Indicator Insights Part 3: A Different Way to Use RSIIn this instalment of our educational series, Indicator Insights, we shift our focus to the Relative Strength Index (RSI) , exploring a non-traditional approach that harnesses its power to identify strong momentum stocks.
While the conventional use of RSI is often associated with overbought and oversold conditions, our alternative method employs RSI as a relative strength indicator, uncovering stocks exhibiting high levels of relative strength.
Understanding RSI - The Traditional Approach
The RSI is a momentum oscillator that measures the speed and change of price movements. Traditionally, traders use RSI to identify overbought and oversold conditions. The standard interpretation suggests that a stock is potentially overbought when the RSI surpasses 70, indicating a potential reversal or pullback. Conversely, an RSI below 30 might suggest that a stock is oversold, hinting at a possible upward reversal.
A Different Perspective - RSI as a Relative Strength Indicator
Our alternative approach views RSI as more than just an overbought/oversold signal generator. Instead, we leverage it as a relative strength indicator, pinpointing stocks that exhibit robust momentum compared to the broader market. The strategy involves waiting for an RSI reading to reach +75, signalling significant strength, and then strategically entering a position during a pullback when the RSI retreats to 50.
Methodology: Buying Strong Momentum Stocks
Identifying Strong Momentum (RSI +75): Monitor stocks with RSI readings reaching +75, indicating robust upward momentum.
Waiting for the Pullback (RSI 50): Exercise patience and wait for the RSI to retreat to 50. This pullback suggests a temporary cooling-off period in the stock's momentum.
Strategic Entry: Initiate a long position when the RSI starts to move back above 50, anticipating a potential resumption of the strong upward trend.
Advantages of This Approach:
Relative Strength Focus: By emphasising relative strength, this strategy aims to align with stocks demonstrating a sustained and potent upward trend compared to the broader market.
Disciplined Entry: Waiting for the RSI to retreat to 50 provides a disciplined entry point, reducing the likelihood of entering trades during extended periods of overbought conditions.
Momentum Confirmation: Combining RSI readings with a pullback strategy helps confirm the sustainability of the stock's momentum before entering a position.
Potential Limitations:
False Signals: As with any strategy, false signals may occur, especially in volatile markets. Traders should exercise caution and consider additional factors in their decision-making process.
Market Conditions: This method may perform better in trending markets and may be less effective in choppy or sideways conditions.
Worked Example 1: Buying RSI Pullback on Daily Timeframe
Let's illustrate this approach with a practical example:
Stock: Tesco (TSCO)
RSI Reaches +75: RSI for Tesco reaches +75, signalling strong momentum.
Pullback to RSI 50: Tesco experiences a pullback, and RSI retreats to 50.
Strategic Entry: A long position is initiated as the stock shows signs of resuming its strong upward trend and RSI turns back above 50.
Tesco (TSCO) Daily Candle Chart
Past performance is not a reliable indicator of future results
Worked Example 2: Buying RSI Pullback on Hourly Timeframe
Stock: Apple (AAPL)
RSI Reaches +75: Hourly RSI for Apple reaches +75, signalling strong momentum.
Pullback to RSI 50: Apple experiences a pullback, and RSI retreats to 50.
Strategic Entry: A long position is initiated as the stock shows signs of resuming its strong upward trend and RSI moves back above 50.
AAPL Hourly Candle Chart
Past performance is not a reliable indicator of future results
Summary:
This non-traditional use of RSI as a relative strength indicator offers traders a simple way of identifying and capitalising on strong momentum stocks. By waiting for RSI to reach +75 and strategically entering during a pullback to 50, traders can align with stocks exhibiting exceptional strength relative to the broader market.
Disclaimer: This is for information and learning purposes only and is intended for UK audiences. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance. Social media channels are not relevant for UK residents.
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Chart Patterns
Learn Ascending, Decending and Symmetrical Triangles | Powerful
Hey traders,
In this post, we will discuss 3 simple and profitable types of a triangle pattern.
1️⃣ The first type of triangle is called a descending triangle.
It is a reversal price action pattern that quite accurately indicates the exhaustion of a bullish trend.
Setting a new higher high the market retraces and sets a higher low, then bulls start pushing again but are not able to retest a current high and instead the price sets a lower high and drops to the level of the last higher low setting an equal low.
Multiple lower highs compose a horizontal support that is called a neckline.
The price keeps trading in such a manner, setting lower highs and equal lows till the price sets a new lower low.
Most of the time, it gives a very accurate signal of a coming bearish move.
Please, note that a triangle formation by itself does not give an accurate short signal. The trigger that you should wait for is a formation of a new lower low.
Take a look at a descending triangle formation that I spotted on Crude Oil on a 4H time frame. Bearish movement was confirmed after a breakout of the neckline of the pattern.
2️⃣ The second type of triangle is called a symmetrical triangle. It is a classic indecision pattern. It can be formed in a bullish, bearish trend, or sideways market.
The price action starts contracting within a narrowing range, setting lower highs and higher lows.
Based on them, two trend lines can be drawn.
Breakout of one of the trend lines with a quite high probability indicates a future direction of the market.
Above is a great example of a symmetrical triangle.
Bullish breakout of its upper boundary - a falling trend line was a strong bullish confirmation.
3️⃣ The third type of triangle is called an ascending triangle.
It is a reversal price action pattern that quite accurately indicates the exhaustion of a bearish trend.
Setting a new lower low, the market retraces and sets a lower high, then bears start pushing again but are not able to retest a current low and instead the price sets a higher low and bounces to the level of the last lower high setting an equal high.
A sequence of equal highs compose a strong horizontal resistance that is called a neckline.
The price keeps trading in such a manner, setting higher lows and equal highs till the price sets a new higher high.
Most of the time, it gives a very accurate signal of a coming bullish move.
📍Please, note that an ascending triangle formation by itself does not give an accurate long signal. The trigger that you should wait for is a formation of a new higher high.
Ascending triangle formation helped me to accurately predict a bullish reversal on USDJPY. Its neckline breakout was a strong bullish confirmation.
Learn to recognize such triangles and you will see how accurate they are.
Let me know what pattern do you want to learn in the next post?
Learn Best Price Action Patterns by Accuracy
Last year, I shared more than 1300 free signals and forecasts for Gold, Forex, Commodities and Indexes.
In my predictions, quite often I relied on classic price action patterns.
In this article, I will reveal the win rate of each pattern, the most accurate and the least accurate formations of the last year.
Please, note that all the predictions and forecasts that I shared this year are available on TradingView and you can back test any of the setup that I identified this year by your own. Just choose a relevant tag on my TradingView page.
Also, some forecasts & signals were based on a combination of multiple patterns.
Here is the list of the patterns that I personally trade:
🔘 Double Top or Bottom with Equal Highs
The pattern is considered to be valid when the highs or lows of the pattern are equal.
The pattern gives a bearish/bullish signal when its neckline is broken.
🔘 Double Top or Bottom with Lower High/Higher Low or Cup & Handle
The pattern is considered to be valid when the second top/bottom of the patterns is lower/higher than the first one.
The pattern gives a bearish/bullish signal when its neckline is broken.
🔘 Head & Shoulders and Inverted Head and Shoulders
The pattern gives a bearish/bullish signal when its neckline is broken.
