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A lot of investors are drawn to penny stocks’ promise of huge returns. And it’s true that these shares have massive price swings in the high double and even triple digits, usually over a fairly short period of time. The extreme volatility is just one reason penny stocks are risky and highly speculative assets. Only trade penny stocks with money you can afford to lose.

Although penny stocks are defined as any stock that sells below $5 a share, there are quite a few that trade for literal pennies, or even fractions of pennies, which means you can buy a lot of shares with a relatively small investment. A $500 investment can buy 1,000 shares of a penny stock trading at $0.50; that same investment would buy just 10 shares of value stock Delta Air Lines. It’s tempting to think there is some huge advantage to having 1,000 shares versus 10 shares, but a 10% gain on a $500 investment is the same, regardless of the number of shares you own. Don’t confuse price with value when you’re dealing with penny stocks.

How much you need to trade penny stocks depends on your brokerage account minimum requirements. All online brokers trade stocks on the major exchanges, and there are plenty of stocks under $5 on the big boards. However, both Nasdaq and the NYSE have rules about stocks trading below $1. For true penny stocks, you’ll need to find a broker that handles trades on the pink sheets and OTC bulletin boards. Most, although not all, do. You’ll usually need to have at least $500 to open an account, and there may be other conditions if you’re trading penny stocks.

Because penny stocks are not long-term investments, you make more trades, so it’s important to understand your broker fees and any other restrictions or conditions they have on penny stock trades. If your broker charges a surcharge or has limits on the number of shares you can trade in one order or one day, it eats into profits, especially on the low-dollar trades.

Some people get into penny stocks because they see them as a way to get into the market without a lot of cash. But if you’re making $100 trades and your broker fees are $15 round trip, you’ve got to make 15% on the trade just to break even. If you’re making $1,000 trades, on the other hand, $15 in broker fees isn’t as much of an issue.

The next thing is how often you plan to trade. If you trade often enough to meet the SEC’s definition of a pattern day trader, which broadly speaking means you make more than four round-trip trades over five business days, you have to have at least $25,000 in a margin account.

When you’re trading penny stocks, you should have enough in your account to stay in the game. The nature of penny stocks means you are going to have some big losses, and hopefully a few big wins, but if you are trading with just $1,000 and you can’t close a position fast enough to avoid a huge loss on a trade, you might end up with just $500 or so in your account, and it’s very hard to make enough winning trades to recoup your losses with just $500 to trade.

Most people who are serious about trading penny stocks start with about $5,000, because at that amount, you’re able to make decent-sized trades and still stay within a prudent maximum risk level of 2% per trade.

Bottom line—penny stocks are volatile, high-risk, and speculative securities, and they really aren’t an appropriate choice for most investors, especially those without a lot of capital to risk. If you don’t have a lot of money to invest, or the money you do have is earmarked for other savings goals, you should think twice before jumping into penny stocks.

Exchange-traded funds are extremely popular with investors, both for their low fees and their favorable tax treatment due to the way they are classified by the IRS. In a nutshell, capital gains taxes are triggered in a mutual fund whenever assets are sold within the fund, but with ETFs, gains are generally only realized and taxed when the investor sells shares in the fund.

Taxation in a mutual fund, whether it’s a traditional fund or an ETF, is based on the appreciation in value of the fund over time. When an investor realizes a profit, or capital gain, it triggers a tax payment. In a mutual fund, profit is generated when the fund manager sells off equities within the fund, which is then passed on to the investor. With an ETF, profit (or loss) is realized when the investor redeems shares. Of course, these tax events only apply to individual, taxable accounts, and not tax-deferred accounts such as IRAs and 401(k) plans.

Structural differences in the way mutual funds and ETFs are organized account for the difference in tax treatment. Mutual fund transactions are always with the fund sponsor; shares are bought from and sold to the institution offering the fund. ETFs on the other hand are traded between individual investors on the stock exchange.

This is an important difference, because it means that whenever a mutual fund has a lot of redemptions, it has to sell off assets to raise cash to pay out the investors. These transactions create capital gains, triggering a tax liability. Mutual funds also have transactions during periodic rebalancing, creating even more capital gains exposure.

ETFs have far fewer transactions that may trigger capital gains. In fact, turnover in an ETF is extremely low, and securities are only sold when one is dropped from the index. This virtually eliminates the capital gains produced in a mutual fund.

For example, the average mutual fund in the emerging markets space pays about 6.5% of NAV to shareholders in the form of capital gains each year, while ETFs tracking the same indices pay out just 0.01% in capital gains. In the 10-year period ending in 2010, mutual funds In the small-cap market produced capital gains of about 7% of NAV, while small-cap ETFs produced about 0.02% of NAV in taxable gains.

Perhaps the worst thing about capital gains taxes in mutual funds is that shareholders owe them on profitable transactions within the fund, even if the fund overall shows a loss for the year. The fund’s loss of value doesn’t offset capital gains generated by selling assets within the fund.

Investors tend to discount or minimize the effect of capital gains taxes on the overall performance of a fund, but over time, the capital gains tax bite can be significant. A $100,000 investment averaging 4% returns each year and 1% capital gains taxes will lose $1,000 the first year, and almost $6,000 over five years.

Taxes on dividends in ETFs are treated a bit differently. The rules regarding qualified dividends are complex. Basically, the investor must own the stock in the fund paying the dividend for at least 60 days of the 121-day period surrounding the ex-dividend date, and the dividend must be paid by a qualified corporation in order to count as a qualified dividend for tax purposes.

Qualified dividends are taxed at between 5% and 15%, depending on the investor’s income tax bracket. Unqualified dividends are taxed at the investor’s normal income tax rate. Dividend tax treatment is the same for mutual funds and ETFs, and the taxes apply whether the dividends are paid out to the investor or reinvested into the fund.

ETFs beat mutual funds in the tax department in two major ways: They generate fewer taxable capital gains due to transactions within the fund, and the gains on shares within the fund aren’t taxed until they’re sold, which gives investors far more control over their tax liability in any given year.

A robo-advisor is an automated financial planning service that uses machine algorithms and advanced technology to develop and manage an investment portfolio. Because robo-advisors remove the human element from investment management, they are significantly less expensive to use than traditional financial planners, putting professional management services within reach of even small investors.

