ltr">&nbsp;</h3>
<h3 dir="ltr">What is a corporate event?</h3>
&nbsp;
A corporate event is a situation initiated by a publicly traded company that impacts its stock. There are various types of corporate events, but traders tend to focus on those that can affect the stock price. Some events may cause the stock price to drop, while others may increase it, influencing decisions about opening positions.
&nbsp;
Let&rsquo;s look at the most common corporate events you might encounter when trading stocks, and how these events can affect your position if you're trading through CFDs.
&nbsp;
<h3 dir="ltr">Dividends&nbsp;</h3>
&nbsp;
One of the most common corporate events is dividends. Companies use dividends to reward their investors by sharing a portion of the business&rsquo;s profits. Dividends typically cause a drop in stock prices. Why? Because the company just paid out a significant amount of cash, reducing its overall value.
&nbsp;
<h3 dir="ltr">Shareholder rights issues </h3>
&nbsp;
Rights issues (sometimes called secondary offerings) occur when a company offers new shares to its existing shareholders&mdash;usually at a price lower than the current market price.
&nbsp;
Similar to dividends, rights issues often lead to a drop in the company's stock price. The reason is that these issuances increase the total supply of shares on the market, which in turn decreases the value of each existing share.
&nbsp;
Rights issues typically come with a deadline for decision-making. Before this date, you will need to decide whether to take up the offer and buy additional shares.
&nbsp;
Issues with open offers and rights
&nbsp;
Similar to rights issues, in open offers, existing investors have the opportunity to purchase more shares. However, unlike rights issues, these rights cannot be sold within the open offer.
&nbsp;
<h3 dir="ltr">Mergers and acquisitions</h3>
&nbsp;
Mergers and acquisitions (M&amp;A) are two ways in which two listed companies can combine into one entity. Completing these processes can take months or even years, and often they do not go through if the terms cannot be agreed upon. During this period, investors and traders can still buy and sell shares of both companies.
&nbsp;
However, if the merger or acquisition is completed, one or both of the shares may cease to exist. What happens to shareholders depends on the specific terms of the merger or acquisition.
&nbsp;
CFD and Takeovers
&nbsp;
If you hold a CFD position in a company that is subject to a merger or acquisition, your trade will be closed according to the terms of the transaction. Once the takeover is completed, a new position will be opened at the same value.
&nbsp;
For example, let's say you hold 1,000 CFDs in Company A, which is trading at $6.50.
&nbsp;
Company A then makes an acquisition of Company B. The terms of the acquisition state that investors in Company A will be offered 0.613 shares of Company B for every share they hold in Company A.
&nbsp;
In this case, you would receive 613 CFDs of Company B. The new CFD price will then be calculated to ensure the value of your trade remains the same, in this case, at $6,500.
&nbsp;
<h3 dir="ltr">Stock Splits and Consolidations</h3>
&nbsp;
Sometimes companies aim to adjust the price of their shares to prevent them from becoming too high or too low. Two common methods to achieve this are stock splits and consolidations.
&nbsp;
In a stock split, the company issues additional shares to all existing shareholders. For example, a 2:1 split means that the number of shares each investor owns will double. This action is intended to lower the share price because the supply of shares increases.
&nbsp;
A consolidation or reverse stock split is the opposite. Existing shares are combined, which reduces the supply, with the aim of increasing their price. A reverse split can be a signal that the company is facing problems and is concerned about being delisted from the exchange.
&nbsp;
CFD and stock splits
&nbsp;
In the case of a stock split, your position on FOREX.com will be closed and then reopened to reflect the terms of the split. The goal is to ensure that the circumstances affecting the value of shares in the public market are accounted for.
In the case of a consolidation, you will receive a cash compensation for any shares you lose.
&nbsp;

How corporate events affect stocks

<h1 dir="ltr">What influences the prices of major global indices?</h1>
&nbsp;
Find out what drives the prices of the S&amp;P 500, Dow Jones Industrial Average, FTSE, and DAX here.
As mentioned in the Introduction to Index Trading, price changes in an index are determined by the stocks it tracks. Various industry news, earnings reports, and political decisions can influence price movements within these indices.
However, each benchmark index tracks a different group of stocks, meaning each reacts to different factors. Let&rsquo;s look at a few specific examples.
<ol>
<li dir="ltr" aria-level="1">
S&amp;P 500
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Dow Jones
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
FTSE 100
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
DAX
</li>
</ol>
&nbsp;
<h3 dir="ltr">S&amp;P 500</h3>
The S&amp;P 500 is a massive index that tracks the 500 largest publicly traded companies in the world&rsquo;s largest economy. The total market capitalization of these stocks exceeds $30 trillion &ndash; more than ten times the value of the FTSE 100.
&nbsp;
Due to its broad coverage, no sector has complete dominance in the S&amp;P 500, although technology has become a strong player. While technology stocks make up roughly half of the NASDAQ 100, they only account for 20-30% of the S&amp;P 500.
&nbsp;
Most traders view the S&amp;P 500 as a general indicator of the U.S. economy. If the U.S. economy is in a growth phase, the S&amp;P 500 typically grows as well. Conversely, during a recession, its value tends to decline.
&nbsp;
However, some stocks can have a significant impact on the overall index. Due to its capitalization-weighted model, the ten largest U.S. companies make up about a quarter of the total value of the S&amp;P. The FAAMG stocks &ndash; Facebook (now Meta), Apple, Amazon, Microsoft, and Google (Alphabet) &ndash; account for around 20% of the S&amp;P&rsquo;s movements.
&nbsp;
Although the S&amp;P 500 is not primarily a technology-focused index, any changes that impact the largest tech companies are likely to be reflected in the value of this index.
&nbsp;
<h3 dir="ltr">Dow Jones</h3>
Both the Dow Jones and the S&amp;P 500 track the performance of the U.S. stock market, but they do so in completely different ways.
&nbsp;
The Dow focuses on 30 companies, which are selected manually, rather than concentrating on the largest stocks by market capitalization. As a result, some key U.S. stocks are often absent from the Dow index.
&nbsp;
Additionally, the DJIA places greater emphasis on companies with higher stock prices. In practice, this means that companies like UnitedHealth Group, Home Depot, and Goldman Sachs &ndash; which have high stock prices &ndash; may make up more than 20% of the index's total weight.
&nbsp;
In contrast, Apple makes up less than 3%.
&nbsp;
Despite these differences between the indices, the Dow Jones and the S&amp;P 500 often move in very similar ways. Look at the chart below &ndash; historically, there have been few periods where these two indices displayed significantly different trends.
&nbsp;
<img src="https://direct.y4trade.com/assets/5265f04b-3220-48bd-b59c-fda212c04557.png?width=598&amp;height=398" alt="Dow Jones">
&nbsp;
Given this correlation, factors that affect the S&amp;P will likely have a similar impact on the Dow. Economic growth in the U.S. will have a positive effect, while negative news will lead to a decline. However, it is important to note that it is not guaranteed that these two indices will continue to exhibit this correlation in the future.
&nbsp;
<h3 dir="ltr">FTSE 100</h3>
&nbsp;
The FTSE 100 is historically dominated by three main sectors:
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Financial services (HSBC, Lloyds, Barclays)
</li>
<li dir="ltr" aria-level="1">
Oil and gas (BP, Royal Dutch Shell)
</li>
<li dir="ltr" aria-level="1">
Consumer goods (Unilever, Diageo, British American Tobacco)
</li>
</ul>
&nbsp;
Each of these sectors can account for about 20% of the total weight of the index, meaning they have a significant impact on its price.
&nbsp;
One of the most important factors to watch when trading the FTSE 100, however, is the price of the British pound.
&nbsp;
GBP and FTSE 100 have historically shown a strong negative correlation. When the pound is strong, FTSE tends to decline; when the pound is weak, FTSE may experience growth.
&nbsp;
Why is this the case? Because many of the companies in the FTSE 100 are highly international. Around 70% of their profits come from outside the UK. When the pound is weak, these export-oriented companies earn more money in terms of pounds, which leads to an increase in the FTSE 100.
&nbsp;
<img src="https://direct.y4trade.com/assets/434a6d46-7012-499b-8b7b-5aaa99b14577.png?width=598&amp;height=398" alt="Ftse 100">
&nbsp;
For example, after the Brexit vote in 2016, the pound significantly weakened. This decline provided an advantage to companies within the FTSE 100, enabling the index to reach new records despite political uncertainty.
&nbsp;
On the other hand, the FTSE 250 is much more focused on the domestic economy. If you want to express a view on the strength of the British economy, the FTSE 250 might be a better choice.
&nbsp;
<img src="https://direct.y4trade.com/assets/49ccebc0-0309-4353-8a7c-4e291960529f.png?width=600&amp;height=400" alt="Snímka Obrazovky 2025 08 06 O 13.58.12">
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&nbsp;
The impact of a strong euro on the profits of German exporters such as Volkswagen is significant. When the euro strengthens against the British pound, revenues from car sales in the United Kingdom decrease in euro terms, which can affect the company&rsquo;s profitability.
&nbsp;
For a better understanding of this effect, you can visit the Flourish website, where you will find an interactive chart showing the development of the euro-to-pound exchange rate in recent years. This chart allows you to visualize how changes in the exchange rate influence the value of export revenues. For a more detailed analysis of the impact of exchange rates on the profits of German exporters, you can explore the study "DEVELOPMENTS AND PROSPECTS OF THE WORLD ECONOMY" available at ekonom.sav.sk. This study contains an analysis of the effects of euro appreciation on export revenues.
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</article>

What influences the prices of major global indices?

<h1 dir="ltr">Stock index trading strategies &nbsp;</h1>
In the penultimate lesson of this course, we will look at which strategies and trading styles are effective when trading stock indices.
&nbsp;
<ol>
<li>Indices vs Other Markets</li>
<li>Which trading styles work for indices?</li>
<li>Shorts and corrections</li>
</ol>
<h3>Indices vs Other Markets</h3>
&nbsp;
Stock indices behave differently from other financial markets.
 Compare the performance of the S&amp;P 500, Wall Street, and DAX with gold and the euro-dollar in 2010. You will see significant differences in their behavior.
 This difference is due to the fact that a stock index reflects the performance of groups of stocks influenced by economic factors, while commodities such as gold and currencies such as the euro-dollar react to different economic and political conditions.
 Such a chart can show that while stock indices may exhibit growth during economic expansions, commodities and currencies may react entirely differently, depending on current events and changes in monetary policies.
&nbsp;
<img src="https://direct.y4trade.com/assets/1755704f-2340-46d7-b0bd-242fad5f7992.png?width=598&amp;height=397" alt="S&amp;p 500 Performance">
&nbsp;
Apart from a few periods of growth spurts, stock indices follow one clear trajectory: upward. In contrast, currencies and commodities behaved much more steadily during this period.
&nbsp;
This is not surprising when considering what indices represent. They reflect the economy, which tends to grow despite occasional recessions. Likewise, indices tend to rise over time.
&nbsp;
For example, over the last 30 years, from 1990 to 2020, the FTSE 100 recorded positive annual returns in 19 instances, while the DJIA and DAX achieved this 22 times.
&nbsp;
<img src="https://direct.y4trade.com/assets/9bef235e-d664-44d0-851e-d770139b8ec9.png?width=598&amp;height=396" alt="Eurusd With Rsi Indicator">
&nbsp;
<h3 dir="ltr">Which Trading Styles Work for Indices?</h3>
 Despite &ndash; or perhaps because of &ndash; their differences from stocks, currencies, and commodities, indices are used by traders with a variety of styles.
&nbsp;
Thanks to stable returns, they are popular among long-term position traders. Through investments such as exchange-traded funds (ETFs), these traders can take a position on an entire index without having to purchase individual stocks.
&nbsp;
However, the price movement of an index is never completely predictable. This is why traders employ other approaches. Swing traders, for example, can take advantage of the regular oscillations of an index to generate profit. A typical swing trade on an index might involve waiting for a price drop after a trend break and then buying before the movement resumes.
&nbsp;
Technical indicators, such as Bollinger Bands, can also be used. If an index falls below the lower band and enters oversold territory, it may signal a return to growth and provide a buying opportunity.
&nbsp;
Short-term traders, such as day traders and scalpers, often focus on indices. They use CFD contracts to capitalize on the high volatility offered by major global indices. Most of them, however, structure their strategies around different types of movements.
&nbsp;
<h3 dir="ltr">Shorts and Corrections</h3>
 What happens if a stock index enters a bear market? Stock market crashes and index corrections can present traders with an attractive opportunity for a &ldquo;big short&rdquo; that could yield substantial profits.
&nbsp;
Examples:
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
During Black Monday in 1987, the Dow Jones and S&amp;P 500 lost more than 20% of their value in a single day. 
</li>
<li dir="ltr" aria-level="1">
In the 2008 crash, the DJIA dropped by 1,800 points in one week. Over 17 months, it lost 54% of its value. 
</li>
<li dir="ltr" aria-level="1">
In 2020, COVID-19 fears triggered the steepest drop since 1987. The FTSE fell 10.8% in one trading day, while the DAX fell 12.2%. 
</li>
</ul>
These declines were much sharper than the preceding rises. A well-timed short position before any of these events would have delivered huge profits. Traders often say that indices &ldquo;go up by escalator, but down by elevator.&rdquo;
&nbsp;
Timing, however, is critical. Markets can remain at irrational highs for long periods, and analysts may predict a correction months or even years before it actually occurs. Shorting and waiting for a drop is possible, but traders must ensure their losses do not exceed a level that triggers a margin call, potentially closing the position before the expected profit is realized.
&nbsp;
Predicting the exact timing is extremely difficult, but there are tools traders use to spot warning signs. The Volatility Index (VIX), for example, uses options to measure the current price of fear in the market. A high VIX may indicate that sellers are about to take control.
&nbsp;
Another sign is a sharp rise in P/E ratios, which some view as a signal of a market bubble likely to burst soon. Again, however, this tool will not tell you exactly when.
&nbsp;

