Category: Trading styles

Ichimoku Kinkō Hyō

Ichimoku Kinko Hyo usually just called ichimoku is a technical analysis method that builds on candlestick charting to improve the accuracy of forecast price moves. It was developed in the late 1930s by Goichi Hosoda, a Japanese journalist who used to be known as Ichimoku Sanjin, which can be translated as “what a man in the mountain sees”. He spent 30 years perfecting the technique before releasing his findings to the general public in the late 1960s.

Ichimoku Kinko Hyo translates to one glance equilibrium chart or instant look at the balance chart and is sometimes referred to as “one glance cloud chart” based on the unique “clouds” that feature in ichimoku charting.

Ichimoku is a moving average-based trend identification system and because it contains more data points than standard candlestick charts, it provides a clearer picture of potential price action. The main difference between how moving averages are plotted in ichimoku as opposed to other methods is that ichimoku’s lines are constructed using the 50% point of the highs and lows as opposed to the candle’s closing price.

Carry trading

The term carry trade, without further modification, refers to currency carry trade: investors borrow low-yielding currencies and lend (invest in) high-yielding currencies. It is thought to correlate with global financial and exchange rate stability and retracts in use during global liquidity shortages, but the carry trade is often blamed for rapid currency value collapse and appreciation.

A risk in carry trading is that foreign exchange rates may change in such a way that the investor would have to pay back more expensive currency with less valuable currency. In theory, according to uncovered interest rate parity, carry trades should not yield a predictable profit because the difference in interest rates between two countries should equal the rate at which investors expect the low-interest-rate currency to rise against the high-interest-rate one. However, carry trades weaken the currency that is borrowed, because investors sell the borrowed money by converting it to other currencies.

HFT

High-frequency trading (HFT) is a type of algorithmic trading characterized by high speeds, high turnover rates, and high order-to-trade ratios that leverages high-frequency financial data and electronic trading tools. While there is no single definition of HFT, among its key attributes are highly sophisticated algorithms, co-location, and very short-term investment horizons. HFT can be viewed as a primary form of algorithmic trading in finance. Specifically, it is the use of sophisticated technological tools and computer algorithms to rapidly trade securities. HFT uses proprietary trading strategies carried out by computers to move in and out of positions in seconds or fractions of a second. HFT firms make up the low margins with incredibly high volumes of trades, frequently numbering in the millions.

Algorithmic trading

Algorithmic trading is a method of executing a large order (too large to fill all at once) using automated pre-programmed trading instructions accounting for variables such as time, price, and volume to send small slices of the order (child orders) out to the market over time. They were developed so that traders do not need to constantly watch a stock and repeatedly send those slices out manually. Popular “algos” include Percentage of Volume, Pegged, VWAP, TWAP, Implementation Shortfall, Target Close. In the past several years algo trading has been gaining traction with both retails and institutional traders.

Hedging

A hedge is an investment position intended to offset potential losses or gains that may be incurred by a companion investment. In simple language, a hedge is used to reduce any substantial losses or gains suffered by an individual or an organization.

A hedge can be constructed from many types of financial instruments, including stocks, exchange-traded funds, insurance, forward contracts, swaps, options, gambles, many types of over-the-counter and derivative products, and futures contracts.

Public futures markets were established in the 19th century to allow transparent, standardized, and efficient hedging of agricultural commodity prices; they have since expanded to include futures contracts for hedging the values of energy, precious metals, foreign currency, and interest rate fluctuations.

Arbitrage

In economics and finance, arbitrage is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices. When used by academics, an arbitrage is a (imagined, hypothetical, thought experiment) transaction that involves no negative cash flow at any probabilistic or temporal state and a positive cash flow in at least one state; in simple terms, it is the possibility of a risk-free profit after transaction costs. For instance, an arbitrage is present when there is the opportunity to instantaneously buy low and sell high.

In principle and in academic use, an arbitrage is risk-free; in common use, as in statistical arbitrage, it may refer to expected profit, though losses may occur, and in practice, there are always risks in arbitrage, some minor (such as fluctuation of prices decreasing profit margins), some major (such as devaluation of a currency or derivative). In academic use, an arbitrage involves taking advantage of differences in price of a single asset or identical cash-flows; in common use, it is also used to refer to differences between similar assets (relative value or convergence trades), as in merger arbitrage.

People who engage in arbitrage are called arbitrageurs such as a bank or brokerage firm. The term is mainly applied to trading in financial instruments, such as bonds, stocks, derivatives, commodities and currencies.

Speculation

Speculation is the purchase of an asset (a commodity, goods, or real estate) with the hope that it will become more valuable at a future date. In finance, speculation is also the practice of engaging in risky financial transactions in an attempt to profit from short term fluctuations in the market value of a tradable financial instrument—rather than attempting to profit from the underlying financial attributes embodied in the instrument such as capital gains, dividends, or interest.

Many speculators pay little attention to the fundamental value of a security and instead focus purely on price movements. Speculation can in principle involve any tradable good or financial instrument. Speculators are particularly common in the markets for stocks, bonds, commodity futures, currencies, fine art, collectibles, real estate, and derivatives.

Speculators play one of four primary roles in financial markets, along with hedgers, who engage in transactions to offset some other pre-existing risk, arbitrageurs who seek to profit from situations where fungible instruments trade at different prices in different market segments, and investors who seek profit through long-term ownership of an instrument’s underlying attributes.

Swing trading

Swing trading is a speculative activity in financial markets where a tradable asset is held for between one and several days in an effort to profit from price changes or ‘swings’. A swing trading position is typically held longer than a day trading position, but shorter than buy and hold investment strategies that can be held for months or years. Profits can be sought by either buying an asset or short selling. Momentum signals (e.g., 52-week high/low) have been shown to be used by financial analysts in their buy and sell recommendations that can be applied in swing trading.