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  1. WHAT IS THE NUMBER ONE MISTAKE TRADERS MAKE? Big financial market volatility and growing access for the average person have made active trading very popular, but the influx of new traders has met with mixed success. There are certain patterns which may separate profitable traders from those who ultimately lose money. And indeed, there is one particular mistake that in our experience gets repeated time and time again. What is the single most important mistake that led to traders losing money? Here is a hint – it has to do with how we as humans relate to winning and losing Our own human psychology makes it difficult to navigate financial markets, which are filled with uncertainty and risk, and as a result the most common mistakes traders make have to do with poor risk management strategies. Traders are often correct on the direction of a market, but where the problem lies is in how much profit is made when they are right versus how much they lose when wrong. Bottom line, traders tend to make less on winning trades than they lose on losing trades. Before discussing how to solve this problem, it is a good idea to gain a better understanding of why traders tend to make this mistake in the first place. A SIMPLE WAGER – UNDERSTANDING DECISION MAKING VIA WINNING AND LOSING We as humans have natural and sometimes illogical tendencies which cloud our decision-making. We will draw on simple yet profound insight which earned a Noble Prize in Economics to illustrate this common shortfall. But first a thought experiment: What if I offered you a simple wager based on the classic flip of a coin? Assume it is a fair coin which is equally likely to show “Heads” or “Tails”, and I ask you to guess the result of a single flip. If you guess correctly, you win $1,000. Guess incorrectly, and you receive nothing. But to make things interesting, I give you Choice B—a sure $400 gain. Which would you choose? EXPECTED RETURN Choice A 50% chance of $1000 & 50% chance of $0 $500 Choice B $400 $400 From a logical perspective, Choice A makes the most sense mathematically as you can expect to make $500 and thus maximize profit. Choice B isn’t wrong per se. With zero risk of loss you could not be faulted for accepting a smaller gain. And it goes without saying you stand the risk of making no profit whatsoever via Choice A—in effect losing the $400 offered in Choice B. It should then come as little surprise that similar experiments show most will choose “B”. When it comes to gains, we most often become risk averse and take the certain gain. But what of potential losses? Consider a different approach to the thought experiment. Using the same coin, I offer you equal likelihood of a $1,000 loss and $0 in Choice A. Choice B is a certain $400 loss. Which would you choose? EXPECTED RETURN Choice A 50% chance of -$1000 & 50% chance of $0 -$500 Choice B -$400 -$400 In this instance, Choice B minimizes losses and thus is the logical choice. And yet similar experiments have shown that most would choose “A”. When it comes to losses, we become ‘risk seeking’. Most avoid risk when it comes to gains yet actively seek risk if it means avoiding a loss. A hypothetical coin flip exercise is hardly something to lose sleep over, but this natural human behavior and cognitive dissonance is clearly problematic if it extends to real-life decision making. And, it is indeed this dynamic which helps to explain one of the most common mistakes in trading. Losses hurt psychologically far more than gains give pleasure. Daniel Kahneman and Amos Tversky published what has been called a “seminal paper in behavioral economics” which showed that humans most often made irrational decisions when faced with potential gains and losses. Their work wasn’t specific to trading but has clear implications for our studies. The core concept was simple yet profound: most people make economic decisions not on expected utility but on their attitudes towards winning and losing. It was simply understood that a rational person would make decisions purely based on maximizing gains and minimizing losses, yet this is not the case; and this same inconsistency is seen in the real world with traders… We ultimately aim to turn a profit in our trades; but to do so, we must force ourselves to work past our natural emotions and act rationally in our trading decisions. If the ultimate goal were to maximize profits and minimize losses, a $500 gain would completely offset a $500 loss. This relationship is not linear, however; the illustration below gives us an approximate look at how most might rank their “Pleasure” and “Pain” derived from gains and losses. PROSPECT THEORY: LOSSES TYPICALLY HURT FAR MORE THAN GAINS GIVE PLEASURE Figure 3. Licensed under CC BY-SA 3.0 via Wikimedia Commons The negative feeling experienced from a $500 loss can be substantially more than the positive feeling experienced from a $500 gain, and experiencing both would leave most feeling worse despite causing no monetary loss. In practice, we need to find a way to straighten that utility curve—treat equivalent gains and losses as offsetting and thus become purely rational decision-makers. This is nonetheless far easier said than done. Figure 4. Licensed under CC BY-SA 3.0 via Wikimedia Commons A HIGH WIN PERCENTAGE SHOULD NOT BE THE PRIMARY GOAL Your primary goal should be to find trades which give you an edge and present an asymmetrical risk profile. This means your primary objective should be to achieve a robust “Risk/Reward” (R/R) ratio, which is simply the ratio of how much you have at risk versus how much you gain. Let’s say you are right about 50% of the time, a reasonable expectation. Your gains and losses need to have at least a 1:1 risk/reward ratio if you stand to at least break even. To tilt the math in your favor, a trader making money on roughly 50% of his/her trades needs to aim for a higher unit of reward versus risk, say 1.5:1 or even 2:1 or greater. Too many traders get hung up on trying to achieve a high win percentage, which is understandable when you think about the research we looked at earlier regarding loss aversion. And, in your own experiences you almost certainly recognize the fact that you don’t like losing. But from a logical standpoint, it isn’t realistic to expect to be right all the time. Losing is just part of the process, a fact that as a trader you must get comfortable with. It is more realistic and beneficial to achieve a 45% win rate with a 2:1 R/R ratio, than it is to be right on 65% of your trade ideas, but with only a 1:2 risk/reward profile. In the short run the gratification of “winning” more often may make you feel good, but over time not netting any gains will lead to frustration. And a frustrated mind will almost certainly lead to more mistakes. The following table illustrates the math well. Over the course of a 20 trade sample, you can see clearly how a favorable risk/reward profile coupled with more losers than winners can be more productive than an unfavorable risk/reward profile coupled with a much greater number of winners. The trader making money on 45% of trades with a 2:1 R:R profile comes out ahead, while the trader with the 65% win rate, but making only half as much on winners versus losers, comes out at a slight net-loss. Who would you rather be? The trader who ends up positive 7 units but loses more often than they win, or the one who ends up slightly negative but gets the gratification of “being right” more often. The choice appears to be easy. USE STOPS AND LIMITS – GOOD MONEY MANAGEMENT Humans aren’t machines, and working against our natural biases requires effort. Once you have a trading plan that uses a proper reward/risk ratio, the next challenge is to stick to the plan. Remember, it is natural for humans to want to hold on to losses and take profits early, but it makes for bad trading. We must overcome this natural tendency and remove our emotions from trading. A great way to do this is to set up your trade with Stop-Loss and Limit orders from the beginning. But don’t set them for the sake of setting them to achieve a specific ratio. You will want to still use your analysis to determine where the most logical prices are to place your stops and limit orders. Many traders use technical analysis, which allows them to identify points on the charts that may invalidate (trigger your stop-loss) or validate your trade (trigger the limit order). Determining your exit points ahead of time will help ensure you pursue the proper reward/risk ratio (1:1 or higher) from the outset. Once you set them, don’t touch them. (One exception: you can move your stop in your favor to lock in profits as the market moves in your favour.) There will inevitably be times a trade moves against you, triggers your stop loss, and yet ultimately the market reverses in the direction of the trade you were just stopped out of. This can be a frustrating experience, but you have to remember this is a numbers game. Expecting a losing trade to turn in your favor every time exposes you to additional losses, perhaps catastrophic if large enough. To argue against stop losses because they force you to lose is very much self-defeating—this is their very purpose. Managing your risk in this way is a part of what many traders call “money management”. It is one thing to be on the right side of the market, but practicing poor money management makes it significantly more difficult to ultimately turn a profit. GAME PLAN: TYING IT ALL TOGETHER Trade with stops and limits set to a reward/risk ratio of 1:1, and preferably higher Whenever you place a trade, make sure that you use a stop-loss order. Always make sure that your profit target is at least as far away from your entry price as your stop-loss is, and again, as we stated previously, you should ideally aim for an even larger risk/reward ratio. Then you can choose the market direction correctly only half the time and still net a positive return in your account. The actual distance you place your stops and limits will depend on the conditions in the market at the time, such as the volatility, and where you see support and resistance. You can apply the same reward/risk ratio to any trade. If you have a stop level 40 points away from entry, you should have a profit target 40 points or more away to achieve at least a 1:1 R/R ratio. If you have a stop level 500 points away, your profit target should be at least 500 points away. To summarize, get comfortable with the fact that losing is part of trading, set stop-losses and limits to define your risk ahead of time, and aim to achieve proper risk/reward ratios when planning out trades. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. Article by Paul Robinson (Strategist), 19 July 2021. DailyFX