Betterment launched the first robo-advisor service in 2008 at the start of the Great Recession. The market has exploded since then; there are over 200 digital investment platforms available currently, with more in the pipeline. In 2015, roughly $60 billion was under management by robo-advisors. Today, experts project that figure will reach $2 trillion by 2020. According to financial research firm Hearts & Wallets, about half of all investors aged 53 to 64 have assets managed by robo-advisors, as do about a third of all retirees.

Although wealth management software is new to consumers, financial advisors have been using portfolio allocation software for almost two decades. There is nothing new about automating many investment decisions. The only “new” thing about robo-advisors is that this technology is now available directly to consumers.

Earlier versions of robo-advisor platforms dealt exclusively with taxable accounts and IRAs, but now there are robo-advisors managing more complex investments such as trusts and even 401(k) accounts. Most robo-advisor platforms offer regular portfolio rebalancing, retirement planning, and tax-loss harvesting for taxable accounts. Some offer hybrid services which combine automated investment management with a fixed number of contacts with a human advisor each year.

Robo-advisors generally charge between 0.2% and 0.8% to manage a portfolio, compared to an average of 2% for professional wealth managers. On average, you’ll pay about $40 per year for each $10,000 invested with a robo-advisor. The fees are deducted from your account on a monthly or quarterly basis.

Account minimums, which are a barrier to entry for many retail investors, are low to nonexistent with robo-advisors. You generally need in the neighborhood of $100,000 in assets for a financial advisor to accept you as a client, but you can open an account with a robo-advisor for $500 or less in most cases, although a few platforms have higher minimums of $5,000 to $10,000.

Most robo-advisors offer a fixed number of portfolio options ranging from quite aggressive to more conservative. When you open an account, you’ll answer several online questions, and the platform will recommend a portfolio based on your financial situation and goals.

Robo-advisors generally build portfolios around exchange-traded funds, or ETFs. These are low-cost, passively managed funds that track an underlying stock index, such as the S&P 500 or NASDAQ Composite. In a traditional brokerage account, you usually pay commissions on ETF trades, but these are typically waived with robo-advisors. This eliminates the costs associated with regular portfolio rebalancing. It also makes automatic investing and regular share purchases more affordable. Some robo-advisor platforms do allow investors to trade individual securities, although there is often a minimum account balance required for that service.

The largest stand-alone robo-advisor, Betterment, has nearly $15 billion in assets under management. Among the legacy financial management firms offering robo-advisor services, Vanguard leads the pack, with over $50 billion in managed assets, although Vanguard’s service is not a true robo-advisor but a hybrid, matching each investor to a human financial planner in addition to automated investment management.

Robo-advisors are a good choice for new investors, those with relatively straightforward financial planning needs, and people who prefer a more automatic, hands-off approach to managing their investments. Those with large portfolios, more complex tax situations, or assets such as company stock options, for example, may benefit from a human advisor, or a hybrid approach to financial planning.

Robo-advisors are the “next big thing” in financial planning, and consumers are increasingly choosing automated investment management over human financial advisors, at least for a portion of their investable assets. Current research suggests that robo-advisors will manage 10% of all global assets under management by 2020, or about $8 trillion.

There are pros and cons to all financial management services, and robo-advisors are no different. If you are considering automating your investing decisions, these are the advantages and disadvantages you should keep in mind before you make your choice.

Advantages of robo-advisors

Low fees

Although there are different pricing models for financial advisor services, few can compete with the fees of the cheapest robo-advisors. Human advisors generally charge between 1% and 2% of assets under management for their services, while robo-advisors cost as little as 0.25%. Betterment, the largest and older of the stand-alone robo-advisor platforms, offers one year free before imposing a modest 0.25% management fee, or $25 for each $10,000 invested. They also waive most transaction fees and commissions associated with buying and selling funds.

Low to no account minimums

Most financial advisors only work with clients who already have a substantial portfolio, although those working on an hourly fee structure may take smaller investors. Robo-advisors, on the other hand, generally have no account minimums, or minimums of $500 or less. This is especially true of stand-alone platforms such as Betterment and Wise Banyan.

Many of the big-name financial management firms such as Fidelity, Vanguard, and Charles Schwab also offer robo-advisor services, usually in combination with more traditional wealth management services. These platforms tend to impose account minimums for access to robo-advisor technology however, typically starting at $10,000.

Access to cutting-edge portfolio research

Robo-advisor technology is powered by algorithms designed by Nobel Prize-winning economists such as Robert Shiller and Eugene Fama. The investment theory behind robo-advisor platforms takes the human element out of investing, relying on statistical analysis to create portfolios that minimize risk and maximize returns.

Simplicity and availability

The average user, with just a few clicks, can open an account and build a portfolio with a robo-advisor in a matter of minutes. A distinct advantage over time-intensive human financial advisor services. There’s also the convenience factor of 24/7 access to your robo-advisor.

Rebalancing

There’s a body of research showing regularly rebalancing your portfolio to its original asset allocation is key to high performance. Individual investors rarely make the effort to rebalance, and a financial advisor charges a fee for the service. Robo-advisors automate the periodic rebalancing process, usually on a quarterly basis, so that your assets are always invested in line with your preferences and financial goals.

Index-matching returns

Most actively managed funds fail to meet their benchmark returns, especially over the medium and long term. Robo-advisors typically invest in ETFs, which are passively managed funds pegged to an underlying index. Generally speaking, ETFs and index funds do a much better job of matching returns. They are also low-cost investments that don’t eat away at your gains with high expense ratios and fees.

Disadvantages of robo-advisors

Limited personalization

Most robo-advisors have a set of portfolios and plug each client into the portfolio that most closely matches his or her investment goals and risk tolerance. They have a limited set of responses to each financial situation, so they may not make sense for people with unusual financial situations outside the “one-size-fits-all” portfolio.

No “human touch”

It’s hard to overstate the role that emotions play in financial decision making. A declining market or an unexpected personal financial downturn can drive bad investment choices and transactions that are easily executed with a robo-advisor platform. Human advisors, on the other hand, are there to offer perspective and game out different scenarios to help investors avoid rash decision-making regarding their portfolio.

Lack of integration

Robo-advisors excel at simple financial planning tasks such as retirement calculators and balanced asset allocation in taxable accounts. Where they fall flat is in integrating all your financial needs, such as tax and estate planning, into one cohesive plan.

Less flexibility

Robo-advisors focus almost exclusively on ETFs; few trade individual securities or offer other asset classes to round out your portfolio. In addition, risk management strategies such as options, are beyond the algorithmic capabilities of a robo-advisor.

