Get started

Community ideas

How to find Key Price Action zones for Daytrading successPrepping a market for daytrading is an important part of my process and understanding and identifying the KEY LEVELS is the major part of that process. We have to build a Price Action picture of what may happen and what levels may be targeted so we will be ready for a trade. Understanding who (buyers or sellers) is getting caught off side and levels the market is targeting, will set us up for the higher probability trades. I discuss a few key concepts for Intraday trading and how I identify the important zones. I show some trade examples and high probability trade zones. ** If you like the content then take a look at the profile to get more daily ideas and learning material ** ** Comments and likes are greatly appreciated **
CBOT_MINI:YM1!Education
by TradeTheStructure
16
Day Trader's Toolbox: Previous Day's High and Low (PDH/PDL) Welcome to the Day Trader's Toolbox, a 3-Part series focused on enhancing your day trading skills. Day trading is all about seizing quick opportunities without overnight risk. In this first instalment, we'll delve into a fundamental tool every day trader should understand: the Previous Day's High (PDH) and Previous Day's Low (PDL). These levels are essential for making informed, rapid trading decisions, and we'll show you how to use them effectively. I. Understanding PDH and PDL: PDH and PDL are straightforward concepts. They signify the highest and lowest prices a market touched during the prior trading session. However, don't underestimate their significance. These levels are pivotal because they offer undeniable historical context for a market's price movement. As a result, they draw the attention of many market participants, increasing the likelihood of non-random price action at these levels. Here's why PDH and PDL stand out as the two most vital price lines a day trader can mark on their chart. Gauging strength or weakness PDH and PDL offer an objective glimpse into market sentiment, which holds immense value when formulating your daily trade plan. During the first hours trading, if the market comfortably holding above the PDH it is a clear sign of strength while failure to hold above the PDL is a clear sign of weakness. Just being aware of this simple concept can help keep day traders on the right side of the market. Here’s some examples: Holding above PDH is a clear sign of strength (EUR/USD 5min Candle Chart): Failure to hold above PDL is a clear sign of weakness (EUR/USD 5min Candle Chart): Price reversals: Traders use PDH and PDL to set stop-loss orders, take-profit levels, and as reference points for assessing the risk-reward ratio of a trade. Given the close attention PDH and PDL receive, they often act as both support and resistance levels, making them prime zones for potential price reversals. A reversal pattern forming at PDH or PDL typically carries greater significance than one occurring within the prior day's range. And should a market break and hold above the PDH, it can then provide support when the level is retested. Conversely, a break below PDL may offer resistance when the market trades below it. Here’s some examples: PDH and PDL acting as support and resistance (EUR/USD 5min Candle Chart): Broken PDH becomes support (EUR/USD 5min Candle Chart): Broken PDL becomes resistance (EUR/USD 5min Candle Chart): Take note of the compelling examples above. No additional indicators clutter the chart. Armed only with an understanding of how price reacts to PDH and PDL, you can make smart day trading decisions. For a deeper understanding, add PDH and PDL to your price charts and explore your own instances. You'll be astonished by how the market consistently responds to these levels. II. How to Use PDH and PDL Here are some practical tips for using PDH and PDL effectively in day trading: Identify PDH and PDL: Before you start trading, identify the PDH and PDL levels for the market you are trading. You can draw these levels on yourself or type in ‘Previous Day High and Low’ into the Indicators, Metrics and Strategies bar on Trading View – here you will find a number of scripts that will add PDH and PDL to your charts automatically. Observe price behaviour: Using the concepts outlined in section one ‘Understanding PDH and PDL’, you can create a game plan for the trading day based upon where price is trading in relation to PDH or PDL. For example, if price has opened within the prior days range the day trader may look to take bearish reversal patterns at the PDH and bullish reversal patterns at the PDL. Alternatively, if price is comfortably holding above PDH, the day trader may look to buy pullbacks. Combine with other indicators: PDH and PDL are even more powerful when used in conjunction with other technical indicators such as Volume Weighted Average Price (VWAP), moving averages, RSI and many other. This can help validate your trading decisions. Set stop-loss and take-profit orders: Use PDH and PDL as reference points to set stop-loss and take-profit orders. This helps manage risk and lock in profits. Stay informed: Keep an eye on news and events that could impact the market. Unexpected news can sometimes cause price gaps that bypass PDH or PDL. Practice and learn: The best way to become proficient in using PDH and PDL is through practice. Use Replay mode on Trading View to scroll through and replay many different trading days and hone your skills. In summary, the Previous Day's High (PDH) and Previous Day's Low (PDL) are foundational tools for day traders. They offer valuable insights into market sentiment, help identify potential reversal points, and act as key support and resistance levels. By incorporating these levels into your daily trade plan, you can make more informed and strategic decisions, keeping you on the right side of the market. Disclaimer: This is for information and learning purposes only. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance.
Education
by Capitalcom
17
Trading like a Pro with Heikin AshiI am a big fan of Heikin Ashi (HA) candles! I think they are among the most powerful candles one can use. If I were asked to trade a raw chart without any indicators or math or anything like that, I could do it with a Heikin Ashi chart. If you follow me, you will probably have seen a lot of my tutorials and education on the use of Heikin Ashi candles, as well as some strategies I have developed using Heikin Ashi. I wanted to take the time to give a crash course, in writing, on the key concepts of using HA to trade that can be quickly applied and implemented. So let’s get into it, we will start with the foundations and then get into the advanced stuff. Basics: Identifying Trend Starts and Stops Before doing anything else, you need to be able to identify trend starts and stops. With HA candles, it is super easy. What you need to look for is 2 consecutive flat bottom or flat top candles on whichever timeframe you are utilizing. Let’s look at some examples of the start of bullish trends on the 1 hour, using NQ1!: In the chart above, you can see the start of various bullish and bearish trends on the 1 hour. Once you have identified the start of the trends, you can then use these candles to draw support and resistance levels. When drawing support and resistance levels, start from the first, flat top or flat bottom candle, like so: If we do this on various trends on NQ on the 1 hour, we can start to see how these act as key support/resistance levels: PRO TIP! When drawing support and resistance, avoid redundant support and resistance levels. You will notice in the chart above, The resistance level at 1528, the support level at 15303 and the resistance level at 1534 somewhat overlap (this is good, this tells you the HA is working properly to identify areas of trend starts/stops). We can simplify this by 2 ways. Way #1 is by removing the redundancies and just leaving 1 area: Way #2 is my preferred way and simply involves drawing a support box or “zone”: This also works well on the daily timeframe as well: And again, we can simplify this by drawing boxes on the closer proximity lines as such: Identifying Trend Reversals The one thing that is great about HA candles, is I personally find them much easier to: a) Identify impending trend reversals and b) Identify the likely pull-back range of the trend reversal. How do we do that? Well, we need to pay attention to the wicks on the HA candles. Let me show you some examples of some wicks along with the terms I have assigned to them and what they mean: #1 Stagnation Stagnation occurs when wicks are equal height. In general, you should not see a wick that wicks higher or lower than the stagnation. Below is an example and explanation of stagnation: The chart above shows you an example of stagnation. To clarify, I will show you examples that do not fit the stagnation definition: What does Stagnation mean? Stagnation means that we will see some slight pullback, but generally not below the previous low that lead to the stagnation. In the chart with the example, you can see I labelled the first low as “A”. This will be your reference range. Its simply identifying the lowest low that was made prior to the stagnation pattern forming. Stagnation generally means we will not go below that low (if bearish). If it is a bullish pattern, it means that we will pullback, but it will not go to the previous low (start of the uptrend). Here is an example of a bullish stagnation pattern: Stagnation is generally a BULLISH indication. #2 Bearish Ascending Wicks Bearish ascending wicks, as displayed in the example above, are very telling. Perfect ones are hard to come by, but if you are lucky enough to find one, it does tell you what you can expect quite reliably! The defining characteristics of bearish ascending wicks are a cluster of 3, bullish candles with each proceeding wick proportionately higher than the previous: What do Bearish Ascending Wicks mean? Well, as the name suggests, this is a bearish reversal. Why they are bearish is because these wicks are telling us that the ticker is about go lower than the start of the current uptrend. We already know how to identify the start of uptrends and downtrends. So we need to look for the start of the current uptrend that lead to these bearish wicks forming. In this case, it is here: What the bearish ascending wicks are telling us, is that we can expect to move to and below the start of this uptrend. We can see that this was indeed the case: Let us look at another example: This one is a bit messier, but I wanted to show that it does work, even when the setup is not the most pretty. And let’s take a look at one more: It works really well, but like I said, they are tough to find! #3 Bullish Descending Wicks Bullish descending wicks are the exact opposite of the bearish ascending wicks. You have 3, consecutive descending wicks of declining size. These signify a likely continuation to the upside after some pullback. How high? Higher than the highest wick. So in the above example, we would draw a trendline from the highest wick as reference: And let us find another example: These patterns also repeat on the bottom wicks, too, but they are inverted. So let us cover those next. #3 Bearish Descending wicks: Bearish descending wicks are the inverted bullish descending wicks that we find on the top of uptrends. We find bearish descending wicks at the bottom of downtrends. These signal a continuation down. How low? Lower than the lowest of the three wicks: Let’s look at another example: Then, we have the other inverse: #4 Bullish Ascending Wicks These signal a bullish reversal and a higher high than the start of the previous downtrend. How do we find the high to reference? We need to find where the most recent downtrend started. So take a look at the chart above and see if you can identify where the trend started. Then, check below where I will give the answer: You would also be correct to say that the trend started here: We can simply simplify this by drawing a box: Let’s look at one more example: Here is a tiny one: PRO TIP: Here is a special case. In the case below, we are in an uptrend already and the bullish ascending wicks simply signal a trend continuation. In this case, for reference, you can draw a trendline from the peak of the highest wick leading up to the ascending wicks: Concluding remarks And that concludes today’s lesson on using HA candles to trade! This provides you with some fundamentals of how to use them to identify support and resistance, as well as identify trend changes. Now, its important to remember, these trend change identification strategies don’t work 100% of the time. Sometimes they fail. But they work frequently enough, especially on the indices, that I do rely on them quite a lot. At the end of the day, no method is perfect, but I find the HA approach to be one of the more rigorous approaches to support and resistance plotting and trend identification. Remember, these rules apply to all timeframes, including the smaller timeframes, so you can use these strategies and rules on the smaller timeframes. I personally use them on the 5 minute frequently. I will link some of my other HA based tutorials below. Otherwise, I hope you learned something and leave your comments/questions below and suggestions below! Safe trades!
