Category Archives: Tutorials

tutorials

MetaTrader 4 User Guide

mt4.jpg
MetaTrader4 User Guide:

This is a LONG post so be prepared to do a LOT of scrolling (hope you have a wheel mouse.) If you do not feel like reading this whole blog post through and would instead prefer an offline version of this guide please see this link.

Here is a picture of what the MT4 main screen looks like:

  • Main menu (access to the program menu and settings);
  • Toolbars (quick access to the program features and settings);
  • “Market Watch” window (real-time quotes for the specified instruments);
  • “Navigator” window (quick access to all your accounts, indicators, expert advisors);
  • “Chart” window;
  • “Terminal” window (quick access to the trading and account history, list of open positions and placed orders, client terminal log-file and internal mailbox).

Download any demo MetaTrader4 installation program from the broker of your choice. This guide uses FXDD’s MT4 demo platform as a visual guide but this does not mean this guide and/or website recommends or is affiliated with this broker.

1. Launch the Metatrader exe file the same way you launch any Windows program. It’s best if you select to save to disk.

2. Scroll down the list to select the setup language. Then press the Next button:

3. Click the Next button after reading the notice:

4. In the next window check the “Yes, …” box if you agree with the terms of the license agreement. Then press the Next button:

5. Select data path and press the Next button:

6. Then use the default program group for FXDD and press the Next button:

 

7. Press the Next button to install MetaTrader 4 on your computer:

 

8. Installation is in process:

9. Once FXDD has been installed click the “Launch FXDD – MetaTrader 4 box.
Then press the Finish button:

 

10. First-time FXDD users will be prompted to fill in the application form to open a demo account: You must click the “I agree to subscribe into your news letters” box in order to launch the program. Then click the Next button.

 

 

11. Use the default server and click Next.


12.
You will see your login and password to trade on the demo account.

Click Finish to gain access to your demo account.

Note, that if your demo account is inactive for 90 days it is automatically
deleted by the server.

 13. Your demo account platform will start up and display the following window. Click Start to update your platform.

Then click Update and Restart to restart your platform.

The Market Watch Window:

 The “Market Watch” window can be activated by pressing the Ctrl+M key combination, or by using the View->Market Watch menu sequence or by clicking the button from the “Standard” toolbar:

 

Right click the mouse button on the “Market Watch” window to produce the context menu:

 

  • New Order – enables the window to open/close a position or to place a new pending order;

  • Chart Window – enables the chart of a currency pair or CFD;

  • Tick Chart – shows the tick chart for the selected instrument;

  • Hide – deletes the specified symbol from the list in the “Market Watch” window;

  • Hide All – deletes all symbols from the list in the “Market Watch” window which are not used (if you have open positions or charts, its symbols will not be deleted);

  • Show All – displays all available symbols in the “Market Watch” window;

  • Symbols – enables the window where you can hide/show the selected instruments;

  • Sets – saves/adjusts/deletes the custom settings for the “Market Watch” window;

  • High/Low – shows/hides columns with the highest and lowest prices for each instrument;

  • Time – displays a column with the arrival time of the latest quote for each instrument;

  • Grid – hides/unhides gridlines in the “Market Watch” window;

  • Popup Prices – opens the popup window which contains real time quotes for your selected instruments.

 

In MetaTrader 4, you can see as many real time charts as you wish, all on one screen, for any currency pair and for any time period. The following types of charts are available in MetaTrader 4:

  • Line Chart. Chart x-axis is for the different time periods (minutes, hours, days, months etc.), and y-axis is for the price. The point on the chart shows the close price for the period, i.e. the bid of the last quote for this period. All the sequential points are joined by lines:

It is recommended that this chart type is used only for the short time periods (up to 5 minutes). In order to change the chart to a line chart, press the button on the «Charts» toolbar:

or press the Alt+3 key combination or use the Charts -> Line Chart menu sequence.

  • Bar Chart. The chart is created with the use of bars. Each bar has a high (top), a low (bottom), an opening price (left horizontal little line) and a closing price (right horizontal little line) for the specified period of time (for example, an hour):

It is recommended that you use this chart type for periods of 5 minutes or more. In order to change the chart to a bar chart press the button on the “Charts” toolbar

or press the Alt+1 key combination, or use the Charts -> Bar Chart menu sequence.

  • Candlesticks. These charts are created in the same way as bar charts:

Candlesticks charts were very popular in the 80-90s because of their clear graphics. This method of technical analysis is based on the correlation between both closing and opening prices within the same trading day, and the closing price of the previous session and the opening price of the next session.

Candlesticks have different configurations compared to bar charts. The rectangular part of the candlestick line is called the real body. The thin vertical lines above and below the body are called shadows. They show lows and highs within a specified period of time. Depending on the closing and opening prices the real body can be white (empty) or black. When the body is white, the closing price is higher than the opening level. When the body is black, the closing price is lower than the opening level.

