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Chart Patterns

What is Tweezer Top and Bottom Patterns?Welcome to the world of trading patterns. If you appreciate our charts, give us a quick 💜💜 Today let's explore Tweezer top and bottom patterns, often referred to as simply "tweezers," are powerful candlestick formations that hold the potential to unveil significant shifts in market sentiment. These patterns materialize as twin candles appearing at the culmination of a trend, indicating the impending transition of market dynamics. In this exploration, we'll delve into the intricacies of these patterns, unveiling their secrets for traders seeking to navigate the ever-evolving landscape of financial markets. Tweezer Top: A tweezer top pattern occurs during an uptrend when the price reaches a high point and then experiences a sudden reversal. It is characterized by two consecutive candlesticks with almost identical highs. The pattern suggests that the bulls are losing their grip, and a potential trend reversal or a bearish correction might follow. Traders often interpret the tweezer top as a signal to consider selling or shorting an asset, especially if it appears after a prolonged uptrend. However, it's essential to confirm this pattern with other technical indicators or chart patterns to increase its reliability. Tweezer Bottom: Conversely, a tweezer bottom pattern emerges in a downtrend when the price reaches a low point and then reverses its direction. Similar to the tweezer top, tweezer bottoms consist of two consecutive candlesticks with nearly identical lows. This pattern signifies a potential end to the bearish trend, indicating that the bulls might take control soon. Traders view the tweezer bottom as a signal to consider buying or going long on an asset, particularly if it appears after an extended downtrend. As with any trading pattern, it's crucial to validate the tweezer bottom with other technical tools to confirm the potential trend reversal. Key Considerations: Confirmation is Key: Tweezer patterns, while useful, should always be confirmed by other technical indicators or chart patterns before making trading decisions. Volume Analysis: Analyzing trading volumes during the formation of tweezer patterns can provide additional confirmation of the potential trend reversal. Market Context: Consider the overall market context and fundamental factors influencing the asset to make well-informed trading decisions.
Education
by Vestinda
2
How to succeed in trading ✅From the experience I have in trading I have identified 3 pillars on which my success is based. I can't say that one is less important than another, so I try to combine all of them: 1) Psychology - is one of the most difficult aspects to master, which requires a lot of theoretical and practical knowledge, so I recommend first of all to study yourself, after you have managed to identify what kind of person you are, you will gain knowledge from books, videos, trainings that will help you control your emotions when trading. At the same time, this aspect can help you in your daily life. 2) Risk management - due to proper risk management, I managed to become funded. I also understood that in trading it is more important to tend to have a small risk, than a high profit, because greed for money can bring you into a less pleasant situation. I managed to take the account with a risk of 1% per trade and with an RR of at least 1: 2, which therefore showed me that even if I take 6 sls for 10 trades, I still remain profitable. 3) Trading plan - this is the aspect that motivates me to progress, once I have made a trading plan with well-defined goals, I tend to fulfill them. In addition to the purposes, a trading plan should contain the strategy applied, as well as the rules for entering / managing / exiting the transaction.
OANDA:XAUUSDEducation
by Snick3rSD
CHOCH vs BOS ‼️WHAT IS BOS ? BOS - break of strucuture. I will use market structure bullish or bearish to understand if the institutions are buying or selling a financial asset. To spot a bullish / bearish market structure we should see a higher highs and higher lows and viceversa, to spot the continuation of the bullish market structure we should see bullish price action above the last old high in the structure this is the BOS. BOS for me is a confirmation that price will go higher after the retracement and we are still in a bullish move WHAT IS CHOCH? CHOCH - change of character. Also known as reversal, when the price fails to make a new higher high or lower low, then the price broke the structure and continue in other direction.
OANDA:XAUUSDEducation
by Snick3rSD
What is Confluence❓✅ Confluence refers to any circumstance where you see multiple trade signals lining up on your charts and telling you to take a trade. Usually these are technical indicators, though sometimes they may be price patterns. It all depends on what you use to plan your trades. A lot of traders fill their charts with dozens of indicators for this reason. They want to find confluence — but oftentimes the result is conflicting signals. This can cause a lapse of confidence and a great deal of confusion. Some traders add more and more signals the less confident they get, and continue to make the problem worse for themselves. ✅ Confluence is very important to increase the chances of winning trades, a trader needs to have at least two factors of confluence to open a trade. When the confluence exists, the trader becomes more confident on his negotiations. ✅ The Factors Of Confluence Are: Higher Time Frame Analysis; Trade during London Open; Trade during New York Open; Refine Higher Time Frame key levels in Lower Time Frame entries; Combine setups; Trade during High Impact News Events. ✅ Refine HTF key levels in LTF entries or setups for confirmation that the HTF analysis will hold the price. HTF Key Levels Are: HTF Order Blocks; HTF Liquidity Pools; HTF Market Structure.
OANDA:XAUUSDEducation
by Snick3rSD
Market Structure Identification ✅Hello traders! I want to share with you some educational content. ✅ MARKET STRUCTURE . Today we will talk about market structure in the financial markets, market structure is basically the understading where the institutional traders/investors are positioned are they short or long on certain financial asset, it is very important to be positioned your trading opportunities with the trend as the saying says trend is your friend follow the trend when you are taking trades that are alligned with the strucutre you have a better probability of them closing in profit. ✅ Types of Market Structure Bearish Market Structure - institutions are positioned LONG, look only to enter long/buy trades, we are spotingt the bullish market strucutre if price is making higher highs (hh) and higher lows (hl) Bullish Market Structure - institutions are positioned SHORT, look only to enter short/sell trades, we are spoting the bearish market strucutre when price is making lower highs (lh) and lower lows (ll) Range Market Structure - the volumes on short/long trades are equall instiutions dont have a clear direction we are spoting this strucutre if we see price making equal highs and equal lows and is accumulating . I hope I was clear enough so you can understand this very important trading concept, remember its not in the number its in the quality of the trades and to have a better quality try to allign every trading idea with the actual structure
OANDA:XAUUSDEducation
by Snick3rSD
Ultimate Guide For Trading INVERTED HEAD & SHOULDERS PATTERN Hey traders, Inverted head and shoulders pattern is a classic reversal pattern. It signifies the weakness of buyers in a bearish trend and a bullish accumulation. ⭐️The pattern has a very peculiar price action structure: Trading in a bearish trend the price sets a lower low and retraces setting a lower high (left shoulder), then the market goes lower setting a new low but instead of setting a new lower high, the price returns back to the level of a previous lower high setting an equal high (head). After that bears start pushing again but with an amplifying bullish pressure, the market sets a higher low and returns back to equal highs setting a new one (right shoulder). 🔔Equal highs form a horizontal structure called a neckline. Here is a perfect example of a completed inverted head and shoulders patterns, that was formed in a bearish trend on Gold on a 4H time frame. Once the pattern is formed it is still not a trend reversal predictor though. The trigger that is applied to confirm a trend reversal is a bullish breakout of a neckline of the pattern. Above, the breakout of the neckline is the indication of a confirmed bullish reversal. 📈Then a long position can be opened. For conservative trading, a retest entry is suggested. Safest stop is lying at least below the right shoulder. However, in case the heights of the right shoulder and head are almost equal it is highly recommendable to set a stop loss below the head level. 🎯For targets look for the closest strong structure resistances. After a retest of a broken neckline, Gold bounced. Entry was lying on a neckline, stop loss below the right shoulder, target was based on a closes strong resistance. Hey traders, let me know what subject do you want to dive in in the next post?
