Why Trading Sessions Matter in Forex: Key OverlapsThe Forex market is open 24 hours a day during the weekdays, allowing traders flexibility to trade at any time. However, understanding the best times to trade is essential for effective trading. The market is divided into four main sessions: Sydney, Tokyo, London, and New York, each corresponding to peak activity in key financial centers. Using a Forex Market Time Zone Converter can help traders determine which sessions are active in their local time, making it easier to plan around high-liquidity periods.
Although the market is technically always open, not all trading times are equally profitable. Higher trading volume, which generally occurs during session overlaps, creates ideal conditions for traders. For example, the overlap of the London and New York sessions sees the highest volume, with more than 50% of daily trades occurring in these two centers. Trading at this time, especially with currency pairs like GBP/USD, can lead to tighter spreads and quicker order execution, reducing slippage and increasing the likelihood of profitable trades. Similarly, trading AUD/JPY during the Asian session, when the Tokyo market is active, is advantageous due to higher trading activity for these currencies.
Conversely, trading during times when only one session is active, such as during the Sydney session alone, can result in wider spreads and less market movement, making it harder to achieve profitable trades. Planning trades around high-activity sessions and overlaps is key to effective forex trading.
Volatility
Quadruple Witching: What Retail Traders Should Know█ Quadruple Witching is Happening Today: What Retail Traders Should Know!
Today marks Quadruple Witching, a pivotal event in the financial markets that occurs four times a year—on the third Friday of March, June, September, and December. During Quadruple Witching, four types of derivative contracts expire simultaneously:
Stock Index Futures
Stock Index Options
Single Stock Futures
Single Stock Options
When all four of these contracts expire simultaneously, it can lead to increased trading volume and heightened volatility in the markets. The term "witching" is derived from the "Triple Witching" event, which involves the simultaneous expiration of three types of contracts (stock index futures, stock index options, and single stock options). Quadruple Witching adds the expiration of single stock futures to this mix.
This convergence leads to a surge in trading activity and heightened market volatility as traders and investors adjust or close their positions.
█ When Does Quadruple Witching Occur?
Quadruple Witching takes place on the third Friday of March, June, September, and December each year. These dates align with the end of each fiscal quarter, making them significant for various market participants.
█ What Retail Traders Should Be Aware Of
⚪ Increased Volatility
Price Swings: Expect more significant and rapid price movements in both individual stocks and broader market indices.
Unpredictable Trends: Sudden shifts can occur, making it challenging to anticipate market direction.
⚪ Higher Trading Volume
Liquidity Peaks : Trading volumes can spike by 30-40%, enhancing liquidity but also increasing competition for trade execution.
Potential for Slippage: High volumes may lead to slower order executions and potential slippage, where trades are executed at different prices than intended.
⚪ Potential for Market Manipulation
Large Institutional Trades: Institutions managing vast derivative positions can influence stock prices, creating opportunities and risks.
Short-Term Opportunities: Retail traders might find short-term trading opportunities but should exercise caution.
⚪ Emotional Discipline
Stress Management: The fast-paced and volatile environment can be emotionally taxing. Maintain a clear trading plan to avoid impulsive decisions.
Risk Management: Use stop-loss orders and position sizing to protect against unexpected market moves.
█ Historical Perspective and Market Behavior
Historically, Quadruple Witching days have been associated with noticeable market movements.
⚪ Price Trends
Some studies suggest that markets may trend in the direction of the prevailing market sentiment leading into the expiration day.
⚪ Volatility Patterns
Volatility tends to spike during Quadruple Witching, especially in the final hour of trading, as traders finalize their positions.
⚪ Volume Spikes
Trading volumes can increase by 30-40% compared to regular trading days, reflecting the high level of activity as contracts expire.
█ Tips for Navigating Quadruple Witching
⚪ Avoid Trading
Some traders prefer to stay out of the market to avoid unpredictable price movements and potential losses.
⚪ Stay Informed
Market News: Keep abreast of financial news and updates that may influence market sentiment.
Contract Expirations: Be aware of which contracts are expiring and their potential impact on specific stocks or indices.
⚪ Focus on Liquidity
Trade Liquid Stocks: Opt for highly liquid stocks and ETFs to ensure smoother trade executions and tighter bid-ask spreads.
Avoid Thinly Traded Assets: Steer clear of stocks with low trading volumes to minimize execution risks.
⚪ Use Limit Orders
Control Entry and Exit Points: Limit orders allow you to set specific prices for buying or selling, helping manage execution prices amidst volatility.
⚪ Monitor Key Levels
Support and Resistance: Keep an eye on critical technical levels that may act as barriers or catalysts for price movements.
Volume Indicators: Use volume-based indicators to gauge the strength of price movements.
⚪ Maintain Discipline
Stick to Your Plan: Adhere to your trading strategy and avoid making decisions based on fear or greed.
Manage Risk: Implement strict risk management practices, such as setting stop-loss levels and not overexposing your portfolio.
█ Key Takeaways
⚪ Frequency: Occurs four times a year on the third Friday of March, June, September, and December.
⚪ Impact: This leads to increased trading volume and volatility due to the expiration of four types of derivative contracts.
⚪ Strategies: Traders may choose to avoid trading, focus on liquid assets, implement strict risk management, or exploit short-term volatility.
⚪ Risks: These include unpredictable price movements, liquidity issues, execution challenges, and emotional stress.
█ Conclusion
Quadruple Witching can significantly impact market dynamics, presenting both opportunities and challenges for retail traders. By understanding the mechanics of this event and implementing strategic measures, traders can better navigate the heightened volatility and make informed decisions. Remember to stay disciplined, manage your risks effectively, and focus on liquid assets to optimize your trading performance during Quadruple Witching days.
-----------------
Disclaimer
This is an educational study for entertainment purposes only.
The information in my Scripts/Indicators/Ideas/Algos/Systems does not constitute financial advice or a solicitation to buy or sell securities. I will not accept liability for any loss or damage, including without limitation any loss of profit, which may arise directly or indirectly from the use of or reliance on such information.
All investments involve risk, and the past performance of a security, industry, sector, market, financial product, trading strategy, backtest, or individual's trading does not guarantee future results or returns. Investors are fully responsible for any investment decisions they make. Such decisions should be based solely on evaluating their financial circumstances, investment objectives, risk tolerance, and liquidity needs.
My Scripts/Indicators/Ideas/Algos/Systems are only for educational purposes!
Major earnings are times to hedge or BTDAs far more eloquent and technical writers have covered (spotgamma, etc) - it's very clear that the markets in general are driven by single name options on the largest market cap companies.
And to help visualize just how much volatility can happen around earnings on these single names, I wanted to be able to visualize those earnings dates and impacts against some of the major benchmark ETFs like SPY or QQQ.
So far, I hadn't seen a place that gives this a more clear presentation so here is my first attempt at visualizing just how large the ripples are from the "megacaps" (AAPL, MSFT, NVDA, TSLA, etc) in a very "glanceable" way.
Introducing this indicator here first!
Earnings Date Highlighter - from0_to_1
Easily see the earnings dates from top market movers or the top holdings of your favorite ETF!
Why WAITING on XAU Will pay BIG TIME The charts cover different timeframes of the XAU/USD (Gold/US Dollar) pair, and they reveal several key technical structures and patterns that are useful for trading analysis.
1. Flag Pattern and Breakout (5-Minute and 15-Minute Charts)
- On the 5-minute and 15-minute charts, there is a visible **flag pattern** following a strong upward move (bullish flag). This pattern typically indicates a continuation of the prevailing trend after a consolidation phase.
- The flag's lower trendline (support) and upper trendline (resistance) are marked in yellow. The price consolidated between these lines, and the breakout occurred upwards, confirming the bullish continuation. This breakout could be a potential entry point for a long position, with the stop loss below the flag's lower trendline and a target based on the flagpole's length (the initial strong upward move preceding the flag).
2. Descending Channel and Potential Reversal (1-Hour and 4-Hour Charts)
- The 1-hour and 4-hour charts display a **descending channel** (marked with yellow trendlines). The price recently touched the lower trendline and bounced back, showing signs of a potential reversal.
- If the price continues to break above the upper trendline of the descending channel, it could signal a bullish reversal, providing a possible entry for a long trade. The risk management strategy should include placing a stop loss below the recent low (or the channel's lower trendline) and targeting previous resistance levels or the channel's upper boundary.
3. Broadening Wedge Formation (4-Hour Chart)
- The broader view on the 4-hour chart shows a **broadening wedge pattern**, where the price has been making higher highs and lower lows. This pattern is generally considered a sign of increasing volatility and potential trend reversal.
- If the price breaks above the broadening wedge's upper trendline, this could further confirm a bullish reversal. Conversely, a break below the lower trendline would suggest further downside potential.
4. Support and Resistance Zones (Highlighted on All Charts)
- Several horizontal lines mark significant **support and resistance levels** around $2,507 and $2,532.144, respectively. These levels could serve as potential entry or exit points based on how the price reacts when approaching them.
- Observing how the price interacts with these levels can provide clues for future price action. For example, a sustained move above $2,507 could confirm a bullish sentiment, whereas a rejection or false breakout might suggest the continuation of the bearish trend.
Trading Strategy Recommendations:
1. Flag Pattern (Short-Term Bullish) If looking for short-term trades, consider entering a long position on a confirmed breakout of the flag pattern, with a stop loss below the flag's lower trendline. Target a move equal to the height of the flagpole added to the breakout point.
2. Descending Channel (Potential Reversal):If trading based on the descending channel, a break above the upper trendline could signal a reversal and a potential buying opportunity. In contrast, if the price rejects the upper trendline, consider shorting with a stop above the recent highs and target the lower boundary.
3. Broadening Wedge (Cautious Approach): For traders cautious about volatility, wait for a confirmed breakout from the broadening wedge to determine the trend direction. Enter long if it breaks upwards and short if it breaks downwards, setting stop losses just beyond the breakout points.
4. Support and Resistance Levels (Decision Zones): Use the marked support and resistance zones as decision points. Enter trades based on confirmation signals near these levels, and manage risk by adjusting stop-loss orders accordingly.
By combining these observations with confluence factors such as higher time frame trends, candlestick patterns, and multi-touch confirmations, you can refine your entry and exit points and enhance your trading strategy.
How to use Implied Volatility Index to analyze Bitcoin▮ Introduction
Bitcoin is known for its price volatility. Analyzing the price chart alone is often not enough to make buy and sell decisions.
Implied volatility indexes such as DERIBIT:DVOL and VOLMEX:BVIV can complement traditional technical analysis by providing insights into market sentiment and expectations.
▮ Understanding DVOL/BVIV
DVOL and BVIV measure the expected implied volatility of Bitcoin over the next 30 days, derived from real-time call and put options.
DVOL is calculated by Deribit, the world's largest Bitcoin and Ether options exchange.
BVIV is calculated by Volmex Finance; the data is extracted from exchanges (currently Deribit and OKX), and then combined into a single set.
* In addition to Bitcoin, it is possible to analyze Ethereum-specific instruments through the ticks DERIBIT:ETHDVOL and VOLMEX:EVIV, whose line of reasoning is the same.
▮ Interpreting the chart
🔶 High DVOL/BVIV values indicate that the market expects greater volatility in the next 30 days. This is usually associated with uncertainty, fear, or expected major events.
🔶 The index does not indicate the direction of the price, but rather whether volatility will increase or decrease.
🔶 Low values indicate an expectation of lower volatility and are usually associated with calmer and more optimistic markets.
🔶 To get an idea of the expected daily movement of Bitcoin, simply divide the DVOL value by 20. For example, a DVOL of 100 indicates an expected daily movement of 5%.
🔶 Divergences between the price of Bitcoin and DVOL/BVIV can signal inflection points.
🔶 Price rising with a drop in DVOL/BVIV may indicate exhaustion and a potential top.
🔶 Price falling with a drop in DVOL/BVIV may indicate exhaustion and a potential bottom.
▮ Example
The price of BTC here is at the top in white.
The DVOL and the RSI of DVOL are both in red.
The reason I put the RSI here is that it is easier to analyze DVOL, since the values are in a fixed range, therefore easier to interpret.
On March 25, 2022, the RSI shows a contracted value of 30, that is, low implied volatility. This foreshadows a period of calm that precedes a period of agitation.
In this case, the “agitation” soon materializes in a period of price decline.
When the RSI then reaches the upper limit range, at 83 (on May 12, 2022), a peak in volatility is characterized.
Then, after that, it begins to decrease. This decrease in volatility in DVOL corroborates the moment of Bitcoin’s lateralization within the orange box.
▮ Conclusion
Although DVOL and BVIV should not be used in isolation, they can be valuable tools for confirming price chart signals and anticipating major movements.
Incorporating implied volatility analysis into your strategy, can improve the timing of entries/exits and help manage risk.
⚠️ But remember:
Just because a strategy worked in the past does not mean it will work forever.
Past profitability is no guarantee of future profitability.
Do your own analysis and risk management.
Trend Strategy: Liquidity with DCF█ INTRODUCTION
This trading strategy is designed to maximize your chances of success by focusing on the most favorable currency pairs and aligning your trades with strong market trends.
Here’s a breakdown of how it works:
1. Identify the DCF (Daily Capital Flow) Index: Start by analyzing the overall flow of capital across various currencies. This involves identifying which currencies are gaining strength and which are weakening. By combining the strongest currencies against the weakest, you can select currency pairs that are more likely to move in your favor, taking advantage of minimal market resistance.
2. Wait for a trap play: A trap play is a market pattern where the price seems to move against the trend but then quickly reverses, trapping traders who took the bait. Look for this trap play to form in the direction of the identified capital flow. The key signal here is the price crossing the 10-period Exponential Moving Average (EMA), which acts as a trigger for entry into the trade.
3. Place your stop loss: To manage risk, place your stop loss just below the bar or candlestick that forms the trap play. This way, if the market moves against your position, your losses will be limited.
4. Stay in the trend: As long as the price remains above the 20-period Simple Moving Average (SMA) on a closing basis, you stay in the trade. This indicates that the trend is still strong, and there's no need to exit prematurely.
5. Take profit: Monitor the market for a trap play forming in the opposite direction of your trade. This suggests that liquidity is building up, and the market might reverse. This is your cue to take profit and close the trade.
6. Repeat: Once you've closed the trade, start the process again by identifying the DCF, finding new optimal pairs, and following the steps above.
By consistently applying this strategy, you can leverage market trends and manage risk effectively, potentially leading to consistent profits.
How Experienced Traders Navigate VolatilityIn today’s turbulent markets, it is a timeless reminder to discuss volatility, how experienced traders can navigate volatility and manage their risk, and why it’s important to always be prepared. Recently, we saw dramatic price action with the USD/JPY pair influenced by the Bank of Japan’s policies or even gold’s march to all-time highs against the Dollar. In this post, we’ll be discussing the art and science of volatility in forex markets and aim to remind all traders about what it is and how to deal with it.
Understanding Forex Volatility
Volatility is quite simple, despite sounding complex. At its core, volatility measures how much a currency’s value deviates from its average. High volatility means more significant price swings from its average and low volatility means less significant price swings or a lack thereof. Now that you understand the basics, let’s move on to the next concept – trading around volatility and the associated risks.
Trading in Volatile Markets
Experienced traders know that volatility will spike at some point in a market cycle. Throughout market history there have been many examples of this, and volatility spikes can correspond with market crashes, unexpected economic figures, and major news events, such as elections or wars. These volatile moments may present opportunities to the prepared trader, but it is also equally important to manage your risks in these scenarios. Therefore, the first step to this is crucial: be fully equipped for it.
Know The Risks
Experienced traders can find potential opportunities in volatility, as mentioned above, but it also means more risk because of potentially higher spreads, faster and unexpected price movements, and larger percentage moves in either direction. That’s why it’s important to assess your risk tolerance before diving in, and once again, be prepared for volatility to strike at any moment.
Technical Indicators for Volatility
There are several technical indicators that you can employ on your charts to measure volatility in the currency pair that you’re analyzing. We’ve compiled a small list below to get you started, but please keep in mind that there are many more to share in an upcoming post here on TradingView, so please stay tuned for more updates from us:
Bollinger Bands: Measures and displays a currency pair’s standard deviation.
Average True Range (ATR): Shows the average range of symbols over specific periods of time.