In order to create a candle chart press the button on the “Charts” toolbar:

or press the Alt+2 keys simultaneously, or use the Charts -> Candlesticks menu sequence.

 

In MetaTrader 4 both the bar and candle high is the highest Bid price for the defined period, the low is the lowest Bid price, the closing price is the last quoted Bid, the opening price is the first quoted Bid.

In order to create a new chart for any instrument right click on the “Market Watch” window, then select the Chart window item from the context menu:

 

By left clicking the mouse you can drag and drop any selected currency pair into any open chart window.

Chart period – the period displayed in one bar or candle. For example, if you create a 15 minute bar chart, then each bar will have the price data for the relevant 15 minutes. In MetaTrader 4 the following time periods can be used: 1, 5, 15, 30 minutes (M1, M5, M15, M30 respectively), 1 hour (H1), 4 hours (H4), 1 day (D1), 1 week (W1) and 1 month (MN). In order to change a time period, use the “Periodicity” toolbar:

 

 

Right click anywhere on the chart to produce the context menu to get access to the chart settings:

 

 

 

  • Choose Periodicity and select a time period from the drop down menu or press the button on the “Charts” toolbar;

  • Select Refresh item if an error occurs or if there are so called “gaps” on the chart. All missing data will be uploaded from the server and will appear on the chart;

  • Select Grid if you wish to hide/unhide gridlines on the chart;

  • Select Volumes in order to show/hide tick volume (the number of quotes of any period time);

  • Zoom in / Zoom out will help you to modify chart measures. You can also use the / buttons on the “Charts” toolbar or press the “+” and “-“ buttons;

  • Save as picture… will save the chart as the *.gif, or *.bmp. file;

  • Properties… (or the F8 button) enables the window where you can change chart settings, by selecting the “Color” tab you can change the color of any element on the chart:

 

Other settings can be changed in the Common tab:

 

Please note the following options:

  • Offline chart – the chart is not being updated by new quotes. Once you open the chart offline (File -> Open offline) this option becomes automatic;

  • Chart shift – allows you to shift the chart from the right edge of the window, to see the most recent candle forming. You can also press the button on the “Charts” toolbar or use the Charts -> Chart shift menu sequence;

  • Chart autoscroll – autoscrolls to the left once a new quote is received. You can also press the button on the “Charts” toolbar or use the Charts -> Autoscroll menu sequence. If you are viewing the chart back a few days, and the autoscroll button is depressed, it will automatically take you to the most recent candle forming on the next tic of the price.

 

Open a position:

In order to enable the “Order” window:

  • right click on the “Market Watch” window or on the “Trade” tab of the “Terminal” window and select New order from the context menu; or

  • press the F9 button; or

  • use the Tools -> New order menu sequence; or

  • right click on the chart window and select Trading -> New Order from the context menu; or

  • double click on the currency pair in the “Market Watch” window.

The “Order” window:

In MetaTrader 4 there are two ways of making deals: “Instant Execution” and “Pending Order”.

Instant Execution means you do not have to request quotes, and you will enter the market immediately. Once you have decided to buy or sell at the current price press the Buy or Sell buttons to open a long or short position.

Before you enter the market you can change the details in the “Order” window:

  • Symbol – a currency pair

  • Volume – number of lots;

  • Stop Loss – the level of Stop Loss order;

  • Take Profit – the level of Take Profit order;

  • Comment – any notes (that will show up in your report)

 

The new position will now be listed in the “Trade” tab of the “Terminal” window.

Close a position:

In order to close a position, highlight the trade in the “Trade” tab of the “Terminal” window and right click to obtain the context menu:

then select Close order. Double clicking on the open position in the “Trade” tab of the “Terminal” window will have the same result. The “Order #” window appears and you click the Yellow Close bar.

Place/Modify/delete Stop Loss & Take Profit Orders

Stop Loss – an order to close a previously opened position at a price less profitable for the Customer than the price at the time of placing the order

Take Profit – an order to close a previously opened position at a price more profitable for the Customer than the price at the time of placing the order.

If you place these types of orders you do not have to sit in front of your computer to wait for the outcome. Take Profit and Stop Loss orders will be executed automatically as soon as the price reaches the order level (see below). You can place Stop Loss and Take Profit at the time of making a deal filling in the “Stop Loss” and “Take Profit” fields in the “Order” window:

Afterwards in order to modify Stop Loss and Take Profit levels use the context menu:

Right click on the open position or on the pending order in the “Trade” tab of the “Terminal” window then select Modify or delete order. The “Modify order” window enables:

  • Fill in the “Stop Loss” and “Take profit” fields. By pressing the red button (in our example “1.2121”) you can copy this level into the “Stop Loss” field. By pressing the blue button (in our example “1.2096”) you can copy this level in the “Take profit” field. The value in the “Level” field defines the difference between the order level and the current price. Once you fill in the “Stop Loss” or/and “Take profit” fields press the red “Modify #position number …” button.

