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[Elena RF]

How to trade stocks in 2021. Beginners Guide

Author: Timofey Zuev

Dear Clients and Partners,​

To start trading stocks, you need your main instrument – a trading account. You can open it either at a broker or bank. However, how do you choose the right and reliable company if you’re completely new to the market?

We’ve made a checklist for you.

Checklist for choosing a broker

1. Make sure that the financial organization is licensed. You can easily find all the documents on the official website of the company.

2. Check for how long a company has been operating on the market. No secret that the longer this period, the more reliable a company becomes. Choose brokers that are at least 5 or, even better, 10 years “old”.

3. Check the trading conditions. You are interested in the following:

• Commission fees for money depositing and withdrawal: whether they are high or low.
• Fees for trading stocks – of course, the lower, the better.
• The number and types of available instruments: if a broker allows trading premium-class stocks only, such as Tesla or Google, you might simply be short of money to invest in them. Diversity is the key here.

How to define the amount of investments?

Now you need to decide how much you are investing in stocks.

On one hand, the answer to this question looks simple: invest as much as you can afford to lose. This is the most rational approach.

The larger your investment – the higher your potential profit, but the greater your risks. There’s no magic number that is suitable for all the traders in the world.

Also, account for the volume of your investment (or, how many stocks you buy) and the price of one asset (meaning the price of 1 stock). Moreover, note that some brokers set a minimum investment for trading stocks which can be practically any sum they want.

To view links, please register.

Sincerely,
RoboForex team

 

[Elena RF]

RoboForex: changes in trading schedule (Martin Luther King Jr. Day)

Dear Clients and Partners,​

We’re informing you that due to the public holiday in the USA, Martin Luther King Jr. Day, on January 18th, 2021, several instruments will be traded according to the changed schedule*.

MetaTrader 4 / MetaTrader 5 platforms

Trading schedule on CFDs on US indices (US30Cash, US500Cash, USTECHCash) and Japanese index JP225Cash

• January 18th, 2021 – trading stops at 7:45 PM server time.
• January 19th, 2021 – trading starts as usual.

Trading schedule on Metals (XAUUSD, XAGUSD) and CFDs on oil (Brent, WTI)

• January 18th, 2021 – trading stops at 7:45 PM server time.
• January 19th, 2021 – trading starts as usual.

Trading schedule on CFDs on US stocks

• January 18th, 2021 - no trading.
• January 19th, 2021 - trading starts as usual.

R Trader platform

Trading schedule on US stocks, CFDs on US stocks, and ETFs

• January 18th, 2021 - no trading.
• January 19th, 2021 - trading starts as usual.

Trading schedule on CFDs on US indices (US500, US30, NAS100)

• January 18th, 2021 - no trading.
• January 19th, 2021 - trading starts as usual.

Trading schedule on Metals (XAUUSD, XAGUSD) and CFDs on Crude Oil (BRENT.oil, WTI.oil)

• January 18th, 2021 - no trading.
• January 19th, 2021 - trading starts as usual.

cTrader platform

Trading schedule on Metals (XAUUSD, XAGUSD)

• January 18th, 2021 – trading stops at 7:45 PM server time.
• January 19th, 2021 – trading starts as usual.

Please, take into account these changes in the schedule when planning your trading activities.

* – This schedule is for informational purposes only and may be changed by the provider.

Sincerely,
RoboForex team

 

[Elena RF]

The most important events of the financial world in 2020

Author: Server Ametov

Dear Clients and Partners,​

It’s not the middle of January yet but the events we are so eager to tell you about are numerous. We’re definitely not going to deny ourselves the pleasure, so let’s get started.

1. Bitcoin set a new record

On January 8th, the Bitcoin price reached the new all-time high – 40599.3 USD per coin. Since the beginning of the year, the first cryptocurrency has grown by 40.24% or 11649.9 USD.

Traders that expected the BTC to fall playing short lost almost 800 million USD in just 24 hours. However, note that the record price didn’t last long: after January 8th, the rate started declining; by the time this article was being written, it had lost 12.7%, reaching 33340.8 USD.

At the beginning of January, JPMorgan analysts forecast that in the long run, the BTC would reach 146 thousand USD per coin. Their conclusion is based on the actual statistics that show an outflow of investments from gold reaching 7 billion USD while the inflow of investments in the Grayscale Bitcoin Trust reaching 3 billion USD.

Catherine Coley, the head of the Binance US department, voiced an opinion that by the end of the year the BTC would have reached 100 thousand USD.

As for Sonny Singh, the marketing director of the Bitpay crypto payment system, he warns of a steep decline of the BTC back to 20 thousand USD. He states that institutional investors might start a super-scale sale at any moment.


2. Elon Musk became the richest person in the world

On January 8th, Tesla quotations leaped by almost 8%, reaching 880 USD per stock, which event reshuffled the list of the world’s richest people. Now the fira+96st line is occupied by Elon Musk, whose fortune is estimated by Forbes at 189.7 billion USD.

This swift growth is explained by the stable production and sales performance: last year, regardless of the COVID-19 pandemics and the overall economic decay, Tesla produced 509.7 thousand and sold 499.9 thousand electric cars.

