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Pyramid of Trading: a step-by-step guide to successHey, fam! Happy Saint Valentine's Day and welcome on another educational post. The topic is the following: a step-by-step guide to success in trading. We all start somewhere, right? Something grabs our attention and builds instant interest that makes us persuade a specific thing. If you decide to interview a number of traders and ask them reasons why they had decided to become a trader, they will all give you various answers. One will tell you that his motivational driver was a random guy on Instagram that drives a Lamborghini Urus and claims that he is a day-trader. Another one will state that he has always been aiming towards building a great career and becoming financially independent and so forth. Regardless of the background, all of them had started their trading journeys having the same drive, enthusiasm, passion, hunger, and motivation. One cannot simply succeed in this sector without being ambitious and eager enough. While the above stated characteristics serve as basis of motivation, the next tier is one of the most important ones, as it sets the ground for all upcoming success and profitability. It is crucial to keep constantly learning, brainstorming, making yourself familiar with new stuff, applying the learned in practice, and adapting to the changes that take place both in your life and in the market. After the fundament has been set, it is time to move to the main part: Planning, Executing, Journaling. First of all, if we have reached this particular tier, it means that we already have e strategy that we stick to and refrain from changing every week/month. We use this strategy to plan our trades and execute them once all criteria have been met. We journal all of the taken trades, both winners and losers. Journaling helps us optimize our strategy and make some chages in it if neccessary. As market conditions change quite rapidly, our strategy and business plan should be modified as well in order to account for those changes. In addition, regardless of anything, we remain patient, cold-blooded, and trust the process. After climbing all those tiers and reaching the very top of it, we can finally say that we are profitable and consistent, and we can enjoy the fruits of our own labour. Of course, it is never as easy as it may sound, but long-term vision, patience, and ambition can take him or her to the doors of profitability. Thus, we encourage all fellow traders to keep grinding and strive for prosperity! With love, Investroy Family
BITSTAMP:BTCUSDEducation
by Investroy
27
How Much Can You Make Trading Forex?Mark Twain once said: “There are lies, damn lies and statistics”. People lie, numbers usually don’t, unless manipulated by liars. If you ask somebody trying to sell you a course or some other products related to the market, they’ll promise you 3x of your money in a week and convince you can start in couple days. Sounds too good to be true? Because it is. One way to return to reality in the industry where everybody is showing off their gains and concealing loses is to look at other financial aspects of life (not in a self-diminishing way, but rather self-awaking). Average General Doctors make 41.000$/year in UK. What makes you think you can make that much in a month with even a 100.000$ account? Banks deposit interests are currently at low of 0.1-0.25%/year. This is self-explanatory as banks are perceived as one of the most conservative ways of keeping your money. S&P500 averages around 9.4%/year. 47% of Americans have invested one way or another (pension funds and 401k’s) into S&P500 as a good balance between security and profitability. What do you think is the risk should be to make 25x of that in a year? Answer: 3.5-5% per trade. Most of the market participants don't risk more than 1%/trade. Why wouldn’t they risk 5% per trade for more gains? Answer: you’ll get wiped out in couple trades :/ Becoming a lawyer takes 7 years on average. Why would somebody think that watching 2 videos on YouTube or reading 7 articles is enough to place a trade? Answer: Here, unfortunately, some brokers and traders try to convince newbies, in order to take advantage of them quickly. However, trust us, trading is no different than other full-time skills you have to acquire over long periods of time. Leading investment funds experience ROI drops every 3.4 months. Would you still think profitability 12/12 months a year is realistic? Answer: It is not. Bottom Line: Trading Forex is an interesting and rewarding way of making money, but the truth is even the best traders don’t usually make more than 5-15% a month on average. On the other hand, %s don’t matter. What matters is your personal demands! If you need to make 1000$ as a side income to add more comfortability to your life a 10.000-20.000$ account with a proper trading plan should do the job. If you’re trying to become financially independent do the math accordingly 😊 Oh and also, if somebody tries to tell you something marked red in the Myths section, respectfully, stay away from them! (RUN!)
BITSTAMP:BTCUSDEducation
by Investroy
19
Traders vs Gamblers: Know the main differences!Hey, fam! Happy Friday and welcome on another educational post. The topic is the following: differences between a trader and a gambler. We are gonna go through 6 crucial points and elaborate how traders are different from gamblers. 1) As a trader, one’s aim is to focus on the next 100 trades instead of the next 10. Long-term success, profitability, and consistency are two of the main things traders should target. However, a gambler’s wish and desire is to make quick money. 2) A successful trader/investor has a backtested trading plan that he sticks to and optimizes along the way, adapting to changing market conditions. On the other hand, gamblers like to trade based off what other people think and tweet, or by simply opening a random Buy/Sell position and hoping it plays out successfully. 3) Profitable traders always diversify their portfolio and risk no more than 1-2% per trade. On the contrary, gamblers go “full margin mode” on a single trade without setting a Stop Loss and end up blowing their accounts and blaming the markets. 4) Chasing markets and rushing the process is not what real traders do. Instead, they follow their plan and wait for the price to play out and match their entry criteria before executing. Nonetheless, gamblers like to overtrade, open positions based on nothing, make biased decisions. 5) When enduring a loss or two (or three), traders neither get emotional nor try to revenge the markets. They know that if they obey risk management principles and open high risk-to-reward positions, they will cover all their previous losses and get back to making profits. Gamblers, on the other hand, get angry and start attempting to revenge the market by making foolish decisions and entering many illogical trades. 6) Last but not least, if you want to be successful and profitable in this field, you have to treat trading as a business and take things seriously. Those that think markets are a playground or a casino machine will never succeed in this space.
Editors' picks
BITSTAMP:BTCUSDEducation
by Investroy
255
Success is a one big IcebergJust like real life, trading life is full of ups and downs. You know those days when you wake up with an absolutely awful mood and you can't figure out possible reasons? Well, there could be several factors influencing it: negative energy of the outside world, bad weather, personal problems and so forth. It is very similar to checking the markets and noticing that everything is so choppy that there is nothing to trade. Several determinants here as well, such as heavy economic news, holidays, or just a bay day with no opportunities (after all, not every day is a trading day). One thing that gets us through these challenges faced is patience, because, after all, time heals all pain wounds and fixes most of our problems. I quote Shakespeare: “The evil that men do lives after them; The good is oft interred with their bones". To reverse-engineer and interpret it into the trading language: "People only see the end goal, the glory, the monumental win. They don’t see the dedication, hard work, persistence, discipline, disappointment, sacrifices, and many failures it takes to reach success". In more simple terms, people only see the tip of the Iceberg (success, amazing profits, consistency), and not the bottom of it (sleepless nights, hard work, dedication, failure, pain). Not a single skill is learnt over the course of a night. Just like it takes several years of practice, hard work and expertise to become a successful lawyer, a famous actor, and an exceptional doctor, it takes years of hard work, passion, and dedication to become a consistently profitable trader/investor.
Editors' picks
BITSTAMP:BTCUSDEducation
by Investroy
107
Common Chart Indicators: Part IIGood time of the day, family! A lot of you were asking for Part II for our popular chart indicators summary and here it is. Hope you y’all find it useful! Last week, we’ve covered Bollinger Bands, Keltner Channels and MACD (link under the post) and what they’re commonly used for. This week we have: We've been looking at technical indicators that mostly focus on detecting the start of new trends up until now. It is critical to be able to recognize new trends, but it is also critical to be able to recognize when a trend has reached its conclusion. After all, what good is a well-timed entry if you don't depart on time? The parabolic SAR is one signal that can assist us detect when a trend is about to terminate (Stop And Reversal). A parabolic SAR plots dots or points on a chart to predict possible price movement reversals. The Parabolic SAR has the advantage of being quite simple to operate. Basically, it's a BUY indication when the dots are below the candles. It's a SELL indicator when the dots are above the candles. Simple as that. Great for exits. Another technical indicator that traders use to determine where a trend is likely to terminate is the Stochastic oscillator. The oscillator is based on the following principle: Prices will remain equal to or above the prior closing price during an upswing. Prices will most likely remain equal to or below the prior closing price during a downturn. George Lane invented this basic momentum oscillator in the late 1950s. When the market is overbought or oversold, the Stochastic technical indicator notifies us. The Stochastic is a number that ranges from 0 to 100. The market is overbought when the Stochastic lines are over 80 (the red dotted line in the chart above). When the Stochastic lines fall below 20 (the blue dotted line), the market is likely to be oversold. We purchase when the market is oversold and sell when the market is likely overbought, as a general rule. The Relative Strength Index, or RSI, is a famous indicator created by J. Welles Wilder, a technical analyst, that helps traders assess the strength of the current market. The RSI is similar to the Stochastic in that it detects overbought and oversold market circumstances. It also has a 0 to 100 scale. Readings of 30 or lower usually imply oversold market conditions and a greater likelihood of price strengthening (going up). An oversold currency pair is interpreted by some traders as a sign that the declining trend is likely to reverse, indicating a buying opportunity. Overbought circumstances and an increased risk of market weakness are indicated by readings of 70 or above (going down). Since a lot of people have RSI as a default indicator on their charts, it’s a very reliable instrument (even though the margin is considerably large). See you next week for Part III?
BITSTAMP:BTCUSDEducation
by Investroy
9
Common Chart Indicators: Part IHey, traders! In this series, we’re going to cover some common chart indicators available for general market. To keep it simple and easy to read, there will be several parts to this educational post. We’re really hope you enjoy it, so let’s get started! Bollinger Bands are a technical indicator created by John Bollinger that is used to determine market volatility and identify "overbought" or "oversold" scenarios. A quick recap would be that there are typically 2 lines in this indicator, that get close together when market is non-directional and if you see them spreading apart that means that there is something volatility building up. There is also a 3rd line representing the middle line which just an SMA (usually a 20). Think of this indicator as a dynamic support and resistance where the price tends to come back to the middle line. Keltner Channels is a volatility indicator created by Chester Keltner, a grain trader, in his 1960 book How To Make Money in Commodities. Linda Raschke later produced an updated version in the 1980s. Linda's Keltner Channel, which is more often used, is quite similar to Bollinger Bands in that it has three lines as well. In a Keltner Channel, however, the central line is an Exponential Moving Average (EMA), while the two outer lines are based on the Average True Range (ATR) rather than standard deviations (SD). The Keltner Channel contracts and expands with volatility, although not as much as the Bollinger Bands, because it is derived from the ATR, which is a volatility indicator. Keltner Channels are used to set trading entry and exit points. What exactly is MACD? Moving Average Convergence Divergence (MACD) is an abbreviation for Moving Average Convergence Divergence. This technical indicator is a technique for identifying moving averages that indicate a new trend, whether bullish or negative. After all, finding a trend is a key priority in trading because that is where the greatest money is produced. A MACD chart normally has three numbers that are used to establish the parameters. The first is the number of periods that the faster-moving average is calculated across. The number of periods utilized in the slower moving average is the second factor. The number of bars utilized to construct the moving average of the difference between the faster and slower moving averages is the third factor.
BITSTAMP:BTCUSDEducation
by Investroy
9
Correlation of Different Markets with Forex: CheatsheetOne of the biggest things you should understand as a trader is prices don’t just go up and down (well, maybe on a really small timeframe they’re more chaotic). They’re usually backed by some actions, data and things happening in other markets. This all creates general economic tendencies. But how do we know what affects dollar/currency pair and how? Well, here is a quick cheat sheet for that case. More importantly with an explanation of why. 😊 USD and Gold (negative) Investors prefer to abandon the dollar in favor of gold during times of economic uncertainty. Gold, unlike other assets, retains its inherent worth. Gold and NZD/USD (positive) New Zealand (number 25) is a major gold producer. Gold and AUD/USD (positive) Australia is the world's third-largest gold producer, exporting around $5 billion worth of gold each year. Gold and USD/CAD (negative) Canada is the world's fifth-largest gold producer. When the price of gold rises, the pair tends to fall (CAD is bought). Gold and USD/CHF (negative) Gold backs up more than a quarter of Switzerland's reserves. As gold prices rise, the pair falls (CHF is bought). Oil and USD/CAD (negative) Canada is one of the world's top five oil producers. It exports 5..5 million barrels of oil per day to the United States. As oil prices rise, the pair falls. Bond Yields and USD (positive) Higher bond returns attract greater investment to a country's economy. This makes its native currency more appealing than the currency of another economy, resulting in lower bond yields. Here it’s more about looking out for bond differences between countries. For instance, if bond difference between UK and United States goes down, this will cause GBPUSD fall as well. Gold and EURUSD (positive) Because gold and the euro are both considered "anti-dollars," if gold prices rise, the EUR/USD may rise as well. USD and Stock Market (depends on the market situation, mostly positive) So, here is a little weird one. Strong stock market is an indicator of a strong economy. So as company gets stronger -> stock price goes up -> attracting more international investors to step in, who have to get local currency in order to buy a local stock -> this cases dump of other currency in favor of the currency we’re intending to buy the stocks with (in our case USD). Seems easy? On the other side, people from the local economy dump their dollar/bond holdings to acquire more stocks weaking the currency itself. That’s why it’s a complicated love story. This correlation is quite different depending on the volumes for both cases. Enjoy, family! But keep in mind that these tendencies change to some extent as the world economy shifts/develops. Make sure to always stay updated and observe on your own.
TVC:DXYEducation
by Investroy
13
Why did I fail?How many traders do you think ask this question to themselves? Well, if we dig deeper into statistics, we’ll see that #1 reason differentiating successful traders from the rest 90%+ is proper use of margin and leverage. For every $50,000 in their account, most experienced forex traders and money managers trade one standard lot. If they traded a mini account, this indicates that for every $5,000 in their account, they trade one mini lot. Allow it to soak in for a couple of moments. Why do less experienced forex traders believe they can win by trading 100K standard lots with a $2,000 account or 10K micro lots with $250 if professionals trade like this? Never open a "regular account" with only $2,000 or a "micro account" with $250, no matter what the forex brokers tell you. Some even enable you to start an account for as little as $25! The number one reason rookie traders fail is because they are undercapitalized from the start and have a poor understanding of how leverage works. However, this all also goes back to our previous lessons on figuring out what type of trader you are. For instance, we’re slightly more aggressive (and as our SL are usually extremely tight), we stick with 1% (which still allows us to open 2 lots for 50.000$). However, if you have hard time monitoring the trade or prefer to have more “breathing room” for a trade, consider 1 lot for 100.000$ of your trading capital. All the best and stay safe, fam!
BITSTAMP:BTCUSDEducation
by Investroy
6
Quality vs QuantityThis has been an ongoing battle between generations of traders and we’re here to provide some insight and let you choose between what type of a trader you would like to be. When it comes to trading, there appears to be a lot of misunderstanding on both sides about the Quality versus Quantity Debate. Because this is such a crucial topic for a trader, we've been meaning to write about it for a while, so now is the moment to dispel some of the misconceptions, misinformation, and misunderstanding. Let’s go ahead with some common arguments: 1) It is less stressful and more accurate to trade greater time periods. 2) Anything less than a one-hour chart is merely noise. 3) Trading smaller time periods leads to excessive trading and analysis. Statement #1 is 90% true. Usually, it’s easier to observe big economical trends on larger timeframes. You’re pretty much becoming an investor at that point. However, with more risk we usually tend to have more reward. IF executed properly, more trades on a smaller timeframe should yield more pips? Not exactly! The market reality is different. Overall, it’s a good rule of thumb to stay open-minded and capitalize on market moving both directions, but it’s also easy to get caught in this battle. Our advice for newbies here, try to aim for less trades for the same overall reward. Statement #2 is also kind of true. Except sometimes, it’s a useful noise. One-hour charts and lower are extremely useful for proper entries. On larger timeframes 20-25 pips don’t matter, but over time they add up. Think of it as a casino. They only have 3-4% edge over players, but if you spin the roulette 10.000 times, this difference will be useful. Pay attention to our entries and rank your past trade on a scale of 1-10. Statement #3 is 50% true. DON’T analyze charts on M15, with all the honesty and not to offend anybody, you have to be a psycho or a genius to see a pattern through all those extreme outliers. If you have that 20/20 vision, good for you, but keep in mind that structures on M15 are completely unreliable, so in the long run, failure is inevitable. On the chart itself you can see the visual difference between the “Trader A” and “Trade B”. Which one would you like to be yourself?