The robo-advisor industry is still in relative infancy, and newer platforms may address some of the limitations that are inherent in the automated investment management model. Ultimately, the decision to use a robo-advisor for some or all of your portfolio depends on your overall investment goals and personal style.

The reasons for the existence of CFDs are many and varied and they go some of the way to answering the question, “why you want to go to the trouble of setting up and trading a synthetic representation of an asset, instead of trading that underlying asset itself?”

A good place to start is the London equity market in the 1990s which is where CFD trading began. At that time, brokers (who don’t pay UK stamp duty on share purchases) began offering UK equity CFD products to those traders who would otherwise be liable for the 0.5% stamp duty on purchases of UK stocks. By not buying the underlying stock in their own name, traders could use CFDs to take on trading positions but incur lower transactional costs when doing so.

That aspect of the UK tax regime has changed little since the 1990s and traders with a shorter-term investment outlook continue to benefit from using CFDs to gain exposure to UK equity markets. But, whilst necessity to reduce costs proved to be the mother of invention, the growth of CFD use, out of the UK equities market into other asset types and other regions, reflects that CFDs have additional characteristics that make them popular to trade.

Leverage

When trading CFDs, you the trader are not required to put up funds equating to the total value of the transaction. Instead you place margin with the other party such as a trading platform. That allows traders to get exposure to a larger trading position than if they had to fully fund their trade. A note of caution here – the principles of leverage apply to losses just as they do to profits.

Short Selling

Using CFDs means it is possible for you to ‘sell short’ a particular instrument. The P&L associated with your trading position will still be the difference between prices of your opening and closing trades, but you will in this instance make profits if the price falls, and losses if the price rises.

What can’t you do?

If you are holding a CFD position, and therefore are not actually in possession of the underlying instrument, your name will not be the one that appears on the register of shareholders and that means that some advantages of being a shareholder may be lost.

A holder of an equity CFD would not be entitled to the voting rights associated with corporate events. As the broker rather than the trader would be recorded as the holder of the shares and so it would be the broker, if anybody, that would be entitled to vote on events such mergers and takeovers.

The same logic extends to dividends on equity CFDs. If you trade into a long equity CFD position it is highly unlikely that you will receive dividends associated with the stock.

Financing costs are something else to factor in when trading on leverage. Taking a purchase (long position) as an example, the broker platform will record that it has gone into the market to make the trade to the full value of the holding. The cash used to do that will be reported as a negative balance on your trading account and will incur financing costs each day the position is active.

The terms associated with trading CFDs may differ across the respective broker platforms and comparison can be made using Broker Comparison link.

A Candlestick Pattern is when one or more Candlesticks align in a specific way to illustrate a particular kind of price action. As a result Candlestick patterns are seen as useful tools for trading the markets, or at least understanding them better.

Candlestick Patterns are many and varied. While there is a whole glossary available, getting a firm understanding of what each pattern is telling you will take your understanding of price action to a more granular level. This prioritizes being able to understand what price action is trying to tell you over being able to identify a particular pattern.

The Rising Window pattern represents two time intervals of positive price action. In both candlesticks the closing price is close to the high of the day and also above than the opening price.

It’s commonly held to be more significant that the low of the second candlestick is above the high of the preceding candlestick. This creates a GAP which according to Technical Analysis would act as a Support level against selling pressure.

The Falling Window Candlestick Pattern applies the same principles but to a falling market.

A Bearish Harami is a two candlestick pattern; if preceded by upwards market momentum it is considered to be a signal of bearish activity. The small red candlestick in time period 2 is entirely contained within the body of the green candle of time period 1. After researching Candlestick Patterns in more detail you may adopt the strict definition that Candlestick 2 most be less than 25% of the size of Candlestick 1.

Time Periods

An important aspect of Candlestick Patterns is learning how to appreciate the importance of the Candlestick’s time period in relation to your trading decisions. Setting time intervals to different levels presents the same data in a different way and you need to choose a Candlestick time frame that matches your investment time horizon. Put another way, a signal from a 1 minute candle is likely to offer little effective guidance for a trade you are looking to put on and hold for several days.

Pros

  • Candlestick Patterns are a mine of information.
  • Simple in design they can quickly convey a lot of information about the markets.
  • Signal strength can be graded with some patterns being seen as stronger signals than others.
  • Candlestick Patterns can be used across all instruments and markets.
  • They are easy to use in conjunction with other diagnostic tools and market data such as traded volumes

Cons

  • You might consider Candlestick Patterns useful, but on their own not quite strong enough signals for you to commit capital to a trade.
  • All patterns need to be considered in a wider time context. For example, the Bearish Harami pattern is considered to be a medium strength signal that only works following an upwards trend. Basing trades off this pattern in a sideways market being strongly discouraged.
  • Changing the time intervals of your candles can also aid your analysis. If you are analyzing a 15 minute Candlestick, then breaking it down into three Candlesticks of 5 minutes each might offer support (or otherwise) to your trading strategy.

There’s a definite case to be made that exchange-traded funds, or ETFs, are extraordinarily cheap to own. For just $3 per $10,000 invested, you can own a piece of the top 3,500 large-, medium-, and small-cap companies in the U.S. with the iShares Core S&P Total U.S. Stock Market ETF (ITOT). In fact, there are currently over 30 ETFs with expense ratios of 0.05% ($5 per $10,000 invested) or less on the U.S. market.

Before ETFs hit the market in 1993, such low expense ratios were unheard of in the mutual fund world, where fees of 2%, 3% or more weren’t uncommon. They’ve become incredibly popular since their introduction, and their low fees are exerting downward pressure on other types of mutual funds. It’s now possible to find traditional mutual funds and index funds with expense ratios well below 1%.

But expense ratios are just part of the overall expense involved in trading and holding a fund. Because ETFs are traded on the exchange like a regular stock, you will always pay a commission when you buy or sell them. It is possible, however, to buy and sell certain index funds without a transaction fee.

If you’re buying shares on a regular basis, your ETF trading costs could wipe out your gains, and you may be better off with a zero-transaction cost index fund. If you’re making one large purchase and plan to hold your shares for a long time, ETFs may well be cheaper.

Because of their unique structure, ETFs tend to be far more tax efficient than index funds and other traditional mutual funds. Index and mutual fund managers need to make more frequent transactions to rebalance their portfolios, exposing you to capital gains taxes. ETFs mostly avoid these internal trades, reducing your potential for capital gains.

