With the 21st century demand for quick and big profits. One of the most controversial new investment vehicles has been Bitcoins, the virtual currency. It's gained controversy partly because of its volatility, partly through the instability of Bitcoin exchanges and partly because their in-traceability meant they were a favored payment method for criminals.
Things are changing and after a particularly volatile spell in which one of the main exchanges, MtGox, filed for bankruptcy, the currency seems to have settled into a more stable pattern allowing investors to be able to take a measured view of whether to risk their money in a currency that technically doesn't exist.
Volatility
Although Bitcoins are becoming increasingly popular, the market is still quite small, meaning that good and bad news can have a disproportionate effect on the price. The long term outlook for Bitcoins is potentially good, meaning that the upside on price is stronger than the potential for a decline over the long term. Most brokers recommend that you consider Bitcoin a medium to long term investment because of its volatility. Think of it in terms of real estate. No one buys and sells houses many times a day and there can be significant drops in property prices but the long term trend for property prices is usually up. The same can be said for Bitcoins. Whilst there is a significant daily trade in the currency, many Bitcoins are held as investments as analysts believe that it's likely the price of Bitcoins will rise long term because they are becoming more widely accepted.
Influencers
As with all financial instruments, prices are influenced by supply and demand. Bitcoins are no different but what has caused big fluctuations in price has been the unusual nature of the news that influenced the supply and demand:
• The bankruptcy of MtGox, one of the biggest Bitcoin exchanges
• The closing down of Silk Road which allegedly accepted Bitcoins for drug trading
• The disclosure by the US government that, despite the negative uses of Bitcoins, they believed that the currency had a future
• The media has also stirred up interest by reporting on milestones in the currency's rise and fall, trumpeting the rise to over $1000 and its subsequent plummet on bad publicity.
Generally the advice on investing in Bitcoins is to sit and watch the market for a couple of weeks to get an idea of how the currency trades, its volatility and trends. It's difficult to find rumor that hasn't instantly affected the value, so many suggest investing a small amount and simply watching for opportunities, a little like setting take profit levels with shares and Forex, you can do the same on Bitcoins; it's just a bit longer process and a little less automated.
Just like with any investment, the value can fall, and events like the collapse of MtGox and the closing down of Silk Road, negatively affected Bitcoins; not just because demand was reduced but also because Bitcoins were falsely linked with the companies by urban myth. The market seems to be becoming more regular, but not necessarily regulated, as more exchanges come online. Some of the exchanges will go the same way as MtGox but others will consolidate and become stronger and more reliable. No doubt official regulation will be applied to Bitcoins in due course at which time the volatility is likely to reduce.
Bitcoins represent an exciting and potentially lucrative medium to long term investment vehicle. Exciting because it hasn't yet been accepted into the mainstream of currencies or investment vehicles. One thing investors like about Bitcoins is their conviction to prospects as was in gold
Saturday, July 22, 2017
Thursday, February 20, 2014
Wicks – How to Cut Loss and Take Profit
Wicks are an interesting phenomenon in price candles formations and
are a part of every candle, and an important variable in determining the
Cut Loss and Take Profit points.
Wicks can be formed on the top, bottom or both sides of a candle, and
they represent the highs and lows of that candle during that period of
time.
What is important to remember after reading this article is that the wicks are basically ‘rejection’ areas where the market simply rejected the prices of the wick. It is important to note that we are talking about the “Close” of the candle and the wicks it forms after candle closes. it is the final and permanent shape of the candle.
When we see a long wick, it clearly confirms that the market (or participants) rejected the price move compression during that period of time, therefore, prices weren’t accepted. On the other hand, if prices were accepted, then the price would remain there for a decent amount of time and most probable close somewhere around there. And since the relationship between “when” and “what is considered a must in business, but its importance rises in this context, which is the market’s rejection to the price value during that specific period of time.
If we are talking about 5min charts, then the wick formed is for only relevant to 5 minutes charts, which are non-essential or of real impact. However, when we start to look at 4 hour or daily charts, then they are of great significance.
If you think about it, day traders are only witnessing two or three 4 hour candles during a day. So in order to have a long wick on a 4 hour chart, then forces behind the price move must be very strong and important. And since day traders will rarely take notice of this move because it take a long period of time to form – hence they will usually end up trading against the price action trend. This basically supports the conflict of interest theory between the retail investors and commercial brokers.
FXLORDS recommends using the 4 hour chart when working with strategy, or when a long wick forms on the daily chart.
Take a look at the example below, notice how every time this pair reversed, it did so with a very long wick and on the same price level. This was telling us that the market simply did not accept prices at these levels, simply because the move didn’t coincide with the time frame (No participants), Therefore, sellers aggressively entered the market quickly causing the pair to drop fast which the confirmation of the drop.
If a long wick is formed on a daily chart, day traders across all time zones should take note of it and really be confident about their trade going against the wick, especially given enough conviction via technical or fundamental analysis. The main reason is that the market has rejected that price level that entire day. With that being said, there’s also ways to incorporate this approach to target range trading or breakouts, in both cases, these guidelines serve as “Risk Management” principles if applied properly.
