Educational Content

Pipscollector.com - When investors hear the term “stock analysis,” they might picture an MBA at an investment bank, working 100-hour weeks poring over quantitative data. The good news is, these days, you don’t need a degree in finance to analyze a stock. And much of the data you’ll need is available for free on any retail trading platform.

Before you jump in, you do need to familiarize yourself with some factors that might affect a stock’s performance, which means doing a bit of homework. Don’t let terms like moving averages and price-to-earnings (P/E) ratios intimidate you. Even without going to business school, you’ll quickly learn to use the same tools the pros do.

Although there are plenty of ways to analyze a stock to see if it has a place in your portfolio, stock analysis falls into two broad categories: fundamental and technical. Fundamentals include things like company earnings, the competitive environment, product performance, and impacts from the broader economy. Technicals involve trading volume and price data, plus using chart patterns to identify price trends and turning points.

Key Points

• Investors may use technical and fundamental analysis before buying a stock.
• Fundamental analysis can tell you about a company’s financial health, competitive situation, and exposure to economic trends.
• Technical analysis means learning the simple steps behind reading a stock chart, plus some common terms.

Basics of fundamental analysis

Fundamentals are often the first consideration for a financial pro. They should also be high on your list—particularly for shares you plan to own for a while—because they tell you a lot about a company’s health and competitive environment.

Ratios

The price-to-earnings (P/E) ratio is the closest thing to a price tag on a stock. To calculate P/E, take the stock’s price (P) and divide it by the most recent annual earnings per share (E).

Other ratios investors follow include price-to-sales (P/S), which is helpful for valuing companies without a history of solid earnings, and price-to-book (P/B), which values a company based on net assets. When analyzing a ratio, it often helps to compare it to the company’s competitors (and the market as a whole).

Earnings and competition

Nothing drives stocks quite like earnings per share (EPS), and each public company reports earnings quarterly. Your analysis of a stock should include a thorough look at the company’s most recent earnings reports. More than simply checking revenue and profit, this also means reading the press release and call transcript to see which products and issues the company highlighted.

Closely comparing a company’s earnings to those of its competition can also teach you about the competitive environment, another fundamental. If one company’s product outperformed a competing product, earnings can help you learn why. It’s best to read through several reports to spot trends. Is there a region where the company struggles? A “pipeline” product that could drive future earnings? A change in leadership?

Earnings reports and transcripts of a company’s earnings call with stock analysts can help you tie things together. Earnings provide a quarterly snapshot, but filings with the U.S. Securities and Exchange Commission (SEC) give a deeper dive. A company’s annual 10-K report shows where it sees possible challenges, among other details.

Reviewing all this may seem time-consuming. But anyone risking money on a single stock should understand the basic internal factors driving its performance.

External fundamental factors

Companies don’t exist in a vacuum. Their fortunes get buffeted by winds from the broader economy, competitors, and governments.

For instance, a bank’s revenue might outpace competitors, but its stock price could be threatened by falling interest rates. A food processing company with slow earnings growth could see shares accelerate as the economy enters a recession and investors seek stability. (Everyone still eats, even when the economy tanks.) A pharmaceutical stock could lose ground when a key competitor launches an exciting new product.

Some external factors are so important they influence almost every company. These include interest rates, crude oil prices, market cycles (recessions and growth periods), jobs growth, inflation, and consumer confidence. Each month, the government releases fresh data on employment, inflation, consumer sentiment, and other economic trends.

Most of this is outside a company’s control, but your analysis of the stock should include whether it can thrive in current conditions. Buying shares in an energy company when crude oil prices are climbing might make sense, but buying home-builder stocks during a recession might not, unless you see an opportunity for long-term growth.

Basics of technical analysis

Technical analysis is a science of its own and not something you master in a day. It’s based on the assumption that prices move in identifiable, historically consistent patterns.

Technical traders use chart patterns such as moving averages, oscillators, and Fibonacci numbers to help identify buying and selling opportunities. Understanding technical analysis means learning to read stock charts in order to:

• Anticipate levels where prices may continue in a given direction (trend), stall, or reverse.
• Determine whether an asset’s price may be too high or too low.
• Find favorable entry and exit points for a stock you’re considering buying or selling.

Technical analysis has its own lingo and tool set. There are different chart types, including line, bar, and candlestick charts. Technicians use indicators to slice and dice price and volume data. You might learn phrases like moving averages, Fibonacci numbers, and stochastic oscillators; identify markets as overbought or oversold; and learn to spot areas of support and resistance.

 

TRENDS, PATTERNS, AND VOLUME. 

One note of caution: Technical analysis is backward-looking, and it can be tough to spot a trend or turning point until after the fact. They say that past market performance is never a guarantee of future results, and that’s certainly true with technical analysis.

The bottom line

Technical and fundamental analysis: These are the two tool sets the pros use to determine value, relative value, when to buy, when to sell, and when to hang on. And although you don’t need a degree in finance to become an investor, you do need to be educated. Take some time to learn the concepts and put them into practice—slowly at first—and you’ll find the combination of stock analysis tools that works for you

Read more articles in the Educational Content category to update the latest forex knowledge from Pipscollector.

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Pipscollector.com - Investing is an incremental game, and building a solid portfolio takes time. Here are seven ways to invest $1,000 to help you get started.

1. Pay Down Debt

Paying off debt ensures a guaranteed return. The interest you save is essentially a risk-free investment. Once debt-free, you will be able to target your $1,000 toward an emergency fund into an account that earns interest, such as a savings account or money market account.

2. Invest in an ETF or Index Fund

Exchange-traded funds (ETFs) and index funds are a way to invest in the market with a small amount of money. These funds are transparent investments offered by financial institutions, and information is readily available for ETFs and index funds, including their holdings, commissions, and expense ratios. Pick the best broker for buying ETFs from our list of Best Brokers for ETFs.

Index funds are a passive, broad market investment through the major indexes, while ETFs offer more choices to customize a portfolio. With $1,000, you can choose multiple ETFs with different risk profiles. For example, you might invest $250 in a higher-risk, growth-oriented ETF, $250 into a dividend ETF, and $500 into a bond ETF.

3. Use Target-Date Funds

Target-date funds offer similar diversity to ETFs, but they require less effort when choosing. A target-date fund may have a higher expense ratio than your basic ETF, but in return, the fund will allocate and rebalance the account for you over time based on the target date.

4. Try a Robo-Advisor

Robo-advisors like Betterment, Acorns, and AssetBuilder use artificial intelligence (AI) and offer active management at lower expense ratios than the prices of human fund managers.123 This has prompted traditional advisors like Fidelity Investments and Charles Schwab to use AI for some of their offerings.45

5. Low-Risk Debt Instruments

ETFs, index funds, and mutual funds are commonly stock funds with higher risk and return profiles than investments in debt instruments. U.S. Treasuries and savings bonds may carry competitive yields comparable to funds but at a lower risk.

Investment bank Morgan Stanley expects inflation to be around 3.5% by the end of 2023, with Treasuries offering modest inflation-adjusted returns.6 Treasury bond income is also exempt from state and local taxes.7

6. Buy a Single Stock

Stock investment commonly requires a higher risk tolerance, but may garner higher potential returns for your $1,000. Over the last decade, an investment in Meta (META), Apple (AAPL), Netflix (NFLX), or Alphabet (GOOGL or GOOG) would have doubled or tripled $1,000. Stock investment requires research and timing. According to Morgan Stanley, stocks are priced to return 1.8% more than Treasuries in 2023, below the average spread of 3.5% over the last decade.6

7. Trade Options and Forex

Options trading and foreign exchange (forex) trading are very high-risk investments and are commonly used by experienced investors. Options are a form of derivative contract that gives buyers of the contracts the right to buy or sell a security at a chosen price at some point in the future. The forex market is a global marketplace for exchanging national currencies. Many traders lose more than $1,000 as they spend years learning this trading craft and making consistently profitable trades.

The Bottom Line

With many available options, investors can use $1,000 to purchase ETFs, stocks, or bonds. Simply paying off outstanding debt may save money in interest payments over time and prove to be a wise investment.

Read more articles in the Educational Content category to update the latest forex knowledge from Pipscollector.

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Pipscollector.com - The global stock market can be categorized into specific groups or ‘stock market sectors’. Organizing the vast number of stocks in this way helps traders to view assets in a more manageable way when trading.

Stock sectors’ performance can substantially differ – some sectors follow the fortunes of the underlying economy while others perform better during economic downturns. Knowing the characteristics of different stock sectors enables traders to progress to more advanced equity analysis, for example, how to value a stock.

This article analyzes each sector relative to the broader economy while providing additional resources to assist in your trading journey. As a complementary guide, it may be helpful to read how the stock market affects the economy as this article refers to some of the topics that are discussed there.

The 11 stock sectors are presented in accordance with the Global Industry Classification Standard (GICS).

Industrials

The industrial sector is comprised of companies that produce or provide services relating to machinery and equipment that is used in manufacturing and construction.

In general, stock market sectors are related in varying degrees to the underlying economy and industrial stocks happen to be particularly sensitive to its ups and downs. Stocks that move in a similar manner to the general economy are called ‘cyclical stocks’ – as their performance is closely related to where the economy is situated in the business cycle.

When the economy grows, factories increase their capacity to meet increased aggregate demand, resulting in increased revenues. When the economy is in a slump, businesses and consumers spend less. Reduced spending (demand) has a knock-on effect resulting in lower sales and lower revenues for industrial shares.

Therefore, whenever trading industrial stocks or any other cyclical stocks, it is beneficial to have a solid understanding on where the economy is currently and where it might be headed. Traders often use an equity index as a benchmark for the performance of the wider economy. Top indices can be viewed on our major stock indices page and include: S&P 500, FTSE 100, DAX 30, ASX 200 and the Hang Seng Index.

Popular industrial stocks include:

• General Electric Co. (CE)
• Caterpillar Inc. (CAT
• Uber Technologies (UBER)
• United Airlines Inc. (UAL)

Basic Materials

Basic materials or raw materials include oil, gold, paper and stone. The most common materials in the stock sector are mined products, like metals and ore for example. This sector therefore includes companies involved in the discovery, development and processing of raw materials.

Many businesses rely on companies in this sector for inputs they need to produce a final product. For example, furniture manufacturers rely on companies that physically cut down, collect and transport trees that are then refined into usable wood to be used in the final product.

Generally speaking, basic materials occur naturally, and most are finite in nature. Others are reusable but are still constrained in supply at any point in time.

Popular basic materials stocks include:

• DuPont de Nemours Inc.
• BHP Billiton
• ArcelorMittal
• Rio Tinto

Energy

The energy sector comprises stocks that are directly or indirectly involved in the production or distribution of power for the economy. These companies operate in one or more of the following: oil and gas drilling and production, pipeline infrastructure, electricity and natural gas utilities, mining companies, renewable energy and chemicals.

The companies within the industry fall into either the non-renewable or renewable energy category. The latter has seen increasing interest in recent years.

Energy stocks tend to fluctuate based on the price of the underlying commodity, among other factors. This relationship makes sense because the price of the underlying commodity determines what the producer can sell it for.

The chart below depicts how closely Exxon Mobil had moved with the price of oil:

Therefore, when trading energy sector stocks it is essential to keep an eye on the price of the underlying commodity as well.

Discover the most traded commodities along with what moves the market by visiting our commodities page.

Popular energy sector stocks include:

• Exxon Mobil
• BP
• Royal Dutch Shell
• Chevron

Read more articles in the Educational Content category to update the latest forex knowledge from Pipscollector.

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Pipscollector.com - The stock market and the wider economy have historically shown a correlation. Where a bull run in stocks occurs, you can often expect an economic upturn too. But is this always the case? How does the stock market affect the economy, what do crashes mean for the wider economic environment, and what are the key takeaways for traders?

Why is the stock market important?

The stock market is important for a variety of reasons. It enables traders and investors the opportunity to profit from its moves and generate personal wealth, can provide a benchmark of a country’s commercial and industrial health, and gives businesses an opportunity to scale and prosper, benefiting the wider economy. As a result, a well-functioning equities market is valuable for business, individuals and nations alike.

Three ways the stock market impacts the economy

The stock market and economy relationship can be broadly characterized by investment fueling economic growth, the enabling of company ownership that increases personal wealth, and equities providing a measure of economic health. We’ll explore these three factors below.

1. Stock Market Investment can Spark Economic Growth

The money that investors put into companies allows enterprises to invest in growth. When a business starts out, it may have to bootstrap, or survive on little capital. But when it offers shares to the public via an IPO, it has a chance to transform into a leading organization in its sector through taking on staff, driving innovation, and achieving economies of scale. In turn, companies can build revenues and achieve real competitive advantage in the marketplace, directly impacting GDP and boosting the economy.

In 2012, Facebook’s global revenue was already some $5 billion, with around 5,000 employees on the payroll. However, the company’s IPO that year raised in excess of $16 billion, which helped build the company to a market cap of $630 billion by January 2020, with 2018 figures showing some $55 billion in global revenue and more than 40,000 employees worldwide – all demonstrating the considerable economic impact of the IPO.

2. Company Ownership can Enable Impressive Returns

While representing a risk to capital, investing in stocks and major stock indices is a potential way for individual investors – not just venture capitalists – to take an ownership in successful enterprises and accumulate wealth. This capital can then be reinvested or spent, impacting the economy. Stocks have historically proven the best way to beat inflation in the long term, with some indices showing triple digit returns since the beginning of the century.

INDEX PERFORMANCE JAN 2000-JAN 2020 (SOURCE: IG)

Index	Gain
CAC 40	5.2%
FTSE 100	20.7%
Nikkei 225	21.7%
Hang Seng Index	77.7%
DAX 30	94.3%
S&P 500	135.2%
Nasdaq 100	155.7%
Dow Jones	163.8%

3. Stock Markets can Measure Economic Strength

The stock market can often be viewed as a reliable economic barometer. It reveals how major companies are doing and in turn gives insight into the drivers of economic health, such as consumer spending.

Rising stock prices can mean higher business and consumer confidence; falling stocks naturally the opposite. If an index such as the tech-centric Nasdaq is on a bull run, this might suggest a range of things, for example: investor confidence in demand for electronics, and faith in the financial strength of the tech giants such as Microsoft and Apple that have a larger impact on the index due to market cap weighting.

Any of these things and more can move the index, and confidence itself can breed confidence. However, as mentioned below, just because there is an upturn in stocks, doesn’t necessarily mean the wider economy is improving, just as a fall in stocks doesn’t necessarily mean the wider economy is contracting.

How does a stock market crash affect the economy?

A stock market crash can devastate the economy. When a downturn in the business cycle happens, significant amounts of value can be erased from share prices. In turn, this means lower returns and dividends for individual investors, a smaller market capitalization for businesses, less wealth for pension funds, and less funding for companies in the near future.

Such a lack of finance can mean businesses aren’t able to grow, meaning potential cost saving measures are necessary, such as staff cuts and the delaying of expansion projects. Smaller pension pots may also mean delayed retirement for older employees, and an uncertain economy landscape may mean dampened consumer spending, hitting GDP.

However, while a stock market crash can clearly cause the economy to contract, this isn’t always the outcome. Similarly, a bull run in stocks doesn’t necessarily mean a thriving economy. As long as irrational exuberance of investors and overvaluation exists, stock market performance can function independently of wider economic data.

For example, while the chart below shows how the S&P 500 crashes of 2001 and 2008 coincided with recessions, it also shows how the S&P index falls of 2011 and 2015 didn’t.