Stock index trading strategies

<h1 dir="ltr">Ways of trading stocks</h1>
&nbsp;
In every financial market, there are several ways to trade stocks. In this lesson, we will focus on two: investing and trading with CFDs.
<h3 dir="ltr">Investing in stocks</h3>
 Investing in stocks is among the best-known forms of retail trading.
 When investing, you purchase a stake in a company, as described in the introduction to stock trading. If the company&rsquo;s value increases, so does the value of your investment.
&nbsp;
Exchanges allow only authorized employees to buy and sell stocks directly from their order books, so most retail investors use stockbrokers. Brokers charge a commission for buying or selling shares on your behalf.
&nbsp;
One of the main advantages of investing in stocks is the potential to earn dividends, which allow you to gain returns without selling your shares.
&nbsp;
<h3 dir="ltr">What is a dividend?</h3>
 A dividend is a portion of a company&rsquo;s profit paid to its shareholders. Many companies choose to reward investors with regular dividends, which can be paid monthly, quarterly, or annually. Some also pay one-off special dividends, often after a period of strong financial performance.
&nbsp;
While dividends are typically paid from a company&rsquo;s net profit, sometimes a company may pay them even during a profit decline to maintain demand for its shares.
&nbsp;
If you own 1,000 shares of a company paying a dividend of $2 per share, you would receive $2,000 (1,000 &times; $2 = $2,000).
&nbsp;
It is possible to build a portfolio focused solely on dividend income, targeting stable companies (so-called blue chips) that may not offer significant growth but provide consistent and reliable payments. This is known as a dividend strategy. Such companies are usually well-established, financially stable, and have a track record of paying steady dividends, making them attractive for investors seeking passive income.
&nbsp;
Dividend Timeline
 Stocks typically follow a set schedule for dividend payments, beginning with the declaration date and ending with the payment date when investors receive their dividend. The most important date to remember is the ex-dividend date. To qualify for the dividend, you must purchase shares before this date. Anyone buying shares on or after the ex-dividend date will not be entitled to receive the dividend.
&nbsp;
In a later lesson on corporate stocks, we will cover dividends in greater detail.
&nbsp;
<h3 dir="ltr">Stock CFDs</h3>
 Stock CFDs (Contracts for Difference) differ from purchasing shares through a broker in that they allow you to speculate on price movements without actually owning the underlying asset.
&nbsp;
When you open a stock CFD position, you agree to exchange the difference in the share price from the time you open the trade until you close it. You trade a specific number of contracts.
 Each contract you buy or sell represents one share in the underlying market. For example, buying 500 Apple CFDs gives you the same exposure as buying 500 Apple shares. Selling 1,000 Netflix CFDs is equivalent to selling 1,000 Netflix shares.
&nbsp;
As with regular investing, you pay a commission for executing a CFD trade.
&nbsp;
Since you do not own the shares when trading CFDs, you are not entitled to dividends. On the other hand, CFDs offer leverage, allowing you to open larger positions with less capital, thereby reducing the initial cost of entering a trade.
&nbsp;
<h3 dir="ltr">Example: CFD vs Investing</h3>
 Suppose you want to open a long position on 100 Walmart shares when the price is $130 per share. You can choose between investing in shares or trading stock CFDs.
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Investing in Stocks: Buying 100 shares at $130 would require an investment of $13,000 (100 &times; $130). You would need to pay the full $13,000 upfront. 
</li>
<li dir="ltr" aria-level="1">
Stock CFDs: With CFDs, you use leverage. If the margin requirement is 5%, you would need to pay only $650 as initial margin (5% of $13,000). 
</li>
</ul>
&nbsp;
In both cases, your profit or loss is calculated on the full position size ($13,000). If Walmart&rsquo;s price rises to $140, your profit is $1,000 (100 &times; $10 gain). If the price falls to $120, your loss is $1,000.
&nbsp;
With a CFD position, since you invested only $650, your profit or loss in percentage terms would be significantly greater. In this case, your return or loss could be many times higher than with direct stock ownership.
&nbsp;

Ways of trading stocks

<h1 dir="ltr">Commodity trading strategies</h1>
&nbsp;
Welcome to the "Mastering Commodities" course. If you are new to commodities, you may want to start by going through the lessons in our Introduction to Financial Markets course first.
&nbsp;
If you want to learn more about commodities &ndash; including how to trade them, detailed market analyses, and additional insights &ndash; you are in the right place.
&nbsp;
To begin, let&rsquo;s explore some of the most popular commodity trading strategies, including how trend trading, range trading, and breakout trading work in commodity markets.
&nbsp;
<ol>
<li dir="ltr" aria-level="1">
Trend trading
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Range trading
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Breakout trading
</li>
</ol>
&nbsp;
<h3 dir="ltr">Trend trading</h3>
&nbsp;
Trends in commodities work the same way as in other markets, forming when a commodity reaches higher highs or falls to lower lows.
&nbsp;
Traders looking to capitalize on these market movements use a trend-following strategy. The goal is to profit from the continuation of a trend and exit the market before or shortly after the trend reverses.
&nbsp;
Popular technical analysis tools for trend following include moving averages, MACD, and Bollinger Bands. These indicators are designed to track market momentum and identify shifts that may present entry and exit opportunities.
&nbsp;
For example, you might:
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Buy gold after a pullback, hold the position while the market rises, and sell when the growth momentum starts to slow.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Sell gold after a breakout, hold the position while the market declines, and exit when the rate of decline begins to slow.
</li>
</ul>
&nbsp;
<img src="https://direct.y4trade.com/assets/c585e4b9-3b30-4e53-b648-ade4162b5ec4.png?width=598&amp;height=398" alt="Trend Following">
&nbsp;
It is important to remember that a trend will not last forever &ndash; especially since commodity markets are highly volatile. Therefore, you will need a strict methodology to determine when to exit a trade and risk management tools such as stop-loss orders to protect yourself.
<h3 dir="ltr">&nbsp;</h3>
<h3 dir="ltr">Range Trading</h3>
&nbsp;
Range trading strategies aim to take advantage of a commodity that is in a consolidation phase. This occurs when the market remains within support and resistance levels rather than reaching new highs or lows.
&nbsp;
<img src="https://direct.y4trade.com/assets/6dbc0d34-c0a6-4f57-8949-b4b1609fbaa4.png?width=598&amp;height=398" alt="Rang Trading">
&nbsp;
Traders focus on identifying support and resistance levels, where the price of a commodity consistently reacts. The goal is to buy at support levels and sell at resistance levels, expecting the market to continue moving within this range.
&nbsp;
The key to a successful range trading strategy is the ability to determine when a commodity is in overbought or oversold territory.
&nbsp;
Popular range trading indicators include the Commodity Channel Index (CCI), Relative Strength Index (RSI), Stochastic Oscillator, and Momentum Indicator. These tools help confirm overbought and oversold signals, which are likely to indicate support and resistance zones.
&nbsp;
It is important to note that a market can remain overbought or oversold for an extended period. Therefore, traders should also use other technical indicators and fundamental analysis to confirm potential price movements.
&nbsp;
<h3 dir="ltr">Breakout trading</h3>
&nbsp;
Breakout trading is a popular strategy for taking advantage of short-term commodity price movements. This approach involves entering a position just before the market makes a significant move higher or lower.
&nbsp;
Unlike trend-following strategies, breakout trading focuses on the initial market movement that occurs when key support or resistance levels are broken, rather than trading within the overall trend.
&nbsp;
The goal is to capture profits from a rapid price shift when the market &ldquo;breaks out&rdquo; of a set range and starts moving decisively in one direction. Traders identify potential breakout areas and enter positions before the breakout happens to maximize gains from the initial surge in price movement.
&nbsp;
<img src="https://direct.y4trade.com/assets/3b6c9b3a-1e35-42c4-8df3-26f2b6fa9b6a.png?width=598&amp;height=398" alt="Breakout Trading">
&nbsp;
One of the main risks of breakout trading in commodities is false breakouts (also known as "fakeouts"). Commodities are known for their high volatility, meaning that support and resistance levels may sometimes be breached without a sustained movement in that direction.
&nbsp;
False breakouts occur when buying or selling pressure quickly dissipates, causing the market to reverse just as quickly as the breakout happened. This can lead to losses when a trader enters a position based on a breakout, only to find that the market swiftly returns to its previous range.
&nbsp;
To mitigate the risk of false breakouts, traders should combine breakout trading with additional technical tools and confirmations to ensure a stronger likelihood of a sustained price movement.
&nbsp;

