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Can You Buy Fractional Shares? – Fractional Share Investing in Details

Is it possible to buy partial shares of stock?

Have you heard about fractional shares? These are nothing but fractions or pieces of a share owned by a company or ETF? If you are not interested in trading in whole shares, then this fractional share trading option will be quite appropriate for you.

In case you’d like to make investments in the present stock market, there is a possibility for you to become intimidated by the insight that you will require a considerable amount of money from the very beginning. However, it is not the real fact – in fact, it will be possible for you to become involved without purchasing an entire share of stock at any given time. Fractional share investing will allow you to purchase only $5 or maybe $10 of a particular stock in one single trade. So, can you buy partial shares?

What are fractional shares?

A fractional share or partial share represents a portion of equity stock, by definition, that is less than one full share. Fractional share investing is the process of purchasing partial stock shares.

The exchange, on significant stock exchanges such as the Stock Exchange of New York, will require you to purchase a minimum of 1 share at any given time. This implies that lots of smaller investors will be left inactive for stocks such as Amazon (more than $1,700 per share), Alphabet (more than $1,200 per share), or maybe Berkshire Hathaway (more than $300,000 each share).

For filling the void, several brokerage companies like to purchase entire stock shares and also distribute to investors in “fractional shares” or partial-share increments. In this way, you will be able to purchase stocks having a high single share cost at an entry point which is much lower, thus making it a fantastic alternative for the fresh investors out there.

Important: Remember that the high price of a stock per share will not necessarily imply a company or an investment that is successful. Make use of other metrics such as the market capitalization of a particular company as a guideline for analyzing the stock market investment of yours.

Therefore, you’re of the notion that buying partial shares might be ideal for you. Now, the time is right to select a brokerage. This type of investing will not be supported by every single of them. In fact, brokerages within the fractional share space actually come in a couple of varieties. Firstly, you will come across discount brokers such as Stash and Stockpile which will enable you to purchase single shares by paying a fee. You will also come across portfolio-centric brokerages such as Folio and Motif which enable you to purchase fractional shares while funding a bigger portfolio strategy.

The correct choice in your case will depend on your individual investment requirements and objectives. However, fees will be the one thing which you’d like to look for at all times – specifically, staying away from them (or at the most keeping them quite small). A significant dent can be put in the small investments by large fees, and therefore, this should certainly play a significant role while selecting your brokerage. A fee of $5 is just 0.1% of an investment of $5,000; however, it is 10% of an investment of $50.

In case you are of the notion that this type of investment is okay for you, go through the list of our selections for the most effective brokerages supporting partial share investing.

Trading in fractional shares is oftentimes commission-free. Plus, it requires minimum capital as you can trade as small as 1/1000000 of a single whole share.

Fractional shares have introduced unique investment opportunities for many. For example, if the original price of a single whole share costs you hundreds or thousands of dollars, then you can use the fractional share investment option and you can trade in a few fractions of the whole share. In this way, it will require less investment capital. For example, you can make investments of just $1 (based on fractional share) when the original price of the whole share is thousands of dollars.

In addition to it, this investment option allows you to deal with the investment risks more conveniently and diligently. Plus, since you are not purchasing the full shares at once, you will have enough flexibility to play around with your portfolio using smaller chunks of money.

How to buy fractional shares?

Fractional shares investors can buy using special brokers that offer partial shares (below this text is list of brokers).
In the above sections, you have already revealed the benefits of investing fractional shares. You must be now wondering how to invest in fractional shares or how to place requests for real-time fractional shares. Isn’t it? Well, you can actually place an order request for a fractional share in two ways. You can either use dollar amounts or share amounts.

For dollar amounts, you will have to place real-time fractional share orders with buy-in and sell out options in dollar value. Otherwise, you can opt for buy-in shares and sell out shares options as well. For example, you can buy or sell as small as 0.000001 shares.

SUPPORTED STOCK OPTIONS FOR FRACTIONAL SHARE

The stock should fulfill the below two criteria so that they are eligible for fractional share orders.

* First of all, the stock should be worth $1.00 value per share.
* Secondly, it should have a market capitalization of more than $25,000,000.

Fractional stock ownership – shareholder rights

Please find below four shareholder right options that are applicable for fractional shares.

Fractional share offers you a voting facility. You will be able to find the aggregated value of voting.

The dividend payment option is also applicable to the fractional share. If you are an eligible shareholder, you will be paid the dividends. Of course, the payment value will be adjusted to the fraction of the stock/ETF you have owned. It will be rounded to the nearest penny value.