CME_MINI:NQ1!Education
by Steversteves
97
TradingView Masterclass: How To Use Drawing ToolsWe continue with our Masterclass series, which we created to teach people how to get started with charting, research, and analysis. In this lesson, you’ll learn all about the Drawing Panel located on the left side of your chart. Let’s get started! Drawing tools 🎨 There are eight categories in the drawing tool section: Cursors, Trend line tools, Fibonacci tools, Patterns, Forecasting and measurement tools, Geometric shapes, Annotation tools, and Icons. In addition, just below these categories, there are handy features that augment and optimize your research in specific situations, such as zooming in/out, measuring, and a magnet tool for selecting specific price points. Let’s analyze each of these in detail: - Cursors: Located at the very top corner of the drawing tool section, Cursors gives you the capability to change your mouse as you move around the chart. For example, we have other variations such as the dot cursor or the simplest of all, the arrow cursor. Finally, we have an eraser tool to remove objects from the chart by clicking on them. - Trend lines: Trend lines can be used to identify and visualize the direction of a price trend, and are sometimes used for drawing support or resistance lines as well. In this section, you can also find trend channels and pitchforks. - Gann and Fibonacci tools: These advanced tools are often used by technical analysts and quants to locate retracements, pullbacks, measured moves, and advanced price sequences. The Fibonacci tools include retracement, extension, fans, arcs, and more. The Gann tools include box, square, and fan. - Patterns: In this section, you’ll find popular drawing tools for mapping our complex patterns that require several different points to be drawn such as Elliott waves, head and shoulders, and impulses. - Forecasting and measurement tools: These invaluable tools are used to make projections either long or short, study specific stats such as time or price ranges, and also give you the capability to analyze volume with VWAP and volume profiles. - Geometric shapes: These tools are where you can find the brush tool to freely draw on your chart, but it also goes deeper than that, as there are also important shapes whereby a trader can highlight important areas on the chart with a rectangle or arrow such as accumulation or historical rebound zones. - Annotation tools: These can be used to write notes, reminders, prices, and journal entries. These are key tools for traders who want to track their progress over time and always have specific notes attached to the chart. It also includes the ability to insert X links and images from your computer. - Icons: Need a little more color or character on your chart? This section gives you hundreds of emojis, icons, and stickers to add to your chart. Highlight an area, add more art to your chart or spice up your creativity. Tip: Keyboard shortcuts 🔠 Did you know that you can use keyboard shortcuts for the most popular drawing tools? To find out the command, you need to open the drop-down menu of one of the 8 drawing tool categories and you will see the command on the right side of some tools. For example: Alt + T = Trendline Alt + F = Fib retracement Alt + H = Horizontal line Alt + V = Vertical line Alt + I = Invert chart Alt + W = Add current symbol to watchlist If you're a Mac user, use ⌥ instead of Alt. Measure and zoom 📏🔎 When you use the Measure tool (the ruler icon just below the 8 drawing tool category icons), you can see at a glance how much an asset has fallen or risen in numbers, percentages, bars and days. Combined with the Zoom tool (the magnifying glass with +/- icons), you can also focus on the most important areas of the chart. For both measuring and zooming, the procedure is the same: select the tool, click on the point where you want to start measuring or from where you want to zoom, and end with another click where you want to end. You can also use the "Shift" hotkey instead of the icon. To remove a measurement, simply click on the chart. Magnet mode 🧲 Magnet mode is a wizard that helps you to bring the drawing tools closer to the nearest price bars that you hover over with the mouse. There are 2 modes: Weak magnet and Strong magnet. This tool allows traders to perfectly connect a drawing tool to a specific price point. The current values are OHLC, meaning when Magnet mode is turned on, all drawing tools will connect to the nearest open, high, low or close value. Want to draw support lines that always connect to a specific price? Use this tool. Stay in drawing mode 🎨 If you are going to make several drawings on the chart at the same time, you may find it useful to activate this option (pencil + padlock icon), as it will allow you to make as many drawings as you want without deactivating the selected drawing tool. Remember that you must deactivate this option to return to normal mode. Lock all drawing tools 🛑 Once the chart has been configured, if you do not want to make any further changes, you can lock everything that has been drawn with this option (padlock icon) so that you do not accidentally delete elements in the future. Hide/Show drawings/indicators/positions & orders 👁‍🗨 This option allows you to toggle the visibility of the drawings, indicators, positions & orders or even all three to make comparisons with a blank chart. The keyboard shortcut is "Ctrl + Alt + H". Drawing sync 🔄 This allows you to synchronize the drawings of the selected charts in the current layout or in all layouts (globally). You’ll surely want to test this feature as it’s perfect for those who perform multi-timeframe technical analysis and research across multiple charts or timeframes. For example, when this tool is turned on, if you draw on one chart, all of your drawings will appear on your other charts that have the same symbol. Delete objects 🗑 With a single click, you can delete all drawings or indicators, or even both at the same time. There are also a few other options to remove specific things on your chart. Use this tool wisely and don’t accidentally delete everything! Show favorite drawing tools toolbar ⭐ To set up the favorites toolbar, first, you must first go to one of the eight drawing categories and click on the gray star in one of the tools. When you click on it, it turns orange and the quick access toolbar for drawing tools is created. Once you have selected all your favorites, move the favorites toolbar around so that you can use it conveniently every time you want to draw something on the charts. That’s a wrap! We hope you found this guide valuable. We'd love to hear about your favorite drawing tool, so please share your thoughts in the comments below. Additionally, if you have any feedback or suggestions, drop us a line. - TradingView Team
NASDAQ:TSLAEducation
by TradingView
49
Bitcoin Q3 OverviewKey Takeaways: - Poor quarter over quarter price performance at -11.5%, but BTC it still outperforming most asset classes including gold, treasuries, commodities, cash, and REITs year to date - US bid that drove Bitcoin up in H1 has fully diminished at the time of writing - Volume, liquidity, volatility, and search trends all continue to decline - Grayscale’s discount to NAV has closed from -48% to -16% throughout the year - Percentage of Bitcoin held by long term holders has reached an all time high of over 76% - Bitcoin native valuation still shows BTC is in lower bounds of value - Active addresses slightly up while transfer volume (entity-adjusted) continues to decline Following a strong H1 price performance for Bitcoin, Q3 showed to be lackluster for BTC, down 11.5% quarter over quarter. However, in this great chart from NYDIG, we can see that throughout 2023 YTD Bitcoin has quietly outperformed most major asset classes including large cap growth, mid and small cap growth, US and European stocks, commodities, treasuries, gold, cash, emerging markets, and REITs. One of the biggest drivers of Bitcoin’s performance in the first half of the year was the Bitcoin ETF applications that were filed by several well-known traditional financial institutions including Blackrock and Fidelity. These filings were followed with a strong bid for BTC during US trading hours. As shown below, this US trading hour premium that was quite noticeable in March, has since fully diminished. This is also reflected by Bitcoin’s CME futures open interest declining, which is primarily traded by traditional hedge funds, family offices, etc. Open interest refers to the number of futures contracts outstanding. Other measures of excitement in the Bitcoin market have also shown a decline, including Bitcoin’s trading volume across spot and futures, Bitcoin’s 3-month futures basis (difference between spot and 3 month futures contracts), and can even be reflected by measures as basic as google search trends. It is safe to say that the Bitcoin market is in a period of deep apathy. One positive trend that we’ve seen throughout the year is the GBTC discount to net asset value closing in, reflecting increased sentiment around Grayscale’s likelihood of being able to convert their current closed end trust into a spot Bitcoin ETF. Throughout 2023 the GBTC discount has closed in from -48% to just -16%. In terms of valuation, one of the metrics that we follow most closely is the MVRV ratio. This compares Bitcoin’s current marginal trading price to its realized price, which is the cost basis of the entire network based on on-chain data. The idea of the methodology is that whenever MVRV is high, market participants are sitting with a large amount of unrealized profit and are incentivized to realize some of that profit, while when going negative means that the market in aggregate is underwater by definition. While the market is no longer in deep undervalued territory as it was at the end of last year, it is still far from overheated levels reached during the peak of 2017 and 2021. Whether Bitcoin’s cyclicality is driven by halvings, macro forces, general behavior dynamics, or a combination of all three is up for debate; but when comparing this current cycle’s performance from its lows relative to Bitcoin’s three prior cycles, things appear to be playing out quite similarly from a time perspective. Meanwhile, flipping over to network activity, we can see that the percentage of Bitcoin’s supply held by long term holders has reached an all time high at over 76%. This means that more than 3 out of every 4 BTC it held by long term holders. For reference, long term holders are defined as on-chain entities that have held their Bitcoin for more than 155 days, a threshold where on-chain data scientists have found the likelihood of coins being spent drops off the most significantly. This reflects the deep belief of Bitcoin’s core holder base despite crypto market wide contagion and macro uncertainty, as well as the rise of custody products. When plotting out the amount of Bitcoin supply held by long term holders relative to short term holders, we can see the impulses that shape Bitcoin’s multi-year market cycles, as savvy investors accumulate throughout the bear market and distribute into the bull. Another positive trend underneath the hood is the amount of Bitcoin held by on-chain entities with less than 10 Bitcoin, which not only trends up and to the right throughout Bitcoin’s entire history, has seen a large rise over the trailing year, with this quarter being no different. This is a positive trend that we’d like to see continue for the sake of Bitcoin’s supply distribution. This quarter Bitcoin’s block height breached 800,000, a milestone reflecting that the decentralized network has continued to function as intended for well over a decade. Bitcoin's hash rate has also set new all time highs this quarter, but with the halving on the horizon, increased competition may spell troubles for miners without competitive energy costs. Active addresses saw a jump from 950,000 to just over 1,000,000 throughout Q3. Meanwhile, the 7 day moving average of Glassnode’s entity-adjusted transfer volume continues to slump, down to just over $3.1 billion settled by the Bitcoin network a day. Although still down from its July highs, Bitcoin’s public lightning network capacity jumped in Bitcoin terms throughout the last few weeks, currently sitting at 5,200 BTC. It is worth noting that this is just public lightning network capacity, and true figures may look different. The USD denominated version of lightning network capacity offers a less favorable look, down to $140 million from its late 2021 peak of $215 million. For the full report including all charts, click here . Disclaimer: This research report is exactly that — a research report. It is not intended to serve as financial advice, nor should you blindly assume that any of the information is accurate without confirming through your own research. Bitcoin, cryptocurrencies, and other digital assets are incredibly risky and nothing in this report should be considered an endorsement to buy or sell any asset. Never invest more than you are willing to lose and understand the risk that you are taking. Do your own research. All information in this report is for educational purposes only and should not be the basis for any investment decisions that you make.