Note that in 2020, mister Musk, with his 27 billion USD of fortune, hardly entered the top-50 of the world’s richest people. And now he managed to overshadow Jeff Bezos, who had been number one since 2017. According to Forbes, today the fortune of Amazon's founder reaches 185.7 billion USD.

To view links, please register.

Sincerely,
RoboForex team

 

[Elena RF]

How to Trade by Puria Method Strategy?

Author: Victor Gryazin

Dear Clients and Partners,​

In this overview, we will discuss an indicator strategy known as the Puria method. Regardless of such a mysterious name, this is quite a simple and understandable strategy based on signals from four standard indicators.

What is the Puria strategy based on?

Puria is an intraday indicator strategy aimed at buying/selling currency pairs during a trading day. In other words, it is meant for making small but regular profits. Each trade opened by the trading strategy is aimed at earning 15-25 points.

The trades are first and foremost based on finding a crossing of three Moving Averages. Two slow Weighted MAs (red ones) with periods 75 and 85 are sometimes crossed by a yellow signal EMA with period 5. Trades are opened in the direction of the crossing, an additional filter for signal confirmation being the MACD (15, 26, 1).

This strategy does not imply using tech analysis, it is based solely on signals from indicators. You can use any currency pairs and their cross rates; what will depend on your instrument is just the size of your profit. Timeframes recommended for trading are M30 and H1, though some traders try M15 as well. Anyway, this is a good strategy for indicator intraday trading.

Signal to buy

• The price chart rises above the slow MAs.
• The fast yellow EMA (5) crosses its red counterparts from below.
• The MACD histogram crosses the central line from below. At least one bar of the histogram must close above zero.
• Open a buying position with the SL and TP set according to the recommendations above.

Closing thoughts

The Puria Method Strategy is an easy way to trade intraday using signals from four indicators. However, keep in mind that no matter how profitable the strategy promises to be, market conditions are prone to change, so a positive result is never guaranteed. Before trading for real, test the Puria strategy on a demo account and make sure it is efficient for the current market conditions.

To view links, please register.

Sincerely,
RoboForex team

 

[Elena RF]

How to calculate Return on Equity (ROE)?

Author: Victor Gryazin

Dear Clients and Partners,​

In this article, we’ll talk about the Return on Equity (ROE), one of the key indicators of investment returns, which helps to assess the financial stability and investment attractiveness of different companies.

What is the ROE for?

The Return on Equity is an indicator that assesses how effective the funds invested by companies’ shareholders are. As a matter of fact, the ROE is the company’s annual profit after taxes, fees, and other statutory expenses, divided by the cost of all funds invested by its founders and shareholders without borrowed money.

As a rule, investors prefer companies and firms with a higher ROE. However, profits and incomes in different sectors of the economy vary a lot. For example, the indicator may differ even within the same sector if a company decides to pay dividends instead of keeping profits as available cash assets.

It’s important to assess the ROE in real-time mode, for a particular period of time (for example, 5 years). Investors usually calculate the ROE at the beginning and the end of their investment period, so that they could see real changes in profitability. This method gives the opportunity to assess the growth dynamics and compare the results with other companies’ performance.

A stable and eventually growing ROE attract investors. The ROE growth means that the chosen company is reliable and can produce stable income because it knows how to wisely employ its capital in order to increase performance and profits. On the other hand, the ROE decline may indicate that the company’s management makes wrong decisions and invests money in non-profitable assets.

Example of the ROE calculation

For example, the company’s net income at year-end is $100,000$. At the same time, the average shareholders’ equity consists of 50,000 shares worth $5 each. In this case, the ROE will be calculated as follows:

ROE = 100,000 / 50,000 * 5 * 100% = 40%

It’s a high ROE, which says that the company is actively developing. For a more detailed estimate, it will be better to analyze the average ROE dynamics over 3-5 years – it will provide a fair insight into the company’s prospects.

However, one should remember that even if the OE is growing, the company’s profit is not necessarily paid to investors. If the company decides to keep its profits without paying dividends, shareholders may get profit only indirectly, due to the rise of the company’s share price.

To view links, please register.

Sincerely,
RoboForex team

 

[Elena RF]

How to Use Moving Average for Buying Stocks?

Author: Maks Artemov

Dear Clients and Partners,​

The Moving Average has long been on the trading scene and has become an intrinsic part of many trading strategies. Though simple, the indicator works on almost all timeframes and with any instrument.

There are plenty of indicators based on the MA, being, in essence, the same old MA slightly alternated. This is a trend indicator, and its main task is to indicate the direction of the price, smoothing out noises and insignificant fluctuations.

Setting up the indicator

The Moving Average has several settings:

• Period is the number of bars used for calculations. It can be 1 and higher.
• Shift is the number of bars by which the period will be shifted.
• Method: there are the Simple (SMA), Exponential (EMA), and Weighted (WMA) Moving Averages.
• Apply to: close, open, high, or low.

Alternating these parameters, a trader can set up the indicator for a certain instrument and trading conditions. There are plenty of ways to use the indicator. MAs with large periods are normally used for medium-term trading. Trading intraday rather requires using MAs with periods below 100.