Commodity trading strategies

<h1 dir="ltr">Commodity trading</h1>
&nbsp;
While commodity trading shares similarities with currency and stock market trading, it has unique characteristics that require careful consideration before getting started.
&nbsp;
Let's explore the main methods of trading commodities: futures contracts, options, and CFDs.
&nbsp;
<ol>
<li dir="ltr" aria-level="1">
Commodity futures contracts
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Commodity options
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Commodity CFDs
</li>
</ol>
&nbsp;
<h3 dir="ltr">Commodity futures contracts</h3>
&nbsp;
Commodity futures are agreements in which you commit to buy or sell a specific quantity of a commodity at an agreed-upon price on a set future date. Futures are a popular instrument for speculating on commodity prices, as their value fluctuates based on the movement of the underlying asset.
&nbsp;
Futures contracts were originally created to protect producers from price volatility, which could disrupt their revenue. However, today, most futures trading is conducted by speculators and hedgers rather than physical producers.
&nbsp;
The majority of&nbsp;futures trades do not involve the physical delivery of the asset, as traders often choose to close their positions in cash or roll over the contract to the next expiration date.
<h3 dir="ltr">&nbsp;</h3>
Example of a commodity futures trade
&nbsp;
Let's assume you believe that the price of gold will rise from its current $1,800 per ounce. You decide to buy a futures contract for 100 ounces of gold at $1,850 per ounce, with an expiration date of one month.
&nbsp;
After one month, the price of gold increases to $1,900 per ounce, and you decide to close your position. Your contract allows you to buy 100 ounces of gold at $1,850 per ounce instead of the current market price.
&nbsp;
As a result, you make a profit of $5,000 ($50 per ounce &times; 100 ounces). If you do not wish to take physical delivery of the gold, you can simply settle your position in cash or sell the contract to another trader.
However, if the price of gold drops or remains the same, you would have to close your position at a higher price, for example, $1,900 per ounce, leading to a loss.
&nbsp;
<h3 dir="ltr">Commodity Options</h3>
&nbsp;
Commodity options give you the right, but not the obligation, to trade the underlying asset at an agreed-upon price&mdash;known as the strike price&mdash;before the option's expiration. You pay a premium for this right.
&nbsp;
There are two types of options: call and put.
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Call options give you the right to buy a commodity.
</li>
<li dir="ltr" aria-level="1">
Put options give you the right to sell a commodity.
</li>
</ul>
&nbsp;
When trading options, the risk for the buyer is limited, while the potential profit is unlimited. If you purchase an option, you can choose not to exercise it, allowing it to expire worthless. Unlike futures contracts, you are not obligated to complete the trade.
&nbsp;
If you decide not to exercise the option, your only loss is the premium paid.
&nbsp;
 Selling Options
&nbsp;
You can not only buy options but also sell them, a practice known as writing options.
&nbsp;
<ul>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Selling a call option means you give the buyer the right to purchase a certain amount of a commodity from you at an agreed-upon price.
</li>
</ul>
&nbsp;
<ul>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Selling a put option means you give the buyer the right to sell a certain amount of a commodity to you at an agreed-upon price.
</li>
</ul>
&nbsp;
As an option seller, you always receive a premium from the buyer, regardless of whether they execute the trade or not. However, your risk is unlimited, as the market price may significantly exceed the strike price before the option is exercised.
 Most commodity options derive their value from futures markets, rather than directly from the underlying asset itself. This is important to understand, as you will need to monitor futures contract prices, which serve as the basis for determining an option's value.
 Example of a commodity options trade
&nbsp;
Let's assume you expect the price of wheat to decline from its current market price of $8 per bushel. You decide to buy a one-month put option on wheat with a strike price of $7. The current premium for this option is $0.50 per bushel. Since wheat futures contracts trade in lots of 5,000 bushels, your total premium cost would be $2,500.
&nbsp;
By the time the option expires, the price of wheat drops to $6.50 per bushel. At this price, your put option is in the money, and you can exercise it for a profit. You would sell 5,000 bushels of wheat at $7 per bushel, rather than the new market price of $6.50 per bushel.
&nbsp;
After accounting for the premium, your total profit would be $2,500 ($0.50 per bushel &times; 5,000 bushels).
&nbsp;
However, if the price of wheat rose instead to $9 per bushel, you would face a potential loss of $1 per bushel, resulting in a $5,000 loss. In this case, you could choose not to exercise your option, letting it expire and limiting your loss to the $2,500 premium.
 
<h3 dir="ltr">Commodity CFDs</h3>
&nbsp;
Like futures and options, CFDs (Contracts for Difference) are agreements. However, with CFDs, you trade on the price difference of a commodity from the moment you open a position until you close it.
&nbsp;
When trading commodity futures, a CFD position is based on the underlying futures market.
&nbsp;
You do not own a futures contract directly but speculate on whether the futures price will rise or fall before the contract expires. The more the market moves in your favor, the more you profit&mdash;but if the market moves against you, your losses increase accordingly.
&nbsp;
Example of a commodity CFD trade
&nbsp;
Imagine you buy a CFD on WTI crude oil (US Crude Oil Future), expecting the price of oil to rise.
If your prediction is correct and the market goes up, your profit is determined by the difference between the opening price and the closing price of your position.
For example:
<ul>
<li dir="ltr" aria-level="1">
If you open your position at $65 per barrel and the market rises to $75 per barrel, the difference is $10 in your favor.
</li>
</ul>
However, if the market moves against you and the price of oil drops, you incur a loss based on how much the price moves against your position.
&nbsp;
Spot commodity trading via CFDs
&nbsp;
The spot market is the simplest form of trading, where commodities are bought and sold for cash, and the exchange is carried out immediately&mdash;or &ldquo;on the spot.&rdquo; Traditionally, trading on the spot market meant physically taking delivery of the commodity being exchanged. However, today, it is primarily used for speculation and hedging, similar to futures trading.
&nbsp;
Our spot markets do not have a fixed expiration date, meaning you won&rsquo;t pay rollover fees. Spot prices allow for long-term commodity trading without the need to roll over positions upon contract expiration.
&nbsp;
These markets are priced based on underlying futures contracts, but unlike futures charts, which are restricted to a contract's expiration period, our spot markets feature continuous charts. This enables you to conduct technical analysis with extensive historical data.
&nbsp;

Commodity trading

<h1>In-Depth look at metal markets</h1>
&nbsp;
<ol>
<li style="font-weight: bold;">Overview: Developments in Metal Markets</li>
<li>Factors Influencing Metal Prices</li>
<li>Gold</li>
<li>Ways to Trade and Invest in Gold</li>
</ol>
&nbsp;
In this lesson, we will examine the factors affecting metal prices, take a closer look at gold, and explore how to trade these raw materials.
&nbsp;
<h3>Overview: Developments in metal markets</h3>
&nbsp;
Metals form a core component of materials. Some are essential for industrial sectors, such as manufacturing and construction, while others are classified as precious metals, mainly used in jewelry and investment. Silver, for example, has both industrial and investment applications.
&nbsp;
Metal markets are divided into two main categories:
&nbsp;
Precious metals (e.g., gold, silver, platinum)
Industrial metals (e.g., copper, nickel, aluminum)
&nbsp;
Metal prices reflect various economic factors. For instance, copper, widely used in electronics, wiring, and motors, is often viewed as an economic health indicator&mdash;high demand for copper usually signals growth in construction and manufacturing.
&nbsp;
Gold, on the other hand, is valued not only for jewelry but also as a "safe-haven" asset for investors during economic uncertainty, which often drives its price upward.
&nbsp;
Metals available for trading
The following metals are commonly traded on commodity markets:
<ul>
<li dir="ltr" role="presentation">Gold</li>
<li dir="ltr" role="presentation">Silver</li>
<li dir="ltr" role="presentation">Platinum</li>
<li dir="ltr" role="presentation">Copper</li>
<li dir="ltr" role="presentation">Nickel</li>
<li dir="ltr" role="presentation">Aluminum</li>
<li dir="ltr" role="presentation">Palladium</li>
</ul>
&nbsp;
Additionally, there are base metals such as zinc and lead, as well as less common byproduct metals. Trading volumes for these metals are lower, although some exchanges now offer contracts for cobalt and molybdenum.
&nbsp;
While certain metals, such as lithium, play a crucial role in industries like battery production, they are not yet widely traded on financial markets.
&nbsp;
<h3 dir="ltr" role="presentation">Factors influencing metal prices</h3>
&nbsp;
Similar to other financial markets, metal prices are primarily driven by supply and demand&mdash;or expectations of their future trends.
&nbsp;
A vast research, analysis, and advisory sector has developed around the metal market, providing insights on nearly every individual metal. Many online platforms track metal price movements, but these can be highly volatile. Price fluctuations are often influenced by factors such as the discovery of new deposits or technological advancements that increase demand for a specific metal.
&nbsp;
To improve trading decisions in the metals market, it is crucial to understand mining and production models for specific assets, as well as the changing demand in industrial sectors.
&nbsp;
Several key factors influence supply and demand, including:
&nbsp;
Supply Factors:
&nbsp;
<ul>
<li dir="ltr" role="presentation">Availability of reserves</li>
<li dir="ltr" role="presentation">Mining and production costs</li>
<li dir="ltr" role="presentation">Expenses for transportation and storage</li>
<li dir="ltr" role="presentation">Government policies (taxes, regulations, subsidies)</li>
<li dir="ltr" role="presentation">Monetary policy</li>
<li dir="ltr" role="presentation">Workforce disruptions (e.g., mining strikes)</li>
<li dir="ltr" role="presentation">Natural disasters</li>
</ul>
&nbsp;
Demand Factors:
&nbsp;
<ul>
<li dir="ltr" role="presentation">Level of infrastructure development</li>
<li dir="ltr" role="presentation">Activity in the construction and industrial sectors</li>
<li dir="ltr" role="presentation">Availability of substitute or lower-cost metals</li>
<li dir="ltr" role="presentation">Market volatility</li>
</ul>
&nbsp;
<h3>Gold</h3>
&nbsp;
Gold is highly valued not only for its distinctive luster and malleability in jewelry but also for its unique technical and electrical properties.
&nbsp;
Unlike other metals, gold is often perceived as the ultimate "safe-haven" asset. During periods of market uncertainty and economic downturns, it typically retains its value, attracting investors seeking stability.
&nbsp;
This characteristic makes gold an effective portfolio diversification tool. It generally has an inverse relationship with the US dollar and often moves independently of stock and bond prices. Additionally, gold tends to positively correlate with safe-haven currencies, such as the Japanese yen and Swiss franc.
&nbsp;
Since gold supplies are limited, many investors believe it will hold its value over the long term under any circumstances. Increased demand can significantly impact its price, as seen in 2020, when economic uncertainty caused by the pandemic led to a surge in interest in gold as a safe investment.
 
Ways to trade and invest in gold
&nbsp;
Many speculators focus on trading gold&rsquo;s spot price, which is derived from the most actively traded futures contracts on the COMEX (Commodities Exchange) in New York. Since these contracts are actively traded daily on a centralized market, they provide the most accurate and up-to-date gold prices.
&nbsp;
&nbsp;