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  2. CRUDE OIL PRICE OUTLOOK: Crude oil broke beneath a key trendline from March 2020 after reversing around the $67 mark Demand concerns and a strong USD could continue to eat away at crude prices in the coming days S&P 500, Dow Jones & NDX Technical Analysis: Down but Not Out (Yet) CRUDE OIL PRICE FORECAST: DELTA VARIANT CONCERNS SPARK SHARP REVERSAL - THE MACRO SETUP Crude oil suffered a sharp reversal to start the week as worries about the delta variant of the coronavirus sparked demand concerns. A resurgent US Dollar on the back of safe haven demand was likely another contributing factor to recent crude oil weakness and the fundamental forces have seen price crater beneath a key technical level. Derived from the pandemic lows in March, the trendline in question had helped guide crude oil higher for months and its recent failure could open the door to deeper losses for the commodity in the days ahead. CRUDE OIL PRICE CHART: DAILY TIME FRAME (JULY 2018 – JULY 2021) While the pace of declines has slowed, damage to the technical landscape has been dealt and the clear break beneath the March 2020 trendline constitutes a significant development for technicians. With arguably the most important trendline on the chart broken, subsequent support becomes less formidable and, should crude reverse higher, prior support will likely serve as resistance. Thus, the shift in the fundamental landscape has been followed by a similar downgrade in the technical landscape and further losses in the days ahead appear a real possibility. CRUDE OIL PRICE CHART: 1 - HOUR TIME FRAME (MAY 2021 – JULY 2021) With that in mind, secondary support becomes all the more crucial and areas that might offer assistance to bulls seem few and far between until the $62 to $60 area where the commodity’s May swing low resides alongside the 200-day simple and exponential moving averages. At the underside of the range is the psychologically-significant $60 mark that might serve as the next “line in the sand” standing in the way of another significant leg lower. In this week’s episode of The Macro Setup myself, Guy Adami and Dan Nathan discuss the case for a continuation lower in crude oil and the various levels to watch among other price action unfolding in the market. Click on the video attached to the top of this article to watch the full episode. In the meantime, follow @PeterHanksFX on Twitter for updates and analysis. Peter Hanks, Strategist for DailyFX.com Contact and follow Peter on Twitter @PeterHanksFX DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. DISCLOSURES
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  3. LONDON (Reuters) - Seven in 10 institutional investors expect to invest in or buy digital assets in the future, although price volatility is the main barrier for new entrants, a study by Fidelity's cryptocurrency business found. More than half of the 1,100 institutional investors surveyed globally by Coalition Greenwich on behalf of Fidelity Digital Assets between December and April said they had digital asset investments. Around 90% of those interested in investing in future said they expected their company's or their clients' portfolios to include digital asset investments within the next five years, the research found. This included direct cryptocurrency investments or exposure through stocks of cryptocurrency companies or other investment products. Those surveyed included high net worth investors, family offices, digital and traditional hedge funds, financial advisors and endowments. Launched in 2018, Fidelity Digital Assets is the cryptocurrency business of Boston-based Fidelity Investments and offers institutional investors custody and execution services for assets such as bitcoin. The company was one of the first mainstream financial services providers to embrace cryptocurrencies, which increasingly have attracted established financial institutions. TP ICAP (LON:NXGN) the world's biggest inter-dealer broker, late last month said it was launching a cryptocurrency trading platform with Fidelity and Standard Chartered (LON:STAN)'s digital assets custody unit. Despite the mainstream interest, cryptocurrency prices and trading volumes have slumped. Bitcoin has fallen around 50% since its high in April. The firms surveyed cited price volatility as the biggest obstacle for new investors, followed by the lack of fundamentals needed to assess value and concerns around market manipulation. In a survey last month JPMorgan Chase & Co (NYSE:JPM), found only 10% of institutional investment firms trade cryptocurrencies, with nearly half labeling the emerging asset class as "rat poison" or predicting it would be a temporary fad. By Anna Irrera, 20 July 2021. Investing.com
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  4. Earnings will take center stage in the week ahead as some of the largest U.S. companies from different sectors report Q2 2021 earnings. As the U.S. economic recovery accelerates after the successful rollouts of COVID vaccines, investors will focus on inflationary pressures and whether they are squeezing corporate margins. Riding on earnings optimism, all three major U.S. indices continued their upward trajectory this year, with the S&P 500 and the NASDAQ 100 Index trading near their record levels. Below, we've short-listed three stocks from different sectors we’re monitoring as Q1 earnings season ramps into full swing: 1. Netflix Streaming entertainment giant Netflix (NASDAQ:NFLX) reports Q2 earnings on Tuesday, July 20 after the market close. Analysts are expecting $3.1 a share profit on sales of $7.32 billion. NFLX Weekly TTM After rebounding strongly during the COVID-19 pandemic, Netflix stock is losing some steam as subscriber growth slows and competition in the streaming market heats up. In April, the Los Gatos, California-based company reported that the number of net new members during Q1 was 2 million short of its own forecast. As of Friday's $530.31 close, Netflix's shares are down 2% this year, compared with the tech-heavy NASDAQ’s 12% expansion over the same period. This coming week’s earnings report will be crucial if the stock is to break this sluggish cycle and move higher. Netflix has to show it’s well-positioned to outperform its rivals even when the pandemic-triggered surge in user growth is cooling fast. 2. Johnson & Johnson Global healthcare giant Johnson & Johnson (NYSE:JNJ) will be reporting Q2 earnings before the market opens on Wednesday, July 21. According to analysts’ consensus forecast, the company is forecast to report $2.29 EPS on sales of $22.5 billion for the period. JNJ Weekly TTM Besides the quarterly numbers, investors will be eager to know more about the rollout of its COVID-19 vaccine and its efficacy in protecting against the fast spreading Delta variant. J&J’s shot has struggled to get broad traction amid production problems and after a brief pause in use as regulators investigated reports that some people suffered dangerous blood clots after receiving it. The pause was lifted after 10 days on Apr. 23. Despite the vaccine setback, J&J’s underlying business remains strong as the U.S. economy reopens and hospitals gradually increase elective surgeries after the COVID-19 disruption, which hurt the company’s device business in 2020. Shares of J&J are up 7% this year. They closed on Friday at $168.10. 3. IBM International Business Machines (NYSE:IBM) will report its latest quarterly numbers on Monday, July 19, after the market close. Analyst consensus on IBM is for EPS of $2.32 on revenue of $18.29 billion for the quarter ended June 30. IBM Weekly TTM Big Blue, which is in the middle of a major turnaround, is showing some signs that it is succeeding at bringing additional sales from its cloud business. IBM posted its first revenue gain in 11 quarters in April, driven by demand for cloud services. IBM also reported revenue from Red Hat—which it bought in 2019 for $34 billion—had increased 17% in the first quarter. Arvind Krishna, who took over as CEO from Ginni Rometty last April, is focusing on artificial intelligence and the cloud to revive growth. Krishna has reorganized the company’s business around a hybrid-cloud strategy, which allows customers to store data in private servers and on multiple public clouds. Shares of IBM, which closed Friday at $138.90, have gained 10% this year. By Investing.com (Haris Anwar/Investing.com) 18th July 2021.
