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Relative Strength Index StrategyWhat is RSI? The Relative Strength Index (RSI) is a widely used indicator used by traders in technical analysis that evaluates the strength of a financial instrument’s price movement over a given period. It measures the speed and change of price fluctuation on a scale of 0 to 100, providing insights into overbought or oversold conditions, as well as potential trend reversals. RSI can be used for trading all markets and asset classes, from stocks to foreign exchange (forex), with a variety of RSI trading strategies to choose from. Highlights RSI is a technical analysis tool that measures price movement strength and identifies overbought and oversold conditions in financial markets. RSI could be applied to different timeframes and customised periods depending on a trading strategy. RSI trading strategies include (but are not limited to) overbought/oversold identification, 50-crossover, divergence, and failure swings. Combining RSI with other indicators like moving averages, Bollinger Bands, MACD, Stochastic Oscillators, and Fibonacci retracements may enhance market analysis. RSI has limitations, such as producing false signals and not predicting the size of price reversals. RSI indicator explained The RSI was formulated by mechanical engineer turned trader and technical analyst, J. Welles Wilder Jr., which he first revealed in his 1978 book New Concepts in Technical Trading Systems. Like most oscillators, RSI is typically plotted underneath a price chart. It can be used on any candlestick or bar chart timeframe, including minutes, hours, days and weeks. The RSI can also be calculated over different periods. The standard setting is 14 periods, but some traders can use custom RSI indicator settings like two periods, nine periods or 50 periods. For example, to optimise RSI for day trading, traders may adjust the settings to a shorter look back, such as 7 or 10 periods, to increase sensitivity to recent price changes. By comparing the magnitude of recent gains to recent losses, the RSI generates a value from 0 to 100 that reflects the strength or weakness of the asset’s price momentum. When the RSI value rises above 70, it is generally considered to be overbought, signalling that the asset may be overvalued and a price correction may be imminent. When the RSI value falls below 30, it is considered to be oversold, indicating that the asset may be undervalued and a price rebound could be on the horizon. How is RSI calculated? It is not necessary to remember the calculation to use RSI trading strategies as the indicator is typically embedded in a trading platform, but it helps to conceptualise what the indicator is showing. The RSI is calculated by normalising the relative strength factor (RS). RS is measured by average gain divided by average loss. The average gain is the sum of the upward price changes over the last X periods (typically 14 as recommended by Welles Wilder) divided by the number of periods to attain the average. The average loss is the sum of downward price changes over the same number of periods, divided by that same number of periods. The relative strength factor (average gain divided by average loss) is then converted to a Relative Strength Index between 0 and 100, to produce the RSI formula. What is an RSI trading strategy? An RSI trading strategy is a set of rules and techniques that utilises the RSI indicator to identify potential trading entries based on overbought and oversold conditions or momentum shifts. There are four key ways to use the RSI indicator in trading. Overbought and Oversold As we have already discussed, if the RSI indicator shows an asset has become overbought and then starts to point lower, it suggests the price might follow it downwards. Likewise, if RSI is oversold and then starts to point higher, the price could be about to turn higher too. Those following this RSI trading strategy may consider waiting until the RSI falls below 70 from an overbought condition level to take a possible short position. Then when the RSI rises above 30 from oversold conditions, the idea is to take a long position. 50-crossover Traders could use the RSI 50 level (the centreline) to confirm that a price trend is occurring. According to this strategy, a downward trend is confirmed when the RSI crosses from above 50 to below 50. Similarly, an upward trend is confirmed when the RSI crosses above 50. Divergence Another way to trade with RSI is to look for divergence between the RSI and the market price. Put simply, traders are looking for situations when momentum moves in the other direction to the price, signalling a possible turning point. When the price hits a ‘higher high’ but the RSI makes a ‘lower high’ – this is known as bearish divergence. When the price makes a ‘lower low’ and the RSI forms a ‘higher low’ – this is known as bullish divergence. When divergence occurs, the theory states that there is a higher probability of price reversing. This could present potential short-term sell-and-buy signals. RSI failure swings This is a similar concept to divergence but on a much smaller scale. The ‘swings’ are small highs and lows that a price makes when it is in a trend. The RSI tends to track the highs and lows made in the price. Uptrends see higher highs and lows. Downtrends see lower highs and lows. If RSI swings lower but the price continues higher, this could be a sign of a short-term trend reversal. How to trade using RSI and other indicators Traders may choose to use RSI in conjunction with other indicators to enhance their market analysis and gain a more comprehensive understanding of price movements. Below are some of the popular indicators that may complement an RSI trading strategy. Moving Averages (MA) Traders often use moving averages (MA) in conjunction with RSI to identify trends and potential entry or exit points. For example, when the price crosses above a moving average and RSI moves out of oversold territory (above 30), it may signal a potential long entry. Conversely, when the price crosses below the moving average and RSI moves into overbought territory (above 70), it could indicate a short entry point. Bollinger Bands By combining Bollinger Bands with RSI, traders could gain additional confirmation of overbought or oversold conditions. When the price touches the upper Bollinger Band and RSI is above 70, it may suggest that the asset is overextended and due for a pullback. Similarly, if the price touches the lower Bollinger Band and RSI is below 30, it might indicate an oversold condition and a potential buying opportunity. MACD Using Moving Average Convergence Divergence (MACD) together with RSI could provide further confirmation of trend changes and momentum shifts. For instance, if RSI shows a bullish divergence (price makes lower lows while RSI makes higher lows) and MACD experiences a bullish crossover (the MACD line crosses above the signal line), it may reinforce the likelihood of a potential trend reversal to the upside. Stochastic Oscillator The Stochastic Oscillator, like RSI, identifies overbought and oversold conditions. By comparing the two indicators, traders could look for confirmation or divergences to better gauge potential market reversals. For example, if both RSI and Stochastic Oscillator move from oversold to overbought territory, it may strengthen the case for an upward price movement. Fibonacci Retracements Combining Fibonacci retracements with RSI could help traders identify potential support and resistance levels during price corrections. If RSI reaches oversold levels near a significant Fibonacci retracement level, it could signal a higher probability of a price rebound at that level, providing a potential entry point for long positions. RSI limitations False signals: The RSI is a leading indicator, designed to potentially get you into a profitable trade earlier than lagging indicators. However, leading indicators are less reliable and can often produce false signals. This is because not every change in momentum means the price will change direction. Size of reversal unknown: The RSI indicator signalled many turning points in the markets over the years, but it does not predict how big or small the following price move will be. The RSI might be signalling a top or bottom or simply a temporary reversal in the direction of a stock’s price. Conclusion In conclusion, RSI is a popular technical analysis tool used to measure the strength of price movements for various financial instruments. Developed by J. Welles Wilder Jr., it gauges overbought or oversold conditions and potential trend reversals, providing valuable insights for traders. The RSI can be applied to different timeframes and periods, with the standard setting being 14 periods, although traders may customise. For example, RSI settings for day trading are typically on a shorter lookback, such as 7 or 10 periods, to increase sensitivity to recent price changes. RSI strategies include identifying overbought/oversold conditions, 50-crossover, divergence, and failure swings. Traders often use RSI in conjunction with other indicators, such as moving averages, Bollinger Bands, MACD, Stochastic Oscillator, and Fibonacci retracements, to enhance market analysis and support decision-making. However, RSI does have limitations, including the possibility of producing false signals and not predicting the magnitude of price reversals. Despite these drawbacks, RSI remains a useful indicator for traders seeking to navigate the complexities of financial markets.
CAPITALCOM:US100Education
by Capitalcom
18
Top 4 Strategies for Position TradingPosition trading is a time-tested approach to the financial markets, allowing traders to profit from long-term trends. In this article, we’ll explore the top four strategies for positional trading, discuss the features of successful position traders, and briefly examine three essential indicators that can help with your position trading journey. What Is Position Trading? Position trading is a type of trading where a trader holds onto their positions for an extended period, typically ranging from weeks to months or even years. In contrast to day traders, who attempt to profit from intraday price fluctuations, or swing traders, who hold their positions for days or weeks, position traders adopt a more patient approach, allowing their trades to develop over a longer period. This can lead to potentially greater profits, as well as reduced transaction costs and stress associated with constant monitoring of the markets. The main goal of position trading is to capitalise on long-term trends in a given market, such as stocks, forex, or commodities. Position traders typically rely on a combination of fundamental analysis, technical analysis, and market sentiment to make their trading decisions. They use this analysis to identify and participate in trends on the daily, weekly, and monthly timeframes. Features of a Position Trader Successful position traders often exhibit unique characteristics that set them apart from other types of traders. Some of the key features are: - Patience: Position trading demands patience as traders wait for opportunities to arise and positions to develop over weeks, months, or years. Remaining calm and focused during market uncertainty is essential. - Discipline: Position traders must maintain discipline in their approach. This includes sticking to their trading plan, managing their risk effectively, and resisting the urge to exit their positions prematurely. - Long-Term Focus: Successful position traders concentrate on overall market direction, not short-term price movements, enabling them to identify opportunities that short-term traders might overlook. - Strong Fundamental Analysis Skills: Since fundamental factors often drive long-term trends, exceptional fundamental analysis skills are crucial for gauging where the market may be headed next. Positional Trading Strategies Now that we have an overview of position trading let’s examine four effective positional trading strategies. Support and Resistance Trading At the heart of many positional trading strategies are support and resistance. Support refers to a price level where buying interest is strong enough to overcome selling pressure, leading to a pause or reversal in a downward movement. Resistance is the opposite: a price level where sellers overtake buyers, prompting a stall or reversal in an upward trend. Support and resistance can be identified through various methods, including: - Examining historical turning points in the market - Identifying broken support/resistance, which may now act as resistance/support, respectively - Using trendlines - Using technical indicators, like Fibonacci retracements or moving averages. Position traders will usually highlight areas of support/resistance on the daily, weekly, or monthly charts in the direction of the broader trend, then enter a position when the price reaches the area. They may take profits at an opposing significant support/resistance level and set their stop losses beyond the area they entered at. Breakout Trading Breakout trading, as the name suggests, involves taking positions once these key areas of support or resistance are broken through. This approach can be particularly effective since it allows traders to potentially catch the start of a substantial move. Position traders will wait for a higher timeframe support/resistance level to break. To confirm breakouts, position traders often look for an increase in volume, which may indicate a surge in market interest and momentum. It’s also best to wait for the candle to close before entering the position, as this helps to confirm the breakout. Stop losses are usually set beyond a nearby swing point, while profits can be taken at a significant opposing level. As breakouts are generally part of a larger trend continuation, some traders may prefer to trail their stop losses at swing points to maximise profits. Pullback Trading Pullback trading is effectively an extension of breakout trading. However, instead of entering when the level is broken, traders wait for a retracement, allowing them to optimise their entry points and risk/reward ratio. A pullback occurs when the price temporarily moves counter to its broader trend before resuming its original direction. Position traders commonly look for a retracement to a previous area of support in a downtrend (expected to act as resistance) or resistance in an uptrend (expected to act as support). Alternatively, they may use the Fibonacci retracement tool. For confirmation that the area will hold, traders will often look for reversal candlestick patterns like hammers or shooting stars. For instance, position traders wait for a support/resistance level to be broken. However, they then observe the price action until a retracement occurs, watching for a reversal candlestick pattern. Once the pattern forms, they enter at the close of the candle. Profits can be taken at the high or low that originated the pullback or at a significant support/resistance level. Conversely, traders may prefer to trail their stop loss as the trend progresses. Triple Moving Averages Moving averages (MAs) are technical indicators that smooth out price data to reveal underlying trends. By combining multiple MAs, position traders can better understand where the price may be headed next. In this position trader’s strategy, we use the exponential moving average (EMA), which is slightly more responsive to recent price action. Simple moving averages (SMAs) are a good alternative. Want to see the difference for yourself? Hop over to FXOpen’s free TickTrader platform to find EMAs, SMAs, and a whole host of versatile trading tools. There are three components: a short-term EMA (20 periods), an intermediate-term EMA (50 periods), and a long-term EMA (200 periods). Combining the three allows us to account for both recent price changes and long-term trends. They are coloured blue, orange, and red, respectively, on the chart above. Trades can be taken when the short-term EMA crosses the long-term, but it’s best to wait for both the short-term and intermediate-term EMAs to break through the long-term in the same direction. In doing so, we have confirmation that trend momentum is picking up. Traders open a long position when the short and intermediate-term EMAs cross above the long-term one and open a short position when they cross below the long-term one. Stop losses can be placed just beyond the long-term EMA. The theory states that a profit can be taken when MAs cross over again. Position Trading Indicators Alongside the strategies listed, position traders use a variety of technical indicators to help identify and improve entries. Some of the most popular indicators employed by positional traders include: - Relative Strength Index (RSI): RSI is a momentum oscillator that shows overbought and oversold areas, helping traders spot potential reversals. - Bollinger Bands: Bollinger Bands are a volatility-based indicator that plots standard deviations of price. They can be used to identify impending trend reversals and periods of increased volatility. - On Balance Volume (OBV): OBV is a volume-based indicator that measures buying and selling pressure, allowing traders to confirm potential breakouts and trend reversals by analysing changes in volume. Final Thoughts In summary, position trading is a unique approach that removes much of the stress of intraday styles. If you’re ready to find the best positional trading strategy for you, consider opening an FXOpen account. You’ll be able to put these strategies to the test in over 600 markets, safe in the knowledge that you’re partnering with Traders Union’s Most Innovative Broker of 2022. 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
8
GLOSSARY Smart Money Concepts – Complete Terms!It’s taking the world by a storm. Smart Money Concepts is what has become famous lately. Now I’ve been trading for 20 years and even I have learnt to adapt and adjust SMC to my trading strategy. I guess we have to evolve and adapt with what there is. Anyways, today I’ve written a complete Glossary on Smart Money Concepts terms for you. Enjoy! SMART MONEY CONCEPTS GLOSSARY Break Of Structure (BOS) (CONTINUATION) A BOS is when the price breaks above or below, and continues in the direction of the trend. (CONTINUATION). Break Of Structure Down When the price breaks and closes BELOW the wick of the previous LOW in a DOWNTREND. Break Of Structure Up When the price breaks and closes ABOVE the wick of the previous HIGH in an UPTREND. Buy Side Liquidity (Smart Money SELLS) Where an Order Block forms where Smart Money SELLS into retailers (dumb money) BUYING orders – Pushing the price DOWN. Change of Character (CHoCH) (REVERSAL) Refers to a much larger shift in the underlying market trend, dynamic or sentiment. This is where the price moves to the point where there is a change in the overall trend. (REVERSAL) Change of Character Down When the price breaks and closes below the previous uptrend. Change of Character Up When the price breaks and closes above the previous downtrend. Daily bias Tells us which direction, trend and environment the market is in and what we are looking to trade. Daily bias Bearish When the market environment is DOWN and the trend is DOWN – we look for shorts (sells) in the market. Daily bias Bullish When the market environment is UP and the trend is UP – we look for long positions (buys) in the market. Discount market <50% The market is at a discount when the price trades BELOW the equilibrium level. We say the price is at a discount (low price). Equilibrium Equilibrium is a state of the market where the demand and supply are in balance with the price. We say the price of the market is at fair value. Fair Value Gap (FVG) A 3 candle structure with an up or down impulse candle that indicates and creates an imbalance or an inefficiency in the market. Fair Value Gap Bearish A 3 candle structure with a DOWN impulse candle that indicates and creates an imbalance or an inefficiency in the market. Between candle 1 and 3, do NOT show common prices. The price needs to move back up to rebalance and fill the gap. Fair Value Gap Bullish A 3 candle structure with an UP impulse candle that indicates and creates an imbalance or an inefficiency in the market. Between candle 1 and 3, do NOT show common prices. The price needs to come back down to rebalance and fill the gap. Levels of liquidity The area of prices where smart money players, identify and choose to BUY or SELL large quantities. E.g. Supports, resistances, highs, lows, key levels, trend lines, volume, indicators, psychological levels. Liquidity The degree, rate and ability for an asset or security to be easily bought (flow in) or sold (flow out) in the market at a specific price. Liquidity sweep (Liquidity grab) Smart money buys or sells (and sweeps or grabs liquidity) from traders who enter, exit or get stopped. Market down structure When the price makes lower lows and lower highs. Market structure Indicates what a market is doing, which direction it’s in and where it is more likely to go. Market Structure Shift (MSS) MSS shows you when the price is breaking a structure or changing the direction in the market. Market up structure When the price makes higher lows and higher highs. Order block Large market orders (big block of orders) where smart money buys or sells from different levels of liquidity. Order Block Bearish A strong selling or a supply zone for smart money. Order Block Bullish A strong buying or a demand zone for smart money. Order block events Large market orders where smart money buys or sells from certain events i.e. High volume, supports, resistances, highs, lows, key levels, Break Of Structure, Change of Character, News or economic event. Point Of Interest (POI) POI is an area or level in the market where there is expected to be a large amount of buying or selling activity i.e. Order blocks. Premium market >50% The market is at a premium when the price trades ABOVE the equilibrium level. We say the price is at a premium (high price). Sell Side Liquidity (Smart Money BUYS) Where an Order Block forms where the Smart Money BUYS into the retail (dumb money traders orders – Pushing the price UP. Smart Money These are the smart, informed, and savvy financial institutions that invest (buy and sell) their large capital into different financial markets. Smart Money Concepts SMC is a more sophisticated method of price action to spot, identify and locate where smart money is buying and selling their positions Sweep Buy Side Liquidity (Smart Money SELLS) Smart Money SELLS into positions (and sweeps liquidity) from retail traders who are short (get stopped) and for long traders who buy and enter their trades. Sweep Sell Side Liquidity (Smart Money BUYS) Smart Money BUYS into positions (and sweeps liquidity) from traders who are long (get stopped) and for short traders who enter their trades. Feel free to print this out and have it as a guide to your Smart Money Concepts trading journey. All the best!
TVC:SA40Education
by Timonrosso
101
Educational: MACD, What is it and how to use it 📊 Introduction You might want to read more about the MACD indicator if you're seeking for a technical indicator that can assist you in spotting market trends and momentum. Moving average convergence/divergence, or MACD, is one of the most well-known and often applied technical analysis indicators. We will define the MACD indicator, describe its operation, and provide trading tips in this publication. 📊 What is the MACD? The MACD indicator displays the relationship between two exponential moving averages (EMAs) of a security's price and is a trend-following momentum indicator. The 26-period EMA is subtracted from the 12-period EMA to calculate the MACD line. The MACD line is the output of the calculation. The signal line, which is then drawn on top of the MACD line and can be used as a trigger for buy or sell signals, is a nine-day EMA of the MACD line. When the MACD line crosses above the signal line, traders may buy the asset; when it crosses below, they may sell—or short—the security. The difference between the MACD line and the signal line is represented as a bar graph on the MACD indicator called the histogram. The histogram can inform traders of the strength of a directional move and forewarn them of a probable price reversal. It can also determine whether an asset is overbought or oversold. The MACD indicator thus depends on three time parameters, namely the time constants of the three EMAs. The notation "MACD (a,b,c)" usually denotes the indicator where the MACD series is the difference of EMAs with characteristic times a and b, and the average series is an EMA of the MACD series with characteristic time c. These parameters are usually measured in days. The most commonly used values are 12, 26, and 9 days, that is, MACD (12,26,9). 📊 How does the MACD work? The MACD indicator gauges how much two moving averages of various periods are convergent or divergent from one another. The price trend is revealed by the moving averages, a form of smoothing technique that eliminates noise and oscillations in the price data. The majority of MACD changes are driven by the shorter (12-day) moving average due to its speed. The 26-day moving average is slower and less responsive to changes in the price of the underlying securities. There is a strong momentum in that direction when the shorter moving average pulls away from the longer moving average (i.e., when there is a significant difference between the two). According on whether the movement is upward or downward, this indicates that there is an increase in either purchasing pressure or selling pressure. There is a weak momentum in that direction when the shorter moving average drifts in the direction of the longer moving average (i.e., when there is a minor difference between them). This signals a lessening of buying or selling pressure, as well as a price consolidation or sideways movement. 📊 How to use the MACD The MACD (Moving Average Convergence Divergence) indicator is designed to be used for several purposes in technical analysis. Its primary function is to identify potential trend reversals, confirm entry and exit points, and assess the strength of a trend. Here are the key applications of the MACD indicator: 🔹Trend Identification: The MACD indicator helps traders identify the direction of the underlying trend in a market. By comparing the MACD line (the difference between two moving averages) and the signal line (a smoothed moving average of the MACD line), traders can determine whether the trend is bullish or bearish. A positive MACD indicates a bullish trend, while a negative MACD suggests a bearish trend. 🔹Momentum Analysis: The MACD indicator provides insights into market momentum. When the MACD line and the signal line move farther apart, it indicates increasing momentum in the prevailing trend. Conversely, when the MACD lines converge or move closer together, it suggests a potential slowdown or loss of momentum. Traders can use this information to assess the strength of a trend and make informed decisions. 🔹Crossover Signals: The MACD indicator generates crossover signals when the MACD line crosses above or below the signal line. A bullish crossover occurs when the MACD line crosses above the signal line, indicating a potential buying opportunity. Conversely, a bearish crossover takes place when the MACD line crosses below the signal line, suggesting a potential selling opportunity. These crossover signals are commonly used to identify entry and exit points for trades. 🔹Divergence Detection: Divergences occur when the price of an asset moves in the opposite direction of the MACD indicator. Bullish divergences can be observed when the price makes lower lows while the MACD forms higher lows. Conversely, bearish divergences occur when the price achieves higher highs while the MACD forms lower highs. Divergences can be early indications of potential trend reversals and can help traders anticipate changes in market direction. 🔹Histogram Analysis: The MACD histogram represents the difference between the MACD line and the signal line, displayed as bars above or below a zero line. The histogram provides visual cues about the strength of a trend. When the histogram bars are above the zero line, it indicates bullish momentum, and when they are below the zero line, it suggests bearish momentum. Additionally, the shape and direction of the histogram bars can provide insights into potential trend reversals or market consolidations. 📊 How to access the MACD. The MACD can be accessed for free by simply clicking on your indicators tab and seraching MACD where you will find Moving average convergence/divergence. The MACD indicator is a useful tool, but to make well-rounded trading decisions, it should be utilized in conjunction with other technical indicators, price patterns, and fundamental analysis. To make the best use of the MACD indicator, traders need also take into account the individual market circumstances and periods they are trading in.
COINBASE:ETHUSDEducation
by ChristopherDownie
31
Ichimoku Cloud Demystified: A Comprehensive Deep DiveHello TradingView Community, it’s Ben with LeafAlgo! Today we will discuss one of my favorite indicators, the Ichimoku Cloud. The Ichimoku is a versatile trading tool that has captivated traders with its unique visual representation and powerful insights. We will dive deep into understanding the Ichimoku Cloud, explore its history, discuss its parts, highlight real-life examples, and address potential pitfalls. By the end of this article, we believe you will know how to leverage the Ichimoku Cloud effectively in your trading endeavors. Let’s dive in! Origin of The Ichimoku Cloud The Ichimoku Cloud, also known as Ichimoku Kinko Hyo, was developed by Goichi Hosoda in the late 1930s but was not published until later in the 1960s. Its name translates to "one glance equilibrium chart," reflecting its ability to provide a holistic view of market dynamics with a single glance. Over time the Ichimoku Cloud has become a popular trading tool among new and seasoned traders. Components of The Ichimoku Cloud Some traders believe the Ichimoku cloud is a complex jumble of lines with no rhyme or reason, but this is not necessarily true. The best way to understand the Ichimoku cloud is to break it down into its respective parts. Each element contributes to the overall interpretation of price action, trend direction, support and resistance levels, and potential entry and exit points. The Ichimoku Cloud has five components: Tenkan-sen, Kijun-sen, Senkou Span A and B, and Chikou Span. The Tenkan-sen and Kijun-sen, often called the Conversion Line and Base Line, respectively, are essential in identifying trend direction and momentum. Below we can see a bullish signal happens when the Tenkan-sen crosses above the Kijun-sen. Conversely, a bearish signal occurs when the Tenkan-sen crosses below the Kijun-sen. Typical length inputs for the Tenkan-sen and Kijun-sen are 9 and 26. The Senkou Span A and B form the cloud or "Kumo." These components serve as dynamic support and resistance levels, with Senkou Span A calculated as the average of the Conversion Line and Base Line and Senkou Span B representing the midpoint of the highest high and lowest low over a specified period, typically 52. The cloud's thickness and color provide visual cues for potential market strength and volatility. The Chikou Span, or the Lagging Span, is the current closing price plotted 26 periods back on the chart. It helps traders gauge the relationship between the current price and historical price action, providing insights into potential trend reversals or continuation. Putting the parts together gives us a complete picture of the Ichimoku Cloud. Each aspect contributes to the one-glance equilibrium theory, giving traders a more holistic view of price action. Applying the Ichimoku Cloud in Trading We now better understand all parts of the Ichimoku cloud, but that means little if we don’t understand how it can be utilized in trading. Let's explore examples that demonstrate the practical application of the Ichimoku Cloud: Example 1: Trend Following In an uptrend, we would look for the Tenkan-sen to cross above the Kijun-sen while the price remains above the cloud. When the price retraces to the cloud, a long position opportunity may arise, with the cloud acting as support. The Chikou Span should also be above the historical price action, confirming the bullish sentiment. Example 2: Trend Reversals and Breakout Opportunities A potential trend reversal or continuation can be identified when the Tenkan-sen crosses above the Kijun-sen and the price moves above the cloud. A breakout trade can initiate when the price breaks through the cloud's upper boundary, indicating a shift in momentum. For the Ichimoku cloud to give its strongest confirmation of a reversal, some traders will take a fairly conservative approach and wait for a few things to occur. Traders typically wait for a kumo twist, the Tenkan-sen/Kijun-sen cross, and the Chikou Span to break the cloud and be above the price. The reverse of these signals can be used in the same fashion for a short position. Example 3: The Kumo Twist In a trend, a Kumo Twist can signal a potential trend reversal. Look for the Senkou Span A to cross above or below the Senkou Span B within the cloud. This twist can confirm a shift in market sentiment. Traders can enter a position when the twist is confirmed, placing a stop loss above or below the cloud or the recent swing high/low. I think of the Kumo twists and subsequent clouds as a trend filter. Placing longs on the bullish side or shorts on the bearish side, however, some traders use the Ichimoku Cloud in a contrarian fashion. Contrarian trades can be profitable using this method as price tends to pull back to the clouds A or B span where support or resistance may lie. Pitfalls and Challenges: Avoiding Common Mistakes While the Ichimoku Cloud is a powerful tool, it is paramount to be aware of potential pitfalls. Here are a few challenges to navigate: False Signals and Choppy Market Conditions In ranging or volatile markets, cloud signals may generate false indications. During such periods combine the Ichimoku Cloud with other technical indicators or wait until the market picks a direction. Moving out to higher time frames can help clear the murkiness of consolidation phases and provide a clearer picture of the trend, in turn, weeding out false signals. Overcomplicating Analysis The Ichimoku Cloud provides a wealth of information, but it's crucial to maintain simplicity and focus. Avoid overcrowding the chart with an abundance of indicators, especially other overlays. It is easy to get lost in the sauce or run into redundancies with too much on the chart. Testing and Adapting Each market has its characteristics or volatility, and it's essential to backtest the Ichimoku Cloud strategy, experiment with different parameters, and adapt to market conditions over time. Many traders rely on the standard settings, but in my time developing trading algorithms, I have learned that those settings do not hold from market to market or consistently over time. It is critical to regularly revisit your settings or overall trading strategy to make sure you are drawing on the best available information the Ichimoku Cloud can give. Enhancing the Ichimoku Cloud Strategy To enhance your understanding and utilization of the Ichimoku Cloud, consider the following: Incorporating Other Technical Indicators Combining the Ichimoku Cloud with other indicators, such as oscillators, to confirm signals can be beneficial. I know I said not to over-clutter your chart with other indicators, but that is a rule of thumb more set for overlays. Timeframe Considerations Adapt the Ichimoku Cloud to different timeframes based on your trading style. Higher time frames may provide more reliable signals, while lower timeframes may offer shorter-term opportunities. I don’t believe it ever hurts to back out a few time frames to get a clear picture of market dynamics and avoid tunnel vision. Conclusion The Ichimoku Cloud is a versatile indicator, and today we scratched the surface of how it can be appropriately used. Remember, practice, patience, and continuous learning are critical for refining your skills and adapting the Ichimoku Cloud strategy to ever-evolving market conditions. If there is anything unclear or you have any questions, please don’t hesitate to comment below. Trading education is our passion, and we are happy to help. Happy trading! :)
Education
by LeafAlgo
49
Stock Heatmap: The Ultimate Guide for Beginners (2023)How to use the Stock Heatmap on TradingView to find new investment opportunities across global equity markets including US stocks, European stocks, and more. Step 1 - Open the Stock Heatmap Click on the "Products" section, located at the top center when you open the platform. Then click on "Screeners" and “Stock” under the Heatmap section. Members who use the TradingView app on PC or Mac can also click on the "+" symbol at the top of the screen and then on "Heatmap - stocks". Step 2 - Create a Heatmap with specific stocks Once the Heatmap is open, you have the capabilities to create a Heatmap based on a number of different global equity markets including S&P 500, Nasdaq 100, European Union stocks, and more. To load these indices, you must click on the name of the current selected index, located at the top left corner of the screen. In this example, we have the S&P 500 heatmap loaded, but you can load any index of your choice by opening the search menu and looking for the index of your choice. Step 3 - Customize the Stock Heatmap Traders can configure their Heatmap to create highly custom visualizations that’ll help discover new stocks, insights, and data. In this section, we’ll show you how to do that. Keep on reading! The SIZE BY: Button changes the way companies are sized on the chart. If we click on "Market Cap" in the top left corner of the Heatmap, we can see the different ways to configure the heatmap and how the stocks are sized. By default, "Market Cap" is selected with the companies, which means a company with a larger market capitalization will appear bigger than companies with smaller market capitalizations. Let’s look into the other options available! Number of employees: It measures the size of the squares based on the number of employees in the company. The larger the square size, the more employees it has relative to the rest of the companies. For example, in the S&P 500, Walmart has the largest size with 2.3 million employees. If we compare it to McDonalds, which has 200,000 employees, we can see that Walmart's square size is 11 times larger than McDonalds. This data is usually updated on an annual basis. Dividend Yield, %: If you choose this option, you will have the size of the squares arranged according to the annual percentage dividend offered by the companies. The higher the dividend, the larger the size of the square. It is important to note that companies with no dividend will not appear in the heatmap when you have chosen to arrange the size by Dividend Yield, %. Price to earnings ratio (P/E): It is a calculation that divides the share price with the net profit divided by the