Relative Strength Index (RSI): Measures price change and size.
We Know Volatility
We’ve seen booms and busts, and presidents come and go over our 20+ years working in forex markets, but throughout that time we’ve remained steadfast, providing traders with the education, resources, and tools they need. That’s why we publish content like this to ourus official TradingView profile – be sure to follow along.
The Power of Trap Plays: Understanding Liquidity Warnings█ INTRODUCTION
In the world of trading and investing, understanding market dynamics is crucial for success. One of the key concepts that often go unnoticed, yet plays a significant role in shaping market behavior, is the "trap play." Trap plays are strategic moves by large market participants designed to exploit or manipulate liquidity, creating opportunities for informed traders while serving as warnings for those who are less vigilant. In this article, we explore why trap plays are good liquidity warnings and how they can be used to navigate the complexities of the financial markets.
█ WHAT ARE TRAP PLAYS?
Trap plays are deceptive market maneuvers where large players, often institutions or experienced traders, create a false sense of market direction to entice retail traders or smaller players into making decisions that ultimately lead to losses. These plays can manifest in various forms, such as false breakouts, sudden reversals, or unexpected price spikes, all aimed at manipulating the supply and demand dynamics of a particular asset.
For example, a false breakout occurs when the price of an asset appears to break through a significant support or resistance level, leading traders to believe that a strong trend is about to emerge. However, once these traders enter positions based on this perceived breakout, the price reverses, trapping them in losing positions.
█ TRADING TRAP PLAYS
While trap plays are often viewed negatively, they can be valuable tools for astute traders who recognize them as liquidity warnings. By understanding the mechanics of trap plays, traders can:
◆ Avoid Being Trapped: By staying vigilant and not rushing into trades based on apparent breakouts or breakdowns, traders can avoid falling victim to traps set by larger players. This caution is particularly important during periods of low liquidity or heightened market volatility.
◆ Identify Reversal Opportunities: Savvy traders can use trap plays to their advantage by recognizing when a false breakout or other trap play is likely to reverse. This insight allows them to position themselves on the right side of the trade, capitalizing on the missteps of others.
◆ Gauge Market Sentiment: Trap plays can also provide insights into market sentiment and the intentions of large players. By observing how these plays unfold, traders can gain a better understanding of the underlying liquidity conditions and adjust their strategies accordingly.
█ CONCLUSION
Trap plays are more than just deceptive tactics used by large market participants; they are also important liquidity warnings that can provide valuable insights into the state of the market. By recognizing and understanding these plays, traders can protect themselves from potential losses and even use these situations to their advantage. In the fast-paced and often unpredictable world of trading, staying aware of liquidity conditions and the potential for trap plays is essential for long-term success.
Market Anxiety Reflected in the "Fear Index"www.tradingview.com
Market Anxiety Reflected in the "Fear Index": Understanding the Nikkei Volatility Index
The Nikkei Stock Average experienced significant volatility on August 7th in the Tokyo stock market. Although it initially plunged over 900 points at the opening, it quickly recovered.
One factor behind the sharp drop in Japanese stocks was the hawkish remarks made by Bank of Japan Governor Kazuo Ueda during the Monetary Policy Meeting. However, at a financial and economic symposium held in Hakodate, Hokkaido, Deputy Governor Uchida stated, "We will not raise interest rates under unstable financial market conditions." He also mentioned, "For the time being, we believe it is necessary to firmly continue monetary easing at the current level," easing market concerns about further rate hikes.
While the stock market is being swayed by the remarks of government and Bank of Japan officials, an analysis of the Nikkei Volatility Index, also known as the "fear index," revealed that it surpassed the warning level, reaching 45.63 on July 23rd. This indicates a highly unstable state in the stock market. Being able to anticipate rapid changes in volatility can make it easier to manage funds and trades, reducing the risk of being overwhelmed by market fluctuations.
The warning level is not only exceeded when the index surpasses 40 but also when it falls below 20, requiring market participants to exercise caution. When the index dips below 20, a situation akin to the "calm before the storm" can arise, making market movements difficult to predict. For instance, the usual correlation between the number of advancing and declining stocks and overall market movements may break down under these circumstances.
Although turbulent markets like this are rare, market participants must still be prepared for unforeseen events.
How to read the VIX properly
This video explains the VIX indicator, how I use it to guide my trading decisions, and my perspective on the market. You can download the TradingView indicator for free, as it is open-source. Additionally, I'll provide a link to my Thinkorswim version in the YouTube video description. The VIX is an excellent tool for market guidance, based on options trading activity 30 days out on the S&P 500. It indicates market fear when it rises due to increased options buying and selling. Thank you for watching! If you have any questions or comments, feel free to share them—I enjoy discussing these topics. No indicator is perfect, but I use this one daily to gauge the market.
HOW-TO: Cyato Bands
█ Overview
Welcome to the getting started page dedicated to my automated trading strategy Cyatophilum Bands, which is in continuous development.
The strategy principle is to identify consolidation areas, catch breakouts and ride the trend as long as possible.
█ Trade examples
Breakout from Tight Consolidation
Price consolidates within a narrow range and identifies the breakout point.
False Breakout Avoidance
Filter out noise from the market by incorporating volume, trend and range filters.
Multi-Timeframe Analysis
Set the Bands time frame higher than the current chart to perform MTF analysis.
Reversal Confirmation
In the strategy direction settings, you can choose to go long, short or both.
Profitable Trend Continuation
A cool feature the take profit has is that it gets disabled when the trend is strong and clear, allowing to play safe in a ranging market, while maximizing profits in strong trends.
█ Indicator settings
Bands Settings
The band configuration settings allow you to create any kind of band, my favorite is the Donchian channels, but you can also create Bollinger and Kelter kinds of bands.
Filter Settings
The entry is triggered by a band breakout, but only that is not enough to create a solid strategy. Adjust the consolidation area, set a volume, range and trend filter to strengthen your entry.
Stop Loss Settings
Easily create a stop loss system using %, ATR, pips or AUTO calculation modes.
Add a trailing stop using ATR or Classic modes. (more modes can be added upon request)
Take Profit Settings
Set a take profit system using also different modes and the amazing feature to disable take profit during strong trends.
Backtest Settings
Backtest quickly using the information panel. See if you beat buy and hold and ATH buy and hold, as well as other stats like daily return.
█ Backtesting results & preconfigured charts
BTC/USDT
Snapshot:
Chart : www.tradingview.com (Access Required)
ETH/USDT
Snapshot:
Chart : www.tradingview.com (Access Required)
BNB/USDT
Snapshot:
Chart: www.tradingview.com (Access Required)
SOL/USDT
Snapshot:
Chart: www.tradingview.com (Access Required)
ADA/USDT
Snapshot:
Chart: www.tradingview.com
AVAX/USDT
Snapshot:
Chart: www.tradingview.com
LINK/USDT
Snapshot:
Chart: www.tradingview.com
MATIC/USDT
Snapshot:
Chart: www.tradingview.com
IMX/USDT
Chart: www.tradingview.com
█ SCRIPT ACCESS
Indicator and automation tools access can be purchased on my website. Links in my signature below.
Understanding Volatility and How Traders Can Use It to Their BenWhat is Volatility?
Volatility refers to the degree of variation in the price of a financial instrument over time. It is a statistical measure of the dispersion of returns for a given security or market index. In simpler terms, volatility represents the amount of uncertainty or risk related to the size of changes in an asset’s value. High volatility means the price of the asset can change dramatically over a short period in either direction, while low volatility implies more stable prices with fewer and smaller fluctuations.
Measuring Volatility
Historical Volatility: This measures past market prices and their fluctuations over a specific time period. It is calculated by taking the standard deviation of returns over that period.
Implied Volatility: This is derived from the market price of a market-traded derivative (e.g., an option). It reflects the market's view of the likelihood of changes in a given security's price.
Volatility Indexes: Tools like the CBOE Volatility Index (VIX) track market expectations of near-term volatility conveyed by S&P 500 stock index option prices.
How Traders Can Use Volatility to Their Benefit
Identifying Trading Opportunities:
High Volatility: Traders often seek high volatility environments as they provide more opportunities to capture significant price movements. This is particularly beneficial for day traders and short-term traders who can capitalize on rapid price changes.
