How to Trade with the Island Reversal PatternHow to Trade with the Island Reversal Pattern
Price action analysis serves as a pivotal methodology in financial markets, offering a means to assess and determine the future price movements of various assets, including stocks, currencies, and commodities. Among the many tools employed within this method, the Island Reversal pattern stands out as a significant indicator of potential trend reversals.
What Is an Island Reversal Pattern?
The Island Reversal is a technical analysis pattern that signals a potential trend reversal. It typically occurs after a strong uptrend or downtrend and is characterised by a gap in price action, isolating a group of candlesticks. The pattern suggests a shift in market sentiment, indicating that the previous trend may be losing momentum.
How to Spot an Island Reversal in the Chart
To identify the setup, traders pay close attention to the following characteristics, which can manifest in both bullish and bearish market conditions:
Strong Trend:
- Bullish: This pattern often materialises after a prolonged downtrend. It signifies a potential price change to the upside.
- Bearish: Conversely, in a bullish market, the pattern emerges following a sustained uptrend, suggesting a possible change in a trend to the downside.
Gap in Island Reversal:
- Bottom Island Reversal: In a bullish context, there is a gap down, creating an "island" of isolated candlesticks, indicating a shift from bearish sentiment to potential bullish momentum.
- Top Island Reversal: For a bearish reversal, there is a gap up, isolating a group of candlesticks, signalling a transition from bullish to potentially bearish market sentiment.
Isolation:
- Bullish Island Reversal: The gap is created by an upward movement that is isolated from the surrounding price action, forming the characteristic island formation.
- Bearish Island Reversal: In a bearish context, the gap is formed by a downward movement that does not overlap with the previous, creating a distinctive island formation.
How to Trade the Island Reversal
Traders employing the setup adhere to a systematic strategy for identifying and capitalising on a potential change in a trend. Patiently awaiting confirmation of the reversal through subsequent price action, traders enter the market upon the break of isolation, where the price decisively moves below (for a bearish scenario) or above (for a bullish scenario) the isolated island. Profit targets may be set by considering key support and resistance levels to potentially enhance precision.
The placement of stop-loss orders just above or below the pattern is a critical risk management component. Traders carefully assess the risk-reward ratio to align potential profits with associated risks. This holistic approach reflects a commitment to disciplined decision-making, combining technical analysis and prudent risk management in navigating the complexities of financial markets.
Live Market Example
The TickTrader chart by FXOpen below shows a bearish setup. The trader takes the short at the opening of the new candle below the Island. Their stop loss is above the setup with a take profit at the next support level.
The Bottom Line
Although the Island Reversal is a popular technical analysis tool, it's crucial to wait for confirmation and consider other technical indicators to potentially increase the probability of an effective trade. As with any trading strategy, risk management is key to mitigating potential losses. Always adapt your approach based on the specific conditions of the market and use the pattern as one of several tools in your trading arsenal. To develop your expertise, open an FXOpen account to trade in numerous markets with exciting trading conditions.
FAQs
Why Is Risk Management Important When Trading the Island Reversal?
The pattern is considered a strong signal of a change in the price direction, but like all technical patterns, it is not infallible. There is always a risk that the pattern may fail to lead to the expected price movement. Effective risk management helps limit losses in case the trade doesn't play out as anticipated.
Should Traders Solely Rely on the Island Reversal for Trading Decisions?
No, traders always wait for confirmation and incorporate other technical indicators to potentially enhance the probability of an effective trade. The pattern should be regarded as just one of several tools in a trader's toolkit.
Is There a Platform Where Traders Can Apply Their Knowledge of the Pattern in Live Markets?
Yes, traders can explore FXOpen’s free TickTrader trading platform to trade in over 600 markets and apply their understanding of the pattern in practical trading scenarios.
This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.
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Options Trading PrimerTradingView has recently introduced the Options Strategy Builder, a powerful tool designed to help you learn the mechanics of options trading and create efficient strategies. In this video, I explain the basics of options trading and demonstrate how to use the Strategy Builder. This video is helpful for those who are new to options but wish to explore this area.
Dow Made a Parabolic Move: Did You See the Signs?
The Dow made an unsustainable Parabolic Arc that is a giant U-shaped pattern on Friday, September 27. Did you see the signs? I missed some of them, which lead to a much closer look at what price action moves lead up to a highly volatile ascent and steep drop that's also known as a "Pump and Dump".
The Parabolic move followed typical behaviors that can be seen through price action without needing any indicators. It happened in phases over 3-days, from September 25 - 27:
1. Day 1: A Peak High formed.
2. Day 1 - 2: Valley Low followed.
3. Day 2 - 3: Consolidation between the Peak High and Valley Low. Price action made stair-step moves that created a S&R Zone. Traders also refer to these moves as making multiple bases. An average number of bases is 3 - 4 during a parabolic move. The long consolidation can confuse many traders, including myself, because of no breakout from the Zone happened, especially to the downside. There was strong anticipation for a drop.
4. Day 3: A Triple Inside Day showed up to represent the tight "coiling" action from the consolidation to eventually spring out in an EXPLOSIVE move. The Triple Inside Day pattern that was part of the consolidation was a big giveaway of what's to come.
5. Day 3: A pullback from the consolidation, but was more like a fakeout to trap traders with the Trendbar Reversal, that often leads to no follow through by the bears to really drop. The second, opposing bar within the pattern is a setup for a reversal to the upside. Many traders get fooled by this pattern and drop out at this point, right before the long rally starts.
6. Day 3: Ascending Channel (also called a "Parabolic Channel") formed that is typical after a pullback to the downside before the greater ascent.