🔘 Horizontal Range
The pattern is the extension of a classic double top/bottom with at least 3 equal highs/lows.
The pattern gives a bearish/bullish signal when its neckline is broken.
🔘 Bullish/Bearish Flag
The pattern represents a rising/falling parallel channel.
It gives a bullish/bearish signal when its upper/lower boundary is broken.
🔘 Rising/Falling Wedge Pattern
The pattern represents a contracting rising/falling channel.
It gives a bullish/bearish signal when its upper/lower boundary is broken.
🔘 Rising/Falling Expanding Wedge
The pattern represents an expanding rising/falling channel.
It gives a bullish/bearish signal when its upper/lower boundary is broken.
🔘 Descending/Ascending Triangle
The pattern is the extension of a cup & handle pattern with at least 2 lower highs/lows.
The pattern gives a bearish/bullish signal when its neckline is broken.
Please, also note that all the patterns that I identified and traded were formed on key horizontal or vertical structures.
Remember that the accuracy of any pattern drops dramatically if it is formed beyond key levels.
I consider the pattern to be a winning one if after a neckline breakout, it managed to reach the closest horizontal or vertical structure, not invalidating the pattern's highs/lows.
For example, if the price violated the high of the cup and handle pattern after its neckline breakout, such a pattern is losing one.
If it reached the closest structure without violation of the high, it is a winning pattern.
🔍 Double Top or Bottom with Equal Highs
I spotted 85 setups featuring these patterns.
Their accuracy is 62%.
🥉 Double Top or Bottom with Lower High/Higher Low or Cup & Handle
96 setups were spotted.
The performance turned out to be a little bit higher than a classic double top/bottom with 65% of the setups hitting the target.
🔍 Head & Shoulders and Inverted Head and Shoulders
58 formations spotted this year.
Average win rate is 64%
🏆 Horizontal Range
The most accurate pattern of this year.
More than 148 patterns were spotted and 74% among them gave accurate signal.
🔍 Bullish/Bearish Flag
38 setups identified this year.
The accuracy of the pattern is 57%
Rising/Falling Wedge
The pattern turned out to be a little bit more accurate.
Among 62 formations, 59% end up being profitable.
👎 Rising/Falling Expanding Wedge
The worst pattern of this year.
I recognized 24 patterns and their accuracy was just 51%.
🥈 Descending/Ascending Triangle
64 patterns were identified.
The win rate of the pattern is 66%.
The most important conclusion that we can make analyzing the performance of these patterns is that they all have an accuracy above 50%. If you properly combine these patterns with some other technical or fundamental tools, the accuracy of the setup will increase dramatically.
Good luck in your trading!
❤️Please, support my work with like, thank you!❤️
The best trading setup with Entry!In this model, we observe a market that begins to consolidate before a sharp decline, during which liquidity is created with an imbalance. Immediately after, there is an upward movement with rising highs and lows, forming a bullish liquidity trendline. When the price reaches a point where it starts to consolidate, dual liquidity is generated on the buy side in the upper part of the consolidation. Subsequently, a false upward movement occurs, during which the price gains liquidity from the previous order block created by the initial sharp decline. This creates an excellent opportunity to enter a short position, with the aim of reaching the minimum of the main decline. Updates will be provided with an example applied in a real case study. Greetings and happy trading to everyone from Nicola.
Proof of Work Time Loops and inefficiency Runs on PriceProof of work 1/16/2023 powerful trading concept that will help many trader time the market advanced but we see time unfolding in algorithmic way. this theory and my proof of work documentations
Breakout-Retest Strategy implemented for shorting GBP/USDThe forex strategy that I use primarily is based on chart patterns and candlestick formations. The process begins with identifying support and resistance levels and determining the overall trend direction from the H4 (4-hour) chart. Subsequently, this analysis is refined on the H1 (1-hour) and M30 (30-minute) charts to gain a more comprehensive view of market dynamics. The reason behind this multi-timeframe approach is to ensure that we have a clear understanding of the critical price levels and trend dynamics. Relying solely on a single timeframe, such as the M30 chart, can be limiting as it may not reveal the full extent of significant resistance areas or the broader trend context.
The central element of this strategy involves marking and monitoring trendline breakouts, while also considering support and resistance levels. We need to start by drawing trendlines on either the H1 or M30 chart, depending on the timeframe that provides the most clarity for the particular trade setup. Once the trendline is established, we need to patiently wait for the price to break this trendline.
It's essential to distinguish between a genuine breakout and a false breakout (fakeout). A price may momentarily break the trendline but then quickly revert within it. To confirm a legitimate breakout, we need to use a specific criterion i.e. the candle that breaks the trendline must close outside of it. Moreover, the subsequent candle should close above the highest price point of the previous candle that initially broke the trendline. This confirmation ensures a stronger indication of a sustained move in the breakout direction. Once a valid trendline breakout is confirmed, a horizontal line is marked at the breakout level (1.27393). This acknowledges the tendency for prices to retest back to the breakout zone before continuing their move in the breakout direction. This retesting phase is an important component of this strategy.
However, it is important to note that a trade is not executed immediately during a retest. Entry signals are confirmed by closely observing the M5 and M1 charts. As the price approaches the breakout zone, it typically forms higher highs and higher lows (in the case of an upward breakout) or lower highs and lower lows (in the case of a downward breakout). To initiate a trade, we need to look for a reversal pattern on the M1/M5 chart. In the trade above, the price has broken the upward trendline at the price level of 1.27393. Then based on the M5 chart, it can be seen that the price is retesting to the breakout level above and forming higher highs and higher lows (HH-HL). We need to wait until the price touches the breakout line and breaks the HH-HL pattern by forming a lower high. At 1.27309, price made a high lower than the previous high after retesting and touching the breakout level. This indicates a reversal and a confirmation for entry. The MACD indicator with 12-26-9 settings is used to mark the highs and lows more accurately in the M5 chart. The green histogram bars indicate bullish momentum and red histogram bars indicate bearish momentum. This is an important indicator for this strategy as marking the highs and lows accurately is crucial to identify the reversal.
The trade was entered at 1.27236 upon confirmation of the LH and reversal in M5 chart (after touching the breakout level):
In this strategy, a crucial aspect is the use of a 1 to 1 reward-to-risk ratio, and it typically involves aiming for a take profit (TP) and stop loss (SL) of 50 pips each. These TP and SL levels are established with careful consideration of the support and resistance zones identified during the initial analysis in higher timeframes. The importance of these zones lies in their ability to impact trade placement. For instance, when opening a buy trade, if there's a significant resistance level above, whether identified on the H4, H1, or M30 timeframe charts, it's essential to set the TP below that resistance level. This approach is taken because price movements often encounter rejection at such resistance levels, making it crucial to secure profits before reaching that level. By following this TP and SL levels, the trade hit TP with a profit of 50 pips.