    In order to delete Stop Loss or Take profit orders specify its level as equal to zero.

 

Trailing Stop: is an algorithm to manage Stop Loss orders. Once a trailing stop has been placed (for example, trailing stop’s value is 15 pips) the following occurs:

  • No Stop Loss order will be placed until the open position is in a profit of at least 15 pips. MetaTrader 4 then sends an instruction to place the Stop Loss order 15 pips higher or lower than the current price.

  • Subsequently, each time the difference between the current price and the order level exceeds 15 pips, MetaTrader 4 sends the instruction to modify the Stop Loss order to a level 15 pips higher or lower than the current price. As a result, the Stop Loss order becomes closer to the current price.

 

Important:
It is very important to note that no Stop Loss order will be placed until the market moves in your favor as mentioned above. Therefore until this has happened, to limit losses, a separate Stop Loss would need to be placed manually.

In order to place a trailing stop, highlight the open position in the “Trade” tab of the “Terminal” window and right click to open the context menu.

 

 

 

Pending Order: is an instruction to open a position when the current price reaches the order level.
There are four types of pending orders:

  • Buy Stop – an order to open a Buy position at a price higher than the price at the moment of placing the order;

  • Sell Stop – an order to open a Sell position at a price lower than the price at the moment of placing the order;

  • Buy Limit – an order to open a Buy position at a lower price than the price at the moment of placing the order;

  • Sell Limit – an order to open a Sell position at a price higher than the price at the moment of placing the order.

In order to place a pending order, open the “Order” window by any way described below:

  • right click on the “Market Watch” window or on the “Trade” tab of the “Terminal” window and select New order from the context menu; or

  • press the F9 button; or

  • use the Tools -> New order menu sequence; or

  • right click on the chart window and select Trading -> New Order from the context menu; or

  • double click on the currency pair in the “Market Watch” window.

Then choose the Pending order item from the drop down

The following options may be changed in this window as well:

  • Symbol – currency pair;

  • Volume – transaction size in lots;

  • Stop Loss – Stop Loss order level which will be activated once the pending order has been executed;

  • Take Profit – Take Profit order level which will be activated once the pending order has been executed;

  • Comment – your comments for the pending order;

  • Type – the type of pending order: Buy Stop, Buy Limit, Sell Stop, Sell Limit;

  • At price – pending order level;

  • Expiry – if the box has not been checked the order is valid up to the time when you cancel it or when it is executed. If the box is checked the order is valid up to the moment specified in the box.

Once the Place order button is pressed it appears in the “Trade” tab of the “Terminal” window.

In order to modify or delete a pending order highlight it in the “Terminal” window, then right click to
produce the context menu:

Select the Modify or Delete Order menu item. Press the Modify button or the Delete button depending on your choice in the dialog window:

 

 

That does it for this guide. I hope it has been of use to you. Thanks for reading my blog.

Cheers,
Alan
http://alansforexblog.com

MetaTrader 4 Hot Keys

Forex Trading

Hot keys (accelerating keys) are keys and their combinations that allow you to execute various commands fast and without the use of menus or toolbars. Here is a lit of some very useful hot keys for the MT4 platform:

  • ” — chart scrolling to the left;

  • ” — chart scrolling to the right;

  • ” — fast chart scrolling to the left or, if the scale is defined, chart scrolling up;

  • ” fast chart scrolling to the right or, if the scale is defined, chart scrolling down;

  • Page Up — fast chart scrolling to the left;

  • Page Down — fast chart scrolling to the right;

  • Home — move the chart to the start point;

  • End — move the chart to the end point;

  • “-” — chart zoom out;

  • “+” — chart zoom in;

  • Delete — delete all selected graphical objects;

  • Backspace — delete the latest objects imposed into the chart window;

  • Esc — close the dialog window;

  • F8 — call the chart Properties window;

  • F9 — call the “New Order” window;

  • F11 — enlarge and minimize the chart window;

  • Ctrl+B — call the “Objects List” window;

  • Ctrl+F — enable “Crosshair”;

  • Ctrl+G — show/hide grid;

  • Ctrl+I — call the “Indicators List” window;

  • Ctrl+P — print the chart;

  • Ctrl+Y— show/hide period separators;

  • Ctrl+Z — undo an object deletion;

Cheers,

Alan

http://alansforexblog.com

MT4 Backtesting & Optimization

Forex Trading

MT4 Backtesting & Optimization

Here is a visual tutorial (aka HOWTO) on how to run optimizations and backtests with MetaTrader 4 (MT4). This is but one method of backtesting! There is another method that you can use but which involved downloading backtesting data NOT from your broker but from MetaQuotes (the makers of MetaTrader 4 – MT4) directly. For a guide on how to use this other method please see this post of mine instead.