number of shares of the company. Normally the P/E of a company is compared with others in its own sector, i.e. its competitors, and is used to find undervalued investment opportunities or, on the contrary, to see companies that are overvalued in the market. Oftentimes a high P/E ratios indicate that the market reflects good future expectations for these companies and, conversely, low P/E ratios indicate low growth expectations. Going back to heatmaps, it will give a larger square size to those companies with higher P/E ratio over the last 12 months. Companies that are in losses will not appear in the heatmap as they have an undetermined P/E. Price to sale ratio: The P/S compares the price of a company's shares with its revenue. It is an indicator of the value that the financial markets have placed on a company's earnings. It is calculated by dividing the share price by sales per share. A low ratio usually indicates that the company is undervalued, while a high ratio indicates that it is overvalued. This indicator is compared, like the P/E ratio, to companies in the same sector and is also measured over the most recent fiscal year. A high P/S indicates higher earnings expectations for the company and therefore could also be considered overvalued, and vice versa, companies with a lower P/S than their competitors could be considered undervalued. Price to book ratio: The P/B value measures the stock price divided by the book value of its assets, although it does not count elements such as intellectual property, brand value or patents. A value of 1 indicates that the share price is in line with the value of the company. High values indicate an overvaluation of the company and below, oversold. Again, as in the P/E and P/S Ratio, it is recommended to compare them with companies of the same sector. Regarding the heatmaps, organizing the size of the squares by P/B gives greater size to companies with high values and it is measured by the most recent fiscal year. Volume (1h, 4h, D, S, M): This measures the number of shares traded according to the chosen time interval. Within the heatmaps comes by default the daily volume, but you can choose another one depending on whether your strategy is intraday, swing trading or long term. It is important to note that companies with a large number of shares outstanding will get a higher trading volume on a regular basis. Volume*Price (1h, 4h, D, S, M): Volume by price adjusts the volume to the share price, i.e. multiplying its volume by the current share price. It is a more reliable indicator than volume as some small-cap stocks or penny stocks with a large number of shares would not appear in the list among those with the highest traded volume. Also available in 1-hour, 4-hour, daily, weekly and monthly time intervals. COLOR BY: In this area we will be able to configure how individual stocks are colored on the Heatmap. If you’re wondering why some stocks are more red or green than others, don’t fret, as we’ll show you how it works. For example, click on the top left of the Heatmap where it says "Performance D, %" and you’ll see the following options: Performance 1h/4h/D/S/M/3M/6M/YTD/Year (Y), %: This option is the most commonly used, where we choose the intensity of the colors based on the performance change per hour, 4 hours, daily, weekly, monthly, in 3 or 6 months, in the current year, and in the last 12 months (Y). Tip: this feature works in unison with the heat multiplier located at the top right of the Heatmap. By default, x1 comes with 3 intensity levels for both stocks in positive and negative, as well as one in gray for stocks that do not show a significant change in price. This takes as a reference values below -3%/-2%/-1% for stocks in negative or above +1%/+2%/+3% for stocks in positive and each of the levels can be turned on or off independently. As for how to configure this parameter, you can use the following settings according to the chosen intervals. For 1h/4h intervals, multipliers of: x0.1/x0.2/x0.25/x0.5 are recommended. For daily heat maps, the default multiplier would be x1. And finally, for weekly, monthly, 3 or 6 months and yearly intervals, it is recommended to increase the multiplier to x2/x3/x5/x10. Pre-market/post-market change, %: When this option is selected, you can monitor the changes before the market opens and the after hours trading (this feature is not available in all countries). For example, if we select the Nasdaq 100 pre-market session change, we will see the day's movements between 4 a.m. and 9:30 a.m. (EST time zone). Or, if we prefer to analyze the Nasdaq 100 post-market, we will have to choose that option; this would cover the 4 p.m. to 8 p.m. time zone. For heatmaps in after-hours trading we recommend using very low heat multipliers (x0.1; x0.2; x0.25; x0.5). Relative volume: This indicator measures the current trading volume compared to the trading volume in the past during a given period and it measures the level of activity of a stock. When a stock is traded more than usual, its relative volume increases. Consequently, liquidity increases, spreads are usually reduced, there are usually levels where buyers and sellers are fighting intensely and where an important trend can occur. The possible strategies are diverse. There are traders who prefer to enter the stock at very high relative volume peaks, and others who prefer to enter at low peaks, where movements tend to be less parabolic in the short term. In the stock heatmap, relative volume is identified in blue colors. Heat multipliers of x1, x2 or x3 are usually the most common for analyzing the relative volume of stocks. Let's do an example: Imagine that we want to see the most unusual movements in today's Nasdaq 100 after the market close. We select the color by Relative Volume and apply a default heat multiplier of x1. Then, in order to be able to see only those stocks that stand out the most, we uncheck the numbers 0; 0.5; 1 at the top right of the screen. After this, we will have reduced the number of stocks to a smaller group, where we will be able to see chart by chart what has happened in them and if there is an interesting opportunity for trading. Volatility D, %: It measures the amount of uncertainty, risk and fluctuation of changes during the day, i.e., the frequency and intensity with which the price of an asset changes. A stock is usually referred to as volatile when it represents a very high volatility compared to the rest of the chosen index. Volatility is usually synonymous with risk, since the price fluctuation is greater. For example, we want to invest in a stock with dividends on the US market, but we are somewhat averse to risk. To do so, we decide to look for a stock with a high dividend yield with low volatility. We select the index source "S&P 500 Index", then size by "Dividend yield, %" and color by "Volatility D, %". Now, we deactivate the heat intensity levels higher than 2%, but higher than 0% (those that do not suffer movement, usually have low liquidity). From the list obtained, we would analyze the charts of the 10 companies that offer us the best dividend. Gap, %: This option measures the percentage gap between the previous day's closing candle and the current day's opening candle, i.e. the difference in percentage from when the market closes to when it opens again. GROUP BY: Here you can enable or disable the group mode. By default all stocks are grouped by sector, but if you select ‘No group’, you will see the whole list of companies in the selected index as if it were a single sector. It is ideal for viewing opportunities at a general level, you can sort directly by dividend percentage and see the companies in the index with the best dividend from highest to lowest or, for example, the best yielding stocks by market capitalization size. Another important note is that when you have chosen to group stocks by sector, you can zoom in on a specific sector by clicking on the sector name. Doing so, you will be able to analyze the assets of that sector in more depth. TOGGLE MONO SIZE: Here you can split all the stocks in the selected index completely equally in size, while still respecting the order of the chosen configuration. That is, if we have toggled the mono size by market cap, all the stocks will have the same square size with the first ones being the ones with the largest capitalization, from largest to smallest. FILTERS: One of the most interesting settings, where it allows you to filter certain data to eliminate "noise" and have a selection of interesting stocks according to the chosen criteria. It is important to note that in filters we can see in each of the parameters where most of the stocks are located by vertical lines of blue color. It is especially useful in indexes where all stocks of a certain country are included, for example, the index of all US companies. Making a good filter will help you find companies in a heatmap with very specific criteria. The parameters are the same as those found in the SIZE BY section, i.e. market cap, number of employees, dividend yield, price to earnings ratio, price to sales ratio, price to book ratio, and volume (1h/4h/D/W/M). Primary listing: When you work on an index with stocks that may be, for example, from another country or not traded within the main market, they will be categorized outside the primary listing. STYLE SETTINGS: Here you can change the content of the inner part of the heatmap squares: Title: The company symbol or ticker (e.g., AAPL - Apple Inc.). Logo: The company logo. First value: Shows you the value you have chosen in the COLOR BY section (performance 1h/4h/D/S/3M/6M/YTD/Y, pre-market and post-market change, relative volume, volatility D, and gap). Second value: You can choose between the current price of the asset or its market cap. These values are also available when you hover your mouse over one of the stocks and hold it over its square for a few seconds. SHARE: On TradingView, we can easily share our trading analysis and our heatmaps! You can download your Heatmap as images or you can copy the link to share it across social networks like Facebook,Twitter, and more. If you made it this far, thanks for reading! We look forward to seeing how you master the Heatmap and all it has to offer. We also want to hear your feedback! Leave us your comments below! 👇 - TradingView Team
NASDAQ:AAPLEducation
by TradingView
38
Scalp TradingWhat is scalping? Scalp trading, also known as scalping, is a popular trading strategy characterised by relatively short time periods between the opening and closing of a trade. Scalping is the shortest-term style of day trading that specialises in profiting from small changes in the price of assets. Its name derives from the way its goals are achieved – by skimming many small profits off a vast number of trades throughout the day. The philosophy behind this technique is that small wins can easily morph into large gains. Scalping focuses on larger position sizes for smaller profits in the shortest period of holding time: from a few seconds to minutes. Rarely, it can last up to several hours. The main goal is to open a position at the ask or bid price and then quickly close the position a few points higher or lower for a profit. All positions are closed at the end of the trading day. Traders who implement this strategy are referred to as scalpers. They believe that it's easier to profit from small moves in prices rather than from large ones. Scalpers can place up to a few hundred trades in a single day, seeking small profits. You have to take into consideration that scalping trading requires some level of professionalism, as it is known as one of the most challenging trading styles to master. It requires razor-sharp focus and unbelievable discipline due to the fast-paced nature of scalp trading, where decisions should be taken within a few seconds. Therefore, a thought-out exit strategy should be developed by the trader in order to prevent potential large losses. Scalp trading strategies and techniques In fact, a scalper has a variety of ways to make money. Scalping can be used as a primary technique or a nice addition to your overall trading strategy. A successful scalper is trying to work out price patterns, support and resistance, and technical indicator signals. To stay on top of scalping trading, you can focus on the various time frame interval charts, such as the one-minute and five-minute candlestick charts. Scalping traders also commonly use momentum indicators, such as the stochastic oscillator, relative strength index (RSI) and moving average convergence divergence (MACD) oscillator. Price chart indicators, such as moving averages and Bollinger bands, can be employed too. You can also utilise some other technical analysis indicators as you please. The most well-known scalping technique is simply using the market's time and sales to decide where and when to make trades. Another frequently used method is to have a defined profit target amount per trade that should be relative to the price of the asset – this can range between 0.1% to 0.25%. You can also track stocks breaking out to new daily highs or lows and employ Level II (the order book) to capture as much profit as possible. Lastly, some traders will follow the news and trade present or upcoming events that can cause increased volatility in some particular asset. One of the most convenient ways to execute scalp trading, however, is through trading a contract for difference (CFD). CFDs allow you to leverage your money, providing you with the opportunity to take much larger positions with a smaller amount of initial capital. Leverage gives you an opportunity to magnify returns (as well as losses). CFDs also give you an opportunity to trade an asset without ever taking ownership of it by simply speculating on its price direction. It provides greater liquidity and easier execution. Additionally, when you are scalping with CFDs, you don’t have to pay financing interest, as you don’t hold any positions overnight. So, to be or not to be a scalper? It all really depends on your personal trading interests and goals. If you prefer quick trades and are eager to learn some new techniques, then, perhaps, scalping is for you. Certainly, this strategy can be quite challenging. If you’re a novice, it might be a good idea to practice with a demo account until you are ready to dive into the real game. What you need to know about scalping Just like any other technique used in trading, scalping has several characteristics that should be considered before you decide to add it to your overall strategy. Firstly, what makes scalping so attractive to traders? One of the ponderable pros of a scalping strategy is that it gives a trader lower exposure to risk due to the relatively smaller position size – something we could all benefit from in today’s unpredictable markets. Scalping offers a greater number of trading opportunities as smaller price moves are easier to enter. Plus, smaller moves happen more frequently than larger ones: even in relatively calm markets, there are still many small movements from which a scalper can benefit. Additionally, you can place up to a hundred or more trades per day. The main disadvantage of a scalping strategy is that not everyone is ready for such fast and demanding trading. It is profitable for some traders, but also brings its own share of risks. When scalping, precise timing and prompt execution are essential. If something in the market goes wrong, and you don't respond quickly, there is a high chance you can sustain some large losses. Think of scalping trading as a sprint, so you have to capitalise quickly on available opportunities. How scalp trading works A scalp trade is better described as an assumption that most securities will complete the first stage of a movement in a short span of time. When trading, scalpers want to profit from the changes in an asset's bid-ask spread. So, it is fair to say that scalping takes advantage of market volatility. The scalp trader buys an asset when the spread between the bid and the ask is narrower than usual, with the ask lower and the bid higher than it normally is. Conversely, the scalper sells when the spread between the bid and the ask is wider than usual, with the ask higher and the bid lower than it should be.