BITSTAMP:BTCUSDEducation
by Investroy
15
Power of multiple confluences in tradingThe rule is pretty simple: if you have many technical confluences backing your setup, the probability of your trade succeeding is really high. On the illustrated BTC chart, a number of confluences is listed. To be precise, there are 4 confluences examined, and they will be all scrutinized below: 1) The current direction of the market is bearish, meaning we are in a downtrend. As a rule of thumb, in a bearish market we look for SELL positions rather than going long (fading the short-term trade against the long-term trend). 2) A nice descending triangle pattern has been formed, indicating that a bearish breakout is highly possible, and that the price may keep dropping deeper down. 3) 60 EMA perfectly lines up with the upper boundary of the descending triangle, which is a crucial zone of resistance that the price can’t seem to penetrate. 4) A nice bearish engulfing candlestick pattern was formed before the massive drop happened, which serves as another indicator of bearish pressure. After having all confluences ready in hand, it is time to execute. The Stop Loss is place a few pips above the zone of resistance, and the Target Profit is set at 3% gains, as the risk-to-reward based method is utilised. NOTE: Even though having multiple confluences backs up your technical setup, gives you confidence, and provides your graphical setup with a higher chance of succeeding, risk-to-reward principles should be strictly followed in all cases! We cannot control the market, but we can control our capital, risk, and emotions. Have a great upcoming weekend, everyone!
BITSTAMP:BTCUSDEducation
by Investroy
17
How To Trade During the News?It's critical for forex traders to pay attention to big economic data releases, government statements, and geopolitical events. Why? Because this information generally represents a country's economic strength and can predict a currency's future direction. Trading the news might be tough and not fit for everyone, but the resulting volatility can provide a plethora of trading chances. You know what they say: with the big volatility, comes the big responsibility (or something like that, right? #InvestroyJoke), so beware of wide spreads and slippages. We must first determine whether news items are even worth trading before building a "Trade the News" method. "Which news releases should I trade?" is a question you want to be able to answer. The big event risks that have a significant influence on the major currencies should be familiarized by forex traders. Remember, we're trading the news because it has the potential to raise volatility in the near term, thus we'd want to trade just the news that has the most market-moving potential for the currency market. The news that tends to influence market action and create volatility generally consists of the following: Modifications in central bank policy (sometimes known as "monetary policy"). Changes in government policy (sometimes known as "fiscal policy"). Economic data releases have had unexpected results. Random tweets from a particular international leader who enjoys emblazoning his name on skyscrapers (not anymore), or a billionaire working on spacexploration. Pretty much everything marked red in the economic calendar (especially related to US). There is no single news trading approach. As traders assess the conclusion versus market expectations, the price tends to surge in one way or have a subdued reaction to the news. With this knowledge, there are two basic ways to exchange news: a) Having a bias in one way b) Having an asymmetrical bias When you have a directional bias, you expect the market to move in one way when the news is disclosed. When looking for a trading opportunity in a certain direction, it's helpful to understand what aspects of news stories lead the market to move. The non-directional bias technique is a more popular news trading strategy. This strategy ignores any directional bias and merely relies on the fact that a major news event will cause a significant movement. It makes no difference either way the FX market swings. We simply want to be present when it happens! When you have a directional bias, you expect the price to go in a specific way, and you've already placed your orders. When news is released, it is always beneficial to grasp the underlying reasons why the market swings in a particular manner. You don't care which way pricing goes when you have a non-directional bias. All you want to do is get activated. Straddle trades are a type of non-directional bias setup. Conclusion: In addition to the factors mentioned above, you should be willing to learn along the way by figuring out: which news are stronger than others, what is the difference that needs to be between forecast vs actual for volatility to skyrocket and which news you should never even try trading. All these things come from trading and trading only (moreover, bad news, market changes every year). Personal note: The way we do it most of the time is… we trade them way before release, as this is how market picks up the direction.
Education
by Investroy
15
Criteria that need to be met before entering a tradeHey, wizards! Happy Wednesday and welcome on another Educational Post for the week. Today, we are gonna be talking about trade entry criteria and checklist. In other words, what we should look for before opening a position. First and foremost, we should analyse multiple timeframes and identify the direction of a specific market. As identified on the table, different types of traders examine different timeframes. The most common timeframes used by scalpers are M15, M5 and M1. H1 and H30 are popular among intraday type of investors, D1 and H4/H3 are commonly used by swing traders. After analysing different timeframes and getting the overall picture of a chart, we start identifying various key zones. This could be support and resistance areas, supply and demand zones, Fibonacci retracement levels, descending/ascending trendlines and so forth. After having identified crucial key levels, we start looking for more confirmations to backup our bias. Candlestick patterns (doji, hammer, engulfing), Top/Bottom/H&S figures, Indicators (EMA, RSI, MACD etc.) can be utilised as valid instruments to confirm our ideas. All in all, going through the steps identified above are important before opening a transaction. In addition, remaining patient, keeping it simple, and following risk-to-reward principles are as equally important.
BITSTAMP:BTCUSDEducation
by Investroy
38
The Art of Setting a Stop LossAs a trader, the most crucial responsibility you have is to manage and preserve your trading capital. You're out of the game if you lose all of your trading money; there's no way to make up the difference. If you make pips, you must be allowed to retain them instead of returning them to the market. But, let's be honest, it's not going to happen. The market will always do what it wants and go in the direction it wants. Every day brings a new set of challenges, and practically anything from geopolitics to unexpected economic data releases to speculations about central bank policy may swing currency markets one way or the other quicker than you can clap your fingers. This is exactly why you need to use appropriate stop losses in your trades. Generally speaking, there are 4 main SL types you can encounter on the market: volatility stop, chart stop, percentage stop and time stop. Let's begin with the most fundamental sort of stop loss: the percentage-based stop loss. The percentage-based stop employs a portion of the trader's money that is predefined. For instance, a trader's willingness to risk "3% of the account" on a deal. The percentage risk varies depending on the trader. More active traders risk up to 5-6% of their account, while less aggressive traders often risk around 1% every trade (that’s what we do as well). Important rule of thumb here is: Always set your stop loss based on the market or your system's criteria, not on how much money you want to lose. This means that observe and learn each pair you trade. 20 pips SL on EURUSD, might be not enough on a GBPJPY trade. Some pairs make 120 pips move a day, while others average at 60. Oh, and don’t you forget about the pip value difference. Based on what the charts are suggesting is a more rational technique to identify stops. One thing we can notice in price movement is that there are times when prices don't seem to be able to push or break through particular levels. When these levels of support or resistance are retested, they can sometimes prevent the market from moving upward again. Setting stops above and beyond these levels of support and resistance makes sense since if the market trades beyond these levels, it's logical to assume that a break of that region will attract more traders to play the break, pushing your position further against you. Important rule of thumb here is: Set your stop losses couple pips over under the major key points, so you don’t get affected by the market noise. More uncommon way of setting a stop loss is based on volatility (which is already considered in percentage stop loss). Volatility, to put it simply, is the amount a market might potentially fluctuate in a given length of time. Knowing how much a currency pair tends to change might help you establish the right stop loss levels and prevent getting pulled out of a trade prematurely due to market swings. Important rule of thumb here is: Study your ways to determine daily volatilities as they do change. Two common ways of doing so is through Average True Range (ATR) and Bollinger Bands. Stops established based on a preset time in a transaction are known as time stops. It might be a specified time (open limit time of hours, days, weeks, etc.), only trading during specific trading sessions, the market's open or active hours, or something else entirely. Set a deadline and get rid of the dead weight so money can accomplish what it's supposed to. Important rule of thumb here is: The time stops ultimately come down to what type of trader you are. So before, you start setting time limits you should understand whether you’re intraday, swing, long-term trader. Conclusion: We often draw a line between good traders and “The BEST”. What makes a difference in this case? Good trader uses a certain type of stop loss. “THE BEST” traders use a combination of all. An example would be looking at a EURUSD pair. We do our technicals, we have a predetermined percentage in our mind, we have a predetermined time in our mind, and we’ve considered the volatility of the mentioned pair. For instance, we set our Stop Losses close to key zones determined by price action, we wouldn’t risk more than 1% on a single trade, we’re swing traders, so we wouldn’t keep the trade over the weekend and lastly we’ve traded enough to know the average volatilities for each pair. Hope you found time to read this all as this will have a tremendous impact on your trading journey. All the best in 2022, family!
BITSTAMP:BTCUSDEducation
by Investroy
37
The Art of setting a Target ProfitHey, wizards! Happy 2022 and welcome on the first Educational Post by Investroy for the new year. Today we are gonna be talking about different ways of setting a Target Profit (TP), and scrutinizing the benefits and drawbacks of each. Though there are many ways to set targets, as it varies depending on ones trading plan and strategy, here are 3 of the most popular ways of placing a TP. 1)Confluence based Reading the chart and analyzing different timeframes of a certain security, we can use different confluences to spot potential zones of price reversals. On the graphical illustration demonstrated on the chart, we can observe that a rectangular range has been formed and the price is sitting at the lower boundary, in other words at the crucial zone of support. It is highly likely that traders will start going long on this setup and anticipate for the price to keep rising and reach the area of resistance. On the other hand, it is never 100% sure that the price will be able to bounce off the local zone of demand, and therefore risk management should be strictly followed. 2)Risk-to-Reward based (Fixed) The other name of this method is “set and forget”. One group of traders prefers to follow same risk-to-reward ratios for all positions opened (For ex. 1:2 or 1:3 fixed). Another group favors setting different RR ratios for different trades and let the positions run until they hit TP. All in all, the technique implies setting a certain RR Target Profit and letting trades run. On the figure displayed on the screen, it can be inferred that the sentiment of the market is clearly bullish and the price is expected to keep rising. One of the disadvantages would be the following: sometimes due to greed, traders set their targets too high and the price results in not reaching the intended TP. 3)Intuition/Logic based As strange as it may sound, there is actually a number of traders implementing this approach when setting a Target Profit. Moreover, it requires experience to sense where the market is about to move. As illustrated and interpreted on the graph, the market repeats historical actions from time to time. Experienced investors tend to notice some specific patterns and make decisions out of it.
