Good Contents Are Everywhere, But Here, We Deliver The Best of The Best.Please Hold on!
Your address will show here +12 34 56 78

Through the years, the manner of investing has become a bit too complicated. In effect, various kinds of instruments for derivatives were devised. But if you will look at the history of investment closely, you will realize that derivatives are not a new concept. In fact, it has been existent for quite some time already.

Truth be told, it has been in various applications like in the industry of farming. This usually happens when there is a party that agrees to sell a certain product and another party agrees to buy that product for a definite price on a date that has been set. Most of the transactions before the establishment of organized markets are done through agreements like these wherein the only bond that matters is the one dictated by a simple handshake.

The kind of investment that gives leeway to individuals to sell or buy their options on a particular security is actually called the derivative. These derivatives are classified as investments wherein the investor has no asset that is underlying. Here, the investor actually makes a specific bet in connection with the direction that would be taken by the movement of the price.  From the result of the movement, the seller will know if he is going to make some profit out of it or not.

Instruments used for different types of derivative may vary. These include the following, but there are many more not included in the list: forward contracts, options, futures, and swaps. Derivatives are truly very useful but it also presents several risks. Generally, derivatives are considered as an alternative manner of participating in the activities in the market.

Many investors find it difficult to comprehend the idea behind derivatives. But the basic principles can be stated in the simplest terms possible. First, there are different kinds of instruments, each of which have certain counterparty. The counterparty is actually responsible for the movement on the other end of the trading. Each of the derivatives actually has an asset that is underlying. The value of the underlying asset is based upon the derivative’s risk, price, and structure of the basic term. In effect, the risk perceived on the part of the asset actually influences the risk perceived for the derivative.

Mr. Tim, A Senior Forex analyst from Admiralmarkets.ae, says “When it comes to pricing, you might realize that it is a very complicated undertaking. The derivative pricing may call for the need for a strike price”. Hence, the strike price refers to the specified price at which it can be actually exercised. When it comes to the fixed income derivatives, a call price might be existent. Here, the issuer can readily convert a derivative into a security.

At this point, you might be wondering why derivatives are used by investors. Usually, three reasons are commonly given: (1) to do a hedging of a certain position; (2) to increase the leverage; and (3) to effectively speculate the movement of a certain asset.

Finally, the derivatives can be sold or bought in two different ways. There are traders who prefer to do it over the counter. On the other hand, there are investors who do the trader barter style.

10

If you want to make your technical analysis more reliable and accurate, there are three indicators that can make a difference for you; those are Moving Averages, Bollinger Bands and Parabolic SAR. Here in this article you will learn how to use Moving Averages and Bollinger Bands to generate reliable signals.

Moving Averages

Traders make use of moving averages in different ways; however, we will discuss only two most effective and easy ways to generate buy/sell signals with the help of Moving Averages.

Single Moving Average

A single moving average divides the trading area into two zones that are Bullish Zone and Bearish Zone. For this purpose, 200 Simple Moving Average (SMA) should be used. Every time when the price hits 200 SMA, it will most likely be bounced back.

1

In down trend, 200 SMA acts as a Critical Support Level, whereas, in upward trend the same moving average acts as Critical Resistance Level. Traders tend to buy the pair on breakout through resistance and bounce back from the support level, while prefer selling on breakout through support level and bounce back from resistance.

Double Moving Average

Traders make use of double moving average or two moving averages to find a crossover. For this purpose, usually a faster moving average (50 SMA) is used in conjunction with slower moving average (200 SMA).

2

A long position should be opened at a point when 50 SMA crosses and comes above 200 SMA. Conversely, a short position is preferred when 50 SMA crosses and comes below 200 SMA.

Bollinger Bands

Bollinger bands consist of three bands, upper Bollinger band, middle Bollinger band and lower Bollinger band. Middle Bollinger band is nothing but a 20 SMA, upper and lower Bollinger bands are of main significance.

A bullish reversal is expected every time when price hits lower Bollinger band, whereas a bearish reversal is expected when the price touches upper Bollinger band.

3

In addition to potential reversal, Bollinger bands also show the level of volatility in the market. Market is less volatile when Bollinger bands are squeezed and vice versa.

It is pertinent that one should not rely solely on Bollinger bands for decision making, technical indicators are always effective when they are used in combination with other tools particularly trendline.

Parabolic SAR

SAR refers to “Stop And Reverse”, it is another one of famous technical indicators that predict possible reversal in price pattern. Traders tend to open buy position when Parabola SAR dots are below the price line, whereas selling is preferred when SAR dots are above the price line.

4

In the end, it must be noted that all the technical indicators work fine when the market is trendy, they all fail to produce reliable signals in range-bound market. Similarly, market fundamentals must also be looked at closely because fundamentals are far more superior to technicals, that is the basic rule. This was a short summary of a few very useful technical indicators, hopefully it would work.

16