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EDUCATION: Using Renko Charts to Find Key Levels in XAUUSDIn this tutorial, we'll dive into a unique but powerful method for analyzing gold (XAUUSD): using Renko charts to find critical levels. If you’re unfamiliar with Renko, it's a chart type designed to filter out market noise, making it easier to spot trends and reversals. Unlike traditional candlestick charts, Renko focuses on price movement rather than time, allowing you to identify significant support and resistance levels with greater clarity. When you understand how to use Renko properly, you gain an edge in navigating volatile markets like gold. With a calm and disciplined approach, we’ll guide you step-by-step through the process of setting up Renko charts, recognizing key patterns, and spotting levels that can give you a stronger sense of market direction. The goal is simple: cut out the clutter and focus on what matters—the bigger picture. Whether you're looking to improve your entries or better understand market structure, this tutorial will provide practical insights to help you refine your trading strategies. By the end, you’ll not only grasp how to use Renko charts but also develop the mental sharpness needed to stay patient and unemotional in the face of market fluctuations.
OANDA:XAUUSDEducation
by TLTurnerTV
5
Must-Read Investing Books: The Top 5 for Every InvestorWelcome to Part 2 of our must-read book series. Last time, we took a deep dive into the fast-paced world of trading, giving you the trading must-reads to sharpen your short-term, high-risk market chops. Now it's time to slow down and shift into a lower gear. Trading is a thrill, but investing is where the long game pays off. While trading is about timing, investing is about patience—and, some might even say, good investing is boring. So let’s be real, mastering both is how you dominate. In this Idea, we’re focusing on the timeless art of investing. Whether you’re gunning for that Warren Buffett-level compound interest or just looking to stack up some dividends, these five books will teach you how to think like an investor. Grab your coffee and your notepad—let’s dive in. 📖 1. The Intelligent Investor ✍️ by Benjamin Graham We’re kicking things off with the granddaddy of all investing books. Benjamin Graham’s The Intelligent Investor is the Bible of value investing. Benjamin Graham is the father of value investing, and his no-nonsense approach to buying undervalued stocks and waiting for the market to catch up is the gold standard. Graham teaches you how to analyze companies for their intrinsic value, while cautioning against the emotional rollercoaster of market volatility. It’s all about buying low, staying patient, and letting time do its thing. 🔑 Key Insight : Ignore market noise and buy undervalued assets with a long-term view. Stick to your strategy and let time do its thing. 📖 2. Common Stocks and Uncommon Profits ✍️ by Philip Fisher Philip Fisher introduces growth investing with a focus on buying quality companies. In Common Stocks and Uncommon Profits , Fisher explains his "scuttlebutt" approach—researching a company thoroughly, from its management to its industry (think investigative journalism on a stock). This book is a must-read for those looking to spot the next Apple AAPL or Amazon AMZN before they become household names. 🔑 Key Insight : Invest in great companies with solid growth potential. Deep research is your key to success. 📖 3. The Most Important Thing ✍️ by Howard Marks Howard Marks is a legend in the world of risk management and value investing, and The Most Important Thing is essentially his playbook. Marks dives deep into risk, market cycles, and contrarian thinking—he teaches you how to avoid getting wrecked by the market’s irrationality. This isn’t your typical book on the topic of investing; it's a mindset shift and an eye-opener—everyone is a genius when markets rise. But what defines the true investing skill is how you perform in tough times. 🔑 Key Insight : Success in investing is more about managing risk than chasing returns. Protect the downside, and the upside will take care of itself. 📖 4. The Little Book of Common Sense Investing ✍️ by John C. Bogle John Bogle—the finance genius who invented the index fund—drops some serious knowledge in The Little Book of Common Sense Investing . This book strips away the complicated jargon and exclusivity surrounding Wall Street and keeps it simple: low-cost index funds will beat active management in the long run. Bogle’s philosophy is all about minimizing fees and letting compounding work miracles over time. 🔑 Key Insight : Keep it simple. Low fees and long-term compounding are the keys to building wealth. 📖 5. The Essays of Warren Buffett: Lessons for Corporate America ✍️ by Warren Buffett and Lawrence Cunningham Okay, we all know Warren Buffett is the GOAT when it comes to investing. The Essays of Warren Buffett is a collection of his legendary letters to Berkshire Hathaway BRK.A shareholders, curated and organized to offer a behind-the-curtain insight on everything from corporate governance to value investing. Buffett has a knack for simplifying complex financial ideas, making this book an invaluable resource for investors of any level. 🔑 Key Insight : There’s no better teacher than Buffett when it comes to long-term, value-based investing. His wisdom is timeless and actionable—invest in solid companies with long-term growth prospects, and don’t get distracted by short-term market swings. 📚 Bonus Picks: The Investor’s Library Expansion Pack Looking for even more wisdom? Here are a few more titles to round out your investing education: 📖 The Snowball by Alice Schroeder A biography of Warren Buffett, The Snowball takes you inside the mind of the Oracle of Omaha, showing how his investment philosophy developed and how he built his fortune. It’s part investing guide, part life lesson, and all-around a fascinating read. 📖 The Psychology of Money by Morgan Housel This book explores how our emotions, biases, and behaviors affect our financial decisions. The Psychology of Money breaks down complex financial concepts into easily digestible stories that reveal how investors can avoid the psychological traps that lead to poor decision-making. 📖 One Up on Wall Street by Peter Lynch Legendary investor Peter Lynch shares his strategy of finding "tenbaggers"—stocks that increase tenfold in value. Lynch teaches that sometimes the best investment ideas are right in front of you—pay attention to the businesses you love and understand. 📖 A Random Walk Down Wall Street by Burton Malkiel Random Walk argues that trying to time the market is a fool’s errand. Instead, Malkiel promotes the idea of efficient markets, where it’s almost impossible to outperform the market consistently without taking on substantial risk. It's an excellent guide for those who believe in passive investing and long-term strategies. 📖 Mastering the Market Cycle by Howard Marks Another essential from Howard Marks, Mastering the Market Cycle teaches you how to recognize the ups and downs of the market and adjust your strategy accordingly. Timing the market may be impossible, but understanding its cycles will give you an edge. And there you have it—five more powerhouse reads to add to your investing library. These aren’t just books; they’re roadmaps from some of the sharpest minds in finance. Whether you’re looking for market cycles with Howard Marks or tapping into Warren Buffett’s timeless wisdom, each of these picks will help you get better in the long game. The best investors aren’t just lucky—they’re educated, patient, and, most importantly, they’re always learning. So grab a book, dive in, and start stacking knowledge that compounds just like your portfolio should. 💎 Got any personal favorites that didn’t make the list? Drop them in the comments—we’re always down to discover more investing wisdom!
SP:SPXEducation
by TradingView
2
The Formula That Helped Me Get Into in the Top 2% of TradersI spent years testing different strategies, obsessing over charts, and trying to find the perfect entry point. It took me a while to realize that it wasn’t just about picking the right trades—it was about knowing how much to risk on each trade. This is where the Kelly Criterion came into play and changed my entire approach. You’ve probably heard the saying, “Don’t put all your eggs in one basket.” Well, Kelly Criterion takes that idea and puts some hard math behind it to tell you exactly how much you should risk to maximize your long-term growth. It’s not a guessing game anymore—it’s math, and math doesn’t lie. What is Kelly Criterion? The Kelly Criterion is a formula that helps you figure out the optimal size of your trades based on your past win rate and the average size of your wins compared to your losses. It’s designed to find the perfect balance between being aggressive enough to grow your account but cautious enough to protect it from major drawdowns. F = W - (1 - W) / R F is the fraction of your account you should risk. W is your win rate (how often you win). R is your risk/reward ratio (the average win relative to the average loss). Let’s break it down. How It Works Let’s say you have a strategy that wins 60% of the time (W = 0.6), and your average win is 2x the size of your average loss (R = 2). Plugging those numbers into the formula, you’d get: F = 0.6 - (1 - 0.6) / 2 F = 0.6 - 0.4 / 2 F = 0.6 - 0.2 = 0.4 So, according to Kelly, you should risk 40% of your account on each trade. Now, 40% might seem like a lot, but this is just the theoretical maximum for optimal growth. The thing about using the full Kelly Criterion is that it’s aggressive. A 40% recommended risk allocation, for example, can be intense and lead to significant drawdowns, which is why many traders use half-Kelly, quarter-Kelly or other adjustments to manage risk. It’s a way to tone down the aggressiveness while still using the principle behind the formula. Personally, I don’t just take Kelly at face value—I factor in both the sample size (which affects the confidence level) and my max allowed drawdown when deciding how much risk to take per trade. If the law of large numbers tells us we need a good sample size to align results with expectations, then I want to make sure my risk management accounts for that. Let’s say, for instance, my confidence level is 95% (which is 0.95 in probability terms), and I don’t want to allow my account to draw down more than 10%. We can modify the Kelly Criterion like this: 𝑓 = ( ( 𝑊 − 𝐿 ) / 𝐵 )× confidence level × max allowed drawdown Where: 𝑊 = W is your win probability, 𝐿 = L is your loss probability, and 𝐵 = B is your risk-reward ratio. Let’s run this with actual numbers: Suppose your win probability is 60% (0.6), loss probability is 40% (0.4), and your risk-reward ratio is still 2:1. Using the same approach where the confidence level is 95% and the max allowed drawdown is 10%, the calculation would look like this: This gives us a risk percentage of 0.95% for each trade. So, according to this adjusted Kelly Criterion, based on a 60% win rate and your parameters, you should be risking just under 1% per trade. This shows how adding the confidence level and max drawdown into the mix helps control your risk in a more conservative and tailored way, making the formula much more usable for practical trading instead of over-leveraging. Why It’s Powerful Kelly Criterion gives you a clear, mathematically backed way to avoid overbetting on any single trade, which is a common mistake traders make—especially when they’re chasing losses or getting overconfident after a win streak. When I started applying this formula, I realized I had been risking too much on bad setups and too little on the good ones. I wasn’t optimizing my growth. Once I dialed in my risk based on the Kelly Criterion, I started seeing consistent growth that got me in the top 2% of traders on TradingView leap competition. Kelly in Action The first time I truly saw Kelly in action was during a winning streak. Before I understood this formula, I’d probably have gotten greedy and over-leveraged, risking blowing up my account. But with Kelly, I knew exactly how much to risk each time, so I could confidently scale up while still protecting my downside. Likewise, during losing streaks, Kelly kept me grounded. Instead of trying to "make it back" quickly by betting more, the formula told me to stay consistent and let the odds play out over time. This discipline was key in staying profitable and avoiding big emotional trades. Practical Use for Traders You don’t have to be a math genius to use the Kelly Criterion. It’s about taking control of your risk in a structured way, rather than letting emotions guide your decisions. Whether you’re new to trading or have been in the game for years, this formula can be a game-changer if applied correctly. Final Thoughts At the end of the day, trading isn’t just about making the right calls—it’s about managing your risks wisely. The Kelly Criterion gives you a clear path to do just that. By understanding how much to risk based on your win rate and risk/reward ratio, you’re not just gambling—you’re playing a game with a serious edge. So, whether you’re in a winning streak or facing some tough losses, keep your cool. Let the Kelly formula take care of your risk calculation. If you haven’t started using the Kelly Criterion yet, now’s the time to dive in. Calculate your win rate, figure out your risk/reward ratio, and start applying it. You’ll protect your account while setting yourself up for long-term profitability. Trust me, this is the kind of math that can change the game for you. Bonus: Custom Kelly Criterion Function in Pine Script If you’re ready to take your trading to the next level, here’s a little bonus for you! I’ve put together a custom Pine Script function that calculates the optimal risk percentage based on the Kelly Criterion. You can easily enter the variables to fit your trading strategy. // @description Calculates the optimal risk percentage using the Kelly Criterion. // @function kellyCriterion: Computes the risk per trade based on win rate, loss rate, average win/loss, confidence level, and maximum drawdown. // @param winRate (float) The probability of winning trades (0-1). // @param lossRate (float) The probability of losing trades (0-1). // @param avgWin (float) The average win size in risk units. // @param avgLoss (float) The average loss size in risk units. // @param confidenceLevel (float) Desired confidence level (0-1). // @param maxDrawdown (float) Maximum allowed drawdown (0-1). // @returns (float) The calculated risk percentage for each trade. kellyCriterion(winRate, lossRate, avgWin, avgLoss, confidenceLevel, maxDrawdown) => // Calculate Kelly Fraction: Theoretical fraction of the bankroll to risk kellyFraction = (winRate - lossRate) / (avgWin / avgLoss) // Adjust the risk based on confidence level and maximum drawdown adjustedRisk = (kellyFraction * confidenceLevel * maxDrawdown) // Return the adjusted risk percentage adjustedRisk Use this function to implement the Kelly Criterion directly into your trading setup. Adjust the inputs to see how your risk percentage changes based on your trading performance!