Fractional shares are not transferable. So, all you will have to sell your fraction share amount to the broker and get back the resulting amount in your account. In the case of stock splits (for example, if there is a forward stock split or reverse stock split), you will be offered the relevant amount in fractional shares.

Fractional trading app from top Fractional shares brokers

Fractional trading apps offer investment brokers for fractional shares buying.

“Now anyone can own any of America’s leading companies in the S&P 500® for as little as $5, even if their shares cost more. “

This is the promotion of Schwab fractional shares offer and robinhood investing. But beside them (most famous) there are several very good brokerage companies.

Best Fractional Share Investing Brokerages of 2020:

1. Stockpile fractional shares

A stockpile can be considered to be the most effective comprehensive investment brokerage for investors who are brand-new as well as those who like to present stocks. Stockpile is actually a more recent brokerage and not every stock is offered by it on the present market; nevertheless, it provides partial shares of more than 1,000 stocks as well as ETFs.

Trades are only $.99 each which makes them an extremely affordable place for buying and selling. There is no monthly fee, account minimum, or surprise charge for worrying about.

Apart from allowing you to purchase partial shares, Stockpile is likewise a fantastic platform where you will be able to learn many things regarding the stock market. Lessons for the stock market are also provided by the Stockpile application. In case you are a guardian or a parent, it will be possible for you to link with any child or teen account such that they will be able to monitor their performance plus enter trades after getting your consent.

Stockpile likewise comes with an exclusive gifting feature. Stocks can be requested by you as gifts or you’ll be able to provide a share of the stock to somebody you like. This feature is definitely useful and unique and will allow you to establish your portfolio for which you need not spend a significant amount of money.

2. Motif fractional shares – ideal for making a portfolio

The motif is broker that offers fractional shares. Diversification is amongst the most notable challenges faced by fresh investors at present. While beginning with simply a small nest egg, it might be impossible for you to get diversification across the portfolio of yours when it comes to individual stocks without taking into consideration ETFs.

This problem is fixed by Motif since it enables you to create a portfolio consisting of several stocks while following your personal investment theory or theme. Once your target “Motif” or portfolio has been set, it will be possible for you to purchase and receive partial shares of the securities which are included.

Motif, similar to Stockpile, is ideal for learning and educating oneself regarding investing. However, while Stockpile primarily emphasizes on beginning and brand-new investors, Motif can be considered to be appropriate for the experienced investors who would like to perfect any particular technique, learn from the public Motifs of other investors, and also establish a strong portfolio.

3. M1 fractional shares

M1 Finance is excellent choice for automated investing. In case you purchase the shares of the identical investments on a regular basis for a significant amount of time, you will be performing something known as “dollar-cost averaging” which is a technique that will enable you to create a portfolio in the course of time which is able to ride out the instability of falling and rising stock prices during the period you’re investing.

M1 Finance will allow you to create a portfolio by making use of a tool known as “The Pie”. You can use this particular visual portfolio for seeing precisely how your money breaks out in the investments made by you. Following this, fund the portfolio automatically or one-time for purchasing partial shares of the stocks within the portions picked by you in the pie.

The most effective way for getting started for the majority of the investors will be long-term investing. Instead of selecting single stocks that might go down and up within the short-term, this particular investment technique will enable you to make small investments at any given time having a long-term emphasis.

4. Folio fractional shares – ideal for free portfolio trades

A couple of plans are offered by Folio Investing for investors which will enable you to purchase partial shares. $4 trades are offered by the Plan which is Basic, while 2,000 free trades every single month are provided by the plan which is unlimited. Each of the plans is a bargain, unlike the normal investing charge.

You will be able to purchase a portfolio known as a Folio in both of these cases. Every single Folio comes with as many as hundred ETFs, stocks, as well as mutual funds. It will be possible for you to produce your own Folio or you might purchase one of more than 160 Folios which have already been created by the team responsible for the Folio investing.

You need to pay fees while making use of Folio on some occasions. Customers belonging to the Basic Plan will invest $15 every quarter in case you are able to make 3 or lesser trades every quarter. You need to pay $29 every month for the plan which is Unlimited or $290 every year.

5. Betterment fractional shares for automatic investing

Betterment can be considered to be one of the most significant Robo-advisors. In fact, a Robo-advisor can be considered to be a service in which case you are going to provide answers to a questionnaire while explaining your risk tolerance as well as investment objectives.