Low Volatility: During periods of low volatility, traders might focus on strategies like mean reversion, where they anticipate that prices will return to their average.
Risk Management:
Understanding volatility helps traders manage risk better. By using tools such as stop-loss orders, traders can limit potential losses during volatile periods.
Position sizing based on volatility can help in adjusting exposure. For instance, smaller positions might be taken during high volatility to mitigate risk, while larger positions could be considered during stable periods.
Volatility-Based Strategies:
Options Trading: Traders can use volatility to their advantage in options trading. Strategies like straddles and strangles profit from significant moves in either direction, which are more likely during high volatility periods.
Market Timing:
Hedging: Traders can hedge their portfolios against volatility by taking positions in assets or derivatives that are negatively correlated with their current holdings.
Volatility can provide insights into market sentiment and potential turning points. For instance, a spike in volatility often precedes significant market corrections or rallies.
Traders can use technical indicators like Bollinger Bands, which adjust for volatility, to identify overbought or oversold conditions in the market.
Conclusion
Volatility is a fundamental concept in trading that can both pose risks and offer opportunities. By understanding and measuring volatility, traders can enhance their risk management practices, identify profitable trading opportunities, and employ volatility-based strategies to improve their overall trading performance. Whether dealing with high or low volatility environments, a keen awareness of market fluctuations is essential for successful trading.
Visualize $TSLA CALL pricing skew due to the upcoming earningsLet’s take a look at our new tradingview options screener indicator to see what we observe, as the options chain data has recently been updated.
When we look at the screener, we can immediately see that NASDAQ:TSLA has an exceptional Implied Volatility Rank value of over 100, which is extremely high. This is clearly due to the upcoming earnings report on July 23rd.
As we proceed, we notice that Tesla's Implied Volatility Index is also high, over 70. This means that not only the relative but also the absolute implied volatility of Tesla is high. Because the IVX value is above 30, Tesla’s IV Rank is displayed with a distinguishable black background. This favors credit strategies such as iron condors, broken wing butterflies, strangles, or simple short options.
Next, let’s examine how this IV index value has changed over the past five days. We can see it has increased by more than 6%, indicating an upward trend as we approach the earnings report.
In the next cell, we see a significant vertical price skew. Specifically, at 39 days to expiration, call options are 84% more expensive than put options at the same distance. This indicates that market participants are pricing in a significant upward movement in the options chain.
The call skew is so pronounced that at 39 days to expiration, the 16 delta call value exits the expected range. This signifies a substantial delta skew twist, which I will show you visually.
We see a horizontal IV index skew between the third and fourth weeks in the options chain. This means the front weekly IVX is lower than the IVX for the following week, which may favor calendar or diagonal strategies. Hovering over this with the mouse reveals it’s around the third and fourth week.
In the last cell, we observe that there’s a horizontal IVX skew not just in weekly expirations but also between the second and third monthly expirations.
Now, let’s see how these values appear visually on Tesla’s chart using our Options Overlay Indicator. On the right panel, the previously mentioned values are displayed in more detail when you hover over them with the mouse. The really exciting part is setting the 16 delta curve and seeing the extent of the upward shift in options pricing. This significant skew is also visible at closer delta values.
When we enable the expected move and standard deviation curves, it immediately becomes clear what this severe vertical pricing skew in favor of call options means. Practically, market participants are significantly pricing in upward movement right after the earnings report.
Hovering over the colored labels associated with the expirations displays all data precisely, showing the number of days until expiration and the high implied volatility index value for that expiration. Additionally, a green curve indicating overpricing due to extra interest is displayed. Weekly expiration horizontal IVX skew values appear in purple, and those affected by monthly skew are shown in turquoise blue.
The 'Lite' version of our indicators is available for free to everyone, where you can also view Tesla as demonstrated. Pro indicators are available more than 150 US market symbols like SPY, S&P500, Nvidia, bonds, etfs and many others.
Trade options like a pro with TanukiTrade Option Indicators for TradingView.
Thank you for your attention.
Understanding Market Volatility and Its Impact on BitcoinIntroduction
Market volatility is a crucial aspect that every Bitcoin investor and trader must understand. In this section, we'll explore what market volatility is, how it affects Bitcoin, and strategies to manage it.
What is Market Volatility?
Market volatility refers to the rate at which the price of an asset, such as Bitcoin, increases or decreases for a given set of returns. High volatility means that the price of Bitcoin can change dramatically over a short period, both positively and negatively.
How Does Volatility Impact Bitcoin?
Price Swings:
Bitcoin is known for its significant price swings, which can be driven by various factors such as market sentiment, regulatory news, macroeconomic trends, and technological advancements.
Investor Behavior:
Volatility often influences investor behavior, leading to increased buying or selling pressure. This can result in rapid price movements, creating opportunities and risks.
Market Sentiment:
Positive news can lead to a surge in Bitcoin prices, while negative news can result in sharp declines. Understanding market sentiment is crucial for predicting these movements.
Managing Volatility
Diversification:
Spread your investments across different assets to reduce risk. Diversification can help cushion the impact of volatility on your portfolio.
Risk Management:
Use stop-loss orders to limit potential losses. Setting predetermined exit points can protect your investments during periods of high volatility.
Stay Informed:
Keep up with the latest news and trends in the cryptocurrency market. Being informed allows you to make timely decisions and react appropriately to market changes.
Long-term Perspective:
Focus on the long-term potential of Bitcoin rather than short-term price fluctuations. A long-term perspective can help you stay calm during volatile periods.
Conclusion
Understanding market volatility is essential for navigating the Bitcoin market. By recognizing how volatility impacts prices and adopting strategies to manage it, you can better position yourself to take advantage of opportunities while minimizing risks. Stay informed, diversify your investments, and maintain a long-term perspective to thrive in the ever-changing world of Bitcoin.
Tutorial TOP DOWN Entry/ Exits DKLs ...Good morning,
I took the time to show you my analysis and how I work.
- Top Down D1 to H1
- Intraday through scalping
- DKLs / HKLs
- Important Zones
- Zone to Zone
- Specific asset volatility
- Entries
- Stop Losses and Exits
Hope you like it so far and could catch some pips. Let me know in the comments below.
HOW-TO: Cyato Grid BotThe grid strategy is one of the most popular and interesting in the world of crypto and forex trading.
Simply because it abuses volatility, market fluctuations, and those markets are well known for it.
In this guide, I will explain the strategy and showcase a powerful grid trading indicator that can help traders to better understand and implement this strategy.
█ The Key to the strategy
It involves placing buy and sell orders at predetermined intervals or levels, called "Grid Steps". If a step is crossed to the downside, the strategy will buy. If price crosses a step to the upside, the strategy will sell. The last step to be crossed becomes inactive.
When configuring the strategy, the process is pretty simple.
The user can choose the number of steps with a higher and lower step price. With just these 3 settings, you can create a strategy.
Now, the challenge with grid trading, is to optimize these 3 settings.
█ Maximizing its effectiveness
The first thing you want to do before even going into the settings is to find a suitable market for it.
You want these 3 requirements:
• A ranging/going sideways market
• High volatility
• High liquidity
For example, ETH/BTC is one of the most traded pair in grid trading. It has good volume for the strategy, behaves in a range since late 2021, and has decent volatility daily.
█ Knowing the risks
Very often, the lowest step is used as a stoploss.
As with every trading strategy, there are risks and it is important to understand it.
With grid trading, we take a bet that price will fluctuate in a range, and abuse that assumption to profit from price action.
If price decides to leave the range, there is one scenario that will put us at risk.
In the scenario where price breaks to the top, we are fine, this is take profit.
However, if price breaks through the bottom (lowest step), we will find ourselves with a lot of buy orders above current price.
That means we have unrealised loss. Now two difficult two choices are in our hands: sell at a loss, expecting price to go lower, and stop the strategy to start a new one at lower prices. Or wait until price climbs back up.
In this example, we set a stop loss at 0.063 BTC below the lowest step, and price falls down to 0.048 BTC. If we decided to hold, the unrealised loss would grow bigger as price drops.
Now that we know what are the risks, let's see how is profit calculated.
█ Calculating Grid Profit
We will have two types of profit when grid trading. One this called grid profit.