COINBASE:BTCUSDEducation
by Fractalyst
11
How I stopped strategy hopping by creating my own strategyIn the fast-paced world of trading, many of us, especially when beginning our journey, we find ourselves caught in a relentless cycle of strategy hopping. We jump from one strategy to another, lured by the promise of quick profits. However, this constant shifting often leads to frustration, a sense of not making any progress, and most importantly, a lack of consistent results. I experienced this firsthand as I back-tested, forward-tested, and executed various trading systems, on demo and live accounts, each time hoping for better outcomes but always ending up not meeting expectations and feeling more or less stuck in the same position of having to find a profitable trading strategy. Eventually, after having tried many different systems that I found online, I decided to finally try to create my own and this time stick to a single system for a prolonged period of time. This idea/publication explores my journey on how I created this simple trading strategy and how I used my engineering background to create a semi automated-trading system around it. And just to clarify, this is not financial advice, this should serve as an idea. If you want to try this out, do so at your own risk, after understanding the concept and after testing. I’m still testing this myself, but in theory it’s sound, and so far in my forward-testing is performing very well! Scalping, Day trading, Swing trading, Fibonacci levels, Support/Resistance levels, round psychological levels, Bollinger bands, EMAs, RSI, MACD, ICT, Smart money concepts, algo-trading, forex, crypto, indices, metals, multi-timeframe analysis, etc, etc. I’ve traded in these timeframes: D, 8h, 4h, 2h, 1h, 30m, 15m, 5m, 1m, and I’ve explored quite a few different strategies based on the concepts I just dumped above so I don’t bore you with every single case, and so based on that experience I’m taking a few considerations before creating my strategy. First, I’ll be trading forex, metals, and maybe crypto and indices. Personal choice. But there’s no reason this shouldn’t work in any other market. Second, I personally need to be more consistent on when it comes to analyzing the charts. So, for now let’s say that I’ll “log-in” every day, Monday-Friday, some amount of time during NY session. Third, I’ve learned that multi-timeframe analysis is better than analyzing only one specific timeframe, so I’ll include that. Next, I know there are different approaches, but from my perspective the market is either trending or not trending (aka consolidating; bouncing between two levels, imperfectly). I guess it’d be great to have one strategy for trending markets and one for markets that are in consolidation, but for now I’m specifically picking a trend-following strategy. I found that following the trend can be very rewarding, especially when you catch it from the start or near it and are able to exit right before it ends (that’s the tricky part, but we’re only talking theory for now). So a totally reasonable idea would be to try to enter the market on pull-backs, while expecting the price to continue in the direction of the main trend. So a Fibonacci retracement tool sounds ideal for this method. I’d like to somehow incorporate algo-trading up to some extent. I have a software engineering background, so it comes natural for me to try to create or adjust an existing trading bot to execute operations for me. But the issue I always had was creating a trading bot to spot good opportunities. It is just not easy to achieve, for any trading strategy. And that is because of the constantly changing nature of the markets. It requires subjectivity by a human to some extent when it comes to reading, understanding the market and predicting a direction. 💡 So with that said, now, two very important ideas I realized that this system exploits. 1. You don’t need to know exactly up to where price is going to retrace to on the Fibonacci tool. You can bet on more than one level. 2. You don’t need to create a trading bot that “fully” automates trading. It can only handle the part of managing the position(s). Let me explain. With the Fibonacci Retracement tool the trader is free to choose however many levels they want to visualize. And that is great, but it’s not easy to predict accurately and consistently up to which level price is going to retrace. We might miss some trades if we bet on a bigger pull-back and price continues on the trend without hitting our entry, or, we might experience some losses if we bet on a smaller pull-back and price decides to retrace more, and then continue on the same trend direction (which is even more painful to see lol). So the idea here is to place more than one order based on a few different fib levels. Managing more than one position can be challenging, but that’s when the next idea comes into play. “Semi” automating the strategy with the help of a trading bot. As I mentioned previously, at least for me it has been difficult to create a trading bot that can reliably match the trading opportunities that I would find. Sometimes the bot would find good opportunities, but some other times it would find opportunities that wouldn’t make sense to take because of other reasons (price close to some Support/Resistance level, news, different direction on higher timeframes, etc) and if all of those reasons were taken into account that would increase the complexity of the code and most of the time the actual opportunities found by the bot would decrease (including the good ones!). So it’s a trade-off. On the other hand, managing the position(s) is totally doable for a trading bot. Managing one or more open positions or pending orders is done after confirming a trading opportunity, so a trading bot can do precisely what a human would do based on the same conditions. And creating that kind of bot is not that complicated to achieve. So with all of that in mind I started writing some rules for the trading strategy. Timeframe for entries: 15m Multi-timeframe analysis: D, 4h, 1h, 15m I’ll be spotting opportunities around NY session open I’ll need a trading bot to manage the positions for me so I don’t stare at the charts for too long (not because I don’t want to, but because apart from having other things to do it wouldn’t improve the outcome! + that the trading bot is much better at handling its emotions :wink) I’ll focus on EIGHTCAP:XAUUSD first and maybe later I’ll apply this strategy to other markets. Let’s focus for a bit on the fib tool and the positions for now. The screenshot below shows the levels that I’m using. And for now I’m just betting on 3 positions. Again, managing more than one position can be tricky, but I’m relying on the fact that a trading-bot can help us in this part which is easy for the bot to handle. And apart from that we only have one position open at a time so it’s not actually that hard as it might sound if we don’t want to use a trading bot. Of course no system is perfect, so losses are expected. But I’m positioning myself in a way that my wins will cover my losses and give me good profit. In consequence, risk management is very important. With every bet or fibonacci tool I place and open X positions (in this case 3) I want to make sure that in total I’m not risking more than 0.5% of my total account balance. This part depends on the trader, some traders can tolerate bigger draw-downs, and so they can risk more % per position, others risk less, I personally like 0.5% for now. At the time of writing this I’m testing with the following risks: Position 1 (2.3R if TP hit): 0.10% of the account balance Position 2 (3.6R if TP hit): 0.18% of the account balance Position 3 (4.2R if TP hit): 0.22% of the account balance With those positions placed these things can happen: 1. Price doesn’t retrace enough to trigger any of the pending orders and continues in the same direction of the trend. In that case, when there’s a new higher high or lower low we just cancel our pending orders and analyze again to spot new opportunities. 2. Price retraces enough to hit all of our SL resulting in a loss of the 3 positions (-0.50%) 3. Only Position 1 gets triggered and we go to TP (2.3R * 0.10% = 0.23% gain) 4. Position 2 gets triggered and we go to TP (-0.10% + 3.6R * 0.18% = 0.55% gain) 5. Position 3 gets triggered and we go to TP (-0.10% - 0.18% + 4.2R * 0.22% = 0.64% gain) Nothing to do with alternatives 1 & 2 as it’s normal for us to lose or miss an opportunity sometimes. With alternative 3 we have a small gain. And with alternatives 4 & 5 we have a slightly better gain than our total risk of 0.50%. Now all of that might not sound ver impressive and it’s because this follows the fixed position way of managing the positions. Trailing the SL many times can produce much better returns when managed properly. But more on that later. Possible winning example below using ATR trailing SL. But let’s stick to the fixed positions for now to understand and get used to the system first and then you can let the bot do the management with the trailing SL method. Now why those specific risk %s for those 3 positions? The reasoning is that in my recent trading I’ve noticed that price tends to retrace enough to trigger either my Position 2 or my Position 3 more often than triggering only my Position 2. So it makes more sense to me to add slightly higher risk on those to increase profit. However, in my experience, in the higher timeframes price retraces even to the 38.2% level to then continue in the same trend direction more often than on the lower timeframes. But this part as I said depends on the trader, if you decide to incorporate this strategy/system to your trading you are free to choose different risk % per positions. Additionally, you could even open more positions (again, relying on the trading bot for position management), and of course following a good risk management plan by adjusting the risk for all positions and sticking to a total of less than 2% risk per fib tool placement. But this also depends on the trader. Sometimes price does like to ‘grab liquidity’ by retracing slightly more than the 100% level, hitting my last SL, and then continue on the trend direction we placed our bet on. However, I think that 3 positions is enough, at least for me, specially in the lower timeframes. Let’s focus on the trading bot for a bit now. As I said the bot should only manage my positions so I need a way to turn it on when I spot a good opportunity and then let it run until the position hits SL or TP, or it gets closed because of another reason. In this case I developed two systems. One is with fixed SL and TP, and one is with managing the position(s) with a trailing SL. The trailing SL is based on the current ATR value, but this could be expanded even further to another method of trailing SL based on specific levels the user provides (e.g. when in 1.4R move SL to break-even, when in 2R move SL to 1R, etc). For now I tested with fixed positions and with ATR trailing SL and they both work great and are profitable. The rules can be extended even more, for instance you choose the ATR trailing SL method and still place TP on the -27% or on the -61.8% fib levels so positions fully close on those levels, or you could close partially let’s say 30% when TP1 is hit (0% fib level) and then keep trailing, etc. There are many variations, and those can be handled by the bot based on the initial configuration. So on how the actual trading bot works. I developed a PineScript strategy that fires alerts that I can use with a service like PineScript to execute the operations but I found that those services most of the time don’t allow managing multiple positions at once and have other complications. So I created my own webhook server that receives the alerts and I also developed an EA that receives that information and executes the operations but this is still in testing phase and is not ready for use unless you have advanced technical knowledge. I’m thinking of ways to make this available however and would love some thoughts/feedback/suggestions! This strategy can still be applied even without a trading bot. However the trading bot would make the system much better and allow for more time to maybe analyze different markets and take on more trading opportunities, or just focus on other stuff. So to put all of this together now we’re only missing the part of spotting the opportunities. There are different ways, I personally just look for trends. I rely on simple price action (for uptrend I want to see clear higher highs and higher lows, and for downtrend I want to see clear lower lows and lower highs), a smoothed Heikin-Ashi EMA, and sometimes on the ADX indicator to see how strong the trend is. In the example below I show my thought process while applying this strategy on a forward-testing phase. This is exactly how I saw the chart when I logged-in for my trading session a few days ago. In the higher timeframes I checked that there is room for price to keep going up, that means that there shouldn’t be a S/R level or round psychological level near price. Having also analyzed higher timeframes and seen that it makes sense for price to continue this uptrend I decided to place my fib tool. I usually consider wicks too. So I place the first fib limit on the higher low, and the second fib limit on the higher high. Having placed the fib tool and created the pending orders now we need to wait for price to trigger our positions. But sometimes price is not done and keeps going up, invalidating our higher high (or lower low on a downtrend). When that happens we just need to stay focused on when price closes to see if a new higher high has been formed. If that happens we simply update our fib tool placement, and update the pending orders (entry, SL, & TP). This is a condition that the trading bot can probably handle. Eventually price will make it clear where the higher high is, and we finally see a retracement. And now we wait… but still focused in case we need to adjust our fib tool and pending orders if price is not yet retracing. Price drops with a strong move. Now we just step away, we already have the positions placed with SL and TP. We did our analysis, and so we don’t need to look at the charts and let any negative emotions gain control. At this point with fixed positions we can just close the charts and give an end to this trading session. And if using the trailing SL method we just leave it to the trading bot to manage the positions. In this case I was just testing the fixed positions and it unfolded into a win for the 3rd position. So overall about a 0.64% gain (the best alternative). So this is it. This covers the base of this strategy and my thought process while creating the rules for this system. It can be adjusted to different timezones as well, different markets depending on the asset type, etc. I’ve been forward-testing this strategy and system for a few weeks so far and it seems very promising. And I couldn’t wait any longer to share this idea in hopes that you can learn at least something from everything I shared. I’d also love to hear if anyone would be interested in using a system like this with the actual trading bot, so I can plan best on how to make it accessible to other users that don’t have technical/engineering knowledge. In conclusion, I shared my journey from strategy hopping to creating my own trading strategy based on my own needs. By exploring the key ideas of leveraging the Fibonacci retracement tool to bet on multiple positions and embracing a semi-automated approach, I’ve developed a system that aligns with my trading style and allows for necessary flexibility in response to market changes. If you find yourself caught in the cycle of strategy hopping, or don’t see the results you expected (be reasonable though!) I urge you to reflect on what you truly want from your trading experience. Consider creating your own strategy that aligns with your objectives and trading style! And feel free to take ideas from this article to build your own system. Share your thoughts and experiences in the comments below. I’d love to hear it, any thoughts/feedback or suggestions are appreciated. Looking forward to the discussion. Thanks, and good luck!