EURAUD StrategyStrategy-
Indicatators used:
- TV Double Top (DT)
- TV Double Bottom (DB)
- TV Average True Range (ATR)
- TV Volume Weighted Average Price (VWAP)
Conditions:
5 minute time frame
Wait for DT or DB pattern to form
VWAP must be at 1 of 3 locations. At the support or resistance pattern itself, through or above the neckline for DB, through or below the neckline for DT or at the target set by the DT or DB indicator. See fig 1, 2 and 3
Fig 1
Fig 2a
Fig 2b (With framework)
Fig 2c (Without framework)
This trade went on to win, but that isn't the point. This is just to show the location of VWAP and the tolerance we limit the rules to and that rule will be utilised throughout backtesting. This is only relevant at the time the pattern is formed. As in if 5 candles later, the VWAP is in the wrong place, I dont factor that in to the tests and the statistics coming out of this strategy
Fig 3
This is within the scope of the strategy. VWAP though below the target is only 2.2 pips below. which is negligible. Discretion required perhaps.
We just have to be aware that price could react from VWAP. and retrace a few pips prior to our TP
I have found that VWAP is a magnet. And as such either repels, or attracts price.
This is why I find it just adds some confirmation to the DT and DB patterns.
If price forms a DT/DB on VWAP, it is likely VWAP is turning to support and will repel price.
If price forms a DT/DB and the target set by the indicator is at VWAP, then it is likely to attract the price.
This is the main reason i want to see VWAP going through, or above the neckline of a DB, or going through or below the neckline of a DT. Reason being is that in these patterns, both the tops/ bottoms, and the neckline can act as support or resistance for the next push in price, be it in the right or wrong direction from our perspective. The issue is VWAP can also act as dynamic support or resistance and as such coming into potentially 2 support or resistance zones, just seems to add confluence that it wont work out in that trade.
How to set up the framework:
As said prior, i simply use the wicks of the patterns, at both the tops, the bottoms, and the neckline to frame out the pattern and to see how price is reacting in these levels. Plus, it does make it a bit more visually aesthetic. See fig 4a and 4b
Fig 4a
Fig 4b
How to enter:
Once the pattern has formed, we frame out the trade. As we are on the 5m chart we have plenty of time to do this.
On a double top, we create the Resistance level using the above technique.
This is now the termination zone. It MUST have been tested on the second top. There are times the indicator shows the pattern, but creates a lower second top. For standardisation, it makes sense to have the second top tested.
A wick can go above the zone
Price CAN NOT close above the termination zone as this would indicate a trend continuation which can be done just by using the Resistance level, and expecting it to turn into support. (Not within scope of this publishing)
Wait for either a colour change candle, or for a bearish pinbar candlestick pattern to close.
We can then enter short on the close of that candle
Our stops go at the high of the pattern, + 1ATR, and the targets are set where the indicator dictates. See figure 5
Fig 5a (Example of a good set up)
Fig 5b(i) (Example of a bad set up)
Fig 5b(ii)
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Choch Entry & Liquidity Model | Trading StrategyIntroduction:
The trading strategy "Choch Entry & Liquidity Model" has emerged as an innovative model in the financial domain, focusing on market entry and liquidity. This approach is built upon key principles aimed at maximizing returns and effectively managing risk.
Fundamental Principles:
The strategy relies on an entry approach known as "Choch Entry," which is presumed to provide precise trading signals based on specific indicators. This method aims to capture significant price movements through a detailed analysis of market data.
Liquidity Management:
Another distinctive element of this strategy is its focus on liquidity. The "Liquidity Model" seeks to optimize order execution, ensuring that the strategy can enter and exit the market efficiently, minimizing slippage and price impact.
Practical Implementation:
The practical implementation of this strategy requires a thorough understanding of financial instruments and indicators used in the model. Traders must be able to adapt the strategy to changing market conditions and constantly monitor key variables to make informed decisions.
Risks and Challenges:
As with any trading strategy, it is crucial to understand the potential risks and challenges associated with the "Choch Entry & Liquidity Model" strategy. Market volatility, sudden changes in economic conditions, and other factors can influence outcomes.
Conclusions:
The "Choch Entry & Liquidity Model" trading strategy represents an intriguing approach that combines targeted entry with careful liquidity management. Its effectiveness depends on the trader's proficiency in consistently and flexibly applying key principles, adapting them to the changing dynamics of the market.
The Upper Edge: Gold Futures’ Dance with Bollinger BandsIntroduction
In the dynamic and intricate world of commodities, Gold Futures shine as a versatile and compelling instrument for traders. As 2024 unfolds, these futures don't just reflect market trends; they narrate the story of global economic shifts. This analysis will explore the nuanced interplay between Gold Futures and Bollinger Bands®, offering traders a guide through the ebbs and flows of the commodities market.
Expanded Market Context
The year 2024 stands as a testament to the resilience and unpredictability of global economies. The U.S. treads cautiously towards a potential soft landing, balancing economic activity to avoid a hard hit from previous tumultuous years. In Europe, the shadow of a recession looms, particularly in powerhouse economies like Germany. These contrasting economic stories create a tapestry of factors influencing Gold Futures. In uncertain times, gold becomes a sanctuary for investors, a phenomenon that is echoed in its price movements and volatility. This section will delve into the intricate ways in which geopolitical tensions, monetary policies across central banks, and global inflationary trends shape the gold market.
Bollinger Bands® Analysis
Bollinger Bands® can be seen as more than just indicators of market volatility; they are windows into the market's soul. This segment will explore how these bands, comprising a Middle Band surrounded by adaptive Upper and Lower Bands, provide pivotal insights into Gold Futures trading.
Gold Futures’ Reaction to Upper Bollinger Bands®
When the Upper Bollinger Bands® across different time frames align, Gold Futures has shown it tends to exhibit unique price behaviors. This phenomenon is not just a technical pattern but a reflection of trader psychology and market sentiment. We will examine several instances where Gold Futures approached these upper echelons, triggering significant market responses, and what these responses tell us about market dynamics.
Lower Bands and Emergent Buying Patterns
A pattern of resilience is observed when Gold Futures breach the lower daily Bollinger Bands®. Repetitive instances of this breach, followed by a swift bullish recovery, will be analyzed, highlighting the underlying strength in the gold market. This pattern points to a robust buying sentiment that prevails even when the market dips, suggesting deep-seated bullish undercurrents.
Comprehensive Chart Analysis
Gold Futures Sensitivity to Upper Bands: When analyzing Gold Futures in the context of Bollinger Bands®, a striking pattern emerges at the Upper Bands. This sensitivity is not just a reflection of price action but also an indicator of trader sentiment and market dynamics. Repetitive observations suggest that when daily, weekly and monthly upper bands get close to each other and Gold Futures prices surpass such barrier, more often than not, a sharp correction to the downside takes place.
Bullish Recovery on Lower Bands Breach: Conversely, when Gold Futures dip below the lower daily Bollinger Bands, a consistent pattern of bullish recovery is observed. The below chart shows periods where breaches of the lower daily bands led to upward price movements.
Current position of Gold Futures: On December 4 2023 Gold created a new high in a violent manner leaving behind a long wick which has potentially cleared a significant amount of sellers that were available at such price point. Furthermore, the distance between the current price and the upper monthly Bollinger Bands® is significant allowing for additional sharp moves to the upside.
Elaborate Trading Plan for Gold Futures
Building on the Bollinger Bands® analysis, a hypothetic bullish trading strategy is presented:
Entry Point: 1996.9, a level steeped in historical significance and technical strength.
Stop Loss: 1941.5, carefully calculated to provide a safety net while allowing room for market fluctuations.
