Risk management in trading Risk management is the set of rules that defines how much capital is exposed in each trade, when a loss must be accepted and how the account is protected during a negative sequence of results. In practice, risk management is what separates a trading plan from a simple prediction. A trader
Quantitative analysis of financial markets often assumes that asset prices or returns follow a normal distribution. This approximation is not perfect, but it is useful in many contexts. Below, we explain why the normal distribution has become one of the basic models for understanding market movements. 1. The Central Limit Theorem and the Normality of
Technical analysis Technical analysis is a methodology used in financial research that focuses on studying the price movements and trading volumes of an asset, such as stocks, currencies, or commodities, in order to predict its future price movements. Instead of considering internal or external factors in the asset, such as a company’s financial performance or
In the world of trading, there is a wide variety of brokers available to retail traders. However, in this section we will focus on the three main types of brokers: Market Makers, ECN and STP. Each type of broker has its own characteristics and advantages, and it is important to understand the differences between them
To explain this section we will start with a practical case: Let’s take the movement of the EURUSD as an example and choose one hour as the calculation period. We must keep in mind that we could have taken any period to do the example (one minute, 5 minutes, one week, etc.). We take as
To be able to trade we generally go to a retail broker. This is the type of broker that has our profile as a target client. This type of broker will offer us a platform to operate on. Whether it is their own platform or a generic one (Metatrader type). Our operations can be manual