EIGHTCAP:XAUUSDEducation
by alfred343
8
Creating a Balanced Investment PortfolioCreating a Balanced Investment Portfolio In the vast realm of trading, where platforms like FXOpen play a pivotal role, strategy and skill stand paramount. As the age-old adage goes, 'Don't put all your eggs in one basket.' In the context of trading, this underscores the significance of diversification. Enter the concept of a balanced investment portfolio - an excellent balanced portfolio example, which emerges as an oasis of hope amidst the unpredictable dunes of market volatility. Understanding the Importance of a Balanced Investment Portfolio To achieve a balanced investment portfolio, it's crucial to consider the balance of individual components, especially forex, CFDs, stocks, and bonds. For example, a stock portfolio balance refers to the proportion of stocks in relation to other investment types. This balance is pivotal, as stocks often carry higher risks but also higher potential rewards. By understanding their own risk tolerance and learning how to balance portfolio assets effectively, traders can determine the ideal portfolio balance that meets their specific objectives. Building the Foundation: Investment Basics Every experienced trader knows that the world of investments is vast, presenting myriad opportunities. Some of the primary investment types include: - Stocks: These signify ownership in a company and constitute a claim on a fraction of its assets and earnings. - Bonds: Essentially, when you invest in bonds, you're loaning your money, either to a corporation or the government, in exchange for periodic interest payments plus the return of the bond's face value when it matures. - Real Estate: Investing in tangible land, buildings, or housing. Given its physical nature, it often acts as a hedge against more volatile markets. - Mutual Funds: These funds pool money from several investors to invest in a diversified portfolio of stocks, bonds, or other securities. Central to investment basics is the risk-return tradeoff. Essentially, it highlights that the potential return on any investment is directly proportional to the risk associated with it. In this matrix, diversification emerges as the most effective strategy, helping to spread and, in turn, mitigate risk. Asset Allocation Strategies Asset allocation might seem like a complex term, but at its core, it's about ensuring that your portfolio reflects your investment portfolio balance, harmonising your desired risk and reward. 1. Modern Portfolio Theory (MPT) Introduced by the visionary economist Harry Markowitz in the 1950s, the Modern Portfolio Theory (MPT) has since established itself as a seminal concept in portfolio management. Groundbreaking for its time and still influential today, MPT hinges on a principle that feels intuitive yet was revolutionary upon its debut: diversifying investments to maximise returns while judiciously managing the associated market risk. Central to the MPT is the construct of the 'Efficient Frontier'. This captivating concept represents a boundary in the risk-return space where portfolios lie if they offer the highest expected return for any given level of risk. In essence, any portfolio residing on the Efficient Frontier is deemed optimal, reflecting a balance where no additional expected return can be achieved without accepting more risk. 2. Strategic Asset Allocation Here, traders establish a base policy mix — a proportional combination of assets based on expected rates of return for each asset class. It’s a long-haul game, adjusting the portfolio as long-term goals or risk tolerance evolve. 3. Tactical Asset Allocation A more active management portfolio strategy, this method tries to exploit short-term market conditions. It involves shifting percentage holdings in different categories to take advantage of market pricing anomalies or strong market sectors. Diversification In the complex world of investing, understanding how to balance a portfolio is key. Diversification is the guardian against unpredictability. It is the art of spreading investments across various assets or sectors, ensuring that potential adverse events in one area won't unravel the entire portfolio's performance. Essentially, diversification is the protective shield that buffers against market volatility, offering a more stable and consistent growth path for traders. Geographical Diversification Globalisation has knit economies closer than ever before, yet each retains unique characteristics influenced by internal and external events. By diversifying investments across continents and countries, traders can leverage these unique attributes. Sector Diversification Beyond geography, the global market is segmented into various sectors — technology, healthcare, and finance, to name a few. Each has its growth trajectory, impacted by different factors. Spreading investments across sectors can hedge against unforeseen adversities. Individual Asset Selection The keystone of a robust portfolio is the judicious choice of individual assets. Beyond the broad strokes of diversification, the meticulous selection of each asset determines the portfolio's potential success. It's where profound understanding meets strategic decision-making, ensuring that every asset, be it a stock, bond, or commodity, is handpicked to serve the trader's overarching goals and vision. Proper research, encompassing financial performance, management quality, growth potential, and market trends, provides insight, reducing the chances of unwelcome surprises. Risk assessment is another crucial part of individual asset selection. Risk is an inherent part of investing. However, with rigorous risk assessment, traders can anticipate potential pitfalls. Evaluating the risk associated with each asset and its correlation with others in the portfolio helps in achieving the desired balance. Monitoring and Rebalancing In the dynamic dance of markets, continuous oversight and timely adjustments keep a portfolio's rhythm and harmony intact. - Regular Portfolio Review. The world doesn't stand still, nor do the markets. Regular reviews ensure that the portfolio aligns with the trader's goals and market realities. - Rebalancing Strategies. Over a period of time, certain investments will experience more rapid growth than others. This can shift the portfolio’s balance, necessitating rebalancing. Rebalancing, whether by reinvesting dividends or selling assets that have appreciated to buy those that have declined, ensures alignment with the desired risk levels and asset allocation strategy. Conclusion Crafting a balanced trading portfolio is an art backed by science, strategy, and due diligence. It's an ongoing process requiring constant monitoring and fine-tuning. By keeping a finger on the pulse of global trends, understanding risks, and staying committed to their goals, traders can navigate the choppy waters of global markets effectively. For those eager to embark on or deepen their trading journey, FXOpen offers the platform and tools. To initiate this exciting endeavour, you can open an FXOpen account and explore the dynamic offerings of the TickTrader platform. 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.
NASDAQ:TSLAEducation
by FXOpen
5
7 Ways to Optimize Your Trading Strategy Like a ProYou’ve got a trading strategy—great. But if you think that’s where the work ends, think again. A good strategy is like a sports car: It’s fast, fun, and dangerous… unless you keep it tuned and under control. And given how volatile modern trading is, yesterday’s strategy can quickly become tomorrow’s account-drainer. So, how do you keep your trading strategy sharp and in profit mode? Let’s dive into seven ways to fine-tune your setup like a pro. 1️⃣ Backtest Like Your Profits Depend on It (Spoiler: They Do) Before you let your strategy loose in the wild, backtest it against historical data. It’s not enough to say, “This looks good.” Run the numbers. Find out how it performs over different time frames, market conditions, and asset classes — stocks , crypto , forex , and more. If you’re not backtesting, you run the risk of trading blind — use the sea of charting tools and instruments around here, slap them on previous price action and see how they do. 💡 Pro Tip : Make sure to backtest with realistic conditions. Don’t cheat with perfect hindsight—markets aren’t that kind. 2️⃣ Optimize for Risk, Not Just Reward Everyone gets starry-eyed over profits, but the best traders obsess over risk management. Adjust your strategy to keep risk in check. Ask yourself: How much are you willing to lose per trade? What’s your win-loss ratio? A strategy that promises massive returns but ignores risk is more like a ticking time bomb than a way to pull in long-term profits. 💡 Pro Tip : Use a risk-reward ratio of at least 2:1. It’s simple: risk $1 to make $2, and you’ve got a buffer against losses. Want to go big? Use 5:1 or why not even 15:1? Learn all about it in our Asymmetric Risk Reward Idea. 3️⃣ Diversify Your Strategy Across Markets If you’re only trading one asset or market, you’re asking for trouble (sooner or later). Markets move in cycles, and your strategy might crush it in one but flop in another. Spread your strategy across different markets to smooth out the rough patches. 💡 Pro Tip : Don’t confuse this with over-trading. You’re diversifying, not chasing every pop. 4️⃣ Fine-Tune Your Time Frames Your strategy might be solid on the 1-hour chart but struggle on the 5-minute or daily. Different time frames bring different opportunities and risks. Test your strategy across multiple time frames to see where it shines and where it stumbles. 💡 Pro Tip : Day traders? Shorten those time frames. Swing traders? Stretch ’em out. Find the sweet spot that aligns with your trading style. 5️⃣ Stay Agile with Market Conditions No strategy is perfect for every market condition. What works in a trending market could blow up in a range-bound one. Optimize your strategy to adapt to volatility, volume, and trend shifts. Pay attention to news events , central bank meetings, and earnings reports — they can flip the script fast. 💡 Pro Tip : Learn to identify when your strategy isn’t working and take a step back. Not every day is a trading day. 6️⃣ Incorporate Multiple Indicators (But Don’t Go Overboard) More indicators = more profits, right? Wrong. It’s easy to fall into the trap of loading up your charts with a dozen indicators until you’re drowning in lines and signals. Keep it simple — combine 3 to 5 complementary indicators that confirm your strategy’s signals, and ditch the rest. 💡 Pro Tip : Use one indicator for trend confirmation and another for entry/exit timing. 7️⃣ Keep Tweaking, But Don’t Blow Out of Proportion Here’s the rub: There’s a fine line between optimization and over-optimization. Adjusting your strategy too much based on past data can lead to overfitting — your strategy works perfectly on historical data but crashes in live markets. Keep tweaking, but always test those tweaks in live conditions to make sure they hold up. 💡 Pro Tip : Keep a trading journal to track your tweaks. If you don’t track it, you won’t know what’s working and what’s not. Get familiar with the attributes of a successful trading plan with one of our top-performing Ideas: What’s in a Trading Plan? 💎 Bonus: Never Stop Learning The market’s constantly changing and your strategy needs to change with it. Keep studying, keep testing, and keep learning. The moment you think you’ve mastered the market is the moment it humbles you. Optimizing a trading strategy isn’t a one-and-done deal—it’s an ongoing process. By fine-tuning, testing, and staying flexible, you can keep your strategy sharp, profitable, and ahead of the curve. Optimize smart, trade smart!