Grid profit is generated every time a step is bought and sold at a higher price. The grid step "height" is the spacing between two steps, usually visualised in a % percentage of price.
The sum of all the profits generated from the grid steps is the grid profit.
The second type of profit is the open profit. This one is really important and should not be forgotten when calculating your strategy PNL.
To put it simply, it is the profit or loss that would be realised if you would close all the open orders at current price.
The open profit can vary a lot and it is crucial to know its value when you are looking to take profit or stop the strategy.
In this example, I chose round numbers to make it easier. I used 2000 usd as initial capital for the strategy, which contains 20 steps. The strategy will therefore split this equally through the steps, so 100 usd per steps. I chose a grid step of 1.1% of price, which is makes around 1% after fees. It will consequently take 20 closed steps to generate 1% grid profit from the initial capital.
After running the strategy for 74 days, we have 21 steps closed, which makes a tiny bit more than 1% grid profit in total.
However, the open profit from the 12 orders still open is negative because price dropped.
If we were to close all open orders and stop the strategy right now, the total profit would be 1.03 - 4.35 = -3.32 %
We can see that it would not be a good time to stop the strategy, and shows that grid trading needs time to generate grid profit. That is why even though it is run on low timeframes, it remains a long term strategy.
█ Cyato Grid
Cyato Grid is a powerful indicator that can help to better understand and implement this strategy.
I will now explain the key features and settings of the indicator, provide examples of how to use it in real-world trading scenarios, and offer tips and advice for maximizing its effectiveness.
Backtesting
As soon as you set the 3 settings - number of steps, lowest and highest price -, you will get results in the Strategy Tester and in the Backtest table in the top right of the chart.
Those results will vary based on your strategy initial capital and order size. The order size being the amount to buy on each step, and is usually the same for each step. A good practice is to divide your inital capital by the number of steps to make sure you will never run out of funds to run the strategy.
Order Type
The strategy can be configured to use market or limit orders, as you prefer.
With market order type, the strategy will place market orders at the current price every time a step is crossed.
This allows to ensure that every order is filled, however you are subject to buy and sell a bit higher or lower than the exact grid step prices, and you will pay taker fees.
With limit order type, the strategy will place limit orders.
This allows to ensure that the strategy will buy and sell at the exact step prices and pay maker fees, which are usually less than taker fees.
To make it work, the "Start Date" setting comes into place.
Key Features
• Price percentage % step
Lets you set a price percentage between steps. The grid is then generated starting from lower or upper, configurable.
• Trailing Up
Automatically creates new steps when price climbs out of range.
• Trailing Stop
When trailing up is activated, the stop loss will dynamically follow the lowest price.
• Take Profit
Secure profits by stopping the strategy once total volume (grid profit and open profit) reaches a configurable percentage %.
Automation
You can fully automate the strategy through its alerts.
Set the alert messages for buy, sell, take profit, stop losses directly in the indicator settings.
Use the parameter "alert() function calls only" and you're good to go.
It will use only 1 alert slot to run the whole strategy.
Since it is not possible to place orders directly in TradingView, you will need a bot-software to do it.
You can use any bot that work with TradingView alerts.
Now, I offer a bot system for Binance along with the indicator. More info on my website, link below.
Sample Use cases
Crypto
BNB/BTC
BNB/ETH
LTC/BTC
Forex
GBP/JPY
EUR/JPY
NZD/USD
Tips and advice
1 — Set up the grid properly: Make sure you have a clear understanding of the asset you're trading and the market conditions that are affecting it. Set your grid levels based on your analysis of the asset's price movements and volatility.
2 — Adjust the grid as necessary: Keep an eye on market conditions and adjust your grid levels as needed. This will help you capture gains and limit losses as the market moves.
3 — Use proper risk management: Make sure you have a clear understanding of your risk tolerance and use appropriate risk management techniques, such as setting stop-loss orders, to limit your potential losses.
4 — Don't overtrade: Grid trading involves placing a large number of orders, so be mindful of transaction costs and don't overtrade. This will help you maximize your profits and reduce the potential for losses.
5 — Consider using automated software: Grid trading can be automated using software, which can save time and reduce the potential for human error. Consider using a reputable software provider and test your strategy thoroughly before using it in live trading.
6 — Keep a trading journal: Keeping a trading journal can help you evaluate your strategy and make improvements over time. Record your trades, including the grid levels and any adjustments you make, and evaluate your performance regularly.
7 — Stay disciplined: Stick to your strategy and avoid making emotional decisions based on short-term market movements. Stay disciplined and focus on the long-term profitability of your grid trading strategy.
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█ SCRIPT ACCESS
Indicator and automation tools access can be purchased on my website. The link is in my signature below.
Beating the S&P500 (SPX) Buy&Hold strategy by 16 timesS&P500 (SPX) strategy using Stochastic RSI Min-Max, normalized Volatility and Trailing Stop signals, beats the Buy&Hold strategy by 16 times
Embarking on the quest to time the market accurately, the 'Holy Grail' of strategies, led me to create a script to approach this goal. Unlike other strategies that I tested, this one not only surpasses the long-term S&P500 Buy&Hold approach but does so by a remarkable 16.38 times!
Initially, I employed an A.I. program based on an LSTM Neural Network using TensorFlow. Despite achieving a 55% next-day prediction accuracy for short/long positions, I sought improvement using a heuristic pine-scripting approach, incorporating stochastic RSI oscillators, moving averages, and volatility signals.
With default parameters, this strategy, freely available as "XPloRR S&P500 Stock Market Crash Detection Strategy v2" delivered a staggering 2,663,001% profit since February 1871. In the same period, the Buy&Hold strategy "only" generated 162,599% profit. Picture this: a $1,000 investment in 1871 would now be worth $26,630,014 by February 2024. Check it out for yourself loading this strategy.
The script operates as a Stochastic RSI Min-Max script, automatically generating buy and sell alerts on the S&P500 SPX. What sets it apart? The strategy detects "corrections," minimizes losses using Trailing Stop and Moving Average parameters, and strategically re-enters the market after detecting bottoms using tuned Stochastic RSI signals and normalized Volatility thresholds.
Tailor its parameters to your preference, use it for strategic exits and entries, or stick to the Buy&Hold strategy and start new buy trades at regular intervals using buy signals only. In the pursuit of minimizing losses, the script has learned the effectiveness of a 9% trailing stop on trades. As you can clearly see on the upper graph (revolving around 100), the average overall green surfaces (profits) of all trades are much bigger than the average red surfaces (losses). This follows Warren Buffets first rule of trading to "Never lose money" and thus minimizing losses.
Update: Advanced S&P500 Stochastic RSI Min-Max Buy/Sell Alert Generator
I have also created an Alerter script based on the same engine as this script, which auto-generates buy and sell alert signals (via e-mail, in-app push-notifications, pop-ups etc.).
The script is currently fine-tuned for the S&P500 SPX tracker, but parameters can be fine-tuned upon request for other trackers or stocks.
If you are interested in this alerter-version script or fine-tuning other trackers, please drop me a message or mail xplorr at live dot com.
How to use this Strategy?
Select the SPX (S&P500) graph and set the value to "Day" values (top) and set "Auto Fit Data To Screen" (bottom-right).
Select in the Indicators the "XPloRR S&P500 Stock Market Crash Detection Strategy v2" script and set "Auto Fit Data To Screen" (bottom-right)
Look in the strategy tester overview to optimize the values "Percent Profitable" and "Net Profit" (using the strategy settings icon, you can increase/decrease the parameters).
How to interpret the graphical information?
In the SPX graph, you will see the Buy(Blue) and Sell(Purple) labels created by the strategy.
The green/red graph below shows the accumulated profit/loss in % of to the initial buy value of the trade (it revolves around 100%, 110 means 10% profit, 95 means 5% loss)
The small purple blocks indicate out-of-trade periods
The green graph below the zero line is the stochastic RSI buy signal. You can set a threshold (green horizontal line). The vertical green lines show minima below that threshold and indicate possible buy signals.
The blue graph above the zero line is the normalized volatility signal. You can set a threshold (blue horizontal line) affecting buy signals.
The red graph above the zero line is the slower stochastic RSI sell signal. You can set a threshold (red horizontal line). The red areas indicate values above that threshold.
However real exits are triggered if close values are crossing below the trailing stop value or optionally when the fast moving average crosses under the slow one. The red areas above the threshold are rather indicative to show that the SPX is expensive and not ideal to enter. Please note that in bullish periods the red line and areas can stay at a permanent high value, so it is not ideal to use as a strict sell signal. However, when it drops below zero and the green vertical lines appear, these are strong buy signals together with a high volatility.
These Parameters can be changed
Buy Stochastic Lookback
Buy Stochastic Smoother
Buy Threshold
Buy Only After Fall
Minimum % Fall
Sell Stochastic Lookback
Sell Stochastic Smoother
Sell Threshold
Sell Only With Profit
Minimum % Profit
Use Sell MA
Fast MA Sell
Slow MA Sell
MA Sell Threshold
Use Buy Volatility
Volatility Smoother
Volatility Threshold
Use Trailing Stop
Use ATR (iso of a fixed percentage for the trailing stop)
ATR Lookback
Trailing Stop Factor(or fixed percentage if "use ATR" is false)
Trailing Stop Smoother
Important : optimizing and using these parameters is no guarantee for future winning trades!
Bollinger Bands Part II: Reversal PatternsBollinger Bands Part II: Reversal Patterns
Analzying Two Key Patterns Called M-Tops and W-Bottoms
This post will go into greater depth than the basic introduction to Bollinger Bands published last week. In particular, it will discuss two key reversal patterns. Both the M-top reversal pattern and W-bottom reversal pattern are price patterns that form in conjunction with the Bollinger Bands.
M-Top Pattern
The classic M-top reversal pattern forms when two consecutive price highs form an M-shaped price pattern with the first high tagging the upper band and the second high exhausting before tagging the upper band. An example is shown on Supplemental Chart A involving a topping pattern in BTCUSD from early 2021. This weekly chart shows the M-top in red. The second high meets the traditional (strict) criteria of a second peak near—but not touching—the upper band. This is soon evident as a price failure.
Supplemental Chart A
But an M-top reversal pattern may arise even when two actual tags or pierces of the upper band occur, i.e., the second high may tag the band without invalidating the pattern. This is based on the email discussion this author had with the creator of the Bollinger Bands a while back in 2022, recounted at the end of this post.
In short, the most important feature of the pattern is price exhaustion and reversal at the second high . In other words, look for failure of the price move at or near band resistance (e.g., a failed breakout). The following technical signals may provide additional confirmation: weakening momentum indicators, including negative divergences in momentum indicators or a lower high on %B indicator which may present as a %B line divergence.
W-Bottom Pattern
The classic W-bottom reversal pattern forms when two consecutive price lows form a W-shaped price pattern with the first low tagging the lower band and the second low exhausting before tagging the lower band.
Supplemental Chart B
But note that a W-bottom reversal pattern may arise even when two actual tags or pierces of the lower band occur, i.e., the second low may tag the band without invalidating the pattern. This is based on the email discussion this author had with the creator of the Bollinger Bands a while back in 2022, recounted at the end of this post. In short, the most important feature of the pattern is price exhaustion and reversal at the second low. In other words, look for failure of the price move at band support (e.g., a failed breakdown). The following technical signals may provide additional confirmation: Strengthening momentum indicators, including positive divergences in momentum indicators or a higher low on % B indicator which may present as a %B line divergence.
Understanding the Nuances
In June 2022, John Bollinger, the creator of the Bollinger Bands, posted a monthly chart of BTC/USD on Twitter. He described the chart as a “picture perfect double (M-type) top in BTCUSD on the monthly chart complete with confirmation” from %B and bandwidth indicators. He noted also that the signal led to a tag of the lower band. Supplemental Chart C is my own attempt to recreate the monthly chart Bollinger had shown to reflect the same two major monthly highs in BTCUSD in early 2021 and then again in late 2021. Please note that Supplemental Chart C shows a different M-top than the one shown on the weekly time frame above on Supplemental Chart A, which only focuses on one of the two peaks analyzed in this monthly chart.
Supplemental Chart C
This chart that Bollinger originally posted in 2022 showed two actual tags of the upper band. This was not quite technically within the definition of an M-top in much of the technical literature. My previous reading on M-tops and W-bottoms found that all the definitions and examples showed that the second high or low must not touch or tag the relevant band. But this is incorrect to assume that M-tops and W-bottoms are invalid when this technical definition has not been strictly met, i.e., when two (or more) tags of the bands occurred at both price extremes.
Responding to Bollinger’s chart of a “perfect M-top pattern,” I messaged John Bollinger, the creator of the bands, directly, hoping for clarification about the strict definition of M-tops and W-bottoms. My question was whether they can be valid while having two actual tags of the bands at both price extremes—two tags at both highs of an M-top and two tags at both lows of a W-bottom. Or were the technical books correct to say that the second peak or low must approach the bands but fail to touch them.
In response to my questions, Bollinger clarified that whether a tag occurs at the second peak / high of an M-top is not important as price failure at upper band resistance. This reasoning can be applied in the inverse to W-bottoms as well. In other words, completing the second half of each formation requires a price failure, rather than a band-tag failure, upper band resistance (M-top) or lower band support (W-bottom).
So this broadens the scope of what constitutes a valid M-top or W-bottom pattern. But it does not exclude patterns that meet the conventional technical definition. This means that valid M-top and W-bottom patterns include cases where the secondary high / low fails to tag the upper / lower band. Stated differently, failures to tag the bands at a secondary price high / low can also form valid topping and bottoming patterns.
Finally, beware of seeking reversals too soon when price is trending strongly, or walking the bands —pullbacks in that specific scenario are not at all "price failures," and it's important to recognize the difference.
Conclusion
In short, the key is to apply substance over form, to follow the core concept rather than strictly adhering to the technical rules / definitions. Broaden the scope of the technical requirements to include price failures—on the secondary test—at band resistance or support. This will help traders recognize the patterns arising from this technical indicator more effectively.
Further, Bollinger himself recommended using other indicators for confirmation, such as RSI or another indicator that isn't overlapping in its operation too much. Lastly, it may be important to realize that the final failure at or near the bands may not be the second peak or low but the fourth, fifth or sixth. Just draw the M at the end where it fits if there has been strength followed by a failure at or near the bands. And remember trading time frame (M-tops and W-bottoms that are valid have much less significance on shorter time frames and much more and lasting significance on longer time frames. And keep risk management on as always.
________________________________________
Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.
Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
Bollinger Bands—Part 1: The BasicsIntroduction
Imagine that you are placed on an island with only a trading platform (TradingView of course) and the island gods only permitted three indicators. What three indicators would you carefully select? At the top of my list would be the Bollinger Bands.
Some people seek out complex or cryptic indicators in search for a better edge. Of course, some indicators and modes of anlaysis can be very useful despite being complex. But some indicators like the Bollinger Bands, can be valuable because of their simplicity, and they can also have a wealth of analytical value that is more complicated than would appear at a glance.
In 1983, John Bollinger invented the eponymous Bollinger Bands. This valuable indicator operates centrally on the concept of standard deviation. In other words, standard deviation is a basic statistical concept behind the indicator, i.e., this concept is basic for mathematics professors and experts, but perhaps intermediate to advanced level for others.
Standard Deviation
One can easily find the common standard-deviation formula on the internet from many reputable sources. But one doesn't have to master the formula to use the concept of standard deviation—standard deviation essentially measures the variation in the data points around a mean (or average). Khan Academy offers a very useful and insightful guide to those who want to learn the core concepts of standard deviation. Supplemental Chart A contains Khan Academy's standard-deviation illustration and its well-worded explanation, although no one alive today can take credit for discovering and establishing this formula.
Supplemental Chart A (Credit to Khan Academy's website for illustration with explanation of standard deviation)
Here is a short, somewhat summary explanation of standard deviation's formula (though it doesn't apply to standard deviation of samples, a slightly different formula).
Calculate the mean of a data set (e.g., a price series).
Calculate each data point's distance, or variance, from that mean.
The distance between each data point and the mean is then squared.
Sum all the squared distances between each data point and the mean.
Divide the sum of the squared distances by the total number of data points, or values in the data set.
Take the square root of the quotient from the previous step, which is the average of all data points' squared distances from the mean.