In-Depth Look at Metal Markets

<h1 dir="ltr">In-Depth look at energy trading</h1>
<ol>
<li dir="ltr" style="font-weight: bold;">What Are Energy Markets?</li>
<li dir="ltr" style="font-weight: bold;">What Factors Influence Energy Prices?</li>
<li dir="ltr" style="font-weight: bold;">Oil Trading</li>
</ol>
&nbsp;
Most trading activity is concentrated in two major commodity groups: energy and metals. Let's take a closer look at these markets, starting with the assets that fuel the global economy.
&nbsp;
<h3 dir="ltr">What are energy markets?</h3>
&nbsp;
Energy markets include commodities that power industries, heat homes, and serve various other uses, such as crude oil and natural gas.
&nbsp;
Traditionally, energy has been considered a part of the hard commodities segment, but this view is evolving. An increasing number of traders now see energy as a distinct market.
&nbsp;
This shift is driven by the fact that the energy sector includes not only fossil fuels&mdash;such as oil and gas&mdash;but also renewable energy sources, like solar, wind, and biofuels. Trading in ethanol and electricity is gaining importance, though the most developed energy markets remain focused on non-renewable resources, such as oil.
&nbsp;
Energy Markets Include:
&nbsp;
<ul>
<li dir="ltr" style="font-weight: bold;" role="presentation">Crude oil</li>
<li dir="ltr" style="font-weight: bold;" role="presentation">Heating oil</li>
<li dir="ltr" style="font-weight: bold;" role="presentation">Natural gas</li>
<li dir="ltr" style="font-weight: bold;" role="presentation">Biomass ethanol</li>
<li dir="ltr" style="font-weight: bold;" role="presentation">Renewable sources (solar, wind, hydro)</li>
</ul>
&nbsp;
Markets for electricity, oil, natural gas, and renewable energy are highly dynamic and constantly evolving. The prices of energy commodities fluctuate by the minute, creating opportunities for experienced traders who understand this sector.
<h3 dir="ltr">&nbsp;</h3>
<h3 dir="ltr">What factors influence energy prices?</h3>
&nbsp;
The prices of energy commodities are shaped by various supply and demand factors. These can include OPEC production cuts, pipeline disruptions, as well as changes in industrial output and overall economic conditions.
&nbsp;
Below is an overview of key influences:
&nbsp;
<h4 dir="ltr">Supply Factors:</h4>
&nbsp;
<ul>
<li dir="ltr" role="presentation">Depletion of oil reserves due to unsuccessful exploration</li>
<li dir="ltr" style="font-weight: bold;" role="presentation">OPEC production cuts</li>
<li dir="ltr" role="presentation">Political conflicts (e.g., war between Iran and Iraq) disrupting supply chains</li>
<li dir="ltr" role="presentation">Weather conditions affecting exploration efforts</li>
<li dir="ltr" style="font-weight: bold;" role="presentation">Exploration and extraction costs</li>
<li dir="ltr" role="presentation">Technological advancements, such as the development of shale oil extraction</li>
</ul>
&nbsp;
Demand Factors:
&nbsp;
<ul>
<li dir="ltr" role="presentation">Economic growth, leading to increased industrial production</li>
<li dir="ltr" role="presentation">Economic stagnation, causing a decline in industrial activity</li>
<li dir="ltr" role="presentation">Population growth, driving higher fuel consumption</li>
<li dir="ltr" role="presentation">Seasonal factors, such as increased fuel use during winter months</li>
</ul>
&nbsp;
These constantly changing factors contribute to price fluctuations in energy markets.
&nbsp;
<h3 dir="ltr">Oil Trading</h3>
&nbsp;
Oil trading is one of the most widespread forms of energy trading, with millions of futures contracts exchanged daily. Like other energy commodities, traders can speculate on future oil prices using various instruments, such as CFDs, futures, options, or selected oil ETFs.
&nbsp;
There are several different oil markets, as various regions produce crude oil of different qualities. The main types of crude oil include:
&nbsp;
<ul>
<li dir="ltr" style="font-weight: bold;" role="presentation">West Texas Intermediate (WTI) &ndash; American crude oil</li>
<li dir="ltr" style="font-weight: bold;" role="presentation">Brent Crude &ndash; European crude oil</li>
<li dir="ltr" style="font-weight: bold;" role="presentation">Dubai Crude</li>
<li dir="ltr" style="font-weight: bold;" role="presentation">OPEC Reference Basket</li>
<li dir="ltr" style="font-weight: bold;" role="presentation">Tapis Crude</li>
<li dir="ltr" style="font-weight: bold;" role="presentation">Bonny Light</li>
</ul>
&nbsp;
Similar to other energy markets, oil prices are primarily influenced by supply and demand. When supply exceeds demand, prices decline. Conversely, when demand outpaces supply, prices rise.
&nbsp;
OPEC
The oil production policy in 14 countries, mainly in Africa and the Middle East, is coordinated by the Organization of the Petroleum Exporting Countries (OPEC). Established in 1960, this organization seeks to achieve economically sustainable and regular oil supplies for consumers. As mentioned earlier, OPEC can influence oil prices by setting production quotas for its members.
 Since 2014, global oil supply has been declining annually due to the depletion of deposits and unsuccessful exploration efforts. In addition, there are other factors affecting supply and demand, as outlined in the section &ldquo;What Drives Energy Prices&rdquo; above.
&nbsp;

In-Depth look at energy trading

<h1 dir="ltr">What is Fundamental Analysis?</h1>
 Fundamental analysis is an approach to evaluating markets that uses various sources of information to determine the true value of an asset. Unlike technical analysis, which focuses solely on price movements, fundamental analysis creates a comprehensive picture of the strengths and weaknesses of a particular security.
&nbsp;
 Fundamental analysis is often mentioned as a way to find stocks to buy. However, traders use it across various asset classes.
 For example, in forex trading, a fundamental trader would analyze data that could have a significant impact on the price of a currency pair, such as economic data, political factors, or even the effects of natural disasters.
&nbsp;
But fundamental traders do not take this data into account randomly. They try to determine the intrinsic value of the market to find out if the asset is underpriced or overpriced relative to its current price.
&nbsp;
<h3>Fundamental analysis and intrinsic value</h3>
 Fundamental analysis is based on the belief that every asset has its true value. Although markets may temporarily overestimate or underestimate an asset, ultimately, the price should return to this true value.
&nbsp;
<img class="centerImage" src="https://direct.y4trade.com/assets/cf1fb636-c506-4c62-a257-18361d405c9d.png?width=600&amp;height=400" alt="Fair Value">
&nbsp;
Imagine that you are analyzing a company and decide that its value is higher than what its current stock price indicates. In this case, you might buy its shares and later sell them when the price reaches the level you assigned to it. 
There are many different factors you can consider when determining the true value of a currency. You can look at economic reports, central bank activities, retail consumption, and other factors that may influence its value.
&nbsp;
<h3 dir="ltr">Disadvantages of fundamental analysis</h3>
Fundamental analysis is a great tool for gaining insights into selected asset classes and sectors, and it can help you identify profitable opportunities. However, there are two main issues you should be aware of.
&nbsp;
The first problem is that there is no guarantee that the market will follow the intrinsic value you have determined, even after thorough analysis. External factors, such as natural disasters or scandals, can lead to unexpected changes in the price of an asset and cause the estimated value to not materialize.
&nbsp;
Another possibility is that the market may remain irrational and mispriced longer than you can keep your position open.
&nbsp;
The second problem is the vast amount of data that must be considered when analyzing global markets. With so many different factors, it can be difficult to decide what is important and what is not.
&nbsp;
One solution to this problem is a top-down approach. Start by focusing on the overall economy, and then identify markets that may be overvalued or undervalued. Afterward, look at specific factors that influence individual assets so you can determine where to take a position.
&nbsp;
<h3 dir="ltr">Key factors in fundamental analysis</h3>
&nbsp;
As we&rsquo;ve already mentioned, fundamental traders have access to a wide and diverse range of information. However, there are several factors that are more significant than others:
&nbsp;
Central Bank Announcements
 Central banks are often responsible for significant volatility in most markets. Their main activity is raising or lowering interest rates, which can greatly impact currencies, stocks, indexes, and other assets. Fundamental analysts also watch for new monetary policies (such as hints that a central bank might change its stance), asset purchases, currency revaluations, personnel changes, and other factors that could influence the markets.
&nbsp;
Economic Data
 Almost every asset is influenced by the broader economic situation, so traders using fundamental analysis look for signals that suggest economic growth or decline.
 GDP (Gross Domestic Product) is one of the key indicators of economic growth as it expresses the value of all goods and services produced within a country. Besides GDP, data on employment and manufacturing activities are also important.
&nbsp;
Inflation
 Inflation is another key economic factor that affects the markets. Inflation occurs when the purchasing power of a currency decreases. Central banks usually try to keep inflation under control to prevent deflation.
 Inflation doesn&rsquo;t only affect forex, but it also impacts bonds, commodities, stocks, and indexes, which may experience volatility.
&nbsp;
Politics
 Political changes within a country can influence financial markets. For example, a new president might change legislation or may support larger investments in infrastructure, which could affect the economic situation.
 Geopolitical factors can have a similar effect. For instance, increased conflict in the Middle East can create pressure on global oil supplies and raise its price. This could negatively affect businesses that rely on oil for their production processes.
&nbsp;
Natural disasters and seasonality
 These two factors can act as invisible triggers of market volatility.
&nbsp;
Natural disasters can affect businesses and economies, disrupt supply chains, and cause fluctuations in commodity prices. Seasonal weather issues can have a similar effect, as adverse conditions may impact the production and availability of certain commodities.
&nbsp;

What is fundamental analysis?

<h1 dir="ltr">Economic indicators and announcements</h1>
 Economic data and announcements play a key role in fundamental analysis. Although we do not focus on trading based on these data, it is useful to monitor the performance of the economy. Here is an overview of important indicators and announcements to watch:
<ol>
<li dir="ltr" aria-level="1">
Unemployment and Wages (NFP)
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Consumer Price Index (CPI)
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Central Bank Meetings and Decisions
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Consumer and Business Sentiment Reports
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Purchasing Managers' Index (PMI)
</li>
<li dir="ltr" style="font-weight: bold;" aria-level="1">
Retail Sales and Car Sales
</li>
</ol>
&nbsp;
<h3 dir="ltr">1. Unemployment and wages (NFP)</h3>
The Non-Farm Payroll (NFP) report shows the number of jobs created in the USA for the previous month, excluding employment in agriculture, private households, and non-profit organizations. This report is typically released on the first Friday of each month as part of the "Employment Situation" report, which also includes unemployment data, average hourly earnings, and labor force participation.
&nbsp;
 Although its significance has slightly diminished in recent years, NFP remains one of the most important economic indicators. Analysts from various financial markets attempt to predict the NFP value each month and its potential impact on the markets.
&nbsp;
Why is NFP important?
&nbsp;
The Federal Reserve has committed to achieving "full employment" in the USA, alongside stable prices. Therefore, NFP plays a crucial role in determining interest rates. If job growth is strong, it may lead to an increase in interest rates, while weaker employment could lead the Fed to consider cutting rates. Since the USA is the largest economy in the world, the Fed's decisions have a significant impact on global financial markets.
&nbsp;
Consensus
 Similar to other economic reports, markets often try to predict the NFP outcome before it is released. This prediction is usually based on the estimate set by a group of professional analysts. If the NFP significantly "beats" or "falls short of" this consensus, it can lead to significant market movement. If the result is in line with expectations, market volatility is typically low.
&nbsp;
<h3 dir="ltr">2. Consumer price index (CPI)</h3>
Central banks have the responsibility not only to maintain employment but also to ensure "price stability," which means controlling inflation. The primary indicator of inflation is the Consumer Price Index (CPI), which tracks changes in the prices of selected consumer goods and services.
&nbsp;
 There are also other current measurement methods, including:
<ul>
<li dir="ltr" aria-level="1">
Personal Consumption Expenditures (PCE)
</li>
<li dir="ltr" aria-level="1">
Producer Price Index (PPI)
</li>
<li dir="ltr" aria-level="1">
Import and Export Prices
</li>
<li dir="ltr" aria-level="1">
Wholesale Price Index (WPI)
</li>
</ul>
Each country has its own CPI data, which is published by the relevant authority at different times. You can, for example, refer to the economic calendar in your demo account on y4trade.com for immediate access to upcoming reports.
&nbsp;
Why is CPI important?
 CPI tracks the prices paid by most consumers, which is why central banks consider this indicator one of the most important for determining monetary policy. Most developed countries target inflation in the range of 1-3%. If CPI significantly exceeds or falls below this range, central banks may adjust their monetary policy.
&nbsp;
<h3 dir="ltr">3. Central bank meetings</h3>
As mentioned, traders closely monitor economic data to predict the actions of central banks. Therefore, attention to the meetings themselves, where central banks make decisions, is also important. Each central bank has its regular meetings. For example, the Federal Open Market Committee (FOMC), which is responsible for monetary policy within the Federal Reserve System, typically meets eight times a year.
&nbsp;
Why are central bank meetings important?
&nbsp;
Traders watch for any announcements from these meetings, such as interest rate changes, guidance on future policy, or new monetary measures (e.g., quantitative easing). Meeting minutes are often released shortly after the meeting, providing key insights into whether the central bank members are more "hawkish" (voting for tightening policy) or "dovish" (voting for easing policy).
&nbsp;
<h3>4. Consumer and business sentiment reports</h3>
Various organizations regularly survey consumer and business opinions and create reports on their sentiment. Although the number of reports is vast, each contributes to shaping future market expectations.
&nbsp;
Why are sentiment reports important?
&nbsp;
The economy requires businesses and consumers to spend money to support growth. If businesses and consumers are pessimistic about the economy, spending typically declines, which can negatively affect growth, employment, and inflation.
&nbsp;
 These reports are therefore often key indicators. While employment and inflation data reflect past periods, sentiment reports provide valuable information on future expectations.
&nbsp;
<h3 dir="ltr">5. Purchasing managers' index (PMI)</h3>
Purchasing Managers' Indices (PMI) measure the dominant trend in economic conditions of a sector based on the opinions of purchasing managers. They serve as an indicator of the overall health of industries.
&nbsp;
 Like price indices, there are several versions of PMI, each focusing on different sectors of the economy.
&nbsp;
A PMI above 50 means managers view the current month as better than the previous one.
&nbsp;
A PMI below 50 means managers have observed a decline compared to the previous month.
&nbsp;
A PMI of 50 indicates the current month is the same as the previous one.
&nbsp;
&nbsp;
Why is PMI important?
&nbsp;
PMI provides feedback on sector performance directly from the people working within it. If a key sector is stagnating, it may signal a slowdown in the broader economy. Conversely, if the sector is growing, it may indicate future economic growth.
&nbsp;
<h3 dir="ltr">6. Retail sales and vehicle sales</h3>
 Retail sales and vehicle sales are two key indicators that measure demand for finished goods and demand in the automotive industry.
&nbsp;
&nbsp;
Why are retail sales and vehicle sales important?
&nbsp;
 Economies rely on consumer spending. Retail sales and vehicle sales provide a direct measurement of consumer expenditures and help traders determine whether consumption is rising or falling.
&nbsp;
 Retail sales data provide a broader view of consumption, with the government typically compiling these figures each month. Vehicle sales, however, can be more valuable as they are released by the companies themselves. Many traders consider vehicle sales to be a good indicator of general spending and often use it as a primary metric for retail value.
&nbsp;