SP:SPXEducation
by TradingView
7
The British Pound Is Stronger than the US DollarThe British Pound Is Stronger than the US Dollar: Understanding the Reasons GBP/USD is the third most actively traded currency pair on the foreign exchange market, after EUR/USD and USD/JPY. It is also one of the oldest pairs traded on forex. The British pound continues to cost more than the US dollar, despite the dollar overtaking it as the global reserve currency. Why is the British pound stronger than the US dollar? In this FXOpen article, we look at the GBP/USD pair and the factors that keep the British pound strong to help you understand how to trade it. What Is the GBP/USD Pair? Currencies are always traded in pairs on foreign exchange markets. GBP/USD refers to the value of the British pound sterling against the US dollar – specifically, how many US dollars traders need to buy one pound. For example, if the GBP/USD exchange rate is 1.28, a trader would need $1.28 to buy £1. How come the British pound is always stronger than the US dollar? The answer is rooted in history. A Brief History of the GBP/USD Pair Until World War I, the British pound was the global reserve currency, accounting for over 60% of the world’s debt holdings. It was valued at just under $5. After the war, the US dollar began to strengthen, and by 1944, when the Bretton Woods system was introduced, the pound was pegged at $4.03. The Bretton Woods system fixed the US dollar to the gold price and established it as the unofficial global reserve currency. After World War II, the value of the USD began to rise, and it overtook GBP as the primary currency used in international trade. The Bretton Woods system began to slowly collapse after 1971, and both the GBP and USD became free-floating, with the US dropping the gold standard. This has resulted in the value of the GBP gradually sliding over the following decades. The free-float rate made the GBP/USD pair highly volatile. The pound sterling reached a high of 2.08 against the dollar in 2007 during the global financial crisis, as higher UK inflation raised expectations that the Bank of England would raise interest rates. In June 2016, the UK’s vote to leave the European Union drove the value of the pound down to the 1.20–1.25 area overnight. That was its lowest level since the collapse of the exchange rate mechanism in 1985 and the largest one-day decline since the end of Bretton Woods. The GBP/USD pair has since largely traded between 1.20-1.40. A notable exception was the start of the COVID-19 pandemic, when investors flocked to the safe haven US dollar amid uncertainty about the economic impact, and the pound fell to 1.16 against the USD. COVID-19 shutdowns and the loss of European trade following Brexit have weighed on the prospects for the UK economy. At the same time, geopolitical tensions such as the US-China trade war and the Russia-Ukraine conflict have lifted the value of the dollar, as have rising interest rates. In 2022, the Bank of England was forced to intervene as the value of sterling fell close to a record low of 1.035 against the dollar in response to a crisis of confidence in the UK government, high inflation and unemployment rates, and concerns regarding the domestic economy. However, by April 2023, the pound had recovered and became the best-performing G-10 currency of the year. According to Forbes, the British pound is the world’s fifth strongest currency, while the US dollar is the 10th strongest. The GBP/USD pair has primarily been trading around 1.20-1.30 so far in 2023. Why is the pound still stronger than the dollar? Is GBP Stronger than USD? Why is the pound more expensive than the dollar? The value of the GBP against the USD in forex doesn’t solely determine the strength of the US and UK economies. Analysts consider other factors that can question the strength of the pound. Nominal Value A currency’s nominal value refers to its value against another currency in forex. As was mentioned above, the nominal value of both currencies changed significantly over time. Although GBP was always more expensive than the US dollar, this conclusion is relatively arbitrary. Also, it’s worth considering the lower number of British pounds in circulation, which is worth £81 billion, compared to $2.33 trillion US dollars, which contributes to the higher value of GBP as of May 2023. Relative Strength The strength of a particular currency against another at any point in time is also relative, as it could actually be weaker against other currencies. For example, GBP could rise in value against USD but fall against EUR, AUD and JPY, which would suggest that the relative value of the pound is weaker – just not as weak as the USD. This is because the relative strength is determined not only by the value of one currency against another but by economic data, including inflation, economic growth, and the trade balance, which determine the strength of the overall economy. To gauge a currency’s real strength, analysts track its value in relation to multiple currencies over time. For instance, the Dollar Index (DXY) measures the value of the USD against a basket of currencies from its key trading partners and competitors, as this is a more accurate measure of its value than a single pair. Quoting Conventions The use of GBP/USD as the quoting convention reflects the pound’s strength. For instance, a GBP/USD quote of 1.25 signifies that $1.25 is needed to buy £1. This quoting convention originated in the late 1900s during the British Empire when the UK had a larger economy than the US. Despite the subsequent shift in economic power, this convention has endured. Since World War I, the US economy has surpassed the UK economy in terms of size. Modifying quoting conventions is challenging, given how entrenched they are in the financial industry. However, the tradition of quoting GBP/USD in itself does not determine the value of the pound and the dollar. Purchasing Power Parity (PPP) While the GBP/USD trading value suggests the pound is stronger, the purchasing power parity (PPP) fluctuates. PPP indicates how much a currency is worth based on the value of a basket of goods. In these terms, the dollar can be stronger than the pound. The concept underlying PPP is that the exchange rate should equalise the purchasing power of each currency within its respective country. For instance, if a basket of items costs £100 in the UK with a GBP/USD exchange rate of 1.15, the PPP would suggest that the equivalent cost of the same basket in US dollars should be $115. In practice, exchange rates frequently diverge from their PPP levels. The degree to which a currency such as GBP or USD deviates from its PPP indicates its relative strength or weakness against another currency. Global Economy Although the US economy is stronger than that of Great Britain, sterling’s history as the former global reserve currency and political and economic power have contributed to its strength. The pound is one of the world’s oldest currencies, having been introduced in the 1400s. The UK remains a major global financial centre, and the Bank of England continues to participate in international economic developments. What Factors Affect GBP/USD There are several factors that affect the value of the British pound and US dollar: - US Federal Reserve monetary policy - Bank of England monetary policy - Inflation rate, which has a strong impact on the interest rates - Employment data, which influences government fiscal policy - Geopolitical events - Other economic indicators, including retail sales and industrial production Does It Matter If GBP/USD Falls Below Parity? A weaker sterling could support UK exports, but it would also increase the cost of imported goods and drive up inflation. The Bank of England would be forced to intervene to contain inflation. As seen in 2022, there is also a risk that a sharp drop in the pound’s value could become disorderly, which could create political and economic turmoil. However, if the value of the pound fell below the dollar, it would be a psychological milestone for the UK, but it would not have a major impact on the forex market. Conclusion The British pound sterling has traditionally maintained a higher value against the US dollar because of historical convention. However, the US dollar is stronger overall as it is the world's reserve currency and has larger trading volumes. The GBP/USD exchange rate has been in a long downtrend. Therefore, there are risks that GBP will soon lose its nominal premium. Understanding how the British pound is stronger than the US dollar can help you to form strategies to trade the GBP/USD forex pair. By observing economic indicators, you can take a view on how you expect the market to move. If you are looking to trade forex markets, you can open an FXOpen account. The TickTrader platform allows you to analyse live price charts and trade a range of currency pairs. 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
11
How to Trade Gap Up and Gap Down Opening? Full Guide What is gap up and gap down in trading? In this article, I will teach you how to trade gap up and gap down opening . You will learn a simple and profitable gap trading strategy that works perfectly on Forex, Gold or any other financial market. First, let's start with a theory . A gap up after the market opening is the situation when the market opens higher than it was closed without any trading activity in between. Above you can see the example a gap up after the market opening on EURGBP. The price level where the market closed is called gap opening level. The price level where the market opened is galled gap closing level. A gap down after the market opening is the situation when the market opens lower than it was closed without trading activity in between. Here is the example of a gap down after the market opening on WTI Crude Oil. Why such gaps occur? There are various reasons why opening gaps occur. One of the most common one is the release of positive or negative news while the market was closed. The market opening price will reflect the impact of such news, causing a formation of the gap. What gap opening means? Gap openings reflect the sudden change in the market sentiment. Gap up will indicate a very bullish sentiment on the market while a gap down will imply very bearish mood of the market participants. However, the markets do not like the gaps. With a very high probability, the gaps are always filled by the market very soon. We say that the gap is filled, when the price returns to the gap opening level. Above, you can see that after some time, EURGBP successfully closed the gap - returned to gap opening level. Such a pattern is very reliable and consistent among different financial markets. For that reason, it can provide profitable trading opportunities for us. You can see that a gap down on WTI Crude Oil was quickly filled and the price returned to the gap opening level. How to trade gap opening? Gap Up Trading Strategy Once you spotted a gap up after the market opening, you should wait for a bearish signal before you sell. You should look for a sign of strength of the sellers. One of the most accurate signals is a formation of a bearish price action pattern: Double top, Triple top, Inverted Cup and Handle, Head and Shoulders, Symmetrical or Descending Triangle, Rising Wedge... Bearish breakout of a trend line / neckline of the pattern will be your signal to sell. Look at a price action on EURGBP before it filled the gap. At some moment, the price formed a double top pattern and broke its neckline. That is our signal to sell. Your stop loss should lie above the highs of the pattern. Take profit - gap opening level. Safest entry is on a retest of a broken neckline/trend line of the pattern. Safest entry point on EURGBP is the retest of a broken neckline of a double top pattern. Stop is lying above its highs. TP - gap opening level. Gap Down Trading Strategy Once you spotted a gap down after the market opening, you should wait for a bullish signal before you sell. You should look for a sign of strength of the buyers. One of the most accurate signals is a formation of a bullish price action pattern: Double bottom, Triple bottom, Cup and Handle, Inverted Head and Shoulders, Symmetrical or Ascending Triangle, Rising Wedge... Bullish breakout of a trend line / neckline of the pattern will be your signal to buy . Let's study the price action on WTI Crude Oil before it filled the gap. You can see that the price formed a cup and handle pattern. Bullish breakout of its neckline is a strong bullish signal. Safest entry is on a retest of a broken neckline/trend line of the pattern. Your stop loss should lie above the lows of the pattern. Take profit - gap opening level. Following this strategy, a nice profit was made. Always remember that probabilities that the gap will be filled are very high. However, it is not clear WHEN exactly it will happen. For that reason, you should carefully analyze a price action and wait for a signal, before you open the trade. That will be your best gap opening trading strategy. ❤️Please, support my work with like, thank you!❤️
Education
by VasilyTrader
10
THE MUST-SEE CHART YOU DIDN'T KNOW YOU NEEDED!The TVC:VIX VIX (Volatility Index), often referred to as the "Fear Gauge," measures market volatility expectations based on options prices for the SP:SPX S&P 500 index over the next 30 days. It reflects the sentiment of market participants about future volatility, with higher values indicating more anticipated volatility (often associated with market fear or uncertainty) and lower values reflecting calm market conditions. Investors frequently use the TVC:VIX VIX as a tool for assessing market risk, especially during periods of market turbulence or significant economic events. Since it tends to rise when the stock market declines, it is often seen as a hedge against market downturns. It's important for traders and analysts, particularly in the context of options trading and for assessing overall market sentiment. The TVC:VIX VIX's relationship with the cryptocurrency market, particularly with BNC:BLX Bitcoin and other major assets, can offer insights into market sentiment across traditional and digital financial spaces. While the TVC:VIX VIX primarily reflects volatility in the U.S. equity market, changes in its level can indirectly impact cryptocurrencies in the following ways: 1. Market Sentiment Correlation: High VIX: A rising VIX indicates fear or uncertainty in traditional markets. In times of high volatility, investors tend to move away from risky assets, including cryptocurrencies, leading to potential sell-offs in both markets. However, some may consider Bitcoin a hedge during extreme cases of fear, driving demand as a "digital gold" asset. Low VIX: A lower VIX reflects calm and stability, which may encourage investors to take on more risk. This could benefit high-risk, high-reward assets like cryptocurrencies, potentially driving capital into Bitcoin, Ethereum, and other cryptos. 2. Liquidity and Risk-Off/Risk-On Dynamics: In a risk-off environment (high VIX), institutional and retail investors often reduce exposure to volatile assets like crypto, leading to a potential liquidity crunch and sell-offs. Conversely, a risk-on environment (low VIX) may signal that investors are more willing to take risks, increasing liquidity and driving up crypto prices. 3. Crypto's Evolving Correlation with Equities: Over time, there has been an evolving correlation between the S&P 500 and Bitcoin, particularly during times of high macroeconomic stress (e.g., during the COVID-19 pandemic or interest rate hikes). As VIX tracks equity market sentiment, rising volatility in equities often spills into crypto markets. In bull markets or periods of equity recovery, crypto markets may also benefit from an inflow of capital, reducing VIX levels and increasing crypto prices simultaneously. 4. Hedging and Diversification: Some institutional investors use the VIX as part of their hedging strategy when managing portfolios with exposure to equities and cryptocurrencies. For example, a high VIX may prompt them to move into stablecoins or reduce exposure to speculative assets. In the future, more sophisticated products like a "crypto volatility index" may emerge, mirroring the role of the VIX but for digital assets. 5. Macro Events: Major macroeconomic events, such as central bank decisions or geopolitical events, can cause both the VIX to rise and have similar effects on crypto volatility. During such periods, correlations between traditional and digital markets may strengthen. feargreedmeter.com The VIX (Volatility Index) and the Crypto Fear and Greed Index serve similar purposes by gauging market sentiment, but they do so in different ways and in distinct markets. Below is a comparison between the two: 1. Purpose and Market Focus VIX (Volatility Index): Market: Traditional financial markets, specifically the S&P 500. Purpose: Measures expected volatility in the S&P 500 over the next 30 days based on options prices. It’s often used as an indicator of fear or complacency in the U.S. stock market. Focus: Short-term volatility expectations, acting as a “fear gauge” for equity market participants. Crypto Fear and Greed Index: Market: Cryptocurrency markets, with a strong emphasis on Bitcoin. Purpose: Measures the emotional sentiment of the crypto market by analysing multiple factors to determine whether the market is driven by fear or greed. Focus: Broader emotional sentiment rather than technical market volatility. It tracks how much fear or optimism is present among crypto traders. 2. Inputs and Calculation VIX: Derived from the implied volatility of options on the S&P 500. It looks at a range of call and put options to estimate expected price swings in the market. Key Factors: Options market data, specifically the prices investors are willing to pay to hedge against future volatility in the stock market. Crypto Fear and Greed Index: Combines various inputs to capture overall market sentiment. These include: Volatility: Tracks Bitcoin volatility and compares it with historical trends. Increased volatility is associated with fear. Market Momentum/Volume: Rising buying volumes signal greed while declining volumes suggest fear. Social Media Sentiment: Analyses mentions, hashtags, and engagement on social media related to crypto topics, reflecting hype or panic. Surveys : Sometimes include survey data from market participants. Dominance: Focuses on Bitcoin’s dominance in the market. Rising dominance suggests fear (as investors flock to Bitcoin for safety) while decreasing dominance implies a risk-on environment. Google Trends: Looks at search query trends for cryptocurrency terms, reflecting public interest and sentiment. 3. Interpretation VIX: Higher VIX (>20): Indicates high expected volatility, often interpreted as fear in the market. Investors are anticipating larger price swings, usually in a negative direction. Lower VIX (<20): Suggests a calm market with lower expected volatility, often indicating complacency or a bullish outlook in the equity markets. Crypto Fear and Greed Index: 0-24 (Extreme Fear): Indicates significant fear in the crypto market. Traders may be overly concerned about price drops, which could lead to buying opportunities based on contrarian strategies. 25-49 (Fear): The market is still cautious, with more sellers than buyers. 50-74 (Greed): Optimism and confidence are high, with traders taking on more risk. 75-100 (Extreme Greed): Overconfidence or euphoria in the market. This is often seen as a warning that the market may be overbought, making a correction likely. 4. Time Horizon VIX: It focuses on expected short-term volatility (the next 30 days), meaning it's more of a short-term indicator of market swings. Crypto Fear and Greed Index: A broader measure of overall sentiment, not specifically tied to volatility or timeframes, it captures emotional extremes in the market that could persist for days, weeks, or longer. 5. Use Cases for Investors VIX: Used by traditional investors to gauge risk in the stock market. When the VIX is high, it can be a signal to hedge positions, reduce exposure to equities, or take advantage of volatility-driven strategies like options trading. During periods of low volatility, investors may become complacent and could be blindsided by sudden spikes in the VIX, often driven by external events (e.g., geopolitical issues or economic reports). Crypto Fear and Greed Index: Helps crypto traders assess the general market mood. Extreme fear can signal potential buying opportunities (contrarian strategy), while extreme greed may indicate an overheated market, possibly a time to sell or de-risk. Useful for emotional market analysis in a space that is known for strong, irrational sentiment swings, making it a helpful tool for timing market entries and exits. 6. Impact on Price VIX: Typically inversely correlated with stock prices. A rising VIX often accompanies a falling stock market, and vice versa. Crypto Fear and Greed Index: A sentiment indicator is not directly tied to price movements, but extreme readings can signal turning points or potential corrections in crypto prices due to market overreactions. If you have any questions, please reach out!