BITSTAMP:BTCUSDEducation
by ReflexivityResearch
11
When You Should NOT Trade! 11 Reasons to Take a Step BackYou have two choices each day you open your trading platform. To trade or not to trade. There are circumstances that will rise where you won’t trade for that day. Then there are times where you should NOT trade at all. And then there are situations where you need to avoid trading. You know when to trade. Now here are a couple of 11 reasons to take a step back with trading. After a bunch of knocks After you take a couple of losses, it might feel natural to want to jump right back in. You don’t want to lose. You want to recoup your losses. You want to ride the prominent trend. You have to learn to resist this temptation. Whether you buy or sell, if the market is in a bad state or environment – you’re likely to lose your positions. So take a step back and come back tomorrow. The peril of revenge and impulse trading tendencies I’ve told you many times. Any occurrence where you are NOT following your proven strategy is deadly. Revenge and impulse trading (to try and make up for any losses) is a dangerous path. Not only for the day. But it scars and sets a precedent for you to do it in the future. In the medium term, it’s a surefire way to harm your portfolio. Learn to recognize and control these tendencies. Rather take a step back and come back, the next day, with a more rational and logical approach. The absence of clear setups If you don’t have any high probability trades that have lined up, forget trying to take a trade. This is like sailing with a destination in mind without a compass. Trades will come. The markets will always be there for you tomorrow. So wait them out… Emotional instability Emotions when trading are a dangerous trait to have. Anxiety, excitement, ego, fear, greed or distress can cloud your judgment. If you’re emotionally unstable, you need to take a step back and learn to control your emotions. Drop your risk, ‘till you no longer feel a loser or winner. Continue backtesting until you regain your confidence. Refrain from trading until you learn to balance your emotions. Can’t afford it – forget it! If the funds you’re using for trading are essential for your survival or well-being, this is a red flag. You are going to be highly dependent and emotionally attached to your funds. I say it over and over… Do not trade with money you can’t afford to lose. It creates an unhealthy pressure that can influence your trading decisions. Don’t know it – Don’t trade it. If you lack a solid understanding of markets, methods or money management – you’re not ready to trade. You need to understand the above along with the market dynamics, the costs and process of instruments and how your trading and charting platform works. Education is key here. Learn, learn, learn. When you have less questions and more answers, then it might be a better time to take the trade. Low probability setups When the market is moving nowhere slowly. Or the markets are moving wildly with high volatility – this might be a time to not trade. The risk and uncertainty of the market is high. And this will result in only low probability trade setups lining up. If you really want to trade them, because you have nothing better to do – fine. But at least risk LESS. Risk between 0.5% to 1% of your portfolio instead of the full 2%. When exhausted, ill or mentally unstable Physical well-being also plays an important role. Your mental state affects your trading performance. If you’re not in the right mindset, consider taking a break. Avoid trading if you’re not feeling well, exhausted, angry, or you’re feeling unstable. Get your mind right, recover and see the markets with healthier and happier eyes. That made sense to me :/ No clear setup Sometimes, you might analyse the markets. And you’ll see nothing. Then, you’ll re-analyse and look EXTRA carefully. You’ll look and look and look until, somehow a trade presents itself. I’m telling you now, this is a dangerous time to take the trade. A trade should stick out like a sore thumb (according to your strategy). If it doesn’t, then you’re trying to see something that most likely is NOT There. Trade based on sound, proven and strong analyses, not via imagination and hope. During major economic announcements This point is more related and significant to Forex traders. If you see a high impact economic announcement, report, meeting etc… It might be a good idea to take a step back, and skip trading for the day. I’m talking about NFP, Unemployment, GDP, FOMC, Interest and Inflation rates etc… Without a trading plan A well-crafted trading plan is your roadmap. It’s your game-plan to make a probability prediction on a potential outcome. You need to eat, breath, shower and sleep with your trading strategy. If you don’t have one, don’t trade until you develop a plan and are ready to stick to it. Right so, now you now when to take a step back and NOT trade. I’ll sum them up here for you… After a bunch of knocks The peril of revenge and impulse trading tendencies The absence of clear setups Emotional instability Can’t afford it – forget it! Don’t know it – Don’t trade it. Low probability setups When exhausted, ill or mentally unstable No clear setup During major economic announcements Without a trading plan
JSE:J200Education
by Timonrosso
21
BUILDING A CHART "BRICK BY BRICK"What is it Renko? Renko charts were invented in Japan, just like regular candlesticks, many years ago and they are called Renga, which means "brick". They display charts symmetrically and are effective for identifying major trends and structural support and resistance levels. Renko charts are very well suited for trend trading as they are visually appealing, making it easy to screen out noise and highlight trends easily. Renko charts show a trend in a way that bars and candlesticks charts cannot. They are able to filter out the noise and create the sameness underlying the trend. In order to understand what a Renko is, let's remember what candlesticks show on our charts? They are the fluctuations in the price of a particular currency pair over a certain period of time: price and time. The main difference is that Renko charts show only the change in price, neither trading volumes nor time intervals are taken into account in their development. The principle of building Renko bricks is based, as already mentioned, only on price fluctuations. In order for the chart to be displayed correctly, first of all, it is necessary to set the size of one brick. For example, many traders use a simple rule: 1 brick equals 10 pips. In other words, for a new brick/block to appear on the chart, the price must change by at least 10 points. Candlestick chart: Renko bars: This is the feature of the Renko chart: it is extremely smooth and clear. All blocks have the same size. At the same time, if the price has changed by only a few points, it will not be displayed on the chart. There are two types of brick size assignment methods: traditional and ATR-based. It measures the volatility of the asset, i.e. the values will be different at different periods of the trading period and on different time intervals. If you use this method, the value of the Renko bar should be equal to the ATR value. Main Advantages and Disadvantages Like any other graphical display of price changes, Renko has its pros and cons. Advantages of Renko: • This principle of construction allows to eliminate almost all noise from the chart as mentioned above. • Renko shows itself perfectly in work with most indicators. Let's remember the main problem of some popular indicators - they output data with some delay (information is substituted into the formula only after the candle is closed). And since Renko is not tied to time, the indicator displays more real information as a result. • Renko indicators show themselves perfectly in intraday trading. The trader does not need to wait for the candle to close. The Main Disadvantages of Renko are as Follows: • The chart does not work with most volume indicators. • A new brick is built only when the trend increases/decreases by a certain number of points (which is equal to the size of one block). That is, the chart can remain unchanged for a long time if the market is consolidating. • Renko chart does not show consolidation and impulse moves as seen on regular charts. • In order to be aware of the likely measurement of trend direction, it is necessary to constantly monitor the market with other charts. Examples We will use a simple strategy based on the moving average with a period of 20 on the 15 minute timeframe. The sell and buy signal will be pinbar. Enter the trade when the pinbar is created near the moving average. Of course you can create your own strategy. You just need to spend some time with the chart and you will know if it will work for you or not. EURAUD USDJPY GBPUSD (Sometimes Renko chart gives really beautiful and clear signals.) Conclusion Renko charts are quite convenient and practical because they display symmetrical candles and are effective for identifying major trends, support and resistance levels by filtering out noise. They can also be used in combination with other indicators to improve trading results. Renko charts allow you to identify various reversal patterns and see price structures in the market. However, they are mainly suitable for intraday trading.