7. Day 3: Steep Vertical Ascent with a bullish bar that is 240 tics tall - an Exhaustion Phase.
8. Day 3: Reversal to the downside (that is comparable to or exceeds in length to the steep ascent) from the formation of an Evening Star. The Parabolic move ended with a steep, vertical descent.
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*Citation of Resources:
- Jet Toyco
- FX Open
- Pips 2 Profit
- Top 1 Markets
[ES] Has the S&P 500 Finished Its Runup?I doubt it. That move doesn't look like it's done.
The general principle that this basic analysis follows is that the market moves in 3s and 5s. Now, that may sound a lot like Elliot Waves and it should. 3s and 5s were Ralph N. Elliot's primary discovery and contribution to the discovery of natural phenomena in markets.
That said, it is dangerous to get dogmatic about rules. The same applies to Fibonacci extensions. But when you combine "3s and 5s" and "Fibonacci" you end up with a pretty reliable pattern. When there is a three wave move in progress (which could eventually turn into a five), you can pretty reliably trade that move (up in this case) to the 0.786 trend extension (highest probability), the 1.000 extension (high probability), or it could turn into a five wave move that goes clear up to the 1.618 extension (lowest probability move).
It is not wise to be dogmatic about these strategies though, because you have to listen to the market. The market is the CEO of this enterprise, not the lines on your chart. That said, this works better than 50% of the time without question. It's a generally truthism that markets move in 3s and 5s. The challenge comes when it comes to 'wen buy, wen sell.' There is no right answer to that. Sure, the market moves in 3s and 5s, but to take advantage of it requires fluidity and a careful consideration of your (a) risks, (b) 'Bayesian priors" (if you will), and (c) the adjacent future outcomes as the come into view.
This is not an endorsement of either methodology. It is merely a demonstration of the veracity of components of those methodologies.
Trade well.
Cracking the Forex Code: Trader’s Complete Guide to Market SlangForex is the vast universe of currency pairs floating against each other—sometimes sitting at parity, sometimes shooting for the stars and sometimes just plain nosediving. And because forex has a mind of its own (kind of), it also speaks its own language. This is why this Idea exists—to help you make sense of the jargon by breaking down key terms, phrases, and slang used in everyday forex trading. Let’s get into it!
1. Ask
The price the market is willing to sell a currency at. It’s the price you’ll pay if you’re buying.
2. Arbitrage
Simultaneous buying and selling across different markets to exploit price differences.
3. Aussie
Trader slang for the AUD/USD currency pair.
4. Bagholder
Someone stuck holding a losing position long after everyone else has exited. Don’t be a bagholder. (Are you secretly a bagholder?)
5. Base Currency
The first currency in a pair (e.g., in EUR/USD , EUR is the base). You’re buying or selling this one.
6. Bearish
Expecting the market to fall. Depicts a bear attack—swiping its paws downward.
7. Bid
The price at which the market is willing to buy a currency. If you’re selling, this is the price you’ll get.
8. Black Gold
A nickname for oil. Watch the price of this commodity—it moves entire currencies.
9. Bottom Fishing
Buying a currency or stock at what you hope is its lowest point. It’s risky—sometimes the bottom keeps falling.
10. Breakout
When price moves out of a defined range, smashing through support or resistance, signaling a potential strong move.
11. Buck
Trader slang for the U.S. dollar. Simple, direct, and everyone knows it.
12. Bullion
Physical gold or silver. When traders want the real stuff, they go for bullion.
13. Bullish
Betting on the market to rise. Depicts a bull attack—thrusting its horns upward.
14. Cable
Forex slang for the GBP/USD pair, named after the old transatlantic cable.
15. Candlestick
A visual representation of price movement showing the open, high, low, and close in a specific time period.
16. Carry Trade
Borrowing in a low-interest-rate currency and investing in a higher-interest one to pocket the interest difference.
17. Choppy
Describes a market with no clear direction and lots of erratic movement. A tough one to trade in.
18. Chunnel
Slang for the EUR/GBP pair, referring to the English Channel that connects Europe and the UK. Gotta love that geographical flair.
19. Cross Currency Pair
A currency pair that doesn’t involve the USD (e.g., EUR/JPY ). They have a life of their own, not tied to the greenback.
20. Dip
A temporary decline in price during an uptrend. Smart traders "buy the dip" to get in. But sometimes the dip keeps dippin’.
21. Dragon
The GBP/JPY currency pair. Known for its volatility and wild price swings—trade carefully!
22. Drawdown
The loss from peak to trough in your account balance during a trading period. It’s inevitable—just don’t let it take you out.
23. Exotic Pairs
Currency pairs that include one major currency and one from an emerging or less liquid market (e.g., USD/TRY ). Exotic in name, but not always in your best interest—volatile and wide spreads.
24. Fedspeak
The carefully crafted language of the Federal Reserve. One vague speech from Fed Chair JPow can send markets into a frenzy.
25. Fibonacci Retracement
A technical tool to identify possible support and resistance levels, based on the Fibonacci sequence. Traders love these numbers.
26. Fill or Kill
A type of order where it must be filled immediately at the requested price, or canceled. No waiting around here.
27. Forex (FX)
The foreign exchange market—where currencies are traded 24/5. The biggest, baddest market in the world with $7 trillion moving daily.
28. FOMO
Fear of Missing Out. The emotional trap where traders chase the market late—usually leading to bad trades. Don’t fall for it.
29. Fundamental Analysis
Analyzing economic factors (e.g., GDP, employment, inflation) to predict currency movements. It’s all about the big picture here.