The stock market and the economy: FAQs

When it comes to the relationship between the stock market and economic growth, traders and investors should consider the following FAQs:

1. How does the economy impact the stock market?

The economy can have a significant impact on the stock market, with fundamental drivers such as non-farm payrolls, elections, interest rates, inflation, and natural disasters all capable of influencing price. Market practitioners should make sure they have a handle on these factors and more, in order to obtain the most complete picture of potential market movements.

2. Does a downturn in equities mean recession?

A sharp downturn in equities does not necessarily mean the onset of recession, just as a long bull run does not necessarily represent continued economic strength. The former may be caused by an isolated fundamental factor for example, while the latter may mean stocks are becoming overvalued due to excess speculation.

3. What are growth stocks vs safe haven stocks?

When a bull market hits, many investors will look to incorporate traditional ‘growth’ stocks like Amazon and Facebook into a portfolio, and include fewer so-called safe haven stocks like consumer staple or healthcare businesses. However, during wider economic difficulties the latter may perform well due to the enduring necessity of the products they offer, even in tough times.

Read more articles in the Educational Content category to update the latest forex knowledge from Pipscollector.

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Pipscollector.com - Crude oil is known as one of the most liquid commodities, with large trading volumes and transparent price charts. Here are some crude oil trading strategies that take careful risk calculations to achieve greater consistency and efficiency in your operations.

HOW TO TRADE OIL: TOP TIPS AND STRATEGIES

Expert oil traders generally follow a strategy. They will understand the fundamental factors that affect the price of oil and use a trading strategy that suits their trading style. Each trading strategy is different, risk management is an important component to consistent trading, like the effective use of leverage and avoiding top trading mistakes.

A comprehensive crude oil trading strategy could include:

1. Fundamental Analysis
2. Technical Analysis
3. Risk Management

Once a trader understands the fundamental supply and demand factors that affect the price of oil, he/she can look for entries into the market using technical analysis. Then, when a buy or sell signal has been identified using technical analysis, the trader can implement the proper risk management techniques. Let’s go through an example using the steps outlined above:

1. Fundamental Analysis

On the 30th of November 2017, OPEC and Russia agreed to extend an oil production cut, which lead to a decrease in supply. The basic theory of supply and demand suggests that a decrease in supply should be succeeded by an increase in demand and consequently price. This is the fundamental analysis a trader would need to incorporate into their strategy in order to identify potential buy signals in the market.

WTI daily chart highlighting supply cut:

2. Technical Analysis

The next step would be to analyze the chart using technical analysis. There are a variety of technical indicators and price patterns a trader can use to look for signals to enter the market. There is no need to use many technical indicators, one that you understand well will do the job. A common yet very effective way to begin analyzing any chart is to identify the overall trend of the market. In this example, the implementation of simple price action is used to identify higher highs and higher lows which is suggestive of a preceding upward trend. This falls in line with our fundamental expectation of further upward price movement.

WTI daily chart showing preceding upward trend:

Once the bullish trend has been confirmed, the next step in the trading strategy would be to recognize possible entry points. Again, there are multiple tools and techniques to locate entry points but this example uses the Commodity Channel Index (CCI) indicator which moves into oversold territory shortly after the fundamental supply cut announcement was made. An oversold signal on the CCI advocates further price appreciation and the possibility of a long (buy) entry.

WTI daily chart with CCI indicator:

3. Risk Management

The final step in any trading strategy would be to employ sound risk management to every trade. At Pipscollector we support the 1:2 risk-reward ratio guideline which basically means that the target level should be roughly two times more than the position stop-loss level. To manage risk, the trader could look to set a take-profit above the recent high and set a stop-loss at the recent low.

In this example, a recent swing low ($49.30) has been identified as stop level which is approximately $8 away from the entry price ($57.20). There is no recent high which in this case which would allow for a target projection using basic math. With the stop distance being roughly $8 away from entry, a 1:2 projection could seee initial resistance at the $73 level.

WTI daily chart with 1:2 risk-reward ratio:

This sample trade would illustrate a positive risk to reward ratio. We researched millions of live trades in a variety of markets and discovered a positive risk to reward ratio was a key element to consistent trading. Additionally, at Pipscollector, we recommend risking less than 5% of capital on all open trades.

 

ADVANCED TIPS FOR OIL TRADING

Advanced traders can incorporate additional information when setting up trades. Traders sometimes look at the futures curve to forecast future demand, CFTC speculative positioning to understand the current market dynamic and can use options to take advantage of forecasted high volatility moves or to hedge current positions.

Futures Curve: The shape of the futures curve is important for commodity hedges and speculators. As such, when investors analyze the curve, they look for two things, whether the market is in contango or backwardation:

1. Contango: This is a situation in which the futures price of a commodity is above the expected spot price, as investors are willing to pay more for a commodity at some point in the future than the actual expected price. This typically signals a bearish structure.
2. Backwardation: This is a situation when the spot price is above the forward price for a commodity. This typically signals a bullish structure.

CFTC/Speculative Positioning:

The Commodity Future Trading Commission Report (CFTC) is important when trading crude oil futures. It provides traders with information related to market dynamics and therefore s can be a good way to gain a sense of where oil prices are heading. Movements in the CFTC managed money net positions typically precede the move in oil prices.

Trading via futures and options

Buying futures and options, a trader must use the appropriate exchange for the oil benchmark he/she wants to trade. Most exchanges have criteria for who is allowed trade on them, so the majority of futures speculation is undertaken by professionals.

Oil Investing

Instead of trading the individual market, a trader can get exposure to oil through shares of oil companies or through energy-based exchange traded funds (ETFs). The price of oil companies and ETFs are heavily influenced by the price of oil.

Major Oil/Energy ETFs:

• Energy Select Sector SPDR (XLE)
• Vanguard Energy ETF (VDE)
• United States Energy Fund (USO)

KEY REPORTS EVERY OIL TRADER SHOULD FOLLOW

Weekly updates on the amount of crude oil inventories in the U.S. are very important pieces of data for oil traders – the release of which frequently leads to a bout of volatility. The inventory data is an important barometer for oil demand. For example, if weekly inventories are increasing, this would suggest that demand for oil is dropping, while a drop in inventories suggests that oil demand is outstripping supply.

1. American Petroleum Institute (API): The API produces a weekly statistical report, which highlights the most important petroleum products that account for more than 80% of total refinery production, while crude oil inventories are also included. This data is typically released on Tuesday at 16:30ET/21:30 London time.
2. Department of Energy (DoE/EIA): Much like the API report, the DoE report provides information on the supply of oil and the level of inventories of crude oil and refined products. This is announced on Wednesday at 10:30ET/15:30 London time.

USING SOCIAL MEDIA TO TRADE CRUDE OIL

Over the years, social media has become an increasingly useful platform to share ideas, pass on information and receive breaking news. This is the case for oil traders using #OOTT, which stands for the “Organization of Oil Traders” on Twitter. Here traders and industry leaders provide breaking news and key reports related to the oil market.

 

 

Crude Oil Trading Strategies and Tips

• Crude oil is ranked among the most liquid commodities in the world, meaning high volumes and clear charts for oil trading.
• Oil traders should understand how supply and demand affects the price of oil.
• Both fundamental and technical analysis is useful for oil trading and allows traders to gain an edge over the market.
• Traders should follow a risk conscious crude oil trading strategy for greater consistency and efficiency.

WHY TRADE CRUDE OIL AND HOW DOES CRUDE OIL TRADING WORK?

Pipscollector.com - Crude oil is the world economy’s primary energy source, making it a very popular commodity to trade. A naturally occurring fossil fuel, it can be refined into various products like gasoline (petrol), diesel, lubricants, wax and other petrochemicals. It is highly demanded, traded in volume, and extremely liquid. Oil trading therefore involves tight spreads, frequent chart patterns, and high volatility.

Brent crude is the world’s benchmark for oil with almost two thirds of oil contracts traded being Brent oil. WTI is America’s benchmark oil, it is a slightly sweeter and lighter oil compared to Brent.

CRUDE OIL TRADING HOURS

WTI trades on CME Globex:

Sunday - Friday, 6:00 p.m. - 5:00 p.m. (with an hour break from 5:00 p.m. to 6:00 p.m. each day)

Brent trades on ICE:

Sunday - Friday - 7:00 p.m. - 5:00 p.m.

CRUDE OIL TRADING BASICS: UNDERSTANDING WHAT AFFECTS PRICE MOVEMENTS

When trading oil, the two major focal points are, as with many commodities, supply and demand. Whether there was an economic report like a news event or press release or tensions in the Middle East, the two factors that will be taken into consideration is how supply and demand is affected, because this will affect the price.

Supply Factors

• Outages or maintenance in key refineries around the globe, whether it’s the Forties pipeline in the North Sea or the Port Arthur refinery in Texas, must be monitored because of the effect it can have on the supply of oil. War in the Middle East leads to concerns about supply. For example, when the Libyan Civil war began in 2011, prices had seen a 25% rise from in the space of a couple of months.
• OPEC (Organization of the Petroleum Exporting Countries) production cuts or extensions lead to changes in the price of oil. For example, back in 2016 when the cartel had announced their decision to curb global supply by 1.9% (see chart below), the price of oil has risen from $44/bbl to as much as $80/bbl.

WTI and Brent Crude price reaction to OPEC supply cut:

Chart prepared by Warren Venketas, TradingView

• Oil Suppliers: Similarly, with understanding the importance of OPEC, it is also worth knowing who the top global oil suppliers are, and this information can be fond from the EIA website.

Demand Factors

• Seasonality: Hot summers can lead to increased activity and higher oil consumption. Cold winters cause people to consume more oil products to heat their houses.
• Oil Consumers: The largest consumers of oil have typically been developed nations such as the U.S. and European countries. However, in recent times there has been a surge in oil consumption in Asian countries, namely China and Japan. As such, it is important for traders to pay attention to the level of demand from these nations, alongside their economic performance. Any slowdown could affect oil prices and demand may fall.
• Correlation to Global Growth: The chart below shows the largely positive correlation between the price of crude oil and global growth. The Chinese and US economies being the two largest in the world are a great barometer for global growth. The chart includes their respective major stock indices which move in line with crude oil prices – when the equity indices fall, the price of crude oil tends to fall and vice versa.

WTI and Brent Crude positive correlation with FTSE China A50 and S&P 500 chart representation:

• Alternative Energy: While fossil fuels such as oil and gas continue to dominate cleaner energy sources, there is an incessant push towards sustainability on a global scale. This will definitely impact crude oil prices going forward which makes this a key factor to monitor in a crude oil trading strategy.

The impact of derivatives on the traditional valuations of crude oil have been thought by many to have destabilized the asset class. Simply put, the oil futures are thought to have reflected higher proportions of noise which do not reflect the fundamental data at the time. This is contentious within the investing community with some in disagreement with the above rationale, but it cannot be ignored that large speculative traders are becoming more influential with the flourishing derivative market.

 

Pipscollector.com - Crude oil is a major global energy source and a widely-traded commodity. In this piece, we look at the origins and history of crude, the key factors that affect its price and the main reasons to trade this asset.

MAIN TALKING POINTS:

• What is crude oil and what is it used for?
• Main players in the crude oil market
• Factors that affect oil prices

WHAT IS CRUDE OIL AND WHAT IS IT USED FOR?

Crude oil, or petroleum, is a naturally-occurring fossil fuel and currently the world’s primary energy source. It is made from ancient organic matter and can be distilled into component fuels such as gasoline, diesel, and lubricants, each of which have a multitude of industrial applications.

The commodity is usually extracted from underground reservoirs through drilling, and the countries that produce the greatest volume of crude oil, as of 2019, are the USA, Russia, and Saudi Arabia.

To understand how crude oil relates to other energy resources and assets, as well as how to trade them, visit our Major Commodities page.

BRENT AND WTI CRUDE OIL EXPLAINED

The composition of crude oil varies by source, but two types are used to benchmark global prices. They are the United States’ West Texas Intermediate (WTI) and United Kingdom’s Brent crude. The differences between them are based on factors such as composition, extraction location and prices, but for more details, as well as how to trade each asset, see our WTI vs Brent comparison.

POWER PLAYERS IN THE CRUDE OIL MARKET

The Organization for Petroleum Exporting Countries (OPEC) was established in 1960. This body sets production quotas for its members, with the aim of reducing competition and keeping prices at profitable levels. OPEC is dominated by Kuwait, Qatar, Saudi Arabia (which controls the Strait of Hormuz), and the United Arab Emirates. While OPEC generally controls a large percentage of the oil supply, the US, as of 2019, is the world’s largest producer of oil.

Institutions that supply oil to the global market are made up of international oil companies, or IOCs, such as ExxonMobil, BP and Royal Dutch Shell. These are investor-owned and look to increase shareholder value through private interests. However, national oil companies, or NOCs, such as Saudi Aramco and Gazprom, are fully or majority-owned by a national government.

For more about the power players and their role in global oil production, see our 8 Surprising Crude Oil facts.

HISTORY OF CRUDE OIL

The history of crude oil has seen many changes since the beginning of the century, when global supply was largely controlled by OPEC, but demand was driven by the US. With OPEC calling the shots and Asian demand rising rapidly, prices went from a cost per barrel of $25 for Brent and $27 for WTI in March 2001, to $140 for both types by June 2008, representing a price bubble.

However, the last decade has seen technological advancements and deregulation facilitate increased US shale oil production, leading to shift in power from OPEC to the US. Prices fell from $112 for Brent and $105 for WTI in June 2014, to under $36 for both by January 2016. OPEC responded by colluding with several countries – including Russia – to implement ‘production quotas’ designed to stabilize prices. These brought the cost per barrel back above $70 for Brent, and $65 for WTI, by April 2018.

The below chart shows some key landmarks in the price of US Crude this century and the reasons for the swings.

WTI CRUDE OIL (2000-2019)

WHAT AFFECTS CRUDE OIL PRICES?

Crude oil prices are affected mostly by supply and demand, which in turn are influenced by factors such as outages, OPEC production cuts, seasonality, and changing consumption patterns. For more on these and why they are essential fundamental factors to understand when trading the asset, see our guide to trading crude oil.

USD AND THE PRICE OF OIL

The US Dollar and oil have historically had an inverse relationship. When USD is weak, the price of oil has traditionally been higher in dollar terms. Since the US was for long periods a net importer of oil, rising oil price has meant the US trade balance deficit has risen since more dollars are required to be sent abroad. However, some believe this relationship follows less reliable patterns in modern times.

There is a more predictable link between the Canadian Dollar and oil prices. For example, as of 2019, Canada exports some three million barrels of oil and petroleum products per day to the US, meaning a huge demand for Canadian dollars is created. If US demand rises, more oil is needed, which often means oil prices rise, and could accordingly mean a fall in USD/CAD. Conversely, if US demand falls, oil prices may fall too, meaning demand for CAD drops in turn.

Reasons to Trade Crude Oil

Oil is a dynamic, volatile and liquid market – and stands as the most traded commodity in the world. Here’s more on the benefits of engaging with this asset.

1. The volatile nature of trading this asset makes it a favorite of swing and day traders, who react to the latest oil pricing news. While the trading can be risky, some see the oil market as an opportunity in its purest form.
2. Crude oil is a liquid market, traded in huge volume. This means trades can be opened and closed at the price points you want and at lower trading cost.
3. Oil can be traded as part of a hedging strategy to mitigate against the effects of the asset’s volatility.
4. Trading oil can be part of a diversified portfolio of commodities, stocks and bonds.
   HOW TO GET STARTED TRADING CRUDE OIL

We offer an in-depth guide to

Trading crude oil and publish daily news and analysis articles reviewing the latest crude oil prices, among other assets. You can also download our free quarterly oil forecasts which will equip you with the knowledge to make informed decisions in the oil market.