CAPITALCOM:US100Education
by Capitalcom
33
[Education] You Are Dumb For Not Using A Stop LossI always thought that stop losses are useless. Whenever I see price taps me out, and go in my direction. Whenever price comes close to my stop loss, the spread will somehow widen and take me out, and go in my direction. I was always angry about this. “The broker must be trading against me! I must hide my stop loss!” I stop using stop losses. For some trades, I won because price couldn’t tap me out and go in my direction. I thought I was a genius by not trading with a stop loss. I became confident. This worked until it didn’t work. It was NFP. It’s 10 seconds away from news release. I was trading a $1,000 account. My trade was in $8 drawdown. I looked at the chart, knowing that I will close the trade if it goes against me. The price became very volatile. 5…4…3…2…1… Nothing happened. The price feed seemed to have lagged. A few seconds later, I saw an enormous bullish candle, against the direction of my trade. The $8 drawdown became $200 drawdown. I got wrecked. I’m supposed to close the trade at a 1% loss, and it became a 20% loss. It’s fine. After a strong impulse, the price will retrace, right? I hoped for the price to make a bearish retracement. But every minute passed, and the chart prints more bullish candles. I closed the trade at a $435 loss. What’s supposed to be a $10 loss turned out to be a $435 loss, 43x more than what I risked. Types of Broker When I started trading, I didn’t even know the existence of A-Book Brokers or B-Book Brokers. They do make a lot of difference in trading. A-Book brokers route your trades directly to the forex liquidity providers, who in turn routes them to the interbank market. B-Book brokers will trade against you. our profits are their losses, and your losses are their profits. There is a clear conflict of interest here. The problem here is that you deposit your money into brokers without reputations. Finding a reputable broker will reduce the probability of them purposely taking out your stop losses. But if you think about it, why would they want to take your $10 stop loss to ruin their reputation? Your trade must be deep in drawdown often for your broker to manipulate your trades. You should relook into your strategy instead of blaming your brokers. Impact On Psychology Trading with a stop loss gives you a peace of mind. Imagine that I had use a stop loss on my NFP trade, I do not need to stalk my trade. I don’t need to worry that the server lagging, which made me unable to close my trade. Without using a stop loss, I can’t close my trade when price hits my stop loss level. This too can happen if your internet connection lagged or is down during that crucial period of time. Your psychology must be very strong to trade without a stop loss. Believe me. You will wait for a few seconds to close. Hoping that trade will turn in your favor within that few seconds. You will end up losing more. Trading with a stop loss is good for your trading psychology. You know that whatever happened, you will lose what you’ve risked. You do not need to stress that you might risk too much on a trade. Trading is a marathon, but many of you have the wrong impression that this is a get-rich-quick hustle. Consider trailing your stop loss when you’re in profit or set them to breakeven when the price moved. Remember, anything can happen in the market. You might be in profit now, but the price can shoot past your stop loss the next minute. If you’re not fast enough to react, you will close your trade at an unfavorable price. Taking Partial Profits Taking partials is better for you. You don’t need to worry if there are any situation where you cannot close your trade in time. Taking partials is important if you don’t want to shift your stop loss. Assume that your trade runs 1R in profit, you can close half. This yields 0.5R. You can choose to keep your original stop loss. When price comes back to take you out, your result will be breakeven. Always remember, a small win is better than a full loss. Consistent small wins will be beneficial in prop firm challenges. Time limit will stress you out. Consistent small wins make you feel like you’re progressing towards passing the challenge. Risk Management There are a lot of ways to profitability. You can either have a high win rate, but low risk-to-reward ratio, or a low win rate, but high risk-to-reward ratio. I’m sure you want a high risk-to-reward ratio trading strategy. Before that, you have to understand how your psychology works. Are you able to execute the same trade that fits your trading strategy again and again? You need to follow your plan despite losing 10 or 20 trades in a row. Will you start to doubt your trading strategy? Your account balance going lower and lower every time you take a trade. Once you’re trading live, you have to accept the risk for each trade you’re taking. You have to accept that you can be wrong more than you’re right. You cannot control the outcome of your trades. You can control the amount of risk you take per trade. I recommend risking 1% or lower for each trade. The goal here is to focus one capital preservation. By limiting your risk to 1% a trade, you are able to keep your account balance safe. Compare this to people who risk 20% or 50% a trade. In a few losing trades, their account balance will be very close to $0. These are the gamblers that do not have the right risk management skills. News Trading I always thought that trading news is the same as trading at any time of the day. Price will go to wherever it needs to go. Since my backtest don’t take into consideration of news, I can trade news in live market too. But after the incident where I lost 43x more than what I risked, I stopped trading news. If I have an open position and in profit, I will close half of my position and shift my stop loss to breakeven. If my position is in drawdown, I will close all the position. The risk of slippage does not justify the reward. If your normal RRR is 1:3 with a 33% win rate, the risk of slippage can turn your potential RRR to be 1:1 because you can potentially lose 3% instead of 1%. Rewarding Journey When I started to focus more on capital preservation, profits comes to me. It’s counterintuitive. It’s normal to think that to be profitable, we need to focus on profits. Having a strict trade management helps a lot with my psychology. I know how many losses I will need to lose my account. Knowing this, it helps with my psychology as I give myself the room to make errors and take losses. I know that my trading strategy is profitable in the long run. I know how much drawdown I can expect from my trading strategy. To be like me, you need a lot of backtest data. I have 1,000 trades logged, which is why I am comfortable trusting my trading strategy. Following to my trading plan allows me to not focus on the noises and my emotions. I trade mechanically. This has allow me to pass various prop firm challenges and gotten various payouts. I have another payout that’s coming in this Tuesday. I’ve always wondered what’s the feeling of constantly getting withdrawals. Now I know how it feels. I’m progressing ahead to leaving my 9 – 5 job. My 2023 goal was to get funded and get 1 payout. It’s not even the end of June 2023 yet, and I’ve achieved my goal. Right now I’m accumulating more accounts from all my payouts. It will take awhile, but I will reach my next milestone of managing $600,000 soon enough. Accountability Partner The hardest part of trading alone is sticking to your own rules. In a day job, you report to your manager and boss. When you’re trading, you’re reporting to yourself. It is hard to be accountable to yourself. Having an accountability partner or a mentor is the best solution to solve this problem. Do you know why legends like Oprah Winfrey has a coach? A coach gives guidance and a holistic review on your performance. They act as an accountability partner. They push you and hold you accountable for your actions. Having someone there for you when you feel down and unmotivated can be motivating. It’s hard to find a suitable mentor or accountability partner given the nature of the financial market. There are a lot of scammers out there selling course materials which you can find online. You need to know that the person selling the course or mentorship does not rely on sales for a living. But instead, he must be earning most of his income from trading. Look at his content, see if they resonates with you. Look at his track record, are they afraid of showing 3rd party verification? Do they only show you screenshots of trades that have already happened? Do they only show their results on excel sheet? If you’ve been following me on my journey, you would have seen my progression. I’ve manage to break free of my unprofitable self to a consistent profitable trader now. Remember, trading is not an easy hustle. It take years of hard work, losses and, breakeven to achieve consistent profitability. Stay consistent. Stay safe. Success is just around the corner. If you enjoy such content, feel free to click the like button and subscribe for more. Let me know what are your thoughts and learning points in the comments below so others can learn from you too! Please let me know what kind of topic you would like to read next :)
TVC:SPXEducation
by Keeleytwj
107
The Power of Volume: Understanding Volume Analysis in TradingIn the dynamic world of financial markets, successful traders know that understanding volume analysis is crucial for making informed trading decisions. Volume, the number of shares or contracts traded during a given period, provides valuable insights into market dynamics and helps identify potential trends, reversals, and the strength of price movements. In this Educational article, we will explore the power of volume and its significance in trading, uncovering the key principles of volume analysis, practical strategies for incorporating it into your trading toolkit. 📊 The Basics of Volume Analysis 📊 Volume analysis is the study of trading activity represented by the volume of shares or contracts traded within a specified time frame. By analyzing volume alongside price movements, traders gain insights into market sentiment, liquidity, and the overall strength of a trend. Here are some fundamental concepts to consider: Volume and Price Relationship: Volume often accompanies significant price moves. When volume surges during an uptrend or downtrend, it suggests increased participation and conviction from market participants. Conversely, low volume during consolidations or indecisive periods can indicate a lack of interest or involvement. Volume Patterns: Patterns in volume can reveal important clues about market dynamics. For example, a gradual increase in volume during an uptrend may suggest a healthy and sustainable trend, while a sudden spike in volume near key support or resistance levels could signal potential reversals. 📊 Analyzing Volume in Different Market Scenarios 📊 Volume analysis can be applied across various market scenarios to gain insights into the underlying dynamics. Here are a few examples: Breakouts: When a stock or asset price breaks out of a key resistance level with high volume, it suggests strong buying interest and potential continuation of the uptrend. Reversals: A significant increase in volume accompanied by a sharp price reversal may indicate a trend exhaustion and potential reversal. Volume analysis helps validate potential reversal signals. Divergence: When the price is moving in one direction while volume is moving in the opposite direction, it can indicate a weakening trend. Divergences between volume and price can provide valuable early signals of trend reversals. Example: FINPIPE _ breakout with huge volume & reversal candle at retest (at support) of breakout with huge volume 📊 Integrating Volume Analysis into Your Trading Strategy 📊 To effectively incorporate volume analysis into your trading strategy, consider the following tips: Confirmation: Volume analysis can act as a confirmation tool for other technical indicators or chart patterns. For example, if a price breakout occurs with high volume, it confirms the strength of the breakout. Relative Volume: Compare current volume to historical averages to gauge the intensity of trading activity. Unusually high or low volume relative to average volume can highlight potential trading opportunities. Multiple Time Frames: Analyzing volume across different time frames can provide a broader perspective on market dynamics. Higher time frames can reveal long-term trends, while lower time frames offer insights into intraday trading activity. 📊 Volume Indicators 📊 To assist traders in analyzing volume effectively, several technical indicators have been developed. These indicators help visualize and interpret volume data in meaningful ways. Here are a few commonly used volume indicators: Volume: The most basic volume indicator, volume bars represent the volume traded during each price bar or candlestick. By comparing the height of volume bars across different periods, traders can identify anomalies or significant shifts in trading activity. Moving Average in volume indicator: Moving Average calculates the average volume over a specified period. It smoothens out volume data, making it easier to identify volume spikes. On-Balance Volume (OBV): OBV measures the cumulative volume by adding or subtracting the volume based on whether prices close higher or lower. It helps identify periods of accumulation or distribution and can provide early signals of trend reversals. Wave Volume Divergence: A unique addition to volume indicators, this indicator enhances volume analysis by providing wave volume divergence and cumulative volume information. Traders can utilize this indicator to identify potential divergences between volume and price, as well as observe the cumulative volume trends. If you found this article helpful, please give it a like and feel free to share your observations in the comments section. Your support and feedback are highly appreciated, as they keep me motivated to write consistently. Thank you for your support, likes, follows, and comments! For more articles and trade setups, don't forget to follow me on TradingView: in.tradingview.com Keep exploring the power of volume analysis, and remember: 🌟 "Success in trading comes to those who diligently study the market and adapt their strategies." 🌟 📊🚀📈 #TradingView #TechnicalAnalysis #VolumeAnalysis #MarketInsights
NSE:NIFTYEducation
by AfnanTAjuddin
75
What Is Swing Trading?Are you looking for a way to take advantage of short-term market movements without the stress of day trading? Look no further than swing trading. In this article, we’ll dive deep into the world of swing trading, exploring how it differs from day trading, discussing its advantages and disadvantages, and taking a look at some of the most popular swing trading tools and indicators. The Basics of Swing Trading Swing trading involves holding a position for a short to medium period of time - usually a couple of days to a few weeks - with the aim of profiting from the “swings” in the market. A swing trader’s definition is simple: swing traders are those who typically enter and exit at significant support and resistance levels, hoping to capture the bulk of an expected move and take profits at potential reversal points in the market. The swings are marked with numbers in the chart below. These traders tend to look at hourly to weekly charts to guide their entries, although the specific timeframe used will depend on the swing trader’s individual style and the asset being traded. It can be used across all asset classes, from stocks and forex to crypto* and commodities. Swing plays in the stock market can be especially effective, as stocks tend to experience plenty of volatility and are subject to frequent news and events that can drive prices to traders’ targets. Swing traders predominantly use technical analysis to determine their entries and exits, but fundamental analysis can also play a significant role compared to shorter-term styles, like day trading. Fundamental analysis, like comparing the interest rates of two economies, can help to set a swing trader’s directional bias over the course of days or weeks. Swing Trading vs Day Trading On the face of it, swing trading and day trading may look similar. After all, both types of traders may look to profit from one key support/resistance level to another. However, there are significant differences between them. The most distinct difference is the holding period. Day traders aim to close all of their positions by the end of the day and tend to exit a trade within a few hours. It’s rare for swing traders to hold a position for less than a day, although it can happen if their target is met during extreme market volatility. Long-term swing trading can involve holding a position for months - something you won’t see any day trader doing. This difference in holding period has important implications for risk management. Day trading can be riskier than swing trading, as day traders are exposed to more volatility and are more susceptible to sudden price movements. Swing traders, on the other hand, have more time to react to changes in the market and ignore intraday noise in favour of focusing on their longer-term target. However, because day traders don’t hold their positions overnight, they also avoid the risk of any adverse events affecting their position while they’re asleep. Swing traders don’t have this luxury. The frequent in-out nature of day trading means active traders can incur more commission fees than swing traders. Spreads are also less of a concern when swing trading, as wide intraday spreads impact a swing trader’s position less than they impact the position of a day trader. Finally, the psychological and time pressures are reduced when swing trading. Day trading can be a highly stressful activity, and it requires near-constant attention to the charts. Swing trading can be a much more relaxed approach, avoiding the stresses of intraday price movements and allowing for much less active management. Swing Trading Advantages and Disadvantages Swing trading has several advantages that make it a popular choice for many traders. That said, it comes with a few disadvantages traders should be aware of. Let’s consider them. Advantages - Lower Time Commitment One of the biggest benefits for swing traders is the reduced time commitment. Many of us have other things going on that mean we can’t commit several hours a day to trading. Swing trading can be adapted to suit a trader’s individual schedule and may only require a few hours each week to be successful. - Flexibility Swing trading is often more flexible than other styles of trading. Not only does it offer time flexibility, but it allows for a wider range of instruments to be traded. For example, you might have trouble performing technical analysis on the 1-minute chart for an illiquid stock, while the 1-hour chart has plenty of price action for you to analyse. In the stock market, swing trading may even be preferred because of the greater number of opportunities it can present. - Potential Higher Returns Than Long-Term Trading Because swing traders usually hold positions for a few days to a few weeks, they have the ability to take advantage of shorter-term market movements that might not be reflected in longer-term price trends. For instance, if a stock experiences a temporary dip in price due to a short-term event, swing traders can take advantage of this dip and make a quick profit when the stock rebounds. Disadvantages - Less Time to React to Market Changes What is a swing trader’s biggest disadvantage? The amount of time they have to react to sudden price movements. Short-term traders that are actively managing their positions may be able to stay out of a position entirely until volatility subsides. In contrast, swing traders may not be available to adjust their position if they’re at work or asleep, leading to potentially significant losses. - Overnight Holding Risks Part of the issue with holding trades overnight is that they can gap up or down - opening much higher or lower than the previous day’s closing price, which could mean a stop loss isn’t triggered. This can result in large losses beyond what the trader was initially willing to risk. - Requires Discipline to Hold Trades Holding a position for several days or weeks can be tough for some traders. Intraday market movements may lead to impulsive decision-making, like closing a trade prematurely or taking a loss because of a perceived change in market direction. To weather these short-term price movements, swing traders must have the discipline to manage their emotions and only check the charts infrequently. Popular Tools to Use When Swing Trading A swing trader’s strategy will ultimately depend on their unique system for entering and exiting trades. There’s no right or wrong way to swing trade; the most important aspect is finding an edge over the market and achieving long-term profitability. Here are three common tools and indicators that can be used as part of a swing trading strategy. Channels Traders can use channels to take advantage of long-term price trends that play out over days and weeks. To plot a channel, you first need to identify a trending asset that’s moving in a relative zig-zag pattern rather than one with large jumps in price. Swing traders will often use the channel to trade in the direction of the trend; in the example above, they might look to buy when the price tests the lower line and take profit when the price touches the upper line of the channel. Moving Averages Moving averages are one of the simplest indicators, but they can help swing traders determine the direction of the trend at-a-glance. The options here are endless: - You could pair fast and slow moving averages (MAs) and wait for the two to cross; this is known as a moving average crossover. When a shorter MA crosses above a longer one, the price is expected to rise. Conversely, when a shorter MA breaks below a longer one, the price is supposed to decline. - You could stick with one and observe whether the price is above or below its average to gauge the trend. When the price is above the MA, it’s an uptrend; when it’s below the MA, it’s a downtrend. - You could use an MA as a support or resistance level, placing a buy order when the price falls to the MA in an uptrend and a sell order when it rises to the MA in a downtrend. In this equity swing trading example, we’ve applied the Exponential Moving Average (EMA) Cross indicator with a 50 and 200-period length in TickTrader. As you can see, it was valuable for identifying the direction of the S&P 500 over the course of several weeks and could have resulted in a profitable swing call. Fibonacci Retracements Lastly, many swing traders look to enter pullbacks in a larger trend. One of the most popular ways to identify optimum entry levels during these pullbacks is with the Fibonacci Retracement tool. Traders typically wait for a shift in price direction, then apply the tool to a swing high and swing low. Then, they enter at a pullback, usually to the 0.5 or 0.618 levels, to profit from the continuation of the trend. As seen above, this strategy can offer ideal entry points for swing traders looking to get in early before a trend continues. The Bottom Line In summary, swing trading can be an ideal style for many would-be traders out there. Rather than spending hours in front of the screen each day, swing traders can take a more laid-back approach. However, while solid risk management skills and iron-clad discipline are necessary characteristics for any trader, they’re even more important for swing traders. Ready to embark on your swing trading journey? You can try a free demo account with us at FXOpen to practise your skills and start building a strategy. Good luck! *At FXOpen UK and FXOpen AU, Cryptocurrency CFDs are only available for trading by those clients categorised as Professional clients under FCA Rules and Professional clients under ASIC Rules, respectively. They are not available for trading by Retail clients. 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