Education
by VasilyTrader
8
📈 Charting Lesson: What do I even look for in a chart?!Full-time trader here. Sharing some knowledge for free . If this helps you, show some love: follow me for more and like this idea. 👍 Why do I need a chart anyway? First, we need to convince you of why you need a chart. No problem. Let's say you're a fundamental analysis investor. The stock has to make sense. The stock has to last forever. It needs to be a growth stock. Let's say... NASDAQ:AAPL NASDAQ:GOOG NASDAQ:NVDA NASDAQ:TSLA is a good example over the last few years. Now that you found a good candidate, when are you going to buy? At an all-time high? At an all-time low? One share a day? One share a week? No. Buying a stock without looking at the chart is like driving with a blindfold. Don't do it. Pull up a chart. Observe past price action. Try to find a trend. Plan your entry. Do this even if you're going to hold for 20 years. When I pull up a chart, what do I look for? I just see a bunch of lines. Let's first make sure you are looking at the correct view. On the top left corner of your screen, you'll see your user icon. Next to it is the ticker. Next to it is the interval. Next to THAT is the chart type. Make sure you select "CANDLES". Not "hollow candles". Here's how it should look: Mine may look a bit different because I changed my theme. But the candles is what we care about. Now the juicy part. Support and Resistance are Key Reversal Levels. When you open a chart, the first thing you want to do is look for areas where the price has reached in the past and reversed or got rejected or bounced. For example, every time SPY reached 443.37 in the chart above, it reversed. Let's call this a, "key level". If the price is ABOVE that key level, the line is called SUPPORT. If the price is BELOW that key level, the line is called RESISTANCE. Using the horizontal line tool, make sure you have these key support and resistance levels on your chart. Try to ONLY buy near support and sell near resistance. If the stock is choppy, do your best. If you can't, skip it and go to another stock. There's thousands! Stocks, Currencies, and Cryptos Move in Trends. Up or Down. Next, try to find a "trend". A trend is something where if you connect the dots, the price jumps right from that straight line. Pull out your trendline tool and try to connect some dots. Don't go through any candle bodies. Going through wicks is okay. It's actually recommended. Three touches are required to make a valid trendline. If you see only TWO touches? Is the price going TOWARDS the trendline if you were to extend it? There's a good chance it's going to head towards that TL and bounce! Good job. You found a good trade potential. Identify Reversal or Continuation Patterns. Look for known patterns. In the example above, there is a "head and shoulders" pattern. This is a bearish reversal pattern. Know that not all patterns will come true. It's good to know the overall signal the market is giving. If every trader sees it, it's likely not going to happen. In the above example, a looming H/S pattern is scary given already bad economic conditions and recession/ inflation worries. In this case, the market may be trying to tell you something. Understand that these patterns are not just nice-looking drawings on a chart. They work because they display some sort of buyer/ seller psychology. I will post more examples of known patterns on my TradingView profile soon. Be sure to follow if you want to learn more. If you benefitted from this, you are welcome to follow me, comment any questions, or share this with your friends. Good knowledge should be free. I'll post more insight soon. Thank you for reading and for your continued support. 👍
AMEX:SPYEducation
by kingdips
3
💰The #1 Trading Strategy💰📊📈Never trade without expecting risk Risk is part of the game -- It's important for you to understand this -- As you start making money learn to calculate risk -- WBTC is an alternative of Bitcoin to other networks such as Ethereum network -- Whatever trading strategy you use there is always risk -- Watch the video to see the example of the parabolic system -- Now inside this video i show you my favourite trading strategy -- Called the ''Rocket Booster'' strategy -- Watch the video for more -- Disclaimer: -- Trading involves risk do not buy or sell anything I recommend -- in this video or any publication do your own research -- before you trade -- Rocket boost this FREE Content show me some support Thank you
BINANCE:WBTCUSDEducation
by lubosi
3 Bar Pivot and 11 Realtime example!A 3-bar pivot is a candlestick pattern that can be used to identify potential reversals in the market. It is formed by three candlesticks, with the middle candlestick having a higher high and lower low than both of the other two candlesticks. The 3-bar pivot pattern can be bullish or bearish, depending on the direction of the preceding trend. If the preceding trend is bullish, then a 3-bar pivot pattern with a lower high and lower low is a bearish reversal signal. Conversely, if the preceding trend is bearish, then a 3-bar pivot pattern with a higher high and higher low is a bullish reversal signal. XLK: XLF: XLC: SMH: AMAT: AAL: C: WMT: FCX: These are 10 real-time example, you can look at their future performance!