30. Gopher
Slang for the USD/JPY pair. A less common term, but you’ll see it in the trading trenches.
31. Greenback
Another classic slang term for the US dollar, referring to the green color of American bills.
32. Hawkish
A central bank policy favoring higher interest rates to control inflation. Hawkish policy = stronger currency.
33. Kiwi
Slang for the NZD/USD currency pair. Named after New Zealand’s famous bird—not the fruit!
34. Leverage
Trading with borrowed capital. It magnifies gains, but it can also blow up your account faster than you think. Use wisely.
35. Liquidity
The ease with which a currency can be traded without affecting its price. High liquidity means tight spreads and fast trades.
36. Loonie
The nickname for the USD/CAD pair. Named after the loon, a bird featured on Canada’s $1 coin.
37. Lot
The size of your trade. A Standard Lot is 100,000 units, a Mini Lot is 10,000, and a Micro Lot is 1,000.
38. Margin
The amount of money needed to open a leveraged trade. It’s essentially your broker’s “deposit.”
39. Margin Call
When your broker demands more funds because your account can no longer support open positions. Not answering could mean automatic liquidation. New phone who dis?
40. Market Maker
An entity (usually a bank or broker) that provides liquidity to the market by always being willing to buy or sell at certain prices.
41. Moving Average
A technical indicator that smooths price data over a specific period to identify trends. Think of it as the market’s heartbeat.
42. Ninja
Slang for the USD/JPY pair. This one’s fast and stealthy, like a true ninja.
43. Old Lady
A nickname for the Bank of England (BoE). When the “Old Lady” speaks, the GBP moves.
44. Overbought
When a currency has been bought excessively, leading to a potential reversal. Usually spotted with indicators like RSI.
45. Oversold
The opposite of overbought. It means the currency has been sold off too quickly, signaling a potential price bounce.
46. Permabear
A trader who is always bearish, no matter what the market does. They believe the sky is always falling. “I knew BTC was going to zero.”
47. Pips
The smallest price move in a currency pair. In most pairs, it’s the fourth decimal place (0.0001). Collecting pips is how you build profit.
48. Pivot Point
A key level used by traders to identify potential support and resistance levels. Great for spotting reversals.
49. Position Trading
Holding a trade for weeks or months, focusing on long-term trends. You’ll need patience for this one.
50. Price Action
Trading based solely on price movement, ignoring indicators and fundamentals. It’s all about reading the market’s raw behavior.
51. Pump and Dump
A scheme where traders hype up a currency or stock, inflate its price, then sell out for a profit while everyone else is left holding the bag. Sketchy stuff.
52. Pullback
A temporary dip or rise in price within a larger trend. It’s an opportunity to buy in or sell the rally.
53. Ranging Market
When prices are moving sideways in a tight range, with no clear trend. Boring, but there are still trades to be made.
54. Resistance
A price level where selling pressure tends to prevent further rises. If it breaks, a big move could be coming.
55. Rollover
Interest earned or paid for holding a position overnight, based on the interest rate differential between the currencies.
56. Scalping
A fast-paced strategy that involves making quick trades to grab small profits from tiny price moves. Not for the faint-hearted.
57. Shill
Someone who promotes or hypes up a stock, currency, or crypto for personal gain, often misleading others. Watch out for these on social media.
58. Short Squeeze
When a heavily shorted asset rises in price quickly, forcing short sellers to buy back their positions at higher prices, fueling the rally even further.
59. Slippage
When your trade is executed at a different price than expected, usually during high volatility or low liquidity.
60. Spread
The difference between the bid and ask prices. Tighter spreads are better—lower costs for getting into a trade.
61. Stop-Loss
An order that automatically closes a trade when it hits a specified loss level. Protect yourself, set that stop!
62. Support
A price level where buying appetite tends to prevent further drops. Break below it, and things could get ugly.
63. Swissy
Slang for the USD/CHF currency pair. Traders often turn to the Swissy for safety in volatile times.
64. Swap
The interest earned or paid for holding a position overnight. Positive swaps are a nice bonus, negative swaps? Not so much.
65. Swing Trading
Holding trades for days or weeks to capture short- to medium-term market moves. It’s a balanced approach between day trading and long-term investing.
66. Take-Profit
An order that closes your trade automatically when it reaches your target profit. Lock in those gains before the market turns!
67. Tenbagger
A stock or currency that increases tenfold in value. Rare, but when it happens, it’s legendary.
68. Trend
The general direction the market is moving—either bullish, bearish, or sideways. The trend is your friend—until it isn’t.
69. Volatility
The amount of price fluctuation in the market. High volatility means more potential for profits—or losses. Buckle up! (Hint: Anticipate volatility by knowing the market-moving events .)
70. Whipsaw
When the market moves quickly in one direction, stops you out, and then reverses back. It’s the ultimate trader frustration.
71. Widow Maker
A trade with huge risks that’s known for wiping out accounts, especially when shorting the Japanese yen in a strong trend or betting against the Bank of Japan.
And there you have it— the ultimate Forex slang dictionary that prepares you to take a deep dive in the sea of forex trading . Did we catch everything? Let us know your thoughts in the comments!
#WLDUSDT Holds Potential for a Massive Rally!Hello everyone, I’m Cryptorphic.
I’ve been sharing insightful charts and analysis for the past seven years.
Follow me for:
~ Unbiased analyses on trending altcoins.
~ Identifying altcoins with 10x-50x potential.
~ Futures trade setups.
~ Daily updates on Bitcoin and Ethereum.
~ High time frame (HTF) market bottom and top calls.
~ Short-term market movements.
~ Charts supported by critical fundamentals.
Now, let’s dive into this chart analysis:
On this 2-day timeframe, WLD has broken above a key resistance trendline and is now trending above the 21 EMA.
With this breakout, WLD is aiming for $2.832, where the first resistance lies. A correction is possible after reaching this level, but in the long run, WLD holds the potential to achieve 6x-7x gains.
Key levels:
- Support: $1.76.
- Accumulation: $1.33 to $1.8.
- Initial Resistance: $2.832.
- Long-term Targets: $4.56, $6.75, $10.74.
DYOR, NFA.
Please hit the like button to support my content and share your thoughts in the comment section. Feel free to request any chart analysis you’d like to see!
Thank you!
#PEACE
Is a Hang Seng Revival on the Horizon?The Hong Kong Index has faced challenging years since reaching its all-time high in 2018.
The downtrend accelerated in 2021, bringing the index to a low of around 15,000.
The subsequent reversal aligned neatly with horizontal resistance and the 50% Fibonacci retracement level, indicating that the bears were not finished yet.
Indeed, 2023 also saw a continued downtrend.
However, and this is crucial, the index did not make a new low. Instead, the decline halted at the strong 15,000 support level.
In early 2024, a significant break above the falling trend line was observed at the end of April. The correction that followed confirmed the broken trend line, suggesting that this breakout is genuine and indicates a long-term shift in trend.
September began with a higher low, followed by a powerful surge above the 20,000 level for the first time in over a year.
This sequence of events suggests the potential beginning of a long-term bull trend, with the possibility of the index reclaiming the 23,000 level by 2025.
For those looking to initiate a long-term buy position, there are two key levels to watch: 19,500, the former resistance level, and 18,500, which now serves as strong support.
Bearish drop?USOUSD is rising towards the resistance level which is an overlap resistance that aligns with the 23.6% Fibonacci retracement and could reverse from this level to our take profit.
Entry: 69.06
Why we like it:
There is an overlap resistance level that aligns with the 23.6% Fibonacci retracement.
Stop loss: 71.26
Why we like it:
There is an overlap resistance level that lines up with the 61.8% Fibonacci retracement.
Take profit: 65.90
Why we like it:
There is a pullback support level.
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GOLD 4H ROUTE MAP UPDATEHey Everyone,
Another PIPTASTIC day on the charts with our analysis playing out.
Yesterday Ema5 cross and lock above 2626 opened 2645 and 2664, which were completed perfectly!! We were then looking for a cross and lock above 2664 to open 2682 and if momentum allowed then 2699.
2682 was hit but volatile candle didn't give us enough time for the lock. However, the candle body close gave us enough time for the confirmation before the hit completing the target. The extended target to 2699 remains open that's why we call it the potential target when completing a range for the final trail stretch.
We are now seeing wick rejection at 2682 back down to 2664. If EMA5 fails to cross below 2664 and this level holds, as support, then we are likely to see another 2682 retest and our final stretch at 2699.
We will keep the above in mind when taking buys from dips. Our updated levels and weighted levels will allow us to track the movement down and then catch bounces up.
We will continue to buy dips using our support levels taking 30 to 40 pips. As stated before, each of our level structures give 20 to 40 pip bounces, which is enough for a nice entry and exit. If you back test the levels we shared every week for the past 24 months, you can see how effectively they were used to trade with or against short/mid term swings and trends.
BULLISH TARGET
2626 - DONE
EMA5 CROSS AND LOCK ABOVE 2626 WILL OPEN THE FOLLOWING BULLISH TARGET
2645 - DONE
POTENTIALLY 2664 - DONE
EMA5 CROSS AND LOCK ABOVE 2664 WILL OPEN THE FOLLOWING BULLISH TARGET
2682 - DONE
POTENTIALLY 2699
As always, we will keep you all updated with regular updates throughout the week and how we manage the active ideas and setups. Thank you all for your likes, comments and follows, we really appreciate it!
Mr Gold
GoldViewFX
USOIL - Short Term Buys Using Structure & Fibonacci A complete walkthrough of a short-term buying opportunity on Oil using support and resistance to confirm our decision along with the use of our Fibonacci tools to help choose out profit targets.
If you have any questions or comments please leave them below.
Akil
WHATS FLOWING!?: EURCAD | EURJPY | GBPCHF | BTCEUROANDA:EURCAD
OANDA:EURJPY
OANDA:GBPCHF
COINBASE:BTCEUR
Today's Episode of What's Flowing: EURCAD, EURJPY, GBPCHF, BTCEUR Trade Ideas
In today's episode, we will be looking at four key trading pairs and their current market movements, providing insights into potential trade setups and market sentiment.
1. EURCAD
Current Price: EURCAD traded at 1.50239, slightly decreasing by 0.04% since the last session. Over the past month, it has lost 0.19% but remains up 5.46% over the last 12 months.
Forecast: Projections suggest EURCAD could decline further, with expected levels at 1.48962 by the end of this quarter and 1.48690 in a year. With a declining trend, this suggests a potential short setup for traders looking to capitalize on continued weakness in the pair.
2. EURJPY
Current Price: EURJPY traded at 160.189, showing a gain of 0.34% in today's session. It’s up 0.70% over the past month and 1.57% over the last year.
Forecast: EURJPY is projected to climb to 161.743 by the end of the quarter and 162.624 within a year. Given its upward momentum, this pair presents a potential long trade opportunity for those looking to take advantage of its positive trajectory.
3. GBPCHF
Current Price: GBPCHF traded at 1.13158, increasing slightly by 0.05% today. The pair has gained 1.26% over the past four weeks and 1.62% over the past year.