Betterment is going to charge 0.25% for management charges while there is no trade fee. As a matter of fact, Betterment will also be able to place trades on your behalf. It will keep the portfolio of yours in proper balance automatically and will be able to place trades intended for tax benefits by means of a procedure which we call tax-loss harvesting.

Betterment can be considered to be the most appropriate product for any DIY investor who does not like to do many things. You simply need to inform it regarding how you’d like to utilize the investments made by you and Betterment is going to manage everything else while you need them.

6. Stash fractional shares – ideal for investing in industry-focused

An opportunity is provided by Stash for investing by theme having a focus within a particular industry, strategy, or cause, such as tech investing, green investing, online media, global entertainment, and so on. A restricted number of investments are supported by Stash at present and it supports more than 150 stocks.

It is possible for you to begin investing with only $5, while accounts begin at $1 every month along with charges from the personal investments chosen by you. You will get an unrestricted number of trades, a customized guidance coach, as well as a curated stock portfolio having partial share support.

Single stocks as well as ETFs can be purchased by you from a list that is growing continuously for the partial share trades.

7. DSPPs fractional shares – do it yourself

DRIPs (dividend reinvestment plans) as well as DSPPs will enable you to purchase stock from the delivering business directly, at times without any purchase fees. Amongst the most well-known direct purchase plans, mention may be made of Coca-Cola, IBM, Exxon Mobil, McDonald’s, Walmart, Verizon, Ford, AT&T, as well as Intel.

You’ll be able to purchase stocks directly from the stock servicing representative of several public companies. Computershare can be considered to be a well-known vendor that will help you to take care of the direct stock purchase portfolio of yours, while DirectInvesting.com is one more fantastic resource intended for DSPPs having an emphasis on the DRIP plans.

How to Invest in Currency – Investment in Foreign Currency Assets

by Fxigor

Investing in currency

A lot of people not involved in the forex market find it very fascinating and exotic. People often find it difficult to trade currencies because of the risks involved; still, the forex is the largest financial market in the world.

Investment in foreign currency assets usually represents a longterm investment where investors buy or sell currency pairs if they believe on the basis of technical and fundamental analysis that currency pair will rise or fall. Traders usually trade on a daily, weekly, or monthly level but investors invest in a couple of years in assets.

The forex market is primarily dominated by institutional investors and banks, though retail investors can also participate in it. In the forex market, the banks and the institutional investors are the market makers, which means they decide the price, on which retail investors trade later. By learning the basics of investing in foreign currency assets, and keeping yourself updated with the global news and trends, you can also fulfill your desire of trading currencies.

Basic Information on Investing in Currencies

Currencies of various nations are traded on the foreign exchange market, aka the forex market 24 hours a day for seven days a week. For some forex players, the forex market is useful to settle their cross-currency transactions, like for multinational companies, whereas for traders, it’s more about speculating on currencies to gain profit.

Currencies are traded across various markets across the globe, the most popular market among all is the London market. The currency market is operated between individual brokers, between two brokers, between banks, and between a broker and a bank. Though if you are a retail investor, this article will help you to understand how you can make an investment in foreign currency assets.

Currency markets are very liquid in nature, and thus it attracts traders on a large scale. As a currency trader, you are not liable to the margin limits levied by the Securities and Exchange Commission (SEC), and as a result, you can take on high leveraged trades as well. Investment in foreign currency assets can be done by trading in the forex market, trading ETFs (Exchange Traded Funds), investing in companies trading forex, and many more other ways.

Just like other financial markets, the currency market is also very volatile and invites higher risk as it is very sensitive to global events.

Invest in Foreign Currency

If you have the question – Can I invest in foreign currency, or how do I invest in euros; the first step you should take is to open a forex trading account. That you can do from anywhere in the world and can trade any currency at any time and from any market. However, there are certain differences when you compare the currency market to the United States stock market.

Currency Market	Stock Market
Currencies are often bought and sold in pairs; you buy one currency against the other.	Stocks are traded individually; you buy or sell a stock and hope the market will move in your preferred direction.
The foreign currency market is not regulated, and there is nothing as such a central clearing house.	The US stock market is regulated and looked over by the Securities and Exchange Commission (SEC.)
There are no rules or uptick measures in place for opting a short position in currency markets.	In the stock market, you have to abide by the rules imposed by the SEC.
You do not face any upper limit for the position size you take.	You have to follow SEC guidelines for your position size.
In currency trading, dealers generate revenues from the bid-ask spread.	In stock trading, dealers generate revenues from charging a commission.