Economic indicators and announcements

<h1 dir="ltr">Inflation</h1>
 Inflation is a significant factor in the economy and plays an important role in fundamental analysis. Let's take a closer look at what inflation, hyperinflation, and deflation really mean.
 As mentioned in the previous lesson, central banks face a challenging task of balancing. Most of them have a dual mandate &ndash; to ensure high employment while keeping prices stable. To maintain price stability, it is essential to control inflation.
<h3 dir="ltr">What is inflation?</h3>
 Inflation is the process by which prices in the economy rise over time. The term is named for the fact that prices gradually "inflate" higher, much like a balloon being blown into the air.
 Although rising prices may seem negative, it is a natural part of a growing economy. Most economists today believe that moderate and stable inflation can help mitigate the effects of an economic crisis, as it provides a kind of cushion against falling prices, which can become problematic if deeply entrenched.
&nbsp;
Therefore, central banks strive to keep inflation within reasonable bounds. For example, the Bank of England targets an inflation rate of 2%. This means that prices should rise by 2% every year.
&nbsp;
If inflation falls below 2%, the bank may lower interest rates to stimulate the economy and help it get back on track. If inflation rises too much, they may raise interest rates to slow down economic growth. Otherwise, they could face the risk of hyperinflation.
&nbsp;
<img class="centerImage" src="https://direct.y4trade.com/assets/634e75fc-b2c3-48c4-b87f-6d457637e284.png?width=600&amp;height=400" alt="What Is Inflation">
&nbsp;
<h3 dir="ltr">Hyperinflation</h3>
 Hyperinflation occurs when inflation completely spirals out of control. Prices become extremely high, and the value of the currency dramatically falls. Notable examples of hyperinflation include Germany before World War II, Russia after the collapse of the Soviet Union, and Zimbabwe in the mid-21st century.
&nbsp;
Hyperinflation often leads to a complete loss of confidence in the economy and its currency, causing serious problems. This is why central banks constantly monitor the economy and take measures to avoid such a catastrophic situation. Some analysts argue that the increased use of unconventional monetary policies, such as quantitative easing, since 2010 could potentially lead to hyperinflation, as such actions could flood the markets with a large amount of capital.
&nbsp;
<h3 dir="ltr">Deflation</h3>
 Deflation occurs when prices fall, meaning inflation is below 0%.
&nbsp;
 For the average person, deflation may seem like a positive thing. Who wouldn&rsquo;t want the goods they buy every day to be cheaper?
 However, manufacturers and business owners see it differently. Deflation means a reduction in the margins they earn from sales, which impacts their profits and can lead to layoffs. As unemployment rises, demand for goods declines, and services are even more affected. What does this lead to? Further job losses.
 This process is called a deflationary spiral.
&nbsp;
To prevent this spiral, central banks may consider easing monetary policy if inflation falls.
<h3 dir="ltr">Reflation and disinflation</h3>
 These terms describe changes in the rate of inflation:
 Reflation occurs when the inflation rate rises.
 Disinflation, on the other hand, happens when the inflation rate falls.
&nbsp;
In the 1990s and 21st century, the Bank of Japan attempted to reverse the persistent deflationary trend. During this period, inflation remained low, and the economy experienced stagnation, leading to a period known as the "lost decades."
&nbsp;
Low interest rates (0%) failed to stimulate consumer spending or business activity. Eventually, the Bank of Japan turned to quantitative easing, where the central bank purchased bonds and asset-backed securities to increase the money supply and stimulate inflation.
&nbsp;

Inflation

<h1 dir="ltr">Company analysis</h1>
&nbsp;
Fundamental analysis is very popular among stock traders who gather all available information about a company to decide whether an investment is wise.
 Just like with all types of fundamental analysis, here too, the company is examined based on as much available data as possible to determine whether its stock is undervalued or overpriced.
 Company analysis is divided into two main areas: evaluating the company itself and assessing the broader factors that influence it.
<h3 dir="ltr">1. Company earnings</h3>
 The simplest way to form an opinion about a company is to examine its financial data, which it publishes in earnings reports for investors. Every publicly listed company is required to regularly disclose its earnings &ndash; typically once per quarter, with a more detailed report released annually.
&nbsp;
Earnings season
 Many large public companies release their earnings in the same period every quarter &ndash; this time is known as earnings season. Earnings season can have a significant impact on the overall performance of the stock market. If many companies "miss" expected earnings and revenue, major stock indices may experience a decline.
 There are several areas you should pay attention to when reviewing earnings:
&nbsp;
Income statement
 The income statement is a document where a company reports its revenues, expenses, and net income, as well as various profit calculations &ndash; for a three-month period in the quarterly report or 12 months in the annual report.
 Income statements cover a variety of different metrics, but most will include the following:
<ul>
<li dir="ltr" aria-level="1">
Revenue: All the money the company earns during the period, without subtracting any expenses.
</li>
<li dir="ltr" aria-level="1">
Expenses: Capital spent to generate revenue, including the cost of goods sold (COGS).
</li>
<li dir="ltr" aria-level="1">
Net Income: Total revenue minus total expenses. Also known as profit or earnings.
</li>
<li dir="ltr" aria-level="1">
Earnings Per Share (EPS): Total profit divided by the number of shares outstanding. This is used to measure the company's profitability.
</li>
<li dir="ltr" aria-level="1">
Gross Margin: The degree to which the company effectively realizes sales, calculated as net income divided by revenue.
</li>
<li dir="ltr" aria-level="1">
Interest Payments: Payments the company makes based on its short-term and long-term interest obligations.
</li>
<li dir="ltr" aria-level="1">
Gains and Losses: Any income or loss not derived from sales or expenses, such as income from selling unused equipment.
</li>
</ul>
&nbsp;
Other important metrics
 These numbers appear in almost every income statement. However, in different sectors, there may be specific metrics that are also very important. For example, for investors in technology companies, user growth may be more significant than actual revenues.
&nbsp;
<h3 dir="ltr">2.Balance sheet</h3>
 A company's balance sheet provides an overview of everything the company owns and owes at a specific point in time. To determine when the balance sheet was created, look at the date at the top of the report.
&nbsp;
The balance sheet will include:
<ul>
<li dir="ltr" aria-level="1">
Assets: Everything the company owns, including goods, property, and other valuable items.
</li>
<li dir="ltr" aria-level="1">
Liabilities: Debts or other obligations the company has to other parties, whether they are financial liabilities or legal claims.
</li>
<li dir="ltr" aria-level="1">
Equity: The claims of the owners or shareholders on the company&rsquo;s assets after liabilities are deducted.
</li>
</ul>
&nbsp;
Assets vs. Liabilities
 The balance sheet gets its name because assets and liabilities should balance each other. This means that the total amount of liabilities and equity must equal the value of the assets. In this way, the balance sheet shows how the company finances everything it owns&mdash;i.e., how it pays for its assets.
&nbsp;
Cash Flow
 The cash flow statement provides an overview of how a company generates the money it needs to cover its operating expenses, debts, and investments. This statement allows you to assess whether the company has healthy financial management and shows how the company handles its finances.
The cash flow statement is divided into three main sections:
<ul>
<li dir="ltr" aria-level="1">
Operating Activities: Shows the sources or uses of cash from the company's daily operations.
</li>
<li dir="ltr" aria-level="1">
Investing Activities: Displays the money spent on long-term investments that secure the company&rsquo;s future.
</li>
<li dir="ltr" aria-level="1">
Financing Activities: Shows cash obtained from investors or banks, and the money paid to shareholders.
</li>
</ul>
<h3 dir="ltr">3. Financial ratios</h3>
 Fundamental analysts often use data from earnings reports to calculate various ratios that provide a quick analysis of performance. Some of the most important include:
<ul>
<li dir="ltr" aria-level="1">
Price to earnings (P/E) ratio
</li>
</ul>
The P/E ratio compares the current stock price of a company to its earnings per share and shows how much you are paying for each dollar (or other currency) of profit. This ratio is used to determine whether a stock is overvalued or undervalued relative to its profitability.
 Price to Earnings = Stock Price / EPS
 Different sectors can have varying P/E ratios, so it&rsquo;s important to conduct your own research to determine what a realistic P/E value is for a given sector. If a company has not yet made a profit, the P/E ratio will not provide meaningful insights. 
<ul>
<li dir="ltr" aria-level="1">
Price to Book (P/B) Ratio
</li>
</ul>
&nbsp;
The P/B ratio compares a company&rsquo;s stock price to its book value per share. The book value per share is calculated by subtracting liabilities from total assets on the balance sheet and dividing the result by the number of outstanding shares.
 Price to Book = Stock Price / BPS
 A higher ratio means that the market values the company more than its tangible assets, indicating that investors are also valuing intangible assets such as brands, patents, or customer relationships. 
<ul>
<li dir="ltr" aria-level="1">
Return on Assets (ROA) and Return on Equity (ROE)
</li>
</ul>
These ratios assess the company&rsquo;s performance, but instead of comparing it to the stock price, they focus on how effectively the company utilizes its assets or equity. 
<ul>
<li dir="ltr" aria-level="1">
ROA (Return on Assets) shows how efficiently a company generates profit from its assets. 
</li>
<li dir="ltr" aria-level="1">
ROE (Return on Equity) shows the return the company achieves from its equity (assets minus liabilities).
</li>
</ul>
Both ratios are expressed as percentages and provide insight into how well the company&rsquo;s management converts assets or equity into profits. 
<h3 dir="ltr">4. Other factors to consider</h3>
 In addition to analyzing individual earnings reports, it is also important to consider other factors when evaluating stocks. These may include:
<ul>
<li dir="ltr" aria-level="1">
Copyrights or patents: For companies in software or biotechnology, copyrights and patents can be very valuable.
</li>
<li dir="ltr" aria-level="1">
Performance over time: Looking at just one year or one quarter may provide an incomplete picture. A better overview is achieved by considering multiple reports in various economic and operational conditions.
</li>
<li dir="ltr" aria-level="1">
Cost growth vs. gross profit: If costs are growing faster than profits, the company may struggle with controlling expenses.
</li>
</ul>
&nbsp;
Broader factors
 Earnings reports can provide valuable insights into a business, but they are not the complete picture. Before deciding to buy or sell stocks, it&rsquo;s important to examine other factors and data. There are many areas you can explore, but many investors simplify this process by using a "top-down" approach.
&nbsp;
Start with the broader economy
 A growing economy is a big benefit for businesses, so most investors focus on countries that show strong economic performance, avoiding those that are in recession.
&nbsp;
Look at specific sectors
 The next step is to analyze the performance of specific sectors in the coming months and years. Could central banks or new regulations negatively affect this sector? Or do you expect consumer demand to grow, which could positively impact the industry?
&nbsp;
Compare the company with its peers
 After analyzing the broader sector, you will be able to identify which companies are leaders and which have the potential to outperform the average. Ratios such as P/E and P/B can be especially useful at this stage, as they allow you to see how each company compares to its competitors.
&nbsp;