Forecast: With forecasts indicating a potential drop to 1.11578 by the end of the quarter and 1.11645 within the year, this pair offers an attractive short opportunity for those looking to ride the predicted downside.
4. BTCEUR
Current Price: Bitcoin is trading at 57,015.7 EUR, rising 0.70% today. Over the past year, BTCEUR has seen a staggering rise of 129.62%, with strong momentum in recent months.
Forecast: BTC is expected to correct slightly to 51,739.8 EUR by the end of this quarter and could drop further to 48,987.6 EUR in one year. This indicates a potential profit-taking opportunity or a short-term pullback setup for those cautious about BTC’s extended rally.
Top 5 Books Every Trader Should Have on Their ShelfLet’s face it: there is more to trading than blindly smashing the buy and sell button after you’ve picked up the latest buzz on Reddit’s messaging boards. What’s happening between your ears is just as important as what’s happening on your charts. And sometimes, it might as well help you make sense of it all. So, where do you start if you want to sharpen your edge?
Books . Real, old-fashioned, mind-expanding books. The kind of reads that will school you in both the mechanics and mindset of trading. Forget the social media noise—we’re listing five books that will hand you the wisdom, strategies and mental toughness you need to not just survive but thrive in the seemingly chaotic world of markets. Let’s get into it.
📖 1. Reminiscences of a Stock Operator
✍️ by Edwin Lefèvre
🧐 What’s it about : This is the OG of trading books. A classic that was first published in 1923, it follows the life of the legendary trader Jesse Livermore, who made and lost millions more times than most traders have had profitable months. It's less of a step-by-step guide and more of a philosophical deep dive into what drives traders to win, lose, and repeat the cycle.
💡 What’s the takeaway : You’ll find yourself nodding along, thinking, “Yep, been there” every few chapters. And trust us, Livermore’s lessons on greed, fear and market timing are still as relevant today as they were a century ago.
📖 2. Trading in the Zone
✍️ by Mark Douglas
🧐 What’s it about : If there’s one book that will help you stop blowing up your account because you’re caught in emotional trades, this is it. Mark Douglas breaks down the psychological barriers traders face and teaches you how to think in probabilities. Spoiler alert: The market owes you nothing. Douglas teaches you how to embrace the uncertainty of trading and act probabilistically—playing the odds, not emotions.
💡 What’s the takeaway : If you're constantly getting blindsided by your feelings, there is a high probability that this book will snap you out of that spiral and teach you how to approach the market with a level head.
📖 3. Market Wizards
✍️ by Jack D. Schwager
🧐 What’s it about : Ever wish you could pick the brains of the world’s greatest traders? Jack Schwager did it for you. This book is essentially a collection of interviews with the top traders of the 80s (think Paul Tudor Jones, Bruce Kovner, and Richard Dennis). Schwager’s interviewing style makes it feel like you’re sitting in on private conversations, absorbing their secrets, strategies and market philosophies.
💡 What’s the takeaway : There’s no single “right way” to trade. Whether you're a scalper or a trend follower, you’ll find someone here who matches your vibe. Plus, these stories prove that anyone—from a college dropout to a former blackjack player—can conquer the market with the right mindset and persistence.
📖 4. Technical Analysis of Stock Trends
✍️ by Robert D. Edwards and John Magee
🧐 What’s it about : If you’re serious about technical analysis, this is the trading bible. Originally published in 1948, this book largely introduced the world to concepts like trend lines , support and resistance , head-and-shoulders patterns , and much more. Edwards and Magee laid the foundation for almost every technical analysis tool you see around today.
💡 What’s the takeaway : This gem will teach you how to recognize trend changes, continuation patterns, and reversal signals that can sharpen your trading entries and exits.
📖 5. The Alchemy of Finance
✍️ by George Soros
🧐 What’s it about : If you want to understand not only how to trade but also how the world of finance operates, this is the book. Written by one of the most successful (and controversial) investors and currency speculators of all time, George Soros, The Alchemy of Finance is part autobiography, part deep dive into Soros' legendary "reflexivity" theory. It's not just about looking at price action—it's about understanding how traders' perceptions affect markets, often driving them in irrational directions.
💡 What’s the takeaway : Soros teaches you to think bigger than charts and numbers—to anticipate shifts in market psychology and position yourself accordingly.
Wrapping Up
You can binge all the videos, tutorials and online courses you want, but nothing beats the distilled wisdom found in a great trading book. These five reads are the perfect balance of trading psychology, real-life stories, and technical analysis insights that will help you become a better, more knowledgeable trader.
Bonus tip : if you start now, you’ve got a couple of months until Thanksgiving when you can brag about how many pages you read.
📚 Additional Picks for the Avid Trader
If you’re hungry for more insight, we’ve got a few additional picks for you. Of course, they offer a wealth of knowledge from market titans and cautionary tales from the trading trenches:
📖 More Money Than God by Sebastian Mallaby
A brilliant history of the hedge fund industry, revealing the strategies and personalities behind some of the greatest trades ever made—and showing you how the masters manage risk and opportunity.
📖 When Genius Failed by Roger Lowenstein
A cautionary tale of Long-Term Capital Management, the "genius" hedge fund that imploded in spectacular fashion. Learn what happens when ego and leverage collide in the financial world.
📖 The Man Who Solved the Market by Gregory Zuckerman
This is the story of Jim Simons and his secretive firm, Renaissance Technologies, which revolutionized trading with quantitative models. It’s a must-read for anyone intrigued by the world of algorithmic trading.