What it looks like on the chart

First of all, set the parameters. The smaller the period, the closer the MA will follow the price chart, mimicking the price. In the picture, we see EMA5, which means that the calculation period is 5 last bars, the shift is zero, apply to close.

If we choose period 100, the MA will follow the chart closely and sometimes cross it.

If we use a period above 100, the MA chart will move farther away from the price chart and close it rarer.

Using the MA for trading stocks

Based on the fact that the charts of stocks do not differ much from those of currency pairs or cryptocurrencies, you can use the indicator without significant limitations. Market players say that “bears live under the MA200 and the bulls – above it”. This means that, in the long run, the indicator speaks about the continuation of the current trend.

To view links, please register.

Sincerely,
RoboForex team

 

[Elena RF]

How to Trade Arthur A. Merrill’s M and W Patterns

Author: Andrey Goilov

Dear Clients and Partners,​

Arthur Merrill, the hero of this article, called his patterns “wave structures”. The name is connected to the popularity of Dow Theory, describing wave-like price movements, at those times. By the way, popular Elliott’s Waves are based on this theory.

Merrill tried to find the same logic in graphic structures because many sooner or later turn back to searching patterns on the chart. In the end, he singled out 32 graphic patterns and distributed them between two groups: 16 M-shaped and 16 W-shaped patterns. They indicate the end of either an ascending or descending trend, sort of reflecting one another mirror-like.

The history of Merrill’s patterns

The first attempt to describe such patterns is considered to belong to Robert Levi, a financier. In 1971, he took up studying five-pointed price patterns, trying to structure them but failed to complete his studies because the patterns were too abundant (about 2,000 patterns).

Levi abandoned the idea, and it was left behind for a decade. At the beginning of 1980, Arthur Merrill re-took studying the patterns, which resulted in singling out and structuring the five-pointed patterns below.

M1 and W16

The last point of the M1 pattern reflects the end of a decline, but the author says that it is not as much a reversal point, rather a point of being extremely overbought. As for classic tech analysis, this one is similar to the Wedge reversal pattern.

Here, we also watch the pattern contract and the trend – reverse upon breaking the pattern away. To place the goal, calculate the height of the pattern and measure these points from the point of the breakaway.

M2 and W15

In the M2 pattern, the price goes in some sort of a downward zigzag, after which an upwards zigzag appears, but we do not wait for a renewal of the high as in M1. This pattern is similar to an Inverted Head and Shoulders from classic tech analysis. In the picture, the right “shoulder” is rather low but it still remains an example of our pattern. To estimate the goal, measure the pattern and place the goal as many points away from the breakaway point on the “neck”.

Also, in a downward movement, when the price fails to demonstrate a new low under the previous one but shows a new high above the previous one, the trend reverses. This is the market’s nature. So even if your understanding of the pattern is simplistic, always keep in mind the potential of a trend reversal when the price cannot go on down and breaks through the nearest high.

To view links, please register.

Sincerely,
RoboForex team

 

[Elena RF]

How to Invest in Dow Jones?

Author: Victor Gryazin

Dear Clients and Partners,​

The Dow Jones Industrial Average is one of the oldest and most famous stock indices over the globe. It is included in the top-three US indices and boasts the best capitalization among them. In this overview, I will demonstrate to you the structure of Dow Jones and give some advice on investing in it.

History of Dow Jones

The DJIA was created in 1896 by a journalist, editor of the famous Wall Street Journal Charles Henry Dow alongside his business partner Edward Davis Jones. Charles Dow used the average for tracking the stock dynamics of US leading companies with high revenue. Initially, the index consisted mostly of industrial companies producing and selling oil, gas, sugar, tobacco, cotton, etc.

The index has changed several times. In 1916, the list of companies was extended to 20, in 1928 – to 30, and this is the number of companies it includes now. During the Great Depression of the 1930s, the list has been reshuffled because many companies went bankrupt. In 1932, 8 members of the index were replaced by such companies as Coca Cola, the Procter&Gamble Company, etc.

The calculation formula of the index was also updated. When the DJIA was created, it showed just the arithmetical mean of those 12 stocks it contained. Today, we use the Dow correction factor that accounts for structural changes in the companies.

Ways to invest in Dow Jones

The DJIA is a popular high-liquidity asset for trading and investing. For the latter, you can use various financial instruments depending on your strategy: stocks, options, futures, CFDs, ETFs.

Buying stocks from the index

If an investor decides to collect a portfolio of Dow Jones stocks on their own, they will need to buy at least one stock of each company from the index. This will be costly due to the price of certain stocks from the index. Moreover, you will have to watch the market constantly, re-balancing your investment portfolio. The positive side of this investment option is that you will also have your dividends paid to you.

Futures and options

Futures and options are standardized stock derivatives for the DJIA. Buying them can be interpreted as a trade with a whole portfolio of stocks from the index. Note that you do not get your stocks for real, only contracts for them.

Derivatives let experienced investors use complex strategies with different combinations of futures and options. As a rule, these instruments are used for rather short-term investments – six to twelve months. Long-term investments require changing contracts that are expiring for new ones, which might deteriorate your overall result.