Read more articles in the Educational Content category to update the latest forex knowledge from Pipscollector.

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Pipscollector.com - The gold - silver ratio offers invaluable insight into the possible movements of the two precious metals relative to each other. Traders look to the ratio for an edge in identifying buy and sell signals in the market. Therefore, knowing how to trade the gold-silver ratio can be a huge advantage to maximize your commodities trading strategy.

WHAT IS THE GOLD-SILVER RATIO?

The gold-silver ratio is simple. It is the number of silver ounces you would need to trade to receive one ounce of gold at current market prices. For example, when gold price is trading at $1000 per ounce and silver price is trading at $16.67 per ounce the gold-silver ratio will be equivalent to 60.

• The gold to silver ratio has averaged around 60 from 2001 to 2017. With highs breaching 80 (ounces of silver to one ounce of gold) and lows sinking to around 40.
• The ratio tends to increase during times of economic distress. The cause of this relationship is due to gold generally outperforming silver during recessions, leading to increases in the ratio.
• The ratio peaked at 100 in 1991 when silver prices dropped to extreme lows.

HOW THE GOLD-SILVER RATIO WORKS

• When the gold price increases faster than the silver price the ratio will increase .
• When the silver price increases faster than the gold price the ratio will decrease .
• When the gold price decreases faster than the silver price the ratio will decrease.
• When the silver price decreases faster than the gold price the ratio will increase.

Source: Bloomberg data

The graph above shows the gold to silver ratio for the past several decades. In 1991 silver was trading at extremely low prices- causing a peak in the gold-silver ratio, denoted by the blue circle in the graph above.

It is also worth noting the spike in the ratio during the 2008 subprime-mortgage crisis, caused by surging gold prices and silver not performing as well. This is denoted by the red circle in the graph above.

HOW TO TRADE THE GOLD-SILVER RATIO

There are many ways to use the ratio to your advantage. Keep reading for the top two strategies on trading the gold-silver ratio.

1) USING THE GOLD-SILVER RATIO TO DETERMINE THE METAL WITH THE STRONGEST TREND AND TRADE IT:

Traders can use the gold-silver ratio to determine which metal may outperform the other and then place a trade accordingly.

A trader could use these five steps to enter a trade on either gold or silver using the ratio:

1) Determine the trend on a gold-silver ratio chart by adding trend lines to the chart. You can use DailyFX’s chart to view the gold-silver ratio by entering “XAUUSD/XAGUSD” in the search bar.

2) Using the time-frame of your choice, determine the trend on gold and silver individually.

3) Use this table to help you determine a bias:

GOLD-SILVER RATIO TREND	GOLD AND SILVER TREND	SIGNAL
Gold-Silver RatioUptrend	Gold and silver inUptrend	Buy Gold
Gold-Silver RatioUptrend	Gold and Silver inDowntrend	Sell Silver
Gold-Silver RatioDowntrend	Gold and Silver inUptrend	Buy Silver
Gold-Silver RatioDowntrend	Gold and Silver inDowntrend	Sell Gold

4) Identify trading opportunities using price action or technical indicators time entries in the direction of the trend.

5) Identify a trade size appropriate for the account size and set stop-losses and take-profits and execute the trade.

Here’s an example using the five steps:

1) Let’s say we open our gold to silver ratio chart on 8 February 2016.We draw our trend lines and the trend lines indicate that the ratio is in a current uptrend as shown in the chart below showing a four-hourly timeframe.

2) Our next step is to determine the individual trend for gold and silver. So, we open the charts and draw our trend lines and notice that both gold and silver are trending upwards as shown in the charts below.

3) The table above indicates that when the gold-silver ratio is trending upwards and gold and silver are both in an uptrend we should buy gold because it has been outperforming silver.

GOLD-SILVER RATIO UPTREND

GOLD AND SILVER IN UPTREND

BUY GOLD

4) Since the beginning of February, gold has increased drastically in price. We should wait for a modest pull-back before attempting to enter the market. Once we do enter the market, we can place our stop-loss below the trend line and our take-profit above the previous high to ensure a positive risk-reward ratio on the trade.

5) We determine an appropriate trade size for our account, execute the trade and set our stop-loss and take profit.

2) TRADING THE HIGHS AND LOWS OF THE GOLD-SILVER RATIO:

There may be times when the ratio reaches historic extremes. When it is near these points, a reversal of the ratio is at risk. For example, when the gold-silver ratio reaches for historical highs (from 80 to 100) the idea is that the price of gold is expensive relative to the price of silver. When the gold-silver ratio reaches for historical lows (from 60 to 40) gold is seen as cheaper relative to silver.

Because the metals are correlated though driven by different factors, they tend to be limited in their willingness to run beyond a gold-silver ratio north of 80-100 or below 60-40, and those tend to be at turning points because the ratio has picked up on a likely abrupt turning points in markets.

The chart below shows times when the ratio was at all-time highs- red circles and all-time lows-blue circles.

Traders can use the table below as a guide to trade the metals when the gold-silver ratio at risk for a reversal:

GOLD-SILVER RATIO EXTREME	GOLD AND SILVER TREND	TRADE SIGNAL
Gold-Silver RatioHistorical High	Gold and Silver inUptrend	Long Silver
Gold-Silver RatioHistorical High	Gold and Silver inDowntrend	Short Gold
Gold-Silver RatioHistorical Low	Gold and Silver inDowntrend	Short Silver
Gold-Silver RatioHistorical Low	Gold and Silver inUptrend	Long Gold

It is very seldom that the gold-silver ratio reaches for these historic highs and lows, but when it does, it could offer good opportunities. Still, it is important to manage your risk because the ratio has been known to breach these historical levels.

GOLD TO SILVER RATIO TRADING: TOP TIPS

 

 

 

GOLD TRADING TIPS

Pipscollector.com - Few markets on Earth have the historical appeal and attraction as Gold. While traders have numerous trading options today, in a number of different currencies or asset classes or geographies, Gold has been a long-standing store of value that’s piqued speculators’ interest for about as long as human beings have traded with each other.

We previously looked at some of the basics around Gold trading in the What is Gold article a little earlier in this sub-module. In this article, we’re going to get a bit more granular as we investigate Gold Trading Strategies, Tips and Tactics.

Probably one of the more obvious aspects of Gold, particularly on a longer-term basis, is the cycle sensitivity that will often show around the metal – and this isn’t a new phenomenon. As markets themselves are cyclical animals, Gold often moves to a similar type of tune, although timing may be differentiated from other markets at the time. Looking at Gold prices over the past 45 years, and this becomes a bit more clear. On the below chart, trends and ranges have been identified by blue or grey boxes, and that leads us into tip number one:

GOLD TRADING TIP #1: ADAPT TO THE PRESENT CONDITION

The key takeaway here is the importance of adaptation: Because if a trend trader approaches Gold with their typical approach while Gold markets are in a range, there’s high odds they could see unfavorable results. If Gold markets are mean-reverting and range-bound, the trader would likely want to approach the matter with a range-based approach. But, when Gold markets are trending, such as the case from 2001-2011 or 1976-1980, then traders are going to want to utilize trend strategies to adapt to the present condition.

Gold Futures Monthly Chart

Source: Tradingview

GOLD TRADING TIP #2: WATCH THE US DOLLAR

The US Dollar is traded in a number of markets but, in the largest venues, Gold is traded in US Dollars. As a matter of fact, one common equation on CFD platforms presents a quote for Gold prices as ‘XAU/USD.’ The chemical symbol for Gold on the periodic table of elements is ‘AU’ and the denominator in that quote is the US Dollar, highlighting how Gold is being priced in terms of US Dollars.

This also means that, all factors held equal, and if Gold made no move at all but the US Dollar increased in value – the price of Gold could go down. Because in the function above, the value of the denominator, or USD, would increase in value thereby decreasing the value of the function as a whole.

So, there could be a tendency for Gold to display an inverse correlation with the US Dollar. This isn’t all of the time, there are scenarios where both Gold and the Dollar may increase in value although those are somewhat rare, historically speaking.

On the below chart, that correlation is highlighted in the bottom portion of the image. Reads or values above the zero line indicate positive correlation which, again, is somewhat rare but not unheard of. Reads below zero highlight inverse correlation, with a value of -1 highlighting a perfect inverse relationship.

Gold Monthly Price Chart: An Inverse Relationship with the US Dollar

Chart prepared by James Stanley; Gold on Tradingview

GOLD TRADING TIP #3: KNOW YOUR TIME FRAMES

On the above charts we’re looking at the bigger picture behind Gold prices using the Monthly variety. But these conditions and market changes can take place on shorter-terms, as well, and it’s key for traders to have some type of consistent framework for their analysis so that they can properly implement their strategies in the ways that they want.

As we looked at in the multiple time frames article, traders should analyze markets from more than a single vantage point. The above monthly variety can be helpful to see the bigger picture – but for actually setting up trades and implementing strategies, traders will likely want to look to shorter time frames.

In the above graphic, the blue box on the right side of the chart shows a trend that’s been going for a little over two years now. But, looking at the shorter-term daily chart below to get a more granular look at that two-year-outlay shows that Gold prices were not trending the entire time. As a matter of fact, the same type of trend-range-trend-range relationship presented itself inside of this longer-term trend.

This is again important for traders when setting up strategy because for those that are looking to trade a trend, waiting for the monthly chart to highlight that potential may be too late. On the below chart, that blue box has been expanded so we can take a more granular look at the trend; but this time, I’ve added green boxes around the shorter-term trends and grey boxes around the mean-reverting or range-bound periods.

Gold Daily Price Chart

GOLD TRADING STRATEGIES

Perhaps more important than the specific strategy that one is using to analyze or set up trades in Gold is the ‘fit’ to that specific market condition. For instance, if we look at the above image and focus on the green boxes, when the short-term trend is moving in the direction of the longer-term trend, traders are going to want to follow the age-old adage of ‘buying low and selling high.’ In the grey portions, however, when prices are ranging, traders want to similarly buy low and sell high but they’re going to want to do that in a slightly different way; closing the entirety of the long position while ‘high’ and then looking at potentially getting short to play the other side of the range.

Right up front – this means that no trader is always going to be ‘right’ because conditions, similar to trends, will change; and its impossible to know that until after the fact. This is where items like trade and risk management come into play, potentially helping to mitigate the downside in those instances where something changes or shifts away from their expectations.

Simplifying Market Behaviors by Assigning ‘Conditions’

With any market, if you think about it, there’s really only a couple of things that prices might do: Trend or not. Either prices are trending in a directional move for some reason, or they’re not trending at all: And the transitory state between mean-reversion and trends are breakouts, which are technically a market condition, itself. So, in that effort of simplification, analysts can break down market conditions into three specific types:

1. Trend – a directional move is showing and there’s often a fundamental reason for it as traders are bidding higher-highs and higher-lows (or selling lower-lows and lower-highs).
2. Range/Mean-Reversion – devoid of a driver, prices will often display no trend, which can open the door for range-bound or mean-reversion strategies.
3. Breakouts – this is what happens when new information gets priced-in, and this can create a breakout move from a range and into a new trend. That new trend may last for a while or it may merely propel price action into a new range.

Bespoke Approach for the Proper Condition

Knowing what state a market is in isn’t enough, as traders are usually going to want to cater their approach to that specific condition. For instance, a trader focusing on breakouts likely won’t be able to withstand as much excursion as a trader picking on range/mean reversion setups.

We help traders learn more about strategies for each of these conditions. But, perhaps the most important aspect of customizing a strategy to a specific traders’ needs is the risk management component.

Read more articles in the Educational Content category to update the latest forex knowledge from Pipscollector.

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Pipscollector.com - For thousands of years, Gold has been praised for both its physical and economic appeal, becoming one of the most popular safe-haven assets.

This article will discuss Gold as an investment and as a tradeable commodity and will look to explore the main drivers of price action.

GOLD AS AN INVESTMENT

In ancient history, gold was desired by many for its unique beauty and scarcity, making it a highly desirable commodity as well as a symbol, and eventually a store of wealth. However, as time progressed, the gold standard was adopted as a form of global currency and now, even though the fiat system has replaced it in its entirety, gold continues to hold intrinsic and economic value, making it a popular investment in financial markets.

As discussed in the what is gold article, there are several factors that may influence it as an investment including:

• Supply and demand

Although most commodities are subject to supply and demand, gold is almost always in demand, whether it be for jewelry, industrial uses or as a form of safe-haven currency.

A few unique characteristics that contribute to gold’s success include its scarcity, ductility, and ability to withstand corrosion, making it a versatile metal with many uses . However, the demand for gold is also largely attributed to its ability to retain value during periods of financial duress.

During economic slumps, the demand for gold as an inflationary hedge often increases, confirming its safe-haven appeal. As far as supply is concerned, once gold has been mined and has gone through the refinery process, due to its resilience against corrosion, gold remains in supply, being transformed into gold bars, coins, jewelry, etc.

• Government Policies

Unlike paper money, gold is a physical commodity that has no default risk and is not impacted by government policies. During periods of economic uncertainty such as a financial crisis or political instability, central banks may intervene by decreasing interest rates or printing more money, leading to a rise in inflation and a depreciation of currencies. Whilst this may result in a loss in purchasing power of paper money, gold may be used as an inflationary hedge, making it a popular investment during these times.

• US Dollar

Because gold is generally traded against the US Dollar, changes in the currency tend to have a direct impact on the gold price. A stronger Dollar generally makes gold more expensive for other countries to buy, resulting in a decrease in demand and therefore, a drop in the gold price. The opposite is true when the Dollar depreciates. However, risk sentiment also plays a role in the inverse relationship between gold and the greenback.

During economic slumps or periods of increased volatility, the demand for currencies and stocks may decrease as investors increase exposure to gold, and other assets holding intrinsic value.

GOLD AS A TRADEABLE COMMODITY

Although coins, gold bars and bullion are still collected and central banks generally still keep a certain amount of gold in reserves, the easiest way to gain exposure to the precious metal is by trading it on exchange, investing in gold companies or trading ETFs which track the gold price.

The same factors that influence gold as an investment will likely influence it as a tradable commodity but because the gold market is so large, high trade volumes, combined with ample liquidity and almost 24-hour trading, allow for tighter spreads, making gold relatively inexpensive to trade. In fact, the World Gold Council estimates that the average daily trading volume in gold is higher than the majority of currency pairs, except for three major currency pairs, namely EUR/USD, USD/JPY and GBP/USD.

GOLD PRICE ACTION

When it comes to trading gold, price action is influenced by a variety of factors including trading psychology as well as technical and fundamental analysis. Although a variety of strategies exist, an all-encompassing strategy, combining these three forms of analysis may provide additional benefits.

Gold Technical Analysis

The process of technical analysis involves identifying patterns off of charts in an attempt to identify current market conditions and trends that have occurred in the past and may occur in the future, using price action and technical indicators as a guide.

Although determining the trend may sound simple, deciding on an appropriate time frame can be a challenging task. While intraday traders often make use of short-term charts to determine potential entry and exit signals, there are benefits to multiple time-frame analysis, which includes analysis from both long and short-term charts.

For novice traders, four effective trading indicators include the Moving Average, Relative Strength Index (RSI), Moving Average Convergence/Divergence (MACD) and the Stochastic, while more experienced traders may use more complex tools such as the Fibonacci retracement or Elliot Wave, in conjunction with other indicators.

An example of this can be seen in the Daily chart below, where the Fibonacci retracement is taken from the most recent major move (between the March 2020 Low and the August 2020 High). Since retracing from this level, these retracement levels have formed support and resistance for price action, forming areas of confluency, which has somewhat transformed market conditions from a trending to a rangebound state.