10
Decoding Forex Mysteries: USDCHF & EURGBP Reaction to Rate HikesWelcome to the intriguing world of Forex, where currencies act at their own rhythm, sometimes defying expectations and confounding even the most experienced traders. In this article, we are going to unravel the “mysteries” surrounding the reactions of USDCHF and EURGBP to recent interest rate hikes. We will dive into the realms of market anticipation, monetary policy statements, and the significance of staying ahead in this dynamic landscape. 1. The Resilience of USDCHF As the Swiss National Bank (SNB) raises interest rates from 1.5% to 1.75%, market observers brace for the anticipated downward movement of the USDCHF. However, contrary to expectations, the currency pair displays remarkable resilience. Let's explore the underlying factors: a) Priced-in Expectations: The forex market is renowned for its ability to assimilate information in advance. It is likely that market participants had already factored in the interest rate hike, blunting the immediate impact on USDCHF. Such anticipatory behavior highlights the importance of staying attuned to prevailing sentiment and analyzing market positioning. b) Comparative Interest Rates: Understanding the relative interest rates of different currencies is paramount. If the rate hike in Switzerland was aligned with or lower than market expectations, and other major currencies offered more attractive rates, investors might have favored those currencies, mitigating the downward pressure on USDCHF. c) Monetary Policy Statement Outlook: Monetary policy statements accompanying interest rate decisions provide crucial insights into central banks' future intentions (you can usually watch them live on YouTube 30 minutes after the data release or on Bloomberg type of channels). Since the SNB's statement revealed a cautious and neutral stance, it has tempered the impact of the rate hike on USDCHF. Market participants pay close attention to forward guidance, as it shapes expectations regarding future policy actions and influences currency movements. 2. The Curious Behavior of EURGBP Let us now turn our attention to EURGBP, which failed to sustain a short sentiment following the Bank of England's interest rate hike from 4.5% to 5.00% (versus the expected 4.75%) and left a nasty week. To understand this curious behavior, we delve into the following factors: a) Market Expectations: The forex market is often driven by expectations and anticipatory positioning. If traders had already priced in the interest rate hike, the actual announcement might not have triggered a significant market reaction. Therefore, the lack of sustained short sentiment in EURGBP could be attributed to market participants adjusting their positions in advance. The GBP was up already by 4% within the last month against major currencies, so a big chunk of market was already longing EG for the expected short term recovery (guilty, but we also made a 2.9% profit closure on this). b) Monetary Policy Outlook: Beyond interest rate changes, central banks' monetary policy outlooks play a vital role in shaping currency dynamics. The accompanying statement from the Bank of England, which shed light on their future plans, indicated a more gradual approach to tightening or expressed concerns about economic conditions. Such cues influence market sentiment and limit the downward pressure on EURGBP. In case of UK, this is already not a good look with their inflation rates :/ Now, you may ask: “Investroy, what do we do if fundamentals don’t exhibit the expected economical impact?” Don’t worry, we got you! A Prerequisite for Success In the ever-evolving forex market, staying ahead of the curve is crucial. To navigate the intricacies and maximize opportunities, traders must adopt a proactive approach: a) Monitor Central Bank Communications: Understanding central banks' intentions requires careful analysis of their policy statements, speeches, and press conferences. These sources provide valuable clues about future policy decisions and can guide trading strategies. b) Assess Economic Indicators: Keep a keen eye on economic indicators that impact currency valuations, such as GDP, inflation, and employment data. These indicators provide a foundation for understanding a country's economic health and can influence currency movements. c) Stay Informed of Geopolitical Developments: Geopolitical events, such as trade disputes or political instability, can significantly impact forex markets. Being aware of these developments and their potential consequences on currency movements is crucial for staying ahead. d) Analyze Market Sentiment: Sentiment analysis, gauging the collective psychology of market participants, can offer valuable insights. Monitoring market sentiment through various indicators, such as positioning data and sentiment surveys, helps identify potential shifts and align trading strategies accordingly. e) Embrace Technological Tools: Utilize advanced trading platforms and tools that provide real-time data, customizable charts, and algorithmic trading capabilities. These resources empower traders to analyze market trends, spot patterns, and execute trades swiftly. Bonus) this one is a little subjective, but markets are very cyclic, if something is oversold, but everybody is expecting further bearish move, be sure there is a retracement coming before that happens 😊 Stay safe and enjoy your day!
Education
by Investroy
23
Understanding Market Corrections:Definition & Key ConsiderationsInvesting in the stock market has the potential to generate substantial wealth over the long term, although it comes with inherent risks. One notable obstacle that investors frequently encounter involves safeguarding their capital during periods of declining stock prices. When the market undergoes a downturn, the inclination to panic and sell off investments to evade additional losses can be strong. However, this reactive approach often results in even greater financial setbacks and hinders the ability to capitalize on future market rebounds. In this comprehensive article, we will delve into the concept of a market correction and delve into various strategies that can assist investors in preserving their capital amidst market downturns, enabling them to emerge stronger when the market inevitably recovers. Market Correction: A Comprehensive Explanation In the realm of financial markets, a market correction is a notable event characterized by a substantial decline in the value of a financial instrument. This decline typically ranges between 10% to 20% and can encompass individual stocks of a specific company or even extend to encompass entire market indices comprising a vast array of companies. The duration of a correction can vary significantly, ranging from as short as a single day to as long as a year, with the average duration spanning approximately four months. Market corrections can be triggered by a myriad of factors, each with its own unique catalyst. These factors can range from a company's disappointing financial performance and weak earnings report to more extensive global geopolitical conflicts. In some instances, corrections may occur seemingly without any discernible external cause. It is worth noting that market corrections are not exclusive to stocks alone. They can manifest in various other financial instruments such as commodities like oil, platinum, and grain, as well as currencies, funds, specific industry sectors, or even the entire market as a whole. This exemplifies the widespread impact that a correction can have across diverse segments of the financial landscape. To illustrate the significance of a market correction, let's consider an example from recent history. In the year 2018, the prices of over 500 companies experienced a decline of 10% or more. This widespread correction exemplifies how fluctuations in market conditions can influence a substantial number of companies simultaneously, affecting their valuation and investor sentiment. In conclusion, a market correction denotes a notable decline in the value of financial instruments, with the range typically falling between 10% to 20%. The causes behind these corrections can be diverse and encompass factors ranging from company-specific issues to broader global conflicts. Moreover, corrections can impact various financial instruments and market segments, underscoring their potential for wide-reaching consequences within the financial landscape. Example : AMZN stocks Daily chart showing a correction in 2018 - 2020 Market corrections are not uncommon events within the realm of financial markets. On average, a decline of 10-20% in the stock market transpires approximately once a year. These corrections, characterized by a significant decrease in stock prices, serve as reminders of the inherent volatility and fluctuations present in the market. While corrections of 10-20% occur relatively frequently, more profound market declines exceeding 20% are less frequent, transpiring approximately once every six years. These substantial corrections are often referred to as market collapses, signifying a more severe and prolonged downturn. One illustrative example of a market collapse occurred in response to the global pandemic outbreak in March 2020. The COVID-19 pandemic triggered a swift and severe decline in stock markets worldwide, leading to a precipitous drop of approximately 38% within a matter of days. This extreme correction exemplifies the impact of unforeseen events and external factors on market stability and investor sentiment. It is important to recognize that market corrections and collapses are not solely confined to a particular asset class or geographic region. They can have a broad-ranging effect, transcending national boundaries and impacting various financial instruments, indices, and markets worldwide. In summary, market corrections, defined by significant declines in stock prices, are regular occurrences, transpiring approximately once a year with a magnitude of 10-20%. Market collapses, on the other hand, encompass more profound declines exceeding 20% and typically transpire once every six years. These events serve as reminders of the dynamic nature of financial markets and their vulnerability to various factors, such as the recent pandemic-induced collapse in 2020, which had a profound impact on global markets. Example : SPX500 / US500 stocks Daily chart showing a correction in 2020 Investors who adopt a long-term investment strategy tend to navigate corrections with relative ease, primarily due to their extended investment horizon. By committing their funds for a substantial period, typically ranging from 5 to 10 years, these investors are less likely to be perturbed by temporary price declines. On the other hand, individuals who rely on leverage or engage in short-term trading bear the brunt of corrections, experiencing greater challenges and losses. The impact of a correction can be readily observed by examining the chart depicting the historical performance of any given company. By selecting the annual or five-year chart display, one can identify specific time periods when the asset's value experienced temporary declines. Additionally, it is crucial to consider the decrease in stock price subsequent to the ex-dividend date, commonly referred to as the dividend gap. It is essential to note that the dividend gap phenomenon is distinct from a correction and should be treated as such. What Causes A Correction? A correction in the stock market can be triggered by a multitude of factors and events that impact stock prices. These events can range from speeches given by company executives, investor reports, pandemics, regulatory changes, economic sanctions, natural disasters like hurricanes and floods, man-made disasters, to high-level meetings of world leaders. Even the most stable companies can experience declines in their stock prices due to these events. It is important to recognize that human behavior also plays a significant role in causing market corrections. The stock market is inherently driven by human participation and investor sentiment, which can sometimes lead to corrective actions. For instance, if a popular figure like Elon Musk garners significant attention and support, investors may pour money into his company beyond its actual earnings. Eventually, the overvaluation of such a "hyped" company may result in a decline in its stock price. Furthermore, investors often attempt to follow trends in the market. When a particular stock shows an upward trajectory, more people tend to invest in it, thus increasing its demand and subsequently driving up its price. However, as the price reaches a certain peak, some investors choose to sell their holdings to realize profits. This selling pressure can initiate a correction, causing those who entered the market later to incur losses. Therefore, blindly chasing market trends without careful analysis may prove detrimental. Additionally, corrections can exhibit seasonal patterns. For example, during the summer months, prior to holidays or extended weekends, investor participation in trading may decrease. This reduced trading activity leads to lower liquidity in stocks, creating an opportunity for speculators to exploit the situation. Such periods often witness sharp price fluctuations, potentially resulting in stock prices declining by 10-20%. It is crucial to understand that corrections are a natural part of the market cycle, and it is neither productive nor feasible to fear them indefinitely. The market cannot sustain perpetual growth, and corrections serve as necessary adjustments. By acknowledging their inevitability, investors can adopt strategies that are mindful of market dynamics and position themselves accordingly. How Long Do Corrections Last? Between the years 1980 and 2018, the US markets experienced a total of 37 corrections, characterized by an average drawdown of 15.7%. These corrections typically lasted for approximately four months before the market began to recover. Consider the following scenario: an investor commits $15,000 in January, experiences a loss of $2,355 during the correction, and by May, witnesses their portfolio rebounding to $15,999, based on statistical data. However, it is important to note that outcomes may deviate from this pattern. It is worth noting that the magnitude of a stock's decline directly impacts the duration of its recovery. As an illustration, during the financial crisis of 2008, US stocks tumbled by approximately 50%. The subsequent recovery of the stock market extended over a period of 17 months, primarily attributed to the active support provided by the US government and the Federal Reserve. This underscores the notion that severe market downturns necessitate more prolonged periods for recuperation, even with significant intervention from regulatory bodies. Dow Jones Industrial Average index drop in 2008 The timing of a market correction is often challenging for financiers and experts to predict with certainty. In retrospect, it becomes clear when a correction started, but identifying the precise moment beforehand is a complex task. Taking the aforementioned example of the market collapse in October 2007, it was not officially acknowledged until June 2008. This highlights the inherent difficulty in pinpointing the onset of a correction in real-time. Following a correction, the market's recovery period can vary significantly. In some instances, the market may swiftly regain stability and resume an upward trajectory. However, in other cases, it may take several years for the market to fully recover from a correction. The duration of the recovery depends on a multitude of factors, including the severity of the correction, underlying economic conditions, government interventions, and investor sentiment. Hence, it is crucial to recognize that financiers and market participants can only definitively determine the start and extent of a correction in hindsight. The future behavior of the market after a correction remains uncertain, and it is possible for the market to swiftly recover or take a considerable amount of time to regain stability. How To Predict A Correction Predicting the precise timing, duration, and magnitude of a market correction is inherently unreliable and challenging. There is no foolproof method to accurately forecast when a correction will occur, when it will conclude, or the extent to which asset prices will change. Some economists and analysts attempt to predict market trends by employing various theories. For instance, Ralph Elliott formulated the Elliott Wave Theory, which posits that markets move in repetitive waves. By determining the current phase of the market—whether it is in an upward or downward wave—one could potentially profit. However, if such theories consistently yielded accurate predictions, financial losses during corrections would be virtually nonexistent. It is crucial to acknowledge that market corrections are an inherent and inevitable part of market cycles. While attempting to predict corrections may be enticing, it is important to remember that they will inevitably occur, regardless of how long it has been since the previous one. Relying solely on the absence of a correction for an extended period as a basis for investment decisions warrants careful consideration and analysis rather than being treated as a definitive indicator. Advantages And Disadvantages Of Market Correction Advantages and disadvantages of market corrections can be summarized as follows: Advantages of a market correction: 1) Buying opportunities: Market corrections often present favorable buying opportunities for investors. Lower stock prices allow investors to acquire shares at discounted prices, potentially leading to long-term gains when the market recovers. 2) Rebalancing opportunities: Corrections can prompt investors to rebalance their portfolios. Selling overvalued assets and reinvesting in undervalued ones can help optimize investment returns and maintain a diversified portfolio. 3) Expectation adjustment: Market corrections can serve as a reality check, helping investors reassess their expectations and risk tolerance. This can lead to more informed investment goals and strategies. Disadvantages of a market correction: 1) Financial losses: Market corrections can result in substantial losses, particularly for investors who panic and sell their investments at lower prices. Reacting emotionally to market downturns may amplify the negative impact on portfolios. 2) Economic implications: Market corrections can have broader economic repercussions. They may lead to job losses, reduced consumer spending, and slower economic growth, potentially affecting industries and sectors beyond the financial markets. 3) Psychological impact: Market corrections can trigger fear, uncertainty, and anxiety among investors. These emotions may drive impulsive decision-making, such as selling investments hastily or hesitating to re-enter the market when conditions improve. It is important for investors to carefully evaluate the potential advantages and disadvantages of market corrections and consider their own risk tolerance, investment goals, and long-term strategies when navigating such market events. What Should You Do During A Correction? Correction can make an investor richer or poorer or have no effect at all. The impact of a market correction on an investor's wealth depends on their actions and decisions during that period. It is impossible to predict with certainty the duration or direction of asset value changes during a correction. However, there are general tips that can help investors navigate through a correction and potentially safeguard their finances: 1) Maintain a calm and rational mindset: During a correction, it is crucial to approach investment decisions with a cool head. Instead of making impulsive moves, take the time to understand the underlying causes of the correction and consider expert opinions and news. 2) Avoid excessive borrowing: It is advisable not to use borrowed money for investments, especially during a correction. This reduces the risk of incurring debts and potential losses. For beginners, it is often recommended to limit investments to the funds available in their brokerage accounts, particularly during a correction. 3) Assess company fundamentals: Evaluate the fundamental strength of a company by analyzing key metrics and ratios. Comparing a company's value with others in the same industry can provide insights. If a company is not overvalued, it may indicate that there is no fundamental reason for a correction, and its value may likely recover in due course. 4) View the correction as a buying opportunity: Prominent investors like Warren Buffett and Nathan Rothschild have emphasized that corrections present excellent opportunities for investment. If a stock's price has fallen, consider purchasing it based on the company's performance rather than solely focusing on the size of the discount. Maintaining some savings in cash allows for timely investments in undervalued assets. 5) Acknowledge the normalcy of corrections: It is important to recognize that corrections are a regular part of market cycles and serve as tests of an investor's composure. Following an investment strategy that includes provisions for investing during periods of 10-20% lower stock prices can help protect savings and optimize long-term returns. By adhering to these general tips and maintaining a disciplined investment strategy, investors can better navigate market corrections and potentially preserve and enhance their financial well-being. Conclusion In summary, market corrections are an intrinsic aspect of the stock market's ebb and flow, and it is essential for investors to anticipate and navigate them effectively. During such periods, the inclination to succumb to panic and hastily sell investments can be strong. However, maintaining composure and adhering to prudent strategies that safeguard capital are crucial for weathering corrections and emerging stronger when the market inevitably rebounds. While corrections present challenges, they also offer advantageous opportunities, such as the ability to acquire stocks at discounted prices. Conversely, the potential for substantial losses exists, emphasizing the importance of a measured approach. A long-term investment strategy, rooted in sound analysis rather than reactionary emotions, serves as a vital compass for surviving corrections. By focusing on the broader picture and resisting the temptation of short-term market fluctuations, investors can position themselves for long-term success amidst the natural ebb and flow of the market.