📖 Big Mistakes by Michael Batnick
Everyone makes mistakes—especially traders. This book dives into the biggest blunders made by history’s top investors and traders, showing you that even the greats are human—and how to avoid repeating their costly errors.
📖 Confusion de Confusiones by Joseph de la Vega
Originally written in 1688, this is one of the first books ever on trading (to many, the first ever), set during the time of the Dutch stock market bubble. It may be old but its lessons on speculation, greed and market psychology are as timeless as they come.
🙋♂️ What's your favorite book on trading and did it make our list? Comment below! 👇
I have a rule to follow the money rather than marry the marketThe cost to trade Bitcoin, the boring movement and other reasons have me moving away from trading Bitcoin from today.
I will be focussing on a morning market and an afternoon market
Right not it seems to be Forex in the morning and an Indice in the afternoon, namely the GPBJPY and Dow Jones
I hope this doesn't upset anyone. I have a rule to follow the money rather than marry the market
BUY GBPCHF - trade explained in detail Trader Tom, a technical analyst with over 15 years’ experience, explains his trade idea using price action and a top down approach. This is one of many trades so if you would like to see more then please follow us and hit the boost button.
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Gold - Capturing Short-Term Retracements Continuous bullish price action will eventually lead to minor retracements where scalpers can profit from.
Many say the trend is your friend but i like to go against that so i am looking @ $2,619 low hanging fruit for a healthy retracement. $2,600 would also be considered healthy in my eyes as market structure will still be in tact.
Smart Money Concept and How To Use It in TradingSmart Money Concept and How To Use It in Trading
In the world of forex trading, understanding the movements and strategies of the market's most influential players like banks and hedge funds—termed "smart money"—can provide retail traders with a significant advantage. This FXOpen article offers a deep dive into the Smart Money Concept, discussing how institutional investors influence market trends and how retail traders can align their strategies with these market movers for potentially better outcomes.
Understanding the Smart Money Concept
The Smart Money Concept (SMC) centres on the principle that the movements of large institutional investors in financial markets can offer valuable clues to retail traders about future market trends.
These institutional investors, often referred to as “smart money,” include banks, hedge funds, and investment firms, wielding significant capital power to influence market directions. The core of SMC lies in the belief that by observing and understanding the trading behaviours and patterns of these entities, retail traders can align their trading strategies to potentially tap into more favourable results.
In essence, SMC is not merely about following the “money” but understanding the strategic placements and movements of these large volumes of capital. Institutional investors typically conduct extensive research and possess a deep understanding of the market dynamics before making substantial trades.
Their actions, therefore, are often indicative of a broader market sentiment or an impending significant market move. By deciphering these signals, retail traders can gain insights into market trends before they become obvious to the wider market.
Understanding SMC requires a shift in perspective from focusing solely on technical indicators and price action to considering the market's psychological and strategic elements. For retail traders, leveraging the Smart Money Concept means navigating the market with a more informed approach, using the trails left by institutional investors as a path to smarter trading decisions.
Ideas in Smart Money Concept
The Smart Money Concept introduces several foundational ideas that provide traders with a framework to interpret market movements through the lens of institutional activities.
Order Blocks
Represent areas where institutional investors have placed significant orders, usually in the form of a range. These blocks often precede a strong market move in the direction of the block, serving as a signpost for areas of interest to “smart money.” When the price returns back to this zone, it’ll often reverse (similar to an area of support or resistance).
Breaker Blocks
These are essentially failed order blocks. When an order block fails to hold the price, it breaks through, potentially indicating that the “smart money” direction has changed. When the price breaks above or below the order block, it can then act as a barrier for prices in the future (similar to the way an area of support can become resistance and vice versa).
Breaks of Structure (BOS)
A BOS occurs when the price surpasses a significant high or low, indicating a potential change in market trend. It signifies the end of one market phase and the beginning of another, offering clues about “smart money”’s influence on market direction. Recognising BOS can be crucial for determining trend direction.
Change of Character (ChoCH)
This concept refers to a notable alteration in the market's behaviour, often seen through an abrupt increase in volatility or a shift in price direction. A ChoCH usually follows a BOS, confirming a potential trend reversal and suggesting a new phase of market sentiment driven by institutional activities.
Fair Value Gaps (Imbalances)
These gaps represent areas on the chart where price moves quickly through, leaving a gap that indicates an imbalance between supply and demand. Institutional traders often target these gaps for potential returns, so prices tend to move back to fill them over time.
Liquidity
In the context of SMC, liquidity refers to the areas where “smart money” is likely to execute large orders due to the availability of opposite market orders. These are areas where stop losses and stop orders (to capture a breakout) are likely resting, usually around key highs or lows, trendlines, and equal highs/lows. The concept states that “smart money” is likely to push the price into these areas to execute large orders before the true market direction unfolds, as in a bull or bear trap.
Accumulations/Distributions
These phases indicate the period during which “smart money” is either accumulating (buying) or distributing (selling) their positions. Rooted in the Wyckoff theory, an accumulation occurs at lower price levels, often before a significant uptrend, while distribution takes place at higher price levels, typically before a downtrend. Identifying these phases can provide insights into the future market direction favoured by institutional investors.
Steps to Trade Smart Money Concepts in Forex
Trading SMC requires a nuanced understanding of market dynamics and the ability to interpret signs of institutional involvement. Below, we’ll take an overview of the approach. Traders can apply these steps to real-time forex charts on FXOpen’s free TickTrader platform.
Determining the Trend Using Breaks of Structure (BOS)/Change of Character (ChoCH)
Traders can identify the market trend by observing BOS and ChoCH. A trend is typically recognised by a series of higher highs/higher lows (uptrend) and lower lows/lower highs (downtrend).