There’s also the issue of bid-ask spread with ETFs. That can be significant in funds with low volume and poor liquidity. Index and mutual funds aren’t subject to spread, since they are priced once a day after the market closes. However, you can mitigate the effects of spread with ETFs by placing limit and stop orders.

Dividends are another area that affect the overall cost of an ETF compared to an index fund. Index funds typically offer fee-free automatic dividend reinvestment, which means dividends are reinvested as soon as they are paid out—and index funds allow you to purchase fractional shares based on a fixed dollar amount.

Some, although certainly not all, ETFs offer a dividend reinvestment program, but investors have to wait for the dividend funds to settle in their brokerage account before using them to purchase additional shares. These trades are not commission-free, and you can only buy whole shares in an ETF.

There are behavioral issues which may also affect costs associated with ETFs. For example, index funds allow you to invest set dollar amounts each month; you can buy partial shares. ETFs require you to buy the entire share, so if you are allocating a set dollar amount to your investment account each month, you will always have some money left over as uninvested cash. Again, if you are paying commissions each month on your ETF trades, they will undoubtedly cost you more than buying commission-free index funds.

The other behavioral risk is tied to the exchange-traded nature of ETFs. There is a temptation to trade more often in an attempt to “time” the market, which generally leads to more frequent trades, and higher overall commission charges.

It’s really impossible to say whether or not ETFs will be the cheapest way for you to invest. It depends on your investment philosophy, trading patterns, and long-term investment goals.

A Limit order is an automated instruction to enter into a trade at a pre-determined price. Limit Orders are placed in advance of a price getting to that particular level with the intention of executing at a level that best fits a particular trading strategy.

Limit orders are determined by individual traders who then input that information into the Broker Platform they are using. There is then a period of waiting to see if the Limit Order is activated, or not. If a price does not reach the pre-determined level the trade is not executed.

The below example demonstrates a Limit Order being set to enter into a Momentum trade using a 1hr time frame.

Current Price is 7055
Limit Order Instruction: SELL
Limit Order Price: 7069
drop

Source: IG Index 20181114

With indicators advising momentum is to the downside the trader is looking to enter into a Short position, but the question is where? They enter a Sell Limit Order with a price of 7069 which is in line with the upcoming Resistance level, the Weighted Moving Average (100). Two of the last three candles have been very bullish which increases the risk that a trend reversal is about to happen, which would mean momentum switching from bearish to bullish, or at least to sideways. However, the trading volumes chart at the bottom of the illustration does not show significant upticks in volume suggesting the very recent price action to the upside might not be widely supported.

Entering into the trade at the higher price of 7069 would not only maximize returns should the momentum continue to the downside but would also minimize losses if the market momentum has indeed actually turned and goes on to hit the Stop Loss order.

Source: IG Index 20181114

One hour later we can see the Limit Order price of 7069 was just touched (upper shadow of red candle, above) and the Short position taken. Price is currently 7059.3 representing an unrealized profit.

Pros

  • The automated nature is a big advantage, especially if you want to trade when you are without direct access to the markets.
  • Limit orders also free up your time as you are not concentrating on trade execution.
  • A disciplined approach to applying trading strategies is always a good thing. Limit orders help you build a trading environment that is based on analytics rather than emotions.

 

Cons

  • Using Limit Orders can obviously mean you might not enter into a trade. That can be frustrating if post-trade analysis shows that the trade would have been profitable if you had just got into it at less optimal levels. It would be prudent, however, to devote time to re-evaluating your trading strategy (specifically trade entry points) rather than your trade execution policy.
  • As with Stop Losses news events such as the release of economic data, although running to fixed schedules, can still create momentary periods of abnormally high price volatility and a whip-sawing price action. Until the market digests the news spikes in prices can hit Limit Order and it would be important to consider if you find the chance of getting into a trade to be of benefit

Opening Range Breakout (ORB) is a particular price action that is taken to be an indicator to enter into a trade.

The Basics

The fundamental elements of an ORB trading strategy are best demonstrated by taking an equity market with typical trading hours of 08.00 -16.30. The high and low price levels of stock ABC are recorded over the opening five minutes (08.00 – 08.05) and in our example the high during those five minutes is 78.54 and the low price is 77.26. Any price action after 09.05 that takes the price over 78.54 is seen as an ORB breakout to the upside and is considered a signal to buy. The principle is applied in the same way to a breakout to the downside where a new lower price below 77.26 would be a signal to sell.

Time horizon: Positions are typically held intra-day so are sold prior to market close; apply Price Action Rules.
Stop losses: Buy trades would have stop-losses set at the low of the current day and sell trades would have stop losses set at the high of the day.

Target price: 2:1 or 3:1 ratio to stop loss cost.

Supporting Signals

Catalysts: The occurrence of some kind of news event that is seen as a catalyst for the break out is seen to be supporting the signal to trade.

Overnight Gap: The difference between the previous day’s closing price and the current days opening price should be considered. If stock ABC had a previous closing price of 76.74 and opened trading at 09.00 at a higher price (77.72) then the overnight Gap was ‘bullish’. In our example, a bullish overnight gap in ABC supports the ORB signal to buy. An ORB signal that is in the opposite direction to the Overnight Gap means you are being given mixed signals and would discourage entering into a trade.

Volumes: The greater the trading volumes, the stronger the trading signal. Diagnostic tools supplied by broker platforms will offer the chance to monitor volumes. In the below example the breakout candle is to downside and is associated with a sizeable uptick in volume. The signal to sell is borne out by the price continuing to fall during the rest of the trading day.

Source: IG Index 20181113

Variations

The example we chose is fairly simple and explains the fundamentals of the strategy but of course there are a range of factors to consider which will improve understanding and thereby hopefully improve profitability.

Time intervals: Our example used 5 minute time intervals. Whilst this is a popular choice other trader use others such as 1, 15, or 30 minutes.

Other events: Any diarized event that is likely to bring about increased trading volumes can be used as a base for trading ORB. Major reporting events such as the release of US Non-Farm Payroll data will generate spikes in trading volumes.

Summary

The theory behind OBR is that markets are busier at certain times of day and therefore price movements during those times are an indication of wide-held sentiment and therefore give an indication of future price direction.

ORB trading strategies are widely known, are intuitive in nature, and to some extent self-fulfilling. If for example the price of a stock follows the required pattern to trigger an ORB trade on the upside, then the associated widespread buying will push the price upwards. Even if you are holding back on actively trading an ORB strategy it is worth understanding how they work thereby avoiding the risk of unknowingly betting against them.