NASDAQ:TSLAEducation
by FOREXN1
12
How to Use the Accumulation/Distribution IndicatorLearning how to identify accumulation and distribution in an asset is an important skill to have for any trader. Luckily, there’s a handy tool we can use: the aptly-named Accumulation/Distribution indicator. In this article, we’ll show you how this accumulation/distribution indicator works, where it’s best applied, and how you can combine it with other tools to boost your odds of success. What Is the Accumulation/Distribution Indicator? The accumulation/distribution indicator, also called the accumulation/distribution index, accumulation/distribution line, and abbreviated to A/D, is a cumulative indicator that uses price and volume data to measure the strength of an asset’s trend. It helps traders identify buying and selling pressure in the market and can show whether an asset is likely to continue trending or is due for a reversal. It was created by renowned trader Marc Chaikin, who also developed the famous Chaikin Money Flow indicator. Accumulation vs Distribution Accumulation occurs when buying pressure outweighs selling pressure, resulting in price appreciation. Conversely, distribution is where sellers have the upper hand over buyers, creating downward momentum. In practice, the plotted A/D line will move up when accumulation is present and down when distribution occurs. Accumulation/Distribution Oscillator Formula and Components The ADI seeks to quantify an asset's buying and selling pressure by considering its trading range and trading volume. First, it calculates the Money Flow Multiplier (MFM) using the following formula: MFM= ((Close−Low)−(High−Close)) / High−Low This results in a reading between -1 and 1. When the price closes in the upper half of its high-low range, the MFM will be positive. If it closes in the lower half, then MFM will be negative. In other words, if buying pressure is strong, the MFM will rise, and vice versa. Second, it generates the Money Flow Volume (MFV) with the following: Money Flow Volume = MFM × Volume For the first candle in a given chart, the MFV is the first A/D value. Since the indicator is cumulative, the MFV is added to the previous A/D value. In essence: First Calculation = (ADI = MFV) Subsequent Calculations = (ADI + MFV) This then creates the A/D line. While it may seem unnecessary to know the formula, it can provide us with significant insight into how an accumulation/distribution rating is given. For example, a strong bullish trend may cause an asset to close high in its trading range, producing an MFM reading close to 1. If this is backed up by high volume, the A/D line will surge upward. However, if the volume is lacking, then the A/D may only increase slightly. Thankfully, we don’t need to perform this calculation ourselves. With the free TickTrader platform we offer at FXOpen, you’ll find the accumulation/distribution indicator and dozens of other tools ready to help you navigate the markets. How to Use the Accumulation Distribution Indicator There are three popular ways to use the A/D indicator: identifying reversals, trend confirmation, and trading breakouts. Identifying Reversals One of the most effective uses of A/D is to spot potential reversals using divergences between the price and the A/D line. A bullish divergence occurs when the price falls, making lower lows, while the A/D line trends upward, creating higher lows. Conversely, a bearish divergence can be seen when an asset makes new highs, but the A/D puts in lower highs. It essentially shows us that while the price is moving in a specific direction, the underlying pressure supporting the move is waning. The example above demonstrates that fewer sellers are participating as the trend progresses lower; eventually, buyers take over and push the price much higher. Trend Confirmation A/D line can also be used to confirm the direction of a trend. In this context, traders monitor the alignment of the line with the price action. In an uptrend, both the price and A/D should be rising. If the A/D moves in the same direction as the price, it confirms the strength of the uptrend and suggests that the buying pressure is likely to continue. As in the chart, traders could have used the A/D and price alignment to position themselves in the direction of the bull trend. Similarly, during a downtrend, the price and the A/D should be falling. If the A/D is falling alongside the price, it indicates that the selling pressure is strong, and the downtrend is likely to persist. Trading Breakouts Lastly, A/D can help traders confirm breakouts beyond support/resistance levels. If there’s a critical level that a trader is watching to jump in on the breakout, a breakout beyond a similar level in the A/D indicator can signal the start of a new trend. In the example, we see a strong resistance level, both in price and the accumulation distribution chart. As the move is confirmed by A/D, breaking out above both dashed lines, traders have confidence that the price is ready to move higher. Integrating the Accumulation and Distribution Indicator with Other Tools While the A/D indicator is a valuable tool on its own, it’s best to use it in combination with other indicators to help filter out false signals and improve the accuracy of your predictions. Let’s take a look at two indicators to integrate with A/D: moving averages and the Relative Strength Index (RSI). Moving Averages Moving averages are a popular tool used by many traders to determine the direction of a trend, especially when two moving averages cross over. As mentioned, the trajectory of the A/D line can show traders that a trend is supported by volume; similarly, a price sitting above or below a moving average can indicate a trend’s direction. Using the two together can provide an at-a-glance reading of a trend, which can be extremely useful for trend-following traders. In this example, we’ve used the Exponential Moving Average (EMA) cross indicator in TickTrader, with two 20-period and 50-period EMAs. The fast EMA crosses above the slow EMA, showing that a potential bullish trend is forming. The price continues to stay well above the 50-period EMA as time progresses, demonstrating that there’s a strong bull trend. We also have confirmation from the A/D line that the bullish momentum is backed up by supporting volume. Seeing this, traders can be confident that the trend will continue. When the EMAs cross over bearishly, as seen on the right-hand side, traders may start looking for the A/D line to confirm that a bearish trend has started and exit their position. RSI Similar to the A/D indicator, RSI can be used to both spot divergences and confirm trends. The divergences are the same as A/D; a lower low in a price with a higher low in the RSI indicates a potential bullish reversal, while a price making a higher high and a lower low in RSI is regarded as bearish. Meanwhile, an RSI reading above 50 is typically seen as bullish, while below is bearish. Using the two indicators together can offer traders extra confluence that the market is headed in a particular direction. In the chart shown, we can see that the price is making a lower low. However, the Apple stock’s accumulation/distribution line shows a bullish divergence, as does the RSI. Traders could have marked the most recent area of resistance (dashed line), and then waited for the price to break out above it before looking for an entry. This move was confirmed by the RSI moving above 50, showing that bullish momentum is truly entering the market and offering multiple factors of confluence. What to Do Next You now have a comprehensive understanding of the accumulation/distribution indicator, including its formulation, its three main uses, and how to combine it with other indicators for extra confirmation. Ready to put your newfound knowledge to the test? You can open an FXOpen account to apply what you’ve learned and hone your trading skills across a diverse range of markets, from forex and commodities to stocks and indices. 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
3
Trading Mindfully: Letting Go of Revenge for Financial Success Sometimes the market can really wear us down mentally and emotionally. Imagine this scenario: you enter a trade feeling confident, having carefully considered and calculated everything. You're in a fantastic mood, already envisioning the profits. And then, unexpectedly, everything goes wrong. In moments like these, even if you have a solid system and strategy in place, anger and resentment can take over. You might feel the need to seek revenge on the market for what you perceive as an injustice, and impulsively open positions with the intention of punishing it. However, the outcome of such revenge trading is almost always regrettable, resulting in significant financial losses. Let's take a closer look at what revenge trading entails and why it is so dangerous. Revenge trading occurs when we believe that the market has taken "too much" from us or treated us unfairly. Instead of stepping back and regaining composure, traders act contrary to every rule and guideline, driven by anger and a desire to prove themselves. Fueled by a mixture of frustration and determination, traders tend to fall into one of two scenarios: they either open large positions that further amplify their losses, or they manage to recoup some of their losses if luck is on their side. However, the best course of action in such situations is actually to take a break and reflect on the situation at hand. Attempting to take revenge on a market that is infinitely more powerful than any individual trader is inherently irrational. Moreover, this type of trading has several other negative consequences. When you trade out of revenge, you are driven by emotion rather than logic and strategy. This approach is destined to fail and can result in even greater losses over time. At this point, you lose touch with reality, forgetting everything you know and have learned about the market. Your well-thought-out strategies and trading algorithms that used to bring you profits are abandoned. Effective money management and risk compliance become distant thoughts. You throw all your resources into the blazing fire of revenge. As a result, you find yourself trading based on intuition, which is no longer a disciplined approach but akin to gambling. How to Overcome the Urge for Market Revenge There is a simple yet crucial mechanism that can help traders overcome the desire to seek revenge on the market. The most challenging part, however, is remembering to apply it in practice. Here are some steps to follow: 1: Take a Step Back: When the desire for revenge arises, it's important to slow down your emotions and actions. Step away from the computer and engage in activities that involve fine motor skills, such as solving puzzles or engaging in a hobby. It's detrimental to continuously look at the screen that displays recent losses, as it only amplifies your emotional state. By diverting your attention to non-trading activities, you allow the frontal cortex of your brain, responsible for rational decision-making, to activate. Going for a walk or connecting with a friend can also be effective ways to shift your focus and regain composure. 2: Analyze the Situation: To regain a conscious state and process your emotions, conduct a written analysis of the situation. It's beneficial to do this manually on a plain sheet of paper, utilizing your fine motor skills once again. Describe the entire incident in detail, including your thoughts, emotions, and actions. By gaining a comprehensive understanding of what threw you off balance emotionally, you'll be better equipped to recognize and control those triggers in the future. 3: Evaluate Your Trading Strategy: Every trader relies on a specific algorithm or trading system to make decisions. Take the time to thoroughly examine your trading system and ask yourself some important questions: - Does your trading system genuinely work? - If you had followed your system entirely (which you didn't do when seeking revenge), would it have helped minimize losses? - Are the losses that angered you a result of system losses or a breach of the system's rules? In addition to studying your trading system, it's crucial to assess your money management rules and ensure you are effectively managing risks. Proper risk management acts as insurance, protecting you from substantial losses. Regardless of market fluctuations, you can confidently close trades when necessary. Effective risk management is what distinguishes profitable traders from those who suffer losses. Final Thoughts: To overcome the desire for revenge, it is essential to understand what triggers it and address the underlying reasons. When we view the market as a reflection of our self-image and attribute personal meaning to our trades, it often leads to an emotional storm. In such a state, we may disregard trading systems and risk management principles, making foolish mistakes that can devastate our trading accounts. It's important to remember that the market provides only factual information for analysis, and behind the price quotes lies nothing more than information.