Closing thoughts

The DJIA includes the stocks of the US 30 leading companies. It does not only identify the economic situation in the country but is also a popular investment instrument. Thanks to various financial instruments (stocks, futures, ETFs, options), you can use various strategies with the DJIA. The choice is yours, just never forget about risks.

To view links, please register.

Sincerely,
RoboForex team

 

[Elena RF]

What is P/E, and How to Use It for Assessing Stocks?

Author: Victor Gryazin

Dear Clients and Partners,​

Before choosing stocks or packages of stocks for investments, investors study the charts and reports of companies but often miss an important coefficient/index – P/E (Price/Earnings). Let us try to find out what is this index and how we can use it.

What is P/E?

P/E is a multiplier used for checking if a company is overpriced or underpriced and shows its primary investment attractiveness for investors. Based on P/E, you can conclude how fast your investments in a company will pay off.

How P/E is calculated?

P (Price) is the company’s capitalization or, in other words, its exchange price. It is calculated by multiplying the price of one stock by the whole number of stocks in circulation.

For example, the X company has 1 million stocks in circulation; the current stock price is 2 USD. This means the company’s capitalization is 2 million USD.

E (Earnings) is the company’s net profit for the reporting period. Normally, for calculations, we use the data for the last calendar year. Also, in certain cases, we use the forecast profit that the company will receive in the future or sliding profit. Note that sometimes this index is overstated to make the company more attractive, but later, it might decline. To put it simply, P/E tells us how long it will take your investments to pay back.

The lower the index, the sooner it will happen.

However, things are not as simple as they seem. A low P/E value means that the company is underpriced, and its stocks will be moving towards a fair price, which will make the earnings of the investor in the long run. On the other hand, low P/E might mean some negative background or serious problems in the company.

A P/E value higher than the market average means that the company is overpriced, so investments in it might not pay back in the medium or long run.

3 ways of calculating P/E:

• Yearly (normal) is the P/E of the previous calendar year.
  
• Sliding P/E is the P/E of the previous four quarters, regardless of the quarter when it is calculated.
  
• Forward P/E is forecast P/E. The calculation is made at the beginning of the fourth quarter – for the future.

Example

Yearly P/E: in the new 2021, we calculate P/E based on the profit and stock rice in the previous 2020.

Sliding P/E: at the end of Q1, 2021, we form P/E based on three quarters of 2020 and the first quarter of 2021.

Forward P/E: at the beginning of Q4, 2021, we forecast P/E. The values of Q4, 2020 will be nonobjective due to the change in market conditions. Based on preliminary calculations and forecasts, we calculate the multiplier for the next quarter. The calculation will be conditional, however, it will show some perspectives of the company and make some forecasts.

How to use P/E?

To realize the perspectives of investments in a certain company, it is not enough just to know its P/E. You need to compare it with other indices as well.

To view links, please register.

Sincerely,
RoboForex team

 

[Elena RF]

VSA Method: How to Trade Volumes

Author: Maks Artemov

Dear Clients and Partners,​

The VSA Method was designed in the 20th century by a successful stock market player Tom Williams. Initially, Williams wanted to study a trading strategy called the Wycoff Method. However, later he got to know market mechanisms and the very methos so well that he improved the strategy and called it the VSA Method.

In essence, this is a simplified Wycoff Method based on volumes, closing prices of bars, and spreads (in this case, under spread we mean the difference between the high and low of the bar).

How does the method work?

VSA stands for Volume Spread Analysis. Theoretically, the market is always on one of the following stages:

• Accumulation is a sideways movement, during which large market participants accumulate positions.
• Decline/growth is the development of an up- or downtrend.
• Distribution is a sideways movement, in which major players close their positions selling the asset to smaller traders.

At the accumulation stage, the market situation is like a spring being compressed. The asset is accumulating volume for an upcoming movement. The price is in a flat that can last quite long. Major market players accumulate positions expecting a price impulse. The longer this stage takes, the wider the price will swing.

Decline/growth is the stage at which the spring is released. The quotations form a clear trend and reach their highs or lows on the visible part of the chart.

At the distribution stage, traders close their positions opened at the accumulation stage and take the profit. This stage can become another accumulation phase, and the cycle will repeat itself.

The idea of the method

The method is based on the idea that the market situation is controlled by major players who provoke large movements of quotations. In theory, things are simple: a major player bought a large volume of an asset, and the price for it headed up; then they sell a big volume, and the price heads down. But in fact, things differ.

If a large market participant decides to buy, say, a thousand lots of stocks (and one lot is a hundred stocks), sellers might simply lack such a volume. The market has liquidity, and accumulating positions might take long.

In the stock market, traders get the real volume and all the data connected to it. However, a question appears: where to take order volumes in Forex?

Among traders practicing the VSA Method, many use volumes from futures, however, the number of instruments for anaysis here is limited. Hence, what is left are volume indicators and tick volumes. Analysis shows that tick volume in MT4 suits well the VSA Method.

To view links, please register.

Sincerely,
RoboForex team

 

[Elena RF]

RoboForex: changes in trading schedule (Presidents’ Day in the USA)

Dear Clients and Partners,​

We’re informing you that due to the public holiday in the USA, Presidents’ Day (Washington′s Birthday) on February 15th, 2021, several instruments will be traded according to the changed schedule*.