AMEX:SPYEducation
by Moshkelgosha
2
Adam and Eve Double Bottom Chart PatternChart patterns play a vital role in predicting future market trends. Among numerous chart formations used by traders, the Adam and Eve chart pattern holds a unique position, particularly for short-term bullish reversals. This article will dissect the nuances of this setup and provide a blueprint on how to capitalise on its signals effectively. How to Identify the Adam and Eve Trading Setup Recognising an Adam and Eve double bottom setup accurately is the first stepping stone towards profitable trading. Essentially, this comprises two distinctive lows: a sharply pointed 'Adam' and a broader, more rounded 'Eve'. The Adam Bottom Identifying an Adam bottom involves looking for a sharp downward spike within a bearish trend. That sudden dip pushes prices towards previous lows or forms new ones, creating a V-shaped low. The low may occur even in an uptrend; however, considering that we are studying double lows, such instances are generally disregarded. Notably, a consecutive pair of spikes can also form an Adam low, given that the second spike's height is less than half of the first. The Eve Bottom The Eve bottom distinguishes itself from its predecessor with a rounded trough, indicating price congestion over a wider range. An Eve low typically follows an Adam low and is identified by its broader and smoother shape. The combination of the two troughs forms the unique Adam and Eve trading pattern. Once we have correctly identified both lows, we will proceed to examine the overall characteristics of the formation using the following key points: Prior Price Trend: The direction and duration of the bearish trend leading to the two lows are not crucial, but a strong downtrend can enhance the potential returns. Price Rise: If there is a price rise of more than 10% between the two identified bottoms, the probability of a successful pattern increases, and tall setups tend to perform well. Volume: A tall volume bar at the Adam bottom is an indication of a valid Adam and Eve setup. Additionally, the volume should decrease from the Adam low to the Eve low. Confirmation of Breakout: The most crucial rule for identifying a valid Adam and Eve pattern on a candle chart is to wait for the confirmation of a breakout above its highest high; only after this confirmation is the formation considered valid. You can try our free TickTrader platform to spot the formation on real charts. What Drives the Adam and Eve Chart Pattern? The success of any trading formula lies within the psychology of market participants. The Adam and Eve setup is no different. As prices decline in a bearish market, a sharp fall to new lows — the Adam bottom — signals a bearish market sentiment. That low point becomes a crucial immediate support level. If prices halt near this support level on subsequent attempts, it signifies a potential shift in market sentiment. If the bears fail to push prices lower, the Adam and Eve pattern bullish reversal signal forms. Inverted Adam and Eve Pattern The formation can also take an inverted form. In an inverted or reverse Adam and Eve pattern, the market sentiment transitions from bullish to bearish. It comprises two clear price phases: Adam Top: In the context of a bullish trend, an initial decline in price forms the Adam top. This decline precedes the subsequent stage of the pattern. Eve Top: Following the Adam top, there is a consolidation phase or a slowing of momentum, creating the Eve top. When the market fails to recover from the Adam top and starts declining further, the reverse Adam and Eve setup is confirmed. Trading Strategies with the Adam and Eve Double Bottom Pattern Once you have identified a valid Adam and Eve formation, it's time to lay down a strategic trading plan. Traders may apply the following rules: Connect the highest highs of both lows with a confirmation line. Once the formation is confirmed, traders often enter a buy position when the price breaks above the line. This is seen as a signal that the downtrend may be reversing, and a potential uptrend is beginning. A stop-loss order can be placed below the lowest point of the setup. You can identify the Adam and Eve pattern target based on its height, so it equals the distance between the bottoms and the confirmation line. The chart above shows the Adam and Eve setup on the M5 chart of USDJPY. The trader waits for the price to break above the confirmation line before taking a long position. Their stop loss is below the formation, with the take profit equal to the distance between the trough and the confirmation line. Remember, a gap opening above the confirmation line should be interpreted as a bullish signal. It's also worth mentioning that savvy traders can even benefit from a failed Adam and Eve by adjusting their positions accordingly. Instead of sticking with the long position that was expected to benefit from a bullish reversal, they may reverse their position and take a short one to profit from the bearish continuation. How to Improve Trading with the Adam and Eve Pattern Trading using this setup may provide a lucrative opportunity, but it requires patience and understanding. Don't rush into a trade before it’s fully formed. A failed formation – when prices break below the Eve bottom – can provide an excellent opportunity to trade with the trend. In such a case, consider shorting the market to profit from the continued bearish trend. Remember, the bigger the setup, the greater the potential profit. A larger formation often indicates a better risk-reward ratio. Two crucial indicators can increase your chances of a profitable trade: volume and RSI. A decrease in volume from the Adam bottom to the Eve bottom signals a valid formation. If there's a bullish divergence on the RSI, it strengthens the credibility of the pattern. You can check these indicators on the FXOpen platform. Despite its potential, trading the Adam and Eve can be challenging due to the psychological and performance errors that traders can make. It's important to remain disciplined and patient and to follow the trading plan you've established. Conclusion Adam and Eve pattern bearish and bullish scenarios provide numerous trading opportunities. Trading with the Adam and Eve formation can be effective, provided you exercise patience, strategic planning, and psychological discipline. Always remember, practice makes perfect — consider paper trading until you're comfortable with the pattern and trading strategy. Ultimately, successful trading isn't merely about recognising patterns; it’s also about understanding the market psychology that underlies them. By comprehending this, traders can unlock the true potential of the setup. You can open an FXOpen account now and use your recently obtained knowledge for live market trading. FAQs What is the Adam and Eve pattern? It is a unique double bottom chart pattern used in technical analysis to predict a potential bullish reversal in the short term. How can I identify the formation? The setup consists of two distinct troughs: the sharp and narrow 'Adam' and the wide and rounded 'Eve'. Together, they form a 'double bottom' in price action. Can the setup be used in bearish markets? Yes, the bearish variation is called the inverted or reverse Adam and Eve. In this situation, 'Adam' is a sharp rally, followed by a broad, rounded 'Eve' top, signalling a possible bearish reversal. How do I trade Adam & Eve? Trading the Adam and Eve pattern involves connecting the highest points of two consecutive lows using a confirmation line. When the formation is confirmed, traders typically initiate a buy position after the price surpasses this line, indicating a possible reversal from a downtrend to an uptrend. Placing a stop-loss order beneath the formation's lowest point is crucial for risk management. The target can be determined by measuring its height, which corresponds to the distance between the lows and the confirmation line. This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.
Education
by FXOpen
A Brief History of the Bitcoin Halving Here. Hello, welcome to this BTC HALVING update. Bitcoin (BTC) halving is an event that occurs approximately every four years in the Bitcoin network. During a halving event, the reward that miners receive for validating and adding new blocks to the blockchain is reduced by half. This event is programmed into the Bitcoin protocol and serves several purposes: Supply Control: Bitcoin halving is a mechanism to control the inflation of the cryptocurrency. By reducing the reward that miners receive, the rate at which new bitcoins are created slows down. This scarcity can potentially drive up the price of Bitcoin if demand remains or increases. Scheduled Issuance: It ensures a predictable issuance schedule for Bitcoin. Every 210,000 blocks, or roughly every four years, the reward for mining new blocks is halved. This predictable schedule helps users and investors plan for the future supply of Bitcoin. Security: The halving also plays a role in the security of the Bitcoin network. As the block reward decreases, miners are incentivized to continue securing the network through transaction validation and block creation by transaction fees. This transition from block rewards to transaction fees is expected to be a key driver of miner incentives as Bitcoin's supply approaches its maximum limit of 21 million coins. Here's a brief history of Bitcoin halvings: First Halving: November 28, 2012 - The block reward was reduced from 50 BTC to 25 BTC. Second Halving: July 9, 2016 - The block reward was reduced from 25 BTC to 12.5 BTC. Third Halving: May 11, 2020 - The block reward was reduced from 12.5 BTC to 6.25 BTC. The next halving is expected to occur approximately every four years, reducing the block reward by half each time until the maximum supply of 21 million bitcoins is reached, which is estimated to happen in the year 2140. These halving events are closely watched by the cryptocurrency community and can have an impact on Bitcoin's price and overall ecosystem. I have tried to bring the best possible outcome to this chart. Hit the like button if you like it and share your charts in the comments section. Thank you.