Education
by FOREXN1
24
Ninja Talks EP 10: Snollygoster Definition; "A rude and unscrupulous person". Many-o-moons ago I used to believe trading was a team sport (I know, how naive of me) but that's because I joined some supply and demand community where we all traded the same strategy. These days I'm more of a Snollygoster. I can't help it. When I see other traders, I see them as competition - even those I teach! You see the thing is, it helps my trading when I understand that when I win, someone else loses. Why? Because it's true. There's always "someone" on the other side of our trades wether we like to think about it or not. We've been conditioned to think the market has a "mind of its own", but it really doesn't - it's just a sum of its participants, which for the most part are individuals. Indivuals who are all looking to out smart and win against other traders. It's not a game. Bruce Lee on fighting; "Fighting should be like a small play, but played seriously." Same goes for trading. Keep your emotions, mind, analysis etc light and playful, but always understand that this is serious. When you look at the market as another human you'll understand how to "outsmart " it (for lack of a better word). Imagine you're up against yourself, how would you analyze the charts? Find YOUR stop losses and key levels - then see how you can take advantage. This is 5D chess trading at its finest and the quickest most lucrative way to become a gigachad trader in 2023 and beyond. Understand? Follow for the next episode of Ninja Talks. Nick
AMEX:SPYEducation
by NinjaTradingServices
8
The Struggle of Consistency: Navigating DCA in Crypto InvestingHello dear @TradingView community! Today let’s focus on what is Dollar Cost Averaging ? Determining the optimal moment to buy cryptocurrency is often a challenging task due to the high volatility of crypto assets. Prices can fluctuate unpredictably at any given time, leading traders to experience the fear of missing out (FOMO). This fear is commonly felt when the price of a cryptocurrency, such as Bitcoin (BTC), suddenly surges or plunges. During price drops, individuals tend to panic and sell their holdings in a frantic attempt to avoid further losses. Conversely, when prices rise, panic ensues as people worry they don't possess enough coins to sell. As evident, making decisions to buy or sell cryptocurrencies is no easy feat. However, if you seek long-term financial gains from cryptocurrencies without succumbing to the anxiety caused by every price spike, it would be wise to consider the Dollar Cost Averaging (DCA) strategy. Let's delve deeper into what DCA entails and how it functions in the realm of cryptocurrencies. What is Dollar Cost Averaging? Dollar cost averaging is an investment strategy where fixed amounts are regularly invested at consistent intervals, in contrast to a one-time lump sum investment. This approach involves executing transactions regardless of the asset's current price or market fluctuations. It is highly favored by investors and management funds seeking long-term profits from various assets like ETFs, commodities, cryptocurrencies, stocks, and more. How does DCA work? To employ the DCA strategy, you first determine the amount of cryptocurrency you wish to invest. In conventional investing, one would typically invest the entire designated sum in a specific asset. However, with DCA, you invest fixed amounts of USD into Bitcoin or any other asset over a designated period. For instance, you may choose to purchase $100 worth of BTC every month for a 10 year period. When utilizing DCA, the selection of the cryptocurrency becomes crucial. With around 22,904 cryptocurrencies available today, you must pick a coin you believe will appreciate in value and yield profitable returns. You can even choose an ETF which follows the trend (up or down) for any specific asset or basket of assets. To comprehend how DCA operates, consider the following example: Let's assume it is June of 2014, and Katie decides to allocate $10,000 in BTC. In June of 2014, the price of Bitcoin stood at approximately $560 per coin. Instead of investing the entire sum at once, Katie opts for dollar cost averaging throughout the 9 years. From June 2014 to May 2022, Katie spent $100 each month on BTC, disregarding market price fluctuations. After 8 years, she spends almost $9,600 and her earnings reflect the following: The green line in the chart represents Katie’s total investment amount, while the orange line depicts the fluctuation of portfolio size value over the 9-year period. When Katie initiated his investments, both the cost of BTC and his investments were approximately $100. However, as time progressed, the price of Bitcoin underwent changes. By May of 2022, Katie's $9,600 investment had grown to $287,518 worth of BTC, showcasing a growth rate of 2,895%. With maximum gain of $631,540 at bitcoin ATH. Online DCA tools are also available to estimate the earnings from purchasing bitcoins over several months. For example, platforms like dcaBTC enable users to customize their DCA strategy according to their preferences, specifying the amount to purchase, investment frequency, and duration. To successfully implement dollar-cost averaging (DCA) in Bitcoin investing, several key steps need to be followed. These steps involve setting a budget, choosing a reputable cryptocurrency exchange, establishing recurring purchases or utilizing recurring purchases and automated investment platforms (such as Binance, Coinbase, Kraken, Crypto.com or even at Vestinda), and monitoring and adjusting the strategy as necessary. Pros and Cons of Dollar Cost Averaging Let's commence with the pros of dollar cost averaging. By making regular and consistent purchases over time, you mitigate the risk associated with poorly timed lump sum investments. Additionally, since you make regular purchases, you alleviate the fear of missing out and impulsive decision-making prompted by price fluctuations. Cryptocurrency exchanges and platforms charge transaction fees for every trade. While one might assume that DCA would result in higher commission fees, it is essential to remember that this is a long-term strategy. The commission costs are negligible compared to the potential profits that can be realized over several years. Moreover, DCA does not necessitate substantial investments. This strategy involves smaller and consistent purchases, eliminating the need to determine how best to deploy a large sum in one go. Furthermore, if prices suddenly drop at the time of purchase, you can acquire the cryptocurrency at a lower price. However, it is important to note that if the cryptocurrency's price is bullish, you may end up buying at a higher price. This is particularly relevant when dealing with BTC or any chosen cryptocurrency. Many crypto enthusiasts and investors prefer to purchase a significant amount at once, fearing a subsequent price surge in the hours, days, weeks, or months to come. As previously mentioned, with the DCA strategy, you purchase small amounts at regular intervals, regardless of market stability. Should you utilize the DCA Strategy? DCA facilitates maximizing profits with relatively low risk. Although this approach is not devoid of drawbacks, it offers numerous advantages that can be leveraged to your benefit. Hence, is DCA worth your time and money? As always, we recommend thoroughly studying all available information before making any decisions. Save this article to your browser bookmarks for easy reference in the future. Happy trading!
Education
by Vestinda
11
⚖️OPTIONS TRADING: What are the Greeks?The Greeks are a set of mathematical measures used in options trading to assess and quantify various factors that influence the price and behavior of options. 📌 VEGA : Vega is a measure of how much an option's premium will change in response to a 1% change in implied volatility. Implied volatility represents the market's expectation of the underlying security's future movement. When implied volatility is high, options tend to be more expensive, and when it is low, options are cheaper. Vega is particularly influential for options with longer expiration dates, as volatility has a greater impact on their prices. As an option approaches expiration, Vega decreases, while it increases as the underlying security moves closer to the strike price. Essentially, Vega is highest when the option is at-the-money and decreases as it goes out-of-the-money or in-the-money. 📌GAMMA Gamma, represents the rate of change between an option's Delta and the price of the underlying asset. Higher Gamma values indicate that even small price changes in the underlying stock or fund can cause significant changes in the option's Delta. At-the-money options have the highest Gamma because their Deltas are most sensitive to underlying price movements. For instance, if XYZ is priced at $100.00 and a XYZ $100.00 call option is considered at-the-money, any price movement in either direction will push the option into either in-the-money or out-of-the-money territory. This high sensitivity to stock movement is reflected in the option's Gamma, making Gamma higher for at-the-money options. 📌THETA Theta represents the theoretical daily decay of an option's premium, assuming all other factors remain constant. As time passes, options gradually lose value, and this loss is known as time value decay. The decay of time value is more significant as the expiration date approaches, particularly for near-the-money options. Theta does not behave linearly; instead, it accelerates as expiration nears. A higher Theta indicates that the option's value will decay more rapidly over time. Short-dated options, especially those near-the-money, tend to have higher Theta because there is greater urgency for the underlying asset to move in a favorable direction before expiration. Theta is negative for long (purchased) positions and positive for short (sold) positions, regardless of whether the option is a call or a put. 📌RHO Rho measures an option's sensitivity to changes in the risk-free interest rate and is expressed as the amount of money the option will gain or lose with a 1% change in interest rates. Changes in interest rates can affect an option's value because they impact the cost of carrying the position over time. This effect is more significant for longer-term options compared to near-term options. Higher stock prices and longer time until expiration generally lead to greater sensitivity to interest rate changes, resulting in higher absolute Rho values. Rho is positive for long calls (the right to buy) and increases with the stock price. It is negative for long puts (the right to sell) and approaches zero as the stock price increases. Rho is positive for short puts (the obligation to buy) and negative for short calls (the obligation to sell). 📌DELTA Delta is a measure that estimates how much an option's value may change with a $1 increase or decrease in the price of the underlying security. Delta values range from -1 to +1, where 0 indicates minimal movement of the option premium relative to changes in the underlying stock price. Delta is positive for long stocks, long calls, and short puts, which are considered bullish strategies. Conversely, Delta is negative for short stocks, short calls, and long puts, which are bearish strategies. A Delta of +1 is assigned to long stock shares, while a Delta of -1 is assigned to short stock shares. An option's Delta can range from -1 to +1, and the closer it is to +1 or -1, the more sensitive the option premium is to changes in the underlying security. 👤 @QuantVue 📅 Daily Ideas about market update, psychology & indicators ❤️ If you appreciate our work, please like, comment and follow ❤️
Education
by QuantVue
9
Price Channels — Quick and Easy Guide.Greetings, @TradingView community! When it comes to analyzing market trends, there's a technique that takes trend theory to the next level: price channels. This is @Vestinda, bringing you a helpful article on the topic of the price channels, also known as trend channels, offer an exciting way to identify optimal buying and selling opportunities in the market. Price channels serve as a valuable tool in technical analysis, helping traders determine favorable entry and exit points. By drawing parallel lines that align with the angle of an uptrend or downtrend, we create a channel. The upper trend line acts as resistance, while the lower trend line represents support. These lines highlight potential areas where the market could experience reversals or continue its current trend. Understanding the sentiment of a price channel is crucial. Channels with a positive slope (upward) are considered bullish, indicating an upward trend, while those with a negative slope (downward) are bearish, pointing to a downward trend. Recognizing the slope of a price channel allows traders to gauge the prevailing market conditions and make informed trading decisions. Price channels can be categorized into three main types: Ascending channels Descending channels Horizontal channels Ascending channels display higher highs and higher lows, signaling a bullish sentiment. To create an ascending channel, draw a parallel line touching the most recent peak, aligning it with the angle of the uptrend line. Conversely, descending channels exhibit lower highs and lower lows, suggesting a bearish sentiment. To create a descending channel, draw a parallel line touching the most recent valley, aligning it with the angle of the downtrend line Horizontal channels , also known as ranging channels, indicate a consolidation phase with no clear trend direction. These channels provide insights into potential buying zones when prices hit the lower trend line and selling zones when prices approach the upper trend line. Understanding these channel types empowers traders to adapt their strategies to different market scenarios. Constructing a price channel requires parallelism between the trend lines. The lower trend line is typically considered a "buy zone," while the upper trend line serves as a "sell zone." It's crucial not to force price action into the drawn channels. When the channel boundaries slope at different angles, the pattern is no longer a price channel but a triangle pattern, requiring a distinct analytical approach. Remember that price channels don't have to be flawlessly parallel. In reality, it's rare to find price action that perfectly aligns within two trend lines. As traders, it's important not to solely rely on textbook price patterns but also consider broader market context and other essential cues from price action. Effective price channel analysis involves embracing imperfections and making informed decisions based on the available information. In conclusion, price channels provide traders with a powerful technique to uncover profitable opportunities in the market. By drawing parallel trend lines and identifying support and resistance levels, traders can gain valuable insights into market sentiment and enhance their trading decisions. However, it's essential to remember that perfection isn't the goal. Instead, focus on understanding market dynamics and adapting your strategy accordingly. 💜 So there you have it - a quick and easy guide to understanding price channels in trading! 💜
INDEX:BTCUSDEducation
by Vestinda
19
It's a numbers gameI see this more and more, especially in the crypto space. There are some wild stories out there from turning $8k to a billion through to a Pizza for 10,000 Bitcoin. Here are some home truths. Although most of you won't want to hear this. You see, as a professional trader - there is 1 key factor, almost a scale balancing between too much and just enough. Everyone pushes for more returns, we are only human after all. We have had stories of Wall Street Titans and Vegas big wins, but there is some simple logic to this. You might have entered the market after Covid hit the world and wanted an extra income, might have seen a way to make millions from the money the government sent you? The issue is this is no different that rolling a dice in Vegas but without the fun! You possibly saw some influencer selling you the dream - they fail to tell you, they trade on demo accounts and make their income from affiliate links and social media watch time! When you think of investors like Warren Buffet, you have to understand - he didn't watch an influencer video and say to himself "I want to be like that guy" - investing is often a long term thing and not a get rich quick scheme. Here's a few examples to hit home. This is boring, not worth it - so instead you seek higher returns, that opens up the possibility of falling into scams, listening to the wrong crowd and having dreams. To be honest, it's probably more enjoyable spending a day at the races. With a smaller account, you can grow it a little, add to it on the next pay day and of course compound the investments. As you move up the scale. This is probably where most "semi serious" market goers start. It's often a flurry into the market cash in hand. The assumption often the same; you have done well to amass a lumpy investment, your clearly good at the field you have been in to earn your pot. Why wouldn't you be a good trader? After all, these kid influencers are making millions on their demo accounts. Jump to the next level... Your either a captain of industry, you have had your own business or you have a kind daddy. How you got here is not important, staying here is. When you trade with a medium sized account you start to think a little different. Instead of looking for 900x returns, you start thinking about investments that are a little less risky. This is the scales I mentioned earlier. You are now in the space of a good return might be good enough. Too high of a risk, means you are thinking of safe guarding your cash. Here's where the Professionals play the game differently. Trying to make 1-5% is a lot more sustainable than trying to land a 900x return. You have to remember 90% of traders lose 90% of their accounts in 90 days... This can easily be attributed to things like; Buying signals Following influencers Over trading Trading too small a timeframe Trying to find a silver bullet As a professional - you can seek smaller returns, spend less time in front of the charts and let your money work for you, instead of you doing all the chasing! As the amount of capital rises, so does your desire for risk. You might still have the appetite for returns but not at the cost of risk. As a professional trader, you can afford the luxury of trading a bias and scaling into a trade - you will find fund managers who have what's known as secondary investment capital (in essence to add to winning positions). So although this is not going to be what you want to hear, it's what you need to know. There's always chasing the dream, but why not wake up and make it a reality? Enjoy the weekend all! 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
23