How can You Invest in Foreign Currency?

If you also have questions in your mind like, “How do I invest in euros or how can I invest in currency?” here is your answer. By the stated methods, you can easily invest in foreign currencies.

1. Exchange currency in the exchange office

How do I invest in euros in a simple way? You may be surprised, but simply changing the currency at an authorized exchange is one type of investment. So if you have $50K and you think that EUR will go up, you exchange dollars for euros and after that you wait the whole year and make a profit.
The disadvantage of this currency exchange method is that your profit is very low because you do not have any kind of leverage. Your leverage is 1:1.

2. Certificate of Deposit (CD)

Various banks across the world offer Certificate of Deposit that lets you take advantage of various currencies. You earn interest in local currency rates of a specific nation via a CD; by having multiple CDs of different nations, you can leverage this instrument for your purpose of investment in foreign currencies. Many banks also offer forex accounts that work just like a money market account. You can easily transfer your money and gains of various currencies into your account.

Though, you should note that CDs get impacted by the exchange rate changes and fluctuations. At the maturity of a CD, you get more money than you invested initially. To protect yourself from bank side insolvency and currency market risk, you can take an instance from FDIC as well.

3. A Foreign Bond Fund

Many mutual funds invest in foreign government bonds and earn in that foreign currency. So, if you have taken a US based mutual fund that buys government bonds in Euro; you will earn higher interest when the Euro price increases. You will get more dollars in return when converted. A few of the mutual funds buying foreign government bonds are Aberdeen Global Income Fund, the Merk Hard Currency Fund, Templeton Global Bond Fund, etc.

4. Multinational Companies

Many a time, stockholders unintentionally take part in foreign investment as the companies they are holding stakes in are indulged in the foreign currency market because of their ownership and business practices in foreign nations. You can take examples of US companies like IBM, Walmart, McDonald’s, Apple, etc.

If that nation’s currency rate appreciates against the American dollar, you are likely to make a profit. The reason behind this is simple – the foreign currency income would have to be converted into the US dollar due to financial reporting requirements; the higher the value of that currency, the better the yield on the foreign exchange market.

5. Exchange-traded Funds (ETFs)

This instrument is just like the stock indexes, in which you can invest in forex without directly trading it in the forex market. Most brokerage accounts provide their customers with the option to trade in Exchange-traded funds (ETFs). A few such examples of ETFs are EUO, UUP, the ProShares UltraShort Euro, the Invesco DB US Dollar Index Bullish Fund, and more.

ETFs or Exchange-traded Funds are the easiest instruments to trade in forex; you don’t even have to be an expert here. All you have to do is to opt for an ETF which is managed in foreign currencies. Through ETFs, you can also trade in currency swaps and currency futures.

Here, you don’t have to take high leverage risk, as they are much similar to a stock index and can be bought from your forex broker. There are various brokerage houses in the market that give options for trading in ETFs. However, you should read all the important details related to the ETF you are likely to trade in, including the fees associated with it. The following are the most common ETFs for forex trading.

CurrencyShares Australian Dollar Trust (FXA)
CurrencyShares Swiss Franc Trust (FXF)
CurrencyShares Canadian Dollar Trust (FXC)
WisdomTree Dreyfus Chinese Yuan Strategy Fund (CYB)
WisdomTree Dreyfus Emerging Currency Fund (CEW)
ProShares UltraShort Yen (YCS)
ProShares UltraShort Euro (EUO)

5. Exchange-traded notes (ETNs)

Exchange-traded notes (ETNs) are a little different compared to ETFs as they are more like corporate bonds than stock indexes. Though, they would give you an excellent opportunity to trade in foreign currencies. Some of the examples for ETNs are the iPath® GBP/USD Exchange Rate ETN, GBB, etc.

6. Investing Directly in Foreign Currency using brokers

If you have some experience in the forex market, this method would be easy for you. In a foreign exchange market, you can buy or sell your preferred currency pairs directly. The initial deposit required for the purpose of trading forex is as low as $50, where you also get margin up to 50 times, depending on your broker and the market you chose. You also should remember that the higher-margin will also give significant losses, just like significant profits.

It is suggested for you to look for a genuine broker after conducting your own research, as if this step goes wrong, you don’t even have to enter a trade to lose it. Go with your local or credible brokers, avoid foreign brokers, and those who claim higher returns in a short time; that is a big red flag.

