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Fundamental Analysis

DID YOU KNOW? Trading has never been more...What was a realm for Wall Street titans and for the affluent investors… In the last couple of years, it has knocked its walls, and has broken the financial chains. Today, it’s at the hand to the everyday individual, regardless of their financial background. Just to put it into perspective. In 2003 until like 2007, trading was very limited. I had a very old-fashioned trading software which updated once a day. I only had shares to trade. And then as the years progressed, I was paying R17,000 a year to have a software that updated every 15 minutes. The struggle was REAL! But today, is a different story. You are in the best times every to trade. It’s the cheapest it’s ever been. It has more markets, instruments, options and features at your fingertips. And you can even start with your charting, preparation and work on your trading track record – essentially for FREE. So, if you’re not in the trading game yet – WHY NOT? And that’s just the start of it. DID YOU KNOW? Trading has never been more… #1: Affordable Trading, as we know it, has undergone significant transformations in the past decade. It is now more affordable than ever before. A combination of technological advancements, regulatory changes, and the evolution of trading platforms has significantly reduced the financial barriers to entry. Just look at TradingView? Many brokerages are in such high competition that they have had no choice but to: Cut brokerages Make minimal spreads for trade Remove the yearly platform fee Some even have a zero-commission trading platform The only expensive thing, with some brokers, is that you might need to have a minimum account size. But the money is yours. It stays in your account. And you might even earn interest just by keeping it there. It’s amazing. #2: Easier to Learn With the proliferation of online learning resources on YouTube, TikTok, websites - you can master the art of trading – FREE. Even most reputable brokers now offer comprehensive trading education, to help you on the way to trading their platforms. And many brokerages offer demo accounts where beginners can practice trading with virtual (paper) money. This way they can gain hands-on experience without the risk of losing any real money. #3: Accessible Trading has never been more accessible. Gone are the days when trading meant being physically present on the exchange floor or having to call your broker to place a trade. In today’s digital age, you can trade on your smart phone tablet or computer. Also, with the high competition – most great brokers offer their own customised trading apps and online platforms. And the variety is crazy. Whether you want to trade CFDs, Spread Betting, Futures, Options, Lots, or other instruments – the world is your trading oyster. Just go to TradingView and you’ll see hundreds of thousands of markets to choose from. (Stocks, indices, commodities, Forex, Crypto, ETFs, Bonds, Economic indicators and Funds). #4: Hospitable With brokers and market makers with their obligatory regulatory frameworks and criteria, around the globe, they are constantly pushing for more transparency and fairness in financial markets. They are also pushing for more educational sources. They are improving with HR and pristine customer services features. The odds are no longer heavily stacked in favour of institutional players. Such features help retail traders make informed decisions, level the playing field and make the trading world a more welcoming place for newcomers. So, we can see trading is becoming more affordable, easier to learn, accessible, and hospitable. And they will continue to do so and improve, which is why you have got to take the leap and harness what is available. As I mentioned earlier. Today the world is your trading oyster – Go fishing!
TVC:SA40Education
by Timonrosso
🕰️ The 4 Pillars of Trading Timeframes🔷Scalping: Scalping is a trading strategy that involves making multiple quick trades within a short time frame, typically holding positions for just a few minutes. Traders who employ this strategy are referred to as scalpers. The main objective of scalping is to capitalize on small price movements and accumulate small profits that can add up over time. When engaging in scalping, traders focus on short-term charts, such as 1m,5m,15m charts, to identify rapid price fluctuations. They often use technical analysis such as order flow and volume , to spot entry and exit points. The key is to identify highly liquid instruments with tight bid-ask spreads and sufficient volatility. Scalpers must closely monitor their trades and maintain discipline, as the rapid pace of trading can be mentally demanding. Risk management is crucial in scalping and it is advised towards experienced traders that backtest their strategy before taking on scalping. 🔷Day Trading: Day trading involves executing trades within a single trading day, with all positions closed before the market closes. Day traders aim to profit from intraday price fluctuations and take advantage of short-term trends. This style of trading requires active participation and constant monitoring of the market. Day traders typically use charts with shorter time frames, such as 15m,1h,4h to identify patterns and trends. 🔷Swing Trading: Swing trading is a medium-term trading strategy that aims to capture price movements over a few days to several weeks. Swing traders seek to profit from short-term price fluctuations within the context of a larger trend. This approach allows traders to participate in more significant market moves while avoiding the need for constant monitoring. Swing traders typically use 1H,5h or daily charts to identify potential trade setups. They focus on technical analysis tools, such as trendlines, chart patterns, and indicators like moving averages or the Relative Strength Index (RSI). The objective is to enter positions when there is a high probability of a trend reversal or continuation. 🔷Positional Trading: Positional trading, also known as long-term trading or investing, involves holding positions for weeks, months, or even years. Position traders aim to capture larger market trends and ride significant price movements. They often base their decisions on fundamental analysis, considering factors like macroeconomic data, company financials, and market trends. Position traders primarily use higher time frame charts, such as weekly or monthly charts, to identify long-term trends. They rely on fundamental indicators, news events, and market sentiment to make informed trading decisions. 👤 @QuantVue 📅 Daily Ideas about market update, psychology & indicators ❤️ If you appreciate our work, please like, comment and follow ❤️
Education
by QuantVue
5
FIBONACCI CLUSTER IN TRADINGHello traders! Today, we'll look at the basic application of Fibonacci levels to build cluster. Even a new trader will be able to fully understand this approach because of how simple it is. We will discuss Fibonacci clusters, including their definition and trading implications. We'll make use of the common Fibonacci retracement tool which reactions frequently occur at 38.2%, 50%, 61.8%, or 78.6%. ✴️ Bottom line A collection of Fibonacci lines that are relatively near to one another is referred to as a cluster. We compile all traders' estimates by drawing Fibonacci lines relative to various market swing highs and lows. As a result, the concentration of lines in one area indicates the most likely position of a key level or, more accurately, a critical zone. ✴️ What Is Fibonacci Confluence? Fibonacci confluence is a method that uses Fibonacci retracement and extension levels to identify potential areas where the price may find support or resistance (Or entry and exit points). To use Fibonacci confluence, traders take Fibonacci retracement and extension levels from multiple time frames and look for areas where two or more Fibonacci levels line up, which is called “confluence”. Then we can look for trade setups in these converged levels like engulfing candle or pinbar. ✴️ Fibonacci Retracements Cluster Fibonacci clusters can be an incredibly useful tool to identifying significant zones. Fibonacci clusters are a type of technical indicator that provides us with a way to identify potential support and resistance levels in the market. By applying these clusters, we can identify entry and exit points which can help them to maximize mathematical expectancy of the trades. Once you understand how Fibonacci clusters work, you can then begin to apply them to your trading. The first step is to identify a chart with a clear trend. Look at the chart and identify the market structure. Next, draw a series of Fibonacci retracement levels on the chart. These levels will help you identify potential support and resistance levels in the market. Generally, we can look for entry signal at 38.2%, 50.0% and 61.8% levels. If the price rejects either of these lines, then it may be a sign that the price is about to move in that direction. ✴️ How to Apply Them in Trading It is easier to trade levels if there is a clear unidirectional movement. This way we will know where the price is likely to go and we will be able to enter the "stream" at the most profitable opportunity. So, first of all, we determine the direction of the main trend. In this case, the AUD/JPY uptrend is obvious. Next, we use fibo on the chart. Our task is to find the nearest strong support level and set a buy pending order slightly above it. That is, we assume that the correction will end near this level and the price will then continue its upward movement. Stop loss is set slightly below the next Fibonacci cluster. This way we secure ourselves in case of incorrect forecasts. Take Profit is set equal to the stop or more. There are situations when one supercluster is formed on the chart. In such case, if the price is above the cluster zone, we set an order to buy just above the strongest level. We place Stop Loss after the supercluster, through which the price will almost certainly not return. Take profit is equal to the stop or more. ✴️ A quick and efficient technique to use Fibonacci in trading is through clusters. The key benefit of the strategy is that the clusters speak for themselves; you don't need to know which Fibonacci level the price should rise from. Additionally, clusters can reveal entire zones of resistance and support, or zones of uncertainty, where it is better to avoid entering the market.