Education
by DeGRAM
24
Introduction to Relative Strength or Ratio 1-2In part one (linked) we discussed how to construct and use relative strength ratios (RS) in trading and analysis. We also discussed common errors and best use. In part two we finish that general discussion. In part three we will analyze consumer staples verses consumers discretionary and begin to discuss other ratios that I find useful. How do spreads correct? One mistake is assuming that a spread will always be corrected by the rich security moving lower to meet the cheaper security. In actuality there are multiple ways a spread can correct. For instance, the rich market corrects lower relative to the cheaper market, the rich market declines while the cheap market rises, or the rich market remains relatively fixed while the cheap market rallies. And remember, this is all done within the context of the broader market trend. This isn't particularly important when using spreads as informative to the business or market cycle (as I do). But if you are trading pairs (which outside of rates markets, I don't) the legs should generally be market neutral or directionally ambivalent. Along this same line, if the dollar value of the two legs is vastly different, the share counts must be adjusted to close to money neutral or the disproportionally large side of the trade will dominate. This can also be an issue when the notional amounts of the two instruments are very different. For instance, two-year futures verses ten-year futures. Twos represent 200k notional while tens represent 100k notional. They also have far different sensitivities (duration) to a given change in rates. It should also be recognized that some sectors or ETFs are dominated by one or two very large names that skew directionality in favor of those few names. Looking for ETFs comprised of equally weighted components will mostly eliminate this issue. For instance equal weighted consumer staples (RSPS) verses equal weighted consumer discretionary (RSPD). It's extremely important that you know what you are measuring. A good example is the change in the ratio between investment grade bonds (LQD) and high yield bonds (HYG). A quick glance at the chart might suggest that High Yield is weakening relative to Investment Grade. The easy conclusion would be that fundamentals in the high yield sector were deteriorating and investors were exiting HYG. While fundamentals are modestly deteriorating in HYG more quickly than in LQD, the dominant driver is the difference in duration between the two sectors. This can be seen when running the ratio between ten year and three-year treasuries and comparing it to LQD/HYG. Many analysts smooth the RS line with moving averages. This is particularly useful when adjusting for the higher volatility of shorter time frames. This isn't my preference. First, I prefer to use longer periods (particularly weekly) in my analysis. Second, while averages are useful, they aren't an essential part of my own analysis toolkit. But there is value and moving averages can be used on spreads just as they are used on the underlying securities. Finally, ratios can provide tremendous insight into economy and market cycles, for instance when, after a long RS decline, copper begins to strengthen relative to gold, the industrial economy may be entering the early stage of recovery. Or when consumer staples RS inflects higher relative to consumer discretionary it's likely that the outlook for the consumer, and by extrapolation the economy, is weakening. In future parts we will discuss and illustrate several of these ratios. And finally, many of the topics and techniques discussed in this post are part of the CMT Associations Chartered Market Technician’s curriculum. Good Trading: Stewart Taylor, CMT Chartered Market Technician Taylor Financial Communications Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.
AMEX:LQDEducation
by CMT_Association
7
People want to earn but not learnThe issue is everyone wants to make money (well, maybe not everyone) but nobody wants to take the time to learn how to do it properly. This is NOT a sales pitch by the way! it's FACT!! People often ask why I bash influencers so much, it's mainly for this reason. Majority of noobs, come into trading expecting to make a fortune. If only it was that easy, every man and his dog would be a professional trader. Over the years, I have talked about things like Bots and AI that are programmed to make you money - think logically, if again it is this easy wouldn't the founders go to the bank, loan $10million based on their results and just not bother selling and shilling to customers and retail. NOBODY wants to provide customer service, especially to the world's population. Unfortunately, regardless of the market. Trust me if you stick around long enough you get to see this behaviour in Forex, Commodities, Stocks and more recently crypto with a splash of A.I. The story goes pretty much the same way. "man (or woman) hears about an opportunity to make money through a thing called trading, they do their research which leads to the old You of Tube and that leads to "Lamborghini promises from kids with fake watches, drawing random trendlines on 3 minute charts" There's often a "sign-up" bonus if you click their shill link. So let's get this straight, they make money on watch time and those links you click. The reason I chose fish in the image above, is that most people have memories that last about 2 seconds. Mark Cuban said "everyone is a genius in a bull market" Algorithms work and influencers claim to be experts with 3 months of experience. Easy to show in a market only going one way. Trading is hard enough, let alone having the ability to lose money from scams. If a trading algorithms promises a 90% win rate - run and don't buy it. ============================================================== There are fundamental things to do and you can deploy to get you off on the right track. Firstly think of the obvious. 90% of new traders lose 90% of their money in only 90 days. Hence a 50% sign-up bonus whereby you think you gained "free cash" often has small print that you can't access it until you lost your original investment. Affiliates tend to get 25% or more of the deposit - the exchanges know full well, your about to lose your money. Second thing I try to emphasis for newer traders, is that you need to treat trading as a profession. You wouldn't watch a video and expect to be a doctor, you also wouldn't buy an algorithm or Artificial Intelligence software and expect to become New York's latest Hot Shot Lawyer You see where this is going? There is no secret sauce, no silver bullet and no short cuts. If you want to trade and make money trading, you need the basics. You need to keep doing the basics well and evolve your mindset more than a strategy. Areas that will really help you include proper risk management. If your willing to be sat in negative 20, 30 or even 50% equity positions. This won't take you long to lose your entire trading pot. Instead risking 1-2% with a risk strategy of 2 -1 or greater. it's a slower game, but it keeps you playing the game. If you take a 3 or even a 4 reward trade with only 1 risk. For every time you are right, it's giving you 4 times as much as when you are wrong. Imagine winning 20% of your trading days and still being at breakeven... simple 1:4 ratio. This is only one small aspect to keep in mind. As I mentioned above, if strategies or software is pitched with high percentage win rates - run. You need to understand the market acts differently and past results do not indicate future performance. Everyone is a genius in a bull market, remember. You do not need to go looking for the silver bullet. These strategies do not exist, instead spend the time working on strategies that can be consistent in various market conditions. This is no small task, your strategy might identify entries in a counter trend differently than it would in say a ranging market. The answer to resolve this, is BACKTESTING Don't just run your strategy on replay mode, although @TradingView has a great little tool for this. Spend the time to look at things such as "repainting" this means that when your strategy triggers an entry, does it disappear and reappear. If so, do some manual back testing. Then Dig deeper and analyse the type of market condition it was more profitable or less profitable. This could be things like "I lose more on a Monday, compared to other days" or when the market goes sideways, It triggers too many trades. I've written several articles here on pure education. Here's a few examples. In this post (worth clicking on) it has a whole bunch of lessons inside. Think of trading like you would a university course, there's plenty to learn but you can have some fun along the way! Stay safe! Disclaimer This idea does not constitute as financial advice. It is for educational purposes only, our principle trader has over 20 years’ experience in stocks, ETF’s, and Forex. Hence each trade setup might have different hold times, entry or exit conditions, and will vary from the post/idea shared here. You can use the information from this post to make your own trading plan for the instrument discussed. Trading carries a risk; a high percentage of retail traders lose money. Please keep this in mind when entering any trade. Stay safe.
COINBASE:BTCUSDEducation
by Mayfair_Ventures
37
An Overview of Stablecoin ArchitectureCrypto stablecoins are a type of cryptocurrency that aims to maintain a stable value relative to a target asset, such as a fiat currency or a commodity. This is achieved through a variety of mechanisms, including fiat collateralization, algorithmic stabilization, and hybrid models. Stablecoins offer a number of advantages over traditional cryptocurrencies, including: - Price stability: Stablecoins are designed to maintain a stable value, making them more suitable for use as a medium of exchange and store of value. - Lower volatility: Stablecoins are less volatile than traditional cryptocurrencies, which makes them more attractive to risk-averse investors. - Global reach: Stablecoins can be used to send and receive payments anywhere in the world with low fees and fast transaction times. - Programmability: Stablecoins can be programmed to execute smart contracts, which enables new and innovative financial applications. There are generally four main types of crypto stablecoins: - Fiat-collateralized stablecoins: These stablecoins are backed by fiat currencies, such as the US dollar or the euro. The issuer of the stablecoin holds a reserve of fiat currency equal to the value of all outstanding stablecoins. This type of stablecoin is considered to be the most stable, but it is also the most centralized. - Crypto-collateralized stablecoins: These stablecoins utilized native cryptocurrencies as their collateral and are minted once a user locks up native crypto worth 150%+ worth of the newly minted stablecoin into a Collateralized Debt Position (CDP). - Algorithmic stablecoins: These stablecoins use algorithms to maintain their peg to a target asset. The algorithm typically adjusts the supply of the stablecoin based on its price. This type of stablecoin is more decentralized than fiat-collateralized stablecoins, but it is also more complex and riskier. - Hybrid stablecoins: These stablecoins combine elements of both fiat-collateralized and algorithmic stablecoins. For example, a hybrid stablecoin might be backed by a basket of assets, including fiat currencies and cryptocurrencies. This type of stablecoin offers a balance of stability and decentralization. Despite their promise, crypto stablecoins face a number of challenges, including: - Technology risk: Because stablecoins can be designed in numerous ways to optimize for different things, technological risk associated with these nascent financial products is ever-present. It is important to carefully evaluate each stablecoin separately based on its design and intentions. - Centralization risk: Some stablecoins are highly centralized, meaning that the issuer has a great deal of control over the stablecoin. This could (and has) lead to censorship or abuse. - Regulation: The regulatory landscape for stablecoins is still evolving. Governments around the world are developing regulations to address the potential risks posed by stablecoins, such as money laundering and terrorist financing. Crypto stablecoins have the potential to revolutionize not only the crypto industry but also the traditional finance (TradFi) sector as well. They offer a number of advantages over traditional financial systems, including lower fees, faster transaction times, and global reach. Navigating the cryptocurrency landscape demands both risk tolerance and a strategy to weather the often-turbulent market conditions. Enter stablecoins, digital assets designed to provide investors with a semblance of stability amid the inherent volatility associated with crypto assets. Thanks to their combination of stability, liquidity, and speed, stablecoins have become an unignorable aspect of nearly all crypto sectors. The essence of a stablecoin's value stability stems from its underlying collateral. Unlike conventional cryptocurrencies, which can see drastic price swings within short time frames, stablecoins operate with a pegged value. This peg, often linked to established fiat currencies like the USD, provides a predictable and stable asset value. The actual value of the stablecoin remains in equilibrium with the fiat currency to which it is anchored, eliminating the wild price fluctuations common in the crypto domain. Stablecoins seamlessly merge the frictionless attributes of blockchain transactions with the robustness of well-established currencies like the USD. This fusion brings forth an unparalleled blend of efficiency and reliability, all while never having to leave the on-chain blockchain environment. For crypto traders, this capability ensures that they remain shielded from potential market downturns without having to constantly transfer assets between crypto and traditional banking systems. Because of these attributes, stablecoins have emerged as an indispensable cornerstone of the crypto economy. Their influence spans a myriad of functions, from trading to lending, and even asset management. Despite the bear market in crypto prices in 2023, interest in stablecoins has remained considerably more stable. Although stablecoins, as a whole, are gaining prominence in the cryptocurrency world due to their promise of stability, it is crucial to understand that their structures differ, and these distinctions can significantly impact their reliability and use cases. The most straightforward (and popular) mechanism to ensure stability in a stablecoin is to back it on a 1:1 ratio with fiat currency, usually held in a bank. This methodology, chosen by market frontrunners like USDT and USDC, guarantees that for every coin in circulation, there's a corresponding dollar in reserves. However, while such a system is relatively simple to implement, it does not solve the issues around counterparty risk and censorship resistance that other crypto assets look to solve. The use of fiat as collateral means that the stablecoin inherits the vulnerabilities associated with traditional currencies. Additionally, relying on a centralized entity to hold reserves necessitates trust in that institution's credibility, deviating from the decentralized ethos that cryptocurrency enthusiasts often advocate for. Not all stablecoins tie their value to fiat currencies. Some stablecoins, like PAXG, choose a different route and are collateralized by commodities, such as gold. This offers an alternative store of value that's theoretically more tangible and resistant to inflation compared to fiat. For cryptocurrency investors and users, understanding stablecoins' nuances is paramount. With an impressive market capitalization and wide-ranging applications, stablecoins have solidified their place in the crypto ecosystem. But as centralized, fiat-backed stablecoins continue to dominate the market, new entrants and models challenge the status quo. As the stablecoin market diversifies and evolves, continuous research and vigilance are essential for those aiming to utilize these instruments effectively. For the full 40-page report, click here .