An Example of how can investors invest in currency

Can you invest in a foreign currency using the broker? How do you invest in euros when you use a broker? In the first place, you open a trading account at some broker and then analyze currency pairs. If you believe that EUR will rise you need to find another currency that will go down. For example, the dollar economy is in the bad shape and technical analysis shows that USD can go down and you believe that EURUSD will rise. Then, you can BUY EURUSD for an example.

7. Hedging the Currency

This is not largely done by retail investors, and it is more of a risk management tool. If you want to protect your trades from opposite currency movements, you can opt for hedging the currency. Let’s take an example; you are trading in the euro against the dollar, but you are not sure about the euro rates in the future. So, you hedge the euro to protect your trade if the dollar strengthens in the future. The only backdrop of hedging is that it reduces the advantages of diversifying your portfolio.

Some of the popular currency hedge funds are as follows.

WisdomTree Japan Hedged Equity Fund (DXJ)
iShares Currency Hedged MSCI EAFE ETF (HEFA)
WisdomTree Europe Hedged Equity Fund (HEDJ)

Rewards and Risks of Investing in Foreign Currency Assets

There are great benefits of investing in this market, but everything has two sides, and so does the forex market. Along with being the number one liquid market, there are risks that traders face. Let us look at how the forex market can balance your rewards and risk sides.

Rewards of investing in foreign currency

Diversification: As a trader, you have to learn the importance of diversification, as putting all your eggs in one basket can prove risky and is foolish as well. By choosing the forex investment, you chose to take off the risk associated with a single currency.
Liquidity: As stated, the forex market is highly liquid, with around $6 trillion of transactions occurring daily on an average.
Low cost: In the forex market, traders generally don’t have to pay the commission; instead, they pay the difference between the bid and ask price. It makes it cheaper compared to the equity market.
Flexible house: Unlike the stock market, the forex market remains open 24 hours a day for seven days as it operates from different parts of the world, so at any point in time, you would find an open forex market. As a result, traders have great flexibility to trade currencies.

Risk of Investing in Foreign Currency

High level of Volatility: The forex market is highly sensitive to global events and thus very volatile to trade in. The volatility here arises due to economic shifts, reports, interest rate changes by central banks, etc.
High Level of Leverage: Though here, the movements are tiny, the leverage is relatively very high. By using margin, investors can take advantage of taking large volume trades. It is not governed by any regulatory authority, and there is no uptick limit for the position size, giving many opportunities to traders.

As an investor, you must consider your trading strategy, capabilities, and risk management techniques to reduce the risk and gain sustainable profit. You should also take a leveraged position after considering how much you can afford.

So, What is the Conclusion?

You can easily trade in the forex market through these stated instruments; however, which one to choose depends on your experience, preferences, and risk appetite. If you want an easy solution, go for Exchange-traded funds as it has low leverage risk and is simple to get in. But if you are someone who wants to get benefits of higher leverage and want to feel this ocean, you can find investing directly suitable; just open a forex account, and you are already in.

The only thing you should remember is to keep a check on your risk to reward ratio and trading strategy as each method has its own pros and cons. Also, don’t involve your emotions in trading, as it would only sabotage your goals. Be a smart investor and educate yourself about the forex world before diving into it.

Currency market gets affected by various events occurring in the world and gives great opportunities to traders for making money. It is also a great tool for diversifying your investment portfolio.

As a currency trader, you should first make your trading strategy and decide your risk: reward ratio to jump into this fascinating field. With practice and experience, you will soon rule this realm.

Forex Technical Analysis for Beginners

by Fxigor

As a forex trader, you may have thought of various ways in which you can enter and exit a trade at the right time to gain profit, right? One of such ways is forex technical analysis. Forex technical analysis is very popular among the market players and can be done by using charts and trade indicators. Though if you are new to this field, this article will clear all your doubts about forex technical analysis and how it can help you predict the market trends.

Forex Technical Analysis for Beginners

Technical analysis helps in analyzing market price movements through the historical charts and indicators so traders can get a hold of future market trends. It uses past trends to predict future trends and market performance before entering a trade. Various candlestick patterns or charts help form indicators. A forex trader uses mostly price and volume data in technical analysis.

The difference between the fundamental and technical analysis lies in the fact that while fundamental analysis considers economic changes and related aspects as the primary contributor, the technical analysis considers past trends. A trader needs to be aware of the basics of fundamental and technical analysis so that he/she can take advantage by combining them.