I hope you find the guide useful and if you do feel free to give me a shout out by leaving a comment. Here goes the guide:







*Due to the limited screen real estate my current blog template affords I had to reduce the size of the images a bit. So if you find that you cannot clearly read a particular item in this visual guide please click on any of the images for a full screen version*

By the way in case you are wondering the EA’s backtested in this guide come from Bogie Enterprises.

That about does it for this post.

Have fun backtesting! Hey don’t forget if you find that elusive holy grail EA, send me a copy! 🙂

Cheers,
Alan

http://alansforexblog.com

Changing Spread In MT4 Strategy Tester

Hi everyone. Here is an interesting tutorial that I found on a forum (Google search is your friend.) I hope the admin does not mind me reproducing his post available @ http://forexbarometer.com. I hope you find it useful. Here comes the article:

Spread is one of the crucial parameters that might dramatically affect short-time trading systems performance. By such systems we assume TS that hunts for 8-20 pips profits and keeps opened positions no longer than for 1-2 hours.

The big MT4 platform inconvenience is dependence of the spread used in tester from current or last market conditions. For instance, in Friday market closed with 8 pips spread that is twice bigger than usual 4 pips. During weekend, every time we run tester on historical data, it will use the same last known 8 pips spread and we cannot optimize our TS for normal market conditions of 4-5 pips.

One well known solution is editing a spread value in *.FXT binary file used by tester but since MT4 build 210 tester rewrites this file before running a test/optimization process. So, to implement this *.FXT- tweaking technique we must use build 208 or 209. Those versions tester has a “Recalculate” checkbox that allows to prevent binary data file regeneration and keep our spread intact. The older builds might not work with your broker (Old version error in connection window).

Therefore, to begin testing our trading system with variable spread we need:

  • Older TERMINAL.EXE (main MT4) file v.208-209. It’s better to have a complete installation package because older and newer components may be incompatible. E.g. EA compiled in 223 version will crash under 208.
  • Tweaking utility. Generally, it may be any hex-editor like WinHex or special utlility like FXB Tester History Editor (FXB THE). The latter is free for all FXB customers and will be uploaded to common customers’ area next week.
  • TS *EX4 file(s) compiled for used older version (208 or 209). This is a very important issue because any TS will crash on incompatible software unless you have a source code for that and are able to recompile it.

These are test results for Leader family TS performed on IBFX mini-account for period of April 1-10, 2009. Tests made in Saturday, April 11, when market is closed and MT4 keeps last low liquidity market spread of eight pips, that is definitely unacceptable value for both testing/optimizing and trading.

*Note: In Firefox you can right click and select “View Image” to view the full image*

–end of article–

Thanks for your attention. I wish you all profitable trading!

Alan
http://alansforexblog.com

How to show MetaTrader account history profit in PIPs

Forex Trading

Greetings dear fellow forex traders. Today I’m going to briefly show how you can get your MetaTrader account history performance statement to show the profit or loss in PIPs. I’m pretty sure there must be a few of you out there who’ve always wondered how to get MT4 to do this. Unfortunately the bad news is that MT4 by default cannot do this. What is required is a little bit of work.

What you gotta do is open the statement file with MS Excel (technically it should work with other spreadsheet programs as well) and use the following function:

=IF(AND(F6<20;C6=”buy”);(J6-F6)*10000;IF(AND(F6<20;C6=”sell”);( F6-J6)*10000;IF(AND(F6>20;C6=”buy”);(J 6-F6)*100;(F6-J6)*100)))

or

=IF(AND(F6<20,C6=”buy”),(J6-F6)*10000,IF(AND(F6<20,C6=”sell”),( F6-J6)*10000,IF(AND(F6>20,C6=”buy”),(J 6-F6)*100,(F6-J6)*100)))

Here it is in action:

*If you’re curious to know, that’s a sample image I found on the net, it’s not my screenshot – I’m not Greek*

That’s it! Hopefully the next version of MetaTrader – aka MetaTrader 5 (MT5) – supports this ability by default (MetaQuotes are you listening?) because in my opinion it is a very useful feature for those of us who think in pips instead of dollars.

Ok, that about does it for this tutorial. I hope you found it useful. If so give me a shout (leave a comment) letting me know 🙂

Cheers,
Alan
http://alansforexblog.com

MetaTrader 4 Backtesting & Optimization

To get the most out of your expert advisor, you’ll need to optimize and backtest your strategy using MetaTrader’s Strategy Tester. While forward testing on a demo account is essential, backtesting allows you to simulate trading over a long period of time in just minutes. And with the optimization feature, you can find out which settings performed best over a selected historical chart period.

There is considerable debate over the accuracy of MetaTrader’s strategy tester. At best, backtesting offers only a close approximation of how trades would be executed in real-time. But it’s the best tool we have to rapidly test any strategy over a wide range of trading situations, and one that you should learn how to use well.

Open the Strategy Tester in MetaTrader by clicking the appropriate button on the toolbar or by selecting Strategy Tester from the View menu.