CRYPTOCAP:USDTEducation
by ReflexivityResearch
6
We’ve Paid Over $25,000 To Our Creators and CodersOur vibrant community is not only for professional investors, everyday traders and Pine scripters, it’s also home to content creators who share their wisdom, experiences, and market insights. We love our content creators and that’s why we recently launched our first-ever community content rewards program that gives $100 cash to anyone who is selected to Editors’ Picks and Pine Script Picks . Since the launch of our program, we’ve given out over $25,000 . Yep - $25,000 to our best creators, contributors, and coders. Because of the success of this program, we’ve decided to keep it going, and invite more of you to join our social network whether it’s for meeting other traders, growing a brand or sharing insightful content about financial markets. If you still don’t know how to use our social network, we have plenty of resources available: 👉 Our official Help Center documentation about our content program and more 👉 Familiarize yourself with these guidelines for crafting exceptional ideas 👉 And, of course, don't forget to revisit our House Rules! For those of you who want to learn more about earning $100, don’t fret, as we also wrote out a few simple steps below to get you started: Open a chart. Click the Publish button in the top right-hand corner or the Pine Editor button at the bottom of the chart. Write your idea or code your script (if you’re up for a challenge), and when you’re ready, publish it to our network. Our network values creativity, deep research, and insightful content. Here are some recent examples to showcase what our network values: example 1 , example 2 , and example 3 . If you’re lucky enough to be selected to Editors’ Picks, you’ll earn $100 at the end of the month. There are no limitations to how many times you can publish per week. For example, say you’re selected five times in a month - that means you’ll earn $500. Congratulations to our Editors Pick Authors so far. April Editors Pick Authors @akikostas @Be_Capy @Bullfighterr @ChristopherDownie @dchua1969 @DeGRAM @Donfelice @EXCAVO @financialflagship @FOREXN1 @inspirante @JimHuangChicago @Julien_Eche @LeviathanCapital @LuxAlgo @LuxAlgo @MacrodesiacTim @Nico.Muselle @norok @Options360 @Pandorra @peacefulLizard50262 @PropNotes @QuantVue @SolCollector @SPY_Master @SPYvsGME @SquishTrade @tbiktag @timwest @Tradersweekly @transparent-fx @Trendoscope @VasilyTrader @Vestinda @WayanEko @WillSebastian @WyckoffMode May Editors Pick Authors @allanster @bitdoctor @ChristopherDownie @CMT_Association @djmad @dudebruhwhoa @EXCAVO @FOREXN1 @G_Foster @Goontata84 @HoanGhetti @inspirante @Investroy @kaigouthro @konhow @LeafAlgo @Mayfair_Ventures @mintdotfinance @neo_karma @norok @Options360 @peacefulLizard50262 @QuantVue @RicardoSantos @RLinda @ShaquanLopez @ShawnMCR @SquishTrade @Steversteves @sudoMode @This_Guhy @Timonrosso @timwest @tradeforopp @transparent-fx @Trendoscope @veryfid @WalterMoon June Editors Pick Authors @AfnanTAjuddin @aneekaguptaWTE @Be_Capy @BitcoinMacro @ChristopherDownie @Crypto4light @DeGRAM @fikira @financialflagship @FOREXN1 @fract @HL-TradingFX @Investroy @JakeWuMarketResearch @JimHuangChicago @kaigouthro @KarimSubhieh @Keeleytwj @Lingrid @LuxAlgo @MarthaStokesCMT-TechniTrader @Mayfair_Ventures @mintdotfinance @Money_Dictators @moonypto @Moshkelgosha @Nemo_Confidat @NinjaTradingServices @norok @QuantVue @SquishTrade @Steversteves @Sublime_Trading @the_sunship @TheTradingParrot @This_Guhy @Thomas_Zito @Timonrosso @tradeforopp @Tradersweekly @Trendoscope @Vestinda July Editors Pick Authors @Akil_Stokes @Amphibiantrading @aneekaguptaWTE @ARESABI @BluetonaFX @ChristopherCarrollSmith @ChristopherDownie @CryptoCheck- @DeGRAM @financialflagship @FOREXN1 @Honestcowboy @Ingwina @Intetics @JimHuangChicago @KioseffTrading @LeafAlgo @LordWrymouth @LuxAlgo @Options360 @optionsswing @PrepForProfit @propfirmalec @PukaCharts @RodCasilli @SquishTrade @Steversteves @StewySongs @the_sunship @This_Guhy @Timonrosso @Trendoscope @VasilyTrader August Editors Pick Authors @Akil_Stokes @anthonycrudele @BluetonaFX @Celestial-Eye @fikira @financialflagship @Gentleman-Goat @JimHuangChicago @joerivdpol @KioseffTrading @LeafAlgo @LuxAlgo @MarcPMarkets @MarthaStokesCMT-TechniTrader @Mayfair_Ventures @MikeMM @mikezaccardi @mintdotfinance @Moshkelgosha @MUQWISHI @MXWLL-Capital-Trading @optionfarmers @PropNotes @PukaCharts @RicardoSantos @rossgivens @sabricat @Steversteves @The_STA @timwest @Tradersweekly @tradingwithanthony @Trendoscope @Vestinda @Victoredbr @WillSebastian @without_worries @WyckoffMode September Editors Pick Authors @Akil_Stokes @Algo_Alert @algotraderdev @anthonycrudele @ATradeSniper @basictradingtv @blackcat1402 @BradMatheny @bryandowningqln @CME_Group @CMT_Association @Crypto4light @DeGRAM @ImmortalFreedom @Investroy @jason5480 @KioseffTrading @konhow @LeviathanCapital @Madrid @mintdotfinance @MoneyMantraCha @Moshkelgosha @Paul_Varcoe @PeterLBrandt @PropNotes @PukaCharts @sofex @SpyMasterTrades @Steversteves @stocktechbot @the_sunship @ThinkLogicAI @This_Guhy @timwest @TradeAndMeApp @Trendoscope @VasilyTrader @Vestinda @without_worries @Yaroslav_Krasko One final note: If you think we’re missing your ideas or scripts, please drop a link to your work in the comments section below. Our team is always looking to meet new community members and read the outstanding content being created. We look forward to seeing your content! - Team TradingView
Education
by TradingView
45
Five of the Best Volume IndicatorsUnderstanding volume and volume indicators is crucial for anyone looking to understand the financial markets. This article offers traders insights into the five of the best volume indicators, allowing them to gauge market trends, momentum, and potential reversals. Understanding Volume and Volume Indicators in Trading In trading, volume refers to the quantity of a financial instrument, such as shares or contracts, that are bought and sold within a specified time frame. Often displayed as a bar graph beneath the price chart, volume shows traders the strength or weakness of price movements. A surge in volume generally indicates strong interest, which can validate a trend, while low volume might signify a lack of conviction or impending reversal. Volume indicators are computational tools designed to assess volume data. They work alongside traditional price indicators to offer a fuller understanding of market behaviour. They can help traders identify changes in momentum and shifts in market sentiment, acting as a secondary measure to confirm signals from price action. Best Volume Indicators List With an understanding of how volume works and why it’s important, let’s take a closer look at the list of volume indicators favoured by traders. To gain the best understanding of how these volume technical indicators work, head over to FXOpen’s free TickTrader platform. There, you’ll find each indicator described waiting for you. On-Balance Volume (OBV) On-Balance Volume (OBV) is a powerful tool that gives traders a cumulative measure of buying and selling activity in a financial asset. Originating from the idea that volume precedes price movements, the OBV adds the period’s trading volume to a running total when the asset closes higher than the previous period and subtracts it when the asset closes lower. This running total serves as a way to quantify the force or pressure of buyers and sellers. Traders use the OBV line, usually plotted below the price chart, to confirm trends and identify potential reversals. When the OBV line rises, it signifies dominant buying pressure, often reinforcing an upward trend in the asset's price. On the other hand, when the OBV line is in decline, it signals that selling pressure outweighs buying pressure, which may herald a downward trend. OBV divergences – when the OBV trend conflicts with the asset's price trend – are considered strong indicators of an impending reversal. Accumulation/Distribution Line (A/D Line) The Accumulation/Distribution Line (A/D Line) serves as a momentum indicator that tracks the flow of capital into or out of an asset by evaluating both price and volume. Unlike the On-Balance Volume, which uses daily up or down volume in its calculation, the A/D Line utilises the asset's closing price relative to its high-low range for the period, along with the period's volume. This results in a more nuanced representation of buying and selling pressure. Traders often examine the trajectory of the A/D Line to confirm existing trends or to spot emerging ones. An ascending A/D Line typically suggests a buildup of buying pressure, supporting a bullish outlook. Similarly, a declining A/D Line indicates increased selling activity, pointing toward a bearish sentiment. The A/D Line is particularly useful when used in tandem with other indicators to strengthen trading signals. Fixed Range Volume Profile The Fixed Range Volume Profile is a unique volume indicator that plots volume on the vertical axis of a price chart rather than the traditional horizontal display. Unlike indicators like the On-Balance Volume or the Accumulation/Distribution Line, the Fixed Range Volume Profile focuses on identifying high-volume nodes over a specified price range, typically between key swing highs and lows. It showcases where the most trading activity has occurred and helps to highlight significant support and resistance levels. Traders use this profile to understand where the majority of trading has taken place within a set range, often revealing "value areas" where price is most likely to trade. Fixed Range Volume Profile is particularly useful for spotting imbalances in supply and demand, making it a critical tool for assessing the potential strength or weakness of future price movements. Chaikin Money Flow (CMF) The Chaikin Money Flow (CMF) is a volume-weighted average oscillator that takes both price and volume into account to assess money flow over a specified period. The CMF provides a snapshot over a designated time frame, commonly 20 or 21 periods. The calculation involves summing Accumulation/Distribution values and dividing them by the total volume for the same duration. Traders use CMF to discern short-term trends and money flow direction. A