Target Price: 2152.8, chosen for its alignment with the upper monthly Bollinger Bands®.
Point Values Analysis:
Gold Futures (GC): $10 per tick value.
Micro Gold Futures (MGC): $1 per tick, which can be leveraged for more nuanced trading strategies.
Advanced Risk Management Techniques
In the fast-paced and often unpredictable realm of trading, sophisticated risk management techniques become indispensable.
Portfolio Diversification
Diversification stands as a cornerstone in risk management. By spreading investments across various asset classes (GC, ES, CL, BTC, etc.), traders can buffer themselves against the unpredictability of prices. For instance, balancing a portfolio with Gold Futures can potentially mitigate the risk of equities, bonds, and other commodities that may be part of such portfolio. This approach helps in smoothing out the volatility and reduces the potential impact of adverse price movements in any single asset class.
Staying Informed on Global Economic News
Global economic events have a profound influence on Gold Futures. Political instability, monetary policy changes, and macroeconomic shifts can all trigger significant movements. Traders need to stay abreast of such developments, as they may offer crucial clues about potential market directions. For example, a hawkish stance by major central banks could strengthen the dollar, typically pushing gold prices lower. Conversely, political tensions or economic uncertainty often boost gold's appeal as a safe haven, driving prices up.
Leveraging Bollinger Bands® for Market Insights
By understanding the bandwidth (the distance between the upper and lower bands), traders can gauge market volatility. Narrow bands suggest low volatility and can precede significant market moves. Traders can use this information to adjust their trading strategies, potentially tightening stop-losses during low volatility phases to protect against sudden market shifts.
Risk Mitigation Strategies
Effective risk management in Gold Futures also involves the application of strategies like hedging. Hedging, using derivative instruments such as options on Gold Futures, can provide a safety net against adverse price movements. For instance, purchasing put options on Gold Futures can offset potential losses in the futures contracts if prices fall. This strategy allows traders to maintain their position in the market while effectively managing the downside risk.
Conclusion
As 2024 unfolds, Gold Futures present a landscape ripe with opportunities for the astute trader. The intricate relationship between these futures and Bollinger Bands® offers a nuanced view of market behavior and potential trends. This analysis has presented that Bollinger Bands® are not just tools for predicting price movements; they are powerful instruments for understanding market psychology and managing risk.
The insights gleaned from Bollinger Bands®, combined with advanced risk management techniques and a keen awareness of global economic dynamics, equip traders with a robust framework for navigating the Gold Futures market. As traders harness these tools and strategies, they position themselves not just to respond to market conditions but to anticipate and strategically potentially capitalize on them, turning volatility and uncertainty into pathways for strategic trading and potential gains.
When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies.
Disclaimer:
The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
EURAUD Strategy DEC 2023 BacktestingBacktesting results for EURAUD DT/ DB + VWAP Strategy
(Found at )
Dec Trade 1 (Asian Session)
Loss -0.5%
Total - 0.5%
Dec Trade 2 (London Session)
Loss -0.5%
Total -1%
Dec Trade 3 (Late London Session)
Gain 0.89%
Total -0.11%
Dec Trade 4
Loss -0.5%
Total -0.61%
Dec Trade 5
Loss -0.5%
Total -1.11
Dec Trade 6
Gain 0.73
Total -0.38%
Dec Trade 7
Loss -0.5%
Total -0.83%
Dec Trade 8
Loss -0.5%
Total -1.33%
Dec Trade 9
Gain 1.52%
Total +0.19%
Dec Trade 10
Loss -0.5%
Total -0.31%
Dec Trade 11
Loss -0.5%
Total -0.81%
Dec Trade 12
Gain 1.72%
Total 0.9%
Dec Trade 13
Loss -0.5%
Total 0.4%
Dec Trade 14
Loss -0.5%
Total -0.1%
Dec Trade 15
Loss -0.5%
Total -0.6%
Dec Trade 16
Gain 1.1%
Total 0.5%
Dec Trade 17
Gain 0.97%
Total 1.47%
Dec Trade 18
Gain 1.43
Total 2.9%
Dec Trade 19
Loss -0.5%
Total 2.4%
Dec Trade 20
Gain 1.48%
Total 3.88%
Dec Trade 21
Gain 2.6%
Total 6.48%
Dec Trade 22
Loss 0.5%
Total 5.98%
Dec Trade 23
Loss -0.5%
Total 5.38%
Dec Trade 24
Gain 0.63%
Total 6.01%
Dec Trade 25
Gain 1.61%
Total 7.62%
Dec Trade 26
Gain 0.78%
Total 8.34%
Dec Trade 27
Gain 1.58%
Total 9.92%
Not listed, outside of my trading hours
Dec Trade 28
Loss -0.5%
Total 9.42%
Not listed, outside of my trading hours
Dec Trade 29
Stops just got hit, but as per rules (Double top pattern had no candle colour change so no entry in that one)
Loss -0.5%
Total 8.92%
Outside of my trading hours, and VWAP in the wrong place, though it seems this strategy works in the asian session too
Dec Trade 30
Gain 3.38%
Total 12.30%
End of the month FIgures
End gain 12.30%
Total Trades 30
Total wins 14
Total losses 16
Max Drawdown: -1.33%
Wins in a row 4
Losses in a row 3 (Though worth noting 11 losses out of the first 14 trades)
Biggest win 3.38% (With 0.5% risk on every trade)
Biggest loss -0.5%
Average loss: 0.5x16/ 16 = 0.5% loss
Average win: 3.38+1.58.0.78+1.61+0.63+2.6+1.48+1.43+0.97+1.1+1.72+1.52+0.73+0.89=20.42
20.42/ 14= 1.45%
Hope you find this interesting to look through.
Certainly not one for the faint hearted, especially the consistent losses at the beginning.
Novembers results coming soon.
Harry
🔄 ETC vs ETH Liquidity pool compariosnEthereum Classic (ETC) and Ethereum (ETH), two prominent cryptocurrencies, often find themselves compared due to their shared history. An intriguing aspect of their comparison is the formation of a similar liquidity pool from below, providing valuable insights into their respective price actions.
📉 Common Liquidity Pool Formation:
Both ETC and ETH experienced the creation of a substantial liquidity pool from below, a phenomenon that typically precedes significant market movements. This liquidity pool acted as a catalyst, setting the stage for a potential upward surge.
🔄 Diverging Paths:
Despite the shared liquidity pool formation, the subsequent actions of ETC and ETH diverged significantly. Ethereum Classic (ETC) managed to seize a considerable portion of this liquidity, leading to a robust price rally. In contrast, Ethereum (ETH) opted for a different trajectory, establishing a higher low and retaining a portion of the liquidity.
🚀 Ethereum Classic (ETC) Performance:
ETC showcased notable strength, evidenced by its impressive surge of over 70%. The strategic utilization of the formed liquidity pool contributed to this bullish momentum, making ETC an attractive option for traders and investors during this period.
📈 Ethereum (ETH) Resilience:
Ethereum (ETH), opting for a conservative approach, demonstrated resilience by forming a higher low and retaining a portion of the liquidity pool. While ETH experienced positive price action, the magnitude of the surge was comparatively moderate, registering an approximately 30% increase.