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  5. Earnings season can be a great time for a trader to get insight on their equity investments, as well as benefit from short-term volatility. But in order to maximize this trading opportunity, there are some key considerations to make before diving in. Read on for our three steps to follow when using earnings reports for trading. 3 STEPS FOR USING EARNINGS REPORTS IN YOUR TRADING Preparing for earnings season involves choosing the companies to focus on and undertaking thorough research on the market before executing the trade. 1) Choose Companies to Focus On The first step is to select the stocks to trade during the period. It is advisable for traders to go for a small number of companies, perhaps stocks with which they are familiar or trade already and find out the dates on which their earnings will be released. Large bellwether stocks are worth investigating, whether one is trading them or not, as their results can impact wider industries. When deciding on the stocks to go for, traders should understand that the relationship between an earnings result and subsequent price reaction is not always straightforward. Although better-than-expected earnings are generally bullish, they do not always translate to immediate price gains and the opposite holds true as well. An example of this can be seen below, with Walmart’s strong earnings in Q3 2018 failing to excite market participants. While encouraging, a quarterly report is more than last quarter’s results compared to expectations. Indeed, analysts are often much more concerned with the future expectations of the firm as price is a forward-looking metric, with future earnings being calculated in current prices. With that in mind, it becomes more reasonable when investors shy away from a stock with strong results for the past quarter, but an abysmal outlook for the future. A weaker outlook can seriously undercut a stock’s current valuation, regardless of past performance, a fact that is realized all too often during earnings season. Read our guide on How to Pick Stocks to choose the right companies for your stocks portfolio. 2) Do Your Research Doing your stock research properly will involve looking at estimated earnings for your chosen stock and how they compare with analysts’ expectations. Also, traders should make sure they look at historical figures to get a feel for how the market has responded to releases in the past. While earnings season is typically thought of in terms what the results mean for a single stock, the season as a whole can also offer important takeaways. Information is offered on a company-specific basis, but common themes can ring true throughout. Headwinds like coronavirus, geopolitical tension, regulatory uncertainty or cyclicality can combine to form a wave of worries across a sector if cited often enough. Traders should investigate how such headwinds impact one sector or stock compared to others. For example, while a great many industries suffered during the coronavirus outbreak, March 2020 saw Greece-based tanker vessel operator Top Ships Inc (TOPS) experience a surge in product demand in areas such as cleaning supplies and paper products leading to increased shipping requirements. This in turn created higher trading volume and volatility. The effect of headwinds has also been witnessed, for example, with Brexit as companies delay capital expenditures until a post-Brexit order is established and the business environment is stable. Similarly, frequent mentions of trade-related headwinds have worked to undermine a variety of sectors from semiconductors to consumer staples in the US amid the US-China trade war, evidenced in the chart above by the surging mentions of ‘tariff’ in earnings reports for companies in the S&P 500. While these issues may not doom a stock to negative returns singlehandedly (as the TOPS example demonstrates), their appearance across an entire market can hint at their pervasiveness and the broader downward pressure they can exert on outlooks and valuations. Consequently, traders should monitor common complaints among corporations as it may help inform their broader macroeconomic strategy as anecdotal evidence builds to form a tangible threat to the broader index. 3) Formulate a Trading Strategy – and Follow It Formulating a trading strategy for earnings season should include methodology for entry and exits, profit goals, time spent trading and a risk management plan. Trading earnings reports is difficult and risky. For some, trading around the event may not suit their risk profile. As such, any position taken should be adequately hedged and include a stop. That said, volatility can create unique circumstances, ripe with opportunity for a few specific strategies. When formulating a strategy for earnings season, traders should be aware that quarterly earnings are capable of seriously uprooting an ongoing price trend due to their relative infrequency and importance. This causes traders to position for severe price swings – evidenced by heightened implied volatility. Since it is exceedingly difficult for the average investor to correctly forecast how the company will perform – never mind the eventual impact on its share price - the risk-reward of entering a position immediately prior to a report can be skewed. If an investment vehicle of choice is impacted by implied volatility, the effect on the position can be particularly acute because implied volatility remains high until the results are released but typically collapses quickly afterward resulting in what is known as ‘IV Crush’. IV Crush is, as the name would suggest, when the implied volatility of a stock drops significantly, usually because the uncertainty has passed. The abrupt reversal in implied volatility is often accompanied by realized volatility, but not always. The discrepancy between implied and realized volatility allows for some unique trading strategies like straddles and strangles which seek to capitalize on absolute volatility of option contracts or short straddles and strangles which aim to capitalize on IV crush. Straddles Straddles involve buying both the call (buy) and the put (sell) option simultaneously with the same strike price (the fixed price at which the holder of an option can buy or sell), and the same expiration date. When applied to earnings, traders might straddle before the release and can profit from either a rise or fall in the stock’s price, as long as the stock’s price deviates from the strike price by an amount more than the total cost of the premium. This could potentially make a straddle a viable choice if traders think absolute volatility will be high but aren’t sure of the direction the move will take. The chart below shows Apple’s August 2019 earnings release prompt more trading and higher absolute volatility, as shown by the Volume and Average True Range indicators respectively, representing an example of a potentially favorable outcome for a straddle. A short straddle involves selling both the call and put options with the same strike price and expiration date. This move is often suited to ‘IV crush’ instances when the trader believes the price will not move too much over the course of the options contract. Strangles Strangles are similar to straddles, and can likewise have a long and short route. But while straddles have the same strike price for the call and put options, strangles have different strike prices. Strangles may potentially be a viable choice if the trader believes a stock has more chance of moving in one direction than the other following an earnings report, but still seeks protection if the position takes a contrary swing. TRADING EARNINGS SEASON: KEY TAKEAWAYS When trading earning season, there may well be a period of uncertainty and extreme volatility ahead. This makes picking the right stock, thorough background research and intelligent risk management key to navigating the period as planned – as well as implementing the right trading strategy. With these things in place, traders can maximize their chance of success and hopefully carry some key knowledge over to the next earning season. MORE ON EQUITIES AND STOCK TRADING Hungry for more information about equities? Make sure you check out our stock market section for comprehensive guidance on how to navigate this asset class, including: Beginner’s Guide to Stock Trading Types of Stocks How to Invest in Dividend Stocks DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. DISCLOSURES Peter Hanks & Ben Lobel 19 July 2021