BITSTAMP:BTCUSDEducation
by CryptoSanders9563
2
Risk Management 1I firmly believe that risk management is the most important factor in trading, even more important than strategy in my mind, and if you're going to maintain some discipline to something, then please let it be risk management... A good strategy with bad risk management WILL blow your account, but a bad strategy, with good risk management will still keep your account alive and in the game. For the purposes of this idea, we will use a $1000 account size, on the assumption that most newer traders are around this figure. So what is good risk management? We hear that risking 1% per trade is good, but then following up with 50 trades a day isn't exactly in line with that. Conversely, risking 5% per trade once a day isn't exactly the middle ground either, so what should your risk be? First off, let me just tell you that I, nor any other trader, professional or amateur can tell you what your set risk should be as there is no set answer. It is one that only you can decide. But to give you an idea of where to start, lets assume you have back tested a strategy which is known to be profitable over time but you know it has had 7 losses in a row and which is likely to happen again. So, a $1000 account, Lets assume you risk 2% per trade, and those 7 losses come around. You've now lost 14% of your account. Are you comfortable losing $140 in the space of 7 trades? 1% risk per trade is 7% loss of the account, or $70. Are you comfortable with that? Maybe going to 0.5% is easier for you which is $35. This is how you should come up with your risk per trade percentage. Not from me, not from anyone else, it has to be you. Forget the "I want to win big, and if I risk 2% per trade, and make a 1:3RR winner, then I have gained 6, 0.5% would have only made me 1.5% growth" Forget the winners, they look after themselves, its the losers that will eat you up if your risk is too much. Another point to suggest is that if you place a trade, and you are somewhat uncomfortable watching the price slowly go towards your stop loss, then chances are your position or risk is too big. So lower it. If you aren't flinching at the potential loss, then its probably too low of a risk and maybe increase it a little bit Lets also say your trade risk is 2% maximum, at a time. That means if you have 1 trade open, you have a 2% risk on that, if you wish to have 2 trades open, you risk 1% on each equating to 2% overall, or you bring the stops in so the overall risk is 2%. e.g. bring one to breakeven and the other maintains a stop of 2%. Another question to ask yourself is are you profitable? For example the 90 90 90 rule. 90% of traders lose 90% of their account in the first 90 days. Though this statistic is somewhat contradicted by the ForEx chatroom, as everyone in there is a 'professional'. If you aren't consistently profitable, then I would suggest go to a simulator, but if you don't want to do that, then I would argue even 0.5% is too much. Again, its about keeping your account alive long enough for you to become profitable. So now you have set your risk per trade that you are comfortable with. Brilliant. Now, what are you willing to lose a day? Lets assume you have settled on 1% per trade, are you willing to lose one trade a day and call it quits leaving you 1% down, or 10 times a day and potentially lose 10%? 2% daily loss, 3, 4, 5? Find it, do not exceed it If you like to be in and out of trades but are only willing to risk a 2% daily drawdown, then maybe a 0.5% risk per trade is good for you, as it affords you 4 trades before you have to walk away. If you're comfortable losing 5%, maybe 1% a trade is good for you, offering 5 trades or 2 trades of 2%. You have to make these choices, write them in big bold letters on next to your trading station if you have to, but once made stick to them. I want to put this out there as well, that I am not giving you these numbers, pick one and go from there. I'm asking you to think about your risk exposure on serious level as that is ultimately what will make you either a good trader, or one who thinks its a scam after losing all of your money. Not every day is green, nor is every week. Thats the reality of this game. For me personally, I dont wish to lose more than 2% a day. And in fact my losing days drawdown of the last 30 days are as follows: Aug 25th -0.97% Aug 31st -1.05% Sept 5th -2.05% Sept 19th -0.27% Sept 20th -2.04% Sept 21st -1.04% All other days were either profitable, or not traded. I did have a 9.22% gain day on Sept 7th which completely writes off all these losses and gave me an overall gain of a few percent, and the rest of the winning days have grown my account. Now, and be honest with yourself, are you doing this the other way around? Losing 9% in a day, for 7 days of the month with the winning days being around 2% gains. It doesn't math. Restrict the losses. The winners take care of themselves and will always come around, same as the losses will always come around. But, the game is to stop those losses spiralling out of control and eating into the winners. Only you, and you alone can reduce these risks to yourself. Its you who has to have the discipline to say, nah, enough is enough. I'm done for the day. Not with the mindset of just one more, or this next one will be the winner. LEVERAGE! BEWARE! Moving onto something that is probably even more important than the aforementioned risk per trade is leverage, and margin. The amount of people who are ignorant to the fact that say "ive a 2% stop loss, thats all I can lose" is frankly scary. Leverage is money, given to you by the broker to trade bigger positions. If you have a $1000 account, with no leverage, you can buy 1000 dollars in the forex markets. If you have 50:1 leverage, you can buy 1000 dollars in the forex markets, with just $20 of your account. Its purpose is to enable you to free up your account, trade larger sizes with less up front. Or you could buy $50,000 and the broker lends you the other 49k and you put up the 1k. Which brings us to margin , which is the money you put up front to the broker as a guarantee for the loan, or the leverage. Now, I was watching a youtube guru the other day, who had an account of $100,000 dollars and was using a 2% risk with a 3 pip stop trading the EU. Simulator of course. This is a scary and terrifying way to teach new aspiring traders. If you don't know why, then hopefully, you walk away from this with a better understanding of what is actually happening in the background when you press buy or sell. Okay, so we all can agree that 2% of 100,000 is $2000 dollars right? He has a 3 pip stop loss, meaning price per pip must be $666.66 (2000/3) 100000 units a standard lot and 1 pip is roughly $10 10000 units is a mini lot, and 1 pip is roughly $1 1000 units a micro lot, and 1 pip is roughly $0.10 This guy needs to get a value of $666.66 per pip. So with some maths and a calculator, we can come to the conclusion that he would need a position size of 6,666,667 units of currency He would need to use all of his $100,000 margin, with a leverage of 66:1 minimum to achieve this position in real life, and even then, it wouldnt breathe. It would be margin called within a second, IF the broker even allowed it. With 100:1 leverage, he would be able to get into the trade and all is good, fine and dandy, no margin call, no brokers banging on his door... That is, until a news spike comes out and drives price 30 pips in the opposite direction to his position and skips past his stop like it isn't there 30 pips at a cost of 666 per pip isnt 2000, or 2% of his account. Its actually 10 times that and $19,980 rinsed. Gone. Blown. Bye bye. That is the damage that over leveraged positions do. His 100k account would be sat at $81,020. Almost 20% loss in 1 trade, at the wrong time Watch this video of EURCHF in 2015, and whilst watching it, imagine what your account would look like, over leveraged, on the brink of margin position on the wrong side of this market. www.youtube.com Price dropped roughly 1000 pips in a few seconds, and over 1500 in the space of an hour. Where would Mr youtuber be if he was in there with his $100,000 account, 2 percent risk long on EURCHF on this day, at $666 per pip Well its gone, for sure. In fact he lost his account 6 times over and ultimately has to find $660,000 from somewhere... a 2% risk isn't the only risk. Remember that when you're balls deep in a position, your margin is screaming and news is coming!! I wish you all be safe in trading, and if you aren't green, don't be too red!