Company analysis

<h1 dir="ltr">Central banks</h1>
&nbsp;
Whether you are trading stocks, currency pairs, commodities, indexes, or other instruments, it is highly likely that the actions of central banks will influence prices in the selected markets.
&nbsp;
<h3 dir="ltr">What are central banks?</h3>
 Central banks are organizations that manage the monetary system of a country or group of countries. They have various responsibilities, including overseeing monetary policy, keeping inflation under control, supporting a high level of employment, and ensuring the stability of the national currency.
&nbsp;
In addition to this, central banks:
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Issue currency and control the money supply
</li>
<li dir="ltr" aria-level="1">
Act as the government&rsquo;s bank
</li>
<li dir="ltr" aria-level="1">
Regulate the credit system
</li>
<li dir="ltr" aria-level="1">
Oversee commercial banks
</li>
<li dir="ltr" aria-level="1">
Manage foreign exchange reserves
</li>
<li dir="ltr" aria-level="1">
Fulfill the role of the lender of last resort
</li>
</ul>
&nbsp;
For traders, however, the most important tool of central banks is changing interest rates, which is part of their monetary policy.
&nbsp;
Major central banks
&nbsp;
Almost every economy has its own central bank, but traders tend to focus on those connected to the most traded currencies:
Major global central banks on the map
<ul>
<li dir="ltr" aria-level="1">
Federal Reserve Bank of the USA (USD)
</li>
<li dir="ltr" aria-level="1">
European Central Bank (EUR)
</li>
<li dir="ltr" aria-level="1">
Bank of England (GBP)
</li>
<li dir="ltr" aria-level="1">
Bank of Japan (JPY)
</li>
<li dir="ltr" aria-level="1">
Swiss National Bank (CHF)
</li>
<li dir="ltr" aria-level="1">
Bank of Canada (CAD)
</li>
<li dir="ltr" aria-level="1">
Reserve Bank of Australia (AUD)
</li>
<li dir="ltr" aria-level="1">
Reserve Bank of New Zealand (NZD)
</li>
</ul>
&nbsp;
<h3 dir="ltr">Central banks and interest rates</h3>
 Central banks must maintain a delicate balance. If the economy grows too quickly, it can lead to rapid inflation, causing prices to become too high for consumers. On the other hand, if the economy grows too slowly, it can lead to unemployment.
 The main tool that central banks need to monitor and keep under control is the key interest rate.
&nbsp;
How do interest rates work?
 Interest rates influence decisions about saving or spending, and their changes have a broader impact on the entire economy.
 Businesses that borrow money for expansion and individuals purchasing homes are key to economic growth. Lowering interest rates supports these activities, which leads to economic growth.
 However, if the economy grows too quickly, it can cause high inflation. This can lead to reckless spending, threatening the stability of the economy. By raising interest rates, central banks can slow down growth and keep inflation under control.
&nbsp;
Example
 Let&rsquo;s imagine that the economy of the United Kingdom is facing challenges. Banks are cautious and reluctant to lend money because they fear they may not get it back.
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
High interest rates
</li>
</ul>
In this case, high interest rates encourage banks to keep their money in the central bank, where it is considered safe. They charge higher interest rates on loans because lending money is riskier. This makes borrowing money more difficult and expensive. Small businesses may become cautious and decide not to invest, and potential homebuyers may have trouble securing mortgages. As a result, spending remains low, further weakening the economy. 
<ul>
<li dir="ltr" aria-level="1">
Low interest rates
</li>
</ul>
 If the Bank of England (BOE) lowers interest rates, holding money in the central bank becomes less attractive. Banks don&rsquo;t earn much from holding money there, but they can borrow it at low rates. This means they can offer low-interest loans to businesses and individuals. These loans become more appealing since other options are less favorable. 
In this way, businesses and individuals can gain easier access to cash, motivating them to make more investments and spend more. These increased expenditures subsequently stimulate economic growth.
&nbsp;
How interest rates affect the markets
 Interest rates not only affect businesses and homebuyers but also have a significant impact on traders. Let&rsquo;s take a closer look at how interest rates influence forex and stock markets.
&nbsp;
Forex
 Like any other financial asset, currency prices are influenced by supply and demand.
 Investors typically focus on economies with high interest rates because they offer higher returns. If you want to invest in a foreign economy, you must buy its currency. This leads to increased demand for the currency with high interest rates, which in turn causes its value to rise.
 Some investors take advantage of this relationship through a strategy called carry trade. In this strategy, they buy currencies with high interest rates and sell those with low interest rates. If they can earn enough interest to cover exchange rate fluctuations, they can make a profit.
Stocks and indexes
 The relationship between interest rates and the stock markets is not as direct but still strongly affects market trends.
 High interest rates reduce consumer spending and make borrowing capital more expensive, which negatively impacts businesses. Therefore, an increase in interest rates can often hurt stocks and indexes.
 Conversely, low interest rates can support stock markets by creating an environment where businesses can grow. They have access to cheap loans, which allow them to expand their operations.
 In an environment with low interest rates, savers receive low returns on their savings, which may motivate them to invest in stocks. This increases demand for stocks and supports market growth.
&nbsp;
Traders and investors, however, do not just wait for interest rate announcements. Instead, they scan various economic indicators to anticipate the next move of the central bank.
&nbsp;
Central banks and decision-making
 Central banks take various economic indicators into account when making decisions about their next steps. Traders, therefore, analyze this data and try to predict what will happen next. Traders also monitor key central bank officials to determine whether they are in favor of high or low interest rates. These individuals may be described as hawks or doves:
<ul>
<li dir="ltr" aria-level="1">
Hawks are proponents of higher interest rates to fight inflation.
</li>
<li dir="ltr" aria-level="1">
Doves prefer lower interest rates to support economic growth.
</li>
</ul>
&nbsp;
Central banks can be referred to as hawkish or dovish depending on their current policy.
&nbsp;
Since markets pay close attention to central banks, expectations regarding interest rate moves are often priced in before they actually happen. Significant market movements typically occur when the central bank changes its decision or causes confusion about market expectations.
&nbsp;

Central banks

<h1 dir="ltr">Fibonacci theory</h1>
<ol>
<li dir="ltr">What is the fibonacci sequence?</li>
<li dir="ltr">What are fibonacci ratios?</li>
<li dir="ltr">Gann ratio</li>
<li dir="ltr">Fibonacci retracements</li>
</ol>
&nbsp;
The fundamentals of Fibonacci theory form the basis for a wide range of analytical tools, indicators, and trading strategies. In this lesson, we will focus on Fibonacci ratios, retracements, and other techniques used in market analysis.
&nbsp;
History of the fibonacci sequence
 Before we dive deeper into what Fibonacci is, let's first answer the question, "Who is Fibonacci?" Leonardo Pisano, also known as Leonardo Fibonacci, was a European mathematician in the Middle Ages who, in 1202 AD, wrote Liber Abaci (The Book of Calculations). In this book, he discussed various topics, such as currency conversion, measurements for trade, profit and interest calculations, and a variety of mathematical and geometric equations.
&nbsp;
However, there are two things from this book that stand out in today&rsquo;s context. First, in the early parts of Liber Abaci, he discussed the advantages of using the Arabic numeral system. At that time, the influence of the fallen Roman Empire was still strong, and most Europeans preferred using Roman numerals. However, Fibonacci made a strong, influential, and easily understandable argument for using the Arabic numeral system in Liber Abaci. From this point on, the Arabic numeral system became firmly established in European society and quickly became the dominant method of mathematics in the region, and eventually worldwide. The influence was so strong that we still use the Arabic numeral system today.
&nbsp;
The second important part of Liber Abaci that we still use today is the Fibonacci sequence.
&nbsp;
<h3 dir="ltr">What is the fibonacci sequence?</h3>
 The Fibonacci sequence is a series of numbers where each new number is the sum of the two preceding ones. It starts with zero and one, known as the "seed numbers." The next number is simply the sum of these two numbers: (0 + 1) = 1, (1 + 1) = 2, and so on.
&nbsp;
The first few numbers in this sequence are:
 Fibonacci sequence
 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, ...
&nbsp;
At first, this may seem a bit confusing, but it becomes clearer when we look at the formula behind this number pattern.
&nbsp;
The math behind the fibonacci sequence
 Each number in this sequence is simply the sum of the two preceding ones.
&nbsp;
For example:
&nbsp;
0 + 1 = 1 1 + 1 = 2 1 + 2 = 3 2 + 3 = 5 3 + 5 = 8
&nbsp;
And it continues like this.
&nbsp;
However, the Fibonacci sequence itself is not particularly important for traders. The key aspect for traders are the Fibonacci ratios derived from this sequence, which are used in technical analysis.
&nbsp;
<h3 dir="ltr">What are fibonacci ratios?</h3>
 Fibonacci ratios are specific percentages that are calculated by dividing the numbers in the Fibonacci sequence. While there are many different ratios, the most important ones are 23.6%, 38.2%, 61.8%, 78.6%, and 161.8%.
&nbsp;
To better understand how these ratios work, let's look at the mathematics behind the 61.8% ratio. To calculate the 61.8% ratio, you simply divide each number in the Fibonacci sequence by the number that follows it. If you repeat this process for several numbers in the sequence, you'll get a value of approximately 0.618, especially with numbers larger than 21 &divide; 34.
&nbsp;
Example:
 0 &divide; 1 = 0 1 &divide; 1 = 1 1 &divide; 2 = 0.5 2 &divide; 3 = 0.67 3 &divide; 5 = 0.6 5 &divide; 8 = 0.625 8 &divide; 13 = 0.615 13 &divide; 21 = 0.615 21 &divide; 34 = 0.618 34 &divide; 55 = 0.618 55 &divide; 89 = 0.618
&nbsp;
When we convert 0.618 into a percentage, we get 61.8%.
&nbsp;
To calculate the 161.8% ratio, simply divide each number by the number that precedes it.
&nbsp;
Example:
 1 &divide; 0 = 0 1 &divide; 1 = 1 2 &divide; 1 = 2 3 &divide; 2 = 1.5 5 &divide; 3 = 1.67 8 &divide; 5 = 1.6 13 &divide; 8 = 1.625 21 &divide; 13 = 1.615 34 &divide; 21 = 1.618 55 &divide; 34 = 1.618 89 &divide; 55 = 1.618
&nbsp;
61.8% and 161.8% are very significant Fibonacci ratios, often referred to as golden ratios. These values appear in many fields of mathematics, geometry, architecture, art, and more.
&nbsp;
There are also other Fibonacci ratios derived from different division patterns. Here are a few of them:
&nbsp;
<img class="centerImage" src="https://direct.y4trade.com/assets/c41d7894-2ceb-4585-acb9-0420d6c5fad4.png?width=600&amp;height=400" alt="Fibonacci Ratios">
&nbsp;
Another method of obtaining Fibonacci ratios is by calculating the square root of a given number. For example, the square root of 0.618 is 0.786. When we convert this value to a percentage, we get 78.6%, which is one of the key Fibonacci ratios.
&nbsp;
Here are some other common Fibonacci ratios that can be derived using square roots.
&nbsp;
<img class="centerImage" src="https://direct.y4trade.com/assets/a141a105-89eb-40da-ab7d-d912a8dc29e8.png?width=600&amp;height=400" alt="Square Roots">
&nbsp;
<h3 dir="ltr">Gann ratio 50%</h3>
&nbsp;
There is another ratio often used in Fibonacci analysis, though technically it's not a Fibonacci ratio &mdash; the 50%. This ratio doesn&rsquo;t appear in the original sequence but, similar to key values, it frequently appears in market analysis.
&nbsp;
Some claim that the 50% ratio is a "Gann ratio," developed by WD Gann in the early 20th century. Regardless of its origin, the 50% level is considered a crucial and relevant level in trading, and as such, it is often included in technical analysis as if it were a Fibonacci ratio. Just like with Fibonacci ratios, many traders use the inverse value or the square root of these "sacred ratios" to create additional values. Some examples of these values are shown in the table below.
&nbsp;
<img class="centerImage" src="https://direct.y4trade.com/assets/948031f7-3328-4470-a163-7affad406d0b.png?width=600&amp;height=400" alt="Sacred Ratio">
&nbsp;
Regardless of the origin of this ratio, the 50% level proves to be key and significant in trading, which is why it is often included in Fibonacci analysis, even though it technically isn&rsquo;t a Fibonacci ratio. Some other numbers in the table have also been mistakenly considered Fibonacci ratios, but in reality, they are not.
&nbsp;
<h3 dir="ltr">Fibonacciho retracements</h3>
&nbsp;
So, how can you apply Fibonacci theory to your trading? Most commonly, traders use Fibonacci retracements to predict support and resistance levels when the market retraces after a significant move.
&nbsp;
Example: Let&rsquo;s say the price of Brent oil drops by 150 points during a bearish trend. You anticipate a countertrend, where buyers temporarily halt the price drop. According to Fibonacci theory, this countertrend might encounter support or resistance levels at the Fibonacci ratios of the original move, typically at 23.6%, 38.2%, 61.8%, or 78.6%.
&nbsp;
<img class="centerImage" src="https://direct.y4trade.com/assets/7dcad171-fae0-4779-a7d7-641d06f0483c.png?width=600&amp;height=400" alt="Fibonacciho Retracements">
&nbsp;
You can add these ratios to any trading chart on the Y4Trade.com platform using the Fibonacci retracement drawing tool. This tool will automatically draw lines at key Fibonacci levels (including 50%), allowing you to visualize where a reversal might occur during the next countertrend. It also helps you predefine potential support and resistance levels.
<h3 dir="ltr">Fibonacci retracement overview</h3>
&nbsp;
<img class="centerImage" src="https://direct.y4trade.com/assets/8d688761-ae5b-4b30-9831-43bb9f854eff.png?width=600&amp;height=400" alt="Fibonacci Retracement Overview">