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  6. Shorting a stock involves selling a borrowed stock in the anticipation of buying the same stock back at a lower future price and pocketing the difference. Short selling is a normal part of an active trader’s plan as it presents traders with the ability to benefit from an advancing market and a declining one. This article makes use of examples to explain what short selling is, why it is important and lists the top things to consider when short selling stocks. WHAT IS SHORT SELLING AND WHY DO IT? Short selling is the process of borrowing shares via a broker, selling those shares at the current market price and later buying the shares back at a lower price in order to return the shares to the broker. Why short stocks? The answer to this question is multi-layered but in general, shorting stocks presents an opportunity trade a decline in a share’s price. To some, short selling seems rather unethical because you are essentially taking a stance that a company’s share price will fall, which could result in large scale retrenchments affecting many households in the process. To others, this represents an opportunity to speculate in on over-valued stocks or to benefit from the largescale selling of unscrupulous companies. Nowadays, in addition to retail traders, there are well-established hedge funds that focus on short selling, or ‘shorting’ various companies. Some short sellers publish research on companies that are alleged to have reported misleading figures in the publication of financial statements or where there is sufficient evidence of corrupt business practices. Before diving into the world of short selling, we recommend you review the stock market basics. WHAT DOES SHORTING A STOCK INVOLVE? At this stage it may be helpful to differentiate between short selling stocks in the underlying market (non-leveraged) and shorting (selling or taking a short position) via a broker offering leverage. The traditional approach has been set out above, where the short seller borrows shares from a broker, sells the shares and later buys the shares back at a discount to return to the broker. However, the emergence of leverage trading has simplified this process to the point where shorting a stock is simply a matter of clicking the ‘sell’ button for the desired stock on an online platform. Shorting a stock in this way involves: A regulated broker: It is crucial to trade with a regulated broker offering little to no leverage. Liquidity/Borrow: In order to short a stock, the broker must have sufficient ‘borrow’. Borrow refers to having a pool of liquidity providers willing to lend the necessary shares to the broker for its internal hedging requirements. In the absence of borrow, brokers can no longer facilitate short selling and will disable the short selling function until sufficient borrow returns to the market. More liquid stocks tend to provide greater borrow than illiquid stocks. Set risk parameters: When there is sufficient borrow, carry out the necessary analysis, set stops and limits and hit the ‘sell’ button on the online platform. HOW TO SHORT SELL A STOCK The following steps can be followed when shorting a stock: Select the desired market Confirm a down-trending market Predetermine stop losses and limits (risk-to-reward ratio) Enter the short trade The trade is complete once the stop or limit is hit Traders can make use of the 200-day moving average or use trend lines to evaluate whether the stock is in a trending environment. The short selling process can be made clearer by using actual figures in the form of a practical example. SHORT SELLING EXAMPLE Let’s say a short seller wishes to sell 10 shares of Apple Inc as he believes the share price is going to drop in the near future. If the price of Apple is $200 and the margin requirement is 50%, that means the trader would effectively be controlling $2000 ($200 x 10 shares) worth of Apple shares while only putting up $1000 ($2000 x 0.5) as margin. The short seller sets the target at a price of $170 and a stop at $210 to establish a 1:3 risk-to-reward ratio. If price hits the target, the short seller could gain near $300 ($30 x 10 shares), minus any financing fees and commissions. Nominal trade value = $2000 Margin = 50% ($1000) Gain after taking profit = $300 ($30 x 10 shares) Potential loss: $100 ($10 x 10 shares) This example also presents the ideal scenario but financial markets are often unpredictable and do not move as reliably as presented here. It is for this reason that traders should adopt sound risk management practices from the outset. WHAT ARE THE RISKS WHEN SHORT SELLING STOCKS? When learning how to short sell stocks it is crucial to keep the following in mind: Potential for unlimited losses -Short positions without stops, theoretically have the potential for unlimited losses. There is no limit to the price of a share can rise to which further underscores the importance of stops. Short squeeze –A short squeeze occurs when short traders witness a rise in price (contrary to what was expected) leading to losses that eventually force traders to buy (to close the trade) at a higher price and take a loss. Price gains more upward momentum as more short sellers buy to close their positions. Below is an example of a short squeeze using the US 500 (S&P 500): Unborrowable stock – In plummeting markets, even the most liquid shares can become unborrowable and therefore, prevent the opening of any new short positions. Traders need to keep this in mind but should also not allow this to force them into a rushed entry. SHORT SELLING STOCKS: KEY TAKEAWAYS Shorting a stock has been made a lot easier with the advancements in technology and forms a part of a trader’s skillset. However, unlike the forex market, stock traders are faced with the unique problem of unborrowable stocks that prohibit any shorting of stocks. Traders should only consider initiating a short trade after conducting the necessary technical and/or fundamental analysis while adhering to sound risk management practices. As a reminder, the top 5 takeaways for shorting a stock are: Use a regulated broker: Consider using a highly regulated, reputable broker when short selling stocks. Trend: In the absence of a well-established downtrend, traders should set entry orders at favorable levels in the event the market gets there. Shares have the potential to trading gap down – especially if negative information finds its way into the public domain. In such fast-moving markets, traders can miss a favorable entry when away from the trading screen and orders can help. Liquidity/Borrow: Is the stock trading on a major exchange with a healthy number of shares changing hands daily, otherwise known as ‘free-float’? Greater liquidity tends to translate into more borrow being made available to short sellers and greater flexibility to short the stock. Borrow charge: In addition to any overnight funding charges on open positions held overnight, there are often ‘borrow charges’ that apply to short positions to allow short sellers to participate in the market. It is always a good idea to enquire about such a charge with your broker before placing a trade. Risk Management: Since short trades theoretically have unlimited losses with limited gain (price can only drop to 0), traders need to make use of stops and limits to rectify an inherently skewed risk-reward payoff. SHORT SELLING STOCKS FAQS What are the top stocks to short? Stocks that become attractive to short sellers vary by industry and sector. Therefore, there is no single stock that traders should target for a short trade. Short sellers apply a number of analysis techniques - mainly fundamental in nature - looking at revenue and debt to equity ratios but also looks at other aspects of the business like the corporate governance structure and caliber of senior management. All the major stock indices can be viewed on our major stock indices page. How long can you short a stock? There is no limit to the length of time traders can hold long positions. This is because shares are owned outright and do not involve borrowing someone else’s shares. Shorting stocks on the other hand involves borrowing shares that can be recalled by the broker at any time. There is no set length of time that traders will typically be able to hold a short trade and this will depend entirely on the market conditions at the time and when the owner of the shares wishes to liquidate those very shares. Article by Richard Snow, Markets Writer, 16th July 2021. DailyFX