Gold Daily Chart

By adding the Relative Strength Index (RSI), a trader may be able to identify potential signals as indicated above. When the RSI is above 70, the market is considered overbought and when the RSI falls below 30, it is considered to be oversold. It is important to remember that market conditions are subject to change, but if a trader is using the RSI during a trending phase when the trend ends, they may shift towards an RSI range trading strategy.

Gold Fundamental Analysis

While technical analysis focuses on chart patterns, assuming that everything has already been priced in and accounted for, fundamentals believe that economic events are the main drivers of price action. Although neither is incorrect, during a recession or economic uncertainty, changes to policies are often sporadic and tend to influence risk sentiment without prior warning.

When we refer to fundamentals, broadly speaking, this is the economic wellness of a country or economy. Data such as GDP, inflation, and interest rates all form part of fundamentals. When investors are confident in the state of the economy, they are more likely to invest in riskier assets, such as stocks. But, when interest rates are low and there is a lack of confidence, this is referred to as risk-off sentiment, where investors are more likely to invest in gold, US treasuries, and other safe-haven assets.

A few examples of economic data that may have an affect on gold prices include GDP data, unemployment figures, and interest rate decisions. Although the effects of these decisions may not be instantaneous, the Dailyfx economic calendar is a useful tool for traders to remain informed about high-impact data that may affect the markets.

Read more articles in the Educational Content category to update the latest forex knowledge from Pipscollector.

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Pipscollector.com - Gold is among the most valued commodities in the world, with a history of utility in currency and jewelry as well as being a favored safe haven asset. In this article, discover what gold is used for, the history of the market and how it works, and what affects gold prices.

MAIN TALKING POINTS

• What is gold and what is it used for?
• What affects gold prices?
• How can gold be traded?

WHAT IS GOLD AND WHAT IS IT USED FOR?

Gold is a precious metal coveted throughout history for its vibrant color, malleability, and relative scarcity. It has industrial applications in electronics and computing, and is enduringly popular as a jewelry-manufacturing component. Gold has always been used as a monetary instrument, as well as a safe haven asset due to its tendency to retain or increase its value during periods of market turbulence.

HISTORY OF GOLD AS AN ASSET CLASS

For thousands of years, humans have placed a high premium on gold. It has represented the currency of some of the world’s most famed civilizations, such as the empires of Ancient Egypt and Rome. More recently, from the late 19th century up until the outbreak of World War One, the value of currencies have been anchored to a specific amount of gold.

Starting at the end of the World War Two, most of the planet’s largest economies operated within a financial system based on a set gold price, which was tied to the US Dollar. This only ended in 1971, when the US opted to stop aligning its dollar with the commodity.

While the precious metal no longer functions as an official currency, the gold price remains a highly influential element in financial markets and world economies.

WHAT AFFECTS GOLD PRICES?

The factors that affect gold prices include stability, supply and demand, central bank exposure, and volumes traded through ETFs.

Stability

As the bedrock financial instrument underlying global currencies, gold is considered a fairly secure asset. Its price tends to rise in times of turmoil, as governments and investors turn to it as a hedge against uncertainty. Inversely, gold prices usually drop in stable times, as riskier yet potentially more profitable avenues of investment become more viable.

Supply and demand

As with most assets on the open market, an excess of demand for gold (normally for jewelry-making, or manufacturing certain medical, industrial and technological products) drives up the gold price (assuming supply is constant). On the other hand, a weakening of demand often has the opposite effect on its value, sending the price lower (assuming supply is constant).

Central banks

Many of the world’s gold reserves are controlled by central banks within developed nations, in locations such as Europe and North America. As a result, these banks wield immense pricing power in global gold markets. If the banks suddenly increased or reduced their gold exposure at once, even slightly, this would have a magnified effect on the gold price. Central banks therefore rely on a joint (though unofficial) commitment to refrain from unilaterally engaging in large-scale gold sales that could destabilize global markets.

ETFs

While exchange traded funds are generally intended to mirror the gold price rather than influence it, many large ETFs hold a significant amount of physical gold. Therefore, the inflows and outflows from such ETFs can affect the metal's price, by altering the physical supply and demand in the market.

HOW GOLD AFFECTS CURRENCIES

When it comes to gold’s relationship with currencies, its correlation with USD is a principal talking point as the US Dollar remains the benchmark pricing mechanism for gold. When the value of USD increases, gold becomes more expensive for other nations to purchase.

This ultimately causes demand to fall, which is why there’s generally an inverse relationship between the US Dollar and the gold price. Additionally, when the Dollar starts to lose its value, investors look to gold as a safe-haven alternative and this helps to push its price up.

The below chart shows this inverse relationship between the US Dollar Index and gold.

GOLD PRICES OVERLAID AGAINST THE US DOLLAR

Also, the value of gold is linked to the value of a nation’s imports and exports. Countries that export gold or have access to gold reserves will see their currencies strengthen when gold prices rise, due to the value of the country's total exports increasing.

HOW CAN GOLD BE TRADED?

There are a number of ways to trade gold, as explained in our in-depth guide to gold trading. It can be purchased as a physical asset, traded using futures and options in the commodities market, or traded through an exchange traded fund or ETF. For more information on each of these, click on the link above. For more information on each of these, click on the link above.

REASONS TO TRADE GOLD

Traders might consider trading gold because:

• As a safe haven in times of economic turbulence, when it tends to hold its value or appreciate
• To capitalize on a weak US Dollar, and hedge against inflation
• To maintain a diverse portfolio of commodities, stocks, bonds etc.

Read more articles in the Educational Content category to update the latest forex knowledge from Pipscollector.

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USING PPI TO TRADE FOREX: TALKING POINTS

• PPI stands for the Producer Price Index, which is an important piece of economic data
• PPI data is released during the second week of each month.
• Forex traders can use PPI as a leading indicator to forecast consumer inflation measured by the Consumer Price Index (CPI).

Pipscollector.com - PPI is an important piece of economic data due to its signaling effect on future expected inflation. Traders monitor PPI in forex trading because of the positive relationship between inflation and interest rates, but ultimately, traders are concerned with how the resultant interest rate changes are likely to affect currency pairs. Continue reading to learn more about the PPI index and how it affects the foreign exchange market.

WHAT IS PPI AND WHAT DOES IT MEASURE?

PPI stands for Producer Price Index and measures the change in the price of finished goods and services sold by producers. PPI data represents the monthly change in the average price of a basket of goods purchased by manufacturers.

How is PPI calculated?

PPI examines three production areas; commodity-based, industrial-based, and stage-of-processing-based companies. Released by the Bureau of Labor Statistics, PPI is created using data collected from a mailed survey of retailers selected via a process of systematic sampling of all firms listed with the Unemployment Insurance System.

Traders can see changes in PPI expressed as a percentage change from the previous year, or on a month to month basis.

PPI and inflation

A positive change in the PPI index implies that costs are rising and, in the end, price increases get passed down to consumers. If this effect is large enough, there will be an increase in future CPI figures to reflect that the general level of prices has increased.

Inflation and the effect on the economy

An increase in the general price level is good for an economy but only when this is contained. When demand for goods and services increases, businesses must increase capital expenditure and hire more workers in order to increase their output to meet higher demand. The problem arises when prices increase drastically, resulting in a decrease in the purchasing power of a country’s currency. $1 can buy less than it could one year ago, for example.

In the 1950s, gasoline was $0.27, while apartment rent was $42/month and a movie ticket was $0.48. These figures are nowhere near to where they are today, and this reflects how inflation erodes the value of local currency. In an attempt to combat the erosion of purchasing power, central banks effectively reduce inflation by raising the benchmark interest rate.

HOW DOES PPI IMPACT CURRENCIES?

When it comes to money there is always a trade-off: individuals can save money and earn interest, or they can spend money immediately and forgo any interest payments.

If PPI is on the rise it may cause the interest rates to rise. When interest rates go up, electing to save money looks more attractive as the reward (interest) is greater than before. Spending money becomes costlier because consumers would effectively be losing out on the higher interest rate when they choose to spend money instead of saving. As a result, increased PPI may filter down into increased rates and a stronger currency.

Using the Euro as an example, forex traders know that higher interest rates results in increased financial flows by foreign investors wanting to buy the higher yielding Euro. This effect tends to drive the value of the Euro up as the demand for the Euro has increased.

A popular strategy chasing higher interest rates is the “carry trade” strategy; whereby traders borrow funds in a currency that has a low interest rate and buy a currency with a higher interest rate.

Money follows yield and traders will look to take advantage of this.

HOW PPI AFFECTS THE US DOLLAR

The Producer Price Index tends to have little effect on the US dollar initially. This is because in the real economy there is a time lag between the increase in prices from producers, and the end result of higher inflation resulting from consumers having to fork out more at the tills.

However, don’t be misled by the “low priority” impact assessment of this data release. Astute traders are able to forecast the knock-on effects PPI is likely to have on CPI and interest rates and trade accordingly. Thus, the most valuable component of the PPI data is the signaling effect it provides to the market.

Read more articles in the Educational Content category to update the latest forex knowledge from Pipscollector.

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NFP and Forex Trading: MAIN TALKING POINTS

• Non-Farm Payrolls (NFP) releases create volatility in the forex market.
• NFP measures net changes in employment jobs.
• Forex traders use an economic calendar to prepare for NFP releases.

What is the NFP?

Pipscollector.com - The non-farm payroll (NFP) figure is a key economic indicator for the United States economy. It represents the number of jobs added, excluding farm employees, government employees, private household employees and employees of nonprofit organizations.

NFP releases generally cause large movements in the forex market. The NFP data is normally released on the first Friday of every month at 8:30 AM ET. This article will explain the role NFPs play in economics and how to apply NFP release data to a forex trading strategy.

HOW DOES THE NFP AFFECT FOREX?

NFP data is important because it is released monthly, making it a very good indicator of the current state of the economy. The data is released by the Bureau of Labor Statistics and the next release can be found on an economic calendar.

Employment is a very important indicator to the Federal Reserve Bank. When unemployment is high, policy makers tend to have an expansionary monetary policy (stimulatory, with low interest rates). The goal of an expansionary monetary policy is to increase economic output and increase employment.

So, if the unemployment rate is higher than usual, the economy is thought to be running below its potential and policy makers will try to stimulate it. A stimulatory monetary policy entails lower interest rates and reduces demand for the Dollar (money flows out of a low yielding currency). To learn exactly how this works, see our article on how interest rates effect forex.

The chart below shows how volatile forex can be after an NFP release. The expected NFP results for March 8, 2019 were 180k (job additions), the actual result disappointed with only 20k jobs being added. As a result, the Dollar Index (DXY) depreciated in value and volatility increased.

Forex traders must be wary of data releases like the NFP. Traders could get stopped-out due to the sudden increase in volatility. When volatility increases, spreads do too, and increased spreads can lead to margin calls.

WHICH CURRENCY PAIRS ARE MOST AFFECTED BY NFP

The NFP data is an indicator of American employment, so your currency pairs that include the US Dollar (EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF and others) are most affected by the data release.

Other currency pairs also display an increase in volatility when the NFP releases, and traders must be aware of this as well, because they may get stopped out. The chart below shows the CAD/JPY during the NFP data release. As you can see, the increase in volatility could stop a trader out of their position even though they are not trading a currency pair linked to the US Dollar.

NON-FARM PAYROLL RELEASE DATES

The Bureau of Labor statistics normally releases the NFP data on the first Friday of each month at 8:30 AM ET. The release dates can be found on the Bureau of Labor Statistic’s website.

Due to the volatile nature of the NFP release, we recommend using a pull-back strategy rather than a breakout strategy. Using a pullback strategy, traders should wait for the currency pair to retrace before entering a trade.

Using the same example as above (NFP results 20k vs 180k expected) we expect the US Dollar to depreciate. In the example below, we use the EUR/USD. Because the NFP data came out worse than expected, we forecast the EUR/USD to appreciate.

TRADING THE NFP DATA RELEASES: TOP TIPS & FURTHER READING

Here are a few tips to remember when using NFP data releases to inform your forex trading:

1. NFP data is released on the first Friday of every month.
2. The NFP data release is accompanied with increased volatility and widening spreads.
3. Currency pairs not related to the US Dollar could also see increased volatility and widening spreads.
4. Trading the NFP data release can be dangerous due to the increase in volatility and possible widening of spreads. To combat this, and to avoid getting stopped-out, we recommend using the appropriate leverage, or no leverage at all.

Other important data releases to watch:

While the NFP generally moves the market, data like CPI (inflation), Fed funds rates, and GDP growth are important data releases too.

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Pipscollector.com - FOMO – Fear of Missing Out - is a relatively recent addition to the English language, but one that is intrinsic to our day-to-day lives. A true phenomenon of the modern digital age, FOMO affects 69% of millennials, but it can also have a significant bearing upon trading practices.

For instance, the feeling of missing out could lead to the entering of trades without enough thought, or to closing trades at inopportune moments because it’s what others seem to be doing. It can even cause traders to risk too much capital due to a lack of research, or the need to follow the herd. For some, the sense of FOMO created by seeing others succeed is only heightened by fast-paced markets and volatility; it feels like there is a lot to miss out on.

To help traders better understand the concept of FOMO in trading and why it happens, this article will identify potential triggers and how they can affect a day trader’s success. It will cover key examples and what a typical day trade looks like when it is driven by FOMO. There are various tips on how to overcome the fear, and the other emotions which can affect consistency in trading - one of the most important traits of successful traders.

MAIN TALKING POINTS:

• What is FOMO in trading?
• What characterises a FOMO Trader?
• Factors that can Trigger FOMO
• FOMO Trading vs Disciplined Trading: The Cycle
• DailyFX analysts share their FOMO experiences
• Tips to overcome FOMO

WHAT IS FOMO IN TRADING?

FOMO in trading is the Fear of Missing Out on a big opportunity in the markets and is a common issue many traders will experience during their careers. FOMO can affect everyone, from new traders with retail accounts through to professional forex traders.

In the modern age of social media, which gives us unprecedented access to the lives of others, FOMO is a common phenomenon. It stems from the feeling that other traders are more successful, and it can cause overly high expectations, a lack of long-term perspective, overconfidence/too little confidence and an unwillingness to wait.

Emotions are often a key driving force behind FOMO. If left unchecked, they can lead traders to neglect trading plans and exceed comfortable levels of risk.

Common emotions in trading that can feed into FOMO include:

• Greed
• Fear
• Excitement
• Jealousy
• Impatience
• Anxiety

The psychology of trading is a key theme covered in our webinars, where our analysts share expert tips to keep emotions in check, maintain consistency and maximise trading success. Sign up to a webinar with our analyst, Paul Robinson, where he discusses FOMO and the psychology of trading in depth.

WHAT CHARACTERIZES A FOMO TRADER?

Traders who act on FOMO will likely share similar traits and be driven by a particular set of assumptions. Below is a list of the top things a FOMO trader might say, which sheds light on the emotions that can affect trading:

WHAT FACTORS CAN TRIGGER FOMO TRADING?