TVC:DXYEducation
by HarryTaylor1397
Cyclical price Patterns!If a price pattern moves in a sine wave pattern, we can say that it is cyclical. A sine wave is a repetitive pattern of peaks and troughs, which is the definition of a cycle. However, it is important to note that not all sine wave patterns are created equal. Some sine wave patterns may be more cyclical than others. For example, a sine wave pattern with a very short period may be more likely to be caused by random noise than by a true cyclical process. To determine whether a sine wave pattern is truly cyclical, traders and analysts often look at the following factors: Period: The period of a sine wave is the amount of time it takes for one complete cycle to occur. Cyclical price patterns tend to have periods that are relatively consistent over time. Amplitude: The amplitude of a sine wave is the distance between the peak and trough of the wave. Cyclical price patterns tend to have amplitudes that are also relatively consistent over time. Correlation: Cyclical price patterns are often correlated with other economic or market data. For example, the price of oil may be cyclically correlated with the global economic growth rate. If a sine wave pattern has a consistent period, amplitude, and correlation with other economic or market data, then it is more likely to be a true cyclical pattern. Here are some examples of cyclical price patterns that can be represented by sine waves: Business cycles: Business cycles are typically characterized by alternating periods of economic expansion and contraction. These cycles can be represented by sine waves with periods of several years. Seasonal patterns: Seasonal patterns are price movements that are repeated on a regular basis, such as the seasonal rise in the price of heating oil in the winter. These patterns can be represented by sine waves with periods of several months or weeks. Overall, if a price pattern moves in a sine wave pattern, it is likely to be cyclical. However, traders and analysts should carefully evaluate the period, amplitude, and correlation of the pattern before making any trading decisions.
NYSE:BACEducation
by Moshkelgosha
4
Trade Journal 4Apologies to the people who enjoy reading this series, I have been really busy with life, kids, work, bikes and cars etc. but hopefully its going to chill for the next few weeks. Will see how it goes and maybe I can do a few more of these trade journals. I'm not going to go over all the last however many trades since my last post as it would take too long, but not much as changed, few winners, few losers and was residing at roughly 16%-17% growth for the month prior to todays fun filled day of trading. I am, however going to put in Fridays trade, which was my highest winner I have ever had, and was really psychologically draining and feel I need to get that written down. Onto today though, 2 trades placed today, 1 winner, 1 loser. First trade I placed was on the EURAUD. Relatively simple trade, with multiple confluences to the down side. A break of structure, followed by a break of VWAP whilst I was away from the computer. Came to the screen approximately 15 minutes before the set up. The thing is, its very very easy to chase price, but of the recent 2 maybe 3 months, patience is something I have had to work on and sometimes I cant handle it and rush in still, but the majority of the time I am waiting for the entry, as in this particular trade. So price broke below VWAP and retraced back into VWAP whcih is what I was waiting for, that confirmation. With a 5m structure level there, as well as the previous days high close to the area too, I am looking to going short, 5m passes and there is a large candle to the downside, and that is the entry reason. Enter with 1% risk, stops above VWAP, and the resistance level. We have already had a rejection from the previous days high, so I figured my stop would be fine, right on that price, as I am not expecting it to be tested another time. Profits were aimed at hourly structure to the left off of the screen (Hourly chart posted below) Relatively simple throughout, no particular surprises. Even managed to get myself another 1% entry into the trade as it broke below and retested the previous 5m swing low, entry reason being the pinbar. Sell stop order was set 1pip below that candle and was triggered in within a few seconds or so of placing it, with no draw down whatsoever. Pretty accurate stuff. Once placed, stop loss was brought to breakeven so I am still only at 1% risk. ADD TO WINNERS, SCALE OUT OF LOSERS! Not the other way around. I will always maintain that mantra. But thats not within the scope of this. Come the end of the trade, I am watching price action and wondering is it going to tag out the previous days lows? It had already took out fridays low, but thursdays low? I had hopes, and my TP for trade 2 was at that price shown by the position tool but momentum started to slow down and we had only just crossed a daily level. I ultimately watched TP of trade 1 get hit, and manually closed the second trade a second or 2 later. I figured we will likely get a retracement and a test of the daily support to see if it becomes resistance. Was relieved to see the bullish candle after I was out, patted myself on the back and left it at that. The push down below my TP, 10 or 15 minutes later is what it is. Doesnt bother me to leave a little money on the table, when I have already put more on the dinner table for the wife to get her hair done, or nails or whatever she wants. You can imagine some stress, and psychology becomes a factor after you see this sort of thing once in the trade. As in, imagine not closing the trade at that point and seeing the bullish candle come in, getting further from TP. Simply momentum slowed, we have broken key support. Im out, whatever happens, happens. No stress, no should I, Would I, could I, make the decision based on what you see. Could sit there waiting for TP to get hit, and the market ultimately fall back to break even in these sort of areas. Sometimes, taking profit is good Good trade though, simple enough 3.77% Gain Image of hourly chart, with reasons why TP were where they were Trade 2 - USDCAD A sign of impatience. Told you, I am better at being patient, but its not completely eradicated. This is coming off the back of trade 1 so naturally I was a bit hyped, over confident, excited, invincible, call it what you will but honestly, looking at it now, the position isnt great and doesnt really make all that much sense. Similar to before, break and retest of VWAP with a bigger candle than before, AND that one was a pin bar too so maybe entry reason wasn't so bad. But certainly the area I got in was. Stops above VWAP, fine, but there is a huge amount of resistance above my stop, thats where my entry needs to be, not my stop in what, in hindsight of course, is a rushed entry. Simply a sell limit order at resistance would have been fine, and in fact looks like a solid trade to be honest. Nothing more needed to be said really. Sell of 1% risk, closed roughly half to three quarters of the the position once getting into some drawdown, and the remainder hit the stop loss. If I had set a sell limit order, I could have got the SR level on my side, target 3x the risk and aimed for daily lows. I don't know if it would win, it certainly hasn't at the time of writing this, but just from an aesthetic point of view, it just sits nicer, and simply makes more sense. 0.46% loss for my impatience. Terrible Not a bad day, some lessons to be learned from trade 2 which is natural in this game. But some confidence gained in trade one. Daily Gain: 3.31% Weekly Gain: 3.31% Monthly Gain: 21.71% NOW, my record breaker. This was tough. Probably the hardest trade I have done in a long time, but I was adamant I was going to stick it out. Emotional turmoil. Forex chat distractions, uncertainty, and I had just put another few thousand of the queens finest pounds in the day before into my account so the numbers were a little higher than I expected and put me off a little bit. The speed of how fast the money was changing, wasnt expecting it to be as hard as it was. Ultimately had to turn the position off and have it with showing just pips. So, the trade... I missed the entry of the strategy I use with this indicator, which is the close of bearish pressure within 2 candles of the second top forming. Fortunately, I was offered a late entry at an even better price, in the form of a bearish pin bar still below the second top. Entered short, stops 1ATR above the double top, then instantly into profit. Comfortable. So what were the issues? As I said, I had put some extra money into my account and the strategy is something I use all the time, or a variation of, as it is quite flexible whilst still being rules based. For example in trade one, I am using previous days level, VWAP and the SR as confluence to go down in terms of entry. In this instance, previous days level, the target of the double top and VWAP are confluence that is where price wants to go to, if that makes sense. Its basically setting up the trade in reverse. VWAP is a magnet, it either repels or attracts price. It has repelled most of the day, slowed