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  7. Traders with a strong understanding of technical indicators are usually better equipped to navigate the financial markets than those that lack this knowledge. While personal investing goals, risk appetite and trading style will help to determine a strategy and trading plan, knowing what technical indicators to use in your approach can help to determine possible entry and exit points. Hundreds of technical indicators exist, and clear signals can be identified using effective indicators as part of a strategy. This article will cover six of the most popular technical indicators for stock trading. BEST TECHNICAL INDICATORS FOR STOCK TRADING For traders looking for the most effective technical indicators, it is important to consider the objectives of the trading strategy as well as the current market condition. For individuals trading individual stocks, it is often beneficial to apply indicators to the stock index in which that share belongs to get a holistic view of the larger market as a whole. Below are six of the most popular technical indicators to use when analyzing stocks: INDICATOR NAME TYPE OF INDICATOR CHARACTERISTICS Client Sentiment Contrarian Indicator Shows client positioning of the market Indicates when markets are nearing extremes Leading indicator Useful in trending markets Relative Strength Index (RSI) Momentum Oscillator Plotted between 0 – 100 Indicates when the market is overbought or oversold Leading indicator Useful in trending markets Stochastic Momentum Oscillator Plotted between 0 – 100 Consists of two lines, %K and %D line Indicates when the market is overbought or oversold Leading indicator Useful in rangebound markets Simple Moving Average (SMA) Trend following indicator The SMA represents the average price of a security over a specified period of time Equal weighting is given to all points in the data set Used to confirm the direction of the current trend Lagging indicator Useful in trending markets Exponential Moving Average (EMA) Trend following indicator The EMA represents the average price of a security over a specified period of time with a greater emphasis on recent prices Higher weighting is given to recent points in the data set Lagging indicator Useful in trending markets Moving Average Convergence Divergence (MACD) Momentum oscillator The MACD measures both momentum and the trend Overbought and oversold signals occur above and below the zero-line Lagging indicator Useful in trending markets CLIENT SENTIMENT Client sentiment data is derived from a brokerage’s execution desk data, measuring live retail client trades to determine possible directional biases in the market. When sentiment is approaching extreme levels, stock traders may begin to see a reversal as more likely which is why it is seen as both a contrarian indicator as well as potentially having a leading component. Below is an example of the IG Client Sentiment Index, IG’s sentiment gauge derived from execution desk data, for the Dow Jones index (Ticker: Wall Street). Based on the data below, 64% of traders have short positions which means that majority of traders expect the price of Wall Street to drop. However, sentiment is seen to be bullish, meaning that based on this data the price of Wall Street may be expected to increase. Although it is not advisable to trade-off sentiment (or any individual indicator) alone, an individual who is trading a constituent of the DJIA could use this data as an informative tool before applying additional indicators. DailyFX provides client sentiment data which isderived from live IG retail client trades for forex, commodities, cryptocurrencies and major stock indices. Stock sentiment analysis is also available for individual shares on the IG platform where applicable or available. RELATIVE STRENGTH INDEX (RSI) The relative strength index (RSI) is a momentum oscillator that measures the magnitude of price movements to determine whether a market is overbought or oversold. A market is seen to be oversold when the RSI is below 30 and is overbought when the RSI is above 70. These are key levels could indicate a potential reversal, classifying the RSI as a leading indicator. The chart below shows the RSI being applied to the daily chart for Uber Technologies (Ticker: UBER). The RSI trades between 30 and 70 for some time before falling below the 30 level. Below the 30 level, the first signal is a false signal because although it looks like the trend is going to reverse to the upside, the price continues to fall. However, the second signal is present when the RSI is below 30 and turns towards the upside. However, the RSI only confirms the reversal by crossing above the 30 line the next day. STOCHASTIC The stochastic oscillator is another momentum indicator which is used to determine overbought and oversold conditions when trading stocks. Unlike the RSI which measures the speed of price movements, the stochastic measures current price in relation to its price range over a period of time. The %K line (the black line) is calculated by using the latest closing price relative to the lowest low and highest high over a specified period of time and the %D line represents the simple moving average of the %K (three period Simple Moving Average is the most common).With stochastics, a bullish crossover occurs when the %K line (the black line) crosses over and above the %D line (the red dotted line). Likewise, a bearish signal occurs when the %K line crosses under and below the %D line. The strongest signals will often occur when there is a bullish cross-coupled with a move above 20 from below and a bearish signal coupled with a move below 80. In the image below, the stochastic indicator is applied to the S&P 500 price chart (Ticker: US 500). As indicated on the chart, a bearish crossover occurs from above the 80 line, indicating that the trend may reverse to the downside. The reversal is then confirmed once the lines cross 80. Likewise, the bullish crossover occurs below 20 and the reversal is confirmed once the 20 line is crossed. SIMPLEMOVING AVERAGE (SMA) A simple moving average (SMA) is a lagging indicator which represents the average price of a security over a specified period of time. In a trending market, the moving average modulates short-term price fluctuations and allows stock traders to identify the trend in a simplistic way. As depicted in the chart below, in a rangebound market, it is also possible to use a moving average to identify support and resistance levels. By applying the 50 day MA to the Boeing price chart, it is clear that the 50-day SMA can also be seen as potential support even as Boeing is trading in a ranging environment. EXPONENTIAL MOVING AVERAGE (EMA) As with the SMA discussed above, the exponential moving average (EMA) is a lagging indicator which represents the average price of a security over a specified period of time. However, unlike the SMA which gives equal weighting to all data points in the series, the EMA gives more weight to recent prices, removing some of the lag found with a traditional SMA. This makes the EMA an optimal candidate for trend trading as it allows traders to get a holistic view of the market without missing out on opportunities with may be due to the lag of a simple moving average. MACD The MACD (moving average convergence/divergence) is a technical indicator that can be used to measure both momentum and the strength of the trend. The MACD displays a MACD line (blue), signal line (red) and a histogram (green) which shows the difference between the MACD line and the signal line. The MACD line is the difference between two exponential moving averages (the 12 and 26 period moving averages using common default settings), whilst the signal line is generally a 9-period exponentially average of the MACD line. These lines waver in and around the zero line, giving the MACD the characteristics of an oscillator with overbought and oversold signals occurring above and below the zero-line respectively. With reference to the chart below, featuring Apple, Inc. (Ticker: AAPL): A bullish signal is present when the MACD line crosses ABOVE the signal line from BELOW the zero line. A bearish signal is present when the MACD line crosses BELOW the signal line from ABOVE the zero line. TECHNICAL INDICATORS FAQ’S What is the difference between a leading and a lagging indicator? Although leading and lagging indicators are both derived from historic price data, a leading indicator is used to indicate expected price movements in the market while lagging indicators are used to provide entry and exit signals once the trend has been identified. Although similarities and differences exist between the two, both are equally important and it is often beneficial for traders to use both leading and lagging indicators simultaneously. FURTHER READING ON STOCK TRADING Learn how to apply stock market sentiment analysis Explore the differences between stock trading and investing Bookmark our guide to stock market trading hours DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. DISCLOSURES Tammy Da Costa , Markets Writer 16 July 2021