Since the wick represent the high and low price of a candle, and is an area of “rejection”, then the probability of trading inside the wick is pretty low, which means that trading within daily candles’ region is going to be less likely, and so your Stop Loss order.
It should be noted when analyzing price action that the market will usually make a second attempt on the previous rejection level (wick’s tail). Notice in the example below how these levels served as support levels. For that reason, when trading wicks, we should account for another test to the previous wick’s tail; thus, using the tail will offer a better risk/reward opportunity.
What is important to remember after reading this article is that the wicks are basically ‘rejection’ areas where the market simply rejected the prices of the wick. It is important to note that we are talking about the “Close” of the candle and the wicks it forms after candle closes. it is the final and permanent shape of the candle.
When we see a long wick, it clearly confirms that the market (or participants) rejected the price move compression during that period of time, therefore, prices weren’t accepted. On the other hand, if prices were accepted, then the price would remain there for a decent amount of time and most probable close somewhere around there. And since the relationship between “when” and “what is considered a must in business, but its importance rises in this context, which is the market’s rejection to the price value during that specific period of time.
If we are talking about 5min charts, then the wick formed is for only relevant to 5 minutes charts, which are non-essential or of real impact. However, when we start to look at 4 hour or daily charts, then they are of great significance.
If you think about it, day traders are only witnessing two or three 4 hour candles during a day. So in order to have a long wick on a 4 hour chart, then forces behind the price move must be very strong and important. And since day traders will rarely take notice of this move because it take a long period of time to form – hence they will usually end up trading against the price action trend. This basically supports the conflict of interest theory between the retail investors and commercial brokers.
FXLORDS recommends using the 4 hour chart when working with strategy, or when a long wick forms on the daily chart.
Take a look at the example below, notice how every time this pair reversed, it did so with a very long wick and on the same price level. This was telling us that the market simply did not accept prices at these levels, simply because the move didn’t coincide with the time frame (No participants), Therefore, sellers aggressively entered the market quickly causing the pair to drop fast which the confirmation of the drop.
If a long wick is formed on a daily chart, day traders across all time zones should take note of it and really be confident about their trade going against the wick, especially given enough conviction via technical or fundamental analysis. The main reason is that the market has rejected that price level that entire day. With that being said, there’s also ways to incorporate this approach to target range trading or breakouts, in both cases, these guidelines serve as “Risk Management” principles if applied properly.
Since the wick represent the high and low price of a candle, and is an area of “rejection”, then the probability of trading inside the wick is pretty low, which means that trading within daily candles’ region is going to be less likely, and so your Stop Loss order.
It should be noted when analyzing price action that the market will usually make a second attempt on the previous rejection level (wick’s tail). Notice in the example below how these levels served as support levels. For that reason, when trading wicks, we should account for another test to the previous wick’s tail; thus, using the tail will offer a better risk/reward opportunity.
Monday, February 17, 2014
US Dollar Stability – For How Long?
For decades now the US dollar has been the international currency against which many other currencies are bench-marked but with China looking to become the leading world trading nation and the US economy struggling to get a firm grip, some are concerned over US dollar stability and whether the dollar's exalted position will remain much longer.
The greenback is the world's most commonly traded currency and it's the currency that gold, oil and many other commodities are priced in but something is happening that threatens US dollar stability which means its position may yet be threatened.
America's trade and budget deficits have led to large amounts of borrowing such that many countries, in particular Asian ones, hold trillions of dollars of US debt.
Over the last twelve months they have seen the value of that debt slowly decline as other economies have emerged from the recession in a stronger position than the US. A continued decline in the dollar's value is likely to lead some of the holders of US debt to consider selling and, as a result, further undermine US dollar stability.
We've seen this talk before and minds have recently been cast back to 2006 when the dollar was seriously under pressure from a rampant trade deficit that was being ignored by many in authority. At the time the authorities would wave the implications away with the comment that it was America they were talking about, not some third world country where such economic problems would amount to a catastrophe.
The trade deficit has reduced but the budget deficit and the national debt has increased. Problems have been resolved but others have risen to take their place.
Many say that the dollar cannot possible fall from grace but then that was once said about sterling.
Looking at long term trends, the dollar is on a downward path against the pound and the euro. Soon, if that trend persists, those with power will be asking serious questions and who knows what the answers might be?
In the United States, the American arena will witness many economic events this week, although U.S. markets are closed today celebrating the Presidents Day holiday, while key economic data will be released throughout the week to reflect the health of the largest economy in the world, including inflation data through the CPI and PPI readings, the FOMC meeting, also the U.S. companies will continue to release the results of its operations during the fourth quarter of the previous year 2013.
The greenback is the world's most commonly traded currency and it's the currency that gold, oil and many other commodities are priced in but something is happening that threatens US dollar stability which means its position may yet be threatened.