down, made a double top, and its likely VWAP is now going to turn into a magnet. It is one of the reasons I enjoy this strategy, that I am not going to say I created, but I certainly have put a lot of work into it. Of course, a guru has explained SR, a guru has explained VWAP, a guru has explained double bottoms/ tops, but I was the one to combine the ideas together, in my own little way that I understand and within the grasps of my trading style. And, I'm not going to blow my own trumpet, but I think a little more refinement, it is going to be one hell of a strategy going forward. Anyway, I digress... So in chat, roughly half way through the trade where I am up roughly £130, someone in chat said along the lines of buy the EUR, DXY is retracing. Right, okay dude... every second that went past after that, well my profit went 130 and turned to 120, to 110, to 90, to 60. Again, added money, hadn't seen money come and go like this for a long time. In simulators, its different. you can trade millions, and look at Facebook doing it. It doesnt mean anything, but this was to me. Do I close? Do I hold? Do I bring stops to evens? Do I leave them out? My head had just gone. I didn't know what to do and I had to force myself to think logically. Why is my stop there? Because that disproves the idea. Good. So that's fine. Has it moved enough to warrant being at break even yet. My rule is I want to see price be at 1:1.1 or higher before I bring stops to break even, has it done that? No, stops stay out. What is price action doing? Well to get to where it was, it put in a momentum candle into the neckline, price always reacts to the neckline of double top patterns. Is this out of the ordinary? No. Keep in the trade. VWAP upper band is in that area as well, price is likely to react to that too, is anything out of the ordinary happening there, no. Stay in the trade. The more I sat and calmed myself down, and thought about it in a logical way, has my strategy, has my idea been disproven, the more I couldn't help but think the guy in chat is just a lunatic. But it still puts that littlest bit of doubt in your mind at a crucial stage of the trade. So I held on. Price eventually came back to where it was prior to chat guy giving me a headache originally, it broke the swing low, and everything was okay. This is the point I turned off money being shown in the charts... and I also found the automatic one click buy/ sell button whilst doing so. The arrows you see mid way through the trade are just me playing with a 1000 units, and aren't really relevant to the trade. This might not mean a lot to people, but you can back test all day, all night, every week, but its empty. There is nothing on the line and clicking a forward button and watching price action either hit or stop out is emotionless. Being in the trade at that point for me was slowly becoming a bit stressful, even though, I was comfortable with everything on the trade, the risk, the price action, the strategy, something was just bugging me in the back of my mind. Even now, I cant think what it was. Just had a little devil on my shoulder whispering... but I held my nerve, and held on. In fact, I held on so much that towards the end, I said to myself , I am not even going to close the trade manually, I am going to sit here, with my Iced coffee, and watch it hit my TP. 3 times it bounced away from it before hitting it, but I wanted to prove to myself that I could do it. No, I needed that. I know I am right. The confidence I got from that one trade was unreal. The middle finger to the devil on my shoulder, the middle finger to Forex chat guy. I do want to thank @ZenFlo as well, a regular in the Forex chat. I messaged him during the trade, reference how he handles these situations, the psychological aspects, the pressure, the doubt, the stress, all of it and how he deals with the internal argument between yourself, be it trusting the strategy, or instinct/ intuition, or some random guy in chats analysis. He really did help me take my mind off of it. So, again, thank you. Was my biggest and best trade to date Daily Gain: 3.31% Weekly Gain: 3.31% Monthly Gain: 21.71% Thanks for reading, Let me know how YOU deal with the doubts that creep up inside your head mid trade!
Education
by HarryTaylor1397
The Batman Pattern intro shortI call this pattern the Batman Pattern, because if you look at the overall shape is it very much like a Batman jet, or car or Batman shirokin (throwing weapon)... Lower head, like baman wearing flying wings. Definitely a rolling over pattern like a head and shoulders. my apologies for the text below price that says sell and buy, just ignore it. ichimoku cloud, see the translucent tiny green and red lines? We are above cloud cover. The Ichimoku Cloud is a comprehensive technical analysis indicator that provides insights into trend direction, momentum, and support and resistance levels. It is a composite indicator, made up of five different lines: Tenkan-sen (conversion line): The average of the highest high and the lowest low over the past nine periods. Kijun-sen (base line): The average of the highest high and the lowest low over the past 26 periods. Senkou Span A (leading span A): The average of the Tenkan-sen and the Kijun-sen, shifted 26 periods into the future. Senkou Span B (leading span B): The average of the highest high and the lowest low over the past 52 periods, shifted 26 periods into the future. Chikou Span (lagging span): The closing price plotted 26 periods behind the current price. The cloud is formed by shading the area between Senkou Span A and Senkou Span B. When Senkou Span A is above Senkou Span B, the cloud is green, indicating a bullish trend. When Senkou Span A is below Senkou Span B, the cloud is red, indicating a bearish trend. The other three lines can be used to confirm the trend direction and identify potential entry and exit points. For example, a bullish signal is generated when the Tenkan-sen crosses above the Kijun-sen. A bearish signal is generated when the Tenkan-sen crosses below the Kijun-sen. The Chikou Span can be used to identify support and resistance levels. When the Chikou Span is above the price, it is considered a support level. When the Chikou Span is below the price, it is considered a resistance level. Technical Analysis of the Ichimoku Cloud The Ichimoku Cloud can be used to generate a variety of technical trading signals, including: Trend direction: The cloud itself is a powerful indicator of trend direction. When the price is above the cloud, it is considered to be in a bullish trend. When the price is below the cloud, it is considered to be in a bearish trend. Trend strength: The thickness of the cloud can be used to gauge the strength of the trend. A thicker cloud indicates a stronger trend. Momentum: The Ichimoku Cloud can also be used to identify changes in momentum. When the cloud is expanding, it indicates that momentum is increasing. When the cloud is contracting, it indicates that momentum is decreasing. Support and resistance: The cloud itself, as well as the Tenkan-sen, Kijun-sen, and Chikou Span, can all be used to identify support and resistance levels. Entry and exit points: The Ichimoku Cloud can be used to generate a variety of entry and exit signals. For example, a bullish trader might look to enter a long trade when the price crosses above the cloud and the Tenkan-sen crosses above the Kijun-sen. A bearish trader might look to enter a short trade when the price crosses below the cloud and the Tenkan-sen crosses below the Kijun-sen. Example Usage The following chart shows an example of how the Ichimoku Cloud can be used to trade a currency pair: Ichimoku Cloud chartOpens in a new window www.fidelity.com Ichimoku Cloud chart The chart shows that the price is above the cloud, indicating a bullish trend. The Tenkan-sen is also above the Kijun-sen, confirming the bullish trend. The Chikou Span is acting as a support level, which could provide an entry point for long trades. A bullish trader might look to enter a long trade at the current price, with a stop loss placed below the Chikou Span. The trader could then take profits at the next resistance level, which could be identified using the Ichimoku Cloud or another technical indicator. Conclusion The Ichimoku Cloud is a powerful technical analysis indicator that can be used to generate a variety of trading signals. It is a complex indicator, but it can be a valuable tool for traders who understand how to use it. Additional Technical Considerations The Ichimoku Cloud can be used in conjunction with other technical indicators to generate more robust trading signals. For example, a trader might use the Ichimoku Cloud to identify the trend direction and then use a momentum indicator to identify entry and exit points. The Ichimoku Cloud is a lagging indicator, meaning that it can be slow to respond to changes in the market. It is important to be aware of this when using the Ichimoku Cloud to generate trading signals. The Ichimoku Cloud is most effective in trending markets it is just one of the 10 indicators i have on 10 templates but each one tells me part of the the story. in this case i interpret it that there is a long way down to fall.