TVC:VIXEducation
by LisaNEdwards
11
Five Market Correlations You Can UseAs a trader, I've discovered key market correlations that provide valuable insights. Here are 6 you can use: 1️⃣ US Dollar Index & Commodities (DXY & Commodities ): The US Dollar Index often moves inversely to commodities like gold and oil. Monitoring this correlation helps gauge potential moves in commodity prices based on the USD's strength or weakness. 2️⃣ S&P 500 & Volatility (SPX & VIX): The S&P 500 and the VIX (CBOE Volatility Index) exhibit an inverse relationship. A rising VIX indicates higher market uncertainty, influencing my risk management decisions when trading the S&P 500. 3️⃣ Bond Yields & Currency Pairs (BondYields & Forex ): Strong correlations exist between government bond yields and currency pairs. Higher bond yields may lead to a stronger currency, and vice versa. This correlation helps in forex analysis and trade setups and we use it in our program's bias matrices. 4️⃣ Crude Oil & Transportation Stocks (CrudeOil & Transportation ): Crude oil prices and transportation stocks, like airlines and shipping companies, often move together. Understanding this correlation provides insights into both oil demand and economic trends. 5️⃣ Gold & Real Interest Rates (GOLD & InterestRates ): Gold is often influenced by real interest rates (nominal rates adjusted for inflation). When real rates are low or negative, gold tends to perform well as an inflation hedge. 6️⃣ USD/CAD & Oil Prices (USDCAD & Oil ): The Canadian dollar (CAD) is sensitive to oil prices due to Canada's significant oil exports. As oil prices rise, USD/CAD tends to fall, and vice versa. The Norwegian Krone (NOK) also exhibits a similar behavior at times. By recognizing these correlations, I make more informed trading decisions and anticipate potential market moves based on the pre session biases. I also keep a close eye on updated correlation matrices in case any have de-coupled recently. Utilize these insights in your trading arsenal to gain a competitive edge!
TVC:US10YEducation
by AlexSoro
4
How To Reduce Your Risk Before Even Taking The TradeIn an interview Warren Buffet was asked about his investment approach, where he responded by explaining a mental model that he and his business partner Charlie Munger would use when selecting companies to invest in, called the Circle of Competence. When asked about the circle of competence Warren Buffet would often use a baseball analogy to explain it. Where an average baseball player can appear exceptional by simply waiting for the right pitch. In other words in most cases Warren and Charlie would find companies where they have an understanding and experience surrounding the industry which allows them to make an investment decision with a fair amount of competence. By making sure they stay well within their circle of competence they're able to reduce the risk significantly by simply understanding what they're investing in. Although this principle is used quite extensively by Warren and Charlie, it can also be used by you. By simply reducing the amount of instruments you're watching and begin studying the ones you already understand, you automatically give yourself a unique edge while at the same time reduce your risk before you even take the trade. So, as you move into the next and final quarter of the year, be sure to have a look at your watchlist and start refining it to a point where all you're looking at are instruments you understand and are well experienced in. By doing this you'll be able to remain focused and stay in the zone for a lot longer, while all the more reduce your risk long before you even take the trade.
Education
by DeanMuller
4
How to Trade with the Island Reversal PatternHow to Trade with the Island Reversal Pattern Price action analysis serves as a pivotal methodology in financial markets, offering a means to assess and determine the future price movements of various assets, including stocks, currencies, and commodities. Among the many tools employed within this method, the Island Reversal pattern stands out as a significant indicator of potential trend reversals. What Is an Island Reversal Pattern? The Island Reversal is a technical analysis pattern that signals a potential trend reversal. It typically occurs after a strong uptrend or downtrend and is characterised by a gap in price action, isolating a group of candlesticks. The pattern suggests a shift in market sentiment, indicating that the previous trend may be losing momentum. How to Spot an Island Reversal in the Chart To identify the setup, traders pay close attention to the following characteristics, which can manifest in both bullish and bearish market conditions: Strong Trend: - Bullish: This pattern often materialises after a prolonged downtrend. It signifies a potential price change to the upside. - Bearish: Conversely, in a bullish market, the pattern emerges following a sustained uptrend, suggesting a possible change in a trend to the downside. Gap in Island Reversal: - Bottom Island Reversal: In a bullish context, there is a gap down, creating an "island" of isolated candlesticks, indicating a shift from bearish sentiment to potential bullish momentum. - Top Island Reversal: For a bearish reversal, there is a gap up, isolating a group of candlesticks, signalling a transition from bullish to potentially bearish market sentiment. Isolation: - Bullish Island Reversal: The gap is created by an upward movement that is isolated from the surrounding price action, forming the characteristic island formation. - Bearish Island Reversal: In a bearish context, the gap is formed by a downward movement that does not overlap with the previous, creating a distinctive island formation. How to Trade the Island Reversal Traders employing the setup adhere to a systematic strategy for identifying and capitalising on a potential change in a trend. Patiently awaiting confirmation of the reversal through subsequent price action, traders enter the market upon the break of isolation, where the price decisively moves below (for a bearish scenario) or above (for a bullish scenario) the isolated island. Profit targets may be set by considering key support and resistance levels to potentially enhance precision. The placement of stop-loss orders just above or below the pattern is a critical risk management component. Traders carefully assess the risk-reward ratio to align potential profits with associated risks. This holistic approach reflects a commitment to disciplined decision-making, combining technical analysis and prudent risk management in navigating the complexities of financial markets. Live Market Example The TickTrader chart by FXOpen below shows a bearish setup. The trader takes the short at the opening of the new candle below the Island. Their stop loss is above the setup with a take profit at the next support level. The Bottom Line Although the Island Reversal is a popular technical analysis tool, it's crucial to wait for confirmation and consider other technical indicators to potentially increase the probability of an effective trade. As with any trading strategy, risk management is key to mitigating potential losses. Always adapt your approach based on the specific conditions of the market and use the pattern as one of several tools in your trading arsenal. To develop your expertise, open an FXOpen account to trade in numerous markets with exciting trading conditions. FAQs Why Is Risk Management Important When Trading the Island Reversal? The pattern is considered a strong signal of a change in the price direction, but like all technical patterns, it is not infallible. There is always a risk that the pattern may fail to lead to the expected price movement. Effective risk management helps limit losses in case the trade doesn't play out as anticipated. Should Traders Solely Rely on the Island Reversal for Trading Decisions? No, traders always wait for confirmation and incorporate other technical indicators to potentially enhance the probability of an effective trade. The pattern should be regarded as just one of several tools in a trader's toolkit. Is There a Platform Where Traders Can Apply Their Knowledge of the Pattern in Live Markets? Yes, traders can explore FXOpen’s free TickTrader trading platform to trade in over 600 markets and apply their understanding of the pattern in practical trading scenarios. This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.