FOMO is an internal feeling, but one that can be caused by a range of situations. Some of the external factors that could lead to a trader experiencing FOMO are:

• Volatile markets. FOMO isn’t limited to bullish markets where people want to hop on a trend – it can creep into our psyche when there is market movement in any direction. No trader wants to miss out on a good opportunity
• Big winning streaks. Buoyed up by recent wins, it is easy to spot new opportunities and get caught up in them. And it’s fine, because everyone else is doing it, right? Unfortunately, winning streaks don’t last forever
• Repetitive losses. Traders can end up in a vicious cycle: entering a position, getting scared, closing out, then re-entering another trade as anxiety and disappointment arise about not holding out. This can eventually lead to bigger losses
• News and rumours. Hearing a rumour circulating can heighten the feeling of being left out –traders might feel like they’re out of the loop
• Social media, especially financial Twitter (#FinTwit). The mix of social media and trading can be toxic when it looks like everyone is winning trades. It’s important not to take social media content at face value, and to take the time to research influencers and evaluate posts. We recommend using the FinTwit hashtag for inspiration, not as a definitive planning tool.

As well as affecting traders on an individual level, FOMO can have a direct bearing upon the markets. Moving markets might be emotionally driven – traders look for opportunities and seek out entry points as they perceive a new trend to be forming.

This graph uses the S&P 500 index as an example of how markets can move due to mass trader sentiment. Steady bullish markets can quickly spike when people begin jumping on the bandwagon, for fear of missing out. They can crash too, as seen here directly after the sharp rise. People who entered a long position late would have lost money, which is the worst-case scenario in FOMO trading.

FOMO TRADING VS DISCIPLINED TRADING: THE CYCLE

As explored above, the process of placing a trade can be very different depending on the situation in hand and the factors that are driving a trader’s decisions. Here is the journey of a FOMO trader vs a disciplined trader – as you will see, there are some fundamental differences that can lead to very different outcomes.

TIPS TO OVERCOME FOMO

Overcoming FOMO begins with greater self-awareness, and understanding the importance of discipline and risk management in trading. While there is no simple solution to preventing emotions from impacting trades and stopping FOMO in its tracks, there are various techniques that can help traders make informed decisions and trade more effectively.

Here are some tips and reminders to help manage the fear factor:

• There will always be another trade. Trading opportunities are like buses – another one will always come along. This might not be immediate, but the right opportunities are worth the wait.
• Everyone is in the same position. Recognising this is a breakthrough moment for many traders, making the FOMO less intense. Join a DailyFX webinar and share experiences with other traders – this can be a useful first step in understanding and improving trading psychology.
• Stick to a trading plan. Every trader should know their strategy, create a trading plan, then stick to it. This is the way to achieve long-term success
• Taking the emotion out of trading is key. Learn to put emotions aside – a trading plan will help with this, improving trading confidence.
• Traders should only ever use capital they can afford to lose. They can also use a stop to minimise losses if the market moves unexpectedly.
• Knowing the markets is essential. Traders should conduct their own analysis and use this to inform trades, taking all information on board to be aware of every possible outcome.
• FOMO isn’t easily forgotten, but it can be controlled. The right strategies and approaches ensure traders can rise above FOMO.
• Keeping a trading journal helps with planning. It’s no coincidence that the most successful traders use a journal, drawing on personal experience to help them plan.

Overcoming FOMO doesn’t happen overnight; it’s an ongoing process. This article has provided a good starting point, highlighting the importance of trading psychology and managing emotions to prevent FOMO from affecting decisions when placing a trade.

TURN YOUR FOMO INTO JOMO

Now you know how to spot and stop FOMO in its tracks, find out how to embrace JOMO in trading and change your mindset for greater success.

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Pipscollector.com - The ISM manufacturing index plays an important role in forex trading, with ISM data influencing currency prices globally. As a result, the ISM manufacturing, construction and services indicators can provide unique opportunities for forex traders, which makes understanding this data (and how to prepare for its monthly release) essential.

Talking points:

• What is ISM?
• How ISM impacts currencies
• How forex traders use ISM data

WHAT IS ISM?

The Institute for Supply Management (ISM) measures the economic activity from both the manufacturing side as well as the service side. Monthly ISM data releases include key information such as changes in production levels.

ISM was formed in 1915 and is the first management institute in the world with members in 300 countries. The data gleaned from its large membership of purchasing managers means ISM is a reliable guide to global economic activity, and as a result, currency prices. A country’s economy is often determined by its supply chain, as a result, the monthly ISM manufacturing and non-manufacturing PMI economic news releases are carefully watched by forex traders around the world.

ISM Surveys

ISM publishes three surveys - manufacturing, construction, and services – on the first business day of every month. The ISM Purchasing Managers Index (PMI) is compiled from surveys of 400 manufacturing purchasing managers. These purchasing managers from different sectors represent five different fields:

1. Inventories
2. Employment
3. Speed of supplier deliveries
4. Production level
5. New orders from customers.

In addition, ISM construction PMI is released on the second business day of the month, followed by services on the third business day. Forex traders will look to these releases to determine the risks at any given time in the market.

HOW DOES ISM IMPACT CURRENCIES?

The Manufacturing and Non-manufacturing PMIs are big market movers. When these reports are released at 10:30am ET, currencies can become very volatile. Since these economic releases are based on the previous month’s historical data gathered directly from industry professionals, forex traders can determine if the US economy is expanding or contracting - much like non-farm payrolls (NFP) data.

Currencies react with this information as it represents a gauge of US economic health (see image below).

Source: Institute for Supply Management

HOW FOREX TRADERS USE ISM DATA

Forex traders will compare the previous month’s ISM data figure with the forecasted number that economists have published. If the released PMI number is better than the previous number and higher than the forecasted number, the US dollar tends to rally. This is where fundamental and technical analysis comes together to create a trade setup.

EUR/USD drops as a result of better than expected data

In the example above, notice how the better than expected PMI number triggered a US dollar rally against the Euro. As seen in the chart (EUR/USD – one hour), the ISM Manufacturing PMI came in higher than the previous month at 54.9.

When an economic releases beats expectation, sharp fast moves can ensue. In this case, EUR/USD dropped 150 pips in a few hours. Traders often choose the Euro as the “anti-dollar” to take advantage of capital flows between two of the largest economies.

The Eurozone has large liquid capital markets which can absorb the huge waves of capital seeking refuge from the US. A weak US ISM Non-Manufacturing number usually leads to a dollar sell-off and a rise in the Euro. Another scenario is when the number released is in line with forecasts and/or unchanged from the previous month, then the US dollar may not react at all to the number.

Overall, an ISM PMI number above 50 indicates that the economy is expanding and is healthy. However, a number below 50 indicates that the economy is weak and contracting. This number is so important that if the PMI is below 50 for two consecutive months, an economy is considered in recession.

PMIs are also compiled for Euro zone countries by the Markit Group while US regional and national PMIs are compiled by ISM. As you can see, traders have good reason to pay special attention to the important releases from the ISM manufacturing index.

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Pipscollector.com - GDP (Gross Domestic Product) economic data is deemed highly significant in the forex market. GDP figures are used as an indicator by fundamentalists to gauge the overall health and potential growth of a country. Consequently, greater volatility in the forex market is closely observed during the GDP release.

WHAT FOREX TRADERS NEED TO KNOW ABOUT GDP

What is GDP?

Developed in 1934 by Simon Kuznets, the Gross Domestic Product (GDP) measures the output and production of finished goods in a country’s economy. Usually, GDP is measured in three different time periods: monthly, quarterly and annually. This enables economists and traders to get an accurate picture of the overall health of the economy.

There are many approaches to calculating GDP, however, the US Bureau of Economic Analysis uses the “Expenditure Approach” using the formula:

GDP = Consumption (C) + Investment (I) + Government Spending (G) + (Exports (X) - Imports (M))

Understanding the relationship between GDP and the forex market

The general rule of thumb when looking at GDP data is looking at whether figures beat or fall below estimates (see relevant charts below):

• A lower than projected GDP reading will likely result in a sell off of the domestic currency relative to other currencies (USD depreciating against EUR).

EUR/USD chart: Low GDP data release

• A higher than projected GDP reading will tend to strengthen the underlying currency versus other currencies (USD appreciating against EUR).

EUR/USD chart: High GDP data release

GDP reports do not always have the same or expected effect on currencies. This is important to keep in mind before committing to a trade. Often, GDP figures are already fully/partially priced into the market meaning that the market may not react as anticipated once GDP figures are released.

Related economic data reports regularly allow for the market to ascertain a somewhat accurate estimate. Data to look out for:

• ISM data
• PPI data

ANALYSING GDP DATA TO INFORM CURRENCY TRADING DECISIONS

GDP, Inflation and Interest Rates

The advance release of GDP is four weeks after the quarter ends while the final release happens three months after the quarter ends. Both are released by the Bureau of Economic Analysis (BEA) at 08:30 ET. Typically, investors are looking for US GDP to grow between 2.5% to 3.5% per year.

Without the specter of inflation in a moderately growing economy, interest rates can be maintained around 3%. However, a reading above 6% GDP would show that the US economy is endanger of overheating which can, in turn, spark inflation fears.

Consequently, the Federal Reserve may have to raise interest rates to curb inflation and put the ‘brakes’ on an overheating economy. Maintaining price stability is one of the jobs of the Federal Reserve. GDP must stay in a ‘goldilocks range’: not too hot and not too cold.

GDP should not be high enough to trigger inflation or too low where it could lead to recession. A recession is defined by two consecutive negative quarters of GDP growth. The GDP ‘sweet spot’ varies from one country to another. For example, China has had GDP in double digits.

Forex traders are most interested in GDP as it is a complete health report card for a country’s economy. A country is ‘rewarded’ for a high GDP with a higher value of their currency. There is usually a positive expectance for future interest rate hikes because strong economies tend to get stronger creating higher inflation. This, in turn, leads to a central bank raising rates to slow growth and to contain the growing specter of inflation.

On the other hand, a country with weak GDP has a drastically reduced interest rate hike expectation. In fact, the central bank of a country that has two consecutive quarters of negative GDP may even choose to stimulate their economy by cutting interest rates.

TRADING CURRENCY PAIRS USING GDP DATA

Quarter-on-quarter figures tend to produce much more variable changes in the overall trend – e.g. Positive GDP figures beating estimates QoQ may be fleeting when taking into consideration year-on-year (YoY) data. YoY data allows for a broader perspective which could potentially highlight an overall trend.

The chart below shows a longer time frame EUR/USD view as seen in Chart 2 above. This chart expresses the variation in short term QoQ data against the longer-term YoY trend.

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Pipscollector.com - Stock market volatility is an integral concept for traders to understand. Knowing the stocks with the highest potential for significant price movement, as well as how to trade them optimally, can mean exciting opportunities. 

In this piece, we explore high volatility stocks in more depth, look at how to identify the most volatile stocks, and provide best practice tips for trading them.

WHAT IS VOLATILITY IN STOCKS?

Stock market volatility refers to the range of price movement of a stock over time. A more volatile trade has the potential for significant gains, but also substantial losses. Volatility in stocks can be understood using the following measures:

1) Standard deviation

Standard deviation is the average amount the price of a stock has differed from the mean over a given period. Bollinger bands can be used by chartists to analyze standard deviation.

2) Beta

A stock’s Beta is a measure of its volatility in relation to the wider market. The market has a beta of 1.0, with more volatile stocks having a value greater than this (eg 2.0), and less risky stocks having a value closer to zero.

The chart below shows the price for the ATA Inc. stock (ATAI), listed among the most volatile by TradingView as of April 2019, with both the standard deviation and Beta measures of volatility included on the chart.

WHAT ARE THE MOST VOLATILE STOCKS?

When it comes to volatility and stocks, there is no one set of stocks that are always more volatile than another. Stocks can be classed as ‘currently volatile’, describing those stocks with current high swings, or ‘expected to be volatile’, meaning stocks that may be stable at this moment but have potential for high volatility in the future.

As can be seen in the above example, stocks can have periods of high volatility, for example showing a Beta near zero, then an increasing Beta to 2.0, and then falling back to near zero months later.

 

 

IDENTIFYING HIGH VOLATILITY STOCKS

When identifying high volatility stocks, traders can use a stock screener, search the derivatives market, and use third party websites.

Stock Screener/Filter

A stock screener or stock filter is an automated program that reveals a list of stocks that fit certain criteria.

For example, using a stock screener to monitor the stocks that had the biggest percentage gains or losses in a prior trading session, making sure each has enough volume per day, can be helpful to ascertain subsequent volatility. Helpful criteria to find volatile stocks may include ‘show stocks where the average day range (50) is above 4%’

Searching the derivatives market

Traders can use parameters in the corresponding derivatives market such as put call ratio, which is a tool to gauge market sentiment, open interest, the number of contracts outstanding on an exchange at any one time, and implied volatility, a market forecast of likely price movement. For these indicators, it is advisable to go to the official exchange website.

Third party websites

TradingView, for example, rounds up the most volatile stocks by percentage price changes.

HOW TO TRADE STOCK MARKET VOLATILITY

Trading stock market volatility successfully involves effective hedging, knowing when to sell stocks, employing sound risk management, and spotting buying opportunities when renowned stocks see a fall in price.

Hedging

Hedging against spikes in volatility is important to offset losses. This can be done by buying put options, which allow the sale of assets at an agreed price on or before a particular date, and trading inverse exchange-traded funds, which act as the inverse of the index or benchmark it tracks. Traders can also explore aggregated stocks through an index to protect against volatility (see below).

Selling stock/managing risk

If extreme volatility is affecting your mindset, it may be wise to sell off some stock and put your money into less dynamic securities. This leaves you free to trade another day without risking more than you are prepared to lose.

Practising sound risk management is essential when dealing with aggressive price action. Volatile stocks can lose you a lot of money and should not be traded if your mindset isn’t right that day, particularly if day trading.

Spotting buying opportunities

Sometimes a buying opportunity arises when high volatility hits the price of high-quality stocks. For example, in early 2019 the NASDAQ and S&P 500 constituent Apple cut its earnings forecast, leading to its price dropping 10-15% in the following days. However, just three months later, it completely recovered and approached a $1 trillion valuation once more. Identifying opportunities to go long when the market conditions reverse is one way traders look to speculate when coupled with prudent trade management techniques.

VOLATILE STOCKS FOR DAY TRADING

Like the most volatile currency pairs, volatile stocks can show significant movement throughout the day, making them potentially an attractive option for day traders. While some stocks may move 0.5% in a single day, others may move as far as 5% in the same period, meaning traders should be constantly alert.

To find a volatile stock for day trading, watch a stock you found with your stock screener for intraday movement. If a stock opens down 10% and starts moving, as opposed to staying static, it is being day traded and may be worth consideration.

Due to the speed of price movement, executing day trades can be a physical endeavour and good reflexes win the day.

 

 

VOLATILE STOCKS FOR SWING TRADING

Swing traders hold positions for more than a day, making the effects of volatility potentially smaller than when day trading. Stocks that may be suitable for swing trading include large cap stocks such as Apple, Facebook and Microsoft, because they have a large volume of shares changing hands at any given point.

SUMMARY TIPS ON TRADING STOCK MARKET VOLATILITY

When it comes to trading stock market volatility, the following tips are useful:

1. Be aware that price movement usually shares a strong correlation with the performance of the major stock indices on which the stock is traded.
2. In addition to macroeconomic themes, don’t forget that single stocks are beholden to microeconomic concerns like regulation, liability and performance of the management. To ward off unforeseeable risks, a trader can explore aggregated stocks through one of the major stock indices such as FTSE 100, DAX and CAC 40. Trading an index removes some of the smaller risks and while still granting exposure to the equity asset class.
3. Index trading is vulnerable to liquidity concerns in times of extreme volatility and crisis. To combat a potential lack of liquidity in a stock market, currency markets can offer a much deeper pool of participants and capital.

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WHY YOU SHOULD USE A TRADING CHECKLIST

Pipscollector.com - Implementing a trading checklist is a vital part of the trading process because it helps traders to stay disciplined, stick to the trading plan, and builds confidence. Maintaining a trading checklist presents traders with a list of questions that traders need to answer before executing trades.