America's trade and budget deficits have led to large amounts of borrowing such that many countries, in particular Asian ones, hold trillions of dollars of US debt.
Over the last twelve months they have seen the value of that debt slowly decline as other economies have emerged from the recession in a stronger position than the US. A continued decline in the dollar's value is likely to lead some of the holders of US debt to consider selling and, as a result, further undermine US dollar stability.
We've seen this talk before and minds have recently been cast back to 2006 when the dollar was seriously under pressure from a rampant trade deficit that was being ignored by many in authority. At the time the authorities would wave the implications away with the comment that it was America they were talking about, not some third world country where such economic problems would amount to a catastrophe.
The trade deficit has reduced but the budget deficit and the national debt has increased. Problems have been resolved but others have risen to take their place.
Many say that the dollar cannot possible fall from grace but then that was once said about sterling.
Looking at long term trends, the dollar is on a downward path against the pound and the euro. Soon, if that trend persists, those with power will be asking serious questions and who knows what the answers might be?
In the United States, the American arena will witness many economic events this week, although U.S. markets are closed today celebrating the Presidents Day holiday, while key economic data will be released throughout the week to reflect the health of the largest economy in the world, including inflation data through the CPI and PPI readings, the FOMC meeting, also the U.S. companies will continue to release the results of its operations during the fourth quarter of the previous year 2013.
Friday, February 14, 2014
Ichimoku Kinko Hyo
The Cloud (Kumo) is designed to represent different levels of support and resistance. Hosada (the inventor or this indicator) realized that support and resistance levels cannot remain constant, and because market participants have different levels of risk and return, therefore we must use “moving” lines along the price “moves”. The cloud is composed of two (Senkou) stretched lines, I and II, which have been displayed in a futuristic time frame (pushing them forward on the price chart) to form the shaded area between the two line.
The general theory of this indicator states that if the price is above the cloud, the general trend is to the upside, and if it was under the cloud, the general trend is to the downside. If the price was between the two (Senkou) lines, the cloud will change to another color and the Senkou lines will represent the support and resistance levels and the instrument should be traded on the assumption that prices are range trading (within the cloud), and the trend is not specified.
In addition to (Senkou), there are also three moving average curves; the first is (Tenkan-sen), which are the average of the sum of the maximum and minimum price within this period, divided by two, and (Kijun-sen), which works as (MACD) signals when it intersects with (Tenkan-sen) , and (Chinkou) which is the representation of the price today displayed 26 periods ago, which is actually the reason behind this indicator’s strength. When (Tenkan-sen) penetrates (Kijun-sen) from the bottom to the top, it is a signal to buy. If it is from the top to bottom, then it is a sell signal. There are several other interpretations for the Ichimoku Kinko Hyo indicator, and are as follows:
- When the price is higher than the cloud, the upper boundary of the cloud represents the first support level, and the lower part is a second support level, and vice versa, when the price is below the cloud, the lower part of the cloud represents the first resistance level, and the top level represents the second one.
- If the (Chinkou) curve broke through the price curve from the bottom to the top, then it’s a signal to buy. If the (Chinkou) curve broke the price curve from the top to bottom, then it is a sell signal.
- (Kijun-sen) is a market directional indicator. If the price was higher than the indicator, then prices will probably continue to rise. When price breaks through this curve, it is likely that the trend has changed.
- (Tenkan-sen) is a market movement’s indicator. If this line increases or decreases, then a trend exists, and when it is horizontal, it means that the market is trading within a range.
Thursday, February 13, 2014
Is the Chinese Economy Sustainable
The big economic news of the 21st century was the meteoric rise of the Chinese economy and whilst economic figures being quoted almost daily, seem to indicate its continuing rise, some analysts are questioning whether the race to economic superpower will continue or whether China is running out of steam. Is the Chinese Economy Sustainable?
China has risen from a closed socialist economy with an arcane infrastructure in the 1980′s to what it possibly the world’s biggest trading nation. The stratospheric rise has not been without problems, partly as a result of the hangover from communist days and partly because the economy is facing tough regulatory decisions to help it secure a stable socialist capitalist future.
It’s not all been good news on growth either. After a period of non-stop strong expansion, there was a stutter in the second and third quarters of 2013 before the economy resumed its upward path in the last quarter. Whether it will continue to gain ground depends on many factors, one of which is the slowdown in overseas demand which it is trying to counter by stimulating domestic demand.
Rising wages are helping, as is the People’s Bank of China stimulus and the relaxing of lending criteria. This is vital for the expansion of small businesses who have struggled to obtain finance in the last few years.
The government is also keen to see the country undertake the next stage of its economic transformation with the transition from an industrial and manufacturing bias to a more balanced economy, by developing the service sector.
There’s much work still to be done within the economy and some say that a period of consolidation would be beneficial to the country’s long-term economic health, fearing problems from a ‘too far too fast’ approach. What 2014 will bring for China remains to be seen.
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