Education
by DeGRAM
7
3 Key Entry Rules to Boost Your Trading PerformanceToday I want to share with you this topic: the 3 Entry Rules to Boost Your Trading Performance. Over the 20,000 traders that we have coached over the time via conferences and talks we’ve done all over the world, we have found one of the challenges that traders have is that they find themselves locked into a trade and then being stopped out when they enter into trade. So their entries are not really optimized or they are not getting the right timing for their entries. Sometimes they come during a coaching session; they say ‘Thiru, I need some help with my entry.’ So this topic, the 3 Entry Rules, can actually help you optimize your entry and overall improve your strategy performance. This is what we’re going to be looking at today in this video. The first one is what we call “ Time Frame Correlation ,” the short form abbreviation TFC. In TFC one thing you do have to remember when you’re correlating the different time frames is that you’ve got to remember three times. Some of you may be wondering ‘What do you mean by three times?’ What I mean is that for example if you are an intra-day trader trading on a shorter time frame, like a one hour time frame, then you need to be looking at three time frames at least altogether, so the one hour and each of the time frames has to be three times the one that you are trading on, three times or four times. Now let me explain by way of an example: If you are trading on a one hour time frame, then we are looking at maybe three to four hours (1 x 4 = 4 hours) and then after that, you want four times that, approximately that is a daily time frame, 16 hours is a daily time frame. What we’re looking at is to correlate the times frames before we take the trade. We are usually looking at three time frames and each time frame is three times each other. For example, if you are an end of day trader and you want to enter your position onto a four hour time frame then you can start to look at daily time frame and then three to four times that would be a weekly time frame as well that you’re looking at. Let me explain why this is important. For example, imagine this – you would have probably experienced this – in a one hour time frame it looks like it’s going down and you are thinking it is looking like a very good short sell as the direction is going further down. You put your entry over here and let’s say you put your stop loss over here and you’re good to go. Let’s say your target is somewhere around there. In the next hour the trade then triggers you in and starts to go towards your target, everything is well and rosy. You are happy, you’re in profit and you are thinking ‘it is only a matter of time before I reach my target.’ Then what happens? You know the usual thing, you would have experienced it if you have traded or if you are trading at the moment as well, it will start to reverse and where your stop loss is – let’s say other traders have their stop loss here as well – suddenly the market reverses and shoots up and takes up all the stops. I’m sure you have experienced this. Now why does that happen? It is because, if you imagine this is the one hour time frame, if you didn’t correlate between the other time frames – the four hour and the daily time frame – and let’s say the four hour and the daily time frame are in an up-trend, if that is the case, then what happens is that the orders that are inside the daily time frame are being filled by the brokers and therefore the market is reversing to fill them up on a higher time frame. This is what is happening and this is why sometimes you get these sharp reversal moves in the market. It is very critical that you correlate the time frames before you start to take your position on the one hour time frame. In fact, in the last live trading we did where we were teaching a strategy that we called “stops to cash,” what we usually do is we take contrarian move on a one hour time frame where it looks like a perfect short, where beginners and even intermediates are getting into short position, but we are looking at a contrarian position in terms of the one hour time frame but when you align it to the higher time frames, it’s just in line with the trend. That’s all we’re doing here. What we’re saying is when everybody’s stops are being taken out, we are actually converting it to cash according to this time frame correlation. I believe that concept is well clear and nice now. Definitely do consider putting that into your entry rules. The second entry rule we’re looking at is “ Indicators .” This is quite a critical one that you can put into your entry rules also to optimize your strategy performance. In terms of indicators, the usual common ones that we are looking at are Stochastic, RSI and for example CCI as well. These are familiar names, you have all heard of them. There are thousands of indicators, but the important thing is don’t just pick an indicator and just slam it onto the screen, but ask yourself what are you looking to achieve, what is the objective of your strategy? Then pick and choose your tools. For example, let’s say you’re driving your car and it starts to break down, you can’t just choose any old hammer or spanner. You have to analyze the problem first before choosing the tool that you want to use to repair the mistake or the fault on the car. It is the same thing here, as we are looking to optimize our strategy, we have to ask ourselves what is going to be the most efficient indicator to help me optimize my strategy performance and towards what objective? That is how you actually choose the indicator that you want to have on the screen in your strategy. The last one we are looking at is “ Price Action .” Price Action is very critical because most of our strategies use price action. It is the fastest of them all. Some things the price won’t be able to tell you and that’s when we use indicators because it involves a lot of calculations. With price actions you notice some really powerful bar patterns that give you an edge in the market and then using all these three factors together that can give you a very strong edge against all the other 99% traders. For example, price action patterns can start to look like the low test bar starts to come up over here and it’s starting to show a reversal pattern. Or even things on a daily time frame where we are looking at something like a down trend and it is starting to reverse – all those critical price action patterns that can give you and edge. So these three rules that’s I’ve just gone through with you right now can be so important to improving your whole strategy and your trading performance. On a final note, what I want you to remember is that just using them by themselves is not enough as Traders. But using them in a cumulative manner strengthens your edge so strongly in the market and also optimizes and maximizes your trading performance for consistent profits. I believe this has been very useful for you all and as we always say, til the next time stay disciplined, follow your trading plan and keep Trading like a Maste r.
Education
by masterthemarkets2010
Charlie Munger's 10 Golden Nuggets!Charlie Munger, the esteemed Vice Chairman of Berkshire Hathaway, is known for his investment acumen and his indispensable role in building an investment empire alongside Warren Buffett. Munger attributes their phenomenal success to a set of fundamental ideas that guide their investment decisions. Below are the 10 key principles: 1. Consider Opportunity Costs - It is imperative to approach capital allocation with rigor and discipline. Munger advises to cautiously evaluate investment options and wait for an opportunity with great potential. When such an opportunity arises, allocate capital decisively. 2. Mitigate Financial Losses - Munger identifies common reasons for financial losses among investors, such as susceptibility to trends, excessive risk-taking without safeguards, complacency in the face of losses, and the erosion of purchasing power through inflation and interest rates. Addressing these issues is essential for capital preservation and growth. 3. Decisiveness in Execution - Being well-prepared to capitalize on an opportunity when it presents itself is crucial. Munger emphasizes the importance of quick and informed decision-making when a highly promising investment opportunity arises. 4. Focus on Key Priorities - In a world with endless investment options, Munger suggests narrowing one’s focus on investments with a proven track record, paying attention to relevant details, and having a well-thought-out investment plan. 5. Flexibility in Investment Strategy - The ability to adapt to changing market conditions is essential. Accepting new information, even if contrary to prior beliefs, and making necessary adjustments to one's investment strategy can be vital for success. 6. Exercise Patience - Munger stresses the importance of a long-term perspective in investment. It’s vital to develop and refine your investment strategy, and patiently wait for the results to materialize. 7. Cultivate Humility - It is important to recognize the limitations of one’s knowledge. Accepting that there are things you do not know can open avenues for learning and making better-informed investment decisions. 8. Commitment to Continuous Learning - Staying informed and constantly seeking to understand the underlying reasons behind market movements is crucial. Munger recommends reading extensively and engaging with diverse sources of information. 9. Risk Management - Munger suggests focusing on the value that an investment offers over its price, prioritizing wealth preservation over the sheer size of the portfolio, focusing on meaningful progress rather than constant activity, analyzing individual companies in-depth, and making projections based on fundamentals rather than past trends. 10. Maintain Independence in Thought and Action - Rather than following the crowd, Munger believes in the importance of independent thinking in investment decisions. This requires carving out a unique investment path that aligns with one’s principles and understanding of the market. In summary, Charlie Munger’s insights serve as invaluable guidance for anyone looking to achieve long-term investment success. By diligently applying these principles, investors can make more informed decisions and build a sustainable investment portfolio.
NYSE:BRK.AEducation
by financialflagship
6
6 Rules of Successful Trading Once you become a trader. Once you think about trading every day. Once you have set your mind, soul, and heart into trading. There is no going back. You’ve reached the point of no return! And it’s thrilling and exhilarating once you’ve mastered this element to your life. So you might as well harness the true nature of what it takes to be successful. Here are 6 key rules every successful trader lives by. Always have a trading plan One hallmark of a successful trader is an effective trading plan. This is a self-journey and only you can endure it through different endeavours. Your trading plan acts as a roadmap and your game-plan, to guide you to your daily trading activities to help you make informed decisions. This plan should detail your system, risk and reward management along with your financial goals, risk tolerance, criteria for entering and exiting trades, and strategies for managing your trades. Every trade you execute should align with the objectives outlined in your plan. Also, evolve and adapt to your plan along with the ever evolving market world. Don’t procrastinate In the world of trading, timing and persistence is everything. Successful traders understand the im portance of making swift, decisive moves when the right opportunities arise. Procrastination, on the other hand, can lead to missed opportunities laziness and potential losses. So, get up, make your coffee and get to it. Also, remember to always keep a close eye on market trends, economic indicators, and relevant news events. This proactive approach will ensure you’re well-prepared to act promptly when your defined trading criteria are met. Remember, the market won’t wait for you, so you must be ready to seize opportunities when they present themselves. Be patient While it’s essential to act decisively. It’s also our goal to just….. WAIT. Be patient and only strike when you see that golden opportunity present itself. Sometimes, the best action is inaction. Sometimes, you have to just wait it out and stay out. Neutral is also a position. And you need to know when it is best to protect and preserve your portfolio. Successful traders don’t let impatience force them into suboptimal trades that fall outside their strategic plan. Just take the trade I’m seriously going to have a mug or a t-shirt saying. Trade well and just take the trade. When your plan indicates it’s time to trade, you need to overcome your hesitations and execute the trade. Traders must realize that not every trade will result in profit. So you might as well take the trade that lines up when it’s a high probability one. Even the best traders face losses. Even the best trades take losing weeks, months and even quarters! What matters most is your overall performance across many trades. As I always say, it’s not about the 1 trade but the hundreds of trades later. So, when the conditions of your trading plan are met, take the trade, and maintain your risk management strategies to limit potential losses. Keep learning and evolving Financial markets are dynamic and ever-evolving. As a trader, it’s crucial to keep learning and adapting to these changes. Stay updated with market trends, new trading strategies, and changes in regulations. Consider continual education a part of your trading plan. See what other successful traders are doing. See what other strategies they’re adapting to. See what new markets are available and what sectors are outperforming. Learn to earn. This ongoing learning process will keep you on top of your trading game and help you adapt your strategies as markets evolve. Don’t give up No matter what you do, remember. You only lose when you quit. Trading is a long-term game filled with ups and downs. The key is to view these setbacks as learning experiences, not reasons to quit. When faced with losses, successful traders analyze their decisions, identify mistakes, and learn from them. They maintain a positive mindset and understand that perseverance is crucial. Stay focused on your trading plan, refine your strategies, and remain resilient on your path to trading success. By incorporating these six rules into your trading routine, you’ll be well on your way to a profitable and sustainable trading career. Always have a trading plan Don’t procrastinate Be patient Just take the trade Keep learning and evolving Don’t give up
TVC:SA40Education
by Timonrosso