NASDAQ:AMZNEducation
by FXOpen
4
Dow Made a Parabolic Move: Did You See the Signs? The Dow made an unsustainable Parabolic Arc that is a giant U-shaped pattern on Friday, September 27. Did you see the signs? I missed some of them, which lead to a much closer look at what price action moves lead up to a highly volatile ascent and steep drop that's also known as a "Pump and Dump". The Parabolic move followed typical behaviors that can be seen through price action without needing any indicators. It happened in phases over 3-days, from September 25 - 27: 1. Day 1: A Peak High formed. 2. Day 1 - 2: Valley Low followed. 3. Day 2 - 3: Consolidation between the Peak High and Valley Low. Price action made stair-step moves that created a S&R Zone. Traders also refer to these moves as making multiple bases. An average number of bases is 3 - 4 during a parabolic move. The long consolidation can confuse many traders, including myself, because of no breakout from the Zone happened, especially to the downside. There was strong anticipation for a drop. 4. Day 3: A Triple Inside Day showed up to represent the tight "coiling" action from the consolidation to eventually spring out in an EXPLOSIVE move. The Triple Inside Day pattern that was part of the consolidation was a big giveaway of what's to come. 5. Day 3: A pullback from the consolidation, but was more like a fakeout to trap traders with the Trendbar Reversal, that often leads to no follow through by the bears to really drop. The second, opposing bar within the pattern is a setup for a reversal to the upside. Many traders get fooled by this pattern and drop out at this point, right before the long rally starts. 6. Day 3: Ascending Channel (also called a "Parabolic Channel") formed that is typical after a pullback to the downside before the greater ascent. 7. Day 3: Steep Vertical Ascent with a bullish bar that is 240 tics tall - an Exhaustion Phase. 8. Day 3: Reversal to the downside (that is comparable to or exceeds in length to the steep ascent) from the formation of an Evening Star. The Parabolic move ended with a steep, vertical descent. ______________________________________________ *Citation of Resources: - Jet Toyco - FX Open - Pips 2 Profit - Top 1 Markets
BLACKBULL:US30Education
by beyond50
2
Cracking the Forex Code: Trader’s Complete Guide to Market SlangForex is the vast universe of currency pairs floating against each other—sometimes sitting at parity, sometimes shooting for the stars and sometimes just plain nosediving. And because forex has a mind of its own (kind of), it also speaks its own language. This is why this Idea exists—to help you make sense of the jargon by breaking down key terms, phrases, and slang used in everyday forex trading. Let’s get into it! 1. Ask The price the market is willing to sell a currency at. It’s the price you’ll pay if you’re buying. 2. Arbitrage Simultaneous buying and selling across different markets to exploit price differences. 3. Aussie Trader slang for the AUD/USD currency pair. 4. Bagholder Someone stuck holding a losing position long after everyone else has exited. Don’t be a bagholder. (Are you secretly a bagholder?) 5. Base Currency The first currency in a pair (e.g., in EUR/USD , EUR is the base). You’re buying or selling this one. 6. Bearish Expecting the market to fall. Depicts a bear attack—swiping its paws downward. 7. Bid The price at which the market is willing to buy a currency. If you’re selling, this is the price you’ll get. 8. Black Gold A nickname for oil. Watch the price of this commodity—it moves entire currencies. 9. Bottom Fishing Buying a currency or stock at what you hope is its lowest point. It’s risky—sometimes the bottom keeps falling. 10. Breakout When price moves out of a defined range, smashing through support or resistance, signaling a potential strong move. 11. Buck Trader slang for the U.S. dollar. Simple, direct, and everyone knows it. 12. Bullion Physical gold or silver. When traders want the real stuff, they go for bullion. 13. Bullish Betting on the market to rise. Depicts a bull attack—thrusting its horns upward. 14. Cable Forex slang for the GBP/USD pair, named after the old transatlantic cable. 15. Candlestick A visual representation of price movement showing the open, high, low, and close in a specific time period. 16. Carry Trade Borrowing in a low-interest-rate currency and investing in a higher-interest one to pocket the interest difference. 17. Choppy Describes a market with no clear direction and lots of erratic movement. A tough one to trade in. 18. Chunnel Slang for the EUR/GBP pair, referring to the English Channel that connects Europe and the UK. Gotta love that geographical flair. 19. Cross Currency Pair A currency pair that doesn’t involve the USD (e.g., EUR/JPY ). They have a life of their own, not tied to the greenback. 20. Dip A temporary decline in price during an uptrend. Smart traders "buy the dip" to get in. But sometimes the dip keeps dippin’. 21. Dragon The GBP/JPY currency pair. Known for its volatility and wild price swings—trade carefully! 22. Drawdown The loss from peak to trough in your account balance during a trading period. It’s inevitable—just don’t let it take you out. 23. Exotic Pairs Currency pairs that include one major currency and one from an emerging or less liquid market (e.g., USD/TRY ). Exotic in name, but not always in your best interest—volatile and wide spreads. 24. Fedspeak The carefully crafted language of the Federal Reserve. One vague speech from Fed Chair JPow can send markets into a frenzy. 25. Fibonacci Retracement A technical tool to identify possible support and resistance levels, based on the Fibonacci sequence. Traders love these numbers. 26. Fill or Kill A type of order where it must be filled immediately at the requested price, or canceled. No waiting around here. 27. Forex (FX) The foreign exchange market—where currencies are traded 24/5. The biggest, baddest market in the world with $7 trillion moving daily. 28. FOMO Fear of Missing Out. The emotional trap where traders chase the market late—usually leading to bad trades. Don’t fall for it. 29. Fundamental Analysis Analyzing economic factors (e.g., GDP, employment, inflation) to predict currency movements. It’s all about the big picture here. 30. Gopher Slang for the USD/JPY pair. A less common term, but you’ll see it in the trading trenches. 31. Greenback Another classic slang term for the US dollar, referring to the green color of American bills. 32. Hawkish A central bank policy favoring higher interest rates to control inflation. Hawkish policy = stronger currency. 33. Kiwi Slang for the NZD/USD currency pair. Named after New Zealand’s famous bird—not the fruit! 34. Leverage Trading with borrowed capital. It magnifies gains, but it can also blow up your account faster than you think. Use wisely. 35. Liquidity The ease with which a currency can be traded without affecting its price. High liquidity means tight spreads and fast trades. 36. Loonie The nickname for the USD/CAD pair. Named after the loon, a bird featured on Canada’s $1 coin. 37. Lot The size of your trade. A Standard Lot is 100,000 units, a Mini Lot is 10,000, and a Micro Lot is 1,000. 38. Margin The amount of money needed to open a leveraged trade. It’s essentially your broker’s “deposit.” 39. Margin Call When your broker demands more funds because your account can no longer support open positions. Not answering could mean automatic liquidation. New phone who dis? 40. Market Maker An entity (usually a bank or broker) that provides liquidity to the market by always being willing to buy or sell at certain prices. 41. Moving Average A technical indicator that smooths price data over a specific period to identify trends. Think of it as the market’s heartbeat. 42. Ninja Slang for the USD/JPY pair. This one’s fast and stealthy, like a true ninja. 43. Old Lady A nickname for the Bank of England (BoE). When the “Old Lady” speaks, the GBP moves. 44. Overbought When a currency has been bought excessively, leading to a potential reversal. Usually spotted with indicators like RSI. 45. Oversold The opposite of overbought. It means the currency has been sold off too quickly, signaling a potential price bounce. 46. Permabear A trader who is always bearish, no matter what the market does. They believe the sky is always falling. “I knew BTC was going to zero.” 47. Pips The smallest price move in a currency pair. In most pairs, it’s the fourth decimal place (0.0001). Collecting pips is how you build profit. 48. Pivot Point A key level used by traders to identify potential support and resistance levels. Great for spotting reversals. 49. Position Trading Holding a trade for weeks or months, focusing on long-term trends. You’ll need patience for this one. 50. Price Action Trading based solely on price movement, ignoring indicators and fundamentals. It’s all about reading the market’s raw behavior. 51. Pump and Dump A scheme where traders hype up a currency or stock, inflate its price, then sell out for a profit while everyone else is left holding the bag. Sketchy stuff. 52. Pullback A temporary dip or rise in price within a larger trend. It’s an opportunity to buy in or sell the rally. 53. Ranging Market When prices are moving sideways in a tight range, with no clear trend. Boring, but there are still trades to be made. 54. Resistance A price level where selling pressure tends to prevent further rises. If it breaks, a big move could be coming. 55. Rollover Interest earned or paid for holding a position overnight, based on the interest rate differential between the currencies. 56. Scalping A fast-paced strategy that involves making quick trades to grab small profits from tiny price moves. Not for the faint-hearted. 57. Shill Someone who promotes or hypes up a stock, currency, or crypto for personal gain, often misleading others. Watch out for these on social media. 58. Short Squeeze When a heavily shorted asset rises in price quickly, forcing short sellers to buy back their positions at higher prices, fueling the rally even further. 59. Slippage When your trade is executed at a different price than expected, usually during high volatility or low liquidity. 60. Spread The difference between the bid and ask prices. Tighter spreads are better—lower costs for getting into a trade. 61. Stop-Loss An order that automatically closes a trade when it hits a specified loss level. Protect yourself, set that stop! 62. Support A price level where buying appetite tends to prevent further drops. Break below it, and things could get ugly. 63. Swissy Slang for the USD/CHF currency pair. Traders often turn to the Swissy for safety in volatile times. 64. Swap The interest earned or paid for holding a position overnight. Positive swaps are a nice bonus, negative swaps? Not so much. 65. Swing Trading Holding trades for days or weeks to capture short- to medium-term market moves. It’s a balanced approach between day trading and long-term investing. 66. Take-Profit An order that closes your trade automatically when it reaches your target profit. Lock in those gains before the market turns! 67. Tenbagger A stock or currency that increases tenfold in value. Rare, but when it happens, it’s legendary. 68. Trend The general direction the market is moving—either bullish, bearish, or sideways. The trend is your friend—until it isn’t. 69. Volatility The amount of price fluctuation in the market. High volatility means more potential for profits—or losses. Buckle up! (Hint: Anticipate volatility by knowing the market-moving events .) 70. Whipsaw When the market moves quickly in one direction, stops you out, and then reverses back. It’s the ultimate trader frustration. 71. Widow Maker A trade with huge risks that’s known for wiping out accounts, especially when shorting the Japanese yen in a strong trend or betting against the Bank of Japan. And there you have it— the ultimate Forex slang dictionary that prepares you to take a deep dive in the sea of forex trading . Did we catch everything? Let us know your thoughts in the comments!
Education
by TradingView
2
Top 5 Books Every Trader Should Have on Their ShelfLet’s face it: there is more to trading than blindly smashing the buy and sell button after you’ve picked up the latest buzz on Reddit’s messaging boards. What’s happening between your ears is just as important as what’s happening on your charts. And sometimes, it might as well help you make sense of it all. So, where do you start if you want to sharpen your edge? Books . Real, old-fashioned, mind-expanding books. The kind of reads that will school you in both the mechanics and mindset of trading. Forget the social media noise—we’re listing five books that will hand you the wisdom, strategies and mental toughness you need to not just survive but thrive in the seemingly chaotic world of markets. Let’s get into it. 📖 1. Reminiscences of a Stock Operator ✍️ by Edwin Lefèvre 🧐 What’s it about : This is the OG of trading books. A classic that was first published in 1923, it follows the life of the legendary trader Jesse Livermore, who made and lost millions more times than most traders have had profitable months. It's less of a step-by-step guide and more of a philosophical deep dive into what drives traders to win, lose, and repeat the cycle. 💡 What’s the takeaway : You’ll find yourself nodding along, thinking, “Yep, been there” every few chapters. And trust us, Livermore’s lessons on greed, fear and market timing are still as relevant today as they were a century ago. 📖 2. Trading in the Zone ✍️ by Mark Douglas 🧐 What’s it about : If there’s one book that will help you stop blowing up your account because you’re caught in emotional trades, this is it. Mark Douglas breaks down the psychological barriers traders face and teaches you how to think in probabilities. Spoiler alert: The market owes you nothing. Douglas teaches you how to embrace the uncertainty of trading and act probabilistically—playing the odds, not emotions. 💡 What’s the takeaway : If you're constantly getting blindsided by your feelings, there is a high probability that this book will snap you out of that spiral and teach you how to approach the market with a level head. 📖 3. Market Wizards ✍️ by Jack D. Schwager 🧐 What’s it about : Ever wish you could pick the brains of the world’s greatest traders? Jack Schwager did it for you. This book is essentially a collection of interviews with the top traders of the 80s (think Paul Tudor Jones, Bruce Kovner, and Richard Dennis). Schwager’s interviewing style makes it feel like you’re sitting in on private conversations, absorbing their secrets, strategies and market philosophies. 💡 What’s the takeaway : There’s no single “right way” to trade. Whether you're a scalper or a trend follower, you’ll find someone here who matches your vibe. Plus, these stories prove that anyone—from a college dropout to a former blackjack player—can conquer the market with the right mindset and persistence. 📖 4. Technical Analysis of Stock Trends ✍️ by Robert D. Edwards and John Magee 🧐 What’s it about : If you’re serious about technical analysis, this is the trading bible. Originally published in 1948, this book largely introduced the world to concepts like trend lines , support and resistance , head-and-shoulders patterns , and much more. Edwards and Magee laid the foundation for almost every technical analysis tool you see around today. 💡 What’s the takeaway : This gem will teach you how to recognize trend changes, continuation patterns, and reversal signals that can sharpen your trading entries and exits. 📖 5. The Alchemy of Finance ✍️ by George Soros 🧐 What’s it about : If you want to understand not only how to trade but also how the world of finance operates, this is the book. Written by one of the most successful (and controversial) investors and currency speculators of all time, George Soros, The Alchemy of Finance is part autobiography, part deep dive into Soros' legendary "reflexivity" theory. It's not just about looking at price action—it's about understanding how traders' perceptions affect markets, often driving them in irrational directions. 💡 What’s the takeaway : Soros teaches you to think bigger than charts and numbers—to anticipate shifts in market psychology and position yourself accordingly. Wrapping Up You can binge all the videos, tutorials and online courses you want, but nothing beats the distilled wisdom found in a great trading book. These five reads are the perfect balance of trading psychology, real-life stories, and technical analysis insights that will help you become a better, more knowledgeable trader. Bonus tip : if you start now, you’ve got a couple of months until Thanksgiving when you can brag about how many pages you read. 📚 Additional Picks for the Avid Trader If you’re hungry for more insight, we’ve got a few additional picks for you. Of course, they offer a wealth of knowledge from market titans and cautionary tales from the trading trenches: 📖 More Money Than God by Sebastian Mallaby A brilliant history of the hedge fund industry, revealing the strategies and personalities behind some of the greatest trades ever made—and showing you how the masters manage risk and opportunity. 📖 When Genius Failed by Roger Lowenstein A cautionary tale of Long-Term Capital Management, the "genius" hedge fund that imploded in spectacular fashion. Learn what happens when ego and leverage collide in the financial world. 📖 The Man Who Solved the Market by Gregory Zuckerman This is the story of Jim Simons and his secretive firm, Renaissance Technologies, which revolutionized trading with quantitative models. It’s a must-read for anyone intrigued by the world of algorithmic trading. 📖 Big Mistakes by Michael Batnick Everyone makes mistakes—especially traders. This book dives into the biggest blunders made by history’s top investors and traders, showing you that even the greats are human—and how to avoid repeating their costly errors. 📖 Confusion de Confusiones by Joseph de la Vega Originally written in 1688, this is one of the first books ever on trading (to many, the first ever), set during the time of the Dutch stock market bubble. It may be old but its lessons on speculation, greed and market psychology are as timeless as they come. 🙋‍♂️ What's your favorite book on trading and did it make our list? Comment below! 👇