BITSTAMP:BTCUSDEducation
by Investroy
35
Risk Management: the Beauty and the Main Principles of itHey, magicians, hope you are all doing great and enjoying the holiday season! After receiving multiple requests from you, we are back with another Educational Post and the topic is the following: Risk Management and its Principles. As we have already discussed in some of the previous educational posts, Risk Management, alongside with other componenets, is one of the most important elements that need to be followed in the world of Trading. If one wants to be successful and profitable in this journey, obeying the fundamentals of Risk Management is a MUST. We have created a visual illustration which will explain how Risk Management really functions, and how one can be successful by implementing it in a correct way. In order to better understand the table, let us make the following assumptions: -We are journaling our last 28 trades -We have risked 1% on each transaction (trade) -Our win rate is only 50% -We do not have any BREAKEVEN trades, meaning we have left all our positions run open till TP/SL As we can notice from the graphical illustration, most of the trades have different Risk-To-Reward ratios (for example: 1:3, 1:2, 1:1.8 etc.). With only 50% win rate, our Winning Trades will make us a nice +35.2% return, while the losing trades will set us back by -14%. If we do quick maths, we will see that the total return from our last 28 trades will constitute 21.2%! There is no "Holy Grail" in trading, but following the principles of Risk Management can lead one to the door of consistency and profitability. Of course, Risk Management is not the only element, as psychology, patience, mindset, and some other factors should be considered and mastered as well. We will be looking forward to covering other psychological aspects of trading in the next few educational posts! Until then, stay safe and happy, and if you have any requests or proposals, feel free to let us know in the comment section below! Investroy would like to wish you all a Merry Christmas and a happy upcoming New Year!
BITSTAMP:BTCUSDEducation
by Investroy
26
Studying The Worst Trades Will Change Your Trading Experience!I know it'll make you grimace but browse through your trading notebook for the worst deal you've ever had. Examine the trading arrangement you observed. Consider what went wrong, and then ask yourself, "Why did I ever accept that trade in the first place?" "What was I thinking?". "Was I even thinking?" is a more pressing question. That transaction was most likely taken automatically based on a familiar setting. Your judgment was based on your own thoughts rather than what the market was telling you in this situation. Your worst deal doesn't have to be the one in which you've lost the most money. When you hesitate to accept what could have been your trade of the year, or when you lock in profits too early instead of letting it ride, it can be a squandered opportunity. You may have backed out because you were afraid of losing, even if the markets indicated that this next investment would be profitable. Maybe you'll look back on your worst transaction and realize you did it because you grew so used to losing that you started mindlessly taking trade after trade to make up for your losses. In this situation, you insisted that you were correct and that you would finally outperform the market. Remember that revenge trading may become a bad habit that can lead to big losses if not addressed. The typical reaction to disastrous deals is to just shrug them off. It's simpler to bury the memory of a terrible transaction to the back of our minds, much like the memory of being rejected by crushes in high school (not that it happened to me all that often), and falsely comfort yourself that you'll prepare better next time, and then go on to the next deal. That isn't enough, though! You must go deeply into the issue and go over every detail of your terrible deals. You run the danger of repeating your mistakes if you don't. You must force yourself to open your trade notebook and ask yourself questions such, "Why did I do the deal?" no matter how difficult or unpleasant the effort is. "Did I close my trade based on legitimate signals?" You might be able to spot a negative trend in your behavior and take steps to remedy it if you force yourself to recognize the emotions you felt when you made poor trading selections. It might be tough to break poor habits and trading practices, but it will get you one step closer to managing your emotions and becoming a better trader. Even though the title says for all the newbies, this is applicable to all the market participants regardless of their experience. Remember, the sky is not the limit anymore!
BITSTAMP:BTCUSDEducation
by Investroy
12
Trading Myths vs Reality. Beginners, this one is for you!Hey, wizards! Happy Thursday and welcome on another Educational Post. The topic is the following: Myths and Reality of Trading. As you may already know, there are so many false statements that beginners run into before starting their trading journey. Those statements are illustrated on the layout and interpreted below: 1) Most people think that trading is easy and they can quit their job or whatever they do and start making a living off trading straight away. In fact, in order to be profitable, consistent, and be a full-time trader in general, he or she MUST have a backtested strategy and be experienced enough in this sector. Remember that it takes a while to be successful, but it is fully worth it! 2) “Trading is like a casino”- we hear this one quite often. Only two types of people use this expression a lot: those who have never been able to become successful in this industry, and those that have no plan or idea about what they are doing. One should never open a positions based on a coin flip or what others are saying. Ideas and analyses of other can be used as a confluence and inspiration for a trader to open a positions on a specific security. 3) Whether it is trading or any other industry, one can never be rich over the course of a night. It takes 10-14 for someone to become a licensed surgeon, at least 6 years to become a professional lawyer. What makes you think that you will become a professional trader in just a few weeks or months? 4) No matter what the situation is, always use a Stop Loss to avoid deep losses. Whether liquidity hunt exists or it does not, it is always important to stay safe and sound. 5) Risk management is always more important than the win rate. Imagine having a 1:3 Risk-to-Reward ratio on your next 10 trades and the win rate is only 50%. That means you will win 5 and you lose 5. Now, let’s say that we decide to risk 1% of our total capital per trade. If we do quick maths, we will see that with only 50% win rate and 1:3 RR, we will result in making a juicy 10% return from the total of our next 10 trades. Of course, this is not always the case, as there are some factors that should be considered, such as spreads, fees, pip value etc. However, this is a perfect example to help you get the overall idea. 6) There is a big number of traders who do not like the “Retail Way” and would rather trade the “Smart Money” concept, which is apparently the closest thing that we have to the Institutional Trading. The bottom line is this: choose a strategy that suits you the best, and go with it while optimizing along the way. Changing strategies every week/month will not make one consistent. It is crucial that you stick with one trading plan and be loyal to it. 7) Many beginning traders tend to increase their risk in attempts to make more profits. This approach is so risky and totally wrong. If one is willing to make more money trading, it is important that he or she increases the input, and not the risk.
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BITSTAMP:BTCUSDEducation
by Investroy
151
THE ART OF MULTI-TIMEFRAME ANALYSIS AND MULTIPLE CONFLUENCESHey, wizards, hope you are all having a great week so far! We would like to welcome all of you on another educational post, the topic of which is Multi-Timeframe analysis and multiple confluneces involved. As it can be inferred, the Monthly and Weekly timeframes are used to determine the direction of the market, the Daily timeframe is used to identify key areas and important zones, and finally, the 4-hourly timeframe is utilized for entering trades. Now, let’s dig deeper into it and analyze the situation that we have on EUR/USD. MONTHLY: Observing the weekly timeframe graph, we can say that the price has been printing bearish candles for a few consecutive weeks. As one of the main trading principles says, after a strong impulsive move, a correction is needed. We can witness some bearish weakening signs and therefore we are looking for a short-term long position. Our possible target would be set at a previous level of support turned resistance, which aligns with the golden Fibonacci zone. WEEKLY: Leveling down to the weekly timeframe chart, we can see that the price is consolidating, as it is unable to push lower. Technically, after long lasting consolidations, it is believed that the price will either fly like a rocket or drop like a needle. This gives us another confluence and backs up our plan. DAILY: Moving down to the daily timeframe graphic, we can notice that the previous candle was super bullish and some kind of an ascending triangle is being formed. If the price breaks and retests the upper boundary of the formed triangle, we can see some nice bullish moves. 4H: Last but not least, the 4-hourly timeframe a.k.a. the timeframe of entries. After a massive bullish push to the upside yesterday, the price has started correcting before further bullish moves happen. Here, we are using two entry confluences: the area of previously broken structure that nicely aligns with the 61.8% fibonacci retracement level. Before entering the trade, we will carefully monitor the price action and wait for the price to bounce off the local zone. We are hoping that this educational post will be of value for you and we are wishing you all a great day! Regards, Investroy Team
Education
by Investroy
28
The Art of Swing TradingHey, family, we are wishing you all a pleasant weekend and coming at you with another educational post. The topic of our article for today is the following: The Art of Swing Trading. As you all may know, Swing Trading refers to the practice of trying to profit from market swings of a minimum of one day and as long as several weeks. But what is it that makes this type of market trading so unique? Let’s follow through and find out! To start with, Swing Trading is safer than other types of trading such as day trading and scalping. This is due to the fact that with Swing Trading, you are less likely to overtrade, there is less stress and there is a reduced chance of making mistakes. Secondly, with Swing Trading, you are likely to spend much less time on the charts in front of monitors. You don’t have to open many positions within a day as opposed to intraday trading and scalping, which gives you plenty of free time in your hands. You can simply open your positions and then forget about those positions for days or weeks to come. You can go for a walk with your partner, grab a cup of coffee with your best friend, spend a quality time with your family, and do it all without being anxious about your trades. As the golden rule states: “Set (Your TP and SL) and forget”. Last but not least, financial news do not have a huge impact on your positions, as your SL is relatively higher than the Stops of day traders and scalpers. Therefore, you do not need to worry about some random spikes taking you out of the trades. However, as the famous proverb cites, every advantage has its disadvantage. When it comes to Swing Trading, he or she needs to have patience, patience and some more patience. Swing trades are meant to be held open for a few days of even few weeks (Well, at least till the price hits your Target Profit). And while the trade is running open, you should know how to remain calm, control your emotions, and not to stress out. Once again, set and forget. Do not monitor your positions every 10-15 minutes. Further to that, this type of trading generally requires a huge trading capital, or otherwise, the profits are gonna be minuscule. When it comes to the timeframes that need to be used, the Weekly and the Monthly are the best for identifying the direction of the trend, the Daily is the best for drawing the key zones and identifying the needed patterns, and lastly, H4 should be utilised for entering and exiting the market. As for the recommendations part, the utilised risk fully depends on the trading capital. The 1-1.5% risk would be the standard normal. As for the risk-to-reward ratio, 1:3 would be an appropriate one to go with. But remember not to be greedy in the markets. Take your profits and enjoy the fruits of your labor.
BITSTAMP:BTCUSDEducation
by Investroy
29
Price Action vs Indicators: Who wins?Happy Friday, ladies and gentlemen. The topic of our first educational post for the day is the following: Price Action vs Technical Indicators. To begin with, each and every traders has his or her own strategy. Some of them would prefer using only indicators to open trades, some would use indicators as confluences, some of them do not use indicators at all and so forth. The truth is, indicators deceive a lot of new beginner traders into thinking that they are the key to successful trading and investing. Right after hoping on the charts, beginners tend to saturate their graphics with tons of indicators which contradict to each other. One indicator shows a buy signal, another one shows a sell signal, which makes it harder for traders to make decisions on the markets. Of course, using some spesific indicators as confluences to open positions is not bad at all. If it fits your strategy, you may add some technical indicators to backup your analysis. But at the end of the day, using several indicators and saturating your beautiful graphs with them will never lead you to success. All in all, as it has been stated above, everyone has his or her own strategy. Therefore, if indicators work for you, go ahead and implement them in your analyses! At the end of the day, it is all about making money, isn’t it? Have an amazing Friday and a brilliant upcoming weekend, everyone!