MetaTrader 4 / MetaTrader 5 platforms

Trading schedule on CFDs on US indices (US30Cash, US500Cash, USTECHCash) and Japanese index JP225Cash

• February 15th, 2021 – trading stops at 7:40 PM server time.
• February 16th, 2021 – trading starts as usual.

Trading schedule on Metals (XAUUSD, XAGUSD) and CFDs on oil (Brent, WTI)

• February 15th, 2021 – trading stops at 7:40 PM server time.
• February 16th, 2021 – trading starts as usual.

Trading schedule on CFDs on US stocks

• February 15th, 2021 - no trading.
• February 16th, 2021 - trading starts as usual.

R Trader platform

Trading schedule on US stocks and ETFs, CFDs on US stocks and ETFs

• February 15th, 2021 - no trading.
• February 16th, 2021 - trading starts as usual.

Trading schedule on CFDs on US indices (US500, US30, NAS100)

• February 15th, 2021 - no trading.
• February 16th, 2021 - trading starts as usual.

Trading schedule on Metals (XAUUSD, XAGUSD) and CFDs on Crude Oil (BRENT.oil, WTI.oil)

• February 15th, 2021 - no trading.
• February 16th, 2021 - trading starts as usual.

cTrader platform

Trading schedule on Metals (XAUUSD, XAGUSD)

• February 15th, 2021 – trading stops at 7:40 PM server time.
• February 16th, 2021 – trading starts as usual.

Please, take into account these changes in schedule when planning your trading activity.

* – This schedule is for informational purposes only and may be changed by the provider.

Sincerely,
RoboForex team

 

[Elena RF]

Bumble in the Market: Is It New Love?

Author: Server Ametov

Dear Clients and Partners,​

Not so long ago, we told you about the upcoming IPO of Bumble and evaluated the global dating market. Let's see today what's going on with the stocks and whether the founder of the company is happy.

What's Bumble?

This is an online dating platform created in 2014 by Whitney Wolfe Herd and Andrey Andreev. In the app, users can find romantic love, meet new friends, or make useful business contacts.

Later the dating service joined the MagicLab holding structure alongside Badoo, Lumen, and Chappy. In 2019,the control package of the holding was sold to the Blackstone Group investment trust. The whole entity was estimated as 3 billion USD and renamed Bumble.

The Internet platform can boast a list of investors that proudly shows such names of venture organizations as Greycroft, Accel, and Bessemer Venture Partners.

How was the IPO of Tinder's rival?

The company planned to attract 1.8 billion USD, placing 50 million stocks for 37-39 USD each in NASDAQ on February 10th. Later the starting price of the stocks was increased to 43 USD. Thus by the IPO Bumble attracted 2.15 billion USD, increasing its capitalization to 8.2 billion USD.

The money is enough to pay off some debts and cover the expenses of the IPO.

Were first trades a success?

On February 11th, the stocks of Bumble (NASDAQ: BMBL) closed the trading session at 70.31 USD, growing by 63.5%. On the next day, they grew by 7.32% more to 75.46 USD.

The new youngest self-made billionaire

After the IPO, the founder and CEO of Bumble Whitney Wolfe Herd became the youngest billionaire who earned her capital herself. According to Forbes, she owns 11.6% of shares of the dating service, which amounts to 1.6 billion USD after the IPO.

Summing up

An online dating platform called Bumble entered NASDAQ and gathered almost 20% more than planned by the IPO — 2.15 billion instead of 1.8 billion USD. On the first days of trades, its stock price grew from 43 to 75.46 USD

The successful IPO helped the founder of the app not only appear on the list of women-billionaires but also become the youngest self-made billionaire. I think this is a bright start, and what do you think?

To view links, please register.

Sincerely,
RoboForex team

 

[Elena RF]

How to Trade by Return to Average

Author: Victor Gryazin

Dear Clients and Partners,​

In this article, we will review a popular trading strategy called the Return to Average. The idea of this strategy is that after a serious deviation (growth or decline), the price tends to return to its average.

What is the strategy based on?

The strategy is based on a popular statistical concept Regression towards the Mean. This theory, voiced by statistician Francis Galton, states that extreme deviations are usually followed by regression to normal values. Galton supported his theory by some research of human physical characteristics.

In the world of finance, the Return to Average presumes that the price of an asset (or profitability) tends to normalize with time. When the current market price is higher than average, we expect it to fall in the future, and when it is below average, we wait for it to grow. In other words, this strategy is based on the expectation that after a certain deviation from the average the price will return to it anyway.

The concept of the Return to Average gave birth to a whole range of similar trading strategies used for all sorts of instruments. The deviation of the price from mean values is usually shown by various technical indicators.

Advantages and drawbacks of the strategy

Like any other one, the strategy of the Return to Average has its advantages and drawbacks.

The advantages are:

• the strategy works well in a flat when there is no clear up- or downtrend in the market;
• it provides a lot of trading opportunities. Normally, markets are trendy some 30% of the time, while 70% of the time it is consolidating somehow, which is perfect for the strategy;
• positions are held shortly, unlike in trend strategies.