Benefits of Using Technical Analysis

Technical analysis is an excellent tool for risk management to prevent downside risk. By understanding the principles and various concepts of forex technical analysis, traders can develop their own suitable strategy to trade different currencies. Unlike fundamental analysis which helps derive at the intrinsic value of the market, technical analysis helps in finding trends and patterns caused by the fundamentals changes.

There are three main benefits of implementing technical analysis in forex trading.

It can be used as an indicator to enter and exit the market.
It can be used at any market time frame.
It helps in identifying the trends of the market.

Forex technical analysis Tool – Charts

Historical charts are very useful in forex technical analysis. A chart consists of two things, the past and the present price of the market, which is the starting point to decide how profitable trade can be. The market price is the most significant representation of the market and thus holds the most importance.

Technical charts can help derive the overall market trend to decide whether the market would soar or slump over any time frame, including hourly, daily, weekly, or even monthly frames. Prices are monitored in various candlestick patterns (for example cup and handle pattern) or charts which are known as price ranges as well. The commonly used charts in current times are bar charts, candlestick charts, and line charts.

A technical chart has four main points – the opening price, closing price, high point, and the low point. The relationship between the prices and the pattern can give signs to traders for entering and exiting trades. By understanding the basics of forex technical analysis, beginners can implement and combine the charts and indicators to forecast the future.

What is Forex Technical Analysis Indicators?

Forex technical analysis indicators are useful when a trader is looking to get an opportunity to trade. Most technical analysis indicators are based on volume and price, just like the charts. Though indicator aids in finding the support and resistance levels and how long a trader should hold the trade. By utilizing multiple time frame analysis for price or volume-based ranges and changes, a trader can get the current market perspective.

These are some of the most used forex technical analysis indicators,

Relative Strength Index (RSI)
Moving Averages
Moving average convergence divergence (MACD)
Bollinger Bands
Stochastics
MACD

While MACD and moving averages are key for finding market trends, RSI is for identifying the entry and exit points.

The most important step is to read a good technical analysis books:
Technical Analysis of the Financial Markets, by John J. Murphy
This book is written in a language that is very easy to understand, you should read it along with the first book so you can understand its content fully. This is the best book written about forex and stocks trading in my opinion. This is University book.

Let start the basic things in technical analysis:
1) Oscillators technical indicators

2) RSI Oscillator
In this video you can learn everything about RSI and how to use in analysis:

3) Trend lines as important tool in trading for each beginner trader is presented below:

4) When you learn trend lines the next thing is to learn are Fibonacci levels which are presented in video below:

5) Next thing that novice traders need to learn are candlestick patterns that are presented below in video:

These are major things in technical analysis to learn.

Conclusion

As a beginner in the forex market, you can also keep yourself updated with the latest trends, news, and events happening across the globe. It would give you a good edge over your trades as the forex market is highly sensitive to global events.

As a novice trader, you are advised to trade on a practice account and can try different technical analysis patterns and tools on those dummy systems to learn new things. By doing so, you would make mistakes but won’t lose your actual money. You can find such demo accounts from brokers across the world as it has become a trend in current times.

You should also not fall in any “Get your profit doubled in a month” kind of scams (read our article about forex scams) as there is nothing in this world that gives you easy money without skills and hard work involved. In the end, it’s about how much you are passionate about trading, how much knowledge you have, and how much you are willing to learn through your mistakes.

Donchian Channel Indicator in Details – Free Download

by Fxigor

What is the Donchian Channel indicator?

The Donchian channel is a market indicator, created by Richard Donchian. It is based on calculating the lowest low and the highest high of the market for the last nth periods. The channel is the area between low and high for the chosen time period.

It is a common tool that is available on most trading platforms. It is depicted in the form of a chart with a line demonstrating the market price channel for high and low values. It is a productive tool to measure the volatility of the market.

Free Download Donchian Channel Indicator

The Donchian Channel Explained in Detail

The Donchian channel has a default setting of a 20-days period which can be adjusted by the traders. Based on the default setting, it can be classified into 3 parts:

The 20-day high, known as the upper band
The average of the upper and the lower band, known as the middle band
The 20-day low, known as the lower band

If you will look at some of the examples of the Donchian channel, you will realize that it is not extremely tough to understand. If the Donchian channel indicator is narrow, the price is stable. It will be wider if there are a lot of fluctuations. It is primarily used for providing long and short forex position signals.