Education
by Investroy
30
HOW TO SPOT A MARKET REVERSAL: A beginner's guideHappy Friday, ladies and gentlemen. The topic of our first educational post for the day is the following: How to spot a possible market reversal. Of course, there are many strategies and various methods one can implement to identify a reversal in the markets. The method that we will be talking about today is relatively simple and really effective. We use two methods to determine a possible reversal: Double Top/Double Bottom pattern formations or break of a trendline. As it can be inferred from the chart, both of the cases of a market reversal strategy that we implement can be noticed. The first one is a Double Bottom Reversal. When the price manages to create a Double Bottom/Double Top on higher timeframes, it means that the price has not been able to break the structure and is on his way to reverse. Looking at the graph, we can observe that the price’s attempts of breaking the 1678-1680 level of support to the downside resulted in being unsuccessful. Therefore, a nice double bottom formation had been formed and the price started moving to the upside from there. The second approach is even more simple, we just follow the trend. Remember the saying: “Trend is your friend until the bend in the end”? That’s right, if the price manages to break an uptrending or a downtrending trendline, it’s time to reverse for the most part. Looking at the chart, we can see that the price failed to create a new Higher High, and it broke the uptrending trendline to the downside and started dropping massively. That's it for the topic of "Market Reversals", family! Hope you enjoyed it. If you have any suggestions on what kind of educational posts we should post next, feel free to let us know in the comment section below! Have a nice day and an amazing upcoming weekend!
OANDA:XAUUSDEducation
by Investroy
24
Currency Correlations: The unspoken truthHappy Friday, ladies and gents, and welcome on our another educational post for the day. Today, we are gonna talk about positive currency correlations and examine how they impact our trading. But to begin with, what is currency correlation? Currency correlations are a statistical measure of the extent that currency pairs​ are related in value and will move together. If two currency pairs go up at the same time, this represents a positive correlation, while if one appreciates and the other depreciates, this is a negative correlation. As it can be clearly inferred from the graph, the charts of EUR/USD and GBP/USD have been chosen to be scrutinised. These two currency pairs are highly correlated and are moving in the same direction. As we can see, 2 major similarities have been identified on the Daily timeframe charts of both currency pairs. However, there are a lot more than just 2. As it can be inferred from Similarity #1, the price managed to leave a long wick in late February 2020 for both pairs. Looking at Similarity #2, we can observe that the price is forming a top for both pairs and preparing to reverse and continue its move to the downside. Now that we have talked about the basics, let's move on and talk about some problems faced by currency correlations. Most of the time, new traders do not pay attention to this basic concept and make false decisions without noticing. I have seen hundreds if not thousands of traders that ignore the rule of currency correlations and make irrational conclusions like the following: opening Buy positions on EUR/USD and opening Sell positions on GBP/USD. Of course, you can do that as well, depending on the timeframe that you are trading and depending on how long you are planning on keeping the trades open. However, on the longer term trading, you won't be able to succeed. Furthermore, most of the new traders open buy or sell positions for both of the trades, which results in increasing their risks. If you open BUY or SELL positions for both trades at the same time, and the price moves in the opposite direction of your bias, you are gonna lose both of the trades. Again, not in all cases, but 80-90% of the time, as the two pairs are highly correlated. What can be done to avoid being the victim of the highly correlative pairs and keep it safe? There are two strict rules that we follow, which have always worked for us: -Open positions for the trade with the better setup or -Open positions for both trades but cut the lot sizes by half So in the first case, we compare the two setups that we have, in our case it's either EUR/USD or GBP/USD. For instance, let's say that EUR/USD gives us more confluences for opening a transaction. Therefore, what we do is, we ignore GBP/USD and trade EUR/USD. For the second case, let's say that we use 1.0 lot size to open transactions. What we can implement, is using 0.5 for each trade and opening positions for both EUR/USD and GBP/USD. I hope you liked this educational post, family! If you have any suggestions on what we should post next as an educational post, feel free to let us know in the comment section below. Have an awesome upcoming weekend, everyone!
Education
by Investroy
29
HOW TO SET PROPER TAKE PROFITS AND STOP LOSSES 🧙‍♂️Knowing patterns is one thing and using them to the fullest potential is another. Above, we've depicted 3 major patterns commonly used by traders during a technical analysis (wedges and pennants will be covered next week). We all know how to notice them on the charts and general shapes. However, a lot of traders don't know how to act once they notice these patterns and we're here to clarify that. First, let's look at the proper entry points for these patterns. A general rule of thumb would be to enter the trade at the neckline once we get a closure below/above it. This way we can increase the probability of a trade and make sure the pattern is still valid. What about the take profit? Well, from tons of observations by a lot of talented traders there is a theory that the move following these patterns would be: 1) Double TOP/BOTTOM: the same as the distance from the neckline to the top or bottom 2) Head and Shoulders: the same as the distance from the neckline to the head 3)Rectangle: the same as the range of the rectangle This way we can maximize our profits made from the trades based on these patterns. Lastly, let's look at the Stop Losses for our trades. This one really depends on your trading style. More conservative traders (for instance, we like to keep our SLs tight as possible) would go with the mid-range of the pattern ensuring at least a 1:2+ Risk-Reward Ratio. However, if you're using this pattern as an indication that the price will follow further than the expected TP1, you may as well slightly increase your stop loss (not advised). This is pretty much what you have to do once you notice one of the patterns above and you want to capitalize on the opportunity. Safe trades and stay tuned for more posts! Ah also, it's Investroy's birthday this weekend, so if you have time, stop by and wish the HAPPY BIRTHDAY to the team :)
BITSTAMP:BTCUSDEducation
by Investroy
24