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A lot of investors are drawn to penny stocks’ promise of huge returns. And it’s true that these shares have massive price swings in the high double and even triple digits, usually over a fairly short period of time. The extreme volatility is just one reason penny stocks are risky and highly speculative assets. Only trade penny stocks with money you can afford to lose.

Although penny stocks are defined as any stock that sells below $5 a share, there are quite a few that trade for literal pennies, or even fractions of pennies, which means you can buy a lot of shares with a relatively small investment. A $500 investment can buy 1,000 shares of a penny stock trading at $0.50; that same investment would buy just 10 shares of value stock Delta Air Lines. It’s tempting to think there is some huge advantage to having 1,000 shares versus 10 shares, but a 10% gain on a $500 investment is the same, regardless of the number of shares you own. Don’t confuse price with value when you’re dealing with penny stocks.

How much you need to trade penny stocks depends on your brokerage account minimum requirements. All online brokers trade stocks on the major exchanges, and there are plenty of stocks under $5 on the big boards. However, both Nasdaq and the NYSE have rules about stocks trading below $1. For true penny stocks, you’ll need to find a broker that handles trades on the pink sheets and OTC bulletin boards. Most, although not all, do. You’ll usually need to have at least $500 to open an account, and there may be other conditions if you’re trading penny stocks.

Because penny stocks are not long-term investments, you make more trades, so it’s important to understand your broker fees and any other restrictions or conditions they have on penny stock trades. If your broker charges a surcharge or has limits on the number of shares you can trade in one order or one day, it eats into profits, especially on the low-dollar trades.

Some people get into penny stocks because they see them as a way to get into the market without a lot of cash. But if you’re making $100 trades and your broker fees are $15 round trip, you’ve got to make 15% on the trade just to break even. If you’re making $1,000 trades, on the other hand, $15 in broker fees isn’t as much of an issue.

The next thing is how often you plan to trade. If you trade often enough to meet the SEC’s definition of a pattern day trader, which broadly speaking means you make more than four round-trip trades over five business days, you have to have at least $25,000 in a margin account.

When you’re trading penny stocks, you should have enough in your account to stay in the game. The nature of penny stocks means you are going to have some big losses, and hopefully a few big wins, but if you are trading with just $1,000 and you can’t close a position fast enough to avoid a huge loss on a trade, you might end up with just $500 or so in your account, and it’s very hard to make enough winning trades to recoup your losses with just $500 to trade.

Most people who are serious about trading penny stocks start with about $5,000, because at that amount, you’re able to make decent-sized trades and still stay within a prudent maximum risk level of 2% per trade.

Bottom line—penny stocks are volatile, high-risk, and speculative securities, and they really aren’t an appropriate choice for most investors, especially those without a lot of capital to risk. If you don’t have a lot of money to invest, or the money you do have is earmarked for other savings goals, you should think twice before jumping into penny stocks.


Exchange-traded funds are extremely popular with investors, both for their low fees and their favorable tax treatment due to the way they are classified by the IRS. In a nutshell, capital gains taxes are triggered in a mutual fund whenever assets are sold within the fund, but with ETFs, gains are generally only realized and taxed when the investor sells shares in the fund.

Taxation in a mutual fund, whether it’s a traditional fund or an ETF, is based on the appreciation in value of the fund over time. When an investor realizes a profit, or capital gain, it triggers a tax payment. In a mutual fund, profit is generated when the fund manager sells off equities within the fund, which is then passed on to the investor. With an ETF, profit (or loss) is realized when the investor redeems shares. Of course, these tax events only apply to individual, taxable accounts, and not tax-deferred accounts such as IRAs and 401(k) plans.

Structural differences in the way mutual funds and ETFs are organized account for the difference in tax treatment. Mutual fund transactions are always with the fund sponsor; shares are bought from and sold to the institution offering the fund. ETFs on the other hand are traded between individual investors on the stock exchange.

This is an important difference, because it means that whenever a mutual fund has a lot of redemptions, it has to sell off assets to raise cash to pay out the investors. These transactions create capital gains, triggering a tax liability. Mutual funds also have transactions during periodic rebalancing, creating even more capital gains exposure.

ETFs have far fewer transactions that may trigger capital gains. In fact, turnover in an ETF is extremely low, and securities are only sold when one is dropped from the index. This virtually eliminates the capital gains produced in a mutual fund.

For example, the average mutual fund in the emerging markets space pays about 6.5% of NAV to shareholders in the form of capital gains each year, while ETFs tracking the same indices pay out just 0.01% in capital gains. In the 10-year period ending in 2010, mutual funds In the small-cap market produced capital gains of about 7% of NAV, while small-cap ETFs produced about 0.02% of NAV in taxable gains.

Perhaps the worst thing about capital gains taxes in mutual funds is that shareholders owe them on profitable transactions within the fund, even if the fund overall shows a loss for the year. The fund’s loss of value doesn’t offset capital gains generated by selling assets within the fund.

Investors tend to discount or minimize the effect of capital gains taxes on the overall performance of a fund, but over time, the capital gains tax bite can be significant. A $100,000 investment averaging 4% returns each year and 1% capital gains taxes will lose $1,000 the first year, and almost $6,000 over five years.

Taxes on dividends in ETFs are treated a bit differently. The rules regarding qualified dividends are complex. Basically, the investor must own the stock in the fund paying the dividend for at least 60 days of the 121-day period surrounding the ex-dividend date, and the dividend must be paid by a qualified corporation in order to count as a qualified dividend for tax purposes.

Qualified dividends are taxed at between 5% and 15%, depending on the investor’s income tax bracket. Unqualified dividends are taxed at the investor’s normal income tax rate. Dividend tax treatment is the same for mutual funds and ETFs, and the taxes apply whether the dividends are paid out to the investor or reinvested into the fund.

ETFs beat mutual funds in the tax department in two major ways: They generate fewer taxable capital gains due to transactions within the fund, and the gains on shares within the fund aren’t taxed until they’re sold, which gives investors far more control over their tax liability in any given year.


A robo-advisor is an automated financial planning service that uses machine algorithms and advanced technology to develop and manage an investment portfolio. Because robo-advisors remove the human element from investment management, they are significantly less expensive to use than traditional financial planners, putting professional management services within reach of even small investors.