Moving Calculations
Having identified the statistical concept at the heart of the bands' operation, it helps to remember that the moving average at the center of the bands, sometimes called the middle band of the Bollinger Bands, mean that the entire indicator should be considered a "moving indicator." In other words, even the standard-deviation bands, plotted a given number of standard deviations above or below the moving average, are moving based on the price data that evolves as time passes. Just like the moving average at the center of the bands continues to calculate the mean based on a moving lookback window of 20 periods or some other fixed number of periods, the standard deviations above and below the mean also derive from a moving lookback window.
Analysis / Interpretation
Bollinger Bands, as John Bollinger described in the journal Technical Analysis of Stocks & Commodities, "answer the question whether prices are high or low on a relative basis." He further explained that the "bands do not give absolute buy and sell signals simply by having been touched; rather, they provide a framework within which price may be related to indicators." He essentially recommended comparing price in relation to the bands and then using the action at the edges of the bands and using such signals in combination with another well-selected indicator (e.g., one might consider RSI).
As created by Bollinger, the bands are typically set at +2 and –2 standard deviations above the mean. This can be adjusted on TradingView's platform. A well known trader, Anthony Crudele, uses the Bollinger Bands set at +3 and –3 standard deviations from the mean. He also uses the bands extensively as part of his system, and he does so with some unique and interesting features that he added. This author recommends following his videos regardless of whether his strategy is ultimately followed or adopted or whether some other strategy is adopted as most suitable for a particular asset or time frame.
The bands not only measure whether price is high or low on a relative basis. But importantly, they reveal realized-volatility conditions in the market. If price volatility (or variation from the mean without regard to direction) is expanding in a trend-like move on the specific time frame being examined, whether hourly, daily, weekly, monthly or longer, then the Bollinger Bands reveal this by opening and widening, much like jaws. The jaws of the bands contract when volatility is contracting. Volatility—implied and realized—tends toward cycles and mean reversion. So the bands helpfully show traders where volatility is within its cycle. Some traders, for example, use the bands to trade squeezes, and when the bands contract for a substantial period of consolidation and narrow significantly. The squeeze helps increase the probability of a volatility expansion, a potential a widening of the bands as price moves either in the direction of the prior trend or a reversal. As with other indicators, the significance of the signal should be interpreted in the context of the time frame being analyzed.
Supplemental Chart B
In Supplemental Chart B, notice how the Bollinger Bands contracted as price consolidated in the latter part of last year on the weekly chart of SPY. The Bollinger Bands have been expanding as price has pushed higher to new highs at the degree of trend shown, i.e., the uptrend from 2022 lows to present.
Conclusion
The Bollinger Bands provide more analytical tools and features than the ones described today. If readers are interested in a more in-depth post on Bollinger Bands (perhaps a Part 2 as contemplated by the title), please indicate this in the comments! Look forward to hearing from you.
________________________________________
Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.
Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
Why am i going long when we dumping >.<Simple i like to trade volume profiles. It show the value of a asset in real time. I like to buy when its cheap and sell when its expensive. Value Area highs, POC or Value area low with deviations to give a better confluence.
Mastering Stop-Loss with ATR IndicatorMastering Stop-Loss and Take-Profit with ATR Indicator
What is the ATR Indicator?
The Average True Range (ATR) indicator is a nifty tool that helps traders gauge the market's volatility. Simply, it tells you how much an asset typically moves in a given timeframe.
Placing Stop Loss to Avoid Getting Stopped Out
Step 1: Identify ATR Value
Look at the ATR indicator on your chart; it's usually at the bottom or top of your screen.
Note the ATR value; the higher it is, the more volatile the market.
Step 2: Setting Stop Loss
Set your stop loss beyond the ATR value to avoid getting prematurely stopped due to regular market fluctuations.
For instance, if the ATR is 50, consider placing your stop loss at least 60 points away to give your trade room to breathe.
Understand ATR's Role
ATR not only helps with stopping losses but also guides in setting realistic take-profit levels.
It gives you an idea of how much the asset can move in a given time, assisting you in capturing profits before a potential reversal.
Final Tips for Beginners
Adapt to Market Changes: ATR values change as market conditions shift. Stay adaptable and reassess your stop-loss and take-profit levels accordingly.
Practice on Demo Accounts: Before diving into live trading, practice using the ATR indicator on demo accounts. Gain confidence and refine your strategy without risking real money.
In essence, the ATR indicator is your ally in navigating market volatility. By using it wisely, you can enhance your risk management, safeguarding your trades from unnecessary stop-outs while optimizing your profit potential. Happy trading! 📈✨
A Guide to Effective Trading with the Keltner Channel
The Keltner Channel is a technical indicator that helps traders analyze price volatility and identify possible entry and exit points. It was developed by Charles Keltner in the 1960s and remains popular among technical traders today.
The main components of the Keltner Channel include:
Moving Average (SMA): This is the average of the price over a certain period of time. The moving average is used as the center line of the Keltner Channel and serves as a reference level for analysis.
Keltner Channel Upper Band: This band sits above the moving average and is usually calculated as the sum of the moving average and the average true range (ATR) multiplied by a factor. It provides information about potential resistance levels.
Lower Keltner Channel Band: This band is below the moving average and is calculated in a similar manner as the upper band, but subtracting the ATR multiplied by a factor. It indicates possible support levels.
The basic idea behind using the Keltner channel is as follows:
Trend Analysis: If the price is above the upper band of the Keltner Channel, it may indicate an uptrend. If the price is below the lower band, it may indicate a downtrend.
Volatility: A widening Keltner Channel indicates an increase in volatility, while a contraction indicates a decrease.
Entry and Exit Points: Traders use Keltner Channels to determine when to enter and exit the market. For example, crossing the upper band may signal a possible price decline and be considered a sell signal, while crossing the lower band may be a buy signal. However, in the original methodology it is considered that the crossing of the upper line by the price is a signal to open a long position, and the lower one - to open a short position
Signal Filtering: Some traders use other indicators, such as Average Directional Index (ADX), to filter Keltner Channel signals and confirm trend strength.
Let's consider this strategy. Entry into a long position will occur when the candle closes above the upper boundary of the Keltner channel and the DMI is above the threshold and shows a green band. Stop loss can be placed on the opposite side of the counter channel and make the risk reward ratio 2:1, for example. For a short position, it will be the opposite when the candle closes below the Keltner channel and the DMI bar will be red and above fresh hope with the same risk reward ratio and the position will reach the target.
This strategy is quite simple and can be traded quite effectively if taking into account risk and money management. You can see one of our realized trading bots using Keltner channel breakdowns here.
Wunder Keltner bot:
Wunder Keltner bot is based on the breakout of the Keltner channel. Therefore we will need two indicators for a complete strategy: DMI and Keltner Channel.
What is DMI?
DMI stands for Directional Movement Index, and it is a technical indicator used in financial markets, particularly in the field of technical analysis. DMI is designed to assess the strength and direction of a trend, helping traders identify potential trend breakouts and the overall market momentum. It is a straightforward yet powerful tool that can be applied to various trading strategies.
The Directional Movement Index consists of two components: the Positive Directional Indicator (+DI) and the Negative Directional Indicator (-DI), which are both calculated using price movement data. Here's how these components work:
Positive Directional Indicator (+DI): This component measures the strength of the upward price movement or the bullish trend. It is calculated by comparing the difference between today's high price and yesterday's high price to the difference between yesterday's high and yesterday's low. The result is then smoothed to provide a more accurate reading.
Negative Directional Indicator (-DI): On the other hand, the -DI measures the strength of the downward price movement or the bearish trend. It is calculated similarly to the +DI but focuses on the downside price movements.
Once the +DI and -DI values are calculated, the DMI itself is often represented as a single line, along with a complementary line known as the Average Directional Index (ADX). The ADX helps traders assess the overall strength of the trend, regardless of whether it's bullish or bearish.
Let's take a look at the key entry points. To enter Long, we need to see the deviation above the norm, and it is also important for us that the ADX value is above the specified level. You can see an example of a long position and also an example of a short position.
For calculation, 2 channels are used, one for long trades, and the other for short trades. The division into 2 channels is used for more accurate entry calculations depending on trend directions. The ADX indicator is used to filter signals and determine the trend strength. ADX determines the strength of the trend and confirms the entry into the strategy if the value is greater than the level indicated in the settings.