🔍 Key Takeaways:
Differential Strategies: ETC and ETH employed different strategies in responding to the formed liquidity pool, influencing their subsequent price movements.
ETC's Aggressive Rally: ETC's more aggressive approach in capturing liquidity translated into a robust price rally.
ETH's Conservative Stance: ETH, adopting a more conservative stance, showcased resilience but with a relatively milder price increase.
🔮 Unlock Exclusive Insights:
Unlock my 3 crypto trading indicators for FREE! Links are below 🔗
Note: Cryptocurrency markets are dynamic, and past performance is not indicative of future results. Traders are advised to conduct thorough research and exercise caution in their investment decisions.
The Top 3 Confirmation Signals for the Double Top Pattern
1 - Bearish Divergence
An indicator such as the RSI showing bearish divergence can confirm the weakening of the bullish trend.
2 - Volume Analysis
An increase in selling volume following the second peak reinforces the potential bearish reversal.
3 - Support Breakdown
A decisive breakdown below the support level confirms the validity of the double top pattern.
Watch this video to learn more
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**Disclaimer:**
The information provided above is for educational and informational purposes only.
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It does not constitute financial advice, and trading always involves
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a risk of substantial losses, regardless of the margin levels
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used. Before engaging in any trading activities, it is crucial to
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conduct thorough research, consider your financial situation,
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and, if necessary, consult with a qualified financial advisor. Past
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performance is not indicative of future results, and market
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conditions can change rapidly. Trading decisions should be made
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based on careful analysis and consideration of individual
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circumstances. The user is solely responsible for any decisions made
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and should be aware of the inherent risks associated with trading in
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financial markets.
Identifying a Short-Term Sell Opportunity: CAC 40 Correction
Introduction:
In the dynamic world of financial markets, staying ahead of trends is crucial for successful trading. Technical analysis serves as a powerful tool for identifying potential opportunities, and currently, the CAC 40 index is exhibiting signs of a correction, forming a wedge pattern that could indicate a short-term sell opportunity.
Understanding the Wedge Pattern:
The wedge pattern is a common formation in technical analysis that signals a potential reversal or continuation of a trend. In the case of the CAC 40, a wedge pattern appears to be taking shape, indicating a possible impending correction. This pattern typically consists of converging trendlines, with either an ascending or descending slant.
Analyzing the CAC 40 Wedge:
As of the latest market data, the CAC 40 index is showing signs of a bearish wedge pattern, suggesting that a short-term sell opportunity might be on the horizon. This pattern often implies a decrease in momentum and a potential shift in the prevailing trend. Traders and investors should carefully analyze the following key aspects:
Trendline Convergence: Monitor the points where the upper and lower trendlines of the wedge pattern converge. This convergence may act as a significant support or resistance level, influencing the index's future direction.
Volume Analysis: Pay attention to trading volumes accompanying the formation of the wedge pattern. A decrease in volume during the pattern formation may suggest a loss of interest or conviction in the current trend, reinforcing the potential for a reversal.
Technical Indicators: Utilize relevant technical indicators, such as the Relative Strength Index (RSI) or Moving Averages, to confirm the strength of the wedge pattern. Divergence or confirmation from these indicators can provide additional insights into the market sentiment.
Identifying Short-Term Sell Opportunities:
Given the formation of the bearish wedge pattern on the CAC 40, traders may consider the following strategies for capitalizing on a potential short-term sell opportunity:
Short Positions: As the index approaches the apex of the wedge pattern, consider initiating short positions, anticipating a downward price movement. Set appropriate stop-loss orders to manage risk effectively.
Option Strategies: Employ options strategies, such as buying put options or using bearish spreads, to take advantage of the anticipated downward movement while limiting potential losses.
Monitor Economic Events: Keep a close eye on upcoming economic events, corporate announcements, or geopolitical developments that could influence market sentiment and potentially accelerate the correction.
Conclusion:
In the ever-changing landscape of financial markets, traders and investors must adapt to evolving patterns and trends. The identification of a bearish wedge pattern on the CAC 40 index serves as a valuable signal for a potential short-term sell opportunity. However, it's essential to exercise caution, conduct thorough analysis, and implement risk management strategies to navigate the markets successfully.
Algorithmic Identification and Classification of Chart PatternsWelcome to the world of technical analysis, where chart patterns play a pivotal role in shaping trading strategies. This is an ultimate guide designed to help users objectively identify the existence of patterns, define the characteristics and classify them. In this discussion, we will mainly concentrate on the patterns formed by trend line pairs. This includes wedges, triangles and channel type patterns.
🎲 Basic Principle of Identifying the Pattern
It is very important to apply definitely set of rules when identifying the patterns in order to avoid biases or fitting patterns to our opinions. The dangers of overfitting the patterns to our bias is documented in the idea
To identify the patterns objectively, we need to set some ground rules or follow a well-defined technique to derive the patterns. Here is the technique we follow to identify chart patterns.
🎲 Only Indicator Required - Zigzag
Tradingview has plenty of free community scripts for Zigzag indicator. For this demonstration, we are going to use our Multi Timeframe Recursive Zigzag implementation.
Once the indicator is loaded on the chart, go to indicator settings and perform these modifications.
Disable the Labels : The Labels contain information that is needed for this exercise.
Set the Highlight level to 1 or 0 : We can iteratively increase the level and check next levels on the go.
You can also adjust Zigzag Length and Depth Parameters.
🎲 Scanning and Identification of valid Pattern
We can either use 5 pivots or 6 pivots for pattern identification. 5-Pivot based scanning will generate more patterns than 6-Pivot based scanning. 6 pivot patterns are geometrically more accurate however, there is no proof that 6-Pivot based patterns produce better trading outcome.
🎯 Step 1 - On each level of zigzag, mark the last 5 or 6 zigzag pivots.
Since we are using Multi Timeframe Recursive Zigzag implementation, we can gradually increase the zigzag level from 0. This means that on every level, we can check if there are any patterns.
On each level - consider only the last 5 or 6 pivots and mark them on the chart.
Markings on Level 0 would look like this for 5 and 6 pivot scanning
🎯 Step 2: Draw Trend Lines
As part of this step, draw two trend lines.
The first trend line will join pivots 1 and 5 marked in the previous step.
The second trend line will join pivots 2 and 4 marked in the previous step for 5 pivot scanning. For 6 pivot scanning, the trend line joining pivots 2 and 6 will be marked.
🎯 Step 3: Inspect the validity of trend lines
A valid trend line is the one that confirm to below two points
Touches all the alternate pivots. For example, the trend line drawn from pivot 1 to 5 should also make contact with the candle of pivot 3. In case of 6 pivot scanning, the trend drawn from pivot 2 to 6 should also make contact with the candle of pivot 4.
All the candles from the starting pivot to ending pivot of the zigzag should be confined within the trend line pairs. Meaning, no candles should completely go above the upper trend line and no candle should completely go below the lower trend line.
Please note that while verifying the above points, minor adjustments in the alignment of the trend line can be made. Start and end of the trend line does not need to be on the high/low points of the candle, it can also be placed in any of the wick positions.
After adjusting the trend lines, in both type of scanning, we can see that the trend lines confirm to the above-mentioned rules. Hence, we have arrived with valid patterns in both types of scanning on the level 0 zigzag.