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  8. Earnings season provides a great opportunity for equity traders to gain insight on stocks they have invested in, while also offering context to potential share price moves. Read on for more on what earnings season is, earning announcement dates to know, and what to look for in an earnings report. WHAT IS EARNINGS SEASON & WHY IS IT IMPORTANT? Earnings season is a period each fiscal quarter, usually lasting several weeks, where many of the largest listed companies announce their latest financial accounts. An earnings report consists of revenue, net income, earnings per share (EPS) and forward outlook, amongst a bevy of other data points, which can help to provide investors with insight relating to the current health and outlook for the company. This information can be found on sec.gov, various financial publications, and individual companies' websites. Earnings season is important because it helps market participants glean information from the companies that they are monitoring along with the broader index. For example, a strong Apple (AAPL) earnings report may see investors bullish on Nasdaq 100 futures, a concept discussed further below when looking at bellwether stocks. Something else that can accompany an earnings release is an earnings call. This is a conference between the company and analysts, press and investors which discusses the outcome of an earnings report and, in many cases, opens the floor for questions to company management. Such scrutiny of the reports can enable traders to access more information to further inform their decisions, although not all companies hold earnings calls. WHEN IS EARNINGS SEASON & WHEN DO REPORTS COME OUT? Earnings season takes place typically a few weeks after each quarter ends (December, March, June, September). In other words, earnings seasons begins around January-February (Q4 results), April-May (Q1 results), July-August (Q2 results) and October-November (Q3 results), with the unofficial start of earnings season usually marked by when the major US banks report results. This typically coincides with an increase in the number of earnings being released, while the unofficial end of earnings season is usually around the time that Walmart (WMT) announces its earnings report. 3 THINGS TO LOOK FOR IN COMPANY EARNINGS REPORTS There are a number of factors to look for in company earnings reports. Traders should be most mindful of the performance of the largest ‘bellwether’ stocks, understand the significance of an earnings recession in a given stock, and grasp how a stock’s earnings announcement might impact a relevant index, depending on the weighting of the given security. 1) Performance of bellwether stocks When analyzing company earnings, it is important to look out for ‘bellwether’ stocks which can be seen as a gauge for the performance of the macro-economy. While the status of a bellwether stock can change over time, the largest and most-established companies are typically considered a bellwether stock. Examples of Bellwether stocks are: FedEx (FDX): Ships goods for consumers and businesses across the globe Caterpillar (CAT): World’s largest heavy-duty machinery maker has been viewed as a bellwether given its large exposure to construction, manufacturing and agricultural industries, particularly in China 3M (MMM): Gauge for the health of the manufacturing sector Apple (AAPL): Among the world’s largest companies. Important for key suppliers, in particular, chipmakers. 2) Earnings recession An earnings recession is characterized as two consecutive quarters of year-on-year declines in company profits. However, while earnings are an important factor in stock market returns over the long term, an earnings recession does not necessarily coincide with an economic recession. The chart below shows that in the past six earnings recessions witnessed in the US, only two had coincided with an economic recession. The blue circles show where there was an earnings recession without an economic recession, while the red circles represent where both an earnings and economic recession occurred. 3) Earnings and stock index weighting Traders should understand that when trading earnings, certain stocks will have a greater impact on the wider index according to their index weighting. For example, when trading the Dow Jones, Boeing releasing its earnings will be highly influential on the index, while Visa likely won’t be as influential, due to the former’s 9.49% weighting compared to the latter’s 4.41%, as shown in the table below. This highlights the importance of paying close attention to bellwether stocks and how they may impact a broader equity index. TRADING DURING EARNINGS SEASON: TOP TIPS We have an in-depth guide on how to trade earnings season, but the important things to remember are: 1) Know the ‘expected’ results Being cognizant of what is ‘expected’ with regards to the revenue/sales and earnings per share (EPS) figures are important because a company’s share price reaction can often be determined by the amount by which they beat/miss an aggregate of analysts’ expectations. 2) Stay alert to surprise announcements Any surprise announcements that coincide with an earnings report can also impact the share price of a company. These may include stock buybacks/share repurchase programs as well as company guidance. 3) Be aware of spillover effects between stocks An example of spillover impact could be if an investor has a chipmaker stock within their portfolio (EG Dialog Semiconductor), earnings from Apple could have a sizeable impact on the stock. Consequently, it is important to assess related stocks, given that they may reveal the outlook for a sector, thus sparking a possible sector rotation. 4) Consider volatility over the bearing of an expected move Working out the ‘expected move’ on a directional basis for a stock in reaction to the binary earnings event can be a fraught endeavor. Alternatively, a view taken with volatility in mind instead can prepare investors for significant movement without positioning on the wrong side of the eventual outcome. EARNINGS SEASON: KEY TAKEAWAYS FOR INVESTORS AND STOCK TRADERS In summary, earnings season can be an influential driver in a trader’s experience. Make sure you keep up to date on the when the key earnings are released for individual companies in order to proactively plan. Be aware of how bellwether stocks, potential earnings recessions and stock index weightings can influence price movements. Keep a handle on what results are expected for each stock, be mindful of greater potential volatility for either analytical or strategic purposes and understand how one stock’s performance can impact another’s (or an index as a whole). Following these key tips can help the trader to attempt to weather earnings season and navigate the period more consistently. EARNINGS SEASON FAQS What does earnings season tell us about the global economy? Earnings season’s impact on the global economy is dependent on a range of factors, from the performance of given sectors to a variety of fundamental factors. While bellwether companies meeting or exceeding expectations can reflect a strong corporate environment, the stock market interacts with the economy in many different ways – so there isn’t always a predictable relationship between the two. How is earnings season impacted by financial downturns? Financial downturns may impact earnings season in a significant way – dampened demand for products and services caused by a downturn or more prolonged recession can naturally mean earnings failing to hit expectations in multiple sectors. However, perceived defensive stocks such as those in consumer staples or healthcare may weather downturns better or perhaps even become more attractive in such a backdrop. Is earnings season the same dates in the US and UK? When it comes to the US/UK earning season dates, UK and European companies tend to get the bulk of their earnings about two to three weeks after the US. MORE ON EQUITIES Want to build your equities knowledge further? Make sure to check out our stock market articles, with useful, straightforward insight on analyzing the most common capital market assets. Here are a few articles to get you started. Beginner’s Guide to Stock Trading Types of Stocks How to Invest in Dividend Stocks Article by Ben Lobel and Peter Hanks, Strategist. DailyFX 12th July, 2021.