How to Use the Donchian Channel for Maximum Benefits?

To begin with this part, you first need to understand with ‘R’ stand for. ‘R’ denotes the relationship between the risk that you are taking and the relative return. For example, if you are risking $20 and earning $1000, you have gained 5 times which is denoted at 5R.

Understanding the Donchian channel might not be rocket science but it does require your utmost attention. While any trader is bound to make a few mistakes while using it for the first time, here are some pro-tips on how you can use this tool to maximize your profits:

2R open profits

It is necessary to create a safety buffer because you never know when the market might go against you and there is a pullback. If you trade without open profits, you may lose more than what you had assumed earlier.

Scale your winner with respect to the pullback

The Donchian channel breakout can be used as an entry trigger. It is would be unwise to risk 1R on your later trades as you stand to lose all open profits if the market pullbacks. You need to adjust keeping in mind the risk factors involved. Go in with 0.5R instead so that you still have a good chance of making a larger profit if there is a movement in the market in your favor but with reduced risk.

Know when to exit

This applies to every trade and business. One must have an exit strategy. How will you exit from your position? Will you exit both long and short positions at the same time and restart again or will you make a different strategy?

These are the things that you must decide even before you begin a trade.

How to Customize the Donchian Channel for Better Trades?

The upper and the lower band of the Donchian channel are the most versatile ones. You can adjust them and not the middle one as that shows the average of the other two. Use the extreme bands as trend filters to get an idea of whether you should be selling or buying.

This is how it is done:

Define the long-term trends by adjusting the channel to 200-period.
There are buying opportunities if the prices are rising above the middle band.
There are selling opportunities if the prices are falling below the middle band.

How to Use the Dochian Channel to Identify the Latest Trends

If used properly, the Donchian channel can allow you to identify the massive trends of the market. These trends can keep you way ahead in the game If you want to ride these massive trends, you should trail your stop loss.

What does this mean?

Trailing the stop loss means that you will stay engaged in the trade. You will neither have target profits nor will you second guess yourself. You cannot bail out because the situation doesn’t feel comfortable.

You will not abandon your trailing stop loss and exit when the channel signals that to you.

This is how the Donchian channel can help you in riding big trends

Traders should use the lower band of 20-days (low) for trailing your stop loss if you wish to ride an uptrend.
Traders should use the upper band of 20-days (high) for trailing your stop loss if you wish to ride a downtrend.

Whether you wish to ride the shorter or the longer trends, all you have do is to adjust the Donchain channel settings. To ride a long term trend, opt for a higher value, and to ride a short term trend, opt for a lower value.

The Donchian Channel and the Average True Range Combo

The Donchian channel and average true range combo can allow traders to find highly profitable trades consistently. This is not a magical combo that comes with guaranteed success but it can help you in predicting when the market is expected to have an explosive breakout. Here’s how:

Step 1:

You need to study multi-year low levels by using the Average True Range indicator (ATR). If it is lower than the previous multi-year low, it is a good sign.

Step 2:

You need to trade using the breakout of the Dochian channel forex. You go a long position when the price breaks above the upper band and short position when the price breaks below the lower band. The upper band is 20-week high and the lower-band its 20-week low.

This is done because the market has a way of movement. It goes from low volatility towards high volatility. The ATR indicators will allow you to detect low volatility periods and the Donchian Channel will enable you to trade with breakout and capture the move.

Mistakes to Avoid when Trading Using the Donchian Channel

As we have mentioned earlier as well, this channel does not translate into 100% success. It is a tool that can be profitable if used ride. It can show you the trade opportunities and the current market trend but it will not take the decisions on your behalf or freeze the market for you. Many traders blindly trade the bands and take everything at the face value. They go short when they see the price is at the upper band. They assume that the market will reverse slowly as it is overbought at the moment. This is the first mistake that you can make. This is because it is an uptrend and in such situations, the prices tend to remain in the upper band for a long time.

So what does this mean?

It means that use the Donchian channel for its intended purpose, that is, you should let it guide you regarding your entries and exits. It is not the right indicator to assess whether the market conditions and overbought or oversold.

FAQ

Veteran and regular traders are familiar with the terms related to the Donchian channel and how it should be used. However, if you are a new trader, you must have a few questions. Let’s answer them:

Q1. Does the price break out in the Donchain channel? I can see the price touching the top or the bottom channels. The channel adjusts to the price changes afterward. This does not look like a breakout. Can you explain this?