It is important not to confuse a trading plan with the trading checklist. The trading plan deals with the big picture, for example, the market you are trading and the analytical approach you choose to follow. The trading checklist focuses on each individual trade and the conditions that must be met before the trade can be made.

YOUR TRADING CHECKLIST

Before entering a trade, ask yourself the following questions:

1. Is the market trending or ranging?
2. Is there a significant level of support or resistance nearby?
3. Is the trade confirmed by an indicator?
4. What is the risk to reward ratio?
5. How much capital am I risking?
6. Are there any significant economic releases that can impact the trade?
7. Am I following the trading plan?

1) IS THE MARKET TRENDING OR RANGING?

Trending markets

Experienced traders know that finding a strong trend and trading in the trend’s direction, has the potential to lead to higher probability trades.

There is a well-known saying that trending markets have the ability to bail traders out of bad entries. As can be seen below, even if a trader entered a short trade after the trend was well established, the trend would continue to provide more pips to the downside than to the upside.

Traders need to ask themselves if the market is exhibiting signs of a strong trend and whether ‘trend trading’ forms part of the trading plan.

 

Ranging markets

Ranging markets tend to see price bounce between support and resistance to trade within a channel. Certain markets, like the Asian trading session, tend to trade in ranges. Oscillating indicators (RSI, CCI and Stochastic) can be of great use to traders that focus on range trading.

2) IS THERE A SIGNIFICANT LEVEL OF SUPPORT OR RESISTANCE NEARBY?

Price action tends to respect certain price levels for a number of reasons and being able to identify these levels is key. Traders do not want to be holding a short position after price has dropped to the key level of support, only to bounce back higher.

The same applies when price approaches a key level of resistance and typically drops lower shortly after. Trend traders typically look for sustained breaks of these levels as an indication that the market may start to trend. Range traders will on the other hand, look for price to bounce between support and resistance for prolonged periods.

3) IS THE TRADE CONFIRMED BY AN INDICATOR?

Indicators assist traders in confirming high probability trades. Depending on the trading plan and strategy, traders will have one or two indicators that complement the trading strategy. Do not fall into the trap of over-complicating the analysis by adding multiple indicators to a single chart. Keep the analysis clean and simple and easy to view at a glance.

4) WHAT IS THE RISK TO REWARD RATIO?

The risk to reward ratio is the ratio of the number of pips that traders will risk in the hopes of reaching the target. According to our Traits of Successful Traders research, which analysed over 30 million live trades, traders with a positive risk to reward ratio were nearly three times more likely to be profitable than those who do not. For example, a 1:2 ratio means that a trader risks half of what he/she stands to gain if the trade works out. The image below further depicts this principle.

5) HOW MUCH CAPITAL AM I RISKING?

It is essential for traders to ask this question. Often traders blow up their accounts by leveraging the account to the maximum when chasing “sure things”. One way to avoid this is to limit the leverage used on all trades to ten to one, or less. Another helpful tip is to set stops on all trades and ensure that the aggregate amount risked is no more then 5% of the account balance.

Before placing a trade, ask yourself, “how much capital should I use?”

6) ARE THERE ANY SIGNIFICANT ECONOMIC RELEASES THAT CAN IMPACT THE TRADE?

Sudden market news has the potential to invalidate the “perfect” trade. While it is almost impossible to anticipate things like, acts of terror, natural disasters or systemic failures in the financial markets, traders can plan for economic releases like NFP, CPI, PMI and GDP releases.

Plan ahead by viewing our economic calendar which highlights major economic releases from the top trading nations

7) AM I FOLLOWING THE TRADING PLAN?

All of the above is of very little use if it does not tie in with the trading plan. Deviating from the trading plan will result in mixed results and only frustrate the trading process. Keep to the trading plan and do not place trades unless the trading checklist has been completed and confirms the trade may be executed.

 

 

TRADING CHECKLISTS: A SUMMARY

• Having a trading checklist does not automatically mean all trades will become winning trades. It will however help traders to stick to the trading plan, trade with more consistency, and avoid impulsive or reckless trades.
• At DailyFX we have dedicated a podcast to the trading plan and how to create one.
• Document your trades and stay accountable with the help of a trading journal.

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Pipscollector.com - Stocks are a key ingredient in the portfolio of millions of investors and traders. They can provide a long-term path towards passive income potentially hitting double-digit returns. But the stock market can also be confusing, and potentially costly or dangerous, with the process of picking the right stocks, at the right time, not always so clear. Read on and discover our guide on how to pick stocks for investors to move towards meeting their goals.

HOW TO PICK STOCKS: STEP BY STEP

There are a variety of crucial factors to consider when approaching the question ‘How to pick stocks’. These considerations can determine the success of a stock portfolio and range from the financial health of the companies chosen, to liquidity and volatility of the stock in question, to wider fundamental events outside the company’s control. Investors should consider all of these influences to have the best chance of building a stock portfolio capable of meeting their goals. Here’s a step-by-step list below.

1. ESTABLISH A PLAN

Establishing a plan is key starting point when picking stocks. You’ll need to consider questions such as how many stocks to buy, what your likely plans are for the money down the line, and whether you’d prefer to trade stocks over the short term rather than invest for a longer-term approach. For example, long-term investors looking to buy and hold stocks for five years or more will obviously have a very different strategy to those looking for short positions in overbought market conditions like we saw frequently in the latter part of the 2010s.

If you’re in it for the short term, find out more on how to create a trading plan for technical analysis.

2. ASSESS YOUR RISK TOLERANCE

Your tolerance for risk will play a key role in determining the kind of stocks to pick. To this point, if an investor is looking for a more risk-averse portfolio, they may want to weigh more towards defensive stocks such as those in utilities or consumer staples. Alternatively, a higher-risk approach could see an investor choosing companies in emerging economies or immature sectors, or companies that depend on key market events going a certain way for their targets to be realized. For example, a pharma company awaiting FDA approval for a new drug will be subject to the risk of that approval not happening – an event potentially devastating to its share price.

Find out more on navigating risk management with our helpful guide.

3. DO YOUR RESEARCH

Attractive stocks can be found in a variety of circumstances, but an investor may get a head start on the crowd if they know a couple of sectors and the companies within them inside-and-out.

Here are some of the key things to consider about the companies behind the stocks being analyzed, as well as the market conditions in which they might be most attractive.

Financial condition

Understand the state of the company’s balance sheet. What are its assets, liabilities, and cash flow situations? Research revenue in recent periods.

Management

Who’s steering the ship and what’s their industry track record? Do they enjoy shareholder confidence?

Innovation

How does the company innovate to stay ahead of and respond to its competition? How have new products and services been received by customers and shareholders?

Dividends

Is the company paying a dividend, and if so, how often and will it be increased? Find out more about how to invest in dividend stocks.

Price and valuation

Is the company undervalued? To find out, calculate the price-to-earnings ratio, or P/E, by dividing the company’s stock price by its earnings per share. A P/E of around 15 may be considered ‘cheap’ – but that doesn’t necessarily mean that it’s worth buying or inexpensive by industry standards. Being cheap may just mean investors lack confidence in its growth prospects. Find out more about how to value a stock.

Liquidity

Does the stock have sufficient trading volume to allow traders to enter and exit the market as straightforwardly as possible? Read more on stock market liquidity for a detailed picture.

Volatility

How volatile has the price movement been for this stock, and what are the reasons for any extreme fluctuations? With volatility naturally comes increased risk, but also potential opportunity. Read more on stock market volatility to discover how to take advantage.

Explore our in-depth guide on researching stocks for more information.

4. USE TECHNICALS AND OTHER TOOLS WHERE APPROPRIATE

If you are trading stocks in the short term, for example as a day trader, swing trader or scalper, you may want to investigate technical analysis tools to try and gauge price action in order to help time entries and exits. These tools include the moving average, MACD and RSI, as well as volume and support and resistance levels.

Naturally, these tools rely on historical price activity to inform choices, so while they can be useful for projecting trends, it is advisable to combine a technical approach with understanding of the fundamental factors that can override patterns and, of course, risk management.

Read more on technical indicators and how they can assist your analysis.

5. PICK THE STOCK AND TRADE IT ACTIVELY…OR JUST WAIT

When it comes to the procedural process of picking the stock for a long-term investment or short-term trading endeavor, the clearest method is often via a trading platform/online brokerage account, which can be set up with proof of ID and a choice of funding method. After that, while short-term speculators may be actively trading the stock, long-term passive investors will usually be waiting it out. For the latter, while there’ll be ups and downs along the way, the mission is to capitalize on growth over a period of many years.

The Best Performing Stocks - Jan 00 to Jan 20

STOCK	GROWTH IN STOCK PRICE JAN 00-JAN 20
Monster Beverage Corporation	73,300%
Netflix	34,400%
Apple	20,000%
Tractor Supply Company	17,000%
Amazon	11,400%

MOST POPULAR STOCKS

As mentioned above, the most popular stocks to trade by volume consistently show up as the likes of giant corporations Facebook, Amazon, Apple, Netflix and Alphabet, but different fundamental events can cause the stocks of various other companies to come out on top in shorter-term trading volume. The chart below shows the stocks with the highest global volume for the month at the end of March 2020.

The leading stock by volume, Greece-based tanker vessel operator Top Ships Inc, grew in popularity as an asset sale saw an influx of funding which allowed the company to greatly reduce its debt. The stock was likely even buoyed by circumstances surrounding the coronavirus pandemic, with surging product demand in areas such as cleaning supplies and paper products leading to increased shipping requirements.

Another company seeing unusually high volume in March was cruise line operator Carnival Corp, much of which was to the short side as the company suspended dividend payments and stock repurchases as voyage suspensions continued amid the coronavirus outbreak.

Rounding out the top three is Ford, which saw a seven-year high in trading volume, again mostly to the short side, as coronavirus decimated production and market demand.

What lesson can stock pickers learn from these examples? When a huge fundamental crisis hits, stocks are affected in different ways. Research on different sectors may shine a light on the industries that could pick up steam when others are going in the other direction. So read up, keep your eyes open, and focus on the goals of the portfolio.

FAQS

How do you decide what stocks to buy?

Deciding what stocks to buy is a multi-faceted process based on factors such as industry knowledge, corporate financials, timing, wider market fundamentals, and in some cases, technical patterns. Investors can put all or some of it together in the effort of building the most appropriate individualized approach.

When should you buy shares?

Timing is everything, but not all oversold shares are ready to be snapped up – after all, they were sold for a reason. Consider the growth potential of the industry and the company within it, and the fundamental factors that might affect its journey along with how that investment or trade may fit with the goals of the portfolio.

Is it worth it to buy 1 share of stock?

It depends on the stock- and the circumstances. Stocks are priced across the board, so owning one share of Berkshire Hathaway has very different ramifications for an investor’s financial position than owning one share of Facebook.

What stocks does Warren Buffett own?

Speaking of Berkshire Hathaway – some of Warren Buffett’s largest investments are currently in financial institutions such as Bank of America and Wells Fargo, consumer brands such as Coca-Cola and Kraft-Heinz, and technology giants such as Apple and Sirius.

How many stocks should I own?

That depends entirely on your plan and the companies you choose. Overall, it’s advisable to aim for a diversified portfolio, with a mixture of growth and defensive stocks, to ensure that risk can be managed effectively.

Read more articles in the Educational Content category to update the latest forex knowledge from Pipscollector.

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Pipscollector.com - Understanding the basics of going long or short in forex is fundamental for all beginner traders. Taking a long or short position comes down to whether a trader thinks a currency will appreciate (go up) or depreciate (go down), relative to another currency. Simply put, when a trader thinks a currency will appreciate they will “Go Long” the underlying currency, and when the trader expects the currency to depreciate they will “Go Short” the underlying currency.

Keep reading to find out more about long and short positions in forex trading and when to use them.

WHAT IS A POSITION IN FOREX TRADING?

A forex position is the amount of a currency which is owned by an individual or entity who then has exposure to the movements of the currency against other currencies. The position can be either short or long. A forex position has three characteristics:

1. The underlying currency pair
2. The direction (long or short)
3. The size

Traders can take positions in different currency pairs. If they expect the price of the currency to appreciate, they could go long. The size of the position they take would depend on their account equity and margin requirements. It is important that traders use the appropriate amount of leverage.

WHAT DOES IT MEAN TO HAVE A LONG OR SHORT POSITION IN FOREX?

Having a long or short position in forex means betting on a currency pair to either go up or go down in value. Going long or short is the most elemental aspect of engaging with the markets. When a trader goes long, he or she will have a positive investment balance in an asset, with the hope the asset will appreciate. When short, he or she will have a negative investment balance, with the hope the asset will depreciate so it can be bought back at a lower price in the future.

WHAT IS A LONG POSITION AND WHEN TO TRADE IT?

A long position is an executed trade where the trader expects the underlying instrument to appreciate. For example, when a trader executes a buy order, they hold a long position in the underlying instrument they bought i.e. USD/JPY. Here they are expecting the US Dollar to appreciate against the Japanese Yen.

For example, a trader who has bought two lots of USD/JPY has a long position of two lots in USD/JPY. The underlying is the USD/JPY, the direction is long, and the size is two lots.

Traders look for buy-signals to enter long positions. Indicators are used by traders to look for buy and sell signals to enter the market.

An example of a buy signal is when a currency falls to a level of support. In the chart below USD/JPY depreciates to 110.274 but is supported at that level multiple times. This level of 110.274 becomes a support level and offers traders a buy-signal for when the price dips to that level.

An advantage of the forex market is that it trades virtually 24/5. Some traders prefer to trade during the major trading sessions like the New York session, London session and sometimes the Sydney and Tokyo session because there is more liquidity.

WHAT IS A SHORT POSITION AND WHEN TO TRADE IT?

A short position is essentially the opposite of a long position. When traders enter a short position, they expect the price of the underlying currency to depreciate (go down). To short a currency means to sell the underlying currency in the hope that its price will go down in the future, allowing the trader to buy the same currency back at a later date but at a lower price. The difference between the higher selling price and the lower buying price is profit. To provide a practical example, if a trader shorts USD/JPY, they are selling USD to buy JPY.

Traders look for sell-signals to enter short positions. A common sell-signal is when the price of the underlying currency reaches for level of resistance. A level of resistance is a price level that the underlying has struggled to break above. In the chart below USD/JPY appreciates to 114.486 and struggles to appreciate further. This level becomes a resistance level and offers traders a sell-signal when the price reaches for 114.486.

Some traders prefer to trade only during the major trading sessions, although if an opportunity presents itself, traders can execute their trade virtually anytime the forex market is open.

Read more articles in the Educational Content category to update the latest forex knowledge from Pipscollector.

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Pipscollector.com - In this article, we’ll explore CPI and forex trading, looking at what traders should know about the Consumer Price Index to make informed decisions. We’ll cover what CPI is as a concept, the CPI release dates, how to interpret CPI, and what to consider when trading forex against CPI data.

WHAT IS CPI AND WHY DOES IT MATTER TO FOREX TRADERS?

The Consumer Price Index, better known by the acronym CPI, is an important economic indicator released on a regular basis by major economies to give a timely glimpse into current growth and inflation levels.

Inflation tracked through CPI looks specifically at purchasing power and the rise of prices of goods and services in an economy, which can be used to influence a nation’s monetary policy.

CPI is calculated by averaging price changes for each item in a predetermined basket of consumer goods, including food, energy, and also services such as medical care.