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  9. Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 12th July 2021. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect your positions, please take a look at the video. NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a cash neutral adjustment on your account. Special Dividends Index Bloomberg Code Effective Date Summary Dividend Amount AS51 BIN AU 16/07/2021 Special Div 0.117 MIB MS IM 19/07/2021 Special Div 0.3 (Estimated) RTY BCC US 14/07/2021 Special Div 2 RTY INSW US 14/07/2021 Special Div 1.12 RTY HPK US 14/07/2021 Special Div 0.075 RTY XBIT US 15/07/2021 Special Div 2.5 (Estimated) SPX EOG US 15/07/2021 Special Div 1 How do dividend adjustments work? This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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  10. Trading Forex at the News Release Trading forex news releases requires a tremendous amount of composure, preparation and a well-defined strategy. Without these qualities, traders can easily get swept up in all the excitement of a fast-moving market to their detriment. This article provides useful strategies on how to trade forex news during a major news release. FOREX NEWS TRADING STRATEGIES There are two common strategies for trading forex at the news release: Initial Spike Fade strategy News Straddle strategy Each one provides a robust plan for traders to follow, depending on the market environment observed at the time of the release, and how best to approach that particular market. Before reading further it is essential that you have a good grasp on the basics of news trading. If you are new to trading or simply require a refresher, take a look at our introduction on how to trade forex news. 1. Initial Spike Fade Strategy This strategy looks to capitalize on an overreaction in the market over the short term by fading the initial move. This strategy suits reversal traders, scalpers and day traders due to fast moving and erratic pricing that often follows a major news release. Overreactions and subsequent reversals are seen fairly regularly in the forex market as large institutions add to the increased volatility of the initial move. The market as a whole, often spikes as an overreaction and subsequently push price back toward pre-release levels. Once the market calms down and spreads return to normal, the reversal often gains momentum showing early signs of a potential new trend. The shortfall associated with this strategy is that the initial spike may turn out to be the start of a prolonged move in the direction of the initial spike. This underscores the importance of using well-defined stops to limit downside risk and get you out of a bad trade quickly. How to implement initial spike fade strategy: Select the relevant currency pair: Ensure the major news event corresponds to the desired currency pair to trade, i.e. Non-Farm Payrolls will affect USD crosses. Switch to a five-minute chart: After selecting the desired market, switch to a 5-minute chart just before the news release. Observe the close of the first five-minute candle: The first five-minute candle is usually quite large. When price approaches either the spike high or the spike low, fade the move by trading in the opposite direction. Stops and limits: Stops can be placed 15 pips above the high for a short trade or 15 pips below the low for a long trade. Targets can be set at two or three times the distance of the stop. 2. News Straddle Strategy The news straddle strategy is perfect for traders expecting a huge surge in volatility but are unsure of the direction. This strategy lends its name from a typical straddle strategy in the world of options trading as it uses the same core strategy – to capitalize on an increase in volatility when direction is uncertain. The disadvantage of the news straddle approach surfaces when price breaks support or resistance only to reverse soon thereafter. Similarly, price can trigger the entry order and move toward your target only to reverse until a stop it hit. This strategy can be implemented using the following steps: Establish a range with support and resistance. Set two orders to open: Set a working order/ entry order to open a long trade if price breaks above resistance and one to go short if price trades below support. Remove remaining order after confirming direction: The market has the potential to breakout of the range and once this happens, the one entry order will be triggered, and a trade will be opened. Immediately remove the entry order that was not triggered. Stops and limits: A tight stop can be placed at the recent range low when going long and recent high when going short. Limits can be placed in line with a positive risk to reward ratio. TRADING THE NEWS DURING THE RELEASE: CONCLUSION Trading forex news at the news release has the potential to overwhelm traders with increased volatility in a short period of time. However, through the adoption of a solid strategy, traders can approach these volatile periods with greater confidence and mitigate risk of a runaway market through the use of guaranteed stops (where available). Article by Richard Snow, Markets Writer 2 July 2021. DailyFX
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  11. SENTIMENT INDICATORS: USING IG CLIENT SENTIMENT The IG Client Sentiment (IGCS) is unique, proprietary and potentially helpful to traders. The article will outline the following illustrative points: What is IG Client Sentiment (IGCS)? Sentiment Indicators IGCS as a Leading Indicator IGCS as a Technical Indicator: Summary WHAT IS IG CLIENT SENTIMENT (IGCS)? IG Client Sentiment (IGCS) is a tool that traders can use in conjunction with a broader technical and/or fundamental strategy. IGCS incorporates retail trader positioning (long and short) to formulate a sentiment bias. This is represented in percentage form (see image below) which aids traders in identifying market imbalances which could lead to possible opportunities. IGCS on EUR/USD: SENTIMENT INDICATORS Sentiment indicators are few and far between. The two most well-known are open interest in options, which largely applies to stocks, and the Commitment of Traders Report (CoT). What sets IGCS apart is the large sample size of retail traders which deliver more usable data in terms of indicator readings, multiple market data sets (FX, equities commodities) and timely updates for these markets which are refreshed several times daily. IGCS AS A LEADING INDICATOR The use of IGCS as a technical indicator can allow traders to confirm or refute signals produced by their wider trading strategy. Both fundamental and other technical techniques are used to gauge trends, ranges, potential reversals etc. so incorporating IGCS provides another layer of data to help verify a hypothesis. IGCS can be considered as a leading indicator as it uses past and current data to project possible future price movements however, as IGCS (retail) covers only one component of the market equation, traders should not rely solely on the IGCS tool for trading decisions. Simply put, retail traders contribute only a certain percentage of market input so naturally other factors will have influence on the respective market. For example, the EUR/USD chart below shows the projectible nature that can occur with IGCS. The highlighted are on the chart exhibits an increase in net short positions from retail traders which coincided with a rise in price action (EUR appreciation) on the price chart itself. IGCS EUR/USD: IGCS AS A TECHNICAL INDICATOR: SUMMARY We have shown how sentiment/IGCS can be a unique, proprietary and potentially helpful addition to a trader’s approach. In subsequent IGCS articles in this market sentiment sub-module, we will go through the implementation and flexibility of this tool in varying trading circumstances. 1 July 2021 Warren Venketas, Markets Writer Source: DailyFX