Financial Chaos: Hurst Exponent and Fractal DimensionsIn the world of finance and economics, the use of mathematical tools and statistical methodologies to evaluate and predict market movements is an inherent aspect of operations. Particularly, the complexity of financial markets has demanded innovative tools for analysis, making some fields of mathematics like chaos theory and fractal geometry increasingly relevant. Two such critical concepts emerging from this intersection are the Hurst exponent and the Fractal dimension. Deep Dive into the Hurst Exponent Named after British hydrologist Harold Edwin Hurst, the Hurst Exponent is a statistical measure that reflects the persistency or the tendency of a system to revert to the mean. The origin of the Hurst Exponent traces back to the 1950s when Hurst was assigned the responsibility of constructing the Aswan Dam in Egypt. He aimed to predict the Nile River's flooding patterns, determining how large the dam's reservoir needed to be to ensure sufficient water supply in times of drought. Hurst noticed that the Nile River's flooding wasn't a purely random event; high water levels tended to follow high levels, and low water levels followed low levels, indicating a level of autocorrelation or "memory" in the data. Hurst's observations of this time series data led to the creation of the Hurst exponent (H), which essentially measures the 'memory' or the autocorrelation of a time series. It ranges between 0 and 1. When H = 0.5, the time series is essentially a geometric random walk, with no autocorrelation. When 0.5 < H < 1, the time series is persistent or trending. This means that high values will likely be followed by high values and the same for low values. When 0 < H < 0.5, the time series is anti-persistent or mean-reverting. This indicates that high values will likely be followed by low values and vice versa. In the financial domain, the Hurst exponent plays an instrumental role in detecting market trends and mean-reverting behavior. A Hurst exponent significantly different from 0.5 may highlight an opportunity to make profits since it implies a certain degree of market predictability, thereby defying the Efficient Market Hypothesis, which states that financial markets are 'informationally efficient', making it impossible to consistently achieve higher than average profits. Expounding the Fractal Dimension The Fractal Dimension is a statistical measure that provides insights into the 'roughness' or complexity of a fractal. A fractal is a geometric figure, each part of which has the same statistical character as the whole. They are useful in modeling structures in which similar patterns recur at progressively smaller scales, and in describing partly random or chaotic phenomena. In mathematical notation, the Fractal Dimension is often represented as 'D'. A fractal line will have a dimension between 1 and 2, depending on how much space it takes up with its twists and turns. Originally, the Fractal Dimension found its use in a wide range of fields, including physical and environmental sciences, helping to model natural phenomena like coastlines, mountains, and even weather patterns. In financial markets, the Fractal Dimension is utilized as an indicator of market volatility. By quantifying the complexity or 'roughness' of price series data, it provides a gauge of market stability. A higher fractal dimension correlates to a more complex or less stable system, whereas a lower fractal dimension signifies a less complex or more stable system. Interlinking the Hurst Exponent and Fractal Dimension While seemingly disparate, the Hurst Exponent and the Fractal Dimension are inherently connected, primarily because they both originate from the study of fractal geometry and chaos theory. The essential connection lies in their mutual role in quantifying predictability and complexity in financial markets. Interestingly, there is a mathematical relationship between the Hurst Exponent and the Fractal Dimension in the context of financial time series. If 'H' represents the Hurst Exponent, then the relationship can be articulated as D = 2 - H. This implies that a time series with a higher Hurst exponent (indicating a persistent or trending behavior) would have a lower fractal dimension, signifying less complexity. Conversely, a time series with a lower Hurst exponent (indicating anti-persistence or mean-reverting behavior) would exhibit a higher fractal dimension, suggesting a higher degree of complexity. These measures provide traders and financial analysts with powerful tools to analyze and understand the inherent characteristics of different markets or financial instruments. It empowers them to develop sophisticated trading strategies based on fractal geometry and chaos theory principles. Trading Strategy Incorporating Hurst Exponent and Fractal Dimension 1. Data Gathering and Preparation : Gather historical price data for the market or security you are interested in. The length of the data series would depend on the frequency of your trading, but ideally, you'd want a sizable sample. 2. Calculation of Hurst Exponent and Fractal Dimension : Calculate the Hurst Exponent (H) and the Fractal Dimension (D) for the price data. There are multiple ways and time periods over which these can be calculated, depending on your trading style. For instance, you may choose to calculate these values over a moving window of data to get an evolving measure of the market's memory and complexity. 3. Setting Thresholds : Set thresholds for H and D that will dictate your trading decisions. For the Hurst Exponent, you might consider a system where: If H > 0.5, the price series exhibits a persistent trend. In this case, you might want to follow a trend-following strategy, buying when prices are rising and selling when prices are falling. If H < 0.5, the price series is mean-reverting, so you might want to follow a contrarian strategy, buying when prices have fallen and selling when they've risen. For the Fractal Dimension: If D is low (implying a simpler market structure), your trading strategy may rely more heavily on the indications from the Hurst Exponent. If D is high (indicating more complex market structure), you might choose to trade more conservatively or abstain from trading due to the high complexity and lower predictability of the market. 4. Implementing the Strategy : Based on the values of H and D and the pre-set thresholds, execute your trades. For instance, if H > 0.5 and D is low, you might go long (buy), expecting the upward trend to continue. Conversely, if H < 0.5 and D is low, you might go short (sell), expecting prices to fall. 5. Risk Management and Review : Always manage your risk by setting stop losses and take profit levels. Regularly review your strategy's performance and adjust the thresholds and parameters as necessary based on changing market conditions. I hope you found this information valuable and feel free to drop any questions in the comments. Enjoy!
BITSTAMP:BTCUSDEducation
by BiggWigg
3
In-Depth Guide to DiversificationThe cardinal rule of investing — diversification — is a strategy as old as the hills. This time-tested principle, akin to the aphorism "don't put all your eggs in one basket," is a risk management strategy that mixes a variety of investments within a portfolio. The rationale being, a portfolio constructed of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio. This article provides a comprehensive exploration of diversification, discussing its various strategies, types, and why it plays such a pivotal role in investment portfolio management. Understanding Diversification Strategies An effective diversification strategy requires careful consideration of the investor's risk tolerance, investment goals, time horizon, and the correlation between different asset classes. Here are some key diversification strategies that have demonstrated effectiveness over time: 1. Asset Allocation : This is perhaps the most common strategy, which involves spreading investments across different asset classes such as stocks, bonds, commodities, real estate, and cash equivalents. Each of these asset classes has unique characteristics and responds differently to market conditions. When one asset class is performing poorly, another may be outperforming, thereby balancing out the potential losses. 2. Sector Diversification : Within each asset class, investments can be further diversified across different sectors or industries such as healthcare, technology, energy, or consumer goods. This strategy aims to mitigate sector-specific risks, such as regulatory changes or cyclical fluctuations, which can significantly impact a particular industry. 3. Geographical Diversification : This strategy entails spreading investments across different countries or regions. It is particularly useful in today's globalized markets as it provides a hedge against risks associated with a single economy or geopolitical area. The performance of markets across different regions can vary greatly due to factors like political stability, economic policies, currency strength, and more. 4. Diversification by Investment Style : This approach involves diversifying across various investment styles such as value investing (buying stocks that appear to be trading for less than their intrinsic value), growth investing (investing in companies that are expected to grow at an above-average rate), and income investing (focusing on securities that generate significant and sustainable income). These styles often perform differently under various market conditions, which can contribute to portfolio diversification. 5. Dollar-Cost Averaging (DCA) : Although not a diversification strategy per se, DCA can complement diversification to further mitigate risk. This strategy involves regularly investing a fixed amount in a particular asset, which results in purchasing more units when prices are low and fewer units when prices are high, thereby potentially reducing the average cost per unit over time. Delving into the Types of Diversification The types of diversification reflect the various strategies mentioned above and add another layer to how investors can approach building a well-diversified portfolio: 1. Asset Diversification : This involves spreading investments across different asset classes to reduce the sensitivity to any single asset class's performance. 2. Sector Diversification : This involves spreading investments across various sectors or industries to insulate the portfolio against industry-specific risks. 3. Geographic Diversification : This strategy involves investing in different geographic regions to safeguard against the risks inherent in any single economy. 4. Capitalization Diversification : This type of diversification involves investing in companies of different sizes — large-cap, mid-cap, and small-cap. Each category responds differently to economic conditions, which can provide a balanced portfolio. 5. Style Diversification : This involves diversifying between different investment styles like growth, value, and income investing, each of which may perform differently in various market conditions. The Undeniable Importance of Diversification Diversification plays a crucial role in managing investment portfolios for several reasons: 1. Risk Management : Diversification helps reduce the risk of the overall investment portfolio. By spreading investments across various assets, sectors, and regions, the negative performance of one component can be offset by the positive performance of another. 2. Potential for Higher Returns : Diversified portfolios expose the investor to a broader range of investment opportunities and thus have the potential to generate higher long-term returns. 3. Reduced Portfolio Volatility : Diversification can help smooth out investment returns over time. Even if one investment performs poorly, others may perform well, leading to a less volatile portfolio overall. 4. Preservation of Capital : By limiting exposure to any single investment, diversification can help protect an investor's capital, which is particularly important for those nearing retirement or with lower risk tolerance. Conclusion The importance of diversification in the realm of investing cannot be overstated. It provides a level of insulation against severe market downturns and unforeseen sector or company-specific events. It allows investors to reach for returns while managing the level of risk they are comfortable with. While diversification is an effective strategy to manage risk and potentially enhance returns, it is crucial to remember that it does not guarantee profits or fully protect against losses in declining markets. It should be used as a component of a well-rounded investment strategy, in conjunction with ongoing market analysis, regular portfolio reviews, and adjustments as necessary. Every investor's situation is unique, and thus, their diversification strategy should be customized to their specific needs and goals.
AMEX:SPYEducation
by BiggWigg
Educational: 3 ways to determine if the market is overvalued Introduction The issue with determining if a market is overvalued is the fact that depending on your perspective the market always seems overvalued. In this publication we will explore 3 sound ways to determine if the market is overpriced and see how they works. 🔷 Shiller price-to-earnings (P/E) ratio The Shiller price-to-earnings (P/E) ratio, sometimes referred to as the Shiller CAPE ratio or cyclically adjusted price-to-earnings (CAPE) ratio, is a measure of stock market valuation. It was created by Robert Shiller, a Nobel Prize-winning economist, and it is used to determine if a market is overpriced or undervalued. The classic P/E ratio works by dividing the stock price of a firm by its EPS over the previous twelve months. The Shiller P/E ratio, on the other hand, adopts a longer-term strategy by considering the trailing 10-year average of inflation-adjusted earnings over the prior 10 years. The Shiller P/E ratio is calculated using the following formula: Stock market index price divided by the average of the prior ten years' worth of inflation-adjusted earnings is known as the Shiller P/E ratio. The Shiller P/E ratio provides a more thorough picture of the market's valuation by using the 10-year average to smooth out short-term swings. It aids in mitigating the effects of brief increases or decreases in incomes brought on by economic cycles. Market valuation levels are frequently determined using the Shiller P/E ratio. It is possible that the market is overvalued and that future returns will be lower if the Shiller P/E ratio is high. A low Shiller P/E ratio, on the other hand, would suggest that the market is undervalued and that future returns might be higher. The Shiller P/E ratio should be used in conjunction with other fundamental and technical indicators, as it is not a perfect forecast of market moves. Investors and analysts use a variety of tools to analyze the state of the market and choose which investments to make. 🔷 Brock Value The brock value is a measure of valuation that bases its assessment of the S&P 500 index's intrinsic worth on two inputs: GDP and interest rates. Peter Brock, a writer and financial expert, created it. This is how the brock value is determined: Where r is the yield on medium-term corporate bonds, GDP is the US gross domestic product, and BV is the Brock value. The S&P 500 index's real price can be compared with the brock value to assess whether it is overpriced or underpriced. According to Brock, the market often fluctuates between 30% and 20% over the Brock value. Extreme valuation and probable turning points are indicated when the market is above or below these ranges. For example, as of June 2, 2023, the brock value was 2441.65, while the S&P 500 index closed at 4282.37, which means the market was 75.4% overpriced1. This suggests that the market is in a risky territory and may face a significant correction in the future. Conversely, if the market was below the dotted green line on the brock value chart, it would indicate that the market was underpriced and may offer attractive returns in the long term 🔷 Market Volatility Market volatility is a gauge of how much the entire value of the stock market goes up and down. By examining the correlation between volatility and investor sentiment, it is possible to ascertain whether the market is overvalued. Investor sentiment is the overall attitude or mood of investors toward the market, and it can be affected by a number of things, including news, events, expectations, emotions, etc. Utilizing implicit indices that represent investor behavior and preferences, such as put-call ratio, trading volume, dividend yield, etc., is one technique to gauge investor sentiment. A high put-call ratio, for instance, suggests that investors are purchasing put options more frequently than call options, which suggests a bearish or pessimistic mindset. When investors are actively trading in the market, there is a high degree of interest and enthusiasm, which is shown by a high trade volume. An investor's willingness to pay more for companies that pay fewer dividends is indicated by a low dividend yield, which suggests a positive or upbeat attitude. Some research imply a link between investor sentiment and market volatility that is unfavorable. This implies that market volatility is low (stable) while investor sentiment is high (optimistic), and vice versa. This can be explained by the premise that when investors are upbeat, they tend to disregard bad news and concentrate on good news, which lowers market uncertainty and discord. On the other side, pessimistic investors have a propensity to overreact to bad news and disregard good news, which exacerbates market uncertainty and discord. Therefore, by examining the divergence from the historical average or trend, one can utilize market volatility as a signal of market overvaluation. Market volatility may indicate that investor sentiment is excessively high and the market is overpriced if it is low relative to its historical level. The market may be undervalued if volatility is high compared to historical levels, indicating that investor confidence is too low. This strategy should be employed cautiously, though, as there may be additional variables, such as prevailing economic conditions, interest rates, and earnings growth, that influence market volatility and valuation. Below is the TVC:VIX which is the volatility index.