Education
by TradingView
10
Smart Money Concept and How To Use It in TradingSmart Money Concept and How To Use It in Trading In the world of forex trading, understanding the movements and strategies of the market's most influential players like banks and hedge funds—termed "smart money"—can provide retail traders with a significant advantage. This FXOpen article offers a deep dive into the Smart Money Concept, discussing how institutional investors influence market trends and how retail traders can align their strategies with these market movers for potentially better outcomes. Understanding the Smart Money Concept The Smart Money Concept (SMC) centres on the principle that the movements of large institutional investors in financial markets can offer valuable clues to retail traders about future market trends. These institutional investors, often referred to as “smart money,” include banks, hedge funds, and investment firms, wielding significant capital power to influence market directions. The core of SMC lies in the belief that by observing and understanding the trading behaviours and patterns of these entities, retail traders can align their trading strategies to potentially tap into more favourable results. In essence, SMC is not merely about following the “money” but understanding the strategic placements and movements of these large volumes of capital. Institutional investors typically conduct extensive research and possess a deep understanding of the market dynamics before making substantial trades. Their actions, therefore, are often indicative of a broader market sentiment or an impending significant market move. By deciphering these signals, retail traders can gain insights into market trends before they become obvious to the wider market. Understanding SMC requires a shift in perspective from focusing solely on technical indicators and price action to considering the market's psychological and strategic elements. For retail traders, leveraging the Smart Money Concept means navigating the market with a more informed approach, using the trails left by institutional investors as a path to smarter trading decisions. Ideas in Smart Money Concept The Smart Money Concept introduces several foundational ideas that provide traders with a framework to interpret market movements through the lens of institutional activities. Order Blocks Represent areas where institutional investors have placed significant orders, usually in the form of a range. These blocks often precede a strong market move in the direction of the block, serving as a signpost for areas of interest to “smart money.” When the price returns back to this zone, it’ll often reverse (similar to an area of support or resistance). Breaker Blocks These are essentially failed order blocks. When an order block fails to hold the price, it breaks through, potentially indicating that the “smart money” direction has changed. When the price breaks above or below the order block, it can then act as a barrier for prices in the future (similar to the way an area of support can become resistance and vice versa). Breaks of Structure (BOS) A BOS occurs when the price surpasses a significant high or low, indicating a potential change in market trend. It signifies the end of one market phase and the beginning of another, offering clues about “smart money”’s influence on market direction. Recognising BOS can be crucial for determining trend direction. Change of Character (ChoCH) This concept refers to a notable alteration in the market's behaviour, often seen through an abrupt increase in volatility or a shift in price direction. A ChoCH usually follows a BOS, confirming a potential trend reversal and suggesting a new phase of market sentiment driven by institutional activities. Fair Value Gaps (Imbalances) These gaps represent areas on the chart where price moves quickly through, leaving a gap that indicates an imbalance between supply and demand. Institutional traders often target these gaps for potential returns, so prices tend to move back to fill them over time. Liquidity In the context of SMC, liquidity refers to the areas where “smart money” is likely to execute large orders due to the availability of opposite market orders. These are areas where stop losses and stop orders (to capture a breakout) are likely resting, usually around key highs or lows, trendlines, and equal highs/lows. The concept states that “smart money” is likely to push the price into these areas to execute large orders before the true market direction unfolds, as in a bull or bear trap. Accumulations/Distributions These phases indicate the period during which “smart money” is either accumulating (buying) or distributing (selling) their positions. Rooted in the Wyckoff theory, an accumulation occurs at lower price levels, often before a significant uptrend, while distribution takes place at higher price levels, typically before a downtrend. Identifying these phases can provide insights into the future market direction favoured by institutional investors. Steps to Trade Smart Money Concepts in Forex Trading SMC requires a nuanced understanding of market dynamics and the ability to interpret signs of institutional involvement. Below, we’ll take an overview of the approach. Traders can apply these steps to real-time forex charts on FXOpen’s free TickTrader platform. Determining the Trend Using Breaks of Structure (BOS)/Change of Character (ChoCH) Traders can identify the market trend by observing BOS and ChoCH. A trend is typically recognised by a series of higher highs/higher lows (uptrend) and lower lows/lower highs (downtrend). Trend continuation is seen when there's a clear BOS, where the price surpasses a significant high or low, signalling a shift in market direction. Following this, a ChoCH, an abrupt change in market behaviour, may confirm the new trend. Identifying these elements allows traders to align with the market's momentum, providing a strategic framework for setting a direction. Identifying an Order Block The next step involves pinpointing areas where institutional traders are likely participating, often signalled by a BOS or ChoCH. Traders look for the range that initiated this shift (marking an order block), with increased odds of accuracy if there's a pronounced move away from the range to create a fair-value gap or if it aligns with a breaker block. The presence of liquidity near these points, or if it was targeted to initiate the BOS or ChoCH, can further validate the significance of the order block. This phase is crucial for understanding where large volumes of trades are being placed and where the price may revisit before continuing the trend. Finding an Entry Point Once an order block is identified, finding a strategic entry point becomes the focus. Traders typically either position limit orders at the edge of the block or await specific candlestick patterns, such as hammers, shooting stars, or engulfing candles. These signals suggest a possible continuation of the trend, providing a cue for entry. However, other tools, like Fibonacci retracements or indicators, can also be used to identify an entry point within SMC. SMC vs Price Action The Smart Money Concept and price action are both popular trading strategies, yet they approach the market from distinct angles. Price action focuses on analysing past and present price movements to identify patterns or trends without considering external factors. It relies heavily on candlestick patterns, chart formations, and support and resistance levels, making it a strategy based on the technical aspects of trading. This approach is favoured for its simplicity and direct reliance on price data, allowing traders to make decisions based on the immediate market environment. On the other hand, SMC trading delves deeper into the underlying market dynamics, emphasising the influence of institutional investors or “smart money.” It seeks to identify where these major players are likely to enter or exit the market, using concepts like order blocks, liquidity zones, and fair value gaps. Smart money strategies are grounded in the belief that understanding the actions of institutional traders can give retail traders insights into potential market movements before they become apparent to the wider market. While price action is straightforward and relies purely on technical analysis, SMC incorporates a more strategic view, considering the psychological and strategic manoeuvres of the market's most influential participants. Traders might find price action appealing for its clarity and focus on the charts, whereas SMC offers a deeper, albeit more complex, analysis of market forces. Integrating the two can provide a comprehensive trading strategy, leveraging the simplicity and technical focus of price action with the strategic depth offered by SMC. The Bottom Line The Smart Money Concept bridges the gap between retail traders and the elusive strategies of institutional investors, offering a structured approach to deciphering market movements. By understanding and applying SMC principles, traders can navigate the forex market with potentially greater insight and confidence. Opening an FXOpen account provides an excellent avenue for traders eager to apply these advanced concepts in a live trading environment, setting the stage for more informed and strategic trading decisions. FAQs What Is the Smart Money Concept? The Smart Money Concept (SMC) is a trading strategy focused on understanding and leveraging the market movements initiated by institutional investors, such as banks and hedge funds. It posits that by identifying the trading behaviours of these major players, retail traders can make more informed decisions. What Is SMC Strategy in Trading? The SMC forex strategy involves identifying patterns and signals that indicate the involvement of institutional investors. This includes analysing order blocks, liquidity zones, breaks of structure (BOS), changes of character (ChoCH), and fair value gaps. By aligning with these signals, traders aim to position their trades in harmony with the actions of the “smart money.” Which Timeframe to Use for SMC Trading? The choice of timeframe in SMC trading should align with the trader's goals and strategy. Short-term traders may prefer 1-hour or 4-hour charts for quicker insights, while long-term traders might opt for daily or weekly charts to capture broader market trends influenced by institutional movements. Is SMC Better Than Price Action? SMC and price action cater to different aspects of market analysis. While a smart money strategy focuses on institutional movements, price action concentrates on the patterns formed by the price itself. Neither is inherently better; their effectiveness depends on the trader's strategy, market understanding, and comfort with the concepts. Integrating both can offer a comprehensive approach to market analysis. This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.
Education
by FXOpen
7
The Fair Value Gap (FVG)The term "fair value gap" is known by various names among price action traders, including imbalance, inefficiency, and liquidity void. But what do these imbalances mean? They arise when the forces of buying and selling exert considerable pressure, resulting in sharp and rapid price movements. On a chart, a Fair Value Gap appears as a three-candlestick pattern. In a bullish context, an FVG forms when the top wick of the first candlestick does not connect with the bottom wick of the third candlestick. Conversely, in a bearish scenario, the FVG is created when the bottom wick of the first candlestick fails to connect with the top wick of the third candlestick. The gap on the middle candlestick, created by the wicks of the first and third candlesticks, represents the Fair Value Gap. The concept of FVG trading is based on the idea that the market has a natural tendency to self-correct. These price discrepancies or inefficiencies are generally not sustainable over time, and the market often returns to these gaps before continuing in the same direction as the original impulsive move. What are the Types of Fair Value Gaps? 1. Bearish Fair Value Gap A bearish Fair Value Gap occurs when there is a space between the bottom wick of the first candlestick and the top wick of the third candlestick. This gap typically appears on the body of the middle candlestick, and the individual characteristics of each candlestick are not particularly important. What’s crucial in a bearish scenario is that the gap on the middle candlestick results from the wicks of the surrounding candlesticks not connecting. 2. Bullish Fair Value Gap A bullish Fair Value Gap occurs when the top wick of the first candlestick does not connect with the bottom wick of the third candlestick. In this case, the specific direction of each candlestick is not as important. What really matters is that there is a gap in the middle candlestick, where the wicks of the first and third candlesticks have not linked. 3. Inverse Fair Value Gap An Inverse Fair Value Gap is an FVG that has lost its validity in one direction but remains significant enough to influence price movement in the opposite direction. For example, a bullish FVG is deemed invalid if it fails to act as a demand zone. However, it then transforms into an inverse bearish FVG, which may serve as a supply zone capable of holding the price. 4. Implied Fair Value Gap The Implied Fair Value Gap is also a three-candlestick pattern, but it does not feature a gap on the middle candlestick, which is why it’s called an “implied FVG.” Instead, it consists of a larger middle candle flanked by two relatively long wicks from the first and third candles. The “gap” is defined by marking the midpoint of the wick of the first candlestick that touches the middle candle and the midpoint of the wick of the third candle that also touches the middle candle. These two midpoints create the gap. Here are some factors that can lead to the formation of fair value gaps: 1. Economic Data Releases Key economic data releases, such as changes in interest rates or unemployment statistics, can similarly create imbalances. If the data surprises the market, it can trigger a swift price movement in one direction, resulting in a gap. 2. Sudden News Events Unexpected news that significantly affects market sentiment can lead to a rapid increase in buying or selling activity, resulting in a gap as prices adjust to the new information. For instance, if a company unexpectedly reports strong earnings, its stock price may surge, creating a gap on the chart. 3. Market Openings or Closings Gaps may form during periods of low liquidity, such as at market openings or closings. With fewer market participants, even a small amount of buying or selling can cause a noticeable price jump that isn’t quickly countered. 4. Large Institutional Trades Significant trades by institutional investors can also lead to fair value gaps (FVGs). When a hedge fund or financial institution executes a large buy or sell order, it can overwhelm the existing order book, causing a rapid price shift and leaving a gap behind. 5. Weekend Gaps FVG's are often observed between the close on Friday and the open on Monday, reflecting news or events that occurred over the weekend. KEY POINTS TO KNOW - Fair Value Gaps (FVGs) are powerful tools traders use to identify market imbalances and inefficiencies. - FVGs occur when buying or selling pressure leads to significant price movements, leaving behind gaps on price charts. - FVGs can be identified through technical analysis involving the analysis of candlestick patterns and price chart patterns. - Traders can categorize FVGs into two types: Undervalued FVGs, where prices are lower than fair value, and Overrated FVGs, where prices are higher.