A function for calculating risk on the portfolio (your deposit) has been added to the script. When this option is enabled, you get a calculation of the entry amount in dollars relative to your Stop Loss. In the settings, you can select the risk percentage on your portfolio. The loss will be calculated from the amount that will be displayed on the chart.
Conclusion:
The Keltner Channel is a valuable technical indicator that can help traders assess price volatility and make informed decisions about entering and exiting positions in the financial markets. Developed by Charles Keltner in the 1960s, it remains a popular tool among technical analysts due to its simplicity and effectiveness.
Remember that no trading strategy is foolproof, and success in the financial markets requires discipline, continuous learning, and adaptability. It's essential to backtest and practice any strategy in a risk-controlled environment before implementing it with real capital. Additionally, always stay informed about market news and events that can impact your trades.
Ultimately, the Keltner Channel, when used in conjunction with other tools and a well-thought-out strategy, can be a valuable asset in your trading toolkit, helping you navigate the complexities of financial markets and work toward your trading goals.
Short Dated Options to Deftly Manage Oil Market Shocks"Volatility gets you in the gut. When prices are jumping around, you feel different from when they are stable" quipped Peter L Bernstein, an American financial historian, investor, economist, and an educator.
Crude oil prices are influenced by a variety of macro drivers. Oil market shocks are not rare events. They appear to recur at a tight frequency. From negative prices to sharp spikes in volatility, crude oil market participants "enjoy" daily free roller-coaster rides.
Precisely for this reason, crude oil derivatives are among the most liquid and sophisticated markets globally. This paper delves specifically into weekly CME Crude Oil Weekly Options and is set out in three parts.
First, what’s unique about short-dated options? Second, tools enabling investors to better navigate crude oil market dynamics. Third, a case study illustrating the usage of weekly crude oil options.
PART 1: WHAT’S UNIQUE ABOUT CME CRUDE OIL WEEKLY OPTIONS?
Macro announcements such as US CPI, China CPI, Fed rate decisions, Oil inventory changes and OPEC meetings drive oil price volatility.
Sharp price movements can lead to premature stop-loss triggers. When prices gap up or gap down at open, stop orders perform poorly leading to substantial margin calls.
Weekly options enable hedging against these risks with limited downside and substantial upside.
Closer to expiration, options prices are sensitive to changes in the prices of the underlying. Small underlying price moves can have outsized value creation through short-dated options.
Hedging with weekly options allows investors to enjoy large upside potential. Short duration vastly reduces the options premium burden. This high risk-reward ratio has made short-dated options popular among both buyers and sellers.
The daily traded notional value of Zero-DTE options (Zero Days-To-Expiry, 0DTE) have grown to USD 1 Trillion. Among S&P 500 options, 0DTE options comprise 53% of the average daily volume (ADV), up from 19% a year ago.
In 2020, CME launched Weekly WTI options with Friday expiry (LO1-5), offering robust, round-the-clock liquidity and enabling precise event exposure management at minimal cost.
These weekly options are now the fastest growing energy products at CME with ADV growing 69% YoY with June 2023 ADV up 136% YoY.
Building on rising demand, CME added weekly options expiring Monday and Wednesday. At any time, the four nearest weeks of each option are available for trading.
Weekly options settle to the latest benchmark CL contract and like other CME WTI products, they are physically deliverable ensuring price integrity.
Each weekly WTI options contract provides exposure to 1,000 barrels. Every USD 0.01 change per barrel change in WTI represents a P&L change of USD 10 in premium per contract.
PART 2: EIGHT TOOLS TO BETTER NAVIGATE CRUDE OIL MARKET DYNAMICS
Highlighted below are eight critical tools across TradingView and CME enabling investors to better navigate oil market dynamics.
1. OPEC+ Watch
OPEC+ Watch charts the probability of different outcomes from OPEC+ meetings. Probabilities are derived from actual market data & represent a condensed consensus market view of forthcoming meetings.
2. News Flow
TradingView’s News section collates the key market developments impacting crude oil.
3. Forward Curve
TradingView maps crude oil prices across the forward curve exhibiting oil’s term structure.
Augmenting the forward curve chart is a table CL contracts across various expiries with technical signals embedded in them enabling investors to spot calendar spread trading opportunities.
4. TradingView Scripts
Supported by a vibrant community of script creators, TradingView has curated scripts catering to the specific needs of crude oil traders.
OIL WTI/Brent Spread by MarcoValente: Shows the spread between WTI and Brent crude. This spread is growing in importance with growth in US oil exports.
Seasonality Indicator by tradeforopp: Presents seasonal price trends along with key pivot points to guide traders.
5. Economic Calendars
TradingView’s economic calendar highlights upcoming economic events segmented by dates and with countdown timers to help traders better manage their portfolios.
Augmenting, TradingView’s calendar is CME’s Economic Events Analyzer which lists key events specifically impacting energy markets and highlights the relevant weekly options contract.
6. Options Expiration Calendar
CME’s Options Expiration Calendar is a comprehensive yet condensed view of upcoming expiration dates of WTI options, even those that are not listed yet.
7. Daily/Weekly Options Report
CME’s Daily/Weekly Options Report profiles volumes and OI by strike price for weekly options supplying key stats such as Put/Call ratio and key strike levels at a glance.
8. Strategy Simulator
CME’s strategy simulator allows investors to simulate diverse options strategies. Selecting the relevant instruments and adding each component of the overall position automatically calculates the payoff while still allowing modification of key statistics such as volatility based on user inputs.
The below shows the payoff of an ATM straddle position for the upcoming Monday weekly option.
It also allows simulating various market conditions. Selecting price trends such as up fast, up slow, flat, down slow, down fast can simulate the changes in P&L.
PART 3: ILLUSTRATING USAGE OF WEEKLY CRUDE OIL OPTIONS
Why does CME list weekly options expiring on Monday, Wednesday, and Friday?
Each of these address specific macro events. OPEC meeting outcomes are typically announced over the weekend leading to gaps in prices on Monday. EIA weekly crude oil inventory data are released on Wednesdays. Key US economic data such as CPI and Non-farm payrolls are released on Fridays.
Use Case for Options expiring on Monday
These can be used to hedge against downside risk associated with weekend events.
For instance, in April, OPEC+ announced major supply cuts at their meeting on Sunday. This led to WTI price spiking 4% at market open.
This can lead to “gap risk.” Gap risk refers to the risk that markets may open sharply above or below their previous close. Since, price never passes the levels in between, stop loss orders fail to trigger at set levels resulting in more-than-anticipated realised losses.
Such gap risks from weekend news can be managed through Monday weekly options which provides a predictable and resilient payoff with limited downside risk.
Use Case for Options expiring on Wednesday
Oil inventory reports by EIA (U.S. Energy Information Administration) and API (American Petroleum Institute) are released every week on Tuesday and Wednesday respectively. Major misses/beats against expectations for these releases can result in large price moves.
Wednesday options come in handy to better manage volatility stemming from these shocks or surprises.
Weekly options provide superior ROI on small moves when compared to futures. Favourable price moves deliver larger payoffs from position in weekly options than futures and shorter expiries allow for much lower premium than monthly options.
Illustrating with Back tested Results
On June 14th, Crude price fell by 1.7% (USD 1.2) to USD 68.7/barrel upon release of inventory data that showed a larger than expected inventory build-up.
In the lead up to this data release, a crude oil participant could either (a) Short Crude Oil Futures, or (b) Long Weekly Crude Oil Put Option.
Summary outcomes from these two strategies are tabulated and charted below. The results speak for themselves. Short dated long put option is capital efficient, prudent, and credible as a risk management tool. That said, participants must evaluate the risk return profile taking into consideration market liquidity and volatility levels, among others, when choosing between instruments.
KEY TAKEAWAYS
In summary,
1) Weekly Options can be cleverly deployed to hedge against shocks in oil markets.
2) TradingView & CME provide a rich suite of tools to deftly navigate the oil market dynamics.
3) Weekly options expiring on (a) Monday helps manoeuvre developments over the weekend, (b) Wednesday helps to manage inventory data linked shocks, and (c) Friday enables investors to trade and hedge around key US economic data.
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