Fibonacci theory

<h1 dir="ltr">Our preferred fibonacci strategy</h1>
 Here you will find a guide on how to create a trading strategy based on Fibonacci ratios using our preferred method.
&nbsp;
<h3 dir="ltr">Components of this strategy</h3>
<ul>
<li dir="ltr">How to trade effectively with our preferred strategy</li>
<li dir="ltr">Examples of trades using our favorite method</li>
<li dir="ltr">Our preferred fibonacci strategy is a dynamic trading approach that uses fibonacci ratios.&nbsp;</li>
</ul>
&nbsp;
We love it because:
<ul>
<li dir="ltr" aria-level="1">
It works across various timeframes
</li>
<li dir="ltr" aria-level="1">
It is applicable to all major markets
</li>
<li dir="ltr" aria-level="1">
It is suitable for both bullish and bearish markets
</li>
<li dir="ltr" aria-level="1">
It provides many trading opportunities
</li>
</ul>
&nbsp;
However, for success, you need to find a market that shows a clear and strong trend. Ideally, these are markets that are reaching new historical, multi-year, or several-month highs or lows.
&nbsp;
Timeframes
 This strategy is most commonly used on 1-hour to 4-hour charts, although it can also be effective on daily charts or on shorter timeframes, such as under 15 minutes. In general, it is more effective on longer timeframes.
 When planning an entry into a trade, however, it is often useful to also look at the 5-minute chart for a better assessment of the current market movement.
&nbsp;
Components of the strategy
 This strategy combines all the key elements of Fibonacci retracements and extensions. The foundation is to find a market that has made a significant move from point A to point B, and then retraced back to point C.
&nbsp;
<img class="centerImage" src="https://direct.y4trade.com/assets/41e13a7d-3942-455f-8a07-5ce9ad0c92ee.png?width=600&amp;height=400" alt="Fibonacci Retracements and Extensions">
&nbsp;
Next, you focus on trading a portion of the extension of the original move between points C and D, entering the trade when the market breaks through point B and reaches new highs or lows. However, for our preferred strategy to work, strong momentum is required. This means that the correction between points B and C should be relatively shallow and fast. If the retracement to point C exceeds 50% of the AB move or if too much time passes between these points, the entry signal is no longer valid.
&nbsp;
 If these conditions are met, you can start planning your trade position at point C.
 
<h3 dir="ltr">How to trade with our preferred fib</h3>
At point C, you decide on your entry, risk management, and setting goals for the trade.
&nbsp;
<img class="centerImage" src="https://direct.y4trade.com/assets/d2468695-a412-4d8b-b863-430a46eafa29.png?width=600&amp;height=400" alt="Preferred Fib">
&nbsp;
Example of trading with our preferred fib
&nbsp;
Entry Points&nbsp;
As mentioned earlier, you will enter the trade when the market moves beyond point B and heads towards point D.
 If the market is in an uptrend, you will want to buy a few points above point B.
&nbsp;
If the market is in a downtrend, you will want to sell a few points below point B. You can enter this&nbsp;position using a stop entry order or a market order.
&nbsp;
If you use a stop entry order, your position will open automatically when the market reaches that level.
&nbsp;
However, if the market reverses direction, you will incur a loss.
&nbsp;
Using a market order gives you some time to confirm that the breakout beyond point B is real. You can wait a few minutes before entering the position. However, in strongly trending markets, this caution may reduce your profits.
&nbsp;
In this case, it may be wise to use a 5-minute or 10-minute chart to more accurately determine your entry. This way, you can wait until the price closes beyond point B before opening the trade.
&nbsp;
Targets&nbsp;
&nbsp;
This strategy focuses on two key levels:
&nbsp;
 The first level is at 127.2% of the original move. At this point, you can move your stop-loss to eliminate the risk on the position.
&nbsp;
The profit target is set at 161.8% extension of the BC move.
&nbsp;
If the trend is particularly strong, you can set your profit target at 261.8% extension of the BC move. To assess the strength of the move, look at the size of the BC retracement. In a strong trend, the retracement should be around 38.2% or less.
&nbsp;
TIP &ndash; Be cautious of any significant support or resistance levels before reaching your profit target. For example, if the market must overcome its 200-day moving average before reaching the 161.8% extension, this may not be the best time to enter the trade.
&nbsp;
Risk management&nbsp;
&nbsp;
When you open your position, you will want to set a stop-loss order at a specific point on the opposite side of B. The exact placement will depend on your risk-to-reward ratio, considering where your profit target is.
 Your risk-to-reward ratio should be greater than 1:1 &ndash; ideally 1:2 or higher.
&nbsp;
You don&rsquo;t have to wait for the market to return to your stop-loss level. If you enter a position beyond B, but then notice the market losing momentum, it might be a better idea to close the trade and minimize your losses earlier.
&nbsp;
Examples of our preferred fib
&nbsp;
Here are some examples of this strategy in practice.&nbsp;
&nbsp;
<h3>1.Buy NZD/AUD </h3>
&nbsp;
OPEN
&nbsp;
<img src="https://direct.y4trade.com/assets/b5ad2183-582a-4442-9b0e-f6daf14dabb8.png?width=600&amp;height=400" alt="Open 01">
&nbsp;
CLOSE
&nbsp;
<img src="https://direct.y4trade.com/assets/accaf146-830a-4219-b563-906b4aa41a9c.png?width=600&amp;height=400" alt="Stop">
&nbsp;
The position is opened at 0.80240, with a profit target at the 161.8% level, which is 0.80590. After moving the stop to break-even at 0.80383, the position is closed at the profit target.
<h3 dir="ltr">&nbsp;</h3>
<h3 dir="ltr">2. Buy GBP/USD</h3>
&nbsp;
OPEN
&nbsp;
<img class="centerImage" src="https://direct.y4trade.com/assets/2bea0006-5dcb-42e1-88a2-422366ad2304.png?width=600&amp;height=400" alt="Buy Gbpusd Open 01">
&nbsp;
CLOSE
&nbsp;
<img class="centerImage" src="https://direct.y4trade.com/assets/c5c0824b-183b-48e5-a5f4-158e010c85a9.png?width=600&amp;height=400" alt="Buy Gbpusd Close 01">
&nbsp;
In this trade, which was opened ahead of a key economic release, the market moved significantly beyond the profit target. A short retracement could have been an indication that the 261.8% extension level would have been a better profit target.
<h3 dir="ltr">&nbsp;</h3>
<h3 dir="ltr">3. Selling Gold</h3>
&nbsp;
Open
<img class="centerImage" src="https://direct.y4trade.com/assets/5d6e6344-b8fb-499b-9d87-925c733c05f4.png?width=600&amp;height=400" alt="Selling Gold Open">
&nbsp;
CLOSE
&nbsp;
<img src="https://direct.y4trade.com/assets/f0c8c364-cc25-44f9-bcfd-05decacafaf8.png?width=600&amp;height=400" alt="Selling Gold Closed">
&nbsp;
In this example, the breakout above point B at 1793.51 quickly turned out to be a false signal. The stop-loss was triggered, which helped limit the losses on the position.
&nbsp;

Our preferred fibonacci strategy

<h1>Ichimoku cloud</h1>
 The next indicator we will explore in this course is the Ichimoku Cloud. This indicator is useful for quickly understanding trends and directions, and it also helps measure momentum.
&nbsp;
<ol>
<li>What is ichimoku cloud?</li>
<li>How to draw ichimoku cloud</li>
<li>Trading with ichimoku cloud</li>
<li>Overview of ichimoku cloud</li>
</ol>
&nbsp;
<h3 dir="ltr">What is ichimoku cloud?</h3>
&nbsp;
The Ichimoku Cloud is a technical indicator consisting of five different lines on the market: Tenkan, Kijun, Senkou Span A, Senkou Span B, and Chikou. The gap between the Senkou Span A and Senkou Span B lines creates a cloud, which is visually displayed on the chart. This allows traders to better understand trends and market volatility. The indicator provides a quick overview of trends, directions, and potential support and resistance levels. 
&nbsp;
<img class="centerImage" src="https://direct.y4trade.com/assets/f06c48d4-e165-4fde-9067-6250199223c9.png?width=600&amp;height=400" alt="What Is Ichimoku Cloud?">
&nbsp;
The Ichimoku Cloud was developed in the 1960s by Japanese newspapers. At first glance, this indicator may seem confusing, but once you understand the basic concepts, its use is relatively straightforward. In Japan, this tool is known as the "one-glance equilibrium chart" because it provides a wealth of information in a single view, allowing traders to quickly analyze markets and make decisions based on a complete perspective of the situation.
&nbsp;
<h3 dir="ltr">How to draw the ichimoku cloud</h3>
&nbsp;
To draw the Ichimoku Cloud, you first need to understand what each line represents. Let's begin with Tenkan and Kijun, also known as the conversion line and the baseline.
&nbsp;
<ul>
<li dir="ltr" aria-level="1">
Tenkan (conversion line) is calculated as the average of the highest high and the lowest low over the last 9 periods.
</li>
<li dir="ltr" aria-level="1">
Kijun (baseline) is calculated as the average of the highest high and the lowest low over the last 26 periods.
</li>
</ul>
&nbsp;
Thus, Tenkan represents the midpoint of the 9-period price range, while Kijun does the same for the 26-period range.
&nbsp;
Once you know these two lines, you can draw the upper and lower boundaries of the cloud using Senkou Span A and B:
<ul>
<li dir="ltr" aria-level="1">
Senkou Span A is the average of Tenkan and Kijun, divided by two. This line forms the top of the cloud.
</li>
<li dir="ltr" aria-level="1">
Senkou Span B is the average of the highest high and the lowest low over the last 52 periods, divided by two. This line forms the bottom of the cloud.
</li>
</ul>
&nbsp;
It's important to note that the cloud is not drawn at the current price. Instead, it is shifted 26 periods into the future.
&nbsp;
Finally, Chikou Span is the current price, but it is plotted 26 periods in the past, giving traders another perspective on the historical market development.
 