History Data

Before backtesting or optimizing, it’s important to make sure that your history data is complete and accurate, especially if you’re using ‘Every tick’ as your testing model. If you see ‘mismatched chart’ errors in your Journal log or if your modeling quality is less than 90%, your history data is insufficient to generate accurate ticks.

Open the History Center from the Tools menu or by pressing F2 on your keyboard. Double click the chart pair in the left column that you plan to backtest for. A list of time periods will appear below. Start by double clicking on 1 Minute (M1) to load the history data for that period. The backtester uses M1
data to generate ticks, so it is important that your M1 data is complete.
history center

Click the Download button to download the full history data for that pair and period. You may receive a Download Warning message – hit OK to continue. The history center will commence downloading. Repeat this process for every other time period and pair that you plan to test with.

You can also import history data into the History center, using accurate historical price data from Alpari. The Alpari databank has M1 data for over a dozen popular currency pairs. Download and unzip the history data to your hard drive. Click the Import button in the History Center window, and then click Browseto select the history data file (.hst).

You can also convert this accurate M1 data to other timeframes using the Period Converter script. See this tutorial for more information on how to do this.

Optimization

The optimization feature of MetaTrader 4 allows you to test thousands of combinations of expert advisor settings to find the most profitable settings for the selected chart, period and date range. Indicator-based strategies will need to be optimized for maximum profitability. However, almost all EAs will benefit from optimization – even those that trade on tick data, provided you have complete M1 history data (see above).

While the optimizer will return the most profitable settings for the selected date range, this is no guarantee that these settings will be profitable in the future. Market conditions change often, so it is important to regularly re-optimize your expert advisor over a recent chart for best results.

To optimize your expert advisor, first select it from the Expert Advisor drop-down box. Select the currency pair from the Symbol box and chart period from the Period box. For Model, you’ll generally want to select “Open Prices Only,” unless you are optimizing an EA that runs on tick data. In that case, select “Every Tick.” Check the Use Date option and select a range of dates to optimize for. Lastly, make sure that Optimization is checked.

Click the Expert Properties button to open your expert advisor settings. Under the Inputs tab is where you’ll enter the range of values to optimize for. The Start column will be the lowest value for a given setting, while the Stop column will be the highest. The Step column is the amount that the optimizer will “step through” from the Start to the Stop setting.

In the image above we are optimizing SL, TS and TP settings for an expert advisor. The Start value is 20, the Step is 20, and the Stop is 200. The optimizer will test every combination of values from 20, 40, 60 and so on up to 200. Use a start, step and stop value that is appropriate for the setting you are optimizing. Even values (5, 10, etc.) are good.The checkbox to the far left must be selected for that setting to be optimized. Any settings that aren’t checked will use the number in the Value column when optimizing. Under the Testing tab, you can adjust the Initial Deposit to something a bit more realistic. Leave the other settings at their defaults.

When you’re ready to begin optimizing, hit the Start button at the bottom right of the Strategy Tester window. Depending on the period, the date range, the testing model and the number of settings to be optimized it can take anywhere from a few minutes to several hours. If it’s taking too long, consider shortening the date range, optimizing fewer settings, or using a larger step value.

Once the optimization is finished, open the Optimization Results tab and double-click the Profit column to sort the results. Double-click any of the results to load it into the tester. Hit the Start button again to backtest with the selected settings.

Backtesting

By now, it should be obvious how the backtester works. Select your Expert Advisor, Symbol, Period and Model, check the Use Date box and select a date range. Select Visual Mode only if you want a visual walkthrough of the backtesting. Leave Optimization unchecked.

Hit the Expert Properties button and enter your settings in the Value column under the Inputs tab. You can also load or save settings using the buttons in the bottom right. The Start, Step and Stop columns are ignored, as are the checkboxes.

Close the Expert Properties dialog and press Start to begin testing. It will take anywhere from a few seconds to several minutes depending on your settings. Once testing has finished, open the Report tab on the bottom to see your results.

A few statistics to take note of:

  • Total net profit – The Gross profit minus the Gross loss.
  • Profit factor – The ratio of gross profit to gross loss. Higher is better, anything above 2 is acceptable.
  • Absolute drawdown – The drawdown of your initial deposit. High drawdowns increase the likelihood that your account will be blown out.
  • Profit trades – Your overall win percentage.
  • Modeling quality – Only important if your testing model is Every Tick. If so, this should be at 90%. If not, follow the instructions above to update your history with accurate M1 data.

The Results tab at the bottom of the strategy tester will give you the details on opened and closed orders, including trailing stop, take profit and stop loss. Click the Open Chart button to get a visual representation of your results. When testing your new EA, examine these closely to ensure that your strategy is working as intended.

Source: http://www.easyexpertforex.com/index.html

Forex News Trading Strategies

Checkout this very informative article by Lilly De Clerck from aboutcurrency.com

In this lesson, I will talk about the different ways how you can trade forex during key economic
news events.

