Trade identification: Using bitcoin as an exampleHello,
Trade identification is the process through which you are able to identify setups that can be actioned on in the markets. For this example, I shall be using the BTCUSD chart to chant my path as I look for tradeable setups.
1: Structure drawing
Identifying the structure of trades is very key since it creates a sense of knowing where the market is at from a greater point of view.
The structure on a 2 weeks chart shows that the crypto is at the top of the chart. This shows that it might not be a good time to buy since it is advisable to buy at the bottom and sell at the top. However, we can always look for smaller trades using lower timeframes and get better setups.
2: Move to lower time frames & identify patterns.
Patterns are very key in helping you identify tradeable assets. For my asset I moved to the 6h timeframe to zone in and identify tradeable opportunities. This helped me identify the Expanding triangle setup on a bigger scale.
This is a sideways move that will help me trade on the asset for the short term. In the expanding triangle I was able to identify other smaller correction patterns that guide me on how the market is moving.
3: Entry identification
After you have determined where you are at in the eco cycle, very key is now to identify the next causes of action. You must never trade at the top (buying overpriced assets). Very important is to always note that there will always be more opportunities in the future and never to chase trades that have already gone. The ideal situation is to look for corrections as entry points and buy/sell with them.
Next now will be to look for areas where you can enter on an even lower timeframe.
The chart shows that a correction is happening on a lower timeframe (1hour). Now have an alert at the bottom of the correction also coupled with indicators.
Thats the entry point of the trade.
4: Target setting
The exit target shall be set using the 6 hour chart and will be at the top. A stop loss will be just behind the trendline as shown below. This is very key for risk management.
Now wait for the price to come close to your entry points and good luck. We shall follow this trade to end.
Community ideas
The TradingView Show - Must-see Charts with TradeStationHello to all the global traders! We're live with David Russell, TradeStation's Global Head of Markets. He's also the one who publishes the research and analysis from the official TradeStation account on TradingView. Follow them here: www.tradingview.com
In today's show, we're discussing the most important charts, interesting trades, and providing education to all traders. What's on David's mind? Interest rates, earnings, and big moves happening across equity markets from Apple to Goldman Sachs, Bitcoin, and copper stocks like FCX.
We look forward to meeting all the traders out there and thanks for watching. Ask questions in the comments section, share your best insights, and be sure to subscribe to our future shows, all happening on TradingView and with our partners, influencers, sponsors, and global community.
This show is strictly for education and entertainment. Never advice!
Look first, then leap!
- TradingView
Important disclaimers for ETFs: www.tradestation.com
Important disclaimers for options: www.theocc.com
All other important disclaimers: www.tradestation.com
Tesla among top 10 losers. Next what?Tesla is the 7th worst performer YTD in the Nasdaq-100. It is the 11th worst performer in the S&P 500. The stock stands 28% lower.
Still, after reaching its lowest level on 22/April, the stock has rallied a remarkable 30%. On 24/April, the stock rallied 12% after the positive earnings call. On 29/April, the stock jumped another 15% after the announcement of the Baidu ( HKEX:9888 ) partnership.
Yet in the longer term, outlook remains cloudy as margin compression owing to fierce competition from Chinese EV makers and the wider EV industry slowdown.
MUSK'S CHINA VISIT LEADS TO BAIDU DEAL
Last Sunday, Elon Musk flew to China on a surprise visit. The last minute visit led to speculation over a push to launch full self driving (FSD) in China.
Persons close to the matter stated that Musk was expected to discuss the rollout of FSD software and permission to transfer data overseas, as reported in Reuters .
One of the key hold-ups for the rollout of FSD in China has been access to map data. Musk’s recent trip seems to have addressed that as Tesla announced a partnership with Baidu for map data access. While, Musk has long claimed that Teslas will be able to run FSD without map data, this will allow them to roll-out the offering much sooner and boost the slowing revenue in one of their leading markets in China.
FSD has been a recent revenue driver for Tesla. In 2024, Siena Capital analysts estimated that Tesla recognized almost USD 700 million in revenue, which represents 4.3% of their automotive revenue after stripping regulatory credits.
BYD PARTNERSHIP
Another strategic partnership that has helped boost investor sentiment at Tesla has been the strategic partnership with BYD ( HKEX:1211 ).
While both companies are major competitors, BYD recently overtook Tesla as the largest EV manufacturer in terms of overall vehicle sales (including hybrids). However, the fierce competition has also taken a toll on both companies as it has led to price cuts to win over more customers.
That’s why a technology-sharing partnership between the two companies is positive. While, they continue to compete, the partnership – specifically related to the use of BYD’s LFP battery technology in certain low-cost Tesla models – remains a positive for Tesla as it allows them to diversify their battery supply chain, reduce production costs, and enhance range for their lower-cost models.