A. Consider a situation in which you have set the channel for a 50-day high of the market. If the channel touches that upper blue line, it indicates that the prices have broken out of the 50-day high. Similarly, if the prices touch the lower blue line, the prices have broken from the 50-day low.

Q2. Can you explain how the Bollinger Bands are different from the Donchian channel?

A. These two are very different tools. Bollinger Bands adjusts itself according to the volatility of the market whereas the Donchian channel is about the highs and lows of the market. It plots the highs and the lows of the market for the period that you have set.

Conclusion

The Donchian channel can help you to understand the highs and lows of the market. This means that you can easily determine the current or the upcoming trends and ride them to make profits. It is not meant to identify whether the market is overbought or not. You can look for price breakouts and make the trade based on your understanding. It is a marketing tool and not and handbook. This must be kept in mind at all times.

Long Currency Meaning

by Fxigor

The forex market does not behave like the stocks or the futures market. Traders are not investing in assets but pairs of currency that are not independent of the economic factors of their respective countries. Unlike day traders who make quick investments, that is, they buy and sell stocks within a day’s time. Forex traders go long and short with their investments.

Going long or be bullish means that a currency is purchased with the expectations that its value will increase in the future. Going short or be bearish means that a currency is purchased with the expectations that its value will decrease in the future.

Long position forex example:

If traders trade assets then long assets mean that traders made buy position. If traders trade EURUSD and believe in long USD they will sell EURUSD. Long position forex for currency pairs implies EUR as numerator and USD as the denominator, so when USD goes up then EURUSD will go down.
Everything That the New Traders Must Know

The first thing that you must know is that currencies are traded in pairs, with one is the base currency and the other is the counter currency. For example, the currency pair of U.S. dollar and Japanese yen. It will be denoted as USD/JPY = 100.00. Here, USD is your base currency and JPY is the quote or counter currency with $1 being equivalent to 100 yen.

As traders always trade currency pairs, they can never choose to either go long or short. Everything runs parallel. You will go long on one currency and short of the other one. When you are betting on the base currency to get stronger than the quote or counter currency, you are expecting the base currency to grow stronger in the future. For example, in the above pair, if you bet on the USD, you are going long and expecting it to value more than 100 yen in the future.

In this case, you are going long USD and short JPY. It means that you will buy USD more as compared to JPY. You will sell JPY because you think that its value will decrease. It is similar to selling shares when you want to short a stock.

Let’s compare it to the stock market

You believe that the stocks of Apple will rise. You will naturally buy its stocks (NASDAQ: AAPL). You did this because your evaluation suggested that the value of Apple stock will rise faster than USD. So, you went short in USD and long in Apple Stock.

When you will sell the Apple stocks, you will go long in the USD and short in Apple. You did this because you expected that the value if USD will rise faster than Apple.

This is exactly what forex traders do. They buy the currency that they are expecting to grow (going long) and sell the currency that they are expecting to get weaker (going short). They do this with the currency pair that they have chosen.

How to Go Long Position in Forex

Forex trading isn’t as linear as the futures or the stock market. A trader can speculate on both the downward and the upward movements in a forex trade because they’re simultaneously buying and selling two currencies.

You go long on base currency when you are assuming that it is bullish, that is, its value is likely to increase. Thus, you open a trade in a buy position. This also concludes that your counter currency is bearish and its value is likely to fall.

If your research and analysis are right and the value of the base currency increase, you can make a profit by closing your trade at the increased market price of the currency.

Why Should You Go Long Position in Forex?

Traders decide whether they would want to go long or short on a currency based on technical and fundamental analysis.

In technical analysis, the traders are focused on the charts and sheets that can guide them to assess whether a currency’s value will rise or not. If the price of a currency is rising and breaks through the resistance or ceiling, the traders have technical reasons to believe that they will make profits from it. This is because it could lead to the strength and the strength and the mobility of the currency could lead to a new market trend. The traders look for the imbalance. This is why they can also go long when the prices of the currency are falling but with a well-defined support level.

Fundamental analysis focuses more on economic news and events. The value of a currency is based on a number of factors and is highly dependant on the social, economical and political state of its respective country. Traders look for economic indicators like the GDP, rate of interest, infrastructural development, average income, and more to comprehend the growth of a country’s currency. They wait for the news releases to decide the course of their trade. If they think that the economy is doing better, there are higher chances that its currency will move upwards. Thus, the traders will go long and buy that currency.

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