Trend Trading: What it is & How to do itWhat is trend trading? Trend trading or trend following is a trading strategy that involves identifying the direction of a prevailing trend in the financial markets and then buying or selling assets following that trend. Trend traders tend to use technical analysis tools, such as moving averages (MA), trend lines, and momentum indicators, to determine trends in the market. They will look for patterns in price movements and analyse charts to establish areas of support and resistance. Once they identify a trend, trend traders usually enter a trade in the direction of that trend, and the goal is to ride the trend for as long as possible. As a trend trader, you may enter a long position when the price moves upward or a short position when the price is trending downward. Different types of trends Trend followers may want to be aware of several types of trends: Secular trends: Secular trends are long-term trends that last for years or even decades. Structural changes in the economy or changes in demographic are some of the factors that influence these trends. Primary trends: Primary trends are shorter-term trends that last for months or a few years. Changes in the business cycle or political or economic events usually cause them. Secondary trends: Secondary trends are shorter-term trends that last for weeks or a few months. Changes in investor sentiment or technical factors typically cause them. Intermediate trends: Intermediate trends are shorter-term trends that last for days or a few weeks. Changes in the supply and demand for a particular asset or changes in the level of volatility in the market usually cause them. Minor trends: Minor trends are very short-term trends that last only a few days and are the bread and butter of day traders and swing traders. News events or changes in the level of trading activity in the market usually cause them. How to use a trend-trading strategy Traders may use a combination of trend-trading strategies, depending on their style and risk tolerance. Moving averages This strategy uses the moving average (MA) indicator, which measures an asset’s average price over a specified period. A trader may look for a “golden cross” signal; this occurs when a short-term moving average (e.g. 50 days) crosses above a long-term moving average (e.g. 200 days). This signal could indicate that a bullish trend is shifting upwards. Trend lines Trend lines connect the highs and lows of an asset’s price movements. They are straight lines that connect two or more price points on a chart, representing the direction and slope of a trend. Trend lines can pinpoint the direction of a trend. Traders can also use them with other technical indicators and candlestick patterns to spot potential trading scenarios. For example, a trader may look for a bullish chart pattern, such as a double bottom, to form near an uptrend line, which may indicate a bullish momentum. Trend momentum Momentum indicators measure the strength of a trend. They can help traders identify potential entry and exit points. The indicators used are: Relative Strength Index (RSI): This measures the speed and change of price movements. It oscillates between 0 and 100 and is typically used to identify overbought and oversold conditions. A reading above 70 indicates an overbought condition, while a reading below 30 indicates an oversold condition. Moving Average Convergence Divergence (MACD): The MACD is a trend-following momentum indicator that consists of two lines: the MACD line and the signal line. When the MACD line crosses above the signal line, it indicates a bullish trend. In contrast, a cross below the signal line shows a bearish trend. Stochastic Oscillator: The indicator compares an asset’s closing price to its trading range over a specified period. It oscillates between 0 and 100 and is typically used similarly to RSI - to identify overbought and oversold conditions. Trend-trading example The chart above highlights activity over a few weeks and shows the 9-day moving average and 21-day moving average, trendlines and the RSI indicator below. When the RSI falls below 30, indicating that the asset is oversold and a trend reversal is likely, we see a cross of the 9 and 21-day moving averages, which also signals a potential bullish trend reversal. A trend trader may have decided to buy the asset since two indicators confirm the reversal and follow the trend until RSI shoots above 70, suggesting that the asset is overbought. Why choose trend trading? Suitable for various markets: Trend trading can be applied to multiple financial markets, including stocks, currencies, commodities, and indices, making it a versatile strategy. Capitalise on market momentum: ​​ The basic idea behind trend trading is to identify the market’s direction and then take positions that align with the direction of the trend. Adaptable for various time frames: Trend trading can be used for multiple timeframes. Therefore, it may suit many strategies, from day trading to swing trading. Risks of trend trading False signals: One of the downsides of trend trading is that it can generate false signals, leading to losses. Trends can be short-lived, and price movements can be volatile, making it challenging to accurately identify the trend’s direction. Lagging indicators: Trend trading often uses lagging indicators, such as moving averages, which may not accurately represent the current market situation. When a trend is identified, it may have already been in place for some time, and the price may have moved significantly. Risk of trend reversals: Trends can reverse at any time, and traders who have taken long or short positions based on the trend may suffer significant losses if the trend reverses. How to start trend trading The key steps involved in trend trading include: Identifying trends: The first step in trend trading is to find out the direction of the trend. This can be done by analysing price charts and looking for higher highs and higher lows in an uptrend or lower lows and lower highs in a downtrend. Traders can also use technical indicators such as moving averages and trend lines to highlight trends. Selecting entry and exit points: Once a trader identifies the direction of the trend, the next step is to choose entry and exit points. Entry points can be determined using technical indicators such as momentum oscillators and chart patterns. Managing risk: Risk management is essential to trend trading. Traders can use appropriate position sizing and risk management techniques. For example, stop-loss orders can be used to limit potential losses. Traders should note that ordinary stop-losses do not protect from slippage, while guaranteed stop losses do; however, they usually incur a fee. Backtesting and demo trading Backtesting involves testing a trading strategy on historical data to see how it would have performed in the past. This allows traders to evaluate the strategy’s effectiveness and make necessary adjustments before risking real money in the markets. Backtesting helps traders identify the strengths and weaknesses of their strategy and refine their entry and exit points, risk management, and position sizing. Demo trading, on the other hand, involves using a simulated trading account to practise executing trades based on a trading strategy. This allows traders to gain real-world experience without risking real money. In addition, demo trading helps traders to develop confidence in their approach, practise managing risk, and to become familiar with the trading platform they plan to use. Summary In summary, trend trading is a widely employed and adaptable trading strategy focusing on capitalising on market momentum by identifying and pursuing prevailing trends. Traders can ascertain trends and evaluate their potential potency using technical analysis tools, such as moving averages, trend lines, and momentum indicators. Furthermore, by recognising the distinct types of trends – secular, primary, secondary, intermediate, and minor – traders can adapt their strategies for varying market conditions and timeframes. Trend-following strategies may use moving averages, trend lines, and momentum indicators to establish entry and exit points while assessing a trend’s strength. The versatility of trend trading allows its application across diverse financial markets, including stocks, currencies, commodities, and indices.
CAPITALCOM:US100Education
by Capitalcom
6
HOW TO USE FIBONACCI EXTENSIONFibonacci is a technical tool, essentially an automatic tool for building support and resistance levels. They need to be supplemented by: Standard support and resistance lines Trend lines Japanese candlesticks and additional indicators Then they will be a good assistant in your trading. This is how a trading strategy is created, based on the combined instruments and the study of their features in different market conditions. The three most important Fibonacci retracement levels are: 0.382 (38.2%) 0.5 (50.0%) 0.618 (61.8%) All other levels, say 0.236 or 0.764 are secondary. And these are important expansion levels: 1.272 (127.2%) 1.414 (141.4%) 1.618 (161.8%) It's not difficult to use Fibonacci. Swings (upper and lower), as the maximum and minimum price values, are taken. From them, a fibo is drawn, and its lines are used as hints for support and resistance levels. It is up to you to decide whether to use Fibonacci in your trading. As we know from self-fulfilling prophecy, the more traders use a certain tool, the more important it become to the markets. Also, Fibonacci is a very popular tool, which often pops up on the charts of professional currency traders as well. So, it's a prophecy that comes true quite often. Now let's expand our Fibonacci tool by examining the uptrend. We see that the 1.272 and 1.414 levels work as resistance, and after a couple of unsuccessful breakout attempts, as we can see many pinbars, the price might just go down and make another pullback. Now let's do the same thing with the downtrend. Let's pull the fibo extension tool. And here's what's happened: Price ran into support, then broke through it. It was the level that was held up before the price went down. Price action made a new low. Fibo extension level 1.414 lines up with psychological level 1.59000. From these examples we can see that Fibonacci extension level is logical and often (though not always) form temporary support and resistance levels. Remember, there is no guaranteed way to tell when a Fibonacci level will work as resistance or support. However, by applying all of the technical analysis techniques you've learned so far, you'll significantly increase your ability to identify these situations. Therefore, you should consider Fibonacci expansion and retracement levels as an auxiliary tool that may be useful in some cases. But don't expect the price to bounce off right away. Fibonacci levels are your area of interest. If any candlestick combinations are formed near these levels, if oscillators or other instruments show anything curious, it is time to be alert.
Education
by DeGRAM
26
22 trading rulesThe market rewards discipline and requires you to fulfill your specific role. For instance, as a tattoo artist, your responsibility is to provide quality tattoo, while as a trader, your task is to exercise discipline in decision-making. If you remain disciplined, any reasonable strategy can yield profits in the long term. However, even the most flawless strategy will fail to generate income if you lack self-control. Here are some guidelines to follow: 1.Maintain discipline consistently. Trading demands unwavering discipline at all times. Save extreme emotions, excitement, and other non-work-related feelings for your personal hours. While working, stay focused and determined, adhering to your plan and experience. 2.Always reduce the risk of failed trades. If you experience a series of unprofitable transactions, decrease the volume or percentage of risk from your deposit, rather than increasing it. Some individuals mistakenly believe that if they have had three consecutive losses, the fourth trade is bound to be profitable and will make up for the previous losses. However, the chances of profit or loss in the fourth trade remain the same. Relying on luck is unnecessary. 3.Avoid turning profitable trades into losing ones. Close positions promptly when you recognize the risk of holding them further. If there are signs of market weakness and continuing to hold the position jeopardizes your profit, either take your existing profit or exit with a small loss. In most cases, you will have the opportunity to find another entry point that is equally good or even better. 4.Ensure that your highest loss does not exceed your highest profit. Keep a record of your trades to determine the mathematical ratio of profit to loss and the ratio of profitable to losing trades. If your losses surpass your profits, you need to optimize your system; otherwise, it may become unprofitable in the long run. 5.Develop a trading system and stick to it. Avoid constantly switching from one system to another. If you decide to become a trader, select a specific approach and commit to it. Over time, you will gain a deep understanding of the system and develop your own market perspective. 6.Be true to yourself; don't try to imitate others. If you find that scalping is not suitable for you, consider intraday or swing trading instead. Just because someone excels at intraday trading while you excel at swing trading doesn't mean you should abandon your preferred style. Each individual has their own trading style, and there is a style that matches every personality. Some traders earn substantial profits by only opening ten trades per year, while others achieve the same level of success by opening ten trades per day. Moreover, someone may be comfortable opening a trade with a large lot size, while you prefer a maximum of one lot. This doesn't imply that you are a poor trader; it simply indicates that everyone has their own comfort zone. Discomfort in trading can only be detrimental. Stay true to yourself and find your own style. 7.Remember that there will always be another day to trade, so don't risk too much. Some beginners risk 20-50% or even more of their deposit, only to find themselves with nothing when a profitable entry point arises. Such risks often shatter one's psychology, and it can be difficult to recover. However, if you make a few mistakes with standard and small risks, you will always have the next day to learn from and correct your errors. 8.Earn the privilege to trade in high volumes. Even if you have tens or hundreds of thousands of dollars in your account, it doesn't mean you should immediately start trading, for example, 10 lots. Begin by trading with the minimum volume allocated for your deposit. Only when you close ten consecutive sessions in profit should you consider increasing the volume. 9.The first conscious loss you encounter is the most valuable. It is during this moment that you understand the significance of stop-loss orders as part of your system. A stop-loss serves as a mechanism to exit a position when the trade is no longer favorable. By recognizing this and reacting appropriately, you are able to protect your account from significant losses. Understand that a stop-loss order is a benefit. See point 15. 10.Avoid relying on hope or prayer. If you catch yourself hoping for a positive outcome in a trade, it likely means that the trade is no longer profitable. Avoid concealing this fact from yourself as a trader. This psychological inclination to hope shields us from emotional distress and difficult decisions. However, as a trader, you must objectively assess the situation. If you realize that you are starting to rely on hope, reevaluate the facts and conduct a thorough analysis of your trade. It may no longer be as favorable as you initially thought. 11.Don't overly concern yourself with news. While trading the news is a separate strategy that may work for some traders, most try to avoid it. If the news is already known in advance, the market will react to it beforehand. However, if the information becomes clear only during the news release, it becomes challenging to trade based on such inputs. News that is widely broadcasted on TV or the internet tends to be outdated information when it comes to the market. 12.Choose a trading style that suits your circumstances. If you have a small account and can only afford short stop-loss levels, you may need to start with scalping or intraday trading. If you possess patience and adequate capital, swing trading could be an option. Long-term trading generally requires significant capital. 13.Embrace your losses. It doesn't mean you have to enjoy losing money. However, during your trading journey, you will inevitably experience losses. If you have a negative mindset towards losses, it will hinder your overall performance. Recognize that by exiting trades promptly and accepting short-term losses, you safeguard your account from larger losses in the long run. Learn to appreciate the importance of managing losses effectively. 14.Avoid setting excessively large stop-loss levels. Doing so will erode your profits from small trades. Consequently, instead of achieving a small profit, you may end up at breakeven or a slight loss, even if your trade initially showed promise. 15.Take consistent actions each day or week. Set a goal to capture a certain number of pips or points daily if you are a scalper or weekly if you trade intraday (the specific numbers provided here are for illustrative purposes and should not be taken as objectively evaluated results). By accumulating small gains over time, you can earn a significant amount by the end of the year. 16.Don't rely on a single trade for salvation. Some traders mistakenly believe that a single trade has the potential to generate substantial profits, recover previous losses, or significantly impact their overall performance. However, trading revolves around a series of transactions. No single trade can dictate your success. Instead, your behavior across ten or twenty trades holds tremendous importance in surviving and thriving in the market. 17.Consistency breeds confidence and control. Starting each morning with the knowledge that following your rules will result in profitable trades instills a sense of assurance. Similar to other traders, begin your day by reviewing the charts you trade and gathering the necessary information—perform top-down analysis, assess points of interest, liquidity, order flow, and more. Maintain this ritual consistently, as repeated actions are essential for earning profits in trading. 18.Master the art of position management. If you find yourself in a trade that is progressing favorably, consider partially closing your position to protect your profits in case the price suddenly reverses. Being flexible in managing your positions can lead to increased profitability and emotional balance in the market. 19.Execute the same trades repeatedly. Focus on specific trade setups that have proven successful for you. Avoid trying to trade multiple patterns simultaneously. Instead, identify two or three formations that work well for you and trade them consistently. Become an expert in those setups and execute them confidently and precisely. Avoid spreading yourself too thin. 20.Avoid excessive doubt and overanalysis. During the execution of a trade, trust your analysis and decision-making process. Doubts and unnecessary analysis during a trade can lead to detrimental outcomes. Overthinking can consume you and make it challenging to differentiate between the right and wrong decisions. Leave fluctuations and excessive analysis to the market. Conduct trade analysis before or after trades, not during them. 21.In the eyes of the market, all trades are equal. At the start of each trading day, everyone is on an equal footing. You haven't made any profits or losses yet. Your earnings depend solely on your actions. If you adhere to discipline and follow your predetermined rules, you will generate profits. 22.The market is an impartial judge of your trades. The market doesn't play favorites; it remains indifferent to your presence. Respect the market's authority and refrain from attempting to defy it. Engaging in a battle against the market is akin to fighting your reflection in a mirror. Instead, focus on understanding and following the market's rules. • 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
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