LOW-COST MODELS COMING SOONER THAN EXPECTED
A recent hurdle for Tesla has been delay behind the upcoming low-cost Model 2 vehicle which plays a pivotal role in Tesla’s growth strategy. According to a Reuters report , Tesla had opted to cancel or indefinitely postpone plans for the upcoming Model 2. Instead, it would focus its attention on Robo-Taxis. The low-cost car represented the next phase of Musk’s long-term master plan to produce affordable electric vehicles through manufacturing process improvements.
Fears were that fierce competition in the low-cost category by Chinese manufacturers would make Tesla’s efforts unfeasible.
Yet, Elon Musk disputed the Reuters report and at the Q1 earnings investor call, it was verified. The Model 2 strategy is still on track. In fact, it may come sooner than expected at the end of 2024. Musk stated that Tesla was accelerating the launch of more affordable models that will be available to produce on its existing manufacturing lines.
Tesla aims to fully utilize its current production capacity towards these efforts and grow manufacturing 50% over 2023 before they start investing in new manufacturing lines.
Additionally, the robo-taxi push is also underway. Elon Musk stated that Tesla will launch its long-awaited robo-taxi product as soon as 8/August/2024. The autonomous driving robo-taxis will earn revenue for their owners. Moreover, owners will be able to add their Tesla's to the robo-taxi shared fleet with just one click on the Tesla app.
BEARISH CLOUDS PERSIST
Despite these recent developments, the outlook for Tesla remains undeniably cloudy. At its Q1 earnings, Tesla reported dismal results. But it’s not just Tesla which is struggling, it’s the wider EV industry.
EARNINGS SUMMARY
Tesla's Q1 2024 earnings report released on 23/April revealed a challenging quarter marked by margin compression and a slowdown in electric vehicle (EV) sales, influenced by strategic price cuts and broader economic factors.
Financially, Tesla reported a reduction in its automotive gross margin to 17.4%, down from previous quarter, reflecting the impact of significant price reductions across its model lineup intended to stimulate demand amid a softening global market.
These price adjustments, while successful in driving a short-term uptick in sales volumes, did not fully counterbalance the revenue per unit loss, leading to an overall revenue of $21.3 billion and earnings per share (EPS) of $0.45, both figures below analyst expectations. Quarterly revenue and deliveries were the lowest since 2022.
One of the bright spots has been Tesla’s efforts to control costs. Not only did the company recently announce layoffs. It also stated that it would slow the growth of its Supercharger network to bring costs under control.
Moreover, investors were not as concerned about the concerning financials following the investor call where Musk re-affirmed Tesla’s long-term strategy while maintaining that Tesla would remain lean by producing the new lineup on existing manufacturing lines, assuaging fears of spiraling costs.
Critical to note that it is not just Tesla which struggled in Q1. BYD also reported that its profits fell 47% YoY. Vehicle sales also slowed QoQ. It is the wider industry that is experiencing a slowdown.
Unfortunately for Tesla, margin compression is more concerning for it compared to its Chinese competitors. Particularly as Chinese manufacturers are able to keep costs lower with help from government subsidies. Not only does the Chinese government offer direct subsidies to manufacturers, it also offers subsidies for EV buyers in China which has led to a boom in EV sales, which has benefited Chinese EV manufacturers.
Economic slowdown from high interest rates and a domestic slowdown in China may keep EV sales subdued for some time. In which case, Tesla would be forced to continue with its price cuts which would continue to pressure margins.
TESLA'S FINANCES STRAINED UNTIL AFFORDABLE MODEL LAUNCH
With recent positive news, Tesla stock has recovered sharply. Yet, it remains one of the worst performing stocks in the S&P 500 YTD.
Bearish clouds persist for Tesla as margin compression continues due to competitive price cuts by Tesla. Amid an industry-wide sales slowdown, Tesla may be forced to continue with its strategy to offer price discounts on its cars, keeping its margins pressured. Moreover, Tesla continues to face pressure from low-cost Chinese EVs until it can launch its own low cost models.
While, Tesla’s new models are expected sooner than expected, they are still several quarters away. In the meantime, fundamental factors are likely to continue impacting Tesla’s profitability and subsequently its stock.
An Exciting Insight into FXOpen's New Hong Kong-listed Stock CFDLook East! An Exciting Insight into FXOpen's New Hong Kong-listed Stock CFDs
Hong Kong has built up a gilt-edged reputation as one of the world's most reputable financial market centres. The city of Hong Kong enjoyed a unique position for many years. It is situated in the Asia Pacific region, very close to Shenzhen in mainland China, whilst being a global investment and banking leviathan.
Hong Kong's stature as the 'New York of the East' alluded to the investment banking sector, global institutional trading venues and currency clearing capacity, which stood it out as a gateway to the world for Chinese companies as well as a gateway to the Eastern markets for European and American financial giants.