Trend continuation is seen when there's a clear BOS, where the price surpasses a significant high or low, signalling a shift in market direction. Following this, a ChoCH, an abrupt change in market behaviour, may confirm the new trend. Identifying these elements allows traders to align with the market's momentum, providing a strategic framework for setting a direction.
Identifying an Order Block
The next step involves pinpointing areas where institutional traders are likely participating, often signalled by a BOS or ChoCH. Traders look for the range that initiated this shift (marking an order block), with increased odds of accuracy if there's a pronounced move away from the range to create a fair-value gap or if it aligns with a breaker block.
The presence of liquidity near these points, or if it was targeted to initiate the BOS or ChoCH, can further validate the significance of the order block. This phase is crucial for understanding where large volumes of trades are being placed and where the price may revisit before continuing the trend.
Finding an Entry Point
Once an order block is identified, finding a strategic entry point becomes the focus. Traders typically either position limit orders at the edge of the block or await specific candlestick patterns, such as hammers, shooting stars, or engulfing candles. These signals suggest a possible continuation of the trend, providing a cue for entry. However, other tools, like Fibonacci retracements or indicators, can also be used to identify an entry point within SMC.
SMC vs Price Action
The Smart Money Concept and price action are both popular trading strategies, yet they approach the market from distinct angles. Price action focuses on analysing past and present price movements to identify patterns or trends without considering external factors. It relies heavily on candlestick patterns, chart formations, and support and resistance levels, making it a strategy based on the technical aspects of trading. This approach is favoured for its simplicity and direct reliance on price data, allowing traders to make decisions based on the immediate market environment.
On the other hand, SMC trading delves deeper into the underlying market dynamics, emphasising the influence of institutional investors or “smart money.” It seeks to identify where these major players are likely to enter or exit the market, using concepts like order blocks, liquidity zones, and fair value gaps. Smart money strategies are grounded in the belief that understanding the actions of institutional traders can give retail traders insights into potential market movements before they become apparent to the wider market.
While price action is straightforward and relies purely on technical analysis, SMC incorporates a more strategic view, considering the psychological and strategic manoeuvres of the market's most influential participants.
Traders might find price action appealing for its clarity and focus on the charts, whereas SMC offers a deeper, albeit more complex, analysis of market forces. Integrating the two can provide a comprehensive trading strategy, leveraging the simplicity and technical focus of price action with the strategic depth offered by SMC.
The Bottom Line
The Smart Money Concept bridges the gap between retail traders and the elusive strategies of institutional investors, offering a structured approach to deciphering market movements. By understanding and applying SMC principles, traders can navigate the forex market with potentially greater insight and confidence. Opening an FXOpen account provides an excellent avenue for traders eager to apply these advanced concepts in a live trading environment, setting the stage for more informed and strategic trading decisions.
FAQs
What Is the Smart Money Concept?
The Smart Money Concept (SMC) is a trading strategy focused on understanding and leveraging the market movements initiated by institutional investors, such as banks and hedge funds. It posits that by identifying the trading behaviours of these major players, retail traders can make more informed decisions.
What Is SMC Strategy in Trading?
The SMC forex strategy involves identifying patterns and signals that indicate the involvement of institutional investors. This includes analysing order blocks, liquidity zones, breaks of structure (BOS), changes of character (ChoCH), and fair value gaps. By aligning with these signals, traders aim to position their trades in harmony with the actions of the “smart money.”
Which Timeframe to Use for SMC Trading?
The choice of timeframe in SMC trading should align with the trader's goals and strategy. Short-term traders may prefer 1-hour or 4-hour charts for quicker insights, while long-term traders might opt for daily or weekly charts to capture broader market trends influenced by institutional movements.
Is SMC Better Than Price Action?
SMC and price action cater to different aspects of market analysis. While a smart money strategy focuses on institutional movements, price action concentrates on the patterns formed by the price itself. Neither is inherently better; their effectiveness depends on the trader's strategy, market understanding, and comfort with the concepts. Integrating both can offer a comprehensive approach to market analysis.
This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.
The Fair Value Gap (FVG)The term "fair value gap" is known by various names among price action traders, including imbalance, inefficiency, and liquidity void. But what do these imbalances mean? They arise when the forces of buying and selling exert considerable pressure, resulting in sharp and rapid price movements.
On a chart, a Fair Value Gap appears as a three-candlestick pattern. In a bullish context, an FVG forms when the top wick of the first candlestick does not connect with the bottom wick of the third candlestick. Conversely, in a bearish scenario, the FVG is created when the bottom wick of the first candlestick fails to connect with the top wick of the third candlestick. The gap on the middle candlestick, created by the wicks of the first and third candlesticks, represents the Fair Value Gap.
The concept of FVG trading is based on the idea that the market has a natural tendency to self-correct. These price discrepancies or inefficiencies are generally not sustainable over time, and the market often returns to these gaps before continuing in the same direction as the original impulsive move.
What are the Types of Fair Value Gaps?
1. Bearish Fair Value Gap
A bearish Fair Value Gap occurs when there is a space between the bottom wick of the first candlestick and the top wick of the third candlestick. This gap typically appears on the body of the middle candlestick, and the individual characteristics of each candlestick are not particularly important. What’s crucial in a bearish scenario is that the gap on the middle candlestick results from the wicks of the surrounding candlesticks not connecting.
2. Bullish Fair Value Gap
A bullish Fair Value Gap occurs when the top wick of the first candlestick does not connect with the bottom wick of the third candlestick. In this case, the specific direction of each candlestick is not as important. What really matters is that there is a gap in the middle candlestick, where the wicks of the first and third candlesticks have not linked.