🎲 Classification of Patterns
Once the patterns are identified, they need to be classified into different types. We need to apply predetermined rules to objectively classify patterns into what they are. Everyone can build their own rules.
🎯 Properties of Derived Trend Lines
Before classifying the trend lines, we need to understand below properties of the derived trend lines.
▶ Direction of Individual Trend Lines
Both the trend lines needs to be individually classified among these categories
Rising - Trend Line is sharply rising up.
Falling - Trend Line is sharply falling down.
Flat - Trend Line is flat across the pivots.
Bi-Directional - Trend Lines are moving in opposite directions
Please note that, it is less probable for trend line to absolutely flat. Hence, allow angle to have certain degree of threshold to be considered as flat. For example, +- 10 degrees can be considered as flat.
Also, the angle of the trend line can further subjective based on how compressed the chart is. It is recommended to use either log/auto-scale or a specific formula based on ATR to identify the angle.
▶ Characteristic of the Trend Line Pairs
This parameter defines how both trend lines are aligned with respect to each other. Possible options are:
Converging - Trend Lines are converging and when extended towards the right will intersect at a visible distance.
Diverging - Trend Lines are diverging from each other and when extended towards the left will intersect at a visible distance.
Parallel - Trend Lines are almost parallel to each other and may not intersect to either right or to left at a visible distance.
To objectively identify the intersection distance, we further need to use some standard. Here are few options
Fixed Number of Bars : If the trend lines do not intersect to either left or right within X bars (Lets say 100), they can be considered as parallel. Otherwise, they can be classified as converging or diverging based on which side the intersection happens.
Relative to the Length of Pattern : If the length of longest trend line is X bars. The trend lines should converge within 1–2 times the X bars to be considered as converging or diverging. Or else, it can be termed as parallel channels.
🎯 Geometrical Shapes Classification
Following are the main geometrical classifications based on the characteristics of the trend lines and the pair.
Channels - Trend Lines are parallel to each other. And hence they both move in the same directions.
Wedges - Trend Lines are either converging or diverging from each other. However, both trend lines move in the same direction. Both trend lines will be either up or down.
Triangles - Trend Lines are either converging or diverging from each other. But, unlike wedges, upper and lower trend lines will have different direction.
🎲 Types of Patterns
Once we identify the direction and characteristics of trend lines, we can go on and classify the pattern in following categories.
Details below. Please note that examples are generated programmatically.
🎯 Rising Wedge (Contracting)
Rules for Contracting Rising Wedge are as follows:
Both Trend Lines are Rising
Trend Lines are converging.
🎯 Rising Wedge (Expanding)
Rules for the Expanding Rising Wedge are as follows:
Both Trend Lines are rising
Trend Lines are diverging.
🎯 Falling Wedge (Contracting)
Rules for the Contracting Falling Wedge are as follows:
Both Trend Lines are falling
Trend Lines are contracting.
🎯 Falling Wedge (Expanding)
Rules for the Expanding Falling Wedge are as follows:
Both Trend Lines are falling
Trend Lines are diverging.
🎯 Contracting/Converging Triangle
Rules for the Contracting Triangle are as follows
The upper trend line is falling
The lower trend line is rising
Naturally, the trend lines are converging.
🎯 Rising Triangle (Contracting)
The rules for the Contracting Rising Triangle are as follows
The upper trend line is flat
The lower trend line is rising
Naturally, the trend lines are converging towards each other
🎯 Falling Triangle (Contracting)
The rules for the Contracting Falling Triangle are as follows
The upper trend line is falling
The lower trend line is flat
Naturally, the trend lines are converging towards each other
🎯 Expanding/Diverging Triangle
Rules for the Expanding Triangle are as follows
The upper trend line is rising
The lower trend line is falling
Naturally, the trend lines are diverging from each other.
🎯 Rising Triangle (Expanding)
The rules for the Expanding Rising Triangle are as follows
The upper trend line is rising
The lower trend line is flat
Naturally, the trend lines are diverging from each other
🎯 Falling Triangle (Expanding)
The rules for the Expanding Falling Triangle are as follows
The upper trend line is flat
The lower trend line is falling
Naturally, the trend lines are diverging from each other
🎯 Rising/Uptrend Channel
Rules for the Uptrend Channel are as follows
Both trend lines are rising
Trend lines are parallel to each other
🎯 Falling/Downtrend Channel
Rules for the Downtrend Channel are as follows
Both trend lines are falling
Trend lines are parallel to each other
🎯 Ranging Channel
Rules for the Ranging Channel are as follows:
Both trend lines are flat
Naturally, the trend lines are parallel to each other.
How to trade Smart Money Concepts (SMC)This trading strategy was initially popularized by an infamous trader who is also the founder of the Inner Circle Trading (ICT) method which is claimed to be the evolved version of the SMC. Let’s first take a look at the building blocks of this trading strategy and compare it with the well-known trading concepts by industrial titans (Dow, Wyckoff, Elliott).
Essentially, SMC puts forth the notion that market makers, including institutions like banks and hedge funds, play a deliberate role in complicating trading endeavours for retail traders. Under the Smart Money Concepts framework, retail traders are advised to construct their strategies around the activities of the "smart money," denoting the capital controlled by these market makers.
The core concept involves replicating the trading behaviour of these influential entities, with a specific focus on variables such as supply, demand dynamics, and the structural aspects of the market. Therefore, as an SMC trader, you'll meticulously examine these elements when making trading decisions, aligning your approach with the sophisticated techniques of prominent market figures. By embracing this perspective and closely monitoring the actions of market makers, SMC traders endeavour to establish an advantageous position in their trading activities, aiming to capitalise on market movements driven by smart money.
When you initially dive into the Smart Money Concepts (SMC), the technical vocabulary can be a bit overwhelming. To help demystify it, here's an overview of some common terms used by SMC traders.
1. Order Blocks
These are used to discuss supply and demand. Some SMC traders consider order blocks as a more refined concept than standard supply and demand, although not everyone agrees on this.
An order block signifies a concentrated area of limit orders awaiting execution, identified on a chart by analysing past price movements for significant shifts. These zones serve as pivotal points in price action trading, influencing the market's future direction. When a multitude of buy or sell orders cluster at a specific price level, it establishes a robust support or resistance, capable of absorbing pressure and triggering price reversals or consolidation.
2.Fair Value Gap
You should clarify whether your current trading style suits you. If you don't have time to look at charts during the day, you should not focus your strategy on intraday trading using 1
5-minute or 30-minute charts. It is definitely better to develop an approach that works on a 4-hour or daily chart so that you have enough time to analyze the charts before or after work.
Ideal time and timeframe
This phrase describes an imbalance in the market. It occurs when the price departs from a specific level with limited trading activity, resulting in one-directional price movement.
In the case of a bearish trend, the Fair Value Gap represents the price range between the low of the previous candle and the high of the following candle. This area reveals a discrepancy in the market, which may indicate a potential trading opportunity. The same principle applies to a bullish trend but with the opposite conditions.
3.Liquidity
Liquidity plays a pivotal role in SMC. It pertains to price levels where orders accumulate, rendering an asset class "liquid." Essentially, these are price points with available orders ready for transactions. Liquidity can manifest in various forms, such as highs and lows or trend line liquidity.