<h3 dir="ltr">Trading with the ichimoku cloud</h3>
&nbsp;
The relationship between the various lines can quickly reveal much information about the current market conditions for traders.
&nbsp;
Uptrend:
 If Span A is above Span B, it indicates that the market is in an uptrend. In this case, the cloud is often colored green. When Span B is above Span A, the cloud is typically red, and the market may show a bearish trend.
&nbsp;
Momentum:
 Traders can also use the Ichimoku Cloud to assess the momentum of the market. For example, in an uptrend, the price usually remains above the cloud. If Tenkan crosses Kijun from below to above, it can signal another upward impulse, especially if this happens above the cloud.
&nbsp;
Weakening uptrend:
 If Tenkan crosses Kijun from above to below, it may signal a weakening uptrend.
&nbsp;
Bearish Trend:
 In bearish markets, the situation reverses:
<ul>
<li dir="ltr" aria-level="1">
The price will typically be below the cloud.
</li>
<li dir="ltr" aria-level="1">
If Tenkan crosses Kijun from above to below (when both are under the cloud), it signals a strong bearish trend.
</li>
<li dir="ltr" aria-level="1">
If Tenkan crosses Kijun from below to above, it may suggest weakening of the bearish trend.
</li>
</ul>
&nbsp;
One of the main advantages of the Ichimoku Cloud is that it helps predict future areas of support and resistance, unlike other indicators that focus only on current areas of strength and weakness.
&nbsp;
<h3 dir="ltr">Overview of the ichimoku cloud</h3>
&nbsp;
<img class="centerImage" src="https://direct.y4trade.com/assets/60951ba2-e988-487d-b4ad-735c64bff80c.png?width=600&amp;height=400" alt="Overview of the Ichimoku Cloud">
&nbsp;
&nbsp;

Ichimoku Cloud

<h1 dir="ltr">Pivot Points</h1>
 This lesson focuses on a useful method for identifying levels of support and resistance: pivot points.
<ol>
<li>What are Pivot Points?</li>
<li>Finding Support and Resistance Using Pivot Points</li>
<li>Pivot Points Example</li>
<li>Pivot Point Calculation</li>
<li>Overview of Pivot Points </li>
</ol>
&nbsp;
<h3 dir="ltr">1. What are pivot points?</h3>
Pivot points are a technical indicator used by traders to predict potential areas of technical significance, such as support and resistance levels. They are calculated as the average of the high, low, and closing prices from the previous period, which could be daily, weekly, or monthly intervals.
&nbsp;
If the market is trading above the previous pivot point (known as P), it is considered a buy signal (bullish signal). Conversely, if the price is below, it is considered a sell signal (bearish signal).
&nbsp;
Day traders often use pivot points to identify short-term trends. For example, if EUR/USD is trading above the previous pivot point (P), they may expect the price to continue rising and decide to buy the pair.
&nbsp;
<h3 dir="ltr">2. Finding support and resistance with pivot points</h3>
The pivot point (P) is not only used to measure the current price action. It serves as the basis for calculating six additional levels that help identify potential support and resistance areas. These levels are labeled as:
<ul>
<li dir="ltr" aria-level="1">
S1, S2, S3 for Support
</li>
<li dir="ltr" aria-level="1">
R1, R2, R3 for Resistance
</li>
</ul>
&nbsp;
These levels are displayed on the chart as parallel lines to the pivot point (P) and can be used to set profit targets or as potential areas to open new trading positions.
&nbsp;
<img class="centerImage" src="https://direct.y4trade.com/assets/49f2092b-e3d2-49c3-bea8-5538d0191a0f.png?width=600&amp;height=400" alt="Pivot Points">
&nbsp;
<h3 dir="ltr">3. Example of pivot points</h3>
Let&rsquo;s look at an example with EUR/USD.
 The pair is trading below the previous day's pivot point (P), which provides a short-term signal indicating a potential bearish trend. You decide to short EUR/USD at the current price.
&nbsp;
You can focus on the S1, S2, or S3 levels as potential profit targets. Like other support levels, these will be stronger if the market has previously bounced off these levels. If S1, S2, or S3 align with a previous area of support, it could be a good target.
&nbsp;
Alternatively, you can wait for EUR/USD to bounce off support (for example, at S1) and then open a buy position. If you do this, P or R1 could be good profit targets.
&nbsp;
<h3>4. Calculation of pivot points</h3>
When trading on the FOREX.com platform, there is no need to manually calculate pivot points. If you want to display them on the chart, simply log in, select your market, and choose "Standard Pivot Points" from the indicator list.
 However, if you'd like to manually calculate the pivot point (P), follow these steps:
<ol>
<li dir="ltr" aria-level="1">
Find the high, low, and closing prices for the previous day, week, or month.
</li>
<li dir="ltr" aria-level="1">
Add them all together and divide the result by three.
</li>
<li dir="ltr" aria-level="1">
Display this price on the chart as P.
</li>
</ol>
The math for calculating the S and R levels is a bit more complex:
<ul>
<li dir="ltr" aria-level="1">
R1 = (P x 2) - previous low
</li>
<li dir="ltr" aria-level="1">
R2 = (P - S1) + R1
</li>
<li dir="ltr" aria-level="1">
R3 = (P - S2) + R3
</li>
<li dir="ltr" aria-level="1">
S1 = (P x 2) - previous high
</li>
<li dir="ltr" aria-level="1">
S2 = P - (R1 - S1)
</li>
<li dir="ltr" aria-level="1">
S3 = P - (R2 - S2)
</li>
</ul>
&nbsp;
<h3>5. Overview of pivot points</h3>
&nbsp;
<img class="centerImage" src="https://direct.y4trade.com/assets/fff50236-86b8-4f19-877f-731f979832f3.png?width=600&amp;height=400" alt="Overview of Pivot Points">
&nbsp;

 Pivot Points

<h1 dir="ltr">Three drive pattern</h1>
 If you see an ABCD pattern that creates another retracement leg instead of pulling back, you might have a Three Drive pattern on your hands.
<ol>
<li dir="ltr" style="font-weight: bold;" role="presentation">What is the three drive pattern?</li>
<li dir="ltr" style="font-weight: bold;" role="presentation">Finding the three drive pattern</li>
<li dir="ltr" style="font-weight: bold;" role="presentation">Trading the three drive pattern</li>
<li dir="ltr" style="font-weight: bold;" role="presentation">Information sheet for the three drive pattern</li>
</ol>
<h3 dir="ltr">What is the three drive pattern?</h3>
The Three Drive pattern is a rare price model that consists of three consecutive movements in the same direction, either upwards or downwards. In the bullish version of the pattern, the market makes three final attempts to reach lower levels before transitioning into an uptrend. Conversely, in the bearish version, the market reaches a peak and then begins to decline.
 <img src="https://direct.y4trade.com/assets/85e6b844-e61f-4b55-91b7-44d8bbf4a653.png?width=600&amp;height=400" alt="Three Drive Pattern">
 This pattern consists of two overlapping ABCD patterns. If you can identify the classic ABCD pattern, recognizing the Three Drive pattern should be relatively easy.
 Although this pattern doesn't appear very often, its presence can indicate a strong likelihood of an upcoming market reversal. This model is highly valued among traders because it offers trades with an excellent risk-to-reward ratio and potential profits.
&nbsp;
<h3 dir="ltr">Finding the three drive pattern</h3>
To identify the Three Drive, focus on searching for the ABCD pattern, where there is an additional leg. You can think of it as the ABCDEF pattern, which includes the fourth move, creating the Three Drive.
&nbsp;
<img src="https://direct.y4trade.com/assets/931cc602-b480-450b-9c66-9cbf05511397.png?width=600&amp;height=400" alt="Find Three Drive Pattern">
&nbsp;
When searching for a Three Drive pattern, it's essential to be exceptionally cautious. Ideally, the pattern should be immediately clear. If it&rsquo;s not, you may not have found the true Three Drive.
&nbsp;
Similar to the ABCD pattern, the Three Drive pattern can be confirmed using Fibonacci ratios.
&nbsp;
The mechanics of the CD and EF moves should correspond to the 127.2% or 161.8% extensions of the BC and DE retracements. The BC and DE retracements should typically be 61.8% or 78.6% of the previous leg.
&nbsp;
<img class="centerImage" src="https://direct.y4trade.com/assets/01aa7db8-3b82-48fe-ac3a-19123547018c.png?width=600&amp;height=400" alt="Find Three Drive Pattern 01">
&nbsp;
Symmetry is also crucial for the Three Drive pattern. The timing of the retracements and moves should be symmetrical. If this is not the case, it means that you have not identified a valid Three Drive pattern.
&nbsp;
<img class="centerImage" src="https://direct.y4trade.com/assets/c836a7d6-8060-455e-b648-de597966ac67.png?width=600&amp;height=400" alt="Symetrical Three Drive Pattern">
&nbsp;
<h3 dir="ltr">Trading with the three drives pattern</h3>
The Three Drives pattern can be traded similarly to the ABCD pattern. Wait for the final move to complete, and then focus on trading the reversal that should follow. If the market reaches a low, open a buy position; if it reaches a high, sell.
&nbsp;
The third move should mirror the previous one, helping you determine when the market is likely to reverse. Based on this, plan your entry point accordingly.
&nbsp;
Watch for any significant gaps or interruptions while the pattern is forming. These could indicate that the pattern may not be valid. If you notice something like this, wait for further confirmation that the reversal is indeed close.
&nbsp;
If the pattern does not behave as expected, it is possible that the market will continue in the original trend.
&nbsp;
<h3>Information sheet with the three drives pattern <img class="centerImage" src="https://direct.y4trade.com/assets/3d82f738-1c1b-4c43-ae18-98527d1ab29b.png?width=600&amp;height=400" alt="Information Sheet Whit the Three Drives Pattern"> </h3>

Three drive pattern

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Mastering basic strategies, technical analysis focused on trends, support/resistance, and indicators (RSI, MACD), basic money management techniques, introduction to trading journal, and improving entry/exit efficiency. For those who know the basics and want to level up.
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Intermediate

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In-depth technical analysis (patterns, indicators, price action), advanced entry/exit strategies, money management, intraday and swing trading, backtesting, trading plan development, data analysis and statistics. Designed for traders with practical experience.
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Advanced 

Basics of financial markets, asset types (stocks, forex, cryptocurrencies), introduction to technical and fundamental analysis, risk management, trading platforms, and trading psychology. Suitable for complete beginners with no prior experience.

Lessons