Most common used news strategies:

  • Trading the Numbers
  • Straddle the News
  • Hedging the News

Trading the Numbers

Traders want to take advantage of the discrepancy between the forecasted and the
actual key economic number when trading the numbers. As mentioned before, you need
a very fast news data feed such as Reuters or Bloomberg because you want to get in the
trade before the spike begins.

Steps to trade the numbers:

  1. Purchase a fast news datafeed at Reuters or Bloomberg
  2. Track the news consensus and determine the significance of the economic
    news report being released, if it is not important, do not trade it. You will be able to
    find all important data on a good data calendar
  3. For each important news release you need to know how large a discrepancy has
    to be in order for you to act on the trade.
  4. Finally, watch the news release using your fast datafeed and trade the numbers.

Example:

UK CPI News Release

“There are three different numbers. There is the month over month CPI, there is the
year over year CPI, and there is the core CPI.

The most important number that most traders and economists will be focusing on is
the CPI headline year over year number, which is expected at around 2.8%, same as
it was last month.

If for some reason the number comes out at 3.1% or higher, it would set a new high in
many years, and a possibility of a rate hike out of UK will probably be considered imminent,
so GBP/USD may possibly go up by 80 pips or more in the first hour of the report.

If the CPI reads at 2.4% or lower, it would be a huge drop, and most would probably
assume that the Bank of England will have to think twice before hiking the rate anytime
soon, so GBP/USD may possibly go down by 80 pips or more in the first hour.”

Possible scenarios:

If the consensus and the actual number is inline with the market expectations, you
would not trade.
If the actual number is at 3.1% or higher, you would go long.
If the actual number is at 2.4% or lower, you would go short.

Below picture shows what happened that day. The number came out much better
than expected and the GBP/USD spiked up.

GBP/USD CPI news release spike

Things to consider when interested in “Trading the Numbers”:

  1. You have only 0.5 – 2 seconds in which to act before the spike begins.
    Not fast enough? No money for you.
  2. You really need to know how to read and interpret the numbers.
    Wrong interpretation will cost you money!
  3. A fast news service is very expensive and is not recommended when you
    trade a small account because it’s very unlikely to cover your data feed expenses.

Straddle the News

This strategy is very simple and consists of 2 orders, one to buy a few pips above the
range high and one to sell a few pips below the range low, then wait for the price to
breakout triggering one of your orders. Your stop loss order should be placed a few pips
below the range low when buying, conversely, a stop loss order should be placed a few
pips above the range high when selling.

An example: (See picture below):

Range high: 1.9938
Range low: 1.9919

Place an order to buy at 1.9941 with a stop loss order at 1.9917. Take profit at 1.9991.
Place an order to sell at 1.9916 with a stop loss order at 1.9940. Take profit at 1.9866.

That’s it!

GBP/USD CPI news straddle strategy

Things to consider when interested in “Straddle the News” forex strategy:

  1. False breakouts or whipsaws can occur, especially when the release came close
    or in line with market expectations and traders fade the breakout (i.e place trades in the
    direction opposite to the initial price movement). Worst case scenario, both stop losses
    get hit. Although the strategy relies on “true” breakouts it can still work during a false
    breakout if you take the profits quickly and don’t get greedy plus you put very tight
    stops below or above the range to minimize the risk.
  2. During key news releases, spreads can widen up and both buy and sell orders
    can be triggered at the same time. You will end up losing.
  3. Slippage – During major fundamental announcements, both stop loss and limit
    orders may not be guaranteed to be filled at your price. ‘Slippage’ is the cost involved
    when currency traders enter the market at a price worse than the level they wanted
    to get into.

For example, a trader wants to sell GBP/USD at 1.9000 but the order is executed at
1.8999 rate. That 1 pip difference is slippage cost.

Hedging the News

What is hedging? Hedging enables a currency trader to simultaneously
hold Buy and Sell positions in the same currency pair at the same time in one trading
account.

Hedging News Strategy:

  1. To hedge, go both long and short at market price 30 min before the news release.
  2. Add a protective stop loss order to both long and short positions 30 seconds before
    the news release.
  3. Add a limit order to both long and short positions 30 seconds before the news release.

Now wait…

Possible scenarios after the news release:

Whipsaw or false breakout – both stop losses can get hit.
No movement – nothing will happen to your open positions.
Price breaks out – one of your stop loss orders will get hit and hopefully, you will reach
your target level on the remaining open position.

Economic Indicators Explained

Balance of Payments:

The balance of payments is separated into two main accounts: the current account
and the capital account. It’s a complete summary of a nation’s economic transactions
and the rest of the world including merchandise, services, financial assets and tourism.

Beige Book Fed Survey:

The Beige Book, is published eight times a year by the Federal Reserve Bank. It highlights
the activity information by District and sector. The survey normally covers a period of
about 4-weeks in duration.