The drawbacks are:

• when the market demonstrates a strong trend, the strategy signals against it, which might lead to losses if the trend continues without a correction and never returns to the mean;
• profit per trade is smaller than in trend strategies;
• the strategy does not account for new information that might change the long-term estimation of the instrument. For example, if a company goes bankrupt, its stocks might fall and never return to their average price.

Suitable instruments

To give signals, the Return to Average strategy uses trend indicators, oscillators, and their combinations. Such oscillators as the RSI or Stochastic help to see if the instrument is overbought or oversold. They can suggest entry levels when your trade aims at the reversal to the average.

Trend indicators show the current state of the market – whether it is trendy or flat. The most popular trend indicators are various Moving Averages and complex indicators on their basis. They assess the current trend and how much the price has gone away from the average; also, they suggest levels for taking the profit. For example, the MA (200) can serve as a long-term landmark.

Examples of trading by the strategy

As I have said above, there are plenty of variants of the Return to Average strategy depending on which indicators they use. You can use a combination of simple trend indicators and oscillators or take a popular complex indicator. The examples we will discuss are based on a channel indicator called the Bollinger Bands.

The Bollinger Bands indicator appears directly on the price chart. The top and bottom lines of the indicator form a sort of a price channel, in which the price chart rests most of the time. For short-term trading by the Return to Average, you can use bounces off the upper and lower lines of the indicator that take the price back to the average line.

To view links, please register.

Sincerely,
RoboForex team

 

[Elena RF]

What Is Herd Instinct in Forex, and How Does It Influence Trading?

Author: Andrey Goilov

Dear Clients and Partners,​

A trader must work alone – or at least, this is the opinion often voiced by experts. For example, the Oracle from Omaha (which is the nickname of Warren Buffett) says that an investor should not concentrate on the ideas of the majority but neither should they go against the crowd.

The majority might be mistaken, but when a person follows the crowd, they take off themselves a load of responsibility for a wrong decision. You can even notice that when people trade together, they open positions with much more ease than when they trade all alone, with no one else to consult. Acting counter the general opinion would also be a mistake because in such cases the trader does not make decisions based on analysis but just tries to spite others and prove themselves right.

It is hard to find two identical traders: everyone has their own investment horizons and risk limits. Some a ready to tolerate a drawdown by 100 points, while others will close a position as soon as the price drops slightly below the entry point. Profits also make people act in different ways: some close a position with a minimum profit, while others will squeeze everything they can out of it. Let us figure out how the herd

Unique skills of a trader

Bill Wolfe in his book on Wolfe Waves points at the knowledge and skills that a trader must have to succeed. They must acquire those skills on their own and bring them to perfection. This is what differs a good investor from all the rest. In that book, it is also mentioned that Wolfe Waves is not a very popular trading method, which is why it can lift a trader to a new level of work.

On the other hand, if a trader works in a group or reads forums and make decisions based on conversations there (for example, whether to buy this or that asset), they lose skills and use side noises for trading.

With this second approach, an investor might start working against their own ideas. For example, they expect EUR/USD to fall, but on forums and in the news the majority is buying or ready to buy the EUR because things are going poorly in the USA, and Biden has launched the printing machine again. This way, the investor might change their mind about the market, under the pressure of the crowd and the news. Here, the herd instinct is triggered: so many people cannot be wrong – and trading skills get shoved away for good.

Of course, a decision can be correct today, but will it be correct tomorrow? This is the main question. A trader can stop analyzing the market and make decisions based on their experience – and if so, all the advantages of experienced, important for reaching a long-term result, will be lost.

Trading is unnatural

In a psychology book by Thomas Oberlechner, you can find some questionnaires and tests distributed in a group of respondents. Analyzing the results, the author concluded that for people, it is much easier to tolerate losing trades than profitable positions.

As soon as a loss appears on the account, a person is ready to watch it grow, even if there is a minimal possibility of making a profit. With profitable trades, things are quite the opposite: most often, people are ready to take it immediately and never let it grow, even if this is highly probable.

Such polls and tests show that people cannot evaluate risks correctly and will hope for a reversal to the bitter end, while it is much wiser to close losing positions and let profitable ones grow.

However, a crowd will do just the opposite. This is most obvious in strong trends when market players start selling when the price is “too high” or start buying when the price seems “too low”.

The effect of lagging

The idea that “when a shoe shiner starts to buy stocks, it is time to leave the market” appeared in the 1930s during the Great Depression in the USA. When the majority begins buying stocks, get prepared for the stock market collapse. We could see a similar situation at the end of 2017 when Bitcoin reached its high at 20,000 USD and nothing seemed to predict a disaster.

However, a year later, its price dropped to 3,000 USD per coin, and the whole industry experienced a noticeable slump in activity. At the times of aggressive growth, when the quotations kept rising without a pullback, many people who had hardly ever been interesting in trading before kept an eye on the price of the asset and discussed its perspectives to overcome 100,000 USD. No family dinner went without a discussion of the Bitcoin future. As we know, the euphoria did not last, the Bitcoin collapsed alongside the hopes of individual investors. This example shows that the crowd actively buys at the top of the market. This behavior creates that very lagging when the majority enter the market too late and at an excessively high price.