Education
by TaylorDeMario
4
What are Volume Candles and how to use themVolume Candles are a great chart type you can use to integrate volume analysis into your trading. TradingView is a superb platform that offers this chart type in real-time, so you can immediately get a completely different feel of what the market is actually doing. As an experienced trader, understanding volume candles is crucial in getting a deeper insight into market dynamics. Unlike standard candlestick charts, which focus primarily on price movement, volume candles combine price action with the strength of trading activity (volume). This offers a unique perspective that can give you an edge in reading market sentiment and momentum. What Are Volume Candles? Volume candles are modified candlestick charts where the width of the candle is proportional to the trading volume during the corresponding time period. The typical candlestick elements—open, high, low, and close prices—are still present, but the volume aspect adds an additional layer of information, enhancing the clarity of price action. Key Features of Volume Candles: Height: Represents price movement (just like in regular candlesticks). Width: Indicates the volume of trades within that period. Unique Information You Can Extract from Volume Candles: 1. Volume-Driven Price Action Volume candles show how much trading interest exists at various price levels. When you observe a large volume candle, it tells you that a lot of market participants were active at that price. Conversely, a thin candle signals lower activity. This helps you: A. Identify levels where strong participation occurs (institutional players what I call the puppet master). B. Spot consolidation zones where volume is low, which often precedes significant price moves. 2. Momentum Confirmation High-volume candles that align with price trends suggest strong momentum. Wide Bullish Candles: If you see a wide up candle during an uptrend, it indicates that the buying pressure is backed by solid volume. This gives more credibility to the uptrend and hints at a continued move upward. Wide Bearish Candles: Similarly, a wide down candle during a downtrend signals strong selling pressure. Volume Candle Chart can also be used for day trading purposes where you need to act FAST. This TradingView chart type is extremely good so you don't need to compare the traditional volume bars on the bottom of the chart. IMPORTANT: You must understand the puppet master mentality, which gives you context. *** EXTRA: You can use this theme color.
NASDAQ:COINEducation
by ZoharCho
4
Chart Patterns and Key Signals in Live TradingChart Patterns and Key Signals in Live Trading Chart patterns are powerful tools used by traders to predict future price movements. These patterns emerge from the price action on a chart and provide visual signals that help traders make informed decisions. Understanding and recognizing these patterns in live trading can significantly improve your ability to forecast potential price trends and execute successful trades. What are Chart Patterns? Chart patterns form when price movements of a security, such as a stock or currency pair, follow a recognizable formation or trend on a price chart. These patterns represent the collective sentiment of buyers and sellers, indicating periods of consolidation, continuation, or reversal. Traders use these patterns to anticipate where prices may move next and to identify high-probability trading opportunities. Key Types of Chart Patterns Chart patterns can be categorized into two main types: 1. Reversal Patterns: These indicate that the current trend is likely to reverse. 2. Continuation Patterns: These suggest that the current trend will continue after a brief pause. Common Reversal Patterns Head and Shoulders Description: The head and shoulders pattern signals a trend reversal. It has three peaks: a higher peak (the head) between two lower peaks (the shoulders). The neckline connects the lows between the two shoulders. What to Look For: Uptrend before formation: This pattern is more reliable if it follows a strong uptrend. Break of the neckline: The trend reversal is confirmed when the price breaks below the neckline, indicating a bearish move. Live Trading Tip: Wait for the price to break the neckline and retest it before entering a short position to reduce false signals. Double Top: Description: A bearish reversal pattern that forms after an uptrend, consisting of two peaks at roughly the same level. What to Look For: Resistance level: The two peaks touch a resistance level but fail to break through. Neckline break: The trend reversal is confirmed when the price breaks below the support level (neckline) between the two peaks. Live Trading Tip: Enter a short trade after the price breaks below the neckline and possibly retests the support as resistance. Double Bottom: Description: A bullish reversal pattern that forms after a downtrend, consisting of two troughs at roughly the same level. What to Look For: Support level: The two bottoms touch a support level but fail to break below. Neckline break: The reversal is confirmed when the price breaks above the resistance level (neckline) between the two troughs. Live Trading Tip: Enter a long trade after the price breaks above the neckline and retests it as support. Common Continuation Patterns Triangles Symmetrical Triangle: Description: A continuation pattern characterized by converging trendlines, where the highs and lows converge toward each other. What to Look For: Breakout: The pattern is confirmed when the price breaks out of the triangle, either upward or downward, signaling a continuation of the previous trend. Live Trading Tip: Watch for increased volume during the breakout to confirm its validity. Enter the trade in the direction of the breakout. Ascending Triangle: Description: A bullish continuation pattern with a horizontal resistance line and an upward-sloping support line. What to Look For: Resistance breakout: The pattern is confirmed when the price breaks above the resistance level, signaling a continuation of the upward trend. Live Trading Tip: Enter a long trade once the price breaks the resistance and volume spikes, indicating strong buying interest. Flags and Pennants Flag: Description: A continuation pattern that looks like a small rectangular consolidation phase after a strong price movement. What to Look For: Strong trend: The flag forms after a sharp price move, followed by a consolidation phase. Breakout: A breakout from the flag pattern confirms the continuation of the previous trend. Live Trading Tip: Enter the trade in the direction of the breakout, especially if accompanied by an increase in volume. Pennant: Description: Similar to the flag, but the consolidation phase forms a small symmetrical triangle instead of a rectangle. What to Look For: Strong trend: A pennant forms after a sharp move, followed by price consolidation. Breakout: The breakout signals a continuation of the previous trend. Live Trading Tip: Trade in the direction of the breakout and ensure there’s an uptick in volume for confirmation. Wedges Rising Wedge: Description: A bearish continuation or reversal pattern where the price forms higher highs and higher lows, but the slope of the highs is steeper than the slope of the lows. What to Look For: Trendlines converging: The wedge narrows as the highs and lows converge. Breakdown: The pattern is confirmed when the price breaks below the lower trendline, signaling a bearish move. Live Trading Tip: Short the trade once the price breaks below the wedge, especially if volume increases. Key Signals to Look for in Live Trading 1. Volume Confirmation Description: Volume plays a critical role in confirming the validity of chart patterns. A breakout or breakdown on low volume can be a false signal, whereas high volume supports the strength of the price movement. What to Look For: Volume Spike on Breakout: Look for a significant increase in volume during breakouts from chart patterns. This indicates that more traders are participating in the move and that it has momentum. Divergence between Price and Volume: If price is moving in one direction but volume is decreasing, it may indicate a weakening trend. 2. False Breakouts Description: A false breakout occurs when the price appears to break out of a pattern but quickly reverses, trapping traders who acted on the breakout. What to Look For: Lack of Follow-Through: After the breakout, if the price doesn’t continue in the breakout direction and instead reverses quickly, this could be a false breakout. Live Trading Tip: To avoid false breakouts, wait for a retest of the breakout level or look for confirmation in volume before entering a trade. 3. Divergence with Indicators Description: Divergence occurs when the price of an asset moves in one direction while an indicator (such as the RSI or MACD) moves in the opposite direction. What to Look For: Bullish Divergence: When price makes lower lows, but the indicator forms higher lows, signaling a potential reversal to the upside. Bearish Divergence: When price makes higher highs, but the indicator forms lower highs, indicating a potential reversal to the downside. Live Trading Tip: Use divergence as a signal to prepare for a trend reversal, especially when combined with chart patterns like double tops or bottoms. Chart patterns are essential for predicting price movements, but they work best when combined with other tools like volume analysis and indicators. As you gain experience in live trading, you'll develop the ability to spot these patterns more easily and understand how to trade them effectively. Always remain patient and look for confirmation signals before entering trades based on chart patterns.
TVC:SILVEREducation
by samstoobad
1
Market Analysis Techniques for TradersMarket Analysis Techniques for Traders Navigating the financial markets demands a strong toolkit of analysis techniques. This comprehensive article introduces traders to key market analysis methods, ranging from fundamental and technical analysis to more specialised approaches like price action and quantitative methods. You can pair your learning with FXOpen’s free TickTrader platform to gain the deepest understanding of these techniques. There, you will find the price charts, drawing tools, and indicators necessary for many of these market analysis methods. Fundamental Analysis Fundamental analysis involves the scrutiny of economic indicators, company financials, and geopolitical factors to assess an asset's intrinsic value. Economic indicators like GDP, employment rates, and interest rates offer a macroeconomic view, while company financials such as earnings, debt ratios, and future projections are microeconomic factors. Fundamental analysts also pay close attention to geopolitical events, like elections or trade wars, which can shift market sentiment. The strength of this approach lies in its thorough, long-term outlook, making it particularly useful for investors in equities and commodities. However, it is time-consuming and often requires a deep understanding of economic theory. For example, Warren Buffet's value-based approach leans heavily on fundamental analysis, emphasising the importance of understanding the intrinsic value of stocks. Technical Analysis Technical analysis diverges from the fundamental approach by focusing solely on past and current price movements and trading volumes. Traders employ various indicators, such as moving averages, Relative Strength Index (RSI), and Moving Average Convergence Divergence (MACD), to predict future price behaviour. Trend lines and support and resistance levels further supplement these indicators, offering visual aids for decision-making. A famous case is Paul Tudor Jones, who successfully predicted the 1987 market crash using technical indicators. He compared the market’s top in 1987 with the previous peak of 1929 and found notable similarities, demonstrating the power of learning technical analysis. The advantage of technical analysis in trading is its applicability across different time frames, from intraday to multi-year trends. However, it can sometimes give false signals, known as "whipsaws," leading to potential losses. Price Action Analysis Price action analysis, while related to technical analysis, is a more focused method that relies on the interpretation of raw price movements instead of using additional indicators. Traders primarily use chart patterns like head and shoulders, double tops and bottoms, and candlestick patterns such as bullish or bearish engulfing to make trading decisions. Like technical analysis, support and resistance levels are also crucial here. One of the advantages of price action analysis is its simplicity: no need for dozens of indicators. On the flip side, it can be subjective and open to interpretation, making it less straightforward for some traders. Munehisa Homma, a 17th-century Japanese rice trader, is often cited as an early pioneer of price action analysis. Utilising candlestick charts, he achieved great success and laid the foundation for modern technical analysis. Quantitative Methods Quantitative analysis employs mathematical and statistical models to evaluate financial assets and markets. Algorithmic trading, a method that automatically executes trades based on pre-set criteria, is a prime example of the use of quantitative techniques. Traders also use backtesting to validate the effectiveness of a trading strategy by applying it to historical data. The quantitative approach offers the benefit of speed and precision, but it also carries risks such as model overfitting, where a strategy works well on past data but fails in real-time trading. One notable firm that has achieved exceptional success through quantitative methods is Renaissance Technologies, a hedge fund that’s achieved annual returns of 30%+ through its sophisticated mathematical models. Sentiment Analysis Sentiment analysis focuses on gauging market psychology by monitoring news, social media, and sentiment indicators. It seeks to understand how collective emotions are driving market trends. Methods for sentiment analysis include text mining of news articles and tweets, as well as tracking investor sentiment indexes like the Fear & Greed Index. While sentiment analysis offers a real-time pulse of market psychology, it is also prone to rapid changes, making it less reliable for long-term trading decisions. Notably, traders during the GameStop short squeeze phenomenon in early 2021 relied on sentiment analysis from online forums, turning what seemed like an undervalued stock into a trading frenzy. Intermarket Analysis Intermarket analysis extends the analytical lens to the relationships between different asset classes, such as equities, commodities, currencies, and bonds. By identifying these correlations, traders can gain insights into how a movement in one market could influence another. The advantage of intermarket analysis is its holistic view of market dynamics, but it also requires a strong grasp of global economics. For instance, in the chart above, we can see the price of crude oil with the price of Exxon Mobil (XOM) and BP (BP) overlaid. There is a strong correlation between crude oil’s trend and the trend of these companies’ share prices. Traders could evaluate the bullishness or bearishness of crude oil to set a bias for XOM and BP’s future direction. Seasonal Analysis Seasonal analysis examines recurring patterns in markets, often influenced by factors like weather, holidays, and fiscal calendars. For example, retail stocks often rise before the holiday shopping season, and energy commodities can be influenced by demand for transport fuel in summer and heating fuel in winter. Tools like seasonal charts help traders identify these trends. However, a major challenge lies in the changing dynamics of markets, which may render some seasonal patterns less reliable over time. Investors who had historically profited from buying stock in winter and selling in summer found this strategy less effective in recent years due to evolving market conditions. The Bottom Line In summary, a well-rounded understanding of diverse market analysis techniques is key to trading success. Whether focused on long-term investments or intraday trades, incorporating these methods can substantially enhance your trading strategy. For those ready to apply these insights in a live trading environment, opening an FXOpen account can serve as the next logical step in your trading journey. 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
5