Betterment launched the first robo-advisor service in 2008 at the start of the Great Recession. The market has exploded since then; there are over 200 digital investment platforms available currently, with more in the pipeline. In 2015, roughly $60 billion was under management by robo-advisors. Today, experts project that figure will reach $2 trillion by 2020. According to financial research firm Hearts & Wallets, about half of all investors aged 53 to 64 have assets managed by robo-advisors, as do about a third of all retirees.

Although wealth management software is new to consumers, financial advisors have been using portfolio allocation software for almost two decades. There is nothing new about automating many investment decisions. The only “new” thing about robo-advisors is that this technology is now available directly to consumers.

Earlier versions of robo-advisor platforms dealt exclusively with taxable accounts and IRAs, but now there are robo-advisors managing more complex investments such as trusts and even 401(k) accounts. Most robo-advisor platforms offer regular portfolio rebalancing, retirement planning, and tax-loss harvesting for taxable accounts. Some offer hybrid services which combine automated investment management with a fixed number of contacts with a human advisor each year.

Robo-advisors generally charge between 0.2% and 0.8% to manage a portfolio, compared to an average of 2% for professional wealth managers. On average, you’ll pay about $40 per year for each $10,000 invested with a robo-advisor. The fees are deducted from your account on a monthly or quarterly basis.

Account minimums, which are a barrier to entry for many retail investors, are low to nonexistent with robo-advisors. You generally need in the neighborhood of $100,000 in assets for a financial advisor to accept you as a client, but you can open an account with a robo-advisor for $500 or less in most cases, although a few platforms have higher minimums of $5,000 to $10,000.

Most robo-advisors offer a fixed number of portfolio options ranging from quite aggressive to more conservative. When you open an account, you’ll answer several online questions, and the platform will recommend a portfolio based on your financial situation and goals.

Robo-advisors generally build portfolios around exchange-traded funds, or ETFs. These are low-cost, passively managed funds that track an underlying stock index, such as the S&P 500 or NASDAQ Composite. In a traditional brokerage account, you usually pay commissions on ETF trades, but these are typically waived with robo-advisors. This eliminates the costs associated with regular portfolio rebalancing. It also makes automatic investing and regular share purchases more affordable. Some robo-advisor platforms do allow investors to trade individual securities, although there is often a minimum account balance required for that service.

The largest stand-alone robo-advisor, Betterment, has nearly $15 billion in assets under management. Among the legacy financial management firms offering robo-advisor services, Vanguard leads the pack, with over $50 billion in managed assets, although Vanguard’s service is not a true robo-advisor but a hybrid, matching each investor to a human financial planner in addition to automated investment management.

Robo-advisors are a good choice for new investors, those with relatively straightforward financial planning needs, and people who prefer a more automatic, hands-off approach to managing their investments. Those with large portfolios, more complex tax situations, or assets such as company stock options, for example, may benefit from a human advisor, or a hybrid approach to financial planning.


Robo-advisors are the “next big thing” in financial planning, and consumers are increasingly choosing automated investment management over human financial advisors, at least for a portion of their investable assets. Current research suggests that robo-advisors will manage 10% of all global assets under management by 2020, or about $8 trillion.

There are pros and cons to all financial management services, and robo-advisors are no different. If you are considering automating your investing decisions, these are the advantages and disadvantages you should keep in mind before you make your choice.

Advantages of robo-advisors

Low fees

Although there are different pricing models for financial advisor services, few can compete with the fees of the cheapest robo-advisors. Human advisors generally charge between 1% and 2% of assets under management for their services, while robo-advisors cost as little as 0.25%. Betterment, the largest and older of the stand-alone robo-advisor platforms, offers one year free before imposing a modest 0.25% management fee, or $25 for each $10,000 invested. They also waive most transaction fees and commissions associated with buying and selling funds.

Low to no account minimums

Most financial advisors only work with clients who already have a substantial portfolio, although those working on an hourly fee structure may take smaller investors. Robo-advisors, on the other hand, generally have no account minimums, or minimums of $500 or less. This is especially true of stand-alone platforms such as Betterment and Wise Banyan.

Many of the big-name financial management firms such as Fidelity, Vanguard, and Charles Schwab also offer robo-advisor services, usually in combination with more traditional wealth management services. These platforms tend to impose account minimums for access to robo-advisor technology however, typically starting at $10,000.

Access to cutting-edge portfolio research

Robo-advisor technology is powered by algorithms designed by Nobel Prize-winning economists such as Robert Shiller and Eugene Fama. The investment theory behind robo-advisor platforms takes the human element out of investing, relying on statistical analysis to create portfolios that minimize risk and maximize returns.

Simplicity and availability

The average user, with just a few clicks, can open an account and build a portfolio with a robo-advisor in a matter of minutes. A distinct advantage over time-intensive human financial advisor services. There’s also the convenience factor of 24/7 access to your robo-advisor.

Rebalancing

There’s a body of research showing regularly rebalancing your portfolio to its original asset allocation is key to high performance. Individual investors rarely make the effort to rebalance, and a financial advisor charges a fee for the service. Robo-advisors automate the periodic rebalancing process, usually on a quarterly basis, so that your assets are always invested in line with your preferences and financial goals.

Index-matching returns

Most actively managed funds fail to meet their benchmark returns, especially over the medium and long term. Robo-advisors typically invest in ETFs, which are passively managed funds pegged to an underlying index. Generally speaking, ETFs and index funds do a much better job of matching returns. They are also low-cost investments that don’t eat away at your gains with high expense ratios and fees.

Disadvantages of robo-advisors

Limited personalization

Most robo-advisors have a set of portfolios and plug each client into the portfolio that most closely matches his or her investment goals and risk tolerance. They have a limited set of responses to each financial situation, so they may not make sense for people with unusual financial situations outside the “one-size-fits-all” portfolio.

No “human touch”

It’s hard to overstate the role that emotions play in financial decision making. A declining market or an unexpected personal financial downturn can drive bad investment choices and transactions that are easily executed with a robo-advisor platform. Human advisors, on the other hand, are there to offer perspective and game out different scenarios to help investors avoid rash decision-making regarding their portfolio.

Lack of integration

Robo-advisors excel at simple financial planning tasks such as retirement calculators and balanced asset allocation in taxable accounts. Where they fall flat is in integrating all your financial needs, such as tax and estate planning, into one cohesive plan.

Less flexibility

Robo-advisors focus almost exclusively on ETFs; few trade individual securities or offer other asset classes to round out your portfolio. In addition, risk management strategies such as options, are beyond the algorithmic capabilities of a robo-advisor.

The robo-advisor industry is still in relative infancy, and newer platforms may address some of the limitations that are inherent in the automated investment management model. Ultimately, the decision to use a robo-advisor for some or all of your portfolio depends on your overall investment goals and personal style.


The reasons for the existence of CFDs are many and varied and they go some of the way to answering the question, “why you want to go to the trouble of setting up and trading a synthetic representation of an asset, instead of trading that underlying asset itself?”

A good place to start is the London equity market in the 1990s which is where CFD trading began. At that time, brokers (who don’t pay UK stamp duty on share purchases) began offering UK equity CFD products to those traders who would otherwise be liable for the 0.5% stamp duty on purchases of UK stocks. By not buying the underlying stock in their own name, traders could use CFDs to take on trading positions but incur lower transactional costs when doing so.

That aspect of the UK tax regime has changed little since the 1990s and traders with a shorter-term investment outlook continue to benefit from using CFDs to gain exposure to UK equity markets. But, whilst necessity to reduce costs proved to be the mother of invention, the growth of CFD use, out of the UK equities market into other asset types and other regions, reflects that CFDs have additional characteristics that make them popular to trade.

Leverage

When trading CFDs, you the trader are not required to put up funds equating to the total value of the transaction. Instead you place margin with the other party such as a trading platform. That allows traders to get exposure to a larger trading position than if they had to fully fund their trade. A note of caution here – the principles of leverage apply to losses just as they do to profits.

Short Selling

Using CFDs means it is possible for you to ‘sell short’ a particular instrument. The P&L associated with your trading position will still be the difference between prices of your opening and closing trades, but you will in this instance make profits if the price falls, and losses if the price rises.

What can’t you do?

If you are holding a CFD position, and therefore are not actually in possession of the underlying instrument, your name will not be the one that appears on the register of shareholders and that means that some advantages of being a shareholder may be lost.

A holder of an equity CFD would not be entitled to the voting rights associated with corporate events. As the broker rather than the trader would be recorded as the holder of the shares and so it would be the broker, if anybody, that would be entitled to vote on events such mergers and takeovers.

The same logic extends to dividends on equity CFDs. If you trade into a long equity CFD position it is highly unlikely that you will receive dividends associated with the stock.

Financing costs are something else to factor in when trading on leverage. Taking a purchase (long position) as an example, the broker platform will record that it has gone into the market to make the trade to the full value of the holding. The cash used to do that will be reported as a negative balance on your trading account and will incur financing costs each day the position is active.

The terms associated with trading CFDs may differ across the respective broker platforms and comparison can be made using Broker Comparison link.


A Candlestick Pattern is when one or more Candlesticks align in a specific way to illustrate a particular kind of price action. As a result Candlestick patterns are seen as useful tools for trading the markets, or at least understanding them better.

Candlestick Patterns are many and varied. While there is a whole glossary available, getting a firm understanding of what each pattern is telling you will take your understanding of price action to a more granular level. This prioritizes being able to understand what price action is trying to tell you over being able to identify a particular pattern.

The Rising Window pattern represents two time intervals of positive price action. In both candlesticks the closing price is close to the high of the day and also above than the opening price.

It’s commonly held to be more significant that the low of the second candlestick is above the high of the preceding candlestick. This creates a GAP which according to Technical Analysis would act as a Support level against selling pressure.

The Falling Window Candlestick Pattern applies the same principles but to a falling market.

A Bearish Harami is a two candlestick pattern; if preceded by upwards market momentum it is considered to be a signal of bearish activity. The small red candlestick in time period 2 is entirely contained within the body of the green candle of time period 1. After researching Candlestick Patterns in more detail you may adopt the strict definition that Candlestick 2 most be less than 25% of the size of Candlestick 1.

Time Periods

An important aspect of Candlestick Patterns is learning how to appreciate the importance of the Candlestick’s time period in relation to your trading decisions. Setting time intervals to different levels presents the same data in a different way and you need to choose a Candlestick time frame that matches your investment time horizon. Put another way, a signal from a 1 minute candle is likely to offer little effective guidance for a trade you are looking to put on and hold for several days.

Pros

  • Candlestick Patterns are a mine of information.
  • Simple in design they can quickly convey a lot of information about the markets.
  • Signal strength can be graded with some patterns being seen as stronger signals than others.
  • Candlestick Patterns can be used across all instruments and markets.
  • They are easy to use in conjunction with other diagnostic tools and market data such as traded volumes

Cons

  • You might consider Candlestick Patterns useful, but on their own not quite strong enough signals for you to commit capital to a trade.
  • All patterns need to be considered in a wider time context. For example, the Bearish Harami pattern is considered to be a medium strength signal that only works following an upwards trend. Basing trades off this pattern in a sideways market being strongly discouraged.
  • Changing the time intervals of your candles can also aid your analysis. If you are analyzing a 15 minute Candlestick, then breaking it down into three Candlesticks of 5 minutes each might offer support (or otherwise) to your trading strategy.

There’s a definite case to be made that exchange-traded funds, or ETFs, are extraordinarily cheap to own. For just $3 per $10,000 invested, you can own a piece of the top 3,500 large-, medium-, and small-cap companies in the U.S. with the iShares Core S&P Total U.S. Stock Market ETF (ITOT). In fact, there are currently over 30 ETFs with expense ratios of 0.05% ($5 per $10,000 invested) or less on the U.S. market.

Before ETFs hit the market in 1993, such low expense ratios were unheard of in the mutual fund world, where fees of 2%, 3% or more weren’t uncommon. They’ve become incredibly popular since their introduction, and their low fees are exerting downward pressure on other types of mutual funds. It’s now possible to find traditional mutual funds and index funds with expense ratios well below 1%.

But expense ratios are just part of the overall expense involved in trading and holding a fund. Because ETFs are traded on the exchange like a regular stock, you will always pay a commission when you buy or sell them. It is possible, however, to buy and sell certain index funds without a transaction fee.

If you’re buying shares on a regular basis, your ETF trading costs could wipe out your gains, and you may be better off with a zero-transaction cost index fund. If you’re making one large purchase and plan to hold your shares for a long time, ETFs may well be cheaper.

Because of their unique structure, ETFs tend to be far more tax efficient than index funds and other traditional mutual funds. Index and mutual fund managers need to make more frequent transactions to rebalance their portfolios, exposing you to capital gains taxes. ETFs mostly avoid these internal trades, reducing your potential for capital gains.

There’s also the issue of bid-ask spread with ETFs. That can be significant in funds with low volume and poor liquidity. Index and mutual funds aren’t subject to spread, since they are priced once a day after the market closes. However, you can mitigate the effects of spread with ETFs by placing limit and stop orders.

Dividends are another area that affect the overall cost of an ETF compared to an index fund. Index funds typically offer fee-free automatic dividend reinvestment, which means dividends are reinvested as soon as they are paid out—and index funds allow you to purchase fractional shares based on a fixed dollar amount.

Some, although certainly not all, ETFs offer a dividend reinvestment program, but investors have to wait for the dividend funds to settle in their brokerage account before using them to purchase additional shares. These trades are not commission-free, and you can only buy whole shares in an ETF.

There are behavioral issues which may also affect costs associated with ETFs. For example, index funds allow you to invest set dollar amounts each month; you can buy partial shares. ETFs require you to buy the entire share, so if you are allocating a set dollar amount to your investment account each month, you will always have some money left over as uninvested cash. Again, if you are paying commissions each month on your ETF trades, they will undoubtedly cost you more than buying commission-free index funds.

The other behavioral risk is tied to the exchange-traded nature of ETFs. There is a temptation to trade more often in an attempt to “time” the market, which generally leads to more frequent trades, and higher overall commission charges.

It’s really impossible to say whether or not ETFs will be the cheapest way for you to invest. It depends on your investment philosophy, trading patterns, and long-term investment goals.


A Limit order is an automated instruction to enter into a trade at a pre-determined price. Limit Orders are placed in advance of a price getting to that particular level with the intention of executing at a level that best fits a particular trading strategy.

Limit orders are determined by individual traders who then input that information into the Broker Platform they are using. There is then a period of waiting to see if the Limit Order is activated, or not. If a price does not reach the pre-determined level the trade is not executed.

The below example demonstrates a Limit Order being set to enter into a Momentum trade using a 1hr time frame.

Current Price is 7055
Limit Order Instruction: SELL
Limit Order Price: 7069
drop

Source: IG Index 20181114

With indicators advising momentum is to the downside the trader is looking to enter into a Short position, but the question is where? They enter a Sell Limit Order with a price of 7069 which is in line with the upcoming Resistance level, the Weighted Moving Average (100). Two of the last three candles have been very bullish which increases the risk that a trend reversal is about to happen, which would mean momentum switching from bearish to bullish, or at least to sideways. However, the trading volumes chart at the bottom of the illustration does not show significant upticks in volume suggesting the very recent price action to the upside might not be widely supported.

Entering into the trade at the higher price of 7069 would not only maximize returns should the momentum continue to the downside but would also minimize losses if the market momentum has indeed actually turned and goes on to hit the Stop Loss order.

Source: IG Index 20181114

One hour later we can see the Limit Order price of 7069 was just touched (upper shadow of red candle, above) and the Short position taken. Price is currently 7059.3 representing an unrealized profit.

Pros

  • The automated nature is a big advantage, especially if you want to trade when you are without direct access to the markets.
  • Limit orders also free up your time as you are not concentrating on trade execution.
  • A disciplined approach to applying trading strategies is always a good thing. Limit orders help you build a trading environment that is based on analytics rather than emotions.

 

Cons

  • Using Limit Orders can obviously mean you might not enter into a trade. That can be frustrating if post-trade analysis shows that the trade would have been profitable if you had just got into it at less optimal levels. It would be prudent, however, to devote time to re-evaluating your trading strategy (specifically trade entry points) rather than your trade execution policy.
  • As with Stop Losses news events such as the release of economic data, although running to fixed schedules, can still create momentary periods of abnormally high price volatility and a whip-sawing price action. Until the market digests the news spikes in prices can hit Limit Order and it would be important to consider if you find the chance of getting into a trade to be of benefit

Opening Range Breakout (ORB) is a particular price action that is taken to be an indicator to enter into a trade.

The Basics

The fundamental elements of an ORB trading strategy are best demonstrated by taking an equity market with typical trading hours of 08.00 -16.30. The high and low price levels of stock ABC are recorded over the opening five minutes (08.00 – 08.05) and in our example the high during those five minutes is 78.54 and the low price is 77.26. Any price action after 09.05 that takes the price over 78.54 is seen as an ORB breakout to the upside and is considered a signal to buy. The principle is applied in the same way to a breakout to the downside where a new lower price below 77.26 would be a signal to sell.

Time horizon: Positions are typically held intra-day so are sold prior to market close; apply Price Action Rules.
Stop losses: Buy trades would have stop-losses set at the low of the current day and sell trades would have stop losses set at the high of the day.

Target price: 2:1 or 3:1 ratio to stop loss cost.

Supporting Signals

Catalysts: The occurrence of some kind of news event that is seen as a catalyst for the break out is seen to be supporting the signal to trade.

Overnight Gap: The difference between the previous day’s closing price and the current days opening price should be considered. If stock ABC had a previous closing price of 76.74 and opened trading at 09.00 at a higher price (77.72) then the overnight Gap was ‘bullish’. In our example, a bullish overnight gap in ABC supports the ORB signal to buy. An ORB signal that is in the opposite direction to the Overnight Gap means you are being given mixed signals and would discourage entering into a trade.

Volumes: The greater the trading volumes, the stronger the trading signal. Diagnostic tools supplied by broker platforms will offer the chance to monitor volumes. In the below example the breakout candle is to downside and is associated with a sizeable uptick in volume. The signal to sell is borne out by the price continuing to fall during the rest of the trading day.

Source: IG Index 20181113

Variations

The example we chose is fairly simple and explains the fundamentals of the strategy but of course there are a range of factors to consider which will improve understanding and thereby hopefully improve profitability.

Time intervals: Our example used 5 minute time intervals. Whilst this is a popular choice other trader use others such as 1, 15, or 30 minutes.

Other events: Any diarized event that is likely to bring about increased trading volumes can be used as a base for trading ORB. Major reporting events such as the release of US Non-Farm Payroll data will generate spikes in trading volumes.

Summary

The theory behind OBR is that markets are busier at certain times of day and therefore price movements during those times are an indication of wide-held sentiment and therefore give an indication of future price direction.

ORB trading strategies are widely known, are intuitive in nature, and to some extent self-fulfilling. If for example the price of a stock follows the required pattern to trigger an ORB trade on the upside, then the associated widespread buying will push the price upwards. Even if you are holding back on actively trading an ORB strategy it is worth understanding how they work thereby avoiding the risk of unknowingly betting against them.