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  12. Knowing how to control emotions while trading can prove to be the difference between success and failure. Your mental state has a significant impact on the decisions you make, particularly if you are new to trading, and keeping a calm demeanor is important for consistent trading. In this piece, we explore the importance of day trading psychology, for both beginner and more experienced traders, and give some pointers on how to trade without emotions. THE IMPORTANCE OF CONTROLLING EMOTIONS WHILE TRADING The importance of day trading emotional control cannot be overstated. Imagine you’ve just taken a trade ahead of Non-Farm Payrolls (NFP) with the expectation that if the reported number is higher than forecasts, you will see the price of EUR/USD increase quickly, enabling you to make a hefty short-term profit. NFP comes, and just as you had hoped, the number beats forecasts. But for some reason, price goes down! You think back to all the analysis you had done, all the reasons that EUR/USD should be going up – and the more you think, the further price falls. As you see the red stacking up on your losing position, emotions begin to take over – this is the ‘Fight or Flight’ instinct. This impulse can often prevent us from accomplishing our goals and, for traders, this issue can be very problematic, leading to knee-jerk reactions. Professional traders don’t want to take the chance that a rash decision will damage their account – they want to make sure that one knee-jerk reaction doesn’t ruin their entire career. It can take a lot of practice, and many trades, to learn how to minimize emotional trading. THE 3 MOST COMMON EMOTIONS TRADERS EXPERIENCE Some of the most common emotions traders experience include fear, nervousness, conviction, excitement, greed and overconfidence. Fear/Nervousness A common cause of fear is trading too big. Trading with improper size magnifies volatility unnecessarily and causes you to make mistakes you normally wouldn’t make if you weren’t under the stress of risking larger losses than normal. Another culprit for fear (or nervousness) is you are in the ‘wrong’ trade, meaning one that doesn’t fit your trading plan. Conviction/Excitement Conviction and excitement are key emotions you’ll want to feed off, and you should feel these in every trade you enter. Conviction is the final piece of any good trade, and if you don’t have a level of excitement or conviction then there is a good chance you are not in the ‘right’ trade for you. By ‘right’ we mean the correct trade according to your trading plan. Good trades can be losers just as bad trades can be winners. The idea is to keep yourself winning and losing on only good trades. Making sure you have conviction on a trade will help ensure this. Greed/Overconfidence If you find yourself only wanting to take trades that you deem as possible big winners, you could be getting greedy. Your greed may have been the result of doing well, but if you aren’t careful you may slip and end up in a drawdown. Always check that you are using proper trade mechanics (i.e. sticking to stops, targets, good risk/management, good trade set-ups). Sloppy trading as a result of overconfidence can end a strong run. Learn more about managing greed and fear while trading. DAILYFX ANALYST NICK CAWLEY ON LOSING DISCIPLINE Nick Cawley has more than 20 years’ experience in the markets and trades a variety of fixed-income products. "My worst trades - and there have been a few of them - have all been when my best laid plans are thrown out of the window when I lose discipline. ‘I didn’t use correct set-ups and stops; I thought I was ’better’ than the market; I doubled up when I was losing and lost more, and I put more money into my trading account to chase my losses. ‘I lost control of my emotions and traded when I should have looked without any emotion at my position and cut them and moved on. Easy to say, difficult to do, but a must for any trader who is looking for long-term success." HOW TO CONTROL EMOTIONS WHILE TRADING: TOP TIPS AND STRATEGIES Planning out your approach is key if you want to keep negative emotions out of your trading. The old adage ‘Failing to plan is planning to fail,’ can really hold true in financial markets. As traders, there isn’t just one way of being profitable. There are many strategies and approaches that can help traders accomplish their goals. But whatever is going to work for that person is often going to be a defined and systematic approach; rather than one based on ‘hunches.’ Here are five ways to feel more in control of your emotions while trading. 1. Create Personal Rules Setting your own rules to follow when you trade can help you control your emotions. Your rules might include setting risk/reward tolerance levels for entering and exiting trades, through profit targets and/or stop losses. 2. Trade the Right Market Conditions Staying away from market conditions which aren’t ideal is also prudent. Not trading when you aren’t ‘feeling it’ is a good idea. Don’t look to the market to make you feel better; if you aren’t up to trading the simple solution may just be to step away. 3. Lower Your Trade Size One of the easiest ways to decrease the emotional effect of your trades is to lower your trade size. Here’s an example. Imagine a trader opens an account with $10,000. Our trader first places a trade for a $10,000 lot on EUR/USD. As the trade moves at $1 a pip, the trader sees moderate fluctuations in the account. An amount of $320 was put up for margin, and our trader watches their usable margin of $9,680 fluctuate by $1 per pip. Now imagine that same trader places a trade for $300,000 in the same currency pair. Now our trader has to put up $9,600 for margin – leaving them with only $400 in usable margin – and now the trade is moving at $30 per pip. After the trade moves against our trader only 14 pips, the usable margin is exhausted, and the trade is closed automatically as a margin call. The trader is forced to take a loss; they don’t even have the chance of seeing price come back and pull the trade into profitable territory. In this case, the new trader has simply put themselves in a position in which the odds of success were simply not in their favor. Lowering the leverage can greatly help diminish the risk of such events happening in the future. 4. Establish a Trading Plan and Trading Journal In terms of fundamental factors, planning for various outcomes in the runup to key news events may also be a strategy to bear in mind. The results between new traders using a trading plan, and those who don’t can be substantial. Compiling a trading plan is the first step to attack the emotions of trading, but unfortunately the trading plan will not completely obviate the effects of these emotions. Keeping forex trading journals may also be helpful. 5. Relax! If you're relaxed and enjoy your trading, you will be better equipped to respond rationally in all market conditions. Jun 28, 2021 4:00 AM +02:00Ben Lobel, Markets Writer
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  13. Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 5th July 2021. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect your positions, please take a look at the video. NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a cash neutral adjustment on your account. Special Dividends Index Bloomberg Code Effective Date Summary Dividend Amount RTY OAS 08/07/2021 Special Div 4 RTY SHEN 12/07/2021 Special Div 18.75 How do dividend adjustments work? This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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  14. Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 28th June 2021. If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect your positions, please take a look at the video. NB: All dividend adjustments are forecasts and therefore speculative. A dividend adjustment is a cash neutral adjustment on your account. Special Dividends Index Bloomberg Code Effective Date Summary Dividend Amount TPX 6592 JP 29/06/2021 Special Div 38 TPX 6502 JP 29/06/2021 Special Div 110 XIN9I 601601 CH 30/06/2021 Special Div 10 OMX TEL2B SS 29/06/2021 Special Div 3 OMX VOLVB SS 30/06/2021 Special Div 9.5 RTY ACRE US 29/06/2021 Special Div 2 How do dividend adjustments work? This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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