Business Inventories and Sales:

Inventories are an important component of the GDP report. Business inventories and
sales figures consist of data from other reports such as durable goods orders, factory
orders, retail sales, and sales data.

Construction Spending:

Spending Measures the value of construction during the course of a particular month.

Consumer Price Spending (CPI):

CPI measures the change in prices at the consumer level for a fixed basket of goods
and services paid for by a typical consumer. Items included in the CPI reflect all goods
and services that people buy for day-to-day living.

Current Account:

The current account is the sum of net income from trade in goods and services, net
factor income, and net unilateral transfers from abroad. It’s a statement of the country’s
trade with other nations over a period of time.

Durable Goods Orders:

Durable Goods include large ticket items such as capital goods, transportation and
defence orders. They are extremely important because they anticipate changes in
production and thus, signal turns in the economic cycle.

Employment Report:

In the US, the employment report is regarded as the most important among all economic
indicators. The Employment Report contains 3 components: Payroll Employment: Measures
the change in number of workers in a given month.

Unemployment Rate:

The percentage of the civilian labor force actively looking for employment but unable to
find jobs. Average Hourly Earnings Growth: The growth rate between one month’s average
hourly rate and another.

Factory Orders:

The factory orders report contains data on orders and shipments of non durable goods,
manufacturing inventories, and the inventory/sales ratio.

FOMC Decision:

The FOMC holds eight regularly scheduled meetings per year. If the FOMC wants to
increase economic growth, it will reduce the target fed funds rate. Conversely, if it
wants to slow down the economy, it will increase the target rate with a rate hike.

Gross Domestic Product (GDP):

There are four major components of the GDP are: consumption, investment,
government purchases, and net exports. GDP measures the market value of
goods and services produced in a country.

Housing Starts/Building Permits Starts:

Are divided into single-family and multi-family categories. In both cases, a
housing unit is considered “started” when excavation actually begins.

IFO:

Germany’s leading survey of business conditions. The index surveys over
7,000 enterprises on their assessment of the current business situation and
their resulting plans for the short-term.

Industrial Production and Capacity Utilization:

Industrial production measures the monthly percentage change in volume of
output of the nation’s factories, mines, and utilities. Capacity utilization measures
the extent to which the capital stock is employed in production.

National Association of Purchasing Managers (NAPM):

This is leading survey on US manufacturing activity, arranged by the National
Association of Purchasing Management (NAPM).

New Home Sales:

Monthly data new home sales data contains information on home prices, and
number of houses for sale.

Non Farm Payroll (NFP):

NFP represents all business employees excluding general government employees,
private household employees, and employees of nonprofit organizations, accounting
for about 80% of the workers who contribute to GDP. NFP is released every first
Friday of the month and can cause big gaps on the forex market.

Personal Income:

Personal Spending, also known as PCE, represents the change in the market value
of all goods and services purchased by individuals. It is the GDP’s largest component.

Producer Price Index (PPI):

PPI measures the monthly change in wholesale prices and is broken down by
commodity, industry and stage of production.

Purchasing Managers’ Index (PMI):

PMI is widely used by industrialized economies to assess business confidence.
Germany, Japan and the UK use PMI surveys for both manufacturing and services industries.

Retail Sales:

Retail sales is the first real indication of the strength of consumer expenditure.
Measures the percentage monthly change in total receipts of retail stores, and
includes both durable and non-durable goods.

TICS:

The Treasury International Capital (TIC) Report measures foreign demand for US debt and
assets. Strong demand tends to strengthen the dollar as foreigners convert their money in
order to purchase US securities.

Tankan Survey:

Japan’s chief business survey, compiled quarterly by the Bank of Japan. The survey
consists of two major parts; the “judgment survey,” asking businesses about their
situation in the previous, current and following quarters on macro-economic variables,
business conditions, inventory levels, capacity utilization levels and employment level.
The other main part is related to “current management issues” confronting companies.

Trade Balance:

The difference between the monetary value of exports and imports in an economy over
a certain period of time. A positive balance of trade is known as a trade surplus and consists
of exporting more than your imports; a negative balance of trade is known as a trade deficit
or, informally, a trade gap. The Trade Balance also has a sizable impact on GDP.

US Economic Numbers to Keep an EYE On

The rankings for US economic data as seen in below table are based on an analysis of
20-minute and daily ranges. As seen in below table for example, the Non-farm Payroll
release days can cause a big shake up in the forex market. They have the potential
to move the EUR/USD (on average) 123 pips in 20 min and 193 pips in a day on average.