3. Inverse Fair Value Gap
An Inverse Fair Value Gap is an FVG that has lost its validity in one direction but remains significant enough to influence price movement in the opposite direction. For example, a bullish FVG is deemed invalid if it fails to act as a demand zone. However, it then transforms into an inverse bearish FVG, which may serve as a supply zone capable of holding the price.
4. Implied Fair Value Gap
The Implied Fair Value Gap is also a three-candlestick pattern, but it does not feature a gap on the middle candlestick, which is why it’s called an “implied FVG.” Instead, it consists of a larger middle candle flanked by two relatively long wicks from the first and third candles.
The “gap” is defined by marking the midpoint of the wick of the first candlestick that touches the middle candle and the midpoint of the wick of the third candle that also touches the middle candle. These two midpoints create the gap.
Here are some factors that can lead to the formation of fair value gaps:
1. Economic Data Releases
Key economic data releases, such as changes in interest rates or unemployment statistics, can similarly create imbalances. If the data surprises the market, it can trigger a swift price movement in one direction, resulting in a gap.
2. Sudden News Events
Unexpected news that significantly affects market sentiment can lead to a rapid increase in buying or selling activity, resulting in a gap as prices adjust to the new information. For instance, if a company unexpectedly reports strong earnings, its stock price may surge, creating a gap on the chart.
3. Market Openings or Closings
Gaps may form during periods of low liquidity, such as at market openings or closings. With fewer market participants, even a small amount of buying or selling can cause a noticeable price jump that isn’t quickly countered.
4. Large Institutional Trades
Significant trades by institutional investors can also lead to fair value gaps (FVGs). When a hedge fund or financial institution executes a large buy or sell order, it can overwhelm the existing order book, causing a rapid price shift and leaving a gap behind.
5. Weekend Gaps
FVG's are often observed between the close on Friday and the open on Monday, reflecting news or events that occurred over the weekend.
KEY POINTS TO KNOW
- Fair Value Gaps (FVGs) are powerful tools traders use to identify market imbalances and inefficiencies.
- FVGs occur when buying or selling pressure leads to significant price movements, leaving behind gaps on price charts.
- FVGs can be identified through technical analysis involving the analysis of candlestick patterns and price chart patterns.
- Traders can categorize FVGs into two types: Undervalued FVGs, where prices are lower than fair value, and Overrated FVGs, where prices are higher.
BTCUSD - BITCOIN seeing strength?Good day traders!
Alright. For BTCUSD I'm still seeing the same pattern, however things are starting to look a little more optimistic. The pattern that I've been discussing for weeks now is the series of lower highs and lower lows. Once we break this pattern, then we can start to talk about that move to ATH and ~$85k above ATH.
We NEED to break FWB:65K and ideally with above average volume (which I did not discuss in the video). We need a breakout with volume to get some gas in the tank so to speak.
If we can do that, it simply increases confidence in the bullish scenario. There's never any certainty in the markets, but from a pattern perspective, we have to break the pattern in order to gain confidence in the next move. Break the pattern to the upside, I believe we'll see new highs. We have yet to break the pattern to the downside, but that is not off the table. I'm simply saying things are looking better from a bullish perspective at this time .
TESLA Looks Unstoppable This time +13% Already in ProfitsTESLA Looks Unstoppable This time +13% Already in Profits
Since when I posted the previous analysis on September 2nd the price increased by nearly +13% and is making higher highs.
Today it looks even better after the FED supported the economy by decreasing the rates by 50bps.
You can watch the video for further details.
Thank you and Good Luck!
Previous analysis:
What are Volume Candles and how to use themVolume Candles are a great chart type you can use to integrate volume analysis into your trading. TradingView is a superb platform that offers this chart type in real-time, so you can immediately get a completely different feel of what the market is actually doing.
As an experienced trader, understanding volume candles is crucial in getting a deeper insight into market dynamics. Unlike standard candlestick charts, which focus primarily on price movement, volume candles combine price action with the strength of trading activity (volume). This offers a unique perspective that can give you an edge in reading market sentiment and momentum.
What Are Volume Candles?
Volume candles are modified candlestick charts where the width of the candle is proportional to the trading volume during the corresponding time period. The typical candlestick elements—open, high, low, and close prices—are still present, but the volume aspect adds an additional layer of information, enhancing the clarity of price action.
Key Features of Volume Candles:
Height: Represents price movement (just like in regular candlesticks).
Width: Indicates the volume of trades within that period.
Unique Information You Can Extract from Volume Candles:
1. Volume-Driven Price Action Volume candles show how much trading interest exists at various price levels. When you observe a large volume candle, it tells you that a lot of market participants were active at that price. Conversely, a thin candle signals lower activity. This helps you:
A. Identify levels where strong participation occurs (institutional players what I call the puppet master).
B. Spot consolidation zones where volume is low, which often precedes significant price moves.
2. Momentum Confirmation High-volume candles that align with price trends suggest strong momentum.
Wide Bullish Candles: If you see a wide up candle during an uptrend, it indicates that the buying pressure is backed by solid volume. This gives more credibility to the uptrend and hints at a continued move upward.
Wide Bearish Candles: Similarly, a wide down candle during a downtrend signals strong selling pressure.
Volume Candle Chart can also be used for day trading purposes where you need to act FAST.
This TradingView chart type is extremely good so you don't need to compare the traditional volume bars on the bottom of the chart.
IMPORTANT: You must understand the puppet master mentality, which gives you context.
*** EXTRA: You can use this theme color.