CME_MINI:ES1!Education
by dryanhawley
Rising and Falling Wedges ExplainedWelcome to the world of trading patterns. If you appreciate our charts, give us a quick 💜💜 Today, we'll explore two important ones: the Rising Wedge and the Falling Wedge . These patterns can signal shifts in market trends. Let's dive in and see how they work. Rising Wedge: In an uptrend, the Rising Wedge hints at a bearish turn. It takes shape as prices find a middle ground between two upward-sloping lines, one as support and the other as resistance, both inching closer. As the price inches towards the wedge's tip, its upward push tends to fade, suggesting a potential shift to a downward trend. Your sell signal triggers with a bearish break beneath the wedge's support. Set a stop loss just above the wedge's highs. Aim for the next significant support level. Falling Wedge: Unlike the Rising Wedge, the falling wedge spells optimism in a downtrend. It emerges as prices consolidate between two downward-sloping lines, one providing support and the other resistance, both drawing nearer. As prices approach the wedge's apex, the downward momentum loses steam, hinting at a potential shift towards an upward trend. Your buy signal activates with a bullish breakout beyond the wedge's resistance. Place a stop loss just below the wedge's lows. Target the next notable resistance. Feel free to let us know your thoughts and if you have any questions. Your feedback is valuable and helps us improve. Happy trading!
Editors' picks
Education
by Vestinda
21
Pumps&Dumps how it works in crypto?Hello, traders! Today, I'd like to explain how pumps work in the crypto world I distinguish between two main types: Fake Pumps: These orchestrated pumps involve artificially inflating the price through the actions of a group of individuals or entities. They typically rely on coordinated buying to drive up the price. Natural Trends: These are price trends that occur organically due to project developments, macroeconomic factors, or news events. Let's start with the basics. How are trends formed? It often begins with a news release on major news portals. This news then spreads through smaller influencers on various social media platforms, eventually leading to a trend that lasts for a while due to delayed reactions. Large corporations, banks, and other factors can sustain these trends for weeks or even longer. A notable example is FTX (a negative trend) and Pepe (a short but intense trend). Now, let's delve into "whales." In the United States, the SEC closely monitors such activities and frequently imposes penalties or more severe punishments on traders. However, the crypto world operates differently, and pump schemes still exist. Here are a few variations: Signal Groups: These groups provide analysis and signals that often prove profitable. Multiple groups may collaborate, accumulating significant amounts of altcoins in advance, and then initiate pump cycles, closing one combination of coins before moving to the next. Scam Groups: These groups engage in mass shilling, create fake news, and conduct mass marketing campaigns. They typically pump and dump coins within the same day, distributing coins to their audience and then swiftly exiting the market. In general, it is possible to profit from these schemes if you can predict which coin will be pumped next. However, extreme caution is necessary, and close monitoring of the pump process is crucial. Now, let's touch on the technical aspects of how a pump unfolds. . Picture this scenario: You're a whale sitting on a hefty $200 - 300 million in USDT liquidity. Now, instead of IDX:SHID , let's consider the dynamics with $SHIB. Here's how it plays out: The whales seize the moment and decide to gobble up the entire supply of CRYPTOCAP:SHIB available in the market, fueled by a significant event such as a Twitter endorsement (as we've seen recently). Given that CRYPTOCAP:SHIB typically experiences lower trading volumes compared to major altcoins like BTC or ETH, the cost of absorbing all available orders and driving up prices by a modest 10-20% isn't exorbitant. As the pump kicks into high gear, it not only lures in retail investors but also captures the attention of fellow whales who want a piece of the action. The price trajectory continues to surge, setting new highs with each passing moment. It's a classic scenario in the world of crypto trading, where strategic moves by whales can trigger massive market movements. I've covered a bit and I think I'll continue the article if you support me with comments. Can I write about how the FWB:PEPE Pump happened, what do you think?
Education
by Ingwina
1
The Power of Candlestick Encapsulation in Trading: Utilizing theTrading is a captivating and intricate field that demands a profound understanding of financial markets, investment strategies, and technical analysis. Among the many techniques employed by traders, candlestick encapsulation is one that can prove to be particularly powerful. In this article, we will explore the concept of candlestick encapsulation and how one can harness the 50% of the first candle's length as a potential support or resistance level. What Is Candlestick Encapsulation? Candlestick encapsulation, also known as an "inside bar," is a price pattern that occurs when a subsequent candle develops within the boundaries of the preceding candle. In other words, the price range of the second candle is entirely contained within the range of the first candle. This pattern can appear on any time frame, from daily candles to one-minute candles, and is often used by traders to identify potential turning points in the markets. How to Identify Candlestick Encapsulation? To identify candlestick encapsulation, follow these steps: * Examine the First Candle: Begin by observing the most recent candle on your price chart. This will be the "mother candle."
 * Take a Look at the Next Candle: Next, examine the candle that follows the mother candle. This candle should have a price range that is completely contained within the range of the mother candle.
 * Confirm the Pattern: To confirm candlestick encapsulation, the second candle must close within the range of the mother candle. Using the 50% Level as Support or Resistance Now that we understand what candlestick encapsulation is, let's explore how to leverage the 50% of the first candle's length as a potential support or resistance level. * Calculate the Length of the First Candle: Measure the length of the mother candle from its high to its low.