It is a useful indicator for forex traders due to its aforementioned effect on monetary policy and, in turn, interest rates, which have a direct impact on currency strength. The full utility of knowing how to interpret CPI as a forex trader will be explored below.

CPI RELEASE DATES

CPI release dates usually occur every month, but in some countries, such as New Zealand and Australia, quarterly. Some nations also offer yearly results, such as Germany’s index. The US Bureau of Labor Statistics has reported the CPI monthly since 1913.

The following table shows a selection of major economies and information about their CPI releases.

COUNTRY/JURISDICTION	COMPILING BODY	FREQUENCY OF RELEASES
Australia	Australian Bureau of Statistics	Quarterly
Canada	Statistics Canada	Monthly
China	National Bureau of Statistics of China	Monthly
Eurozone	European Central Bank	Twice monthly
Germany	Federal Statistical Office of Germany	Monthly, yearly
Italy	Istat	Monthly
India	Ministry for Statistics and Programme Implementation	Monthly
Japan	Statistics Japan	Monthly
UK	Monetary Policy Committee	Monthly
US	US Bureau of Labor Statistics	Monthly

WHY FOREX TRADERS SHOULD FOLLOW CPI DATA

Understanding CPI data is important to forex traders because it is a strong measure of inflation, which in turn has a significant influence on central bank monetary policy.

So how does CPI affect the economy? Often, higher inflation will translate to higher benchmark interest rates being set by policymakers, to help dampen the economy and subdue the inflationary trend. In turn, the higher a country’s interest rate, the more likely its currency will strengthen. Conversely, countries with lower interest rates often mean weaker currencies.

The release and revision of CPI figures can produce swings in a currency’s value against other currencies, meaning potentially favorable volatility from which skilled traders can benefit.

Also, CPI data is often recognized as a useful gauge of the effectiveness of the economic policy of governments in response to the condition of their domestic economy, a factor that forex traders can consider when assessing the likelihood of currency movements.

The CPI can also be used in conjunction with other indicators, such as the Producer Price Index, for forex traders to get a clearer picture of inflationary pressures.

WHAT TO CONSIDER WHEN TRADING FOREX AGAINST CPI DATA

When using CPI data to influence forex trading decisions, traders should consider the market expectations for inflation and what is likely to happen to the currency if these expectations are met, or if they are missed.

Similar to any major release, it may be beneficial to avoid having an open position immediately before. Traders might consider waiting for several minutes after the release before looking for possible trades, since forex spreads could widen significantly right before and after the report.

Below is a chart displaying the monthly inflation rates for the US. For the latest month, expectations are set at 1.6% inflation compared to last year’s data. If CPI is released higher or lower than expectations this news event does have the ability to influence the market.

Chart to show US inflation levels in 2018/19. Source: TradingEconomics.com. US Bureau of Labor Statistics

One way the effects of CPI data can be interpreted is by monitoring the US Dollar Index, a 2018/19 example chart for which is below. If CPI is released away from expectations, it is reasonable to believe this may be the catalyst to drive the Index to fresh highs, or to rebound from resistance.

Since the Index is comprised of EUR/USD, USD/JPY, and GBP/USD, by watching the US Dollar we can get a full interpretation of the events outcome.

Chart to show movement in the US Dollar Index. Source: TradingView.com

As can be observed in the example above, as inflation rose during the first half of 2018, the US Dollar Index went up accordingly. But with US inflation drifting lower in the following months and with a missed target of 2%, this pushed US interest rate hikes off the agenda. As a result, the dollar struggled and weakened against a basket of other currencies.

Not every fundamental news release works out through price as expected.

Once the CPI data has been released and analyzed, traders should then look to see if the market price is moving through or rebounding off any areas of technical importance. This will help traders understand the short-term strength of the move and/or the strength of technical support or resistance levels, and help them make more informed trading decisions.

Read more articles in the Educational Content category to update the latest forex knowledge from Pipscollector

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Pipscollector.com - Knowing how to accurately value a stock enables traders to identify and take advantage of opportunities in the stock market. Stock valuation, also referred to as ‘equity valuation’, provides the framework for traders to identify when a stock is relatively cheap or expensive. The difference between a stock’s market value and its intrinsic value presents traders with an opportunity to benefit from this disparity.

WHY VALUE A STOCK?

Valuing a stock allows traders to acquire a solid understanding of the value of a share and whether it is appropriately priced. Once the value of the share is known, it can then be compared to the quoted price of the share in the stock market.

If the quoted share price is higher than the calculated value, it is seen as expensive and traders will look to short/sell the stock in anticipation of price reverting to its intrinsic value.

If the quoted price is lower than the calculated price, it is seen as cheap and traders will look to buy/long the stock in anticipation of the price reverting to its intrinsic value.

The information below summarizes this relationship:

Market value > intrinsic value = Overvalued (short signal)

Market value < intrinsic value = Undervalued (long signal)

It is worth mentioning that while a stock may be overvalued or undervalued, it is possible for it to remain that way for a prolonged period of time if the underlying cause of the imbalance persists.

THE DIFFERENT TYPES OF STOCK VALUE

What determines the value of a stock? The best way to answer this is to deal with the concept of value. What is value? Is it the going price that one person is prepared to pay to another (market value), or is it an underlying value that can be calculated objectively, based on a set of publicly available data (intrinsic value)?

These two concepts are defined below:

1) Market value: The quoted share price in the stock market. Essentially it is the last traded price. Market value is the price where a willing buyer and a willing seller agree to exchange.

2) Intrinsic value: A more calculated measure of value, based on publicly available information. Since there is no definitive model on stock valuation, analysts tend to arrive at different intrinsic values however, these values tend not to differ greatly.

In reality, share prices often differ from their intrinsic value. An example of this would be a case where there is major hype around a new share, or a rapidly growing share that investors look to snatch up quickly. Increasing FOMO would naturally prolong this imbalance until the share price undergoes a major correction.

For example, if Tesla Inc is currently trading at $331 and the intrinsic value is $300, traders may anticipate a move lower towards $300.

Example of share trading above intrinsic value (Tesla Inc):

The reverse of this is where a share trades below its intrinsic value and traders purchase the share in anticipation of the share price rising to match the intrinsic value. This is often the case for value stocks. An example of this is shown below where Aviva PLC is trading below intrinsic value.

Example of stock trading below intrinsic value (Aviva PLC):

TOP 3 WAYS TO FIND THE VALUE OF A STOCK

Stock valuation performed by leading financial institutions and hedge fund managers make use of highly sophisticated variations of the below valuation methods. This article seeks to provide traders with a comprehensive starting point to stock valuation for the following stock valuation methods:

1. P/E Ratio
2. PEG Ratio
3. Dividend Discount Model (DDM)

1. P/E RATIO

A company’s price earnings ratio, or P/E ratio, is one of the most popular ways to value a share due to its ease of use and mass adoption by investment professionals.

The ratio does not provide an intrinsic value but instead compares the stock’s P/E ratio to a benchmark - or other companies in the same sector - to determine if the stock is relatively overvalued or undervalued.

The P/E ratio is calculated by dividing the stock’s price per share by its earnings per share.

For example, consider the following three companies and their respective P/E ratios:

Company A and B look attractive as they are both below the industry average of 11. This is the starting point for stock valuation as there may be a very good reason why these companies look relatively cheap. It is possible that the company has taken on too much debt and the share price accurately reflects the market value of the debt ridden entity.

The same level of analysis needs to be conducted for Company C, which has a P/E ratio well above average. While it looks expensive, it is possible that the market has factored in an increase in future growth in earnings and therefore, investors are willing to pay more for these increased earnings.

2. PEG RATIO

When taking the P/E ratio a step further, traders are able to get a good idea of the value of a stock when incorporating the growth rate of Earnings Per Share (EPS). This is more realistic as earnings are seldomly static and therefore, adding EPS growth to the mix creates a more dynamic stock valuation formula.

The earnings figure used can either be historic to provide a ‘Trailing PEG’ or a forecasted figure providing a ‘Forward PEG’.

The PEG ratio is calculated as follows:

Stock valuation formula:

Consider the same example but with added information on earnings growth:

Generally speaking, a PEG ratio of less than one suggests a good investment, while ratios more than one suggest that the current price of the stock is too high in relation to the projected earnings growth and therefore, less of a good deal.

According to the PEG ratios, Company A is alright, company C looks very attractive even at its high price and Company B does not look flattering at all.

Once more its crucial to note that investment decisions should not be made entirely on the PEG ratios and that further analysis into the company's financial statement should be conducted.

3. DIVIDEND DISCOUNT MODEL (DDM)

The dividend discount model is similar to the previous stock valuation methods as it considers future dividends (earnings) to shareholders. However, the DDM model looks at future dividends and discounts them to establish what those dividends would be worth in today’s value otherwise referred to as the present value (PV).

The reasoning behind this is that the share today should be worth whatever the shareholder receives in the form of dividends, discounted back to today.

To make the calculation simpler, assume a dividend payment is made once a year. Secondly, it is normal to assume that dividends increase over the years as the business grows and as a result of the effects of inflation. Higher input costs get handed down to consumers are reflect in increased earnings and, by extension, increased dividend payments.

The growth in dividends is assumed to be constant and is denoted as ‘g’ below. The required rate of return is denoted ‘r’ and is used to discount future cash flows to today’s value.

Stock valuation formula:

• PV = Present value of the stock
• DIV1 = Expected dividend 1 year from now
• r = Discount rate
• g = Constant growth of dividends

Dividends received farther into the future are less valuable in today’s terms and therefore contribute less to the determination of the stock’s value today. After discounting future dividends, the answer at PV is the value of the stock according to the dividend discount model.

DETERMINING THE VALUE OF A STOCK: KEY TAKEAWAYS

It is clear that stock valuation can be quite straight forward when using the P/E ratio and PEG ratio, or more complex when using the DDM method. After finding a suitable method, traders can compare the market price of a particular share with the calculated intrinsic/relative value to establish if there is any meaningful difference.

If there is disparity between the two figures, traders can look to short overvalued stocks or long oversold stocks while always remembering to apply sound risk management.

STOCK VALUATION FAQS

What is the best method for valuing stocks?

As explored above, there are various ways to value a stock and no method is more superior to the rest. Methods of valuing stocks become very specialized and complex however, traders that understand the basics are able to uncover mispriced stocks and set up trades to capitalize this.

How can I tell when a stock is going to go up in value?

The short answer is there is no way to know for sure if a stock is going to go up or even down in value. However traders can make use of fundamental and technical analysis in an attempt to increase the probability of winning trades, while adhering to sound risk management to mitigate moves in the opposite direction.

Read more articles in the Educational Content category to update the latest forex knowledge from Pipscollector and continue to Part 3.

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Nhóm tín hiệu là gì? Hoạt động như thế nào?

Nhóm tín hiệu là những nhóm cộng đồng, diễn đàn trực tuyến nơi chia sẻ những tín hiệu giao dịch (điểm vào và thoát lệnh) của những tài sản được giao dịch trên thị trường tài chính. Thường thì nhóm tín hiệu sẽ được thành lập bởi các môi giới, sàn giao dịch để làm nơi thu hút và chăm sóc khách hàng, tuy nhiên, vẫn có những nhóm tín hiệu chất lượng cao, được lập ra bởi những nhóm chuyên gia, nhà phân tích kỹ thuật và những trader chuyên nghiệp.

Các nhóm tín hiệu hầu hết ban đầu đều miễn phí để thu hút người tham gia, điều này giúp kiểm chứng chất lượng của nhóm, cũng như việc xem nhóm có hoạt động sôi nổi không? cung cấp bao nhiêu tín hiệu một ngày? Có những nội dung hữu ích nào? Và điều được quan tâm nhất tất nhiên là độ chính xác của những tín hiệu mà nhóm tín hiệu đó cung cấp. Một nhóm tín hiệu dù trông có chuyên nghiệp, nhiều thành viên cỡ nào mà tín hiệu không chuẩn xác đều không phải là một nhóm tín hiệu uy tín.

Và tất nhiên, một khi bạn đã tham gia được một nhóm tín hiệu chất lượng và có thể giúp bạn sinh lời, bạn sẽ muốn nhận được thêm thật nhiều tín hiệu giao dịch. Và đây chính là lúc bạn phải bỏ tiền ra để “mua thêm” tín hiệu giao dịch. Thông thường các nhóm tín hiệu sẽ đưa ra mức giá từ vài chục tới vài trăm đô la hàng tháng, tuy nhiên, vẫn có không ít người sẵn sàng bỏ tiền ra để mua tín hiệu giao dịch vì lợi ích tuyệt vời mà nhóm mang lại.

Ưu điểm khi tham gia nhóm tín hiệu

Chắc chắn rằng nhóm tín hiệu phải mang lại rất nhiều lợi ích nên loại hình này mới có thể phát triển nhiều lên như hiện nay.

Tiết kiệm thời gian và chi phí

Nếu bạn bắt đầu như một tờ giấy trắng, chắc chắn bạn sẽ phải bỏ ra rất nhiều công sức và thời gian để trau dồi kiến thức giao dịch, phải bỏ chi phí tham gia các khóa học, mua các cuốn sách bài bản để tăng cơ hội thành công trên thị trường. Trong khi đó, nhóm tín hiệu cung cấp tín hiệu từ những chuyên gia có đủ kiến thức và dày dặn kinh nghiệm, vì vậy, bạn chỉ cần có nền tảng thức cơ bản để hiểu những tín hiệu giao dịch đó đã có thể sinh lời từ thị trường.

Rút ngắn thời gian thành công

Bạn có thể x2, x3 tài khoản của mình mà không cần phải mất cả năm trời làm việc. Tham gia nhóm tín hiệu có thể giúp nhà đầu tư đạt được thành công nhanh chóng hơn thông qua hỗ trợ chiến lược và kiến thức chuyên sâu.

Tham gia cộng đồng có cùng sở thích và mục tiêu

Những mối quan hệ chất lượng luôn là một yếu tố quan trọng bất kể bạn đang theo đuổi sự nghiệp nào. Tham gia vào những nhóm tín hiệu không chỉ đơn thuần là việc nhận tín hiệu, mà còn là cơ hội được trao đổi thông tin và kiến thức với những người có cùng sở thích và mục tiêu thành công, trong đó có cả những chuyên gia hàng đầu.

Cập nhật thông tin thị trường nhanh chóng

Các thông tin thị trường nhanh nhất hầu hết đến từ các trang thông tin nước ngoài và quốc tế, nếu khả năng tiếng Anh của bạn không thực sự tốt thì điều này có thể gây khó khăn cho bạn. Vì vậy, các nhóm tín hiệu là một kênh thông tin thị trường nhanh chóng được, biên tập và tổng hợp kỹ càng để bạn có thể tham khảo.

Rủi ro khi tham gia nhóm tín hiệu. Tại sao nhóm tín hiệu đúng 70-80% nhưng vẫn thua lỗ. 

• Không có kiến thức và bị phụ thuộc: Việc quá phụ thuộc và những tín hiệu được cung cấp sẽ tạo ra một trạng thái chây ì và đánh mất thế chủ động của bạn. Để thành công trên đường dài việc trau dồi kiến thức là điều không bao giờ được ngừng lại,

• Các nhóm tín hiệu vẽ ra một thế giới màu hồng mà ko cảnh báo rủi ro: Để thu hút nhiều người tham gia, tất nhiên các nhóm tín hiệu sẽ đưa ra những thông điệp mời gọi màu hồng, về việc kiếm tiền và sinh lời vô cùng dễ dàng. Tuy nhiên ít có những nhóm nào đưa ra cảnh báo về những rủi ro mà chúng ta có thể gặp phải khi tham gia thị trường 

• Tham gia quá nhiều nhóm tín hiệu, không quản lý được danh mục của mình, không biết lệnh từ nhóm nào lỗ, nhóm nào lời, lệnh lỗ nhiều hơn lệnh thắng.