COINBASE:ETHUSDEducation
by ChristopherDownie
3
SOFR: Farewell to LIBORCME: SOFR ( CME:SR31! ) On June 30th, SEC Chairman Gary Gensler posted a 3-minute short video on Twitter. In this educational piece titled RIP LIBOR, he explains what the London Interbank Offered Rate (LIBOR) is, and why its passing away is actually a good thing for consumers. As CFTC Chairman in 2009-2014 and SEC Chairman since 2021, Mr. Gensler oversaw the investigation of the 2012 LIBOR scandal and its replacement by the Secured Overnight Financing Rate (SOFR) in 2021 as the benchmark interest rate for US dollar. Eurodollar and LIBOR Offshore Dollar, the US currency deposited in banks outside of the United States, is commonly known as Eurodollar. Traditionally, offshore dollars were traded mainly among European banks. The name sticks to these days and applies to funds in non-European banks as well. A key advantage of trading Eurodollar is the fact that it is subject to fewer regulations by the Fed, being outside of the US jurisdiction. London is the largest trading hub for Eurodollar. The London Interbank Offered Rate came into being in the 1970s as a reference interest rate in the Eurodollar markets. By 1986, the British Bankers' Association (BBA) began publishing the US Dollar LIBOR daily. The BBA Libor was calculated based on interest rates reported by 17 member banks who together represented the bulk of Eurodollar transactions. Libor has been widely used as a reference rate for many financial instruments, including: • Forward rate agreements • Interest rate futures, e.g., CME Eurodollar futures • Interest rate swaps and swaptions • Interest rate options, Interest rate cap and floor • Floating rate notes and Floating rate certificates of deposit • Syndicated loans • Variable rate mortgages and Term loans • Range accrual notes and Step-up callable notes • Target redemption notes and Hybrid perpetual notes • Collateralized mortgage obligations and Collateralized debt obligations How important was Libor? It is a reference rate in the documentation by private trade association International Swaps and Derivatives Association (ISDA), which sets global market standard for OTC derivative transactions. In 2008, 60% of prime adjustable-rate mortgages and nearly all subprime mortgages were indexed to the USD Libor in the US. Furthermore, American cities borrowed 75% of their money through financial products that were linked to the Libor. Libor has been the indispensable global benchmark for pricing everything from credit card debt to mortgages, auto loans, corporate loans, and complex derivatives. CME Eurodollar Futures In 1981, the Chicago Mercantile Exchange launched Eurodollar futures, the first ever cash-settled futures contract. It quickly became the most liquid contract by CME. At its peak, over 1,500 traders and clerks worked at the Eurodollar pit on CME trading floor. Not to be confused with the Euro currency, Eurodollar futures contracts are derivatives on the interest rate paid on a notional or "face value" of $1,000,000 time deposit at a bank outside of the United. It uses the 3-month USD Libor rate as its settlement index. The late Fred D. Arditti, CME economist, is credited as the brain behind Eurodollar futures. Eurodollar futures are priced as a Money Market instrument. The CME IMM index is used to convert a coupon-bearing instrument such as bank deposit, into a discounted instrument that does not make regular interest payments. For instance, a futures price of 95.00 implies an interest rate of 100.00 - 95.00, or 5%. The settlement price of a Eurodollar futures contract is defined to be 100.00 minus the official BBA fixing of 3-month Libor on the day the contract is settled. The 2012 LIBOR Scandal The LIBOR Scandal was a highly publicized scheme in which bankers at major financial institutions colluded with each other to manipulate the Libor rate. As the scandal came to light in 2012, investigators found that the banks had been submitting false information about their borrowing costs to manipulate the Libor rate. This allowed the banks to profit from trades based on the artificially low or high rates. A dozen big banks were implicated in the scandal. It led to lawsuits and regulatory actions. After the rate-fixing scandal, LIBOR's validity as a credible benchmark was over. As a result, regulators decided that Libor would be phased out and replaced. If you want to learn more about the LIBOR scandal, feel free to check out the 2017 bestseller by David Enrich: “The Spider Network: The Wild Story of a Math Genius, a Gang of Backstabbing Bankers, and One of the Greatest Scams in Financial History”. What is the SOFR In 2017, the Federal Reserve assembled the Alternative Reference Rate Committee to select a Libor replacement. The committee chose the Secured Overnight Financing Rate as the new benchmark for dollar-denominated contracts. The daily SOFR is based on transactions in the Treasury repurchase market, where firms offer overnight or short-term loans to banks collateralized by their bond assets ,similar to pawn shops. Unlike LIBOR, there’s extensive trading in the Treasury repo market, estimated at $4.8 trillion in June 2023. This theoretically makes it a more accurate indicator of borrowing costs. Moreover, SOFR is based on data from observable transactions rather than on estimated borrowing rates, as was the case with LIBOR. The Federal Reserve Bank of New York began publishing the SOFR in April 2018. By 2021, SOFR has replaced most of the LIBOR-linked contracts. The LIBOR committee officially folded up on June 30, 2023. Chairman Gensler apparently chose this day to post his RIP LIBOR video to mark the end of an era. The difference between Fed Funds Rate and SOFR Fed Funds Rate is set by the Fed’s FOMC meeting, and SOFR is published by the NY Fed. However, they are very different. • Fed Funds Rate is considered a risk-free interest rate, and only member banks have access to this ultra-low rate through the Fed’s discount window. • SOFR is a commercial interest rate where banks charge each other. The NY Fed publishes the rate based on transactions in the US Treasury repurchase market. SOFR is similar to LIBOR because they are both commercial interest rate benchmarks. On the other hand, Fed Funds Rate is a policy rate set by the US central bank. CME SOFR Futures and Options CME Group launched the 3-month SOFR futures and options contracts in May 2018. The contracts were based on the SOFR Index, published daily by the New York Fed. SOFR futures contracts are notional at $2,500 x contract-grade International Monetary Market (IMM) Index, where the IMM Index = 100 minus SOFR. At a 5.215 IMM, for example, each contract has a notional value of $13,037.50. CME requires a $550 margin per contract. An interest rate move by a minimum tick of 0.25 basis point would result in a gain or loss of $6.25. At the beginning, SOFR contracts traded side-by-side with the Eurodollar contracts. By 2021, Eurodollar liquidity has transitioned to SOFR contracts. By April 2023, All Eurodollar contracts were delisted, and the transition was completed. For all intended purposes, you could think of the SOFR futures as the same as the legacy Eurodollar contracts, with the only notable exception being the settlement index switched from LIBOR to SOFR. On June 30th, the daily trading volume and Open Interest of SOFR contracts were 4,443,245 and 9,310,433 contracts, respectively. On the same date, CME Group total volume and OI were 23,769,103 and 104,221,083, respectively. On the latest trade day, SOFR accounts for 18.7% of CME Group’s trade volume and 8.9% of its total open interest. Indeed, SOFR has successfully replaced Eurodollar as new No. 1 contract at CME and is arguably the most liquid derivatives contract in the world. Where We Are at the SOFR Market On June 30th, the JUN SOFR contract (SR3M3) expired and settled at 94.785. This translates to the JUN SOFR rate of 5.215 (100-94.785). SEP 2023 (SR3U3) is now the new lead contract. It settled at 94.595 and implied a forward SOFR rate at 5.405 (100-94.595). This shows that the futures market expects a rate increase in the next Fed meeting. Like Eurodollar futures, rising futures price will confer to declining SOFR rate, as rate is equal to 100 minus futures price. Similarly, a decline in futures price equates to a rising SOFR rate. Happy Trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
Editors' picks
CME:SR31!Education
by JimHuangChicago
9
Cut out Useless Trading Data - 6 Points There is a curse of knowledge in the world of trading. And it comes a time where a new trader believes the way they can WIN is through… Knowing and applying as much info and data as possible. I’ve been there. In 2008, you should have seen my charts. They looked like Christmas Trees. Cut out the conflicting indicators. Cut out ANYTHING that does not make logical sense. Less is more with trading. Let’s explore some factors that can help you cut out the unnecessary data. Find One or Two Systems Only Trading systems are a collection of rules and parameters that traders use to determine their entry and exit points. With myriad trading systems available, it’s really tempting to dabble in different ones. And as a beginner trader, I understand it’s crucial for you to find yourself and your trading personality. However, once you find what system works for you. Once you find the ones that match your trading style, risk tolerance, and financial goals – Stick to them. Adapt, evolve, improve and optimise your strategy. When you absolutely master your strategy and your focus, you can gain deep expertise in those systems and utilize them more effectively. Minimize the Number of Markets Each market is unique, with its own set of rules, trends, and volatility. If you diversify into too many markets, it can dilute your focus and make it harder to understand the nuances of each market. Instead, find the markets that most definitely work you’re your strategy. Whether it be stocks, indices, Forex, commodities or crypto. Break them up into watchlists and the ones that don’t work with the system, well don’t include them obviously! Choose Only One or Two Time Frames Just as with trading systems and markets, time frames also require careful consideration. Whether you prefer day trading, swing trading, or position trading, it should tell you the time frames you should be focusing on. Select one or two time frames that align with your trading style and stick with them. I like daily for stocks, commodities and crypto. I like 15 minutes for Intraday trading indices and daily for identifying the Daily Bias. By doing so, you’ll avoid the confusion and contradiction that often comes from analysing multiple time frames simultaneously. Cut Out Unnecessary Indicators The year was 2008. I had 5 Moving Averages, 1 Bollinger Band, 1 MACD, 1 RSI, 1 Stochastics, 1 William %R, Volume, and even the ATR (Average True Range). The problem was. These signals were conflicting each other. Do you have any idea how difficult it is to back and forward test a strategy like this? And yes, all the information is at our fingertips. But it can also be the doom of our portfolios. Why? I realised one thing. Indicators, volume, price action etc… Is all based on ONE constant. Historical data. The data and information you see is all based on the past. There are no predictions, no certainties only probabilities. So you need to cut out the unnecessary information. Don’t fall for “analysis paralysis,” where excessive data hampers your decision-making. Choose a few key indicators that provide the most valuable information for your trading strategy. Focus on One or Two Financial Instruments Diversification is a key principle in finance, but it’s possible to overdo it. When I say instruments I mean CFDs, Lots, Spread Betting, Options, Futures etc… You know what a schlepp it is to have different journals for different instruments, trading the same things? Ye… Choose 1 or maybe two instruments (if your one broker doesn’t offer some markets you wish to trade). But there is no benefit in trading a whole bunch of trading instruments at once. Also when you spread your capital too thinly across multiple financial instruments, you’ll find it can complicate your trading strategy, portfolio and risk management. And it will make it difficult to keep track of your investments. Only Have One or Two or Max Three Trading Accounts Managing multiple trading accounts can be a logistical nightmare. Similar to what I mentioned above. It can lead to unneeded complexity in tracking performance, managing tax liabilities, and maintaining a balanced portfolio. Instead, limit your trading accounts to 1, 2 or max 3. This is so you can monitor your trading performance across different markets. For example. Forex is a completely different ball game to stocks (in my opinion). And so, I like to have two different trading accounts for each. Final words. Let’s focus on less rather than more going forward. Cut out unnecessary and useless data when you trade. And remember these point which is what we have covered today… Find One or Two Systems Only Minimize the Number of Markets Choose Only One or Two Time Frames Cut Out Unnecessary Indicators Focus on One or Two Financial Instruments Only Have One or Two or Max Three Trading Accounts