To view links, please register.

Sincerely,
RoboForex team

 

[Elena RF]

How to Estimate Companies' Price and Make Investment Decisions

Author: Maks Artemov

Dear Clients and Partners,​

The price of a company often influences your decision whether to invest in it or not. Of course, you can neglect this property and use, say, tech analysis; however, knowing the real market price of a chosen company, an experienced investor can make conclusions about the results of their investments in the long run.

In this article, I will not focus on evaluating and analyzing companies for speculative or short-term trading. My goal is to teach you to determine the price of the company and your perspectives of long-term investments. By long-term, I mean several years or even decades. This is how known-to-all Warren Buffett invests.

Underestimated companies will always be more profitable in terms of investments because their stock price is likely to grow in the future. As for overestimated companies, their perspectives are more modest or lacking at all. The stocks of such companies might soon correct, which will lead to unreasonable losses or freeze your investments.

Estimating the cost of a company

For a complex estimation of a company's price, several multipliers can be used:

P/E (Price to Earnings) is a multiplier showing the under- or overestimated state of companies. Using the P/E multiplier, an investor can forecast when their money will pay back. The smaller P/E, the sooner it will happen. We already discussed P/E in earlier articles.

P/S (Price to Sales ratio) is literally the price of the company in ratio to its annual revenue. Unlike P/E, it can be applied to losing companies. A P/S value below 2 is considered good, and the higher it is, the worse investment this will be. An almost perfect value is one.

P/BV (Price to Book) shows the size of the company's assets minus its commitments (debts). The multiplier compares the company's capital to its capitalization in the stock exchange. A P/BV value of 1 means that currently, its stocks cost less than in the exchange (are undervalued). If the value is between one and zero, the company is overpriced. If the multiplier is zero, this means that the company is not all right, and you should better ignore this investment opportunity.

Using multipliers, investors usually compare several companies from the same sector. For the estimation, the report of the previous period, current period, and forecasts are used. By comparing the data, we can conclude which company is more attractive for long-term investments.

Peculiarities of multipliers

If you use multipliers, you need to take into account the following:

• For new and developing companies, multipliers can be faulty.
• You cannot estimate the company by just one index; your approach must be complex.
• Comparing companies from one sector, take notice of their business, the number of employees, and debts.

There are plenty of resources for calculating multipliers on the Internet. See below which indices you can use on Finviz.com (the data is given for clearness).

On the website, you can single out companies depending on their business, stock price range, and the country of registration. Mind that it is for the investor to decide which data to base their decision on.

To view links, please register.

Sincerely,
RoboForex team

 

[Elena RF]

How to Use the Cycle Theory in Financial Markets?

Author: Andrey Goilov

Dear Clients and Partners,​

Traders are always looking for certain patterns in the market to try and make money on them. Some want complicated trading strategies and price patterns on the charts, others assess the length and height of price fluctuations. Moreover, one can assess the probability of a decline or growth based on the price cycle theory.

You can say that cycles account for periods when certain events take place – for example, the market trend changes. A cycle of growth changes for a cycle of decline, then another cycle of growth comes. There is a view that trends take some 30% of instrument behavior, while the remaining 70% are given for flats.

Quite often we trade without orientation on the time when our goals will be reached. On the whole, time-wise price estimations are not quite widespread. However, mind that some authors clench at this theory.

Bill Wolfe, the author of the Wolfe Waves, gives an idea of how to define the time when the goal will be reached. With this, an investor knows that they will have to wait several hours or even days and does not hope for a quick profit.

What cycles are there?

Life consists of cycles. John Murphy in his book “Technical Analysis of the Futures Markets” gives examples of cycle studies from as long ago as the 1940s. Cycle studies apply to the construction, stock markets, business, etc.

In trading and investing, we have the following types of cycles:

• Time cycles are meant for estimating price fluctuations time-wise.
• Seasonal cycles, by which we mean noticeable price fluctuations due to weather conditions.
• Event cycles, which means that certain events provoke certain price movements, and this behavior repeats.

Time cycles in the stock market

After the economic crisis of 2008, analysts expected the same situation to repeat itself in 2018. They claimed that the time cycle, in which a new crisis forms, provoking a massive decline in the stocks market, the growth of gold and the USD, lasts 10 years.

However, the evidence of a global crisis showed itself in 2020 only due to serious economic instability and the pandemic of the coronavirus. We can say that there happened a time lag but on the whole, the expectations were met.

The Dow Jones index dropped from 29,000 points to 18,300 points in 2020. On the chart of 2008, the decline was equally massive: the index dropped from 13,700 to 6,600 points.

Dow Jones started growing in March-April 2008, and the same happened in March-April 2020.

Hence, we can expect another serious decline of the index in 2028-2030, while its growth is just beginning. Clearly, you do not have to stick to these dates only: track the situation in the market and try to find confirmations of these forecasts. Keep in mind the time lag as well.

Bottom line

Every trader might have their own understanding and use of the cycle theory. Most often, investors assess the probability of certain events time-wise.

Prices go in cycles, so events will repeat themselves. You do not even need to look at the chart, provided that you have studied the behavior of the price and detected periods or events that form new cycles.