• Bị Fomo theo những lệnh lời: Rất nhiều trường hợp lệnh đã đi ra khỏi vùng Entry nhưng nhà đầu tư bị Fomo khi thấy giá chạy lời, đến khi vào lệnh lại thua lỗ. Hoặc thấy quá nhiều thông tin sinh lời và đi lệnh theo tín hiệu một cách mù quáng.

Nhà đầu tư nên làm gì?

Khi bạn đã biết ưu nhược điểm của việc tham gia nhóm tín hiệu, có lẽ bạn cũng đã biết được cách sử dụng những kênh này một cách hiệu quả nhất. Chúng ta hãy cùng tóm gọn lại như sau nhé:

• Phải có nền tảng kiến thức cơ bản về thị trường, tránh bị phụ thuộc và FOMO.

• Đặt ra mục tiêu và kế hoạch: khối lượng giao dịch là bao nhiêu, mức chịu lỗ của tài khoản, chỉ theo những lệnh đúng như chiến lược,...

• Xóa hết những group ko phù hợp với chiến lược của mình, tham gia những nhóm có thông tin về thị trường, có phân tích cơ sở về việc đưa ra tín hiệu trong nhóm. Chứ một nhóm chỉ có bắn lệnh thì ai cũng làm được cả.

• Thống kê lời lỗ thông qua nhật ký giao dịch và quản lý vốn.

• Phải nắm bắt tin tức thật nhanh

• Kiên nhẫn và không nản chí, hãy tin tưởng vào thị trường, chắc chắn bạn sẽ thành công nếu có đủ kiến thức và kinh nghiệm.

Tham khảo Pipscollector, một trong những nhóm tín hiệu chất lượng nhất hiện nay

Pipscollector là một trong những nhóm tín hiệu giao dịch chất lượng cao tốt nhất tại Việt Nam hiện nay, nhóm đã có hơn 1200 thành viên hoạt động hàng ngày. 

Nhóm tín hiệu này sở hữu đội ngũ 30+ nhà phân tích chứng khoán quốc tế giàu kinh nghiệm, đã được kiểm chứng bằng kết quả thực chiến và đến từ nhiều lĩnh vực khác nhau. Với một loạt các ưu đãi đặc biệt, group tín hiệu này cam kết mang đến trải nghiệm độc đáo và độc quyền cho cả những nhà đầu tư mới và những người có kinh nghiệm.

Pipscollector không chỉ cung cấp Tín hiệu Hàng ngày độc quyền, mà còn cung cấp tín hiệu đa dạng trên nhiều thị trường khác nhau như Cổ phiếu, Ngoại hối, Tiền điện tử, Quyền chọn, Hợp đồng tương lai và Vàng. Với đội ngũ 30+ nhà phân tích chuyên nghiệp cùng công nghệ phân tích độc quyền, Pipscollector có thể đưa ra những phân tích chất lượng, giúp bạn đưa ra quyết định đầu tư thông tin và hiệu quả.

Chưa hết, nhóm còn mang đến những lợi ích bổ sung như các Khóa học và Video Chiến lược Miễn phí để tăng cường kiến thức của bạn, cùng với buổi phát trực tiếp (livestreams) hàng tuần để các trader trong cộng đồng có cơ hội tự trau dồi và đặt câu hỏi trực tiếp với các chuyên gia.

Hiện nay, Pipscollector đang hoạt động với 2 group, một group hoàn toàn miễn phí, cung cấp từ 1 - 2 tín hiệu/ ngày, và một group Premium có trả phí, nơi cung cấp từ 4 - 5 tín hiệu/ ngày.

Lợi ích của nhà đầu tư khi tham gia cùng Pipsllector

Pipscollector không chỉ là group tín hiệu giao dịch mà còn là trải nghiệm đầy ắp lợi ích đối với những người đầu tư tìm kiếm sự thành công và kiến thức sâu rộng về thị trường tài chính. Với hơn 30 chuyên gia, cộng đồng của chúng tôi đem lại những giá trị đặc biệt sau:

• Nhận ngay những tín hiệu giao dịch độc quyền từ đội ngũ chuyên gia có kinh nghiệm, giúp bạn đưa ra quyết định giao dịch chính xác và hiệu quả.

• Kiến thức Rộng Rãi về Nhiều Thị Trường: Khám phá sâu sắc vào thế giới của Cổ phiếu, Ngoại hối, Tiền điện tử, Quyền chọn, Hợp đồng tương lai và Vàng với sự hỗ trợ chuyên sâu từ các nhà phân tích chuyên nghiệp.

• Nâng cao kiến thức của bạn thông qua các khóa học và video chiến lược miễn phí, giúp bạn phát triển kỹ năng giao dịch và hiểu biết vững về thị trường.

Tham gia Pipscollector không chỉ là việc tham gia vào một cộng đồng giao dịch, mà còn là hành trình đào sâu vào sự thành công và hiểu biết chuyên sâu về thị trường chứng khoán. Nơi đây, kiến thức không giới hạn và cơ hội phát triển đang chờ đón bạn.

Làm thế nào để tham gia nhóm tín hiệu Pipscollector?

Bạn có thể tham gia hoàn toàn miễn phí thông qua link Group tín hiệu miễn phí của Pipscollector trên Telegram tại: https://t.me/PipscollectorVN với các lợi ích sau:

• Nhận 1 - 2 tín hiệu mỗi ngày

• Cập nhật lệnh theo thời gian thực

• Tham gia cộng đồng tương tác

• Truy cập mục Nội dung giáo dục và Phân tích thị trường từ website

*Lưu ý: hiện Pipscollector chỉ hoạt động duy nhất trên nền tảng Telegram, hãy chắc rằng bạn đã tải ứng dụng này về điện thoại để tham gia nhóm.

Ngoài ra, bạn có thể nhận thêm từ 4 - 5 tín hiệu hàng ngày thông qua group Pipscollector Premium với những quyền lợi sau: 

• Tất cả quyền lợi từ nhóm miễn phí

• Nhận từ 4 - 5 tín hiệu mỗi ngày

• Hướng dẫn vào và thoát lệnh chi tiết

• Khóa học giao dịch nâng cao 2 lần/ tháng

• Đầy đủ các tín hiệu Cổ phiếu, Forex, Tiền điện tử, Quyền chọn, Hợp đồng tương lai và Vàng

• Hỗ trợ tư vấn 24/7 và 1:1 trong quá trình giao dịch

Để đăng ký Gói Pipscollector Premium, bạn hãy truy cập website của pipscollector tại: http://pipscollector.com

Nếu bạn cần tư vấn, hãy liên hệ tới Pips thông qua các phương thức sau

• Kênh Telegram Chat/ Admin: https://t.me/PipscollectorVN

• Email: support@pipscollector.com

• Fanpage Pipscollector

• Tiktok: Pipscollector (@pips_collector_channel) | TikTok

Chúc các bạn giao dịch thành công và hẹn gặp lại bạn tại cộng đồng Pipscollector

Mat khau giai nen ebook: Pipscollectortradingchat

Tải bộ ebook đầu tư từ A - Z về chứng khoán, forex và giao dịch hàng hóa miễn phí - Download ngay

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Bộ Ebook tự học giao dịch chứng khoán, forex, hàng hóa miễn phí

Giao dịch trên thị trường tài chính không phải là công việc dễ dàng, đặc biệt là đối với những người không có khả năng phân tích kỹ thuật và xây dựng chiến lược giao dịch. 

Để tham gia vào thị trường chứng khoán, việc tự học là không thể thiếu. Chúng tôi đã tổng hợp nhiều tài liệu hữu ích về thị trường. Kiến thức là chìa khóa quan trọng để vươn lên, đặc biệt trong lĩnh vực đầu tư nơi hiểu biết chính là yếu tố quyết định thành công.

Khi bạn đang nghĩ đến việc đầu tư tài chính, đầu tư chứng khoán, tức là bạn đã nghĩ đến tương lai tài chính của mình. Dù mới bắt đầu thôi, nhưng chỉ riêng điều đó đã xứng đáng để chúc mừng bạn!

Tải bộ ebook đầu tư từ A - Z về chứng khoán, forex và giao dịch hàng hóa miễn phí - Download ngay

Thị trường tài chính là một cuộc hành trình khám phá những cơ hội kiếm tiền và gia tăng thu nhập, nhất là đối với những người mới bắt đầu. Bộ Ebook này sẽ không chỉ giúp bạn hiểu rõ cơ bản về đầu tư chứng khoán mà còn mang đến những chiến lược và kinh nghiệm thực tế từ nhóm chuyên gia của Pipscollector.

Pipscollector là một cộng đồng giao dịch chuyên nghiệp được thành lập để giúp các nhà giao dịch kiếm được lợi nhuận. Chúng tôi thực hiện điều này bằng cách cung cấp cho họ tất cả các công cụ cần thiết và các lệnh giao dịch chuẩn xác nhất của hơn 30 nhà phân tích chuyên nghiệp. Chúng tôi cũng có thể cung cấp những kiến thức cần thiết để trở thành một nhà giao dịch tự tin có lợi nhuận.

Tải bộ ebook đầu tư từ A - Z về chứng khoán, forex và giao dịch hàng hóa miễn phí TẠI ĐÂY

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Link download bộ ebook đầu tư từ A - Z về chứng khoán, forex và giao dịch hàng hóa miễn phí

Bộ ebook đúc kết những kiến thức và kinh nghiệm thực tế từ đội ngũ hơn 30 chuyên gia từ Pipscollector. Tất cả thông tin đều là kiến thức thực chiến và mồ hôi sương máu của đội ngũ trên thị trường

Tải ngay bộ ebook TẠI ĐÂY

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Pipscollector - Nhóm tín hiệu giao dịch chất lượng cao

Pipscollector là một trong những nhóm tín hiệu giao dịch chất lượng cao tốt nhất tại Việt Nam hiện nay, nhóm đã có hơn 1200 thành viên hoạt động hàng ngày. 

Nhóm tín hiệu này sở hữu đội ngũ 30+ nhà phân tích chứng khoán quốc tế giàu kinh nghiệm, đã được kiểm chứng bằng kết quả thực chiến và đến từ nhiều lĩnh vực khác nhau. Với một loạt các ưu đãi đặc biệt, group tín hiệu này cam kết mang đến trải nghiệm độc đáo và độc quyền cho cả những nhà đầu tư mới và những người có kinh nghiệm.

Pipscollector không chỉ cung cấp Tín hiệu Hàng ngày độc quyền, mà còn cung cấp tín hiệu đa dạng trên nhiều thị trường khác nhau như Cổ phiếu, Ngoại hối, Tiền điện tử, Quyền chọn, Hợp đồng tương lai và Vàng. Với đội ngũ 30+ nhà phân tích chuyên nghiệp cùng công nghệ phân tích độc quyền, Pipscollector có thể đưa ra những phân tích chất lượng, giúp bạn đưa ra quyết định đầu tư thông tin và hiệu quả.

Chưa hết, nhóm còn mang đến những lợi ích bổ sung như các Khóa học và Video Chiến lược Miễn phí để tăng cường kiến thức của bạn, cùng với buổi phát trực tiếp (livestreams) hàng tuần để các trader trong cộng đồng có cơ hội tự trau dồi và đặt câu hỏi trực tiếp với các chuyên gia.

Hiện nay, Pipscollector đang hoạt động với 2 group, một group hoàn toàn miễn phí, cung cấp từ 1 - 2 tín hiệu/ ngày, và một group Premium có trả phí, nơi cung cấp từ 4 - 5 tín hiệu/ ngày.

Lợi ích của nhà đầu tư khi tham gia cùng Pipsllector

Pipscollector không chỉ là group tín hiệu giao dịch mà còn là trải nghiệm đầy ắp lợi ích đối với những người đầu tư tìm kiếm sự thành công và kiến thức sâu rộng về thị trường tài chính. Với hơn 30 chuyên gia, cộng đồng của chúng tôi đem lại những giá trị đặc biệt sau:

• Nhận ngay những tín hiệu giao dịch độc quyền từ đội ngũ chuyên gia có kinh nghiệm, giúp bạn đưa ra quyết định giao dịch chính xác và hiệu quả.

• Kiến thức Rộng Rãi về Nhiều Thị Trường: Khám phá sâu sắc vào thế giới của Cổ phiếu, Ngoại hối, Tiền điện tử, Quyền chọn, Hợp đồng tương lai và Vàng với sự hỗ trợ chuyên sâu từ các nhà phân tích chuyên nghiệp.

• Nâng cao kiến thức của bạn thông qua các khóa học và video chiến lược miễn phí, giúp bạn phát triển kỹ năng giao dịch và hiểu biết vững về thị trường.

• Giáo Dục và Buổi Phát Trực Tiếp Hàng Tuần: Tự trau dồi bản thân, nơi bạn có cơ hội tương tác trực tiếp với các chuyên gia, đặt câu hỏi và chia sẻ kinh nghiệm.

• Công Cụ "Chỉ Số Hành Động Giá" Tiên Tiến: Sử dụng công cụ tiên tiến của chúng tôi để vượt lên trên đám đông, theo dõi hành động giá và đưa ra quyết định giao dịch thông minh.

Tham gia Pipscollector không chỉ là việc tham gia vào một cộng đồng giao dịch, mà còn là hành trình đào sâu vào sự thành công và hiểu biết chuyên sâu về thị trường chứng khoán. Nơi đây, kiến thức không giới hạn và cơ hội phát triển đang chờ đón bạn.

Làm thế nào để tham gia nhóm tín hiệu Pipscollector?

Bạn có thể tham gia hoàn toàn miễn phí thông qua link Group tín hiệu miễn phí của Pipscollector trên Telegram tại: https://t.me/Pipscollectorchannel với các lợi ích sau:

• Nhận 1 - 2 tín hiệu mỗi ngày

• Cập nhật lệnh theo thời gian thực

• Tham gia cộng đồng tương tác

• Truy cập mục Nội dung giáo dục và Phân tích thị trường từ website

Ngoài ra, bạn có thể nhận thêm từ 4 - 5 tín hiệu hàng ngày thông qua group Pipscollector Premium với những quyền lợi sau: 

• Tất cả quyền lợi từ nhóm miễn phí

• Nhận từ 4 - 5 tín hiệu mỗi ngày

• Hướng dẫn vào và thoát lệnh chi tiết

• Khóa học giao dịch nâng cao 2 lần/ tháng

• Đầy đủ các tín hiệu Cổ phiếu, Forex, Tiền điện tử, Quyền chọn, Hợp đồng tương lai và Vàng

• Hỗ trợ tư vấn 24/7 và 1:1 trong quá trình giao dịch

Để đăng ký Gói Pipscollector Premium, bạn hãy truy cập website của pipscollector tại: http://pipscollector.com

Nếu bạn cần tư vấn, hãy liên hệ tới Pips thông qua các phương thức sau

• Kênh Telegram Chat/ Admin: https://t.me/PipscollectorVN

• Email: support@pipscollector.com

• Fanpage Pipscollector

• Tiktok: https://www.tiktok.com/@pips_collector_channel

Chúc các bạn giao dịch thành công và hẹn gặp lại bạn tại cộng đồng Pipscollector

Tải bộ ebook đầu tư từ A - Z về chứng khoán, forex và giao dịch hàng hóa miễn phí TẠI ĐÂY

File Hướng dẫn lấy mật khẩu giải nén tại đây