Biggest FX market “shakers” table

Year 2004 – 20 min after news Avg. Range (pips)
Non-Farm Payrolls 123
FOMC Decision 74
Trade Balance 64
Inflation – CPI 44
Retail Sales 43
GDP 43
Current Account 43
Durable Goods 39
TICS 33
Year 2004 – Total Daily Range Avg. Range (pips)
Non-Farm Payrolls 193
FOMC Decision 140
TICS 132
Trade Balance 129
Current Account 127
Durable Goods 126
Retail Sales 125
Inflation – CPI 123
GDP 110

1. Non Farm Payroll (NFP):

NFP represents all business employees excluding general government employees, private
household employees, and employees of nonprofit organizations, accounting for about 80%
of the workers who contribute to GDP. NFP is released every first friday of the month and
can cause big gaps on the forex market.

NFP Release Schedule: First Friday of the month at 8:30am EST

2. FOMC Decision

The FOMC holds eight regularly scheduled meetings per year. If the FOMC wants to
increase economic growth, it will reduce the target fed funds rate. Conversely, if it wants
to slow down the economy, it will increase the target rate with a rate hike.

3. Trade Balance:

The difference between the monetary value of exports and imports in an economy over a
certain period of time. A positive balance of trade is known as a trade surplus and consists
of exporting more than your imports; a negative balance of trade is known as a trade deficit
or, informally, a trade gap. The Trade Balance also has a sizable impact on GDP.

4. Consumer Price Spending (CPI):

CPI measures the change in prices at the consumer level for a fixed basket of goods and
services paid for by a typical consumer. Items included in the CPI reflect all goods and
services that people buy for day-to-day living.

5. Retail Sales:

Retail sales is the first real indication of the strength of consumer expenditure.
Measures the percentage monthly change in total receipts of retail stores, and includes
both durable and non-durable goods.

6. Gross Domestic Product (GDP):

There are four major components of the GDP are: consumption, investment, government
purchases, and net exports. GDP measures the market value of goods and services produced
in a country.

7. Current Account

The current account is the sum of net income from trade in goods and services, net factor
income, and net unilateral transfers from abroad. It’s a statement of the country’s trade
with other nations over a period of time.

8. Durable Goods Orders:

Durable Goods include large ticket items such as capital goods, transportation and
defence orders. They are extremely important because they anticipate changes in
production and thus, signal turns in the economic cycle.

9. TICS

The Treasury International Capital (TIC) Report measures foreign demand for US
debt and assets. Strong demand tends to strengthen the dollar as foreigners convert
their money in order to purchase US securities.
Artilce by Lilly De Clerck and aboutcurrency.com

Connecting MetaTrader 4 to an ECN Broker

mt4.jpg

Let’s face it, the majority if not all forex brokers that support the MetaTrader 4 platform are pure bucketshops. I have yet to find ONE MT4 broker which offers a true non-dealing desk trading environment. A lot of them claim this, but it is all pure bullshit, if you’ll pardon my french. If they have fixed spreads they CANNOT be a non-dealing desk broker! Any broker that offers fixed spreads by definition can’t be offering a no dealing desk trading platform. Just be aware that when there is a trading desk involved (be it human or computer operated) you are not trading in a true market environment but instead are in a “sandbox” type of trading environment where the broker has full control over your position. So how do you get around this? The solution is simple, use ECN brokers.

The thing is that some of us are somewhat attached to the MetaTrader 4 platform. I personally think it is a pretty neat and functional trading platform. The scripting abilities are excellent, and there are just so many free indicators and expert advisors available for this platform that it has become wildly popular with retail traders. However, most ECN brokers do NOT support the MT4 platform. One of the main reasons is that MT4 server/client software was never meant to operate in an ECN trading environment. Many brokers have tried to adapt it to an pure ECN trading environment and failed. So can we have our cake and eat it too? Yes, you can, but it involves a bit more work.

I’m going to tell you about some possible solutions which you can use to get MT4 to work more or less reasonably well with some ECN brokers. By the use of a specialized API (programming interface) it is possible to setup a virtual bridge between MT4 and the ECN platform. This will give you a more accurate, reliable, and less “doctored” price feed along with SPT (straight pass through) execution so your trades get routed directly into the interbank environment.

So far I know of 3 ways you can get this done:

1 – Some ECN providers offer their own custom API you can use. I only of one ECN broker that offers this solution and they’re called HotspotFX. For more details check out this link:

http://eu.hotspotfx.com/trading-software/connectivity/api-for-metatrader/

2 – You can use commercial software. I scoured the net and forex forums and there just isn’t that much relevant software out there. One that I did come across is called TradeBullet. See their homepage for more details.

http://www.tradebullet.com/

3 – The free route – always my favorite. However the disadvantage to this solution is that it may not have all the capabilities or bells and whistles of commercial alternatives. The only free solution that I’ve found is called TWSLink. This solution is free, so no hand holding for you! You’re just going to have to figure out things for yourself using the documentation available. Visit this website for more details:

http://www.trade-commander.org/twslink/twslink.htm

If anyone else knows other solutions please feel free to contact me and I will gladly add it to this article with links to your site(s) and everything.

Until next time, many pips to you all!

Alan