positive CMF value, hovering closer to 1, usually signals bullish sentiment, indicating that money is flowing into the asset. A negative CMF value, closer to -1, suggests a bearish sentiment and a potential outflow of capital. This makes CMF a strong tool for identifying potential breakouts or breakdowns. Money Flow Index (MFI) The Money Flow Index (MFI), considered one of the best volume indicators for day trading, is an oscillator that offers a quick glimpse into the buying and selling pressure on an asset. It combines both price and volume to create a more comprehensive view of market sentiment. The calculation involves a typical price for each period multiplied by the volume for that period, resulting in raw money flow. The index ranges from 0 to 100, providing clear overbought or oversold signals. Traders often use MFI to detect market extremes. A reading above 80 signifies an overbought condition, suggesting a potential downturn. A reading below 20 indicates oversold conditions, often followed by a price uptick. MFI is also proficient in spotting divergences, serving as a useful tool for predicting reversals. The Bottom Line In closing, volume indicators can be indispensable for traders looking to capitalise on market trends and shifts in momentum. While there are many volume indicators to choose from, it’s worth experimenting with some to enhance your trading outcomes. To experience the power of these tools in real-time, consider opening an FXOpen account. Once you do, you’ll gain access to hundreds of markets, competitive trading costs, and lightning-fast execution speeds. Good luck! 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.
Education
by FXOpen
16
The Power of the Opening Range: Mastering Trading StrategiesWelcome to my video on "Trading Using The Opening Range: The Power of the Opening Range - Mastering Trading Strategies." In this informative session, I dive into the powerful concept of utilizing the opening range to enhance your trading strategies. Understanding the opening range is critical for successful trading, as it sets the tone for the rest of the trading day. By familiarizing yourself with this key market phase, you gain an edge in predicting potential price movements and identifying profitable entry and exit points. In this video, I walk you through various techniques for effectively utilizing the opening range in your trading decisions. I discuss how to interpret price action during this phase, identify key support and resistance levels, and spot profitable breakouts or pullbacks. By mastering these strategies, you can significantly increase your chances of profitable trades. I provide step-by-step guidance on how to develop a personalized trading plan with the opening range as its foundation. Creating a well-defined plan tailored to your trading style and risk tolerance is crucial for consistent success in the dynamic world of trading. CME_MINI:ES1! AMEX:SPY
CME_MINI:ES1!Education
by anthonycrudele
14
VeChain OverviewIntroduction to VechainThor Initially launched as a private consortium chain in 2015 to enable enterprise blockchain ecosystems, the team quickly realized the value-add of trustless, immutable, and decentralized information. With this realization, Vechain began the process of going public, launching a foundation, and conducting an Initial Coin Offering (ICO) in 2017. VechainThor is the public blockchain launched in 2017 and built by the Vechain Foundation. It was conceived with a focus on enterprise use cases and designed to foster the proliferation of business-oriented decentralized applications (dApps). The network was specifically designed to overcome technical hurdles posed by other public blockchains such as scalability, unpredictable gas fees, and an unwillingness by businesses to handle crypto assets directly. Initially conceived to solve problems in supply chain management - a vision born from CEO Sunny Lu’s experiences as Chief Information Officer at Louis Vuitton China - Vechain launched its mainnet in 2018, embracing Ethereum’s technology framework but with additions aimed at tackling issues like high transaction costs and scalability. Vechain’s blockchain delivers instant visibility, traceability, and transparency within business operations, enabling blockchain adoption with adherence to local regulatory regimes. In turn, Vechain has allowed companies to save on costs and time while increasing operational efficiency. In March 2023, Vechain announced its partnership with Boston Consulting Group, considered a Top Two Global Management Consultant with specialisms in the fields of ESG and sustainability. Between them, the pair outlined their approach to helping enterprises and individuals act more sustainably through ecosystems that reward and incentivize specific user engagement. An early prototype of this approach to sustainability can be found here, developed alongside BYD and DNV, rewarding drivers of electric vehicles with credits that could be spent with participating retailers... For our full 20-page+ report, click here
Education
by ReflexivityResearch
6
Peter Lynch's Timeless Investing Principles Introduction Peter Lynch, one of the most celebrated investors of all time, is renowned for his remarkable track record managing the Fidelity Magellan Fund from 1977 to 1990. Under his stewardship, the fund generated average annual returns of approximately 29%, outperforming the S&P 500 by a substantial margin. Lynch's success was not just a stroke of luck; it was the result of a well-thought-out investment philosophy and principles that remain relevant to this day. In this five-page article, we will delve into the core principles that underpin Peter Lynch's approach to investing and explore how these principles can be applied by individual investors seeking to achieve their financial goals. I. Invest in What You Know One of the foundational principles of Peter Lynch's investment philosophy is to "invest in what you know." This principle emphasizes the importance of understanding the companies and industries you invest in. Lynch believed that individual investors have a natural advantage over professional fund managers because they can leverage their everyday experiences and knowledge to identify promising investment opportunities. Lynch often cited examples from his personal life to illustrate this principle. For instance, he famously discovered the potential of the Hanes Corporation when he noticed his wife buying their products. He reasoned that if his family liked the company's products, there was a good chance that others did too. This simple observation led to a highly profitable investment. II. Long-Term Perspective Lynch advocates taking a long-term perspective when it comes to investing. He discouraged frequent trading and market-timing, believing that such strategies often led to poor performance and excessive transaction costs. Lynch's approach focused on identifying fundamentally strong companies and holding them for the long haul. He often remarked, "In the short run, the market is a voting machine, but in the long run, it is a weighing machine." This means that in the short term, stock prices can be influenced by emotions and market sentiment, but over the long term, the fundamentals of a company will ultimately determine its stock price. III. The P/E Ratio The Price-to-Earnings (P/E) ratio is a fundamental metric Lynch frequently employed in his investment analysis. He believed that the P/E ratio could provide valuable insights into a company's valuation. A low P/E ratio might indicate an undervalued stock, while a high P/E ratio could suggest an overvalued one. However, Lynch cautioned against relying solely on the P/E ratio. He emphasized the importance of considering a company's growth prospects, industry dynamics, and competitive position when evaluating its stock. A low P/E ratio might be justified if a company has strong growth potential. IV. Diversification and Concentration Peter Lynch had a nuanced approach to diversification. While he recognized the benefits of spreading risk across different investments, he also believed in concentration when you have high conviction in a particular investment opportunity. This approach is sometimes referred to as "diworsification" – spreading investments too thin, which can dilute returns. Lynch advocated holding a concentrated portfolio of your best ideas while still maintaining a level of diversification to mitigate risk. He noted that over-diversification could limit potential gains and lead to mediocre performance. V. Be Patient and Contrarian Lynch's investment philosophy often aligned with being patient and contrarian. He suggested that investors should not be swayed by short-term market fluctuations or popular trends. Instead, they should have the patience to wait for the market to recognize the value of their investments. Moreover, Lynch saw value in going against the crowd when necessary. He believed that some of the best investment opportunities could be found in out-of-favor industries or companies that others were avoiding. Contrarian thinking often led him to uncover hidden gems. VI. Stay Informed and Do Your Homework Despite his emphasis on simplicity and "investing in what you know," Lynch was a firm advocate of doing thorough research and staying informed. He advised investors to study financial statements, read annual reports, and understand the ins and outs of the companies they invested in. Furthermore, Lynch recommended paying attention to economic indicators and industry trends. Being well-informed allowed him to make informed investment decisions and identify potential risks and opportunities. Conclusion Peter Lynch's principles of investing continue to resonate with both novice and experienced investors. His common-sense approach, emphasis on knowledge and patience, and focus on long-term value have stood the test of time. By adhering to these principles, individual investors can navigate the complex world of finance with confidence and increase their chances of achieving their financial goals. Whether you are a seasoned investor or just starting on your investment journey, Peter Lynch's timeless wisdom provides a solid foundation for success in the world of investing.
CAPITALCOM:US100Education
by financialflagship
10
WHAT IS A PRICE DECELERATION?✴️ What Is A Price Deceleration? A price deceleration is when the market slows down after a trend movement. It occurs when the price of an asset begins to slow down its ascending or descending impulse. It usually occurs at key levels, such as support and resistance. The price finds it difficult to make highs at resistance and lows at support. It all looks like an upward or downward wedge at levels or just channels. Price deceleration can occur at the end of a trend movement or at the end of a pullback. When the price approaches key levels, the bulls are reluctant to buy and the bears are reluctant to sell, which is characterized by price deceleration and poor highs and lows trading. As a result, this leads to a pullback or a complete reversal of the trend. Therefore, this one works well for price reversals. ✴️ Price Deceleration Identification One of the key features of a deceleration and then a price reversal is divergence. The pattern is formed when the price touches the channel border for the fourth time. Thus, we determine the first clues of the future price reversal or price continuation. Another important sign of deceleration is a decrease in the slope angle or steepness of the trend line, as well as a decrease in the size of price swings. It means that the price is squeezed before the impulse movement. Price usually shoots up and accelerates after the squeeze. ✴️ Confirmation Of Price Deceleration Oscillators are used to confirm the deceleration. For example, the relative strength index (RSI) shows divergence very well. Price, after a strong movement like a big ship, still makes some motion moving forward. So, it does not stop immediately. At this time, RSI shows that there is no strength in this movement and goes in another direction, confirming divergence and a soon reversal. Once we have four touches forming the channel, we can look for entry opportunities. Usually the 3rd or 4th touches of the border lead to reversal IF it is confirmed by RSI divergence. ✴️ Plan Your Entry and Exit Points Once we have identified the price deceleration, we need to plan entry and exit points. If the price touches the upper channel and the oscillator shows a bearish divergence, it can be called a confirmation. Usually, if there is a divergence, the price immediately goes in the opposite direction. The engulfing candlestick or pinbar can be used as a trigger to enter the market, as it perfectly shows the current market sentiment and the dominance of one of the sides, be it bulls or bears. The optimal risk/profit ratio in trades is 1:2, because if the trade is counter-trend, there is a probability that the price will go further along the trend. More Examples BTC/USD USD/CAD XAU/USD
Education
by DeGRAM
25
How to Head and ShouldersGreetings, Financial Enthusiasts! 🌟 If you appreciate our charts, give us a quick 💜💜 The Head and Shoulders pattern is a well-known chart formation in technical analysis. It indicates a reversal from a bullish to a bearish trend, usually at the end of an upward trend. Key Points: - Head and Shoulders: Chart pattern signaling trend reversal. - Formation: Three peaks on a baseline - two lower outer peaks and a higher middle peak. - Bullish to Bearish: Suggests a shift from an upward trend to a downward one. - Applicability: Seen on all timeframes, suitable for various traders and investors. - Entry Levels: Easily identifiable, aiding in trade implementation. Why It Matters: The Head and Shoulders pattern provides traders with a visual representation of a trend reversal. It's widely used due to its simplicity and applicability across different timeframes. The Pattern: - Formation (Market Tops): 1. Left Shoulder: Price rises, forms a peak, then falls. 2. Head: Price rises again, forming a higher peak. 3. Right Shoulder: Price falls again, then rises but forms a lower peak than the head. - Formation (Market Bottoms): 1. Left Shoulder: Price falls, forms a trough, then rises. 2. Head: Price falls again, forming a lower trough. 3. Right Shoulder: Price rises again, then falls, forming a higher trough than the head. Neckline: - For Market Tops: Connect the low after the left shoulder to the low following the head to create the neckline. - For Market Bottoms: Connect the high after the left shoulder to the high after the head to form the neckline. Trading the Pattern: - Wait for the pattern to complete before trading. - Entry when price breaks below the neckline (tops) or above it (bottoms). - Stops placed above the right shoulder (tops) or below it (bottoms). - Profit targets calculated based on the head-to-shoulder difference and added (bottoms) or subtracted (tops) from the breakout level. Why It Works: - Sellers enter as price falls from its peak, reducing aggressive buying. - The neckline marks a point where traders exit positions, driving price toward the target. - A lower right shoulder (tops) or higher right shoulder (bottoms) signals a trend shift. - Profit target assumes forced exits by those in losing positions. - The neckline prompts many traders to exit, pushing price towards the target. - Volume analysis helps confirm patterns; expanding volume (bottoms) shows increased buying interest. Pitfalls: - Waiting for pattern completion may require patience. - Not all patterns lead to successful trades. - Profit targets aren't always reached. - External events can disrupt patterns. - Patterns can be subjective; traders should define their criteria. The Head and Shoulders pattern, though not foolproof, provides a structured approach to identify and act on trend reversals.
Education
by Vestinda
21
Introduction to Relative Strength or Ratio 1-1This is part one of a series on relative strength ratios. Part One: Relative Strength Ratio (RS) analysis is used to compare one markets performance with that of another. The RS line provides a direct comparison of strength or weakness relative to the another. RS analysis is particularly useful for active institutional managers who are judged relative to a benchmark as opposed to individual investors who are constrained by producing an absolute return. But understanding ratios opens a world of spread or pairs trading and provides valuable insight into the market environment. To be clear, the relative strength ratio has nothing to do with Welles Wilders Relative Strength Index (RSI). RSI is a momentum oscillator designed to evaluate a single security as opposed to a ratio comparing one security to another. Using ratio analysis, bonds can be compared to equities, commodities to bonds, domestic equities to global equities, gold to copper, country to country, currency to currency, industry sector to industry sector, specific companies or sectors to broader indices, country to country and even individual equities. Choices of pairs are extensive. Importantly, once charted, the RS line can be analyzed as any other security. Support and resistance, channels, and momentum indicators can all be applied to the RS line. With literally thousands of securities to be compared the limits of RS analysis is only limited by the imagination of the analyst. The analyst does need to be careful. There needs to be a clear and intuitive economic linkage between the two securities before setting up ratio charts. There can also be issues when two securities, despite having a clear linkage, have a dynamic third variable such as currency translation or large differences in duration such as the LQD/HYG example that we will cover in future parts. Relative Strength is calculated by dividing one security's price by a second security's price (the "base" security). The result of this division is the ratio, or relationship, between the two securities. When the RS line is rising, the numerator (top) security is outperforming the denominator (bottom) security. When the numerator security is falling, the numerator is underperforming the denominator security. If the RS is moving laterally, there is no performance advantage to either the numerator or denominator. When looking at spreads I mostly prefer to use the ratio rather than the net price difference between two markets. Using ratios allows the analyst to make comparisons between markets priced in different units. For instance, Oil and Gold or cotton and the CRB. One exception to this would be when directly comparing one ratio to another ratio. In this case both ratios need to be normalized to a common starting value (I use 100) to adjust for large differences in numerators that could skew the RS line higher or lower relative to the RS line. I find ratios most useful over longer time perspectives for business and economic insight. However, many traders/investors use them in shorter time perspectives as they create spread trades or aggressively switch between sectors. When I was actively trading bond/note futures I used extremes and technical analysis of the RS line on the hourly chart to help manage my curve trades. In this series we will explore the construction of relative strength ratios, their best use, and make technical evaluations of several ratios and what that analysis implies. And finally, many of the topics and techniques discussed in this post are part of the CMT Associations Chartered Market Technician’s curriculum. Good Trading: Stewart Taylor, CMT Chartered Market Technician Taylor Financial Communications Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.
AMEX:XLPEducation
by CMT_Association
7
Rising and Falling Wedges ExplainedWelcome to the world of trading patterns. If you appreciate our charts, give us a quick 💜💜 Today, we'll explore two important ones: the Rising Wedge and the Falling Wedge . These patterns can signal shifts in market trends. Let's dive in and see how they work. Rising Wedge: In an uptrend, the Rising Wedge hints at a bearish turn. It takes shape as prices find a middle ground between two upward-sloping lines, one as support and the other as resistance, both inching closer. As the price inches towards the wedge's tip, its upward push tends to fade, suggesting a potential shift to a downward trend. Your sell signal triggers with a bearish break beneath the wedge's support. Set a stop loss just above the wedge's highs. Aim for the next significant support level. Falling Wedge: Unlike the Rising Wedge, the falling wedge spells optimism in a downtrend. It emerges as prices consolidate between two downward-sloping lines, one providing support and the other resistance, both drawing nearer. As prices approach the wedge's apex, the downward momentum loses steam, hinting at a potential shift towards an upward trend. Your buy signal activates with a bullish breakout beyond the wedge's resistance. Place a stop loss just below the wedge's lows. Target the next notable resistance. Feel free to let us know your thoughts and if you have any questions. Your feedback is valuable and helps us improve. Happy trading!