Today, Hong Kong remains an interesting prospect; its stock markets are heavily focused on local APAC and mainland Chinese corporations, with a degree of volatility present ever since Hong Kong completed its transition to full Chinese governance.
FXOpen has taken a further step in its commitment to providing access to the most poignant instruments across the world's financial markets and has now added* 29 stocks listed on the Hong Kong market.
Today, we take a look at the most popular among these new instruments.
1) Tencent Holdings Limited HK
Just a few kilometres away from the classically elegant city of Hong Kong is Shenzhen, the first Chinese metropolis that is reached after a short walk across the border into mainland China from Hong Kong. Shenzhen is a modern, plate-glass showcase of Chinese technological prowess and is home to Tencent Holdings Ltd, which is one of the largest multi-faceted technology companies in the world.
In China, email is long obsolete, and everyone from CEOs of large corporations to teenagers in school communicates using either QQ or WeChat messengers, both of which are products of Tencent. Whilst Western authorities and business moguls wrangle over a potential deal between Microsoft and Activision Blizzard, disapproving of its size in which it would potentially create a gaming monopoly, Tencent dwarfs both firms in the video gaming industry. Tencent is one of the largest video gaming companies in the world.
The company also produces smartphone applications as well as actual smartphones, payment technology, music streaming software, e-commerce platforms and advertising. Since it crossed the $500 billion valuation mark six years ago, Tencent has become the most highly capitalised company in all of China. Given the nation's industrial prowess, that is quite some accolade.
2) China Construction Bank Corporation HK
Hong Kong's division of the China Construction Bank is a vital strategic outpost for the financial giant as it represents the firm's international business arm.
The entity which became China Construction Bank HK has an illustrious 112-year history in the territory and was the first Chinese-owned bank to ever be established in Hong Kong under its original guise of Bank of Canton. Throughout the British era, the bank underwent many changes, including a stint as Bank of America in the early 1990s. In 2006, it was acquired by China Construction Bank, which is one of the four largest banks in Mainland China.
Listed on Hong Kong's main market, the bank's stock tends to trade under the 5 HKD mark, making it accessible for many investors with a low entry barrier.
3) BYD Company Limited HK
Among motoring enthusiasts and the car manufacturing establishment of the West, relatively new entrants into a long-established and conservative industry reliant on brand heritage and decades of engineering prowess or motorsport pedigree have often, over the years, been met with derision.
BYD, one of China's most prominent motor vehicle manufacturers, is no exception. Motoring events, boardrooms at large motor manufacturers and special interest internet forums for car enthusiasts have often been awash with derogatory remarks or humorous quips writing off Chinese cars as somehow of inferior quality, the preserve of the uninformed or the transportation choice of the price-led who simply do not care what they drive.
Well, it is not funny anymore. China has for many decades manufactured vehicles for its home market and done so very successfully, and BYD is one of the giants which produces cars, motorcycles, buses, trucks and construction equipment and is now exporting such vehicles worldwide. More recently, BYD joined the electric car battle for supremacy, and its modern, technologically advanced cars are selling well in countries other than China and competing against established European, American, and Japanese brands.
Listed on the Hong Kong stock exchange, BYD's stock is of interest to investors who relish the company's expansion of marketing to an international audience.
4) Xiaomi Corporation HK
Apple and Samsung may have dominated the smartphone hardware market in most regions of the world for almost two decades, but in China, things are somewhat different.
In terms of the internet and the infrastructure that surrounds it, China is a world of its own. Most of the internet sites and services that are commonplace in other regions of the world are blocked in China, and China has its own highly sophisticated internet ecosystem, which relies on home-grown platforms, which are veritable giants.
For this reason, Chinese smartphones are dominant, and Xiaomi is one of them. Indeed, Xiaomi's smartphone manufacturing capacity is so large that it's considered one of the largest manufacturers of smartphones in the world. More recently, Apple and Samsung have regained their crown, with Xiaomi in third place, but it is clear that these relatively new competitors from China are serious contenders in this established brand-sensitive market.
The company operates in many sectors of the electronics industry, including computer software, television sets, drones, smart home equipment, household appliances and hardware, and even produces technology for the automotive industry. What is perhaps fascinating is that Xiaomi was only founded 14 years ago, yet it is vast, eclipsing electronics companies in other countries that have existed since Thomas Edison first discovered electricity.
5) Baidu Inc. HK
Sticking with the internet theme, Baidu is next up. Baidu is often viewed by global pundits as the 'Google of China' as it is the basis for access to every area of internet services and online information in China.
Google does not serve China, and most of the websites and online services that are in widespread use in other nations are not available in China, with a Baidu-orientated equivalent being available instead.
Based in Beijing, Baidu is one of the largest internet and AI companies in the world, and is not only a mainstay of daily life for every Chinese citizen but is also a resource highly relied upon by the Chinese government's internet services division which monitors and controls activities in the country. China has the most sophisticated internet firewall in the world, which prