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Trading platform capabilities for trade ETF in Singapore
An Exchange Traded Fund (ETF) - is an index fund whose units (like stocks) are traded on the exchange. An ETF is based on a set of assets. Those assets might be stocks, bonds, futures contracts on currencies or raw materials, chosen according to a certain principle.
Simply put, an ETF is a "basket of stocks". That is, an investment fund that tracks changes in the value of an index and is listed on exchanges as a single security. An ETF's rising value indicates its success and promising returns.
ETF quotes – is the establishment of the rate of assets on the stock exchanges in accordance with applicable laws, rules and established practices as a result of trading on the stock exchange.
Every investor needs to know many things, but one of the most important things is to understand what ETF trading charts are and what those charts tell us. Their content is key when buying and selling ETF shares.
ETF trading charts
We will review several main ETF trading charts below:
A line chart is the simplest form of a chart. It is a broken line connecting individual price values at a selected time interval. The vertical scale can show bid and ask prices, maximum or minimum prices, or closing prices. The time scale can be different - tick (price of each transaction), hourly, daily, weekly, etc.
Daily line charts are especially useful when you need an overall picture at the level of the main trend. When reflecting price data over a very long period, say several years, it is easier to read from a line chart. Also, charts given in the media and intended for the general public usually use line graphs.
Charts in the form of "bars" are most commonly used by Western specialists to depict price movements. The chart displays on one vertical line all the information about what happened to the price during the selected period. The bars are lined up sequentially one after another with the selected step. Each bar can display information about a different period of time - from a minute to a year, depending on the period of interest.
The vertical line, called "bar", displays four important indicators:
- Maximum (high) and minimum (low) prices, united by a vertical bar;
- The open price, which is marked with a small horizontal line to the left of the bar (the open price is not always used in the analysis);
- The closing price (close), which is marked with a small horizontal line to the right of the bar.
Charts in the form of "bars" can be built on an arithmetic or logarithmic scale on the vertical axis. The choice of the scale is based on the same considerations (for example, the desire to keep all price movements under observation). However, the arithmetic scale is most often used. In this case equal price changes correspond to equal vertical segments. The logarithmic charts represent the price change not in units but in percent. In general, the difference between the two types of charts is not so important for short periods.
Charts in the form of "bars" are preferable in use, because they contain more information than a simple line chart, and at the same time they summarize the data for each period very compactly. However, it becomes difficult to read a graph with a large number of time periods represented in the form of "bars". Most charting software allows you to zoom in and out of the view for a better view of the details. Analysts usually use daily (shorter) "bars" for trading, and weekly or longer "bars" for analyzing longer processes.
Japanese Candlestick charts display data for each time period in a special way that shows the relationship and relative positioning of opening and closing prices.
Each period is represented as a "candlestick", consisting of a "body" and "shadows". The body of the candlestick shows the distance between the opening and closing prices (or the opening price and the last price), while the shadows show the maximum and minimum prices if they are outside the opening and closing prices.
The candlestick also provides a visual representation of the relative price movement of a currency over a period of time:
- If the closing price is lower than the opening price, the body of the candle is shaded in black.
- If the closing price is higher than the opening price, the body of the candle remains hollow.
Although "Japanese candlesticks" were introduced into Western technical analysis relatively recently (in the 1980s), Japanese rice traders used these charts hundreds of years ago. Many analysts who use "Japanese candlesticks" believe that patterns observed for only 2-3 days can provide important signals for markets with short trading times.
Thus, "Japanese candlesticks" use additional parameters: color, shape and mutual arrangement.
Therefore, such charts are currently used by a huge number of traders around the world.
Indicators of technical analysis for ETF trading
There are two main types of trading analysis – fundamental and technical.
Fundamental analysis is an independent method of evaluating securities and issuing companies. During fundamental analysis, an investor examines a company's financial and accounting reports and tries to find the fair value of its securities. If the fair value is lower than the current market price - it is not profitable to buy the securities, because investors overvalue them. And vice versa: if the fair value is higher than the current price - it is good to buy the security, because it is undervalued.
Technical analysis is an analysis of a price chart, using both visual tools and special indicators. Technical analysis does not use any information other than the price chart of the asset. It is believed that the price and its history of movement already contains all the information about the market and the attitude of the total exchange market participants to the events.
Technical analysis uses special ETF trading indicators that allow you to track the flow of the market and identify the right time to buy or sell a particular asset.
Moving Average Convergence Divergence (MACD) for ETF trading is a technical indicator that is used to identify moving averages that are indicating a new trend, whether it’s bullish or bearish. After all, a top priority in trading is being able to find a trend, because that is where the most money is made. The MACD measures momentum or trend strength by using the MACD line and zero line as reference points:
· When the MACD line crosses ABOVE the zero line, this signals an UPTREND
· When the MACD line crosses BELOW the zero line, this signals an DOWNTREND
In addition, the MACD signals buy or sell orders which are given when the two MACD lines cross over as outlined below:
When the MACD line crosses ABOVE the signal line, traders use this as a BUY indication
When the MACD line crosses BELOW the signal line, traders use this as a SELL indication
Relative Strength Index (RSI) for ETF trading - is a momentum oscillator that measures the speed and change of price movements. The RSI oscillates between zero and 100. Traditionally the RSI is considered overbought when above 70 and oversold when below 30. Signals can be generated by looking for divergences and failure swings. RSI can also be used to identify the general trend.
The signals of RSI are:
overbought/oversold - when the RSI indicator value is closer to "100%" or "0%", respectively.
divergence - when the indicator chart forms extremums in the direction opposite to the price movement
Figures of technical analysis are applicable to the RSI indicator chart and help predict the end of the trend
the trend on the indicator usually coincides with the trend on the price chart until any of the above-mentioned events
Convergence and divergence of price and indicator charts is one of the methods of determining the end of a trend. Usually the price after such signals goes in the direction of RSI.
The moving average (MA) for ETF trading is the most widely used trend following indicator in the world.
Moving averages are used to average the closing prices of days over a specific time range. The word "moving" refers to averages that change with day-to-day data.
Moving averages are generally calculated to determine the direction of an asset's trend or to determine its support and resistance levels. It is a trend following or lagging indicator because it is based on past prices. The longer the time period for the moving average, the longer the lag. Therefore, the 100-day moving average will have a much greater degree of lag than the 10-day average because it contains prices from the last 100 days. Traders choose different time periods of different lengths to calculate moving averages depending on their trading objectives. Shorter moving averages are generally used for short-term trading, while longer-term moving averages are more suitable for long-term investors.
Average Directional Index (ADX) for ETF trading - is a unique indicator, which may operate ahead of schedule and show the trend strength (whether it will continue or decline gradually) before the price starts moving. On the chart, the main line of the ADX index is shown together with the DI+ and DI- curves.
The DI+ and DI- (red) lines show the trend orientation. If the dark blue line is above the red one, this means that the trend moves upwards, and vice versa – the trend moves downwards. The third line (ADX line) shows the trend intensity. If the line goes upwards, the trend accelerates; if it goes downwards, the trend decelerates.
Types of ETF (H2)
Bond ETFs are a type of exchange-traded funds that invest exclusively in bonds. They are similar to bond mutual funds because they hold a portfolio of bonds with several specific strategies.
Bond ETFs are passively managed and traded, similar to exchange-traded ETFs on major stock exchanges. This helps ensure market stability by increasing liquidity and transparency in times of stress.
Commodity ETFs are a type of exchange-traded fund that invests in physical commodities, such as agricultural commodities, precious metals and natural resources. Typically, a commodity ETF focuses on investments related to futures contracts or a single commodity related to physical storage. Other commodity ETFs aim to track the overall performance of a commodity index that includes multiple individual commodities using a combination of derivatives and physical storage positions.
Currency ETFs are pooled investments that provide investors with access to foreign exchange (forex) or currencies. They allow investors to access changes in the exchange rates of one or more currency pairs.
Like other exchange-traded funds, investors can buy currency ETFs on exchanges just like corporate stocks. These investments are usually passively managed and the base currencies are held in a single country or basket of currencies. Like any investment, currency ETFs carry their own risks and rewards.
Stock ETFs – is a security that tracks a specific set of stocks. These ETFs trade on exchanges in the same manner as common stocks and track stocks as an index. They can track stocks in an industry or an entire stock index. Investors who buy ETF shares can access a basket of stocks and the limited liability company risk associated with individual stocks, providing them with a cost-effective way to diversify their portfolios.
Inverse ETFs - are exchange traded funds created by using various derivatives to benefit from the depreciation of the benchmark index. Investing in inverse ETFs is similar to holding multiple short positions, which involves borrowing securities and selling them in the hope of buying them back at a lower price.
How to start ETF trading in Singapore
Exchange traded funds can be an excellent entry point into the stock market for new traders. They’re relatively inexpensive and typically carry lower risk than individual stocks, because a single fund holds a diversified collection of investments. Perhaps best of all, these aren’t complicated financial products. To be successful in ETFs trading you have to find a reliable trading platform. Here’s how to register on the best ETFs trading platform in Singapore.