TVC:SA40Education
by Timonrosso
Making Sense of the Market (Educational Post) 📑3rd Week May 23'Hello Traders. Today I have created a summary of this previous week's price action on a Session-Session basis. I explain in detail each of the 15 Sessions and how they relate to the overarching destination for the weekly candle. I hope you enjoy and please leave some feedback in you found this either useful or interesting. Best, Shrewdcatfx 🐱‍👓 Key for Chart 1 = Asian Session 2 = London Session 3 = New York Session Monday - Black Numbers Tuesday - White Numbers Wednesday - Purple Numbers Thursday - Red Numbers Friday - Blue Numbers Important Level's Weekly Level - 1.0866 Daily Level - 1.08739 ( Created after Tuesday's Daily Candle Closure) Daily Level - 1.08532 Daily Level - 1.08401 Daily Level - 1.07597 15 Sessions Breakdown Monday - ( Black Numbers ) 1 First Asian session begins by going up and rejecting (1.08537) Daily Level. Buyers are stepping in early in the week and the new weekly candle is pulling up. 2 The First London session of the week is a catalyst to create a Higher High in market structure on the Intraday timeframes. However with the new 4hr candle price pulls back down and drops before seeing once again another opportunity for Buys 3 The first New york session of the week combined with manufacturing data saw one more push to the upside which turned out to be the High of the day. As NY session progressed price pulled back and found support at the 1.0866 weekly level before bouncing once again. Tuesday - ( White Numbers) 1- 2nd Asian session of the week price consolidates inside of the previous NY session range, not much occurs 2- London session pulls back and retests 1.0866 weekly level where price finds support once again Price consequrntly bounces and creates a new weekly High above the Monday NY session manufacturing data highs. This london session Bullish push turns out to be the high of the week 3- New York Session price eases off the high prices created during London session. Retail sales data is released and volatility and volume shakes up price in the short term but continues to ease off the highs from london session. Price drops further adn london close prints the low of the day. The daily candle closes below our 1.0866 weekly level after attempting to push up with manufacturing data and retail sales data Wednesday - (Purple Numbers) (The close of the Tuesday daily candle creates our 1.08754 Daily Level) 1. Asian Session - Pulls up to retest our new formed Daily level 1.08754. As we move through Asian Open and the 4hr candle associated with it price appears to be backing off and rejecting the new formed Daily level 1.08754. 2. At this point we have 2 Daily Candle closures above 1.08537 Daily Level, however as we move into the third london session of the week price is beginning to crease below this daily level 1.08537. Price is also continuing to reject our new formed 1.08754 Daily level from Asian session. Price effortlessly drops through 1.08537 and quickly reaches our next potential support at Daily level 1.08393 . Price keeps pushing down and it is clear that the weekly candle has flipped bearish, dropping below our Monday Asian session prices and creating a fresh low on the week. 3. NY session sees a short lived continuation but quickly reverses pulling back up and clearing out fomo sellers . Price pulls back and does a textbook break and retest at the price where the weekly candle opened on Monday Asian price consolidates at the break and retest area 1.085 Thursday - ( Red numbers) 1. Asian session completes the break and retest at 1.085 and prices begins to head back towards the low created during the previous NY session 2. London Open provides a catalyst for a continuation of momentum to the dowside as we head back towards the previous NY session Low. We touch the NY session low and create a new low price on the week. 3. New York Session Open and Unemployment data is due to release. Yes, Unemployment data is the catalyst to punch out even more lows on the week Price make a very nice and lenngthy push from here on this thursday. Friday - (Blue Numbers) 1. The Thursday daily candle closes bearish but above our 1.07597 Daily Level. Asian session attempts multiple times to keep dropping below 1.07597 but buyers hold firm here. 2. As the final London session of the week approaches prices begins to bounce off 1.07597 and creates a High on Intraday timeframes. Then comes london open and price continues to pull back to the upside Simultaneusly we can observe that as the weekly candle comes to a close, the candle is pulling back up and creating a bottom wick. 3. New York Session provides a catalyst to continue pulling back up before violently whipsawing and ranging to end off the week
Education
by ShrewdCatfx
EDUCATION: How to trade forex?Trading foreign currency on the forex market, also known as foreign exchange trading, can be an exciting hobby and a lucrative source of income for many people. Currently, the stock market trades about $22.4 billion per day, while the forex market trades around $5 trillion per day. There are various ways you can engage in online forex trading. 1. Learn basic forex terms. - The currency you are using, or selling, is the base currency. The currency that you are buying is called the quote currency. In forex trading, you will sell one currency to buy another. - The exchange rate tells you how much you have to spend in the quote currency to buy one unit of the base currency. - A long position means you want to buy the base currency and sell the quote currency. In our example above, you want to sell dollars to buy pounds. - A short position means you want to buy the quote currency and sell the base currency. In other words, you sell British pounds and buy US dollars. - The bid price is the price the broker is willing to buy the base currency for in exchange for the quote currency. The bid price is the best price at which you want to sell your quote currency in the market. - The ask price, or ask price, is the price at which the broker sells the base currency in exchange for the quote currency. The asking price is the best you are willing to buy from the market. Spread is the difference between the bid price and the ask price. 2. Specify the currency you want to buy and sell in. - Forecasting the economy. For example, if you believe the US economy will continue to weaken, and this is not good for the US dollar, you may therefore want to sell dollars in exchange for currency from a country with a strong economy. . - View a country's trading position. If a country has a lot of popular goods, it may export goods to make a profit. This trade advantage will boost economic development, thereby helping to boost the value of this country's currency. - Political review. If a country is holding an election, its currency will appreciate if the winner of the election has a fiscally biased agenda. In addition, if a country's government loosens regulations on economic growth, this will push up the value of the currency. - Read economic reports. A report on GDP, or on other economic factors such as employment and inflation, of a country will have an effect on the value of that country's currency. 3. Learn how to calculate profit. - Use the unit "pip" to measure the change in value between two currencies. Usually, one pip equals 0.0001 change in value. For example, if the EUR/USD rate increased from 1.546 to 1.547, then the value of your currency has increased by 10 pips. - Multiply the number of pips your account changes by the exchange rate to find out how much your account value has increased or decreased. 4. Market analysis. You can try several different methods such as: - Technical Analysis: Technical analysis is looking at charts or previous data to predict the direction of currency movement based on past events. The broker will usually provide you with a chart, or else you can use a popular platform like Metatrader 4. - Fundamental Analysis: This analysis involves looking at the economic background and character of the country and based on this information to make trading decisions. - Psychoanalysis: This type of analysis is largely subjective. You're basically trying to analyze market sentiment to figure out if the market is trending "bearish" or "bullish." While market sentiment cannot always be certain, you can still make some guesses, and this will positively impact your trading. 5.Define margin trading. Depending on the broker's policies, you can invest little money and still make big trades. - For example, if you want to trade 100,000 units with a margin of 1%, the broker will ask you to put $1,000 in cash in your account for safety. - Both profit and loss will be added or deducted from the account. For this reason, the best general rule is to only invest 2% of your cash in a particular currency pair. 6. Advise. - Try to use only about 2% of your total cash. For example, if you decide to invest $1,000, try using only $20 to invest in a currency pair. Prices in Forex are very volatile, and you have to make sure you have enough money to spend when the currency pair price drops. - Try using a demo account to make forex trades before investing real capital. That way you can be sure of the process and definitely should you join forex trading. After you always make the right trading decisions with a demo account, you can start doing it with a real forex account. - Limit losses. Let's say you have invested 20 USD in EUR/USD currency pair, and today you have lost 5 USD. But you haven't lost your money yet. It is important that you only use about 2% of your cash back per trade, plus a stop loss with that 2%. You still have enough capital to cover this period so you can keep the position from closing and make a profit. - Remember a loss is not a loss unless your position is closed. If your position is still open, your loss will only be calculated if you choose to close the position and take the loss. - If the currency pair moves against your will, and you do not have enough funds to cover it during this time, your order will be automatically cancelled. Therefore, you must make sure not to make this mistake. 7. Warning. - More than 90% of day traders fail. If you want to learn the common pitfalls that cause you to make bad trading decisions, consult a trusted fund manager. - Check to make sure that the brokerage firm has a specific address. If the broker does not provide an address then you better find someone else to avoid being scammed.
Education
by Sphyn-Trader
17
What is Confluence❓✅ Confluence refers to any circumstance where you see multiple trade signals lining up on your charts and telling you to take a trade. Usually these are technical indicators, though sometimes they may be price patterns. It all depends on what you use to plan your trades. A lot of traders fill their charts with dozens of indicators for this reason. They want to find confluence — but oftentimes the result is conflicting signals. This can cause a lapse of confidence and a great deal of confusion. Some traders add more and more signals the less confident they get, and continue to make the problem worse for themselves. ✅ Confluence is very important to increase the chances of winning trades, a trader needs to have at least two factors of confluence to open a trade. When the confluence exists, the trader becomes more confident on his negotiations. ✅ The Factors Of Confluence Are: Higher Time Frame Analysis; Trade during London Open; Trade during New York Open; Refine Higher Time Frame key levels in Lower Time Frame entries; Combine setups; Trade during High Impact News Events. ✅ Refine HTF key levels in LTF entries or setups for confirmation that the HTF analysis will hold the price. HTF Key Levels Are: HTF Order Blocks; HTF Liquidity Pools; HTF Market Structure.
OANDA:XAUUSDEducation
by Snick3rSD
CHOCH vs BOS ‼️WHAT IS BOS ? BOS - break of strucuture. I will use market structure bullish or bearish to understand if the institutions are buying or selling a financial asset. To spot a bullish / bearish market structure we should see a higher highs and higher lows and viceversa, to spot the continuation of the bullish market structure we should see bullish price action above the last old high in the structure this is the BOS. BOS for me is a confirmation that price will go higher after the retracement and we are still in a bullish move WHAT IS CHOCH? CHOCH - change of character. Also known as reversal, when the price fails to make a new higher high or lower low, then the price broke the structure and continue in other direction.
OANDA:XAUUSDEducation
by Snick3rSD
Market Structure Identification ✅Hello traders! Today we have NFP day, so I will not trade, but I want to share with you some educational content. ✅ MARKET STRUCTURE . Today we will talk about market structure in the financial markets, market structure is basically the understading where the institutional traders/investors are positioned are they short or long on certain financial asset, it is very important to be positioned your trading opportunities with the trend as the saying says trend is your friend follow the trend when you are taking trades that are alligned with the strucutre you have a better probability of them closing in profit. ✅ Types of Market Structure Bearish Market Structure - institutions are positioned LONG, look only to enter long/buy trades, we are spotingt the bullish market strucutre if price is making higher highs (hh) and higher lows (hl) Bullish Market Structure - institutions are positioned SHORT, look only to enter short/sell trades, we are spoting the bearish market strucutre when price is making lower highs (lh) and lower lows (ll) Range Market Structure - the volumes on short/long trades are equall instiutions dont have a clear direction we are spoting this strucutre if we see price making equal highs and equal lows and is accumulating . I hope I was clear enough so you can understand this very important trading concept, remember its not in the number its in the quality of the trades and to have a better quality try to allign every trading idea with the actual structure
OANDA:XAUUSDEducation
by Snick3rSD
Here is what we learned from 1000 Publications on TradingViewAs Investroy, a company dedicated to financial education, we are thrilled to celebrate our remarkable milestone of 1000 publications on TradingView. This achievement symbolizes our ongoing journey of learning and growth in the world of trading. Throughout these years, we have accumulated invaluable insights into the psychological aspects of trading, the importance of publishing quality content, and the significance of fostering a supportive community. In our 1000th post, we would like to share the lessons we have learned, offering guidance to fellow traders, educators, and community members. (Publishing Quality Content) At Investroy, we believe that sharing educational content on TradingView allows us to contribute to the trading community while continuously learning something new ourselves during the research. To ensure the highest quality of content, we have learned the following lessons: a. Thorough Research: We understand that conducting in-depth research and analysis is essential before presenting any trading idea or concept. By providing accurate information and data-backed insights, we strive to add value to the community and enhance our reputation. Here, it is important to understand that some strategies or pointers you may deploy might be subjective and not so widely accepted by everybody, so stay mindful and respectful of the feedback you get. b. Clarity and Simplicity: We have come to appreciate the significance of communicating complex trading concepts in a clear and concise manner. Our aim is to help readers understand and apply the information effectively. Through the use of charts, diagrams, and visual aids, we can enhance the clarity of our articles. Rule of thumb, don’t use millions of indicators on a chart unless you really know what you’re doing. That will not only clog up your vision, but will also make it harder for everyone else to understand what you’re up to. c. Continual Learning: We recognize that staying up-to-date with the latest market trends, trading strategies, and financial news is crucial for producing relevant and valuable content. Engaging in ongoing education and seeking feedback from the community have been essential in helping us improve and refine our content. (Building a Supportive Trading Community) We firmly believe in being an active and supportive member of the TradingView community. By fostering a positive environment, we all should contribute to the growth and development of fellow traders. Here are the lessons we have learned: a. Encouragement and Constructive Feedback: We have witnessed the power of providing encouragement and constructive feedback to fellow traders. By creating a supportive atmosphere, we inspire and motivate others on their trading journey. Celebrating successes and offering helpful suggestions become catalysts for growth. This doesn’t include spamming everybody with “GOOD JOB”, “AWESOME CHARTWORK”, but rather providing insight on your opinion or politely sharing on how they can improve the content quality. b. Collaboration and Knowledge Sharing: We have found that collaborating with other traders and sharing insights fosters a spirit of collaboration and mutual growth. Actively participating in discussions, engaging in chats, and offering valuable additions have contributed to creating a vibrant and active community. Thankfully, TradingView administration is quite good with listening to advice from community members and accommodating for them. c. Respect and Professionalism: At Investroy, we hold immense respect for diverse perspectives. We understand the importance of maintaining professionalism in all interactions and adhering to community guidelines. By treating others with kindness and empathy, we strive to create a welcoming environment for all traders. If you’re here to troll, just go to reddit or something instead. A big majority of people here are doing something about their lives and if you’re making fun of them, then that should be a reason to start reevaluating your priorities. Reaching the milestone of 1000 publications on TradingView is a testament to our unwavering commitment to trading education, content quality, and community support. Our journey has revealed the significance of nurturing psychological resilience, publishing high-quality content, and building a supportive trading community. By integrating these lessons into our trading practices and community engagement, we remain dedicated to the growth, learning, and success of fellow traders and the broader trading community. Together, we can continue to empower one another on this transformative journey of financial education and trading excellence. Have an awesome weekend ahead and hopefully you enjoyed the read!
BITSTAMP:BTCUSDEducation
by Investroy
7
Important Trading Terms YOU need to KnowSorry but the truth is… You can’t get away from the trading lingo. There are at least 7 terms you need to deal with a day. But fortunately, they repeat and before you know it – they’re second nature. Let’s start with the most important terms – you’ll face every day as a trader. Symbol – Name of market you want to trade: The symbol represents the unique identifier of a specific financial instrument or market. It is the special name that is given for each market. For example, in the stock market, symbols are typically a combination of letters that represent a particular company’s shares. In the forex market, symbols are currency pairs such as EUR/USD or GBP/JPY. In the commodity market each have their own symbol i.e. Gold = XAU/USD, GCI Go to TradingView head over to Symbol search and start searching and adding to your watch list. Side: Buy (go long) or Sell (go short): The “side” refers to the direction of your trade. Buying (going long) means you believe the price of the instrument will rise, and you aim to profit from the increase. Selling (going short) means you anticipate the price will fall, allowing you to profit from the downward movement. The choice of the side depends on your market analysis and trading strategy. Quantity: No. of CFDs or lots: The quantity represents the number of Contracts for Difference (CFDs) or lots you want to trade. This is all dependent on your risk profile and portfolio size. CFDs allow you to speculate on the price movements of an underlying asset without owning the asset itself. The quantity determines the exposure and potential profit or loss of your trade. It’s important to consider your risk tolerance and account size when determining the appropriate quantity to trade. Order type (Market or limit): The order type specifies how you want your trade to be executed. A market order is executed immediately at the most current market price. This type of order guarantees execution but does not guarantee a specific price. So there might be slippage (where you get in versus where you wanted to get in) which can interfere with your Risk to Reward. A limit order allows you to set a specific price at which you want the trade to be executed. So basically, you LIMIT The price you wish to enter. The order will be executed only if the market reaches or exceeds your specified price. Validity: How long to hold: Validity refers to the duration for which your order remains active. Common options include: GTC: “Good Till Cancelled” where the order remains active until you manually cancel it. FOK: Fill or Kill: This type of order requires immediate execution of the entire order quantity. If the full amount is not executed, it is then cancelled. GTD: “Good Till Date” (GTD), where you can specify a specific date until which the order is valid. MIT: Market if Touched: This order is triggered when the market price reaches a specified level (trigger price). It then becomes a market order and is executed at the best available price. LIT: Limit if Touched: If a Limit if Touched order is triggered when the market price reaches a trigger price. However, it becomes a limit order with a specified limit price and will only be executed at or better than the limit price. Levels: Entry, Stop loss, and Take profit: These levels are essential in managing your risk and potential profits. Entry Level: The price at which you enter the market by opening a trade. Stop Loss Level: A predetermined price level at which your trade will automatically close to limit potential losses if the market moves against you. Take Profit Level: A predetermined price level at which your trade will automatically close if the market moves in your favour. What trading term do you want to know more about and let us know if this was useful!
TVC:SA40Education
by Timonrosso
Overview of accumulation breakout patternsWelcome to my new educational post As you can see in BCH/USDT chart, One weekly green candle is enough to overcome 1 year of bear/consolidation zone !! If you are surprised, let me tell you this is very normal behavior in crypto market as we saw this happened many times before Another example : DOGE / USD When to expect a coin to explode like that ? The accumulation pattern have many stages 1- After a period of bear market starts to deccelerate the price action becomes flat and usually take long time of horizontal accumulation between main supply and main demand (weeks / months / years ) 2- Multiple fakeouts can happen to make both buyers and sellers exhausted *The best buy (smart money) after the price reclaim the main demand after stoploss taken the second best buy after valid breakout (candle closing) The shorting is the vice-versa 3 - Finally the strong breakout take place and overcome many weeks / months or even years of bear / consolidation/ accumulation zone 4- After the coin make breakout many traders will avoid it in the early breakout but it will continue rise and rise ..and every time it rises more it becomes more risky Later it will turn to be crowded coin and many newcomers buy it at very high prices at this stage it becomes a gamble and MM will sell their profits on newbies Note : The distribution phase is the opposite of accumulation phase Note : not all coins can survive bear market, So the fundamental view has great role to support the coin I can tell you about potential coins in accumulation now which have chance to do similar thing : #FTT - #DYDX DO you know another potential coins in accumulation ? Tell me in comment section below ⬇️
Education
by Babenski
49
What Is Position Trading? Definition and ExamplesIf you’re interested in trading but don’t have the time to day trade, position trading might be for you. In this guide, we’ll dive into the topic, answering the question, “what is position trading?” and providing some examples so you can develop your own strategy. Position Trading Definition To start, we need to define position trading. Position trading involves holding a trade for weeks, months, or even years to profit from a long-term price trend. Unlike day trading, which involves opening and closing positions within the same trading day, position trading requires a broader perspective and a more patient approach. There are similarities between swing trading and position trading, but it’s important to be aware of a few key distinctions. Swing traders also stay in positions for weeks or sometimes months, but they’re more concerned with capturing a move from one key technical area to another. As such, you may find swing traders that open and close a position over several days. In contrast, position traders are effectively trend-followers and look to capitalise on long-term trends until they reverse. Many trends in forex pairs, stocks, commodities, and other markets are driven by fundamental factors. Consequently, position traders emphasise macroeconomic and fundamental analysis more than short-term traders. Components of a Position Trader’s Strategy While position trading strategies are often unique to the individual trader, there are some commonalities between most positional traders. Fundamental Analysis As mentioned, position traders use fundamental analysis to guide their decision-making. This may involve analysing a company’s financial statements, examining interest rate differentials between two economies, and assessing the overall economic picture to determine the potential for an asset’s long-term growth or decline. Technical Analysis Technical analysis still plays a crucial role in a positional trader’s strategy. Technical analysis tools, like moving averages or oscillators, can help gauge the strength of a trend or provide insight into when a trend is reaching its peak. Other forms of technical analysis, like Fibonacci retracements and chart patterns, can help a position trader identify optimal entries. High Timeframe Charts As position traders hold trades for an extended period, they tend to look to the daily, weekly, and monthly charts to guide their trades. They may pay attention to lower timeframes, especially if looking for an entry, but their priority will be the higher timeframe charts. At FXOpen, we understand that you need the flexibility to assess the markets across many timeframes. That's why we offer charts ranging from 1-minute to monthly in our free TickTrader terminal, making it an ideal platform for position trading and more. Risk Management Risk management is an essential aspect of position trading. As a natural consequence of taking a long-term view of the market, position traders often use stop losses far wider than a day or swing trader to account for more significant price fluctuations. Some position traders also hedge their trades to mitigate their risk exposure further. Patience Lastly, position trading requires the patience and discipline to hold a trade through short-term market volatility and avoid impulsive decision-making. Usually, a position trader will create a clear plan of how and when they want to exit to keep themselves accountable. Advantages of Position Trading - Time Commitment: Positional trading is less active than other strategies, making it a suitable option for traders with other time commitments. - Reduced Market Noise: By taking a long-term approach and focusing on fundamentals, position traders can avoid the volatility and unpredictability of short-term trading styles. - Lower Costs: Position trading also has reduced transaction costs, as traders make fewer trades in a given year. This can result in lower commissions, fees, and taxes. Disadvantages of Position Trading - Opportunity Cost: Position traders hold trades for a long time, so they may miss out on short-term trading opportunities that can result in quick profits. - Higher Capital Requirements: Position trading often requires more capital investment than short-term trading styles to make the trade worthwhile, given that the stop losses are usually wider. - Emotional Control: Position traders need strong emotional control and discipline to avoid making impulsive decisions based on short-term market movements or emotions. This can be challenging for some traders, leading to losses or missed opportunities. Position Trading Examples Let’s look at two position trading examples in the forex and indices markets. USD/JPY Following runaway inflation in the US, the Federal Reserve began hiking interest rates in March 2022, pushing them to 0.5% after the constant 0.25% rate since March 2020. Meanwhile, Japan had relatively low inflation, and the Bank of Japan committed to its dovish interest rate stance. As a result, demand for the US dollar picked up and simultaneously dropped for the Japanese yen. While USD/JPY had been in an uptrend since the start of 2021, the Federal Reserve’s interest rate decision in March and the following hikes kickstarted a strong bullish trend in the pair. Position traders could have used this interest rate differential to identify that USD/JPY would likely continue trending upwards and enter a long position to profit from the appreciating dollar and weakening yen. They could have used a simple trailing stop below key swing points, exiting when the trend reversed. Nasdaq 100 Similarly, the hawkish stance of the Fed led to a tumble across many US-based indices, but it particularly hurt the tech-focused Nasdaq 100. Tech companies are growth-focused and rely heavily on financing to achieve their goals. When interest rates rise, the cost of borrowing increases, resulting in restricted growth and reduced valuations. High inflation preceding the first interest rate hike had already prompted expectations of higher interest rates, leading to a fall in the Nasdaq 100 prior to the first hike. However, subsequent hikes led the index to around -30% from the end of March 2022 to November 2022. Anticipating that interest rates would continue to climb higher, a position trader might have used this expectation to their advantage, taking a short position as the market pulled back after the first decision. As with the USD/JPY example, a trailing stop here would have worked excellently. Embark on Your Position Trading Journey With FXOpen Now that you have a solid overview of what position trading is and how it works, you can put your knowledge into practice. After backtesting a few position trading setups, you may want to open an FXOpen account. With dozens of markets to pick from and the powerful TickTrader platform, you can start your position trading journey with confidence. 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
How to Trade Wolfe Wave PatternI will try to explain to you about the Wolf pattern. I myself prefer to call this formation a Wolf pattern rather than a wave, because it will not always remind of a wave and has nothing to do with the Elliott Wave Analysis. Before I get to the practical part, I want to note that this pattern is very easy to learn and often allows you to get a fantastic ratio (R:R). The flip side of the pattern is the art of determining its completion. Bill Wolf is the discoverer of this formation. He likes to call his trading a wave trading and for some reason explains the work of the pattern as a demonstration of Newton's law. His real achievement is the numerous study of the well-known wedge pattern, which he was so fond of, and the finding of patterns in it. All we have from the author is a little book. And the website wolfewave.com, the design of which has been preserved since '98. Bill's friendship with trader Linda Raschke is well known. In her book, Linda describes the Wolf wave as a quite profitable formation. It should be noted that especially skillful traders can detect Wolf waves practically in all price movements. Indeed, this characteristic formation of "spreading" can be found constantly, even if it does not have all the expressed qualities that are characteristic of an ideal wave. In traditional trading, the Wolf will often look like the famous and beloved wedge, but our task will be to enter and exit the trade more precisely. Formation 1. We determine point 2 as the top of the uptrend (a significant top). 2. Point 3 is the next minimum after point 2. 3. Point 4 is the next high after point 3 and is located below point 2. 4. Point 1 is insignificant, ideally it is the minimum before point 2, but sometimes point 1 is very weakly expressed. In this case, Bill Wolf himself recommends to draw a horizontal line to the left of point 3 and take the first bar opposite it as point 1. 5. The point 5 is on the line 1-3, or it often breaks through it, going to the sweet zone. The sweet zone is constructed by parallel transferring the line 2-4 to point 3. 6. Point 6 (target) is on the line 1-4 (EPA - Estimate Price at Arrival) and is determined by the vertical from the point of intersection 2-4 and 1-3 (ETA - Estimate Time on Arrival). How to Trade the Wolf with Trend For the purposes of this article, we will be looking at Wolf waves primarily on trend. I strongly recommend trading them this way. In this way, the pattern will be a correction, the end of which we are trading. In addition, a couple of alternative examples will be given (Wolf as a trend reversal, Wolf in a sideways trend). Let's take a good trend, in this case the uptrend on CADJPY, and highlight the correction. Then let's move to H1 and see if there are any Wolf waves among these corrections: Example 1 In the first case we have a great Wolf wave. I pay attention to the clear arrival time of the target (ETA). R:R = 3.0. Example 2. In the second case, we don't have the prettiest formation. Many would argue that it is a Wolf wave, but I assure you that it is. The ETA also clearly worked and we got R:R = 3.5. Note Wolf waves are quite frequent formation. Their best working out is trend trading, there are plenty of them. Even more of them are in the sideways. It can be said that a sidewall is a constant succession of Woolf waves in different directions. Perhaps, someone may apply this style to a flat, but a sideways trend can be traded more traditionally. An ideal wave is not always found. There are traders who prefer to wait for them without considering other Woolf waves as such. Practice Perhaps, we have come to the most interesting part of the article. Here I will just try to outline the best possible way to enter a trade and the best way to get out of it. The advice given in this section is a subjective result of trading and is provided for general guidance. I am convinced that a practicing trader will find the optimal TS settings by himself. Examples Any TS has its disadvantages and if the speculator gets along with them, he makes the TS "his", otherwise he has to look for another instrument, picking it up like a puzzle that suits him psychologically. The problem of the Wolf wave, on the other hand, is the search for the point 5. Recent example We use Fibonacci extension tool to identify optimal entry point. Fibonacci extension level such as 1.13, 1.272, 1.141 and 1.618. Conclusion In this article I have tried to set forth my view of the Wolf wave. As I see it, this pattern is well underestimated by the mass of suffering traders.