How liquidity is handled varies depending on the trader. One of the most common approaches is to use a pivot high or pivot low. For better understanding, a pivot high or low is formed when several adjacent candlesticks have a higher low or lower high.
In the picture, we can see the pivot low. The candlestick has the lowest low compared to its three neighbours to the right and left.
4.Break of Structure (BOS)
Once you become familiar with this terminology, you'll realize that many SMC concepts are consistent with traditional trading ideas. A fundamental element of SMC market analysis is the emphasis on the "break of structure" (BOS) in the market.
5.Change of Character (ChoCH)
For instance, in a chart illustrating breaks of structure, each time the price surpasses the previous high, a break of structure occurs. Conversely, when the price drops below previously established lows, it signals a change of character (ChoCH). SMC traders leverage their understanding of these patterns to make informed decisions based on the market's behaviour.
Trend Lines & Their Significance in Minervini's Trading StrategyIntroduction
In the world of stock trading, trend lines are vital tools for investors and traders alike. Mark Minervini, an acclaimed swing trader, is known for his strategic use of trend lines in assessing the strength of stock movements. This article delves into Minervini's approach, highlighting how he utilizes trend lines to identify optimal trade entries and exits, and emphasizes the significance of upward trend consistency in his methods.
Utilizing Trend Lines to Gauge Stock Movement Strength
Minervini leverages trend lines to evaluate the momentum and strength of a stock's movement. By connecting the lows in an upward trend or the highs in a downward trend, he creates a visual representation of the stock’s trajectory. This technique allows him to discern the stock's current trend, be it bullish or bearish, and gauge its strength. A steeper trend line indicates a stronger movement, whereas a flatter line suggests a weaker trend. In Minervini’s strategy, the angle and longevity of these trend lines are critical factors in assessing a stock's potential for continued movement in its current direction.
Identifying Trade Entries and Exits
Trend lines are more than just indicators of stock movement; they are crucial for identifying potential trade entries and exits. Minervini uses two types of trend lines: support and resistance. A support line is drawn along the low points of a stock's price, indicating a level where the price tends to find support and bounce back upwards. Conversely, a resistance line connects the high points, highlighting a price level where the stock often faces selling pressure.
For Minervini, a break above a resistance trend line signals a potential entry point, indicating that the stock might continue to climb. Similarly, a break below a support line might suggest an exit point or a short-selling opportunity, indicating that the stock could be entering a downtrend. These trend lines, therefore, play a pivotal role in his decision-making process, guiding him on when to enter or exit a trade.
The Importance of Upward Trend Consistency
In Minervini's method, consistency in an upward trend is a key factor. He looks for stocks that show a sustained upward trend, marked by higher highs and higher lows, which are typically indicative of strong buyer interest and positive momentum. This consistency not only suggests a robust bullish sentiment but also provides a measure of safety, as stocks in a consistent uptrend are less likely to experience sudden drops.
Moreover, Minervini emphasizes the importance of volume in these trends. An upward trend accompanied by increasing volume can be a sign of strong investor confidence, adding further credence to the strength of the trend. Conversely, an upward trend with declining volume may signal a loss of momentum, prompting a more cautious approach.
Conclusion
Mark Minervini’s use of trend lines is a testament to their importance in stock trading. By carefully analyzing these lines for both support and resistance, and prioritizing stocks with a consistent upward trend, he is able to make informed decisions about trade entries and exits. For traders looking to enhance their strategies, incorporating Minervini's approach to trend lines can be a valuable addition to their trading toolkit, offering a clearer perspective on the strengths and potential directions of stock movements.
✨❄️🌟 The Tutorial How-To Find a Magic on TradingViewFinancial markets just finished its memorial 2023.
Whatever the numbers at the “Closing bell”, on your monitors and in your portfolios, there is no doubt that 2023 year’s Santa Rally will go down in history as one of the most outstanding in many years.
In November and December, 2023 the U.S. stock market was rallying for the 9th consecutive week in a row.
This was the longest ever upside streak in SP:SPX over the past 20 years, since the fourth quarter of 2003.
Well.. just try to answer what happened with the market the past one time.
Happy New 2024 Year!
✨❄️🌟🎅🎊🌲💫⛄️🌠✨❄️🌟🎅🎊🌲💫⛄️🌠
#Education#Lets Talk about Price action Pattern#Education
⚡️ Today, we're going to dive into the exciting world of trading patterns! Trading patterns are like little puzzles that appear on a chart, giving traders clues as to what might happen next in the market. Let's take a look at eight common patterns and what they can tell us about the market.
📈 Double Bottom
A bullish pattern that appears as two lows at approximately the same level, indicating a potential trend reversal. A breakout above the resistance level is the signal to go long.
📉 Double Top
A bearish pattern that appears as two highs at approximately the same level, indicating a potential trend reversal. A breakout below the support level is the signal to go short.
📉 Head and Shoulders
A bearish pattern that appears as a peak (head) with two smaller peaks (shoulders) on either side. The neckline is drawn connecting the lowest points between the peaks, and a breakout below the neckline signals a trend reversal.
📈 Inverted Head and Shoulders
A bullish pattern that is the opposite of the Head and Shoulders pattern, with the peaks and troughs flipped upside down. A breakout above the neckline signals a trend reversal.
📈 Bullish Cup and Handle
A bullish continuation pattern that appears as a cup with a handle. A breakout above the resistance level of the handle signals a continuation of the uptrend.
📉 Bearish Cup and Handle
A bearish continuation pattern that appears as a rounded top (cup) followed by a small bounce (handle). A breakout below the support level of the handle signals a continuation of the downtrend.
📈 Bullish Diamond
A bullish continuation pattern that appears as a diamond shape by connecting lower highs and higher lows. A breakout above the resistance level signals a continuation of the uptrend.
📉 Bearish Diamond
A bearish continuation pattern that appears as a diamond shape by connecting higher highs and lower lows. A breakout below the support level signals a continuation of the downtrend.
🤔 Would you like to learn more about patterns?
Confirming Chart Patterns Through Volume AnalysisVolume Analysis: Confirming Chart Patterns and Institutional Interest in Minervini's Strategy
Introduction to Volume Analysis in Minervini's Strategy
In the realm of stock trading, volume analysis stands as a critical component, especially in the methodologies championed by Mark Minervini. Renowned for his remarkable success in the stock market, Minervini's strategy incorporates a nuanced understanding of volume analysis to enhance decision-making and identify prime trading opportunities. This section delves into the integral role of volume analysis in Minervini's approach, emphasizing its function in confirming chart patterns, signaling institutional interest, and understanding market sentiment.
Volume Analysis: Confirming Chart Patterns and Institutional Interest in Minervini's Strategy
Confirming Chart Patterns Through Volume Analysis
Volume, the total number of shares traded in a given time frame, serves as a powerful tool in verifying the strength and reliability of chart patterns. In Minervini's approach, a chart pattern is not just seen through the lens of price movements but is also analyzed in conjunction with volume. For instance, when a stock forms a pattern like a cup-with-handle, Minervini looks for an increase in volume as the stock breaks out of the pattern. This increase in volume is crucial as it confirms the pattern's validity and suggests a strong buying interest, increasing the likelihood of a successful trade.