Education
by Vestinda
21
What is FOMO? Syndrome of lost profit in tradingFOMO is the lost profit syndrome. Now it is especially common due to the popularity of smartphones and social networks. Many are simultaneously afraid of social isolation and worried about lost opportunities. A similar situation is possible in trading. As soon as traders see a bullish trend, they start opening trades and buying those assets that match their analysis. In addition, a lot of information, thoughts and impressions are concentrated around us, which only aggravates the situation. Let's figure out how to deal with such an obsessive fear. The syndrome of lost benefit is a strong fear of missing an important event or a profitable opportunity. This fear is especially pronounced against the background of the bright life of friends and acquaintances. After all, then there is a feeling that you are wasting time in vain. SUVs are directly related to dissatisfaction with personal life, and social networks only increase the unpleasant state. The greater the dissatisfaction, the greater the desire to find others. And the need for new information turns into intrusive thoughts. FOMO is distinguished by the following features: -Frequent fear of missing something important; -Constant use of language turns like "everything but me"; -The desire to delve into all forms of social communication (attend all the parties, go to concerts, etc.); -Obsessive desire to always be liked by others, accept praise and be available for communication; -The need to constantly update the feed on Facebook, Instagram and other social networks. How to get rid of lost profit syndrome? -Constantly responding to messages and checking the crypto rate every 2 minutes, you waste a lot of time. Therefore, you should establish clear rules for using a PC and a smartphone: -remove unnecessary programs and turn off pop-up messages in programs that are not of great importance; -leave groups and unsubscribe from accounts that are not useful to you; -refuse unnecessary e-mails; -check news and stock quotes no more than twice a day (for example, in the morning and in the evening); -do not take your smartphone to bed and do not sit on the Internet before falling asleep; make two separate schedules - for working with personal and business messages. Five tips — how to avoid the FOMO syndrome as an investor Instead of succumbing to the fear of missing out, you can change your life for the better and find success in the cryptocurrency field. Here are our 5 tips on how to avoid FOMO affecting your investing. 1. Forget about the past What has already happened in the market is irrelevant from FOMO's point of view. There are not many investors who look at past quotes. Successful investors always take the time to analyze when opening a trade: they look at the current state of assets and assess their prospects in the future based on past price charts. The idea that the chance can be one for a lifetime is completely false. There are always and always will be profitable opportunities, just as the market always was and always will be. Charts will never tell you what an asset will be like in a year, two or five years. They simply provide information about events and possible future probabilities. Therefore, competent long-term investors understand that it is never too late to buy assets, it is important to navigate them and make balanced decisions. 2. Buy when everyone is selling and sell when everyone else is buying There is an opinion that on the stock exchange it is necessary to go against the trend. Of course, it is easy to talk about it, but to translate all this into reality is much more difficult. After all, the effect of the lost profit syndrome only increases when you do not invest in an asset that is growing. The "anti-cyclical" behavior is explained as follows: the most successful purchases with possible high returns occur during a fall in the rate and general panic, and sales - during a rise in value, when everyone is eager to buy bitcoin or another crypto as soon as possible. However, this tactic does not at all mean a ban on buying tokens in an uptrend. It is inextricably linked to the next tip, so it should be taken in the same context. 3. Set clear goals Remember the chosen strategy and determine the goals when buying this or that cryptocurrency. One possible option is target cost. If the stock price has reached your indicator, feel free to sell the asset and lock in the profit, or set a stop loss, with the hope that the trend will continue. Many traders use a simple rule - it is better to receive 4 thousand dollars 10 times than to wait six months for 50 pieces. If the deal in a short period of time brings 50% profit or more, it is better to close it. And this should become a proven mechanism. Usually, when the value of a cryptocurrency starts to increase rapidly, many market participants buy it. You can understand this in time and, having sold the asset, watch the further growth that is already taking place by inertia. The growth will stop only when the rest finally realizes that the coin is "overheated" and no longer has the potential for growth. Conclusion: While most buy the coin on the rise due to FOMO, you sell the crypto and get your profit. As for purchases at a reduced price, not everything is so smooth either. After all, not everything will be so profitable that it has become cheaper. Here it is necessary to look at the reasons for the price drop on the chart. If unforeseen circumstances have occurred, for example, a lawsuit by the state regulator in court, then you need to determine what value of the asset will become the most attractive for you in the current period, or how critical the situation with the lawsuit is. Of course, I mentioned isolated cases here. In order to analyze all possible situations in the market, you need to publish an entire online almanac. Each case has a common feature — the psychology of human behavior. Therefore, do not give in to general panic or joy. 4. If there are no investment ideas, wait The famous stock speculator and Wall Street investor Jesse Livermore used to say the following: "Big money doesn't buy or sell, big money waits"! It is true, because one day you will not be able to find more interesting coins to invest. There will be very few of them, and the crypto market will continue to conquer new heights. 5. Your strategy is the main thing If you managed to accumulate knowledge in some area of trading, learned SmartMoney analysis, know how to set goals and evaluate the potential of a particular token, it will bear fruit, but continue to develop further, because there are no limits to perfection! :) New trading tools, technologies and new tokens appear every day that promise to bring significant profits and make cryptocurrency trading as convenient as possible. Do not follow the tricks of speculators. Become the best in your field. Keep a clear mind and don't be influenced by the masses. Hope you enjoyed the content I created, You can support with your likes and comments this idea so more people can watch! ✅Disclaimer: Please be aware of the risks involved in trading. This idea was made for educational purposes only not for financial Investment Purposes. --- • Look at my ideas about interesting altcoins in the related section down below ↓ • For more ideas please hit "Like" and "Follow"!
BITSTAMP:BTCUSDEducation
by Crypto4light
8
Kelly Criterion and other common position-sizing methodsWhat is position sizing & why is it important? Position size refers to the amount of risk - money, contracts, equity, etc. - that a trader uses when entering a position on the financial market. We assume, for ease, that traders expect a 100% profit or loss as a result of the profit lost. Common ways to size positions are: Using a set amount of capital per trade . A trader enters with $100 for example, every time. This means that no matter what the position is, the maximum risk of it will be that set capital. It is the most straight-forward way to size positions, and it aims at producing linear growth in their portfolio. Using a set amount of contracts per trade . A trader enters with 1 contract of the given asset per trade. When trading Bitcoin, for example, this would mean 1 contract is equal to 1 Bitcoin. This approach can be tricky to backtest and analyse, since the contract’s dollar value changes over time. A trade that has been placed at a given time when the dollar price is high may show as a bigger win or loss, and a trade at a time when the dollar price of the contract is less, can be shown as a smaller win or loss. Percentage of total equity - this method is used by traders who decide to enter with a given percentage of their total equity on each position. It is commonly used in an attempt to achieve ‘exponential growth’ of the portfolio size. However, the following fictional scenario will show how luck plays a major role in the outcome of such a sizing method. Let’s assume that the trader has chosen to enter with 50% of their total capital per position. This would mean that with an equity of $1000, a trader would enter with $500 the first time. This could lead to two situations for the first trade: - The position is profitable, and the total equity now is $1500 - The position is losing, and the total equity now is $500. When we look at these two cases, we can then go deeper into the trading process, looking at the second and third positions they enter. If the first trade is losing, and we assume that the second two are winning: a) 500 * 0.5 = 250 entry, total capital when profitable is 750 b) 750 * 0.5 = 375 entry, total capital when profitable is $1125 On the other hand, If the first trade is winning, and we assume that the second two are winning too: a) 1500 * 0.5 = 750 entry, total capital when profitable is $2250 b) 2250 * 0.5 = 1125 entry, total capital when profitable is $3375 Let’s recap: The trader enters with 50% of the capital and, based on the outcome of the first trade, even if the following two trades are profitable, the difference between the final equity is: a) First trade lost: $1125 b) First trade won: $3375 This extreme difference of $2250 comes from the single first trade, and whether it’s profitable or not. This goes to show that luck is extremely important when trading with percentage of equity, since that first trade can go any way. Traders often do not take into account the luck factor that they need to have to reach exponential growth . This leads to very unrealistic expectations of performance of their trading strategy. What is the Kelly Criterion? The percentage of equity strategy, as we saw, is dependent on luck and is very tricky. The Kelly Criterion builds on top of that method, however it takes into account factors of the trader’s strategy and historical performance to create a new way of sizing positions. This mathematical formula is employed by investors seeking to enhance their capital growth objectives. It presupposes that investors are willing to reinvest their profits and expose them to potential risks in subsequent trades. The primary aim of this formula is to ascertain the optimal allocation of capital for each individual trade. The Kelly criterion encompasses two pivotal components: Winning Probability Factor (W) : This factor represents the likelihood of a trade yielding a positive return. In the context of TradingView strategies, this refers to the Percent Profitable. Win/Loss Ratio (R) : This ratio is calculated by the maximum winning potential divided by the maximum loss potential. It could be taken as the Take Profit / Stop-Loss ratio. It can also be taken as the Largest Winning Trade / Largest Losing Trade ratio from the backtesting tab. The outcome of this formula furnishes investors with guidance on the proportion of their total capital to allocate to each investment endeavour. Commonly referred to as the Kelly strategy, Kelly formula, or Kelly bet, the formula can be expressed as follows: Kelly % = W - (1 - W) / R Where: Kelly % = Percent of equity that the trader should put in a single trade W = Winning Probability Factor R = Win/Loss Ratio This Kelly % is the suggested percentage of equity a trader should put into their position, based on this sizing formula. With the change of Winning Probability and Win/Loss ratio, traders are able to re-apply the formula to adjust their position size. Let’s see an example of this formula. Let’s assume our Win/Loss Ration (R) is the Ratio Avg Win / Avg Loss from the TradingView backtesting statistics. Let’s say the Win/Loss ratio is 0.965. Also, let’s assume that the Winning Probability Factor is the Percent Profitable statistics from TradingView’s backtesting window. Let’s assume that it is 70%. With this data, our Kelly % would be: Kelly % = 0.7 - (1 - 0.7) / 0.965 = 0.38912 = 38.9% Therefore, based on this fictional example, the trader should allocate around 38.9% of their equity and not more, in order to have an optimal position size according to the Kelly Criterion. The Kelly formula, in essence, aims to answer the question of “What percent of my equity should I use in a trade, so that it will be optimal”. While any method it is not perfect, it is widely used in the industry as a way to more accurately size positions that use percent of equity for entries. Caution disclaimer Although adherents of the Kelly Criterion may choose to apply the formula in its conventional manner, it is essential to acknowledge the potential downsides associated with allocating an excessively substantial portion of one's portfolio into a solitary asset. In the pursuit of diversification, investors would be prudent to exercise caution when considering investments that surpass 20% of their overall equity, even if the Kelly Criterion advocates a more substantial allocation. Source about information on Kelly Criterion www.investopedia.com
Education
by sofex
4