Education
by Lingrid
12
The Limits of Fundamental Analysis: An In-Depth PerspectiveFundamental analysis serves as a comprehensive approach to evaluating securities, aiming to assess their intrinsic value by examining the underlying factors that shape their worth. This method involves a meticulous analysis of qualitative and quantitative aspects, enabling an assessment of a company's financial well-being, performance, and future prospects. By diving into financial statements, gathering relevant company information, conducting qualitative and quantitative analysis, performing forecasting, and utilizing valuation techniques, fundamental analysis empowers investors to make well-informed decisions regarding the long-term potential of a security. Undoubtedly, fundamental analysis provides valuable insights and a solid foundation for investment decision-making. However, it is crucial to acknowledge the limitations inherent in this approach and the necessity of adopting a holistic perspective when making investment decisions. While fundamental analysis offers a comprehensive understanding of a company's fundamentals, it may not account for short-term market fluctuations, investor sentiment, or external macroeconomic factors that can significantly impact the performance of a security. Therefore, combining fundamental analysis with other methodologies, such as technical analysis or considering market trends, can provide a more robust and well-rounded approach to investment decision-making. By recognizing the strengths and limitations of fundamental analysis and incorporating it into a broader framework, investors can strive to enhance their chances of making sound investment choices that align with their financial goals and risk tolerance. Knowing How and Why Fundamental Analysis Works Fundamental analysis is a meticulous approach to evaluating securities, such as stocks or bonds, by examining the underlying factors that impact their intrinsic value. This method involves a comprehensive analysis of both qualitative and quantitative factors to assess the financial health, performance, and future prospects of a company or investment. The process of fundamental analysis typically includes several key steps. It begins with analyzing the company's financial statements, including the balance sheet, income statement, and cash flow statement, to gain insights into its financial position and performance. Gathering relevant company information, such as details about the management team, business model, competitive advantages, and market share, is also crucial. Qualitative analysis plays a significant role in fundamental analysis. It involves evaluating industry dynamics, market trends, regulatory factors, and the competitive landscape to understand the broader context in which the company operates. This analysis helps assess the company's positioning and identify potential risks and opportunities. Quantitative analysis is another vital component of fundamental analysis. It involves examining financial ratios and metrics derived from the company's financial statements. Profitability ratios, liquidity ratios, and valuation ratios provide valuable insights into the company's financial performance, efficiency, and relative valuation. Forecasting and projections are integral to fundamental analysis. Analysts use historical data, industry trends, and other relevant information to make future projections of the company's revenues, earnings, and cash flows. These forecasts help evaluate the company's growth potential and estimate its intrinsic value. Valuation is a critical step in fundamental analysis. Analysts use various methods, such as discounted cash flow analysis, price-to-earnings ratios, and price-to-book ratios, to determine the intrinsic value of the company or investment. Based on the intrinsic value compared to the current market price, fundamental analysts make investment decisions. If the intrinsic value suggests that the investment is undervalued, it may be considered an attractive opportunity. On the other hand, if the intrinsic value is lower than the market price, it may indicate an overvalued investment. Arguments Against Fundamental Analysis : Fundamental Analysis Is Outdated For day traders, the immediate market conditions and price movements take precedence over future stock prices, which is a primary focus for long-term investors. Day traders rely on real-time information and timely data to make quick trading decisions. This is where charts become essential, as they provide up-to-date details on price changes, current stock prices, and moment-to-moment fluctuations. Fundamental analysis, on the other hand, relies on analyzing company financials and economic indicators, which are often released after a few days or each quarter. The lag between data releases makes fundamental analysis less suitable for day traders who require more immediate insights. Instead of waiting for economic reports and financial statements, day traders rely on chart analysis to identify trade setups and execute their trading strategies. In this context, fundamental analysis may not be as effective for day trading. Day traders heavily rely on technical analysis techniques, which involve studying charts, patterns, and indicators. These tools allow them to analyze price trends, identify key levels, and determine entry and exit points for their trades. By focusing on real-time data and chart readings, day traders can react swiftly to market movements and implement their trading plans effectively. It's important to understand that while fundamental analysis may have limited applicability for day trading, it remains a valuable tool for long-term investors who consider a broader range of factors and take a more extended perspective on investment decisions. Each approach serves its purpose depending on the trading style and goals of the investor. Fundamental Analysis Is Incapable of Predicting Immediate Reactions The response of the market to fundamental data points, whether they pertain to specific commodities, companies, or the overall economy, can often seem unpredictable. Even when a company's actual earnings exceed analysts' expectations, it does not guarantee that stock prices will always rise. In some cases, if traders had even higher expectations for the company's earnings, the actual result may be viewed as disappointing, leading to a decrease in the value of the asset. Conversely, if traders had anticipated even worse earnings, even a below-average result could cause the investment's value to increase. Market reactions to fundamental data are influenced by various factors, including market sentiment, investor expectations, and prevailing economic conditions. These factors create a complex interplay that can cause stock prices to deviate from what might be considered the "expected" response based solely on the fundamental data. Investors must understand that market reactions are not always straightforward or predictable. Gaining insights into market sentiment and investor expectations, in addition to conducting fundamental analysis, can provide a more comprehensive understanding of potential market movements. Furthermore, implementing risk management practices and adopting a diversified investment approach can help mitigate the impact of unexpected market reactions to fundamental data points. Without technical analysis, fundamental analysis cannot be completed. Fundamental analysis and technical analysis are two essential tools for understanding price movements and making informed trading decisions. Relying solely on one approach while ignoring the other would be a mistake. Instead, they should be used together to complement each other and provide a comprehensive understanding of the market. Fundamental analysis involves evaluating the underlying factors that drive market sentiment and determine the potential direction of prices. It provides insights into the overall health and prospects of the currencies or assets being traded. On the other hand, technical analysis focuses on analyzing historical price data, chart patterns, and indicators to identify optimal entry and exit points. By combining fundamental and technical analysis, traders gain a more holistic view of the market. Fundamental analysis helps answer the "why" behind price movements, while technical analysis helps determine the "when" to execute trades. Mastering technical analysis enables traders to spot early warning signs and changes in market sentiment, allowing them to react swiftly. By striking a balance between both approaches, traders can make well-informed decisions and improve their overall trading strategy. To enhance understanding of both fundamental and technical analysis, it is beneficial to gather materials and insights from various sources. This approach exposes traders to different perspectives and helps them develop a well-rounded knowledge base. Remember, successful trading involves incorporating both fundamental and technical analysis, rather than relying solely on one approach. Fundamental analysis can't explain why the market went too far. Fundamental analysis is a valuable tool for understanding the intrinsic value of an asset, but it may not fully account for market overreactions. When day trading, it's essential to be aware of significant price movements that can occur when fundamental news, such as the US Non-Farm Payroll (NFP) report, is released. During these important releases, the market can react rapidly and sometimes in an exaggerated manner. Positive news initially may create the perception of high employment rates, but subsequent information may reveal little change in unemployment or stagnant wages. It's important to recognize that market overreactions can happen. While certain economic news releases have a strong impact, their effects on market dynamics may not always be lasting or significant. To navigate these sudden market movements, it's crucial to implement strong money management practices. Robust money management strategies can help you better handle market overreactions and potential volatility. This includes setting appropriate Stop Loss orders, managing position sizes, and diversifying your portfolio. These practices protect your capital and mitigate the risks associated with market fluctuations caused by overreactions. While fundamental analysis provides valuable insights into the underlying factors driving market movements, it's important to be aware of the potential for market overreactions and adjust your trading strategies accordingly. Fundamental Analysis Cannot Predict Supply And Demand You are correct that fundamental analysis alone may not be sufficient to predict supply and demand dynamics in day trading, particularly in the forex market where currencies are traded in pairs. While fundamental analysis provides insights into the broader economic factors influencing both currencies, it is crucial to consider additional factors that impact supply and demand dynamics. Market sentiment and overall market dynamics play a significant role in determining the demand and supply of securities. Factors such as investor psychology, market trends, and prevailing market conditions can influence trading volumes and affect price movements beyond fundamental data. It is important to recognize that events unrelated to fundamental data, such as natural disasters or geopolitical tensions, can have a substantial impact on various financial instruments like bonds, stocks, or commodities. These events can shape market sentiment and have implications for day trading. Some events may have a minimal impact, while others can exert significant influence on market sentiment for a specific period. To succeed as a day trader, it is essential to consider a wide range of factors beyond fundamental analysis. This includes staying updated on market sentiment, monitoring technical indicators, and being aware of significant events or developments that may affect supply and demand dynamics. By adopting a comprehensive approach that combines fundamental analysis with an understanding of market sentiment and other relevant factors, you can gain a better understanding of supply and demand dynamics and make more informed trading decisions. Should You Use Fundamental Analysis? Deciding whether to incorporate fundamental analysis into your investment strategy depends on several factors, including your investment goals, risk tolerance, time horizon, and trading style. While fundamental analysis offers valuable insights into a security's intrinsic value and long-term prospects, it is not the only approach to consider. Here are some key considerations to help you determine if fundamental analysis is suitable for you: 1 ) Long-Term Investment Goals: If you have a long-term investment horizon and aim to build a portfolio of fundamentally strong companies, fundamental analysis can be beneficial. By evaluating financial statements, industry dynamics, and company information, you can make informed decisions aligned with your long-term investment goals. 2) Value Investing: If you are a value investor, fundamental analysis is particularly relevant. By examining a company's financial health, earnings potential, and valuation, you can identify stocks that are trading below their intrinsic value, offering potential for long-term appreciation. 3 ) Fundamental-Focused Trading Strategy: For investors who employ a fundamental-focused trading strategy, fundamental analysis is crucial. This approach involves using fundamental factors to identify short-term trading opportunities. By analyzing company-specific news, economic indicators, and market trends, you can capitalize on short-term price fluctuations driven by fundamental factors. 4 ) Combining Approaches: Many investors adopt a hybrid approach by combining fundamental analysis with other methods, such as technical analysis or market sentiment analysis. Integrating different approaches can provide a more comprehensive view and help validate investment decisions. For example, technical analysis can help identify optimal entry and exit points based on short-term price patterns, complementing the long-term perspective offered by fundamental analysis. 5 ) Time and Effort: Consider the time and effort required for thorough fundamental analysis. Analyzing financial statements, researching industry trends, and staying updated with company news demands substantial time and research skills. If you have limited availability or prefer a more passive investment approach, fundamental analysis may not be the most suitable option. Ultimately, the decision to use fundamental analysis depends on your investment objectives and individual preferences. It's important to consider your own circumstances, risk tolerance, time availability, and level of expertise before incorporating fundamental analysis into your investment strategy. Fundamental analysis is indeed a valuable tool for investors, providing insights into the intrinsic value and long-term prospects of securities. However, it's important to recognize its limitations and the need to incorporate other methods into the investment process. By combining fundamental analysis with other approaches, investors can gain a more comprehensive understanding of the market and make better-informed decisions.
Education
by FOREXN1
8