Volume Spikes as Indicators of Institutional Interest
Minervini pays close attention to volume spikes - sudden increases in trading volume. These spikes are often indicative of institutional buying, which can significantly impact a stock’s price movement due to the large quantities of stock bought or sold by institutions. When a volume spike coincides with a breakout from a recognized chart pattern, it is often interpreted as a strong signal. This is because institutional involvement can provide the necessary momentum for a stock to sustain its breakout and continue its upward trajectory, making it an attractive trade opportunity.
The Significance of 'Quiet' Volume Periods
Equally important in Minervini's analysis is the recognition of 'quiet' volume periods. These are phases where volume is below average, often observed during the formation of the 'handle' in a cup-with-handle pattern or other consolidation patterns. Quiet volume periods suggest that selling pressure is diminishing and that the stock is not facing significant resistance. For Minervini, these periods are a key indicator, as they often precede strong breakouts. The rationale is that when a stock eventually breaks out on high volume after a period of low volume consolidation, it indicates a renewed interest and a potential change in trend, making it a prime candidate for trading.
In conclusion, volume analysis plays a pivotal role in Minervini’s trading strategy. By integrating volume analysis with chart patterns and understanding the implications of volume changes, Minervini crafts a more complete and robust trading strategy. This approach not only enhances the probability of identifying successful trades but also aligns with his overarching emphasis on precision, discipline, and risk management in the pursuit of stock market success.
Indicator Insights Part 2: Managing Trades with Parabolic SARTrade management is tough. You’re having to make split second decisions with hard-earned money on the line. There is a great deal of column inches dedicated to trade entry, but consistent and effective trade management is often what makes or breaks a trading account.
In this second instalment of our Indicator Insights series, we’ll turn our attention to the Parabolic SAR (Stop and Reverse) and explain how it can be used as a consistent trade management tool.
We’ll highlight what makes the Parabolic SAR so effective, outline its limitations, and run through several techniques designed to maximise its effectiveness.
Understanding Parabolic SAR
The Parabolic SAR offers dynamic trade management by creating dots above or below the price. Its calculation, involving an Acceleration Factor and Extreme Point, allows for adaptive trailing stop-loss levels that adjust with price movements. We won’t delve into the calculations, but here’s a bit more background on the factors that create the Parabolic SAR.
Acceleration Factor:
Think of the acceleration factor like a speed dial. It starts slow and increases its speed gradually. This 'speed' decides how quickly the dots (trailing stops) move closer to the price when a trend strengthens.
Extreme Point:
The Extreme Point is like a highlighter for the highest high or lowest low seen so far in a trend. It marks that special point, and as the trend progresses, this point changes based on new highs or lows.
Standard Settings:
By default, the Parabolic SAR often starts with an initial AF value of 0.02, which increases by 0.02 each time a new high (or low for downtrends) happens. This increase continues up to a maximum value, commonly set at 0.20. These settings decide how fast the dots move and how close they stay to the price.
Parabolic SAR at Standard Settings
Past performance is not a reliable indicator of future results
Dynamic Stop Management
The Parabolic SAR is a one-stop-shop for dynamic stop placement. It can be used to tell you where to place your initial stop loss, and where to move your stop loss as the trade progresses.
Advantages:
Objective Trade Management
Emotion Mitigation: During live trades, emotions run high. Parabolic SAR offers objective guidance by providing clear stop levels, reducing emotional decision-making during volatile market movements.
Adaptability to Market Volatility
Volatility Adjustment: Parabolic SAR's adaptability to market volatility stands out. Its dynamic nature adjusts stop-loss levels based on market fluctuations, accommodating both rapid and gradual price movements.
Limitations:
Delayed Response and Choppy Markets
Lagging Indicator: Parabolic SAR's reliance on past price data can result in delayed responses to recent price changes, making it a lagging indicator.
Choppy Market Performance: In choppy or sideways markets, where price movements lack a clear trend, Parabolic SAR can generate false signals, leading to ineffective trade management strategies.
Managing Trades Using Parabolic SAR
To effectively use Parabolic SAR as a trade management tool, it is essential that the indictor compliments your trade entry method.
Remember, the Parabolic SAR has a time lag and performs best in trending markets, hence it favours a momentum-based entry method such has entering on a breakout from a consolidation pattern in the direction of the dominant trend.
However, there is an advanced technique which allows you to use the Parabolic SAR to manage reversal trades by dropping down to a lower timeframe. Let’s look at both techniques in more detail…
Basic Technique: Single Timeframe
The most straightforward method is to use the Parabolic SAR on the same timeframe as your entry.
Your initial stop is placed at the location of the Parabolic SAR dot above/below your entry candle. Your stop is then trailed to every new dot that appears – locking in profits as the trend progresses. The trade is closed when your stop is hit or when the dots switch sides.
Worked Example: Range Breakout
In this example we have a range breakout in-line with the dominant trend. The Parabolic SAR can is used for initial stop placement and as a dynamic trailing stop loss. Notice how the stop loss is tightened more aggressively as the trend starts to lose momentum – this is a key advantage to using the Parabolic SAR.
S&P 500 Daily Candle Chart
Past performance is not a reliable indicator of future results
Advanced Technique: Dual Timeframe
A more advanced method allows you to utilise Parabolic SAR’s consistent and dynamic trailing stops when managing counter-momentum reversal trades. It involves using the Parabolic SAR on a lower timeframe with a view to ‘swinging’ in and out of lower timeframe trades in the direction of the higher timeframe trade setup.
This method has the advantage of offering potentially higher levels of risk / reward, but it requires a higher degree of skill and experience as traders must be considerably more active when managing the trade.
Worked Example: Daily Fakeout, Hourly Trade Management
In this example, a fakeout pattern forms at a clear level of support on the daily candle chart:
Nvidia (NVDA) Higher Timeframe: Daily Candle Chart
Past performance is not a reliable indicator of future results
The trade can be actively managed using the Parabolic SAR on the hourly candle chart. Notice the potential for re-entering the trade – the Parabolic SAR can be used to take momentum-based lower timeframe trades that align with a higher timeframe catalyst.
Nvidia (NVDA) Lower Timeframe: Hourly Candle Chart
Past performance is not a reliable indicator of future results
Summary:
The Parabolic SAR helps to remove the stress from trade management. It provides traders with an objective and consistent rule set that dynamically adjusts to the volatility of the market. The Parabolic SAR compliments momentum-based trading strategies and can help to manage risk as a trade progresses. It can also be used on a lower timeframe to compliment counter-momentum trades on a higher timeframe.
Disclaimer: This is for information and learning purposes only. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance. Social media channels are not relevant for UK residents.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
LIQUIDITY GRAB CONCEPTlooking for High liquidity grab zone (HiLQ) and Low liquidity grab zone (LoLQ),
Our entry is at 23% fib retracement level, thats called LQprz point
ICT Order Block Trading Strategy : Asian Session Liquidity SweepASIAN Session Liquidity Sweep Model
Mark High and Low created in Asian Session.
1. Upon starting of London Session it sweep Asian Session liquidity and closed price below Asian Session High.
2. Created Bearish OB.
3. Sell side imbalance in form of FVG.
So we have three confluences
i.e. Liquidity Sweep + OB + FVG
Remember these three are confirmation for trend or break out direction.