 * Calculate 50% of the Length: Now, calculate exactly 50% of this length. You can do this by adding the high and low of the mother candle and dividing by two.
 * Draw the Horizontal Line: Plot a horizontal line on your price chart at the level you calculated as 50% of the mother candle's length.
 * Observe Price Behavior: This horizontal line represents a potential support level if prices move below it or a resistance level if prices stay above it. Observe how prices react when they reach this level. Interpretation and Strategy The use of the 50% level of the mother candle's length as support or resistance can be applied in various trading strategies. Here are some important considerations: * Breakout Strategy: If prices break above the 50% level, there may be a potential bullish breakout. In this case, traders may look for buying opportunities.
 * Pullback Strategy: If prices return to the 50% level after a breakout, this could be an opportunity to enter positions in the direction of the prevailing trend.
 * Stop Loss and Take Profit: Traders can use the 50% level as a reference point to place stop-loss or take-profit orders. Conclusion Candlestick encapsulation is a technical analysis technique that can provide valuable insights into potential turning points in financial markets. By using the 50% level of the mother candle's length as support or resistance, traders can add another tool to their trading toolkit for making informed trading decisions. However, it is important to remember that no technique is foolproof, and trading always involves a degree of risk. Therefore, it is advisable to combine this technique with careful risk management and a solid understanding of financial markets.
OANDA:XAUUSDEducation
by AleSaira
Introduction to Relative Strength or Ratio 1-1This is part one of a series on relative strength ratios. Part One: Relative Strength Ratio (RS) analysis is used to compare one markets performance with that of another. The RS line provides a direct comparison of strength or weakness relative to the another. RS analysis is particularly useful for active institutional managers who are judged relative to a benchmark as opposed to individual investors who are constrained by producing an absolute return. But understanding ratios opens a world of spread or pairs trading and provides valuable insight into the market environment. To be clear, the relative strength ratio has nothing to do with Welles Wilders Relative Strength Index (RSI). RSI is a momentum oscillator designed to evaluate a single security as opposed to a ratio comparing one security to another. Using ratio analysis, bonds can be compared to equities, commodities to bonds, domestic equities to global equities, gold to copper, country to country, currency to currency, industry sector to industry sector, specific companies or sectors to broader indices, country to country and even individual equities. Choices of pairs are extensive. Importantly, once charted, the RS line can be analyzed as any other security. Support and resistance, channels, and momentum indicators can all be applied to the RS line. With literally thousands of securities to be compared the limits of RS analysis is only limited by the imagination of the analyst. The analyst does need to be careful. There needs to be a clear and intuitive economic linkage between the two securities before setting up ratio charts. There can also be issues when two securities, despite having a clear linkage, have a dynamic third variable such as currency translation or large differences in duration such as the LQD/HYG example that we will cover in future parts. Relative Strength is calculated by dividing one security's price by a second security's price (the "base" security). The result of this division is the ratio, or relationship, between the two securities. When the RS line is rising, the numerator (top) security is outperforming the denominator (bottom) security. When the numerator security is falling, the numerator is underperforming the denominator security. If the RS is moving laterally, there is no performance advantage to either the numerator or denominator. When looking at spreads I mostly prefer to use the ratio rather than the net price difference between two markets. Using ratios allows the analyst to make comparisons between markets priced in different units. For instance, Oil and Gold or cotton and the CRB. One exception to this would be when directly comparing one ratio to another ratio. In this case both ratios need to be normalized to a common starting value (I use 100) to adjust for large differences in numerators that could skew the RS line higher or lower relative to the RS line. I find ratios most useful over longer time perspectives for business and economic insight. However, many traders/investors use them in shorter time perspectives as they create spread trades or aggressively switch between sectors. When I was actively trading bond/note futures I used extremes and technical analysis of the RS line on the hourly chart to help manage my curve trades. In this series we will explore the construction of relative strength ratios, their best use, and make technical evaluations of several ratios and what that analysis implies. And finally, many of the topics and techniques discussed in this post are part of the CMT Associations Chartered Market Technician’s curriculum. Good Trading: Stewart Taylor, CMT Chartered Market Technician Taylor Financial Communications Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.
Editors' picks
AMEX:XLPEducation
by CMT_Association
7
How to Head and ShouldersGreetings, Financial Enthusiasts! 🌟 If you appreciate our charts, give us a quick 💜💜 The Head and Shoulders pattern is a well-known chart formation in technical analysis. It indicates a reversal from a bullish to a bearish trend, usually at the end of an upward trend. Key Points: - Head and Shoulders: Chart pattern signaling trend reversal. - Formation: Three peaks on a baseline - two lower outer peaks and a higher middle peak. - Bullish to Bearish: Suggests a shift from an upward trend to a downward one. - Applicability: Seen on all timeframes, suitable for various traders and investors. - Entry Levels: Easily identifiable, aiding in trade implementation. Why It Matters: The Head and Shoulders pattern provides traders with a visual representation of a trend reversal. It's widely used due to its simplicity and applicability across different timeframes. The Pattern: - Formation (Market Tops): 1. Left Shoulder: Price rises, forms a peak, then falls. 2. Head: Price rises again, forming a higher peak. 3. Right Shoulder: Price falls again, then rises but forms a lower peak than the head. - Formation (Market Bottoms): 1. Left Shoulder: Price falls, forms a trough, then rises. 2. Head: Price falls again, forming a lower trough. 3. Right Shoulder: Price rises again, then falls, forming a higher trough than the head. Neckline: - For Market Tops: Connect the low after the left shoulder to the low following the head to create the neckline. - For Market Bottoms: Connect the high after the left shoulder to the high after the head to form the neckline. Trading the Pattern: - Wait for the pattern to complete before trading. - Entry when price breaks below the neckline (tops) or above it (bottoms). - Stops placed above the right shoulder (tops) or below it (bottoms). - Profit targets calculated based on the head-to-shoulder difference and added (bottoms) or subtracted (tops) from the breakout level. Why It Works: - Sellers enter as price falls from its peak, reducing aggressive buying. - The neckline marks a point where traders exit positions, driving price toward the target. - A lower right shoulder (tops) or higher right shoulder (bottoms) signals a trend shift. - Profit target assumes forced exits by those in losing positions. - The neckline prompts many traders to exit, pushing price towards the target. - Volume analysis helps confirm patterns; expanding volume (bottoms) shows increased buying interest. Pitfalls: - Waiting for pattern completion may require patience. - Not all patterns lead to successful trades. - Profit targets aren't always reached. - External events can disrupt patterns. - Patterns can be subjective; traders should define their criteria. The Head and Shoulders pattern, though not foolproof, provides a structured approach to identify and act on trend reversals.
Editors' picks
Education
by Vestinda
21