To view links, please register.

Sincerely,
RoboForex team

 

[Elena RF]

RoboForex: changes in trading schedule (International Women's Day and switch to Daylight Saving Time)

Dear Clients and Partners,​

We’re informing you that due to the public holiday in Russia on March 8th, 2021, International Women's Day, USDRUB will be traded according to the changed schedule*.

In addition to that, on March 14th, 2021, the USA will transfer to the daylight saving time, while European countries will switch to the summer time on March 28th, 2021. Thereby, there will be more changes to the trading schedule*.

MetaTrader 4 / MetaTrader 5 platforms

Trading schedule on CFDs on US indices (US30Cash, US500Cash, USTECHCash) and oil (Brent, WTI)

• From March 15th to 26th, 2021, trading on CFDs on US indices and oil will be opened and closed 1 hour earlier than usual (server time).
  Trading session (server time): 02:00 AM - 10:15 PM.
• Starting from March 29th, 2021, CFDs on indices and oil will be available for trading within the operating range of the contract specifications.

Trading schedule on Metals (XAUUSD, XAGUSD) and CFDs on the JP225Cash index

• From March 15th to 26th, 2021, trading on Metals and CFDs on the JP225Cash index will be opened and closed 1 hour earlier than usual (server time).
  Trading session (server time): 12:05 AM - 10:55 PM.
• Starting from March 29th, 2021, Metals and CFDs on the JP225Cash index will be available for trading within the operating range of the contract specifications.

Trading schedule on CFDs on US stocks

• From March 15th to 26th, 2021, trading on CFDs on American stocks will be opened and closed 1 hour earlier than usual (server time).
  Trading session (server time): 03:31 PM - 09:59 PM.
• Starting from March 29th, 2021, CFDs on American stocks will be available for trading within the operating range of the contract specifications.

Trading schedule on USDRUB

• March 8th, 2021 – no trading.
• Starting from March 29th, 2021, the USDRUB currency pair will be traded according to a new schedule.
  Trading session (server time): 10:00 AM - 6:30 PM.

Please, note, that on March 19th and 26th, 2021, trading on all instruments, including Cryptocurrencies, will be closed at 11:00 PM server time. In addition to that, from March 15th to 26th, 2021, there might be short quoting stoppages on behalf of liquidity providers during the interval between 10:00 PM and 12:30 AM server time.

R Trader platform

Trading schedule on US stocks and ETFs, CFDs on US stocks and ETFs

• From March 15th to 26th 2021, trading on US stocks and ETFs, CFDs on US stocks and ETFs will be opened and closed 1 hour earlier than usual (server time).
  Trading session (server time): 03:30 PM - 10:00 PM.
• Starting from March 29th, 2021, US stocks and ETFs, CFDs on US stocks, and ETFs will be available for trading within the operating range of the contract specifications.

Trading schedule on CFDs on oil (BRENT.oil, WTI.oil)

• From March 15th to 26th, 2021, trading on CFDs oil will be opened and closed 1 hour earlier than usual (server time).
  Trading session (server time): 02:00 AM - 10:15 PM.
• Starting from March 29th, 2021, CFDs on oil will be available for trading within the operating range of the contract specifications.

Trading schedule on Metals (XAUUSD, XAGUSD)

• From March 15th to 26th, 2021, trading on Metals will be opened and closed 1 hour earlier than usual (server time).
  Trading session (server time): 12:05 AM - 10:55 PM.
• Starting from March 29th, 2021, Metals will be available for trading within the operating range of the contract specifications.

Trading schedule on USDRUB

• March 8th, 2021 – no trading.
• March 9th, 2021 – trading starts as usual.

Trading schedule on all currency pairs

• From March 15th to 26th, 2021, trading will be stopped for an interval 1 hour earlier than usual (server time).
  Interval period (server time): 11:00 PM - 11:15 PM.
• Starting from March 29th, 2021, currency pairs will be available for trading within the operating range of the contract specifications.

Please, note, that on March 19th and 26th 2021, trading on all instruments, including Cryptocurrencies, will be closed at 11:00 PM server time.

cTrader platform

Trading schedule on all currency pairs

• From March 15th to 26th, 2021, trading will be stopped for an interval from 10:55 PM to 11:05 PM (server time).
• Starting from March 29th, 2021, currency pairs will be available for trading within the operating range of the contract specifications.

Trading schedule on Metals (XAUUSD, XAGUSD)

• From March 15th to 26th, 2021, trading on Metals will be opened and closed 1 hour earlier than usual (server time).
  Trading session (server time): 12:05 AM - 10:55 PM.
• Starting from March 29th, 2021, Metals will be available for trading within the operating range of the contract specifications.

Please, note, that on March 19th and 26th, 2021, trading on all instruments will be closed at 11:00 PM server time. In addition to that, from March 15th to 26th, 2021, there might be short quoting stoppages on behalf of liquidity providers during the interval between 10:00 PM and 12:30 AM server time.

Please, take into account these changes in schedule when planning your trading activity.

* – This schedule is for informational purposes only and may be changed by the provider.

Sincerely,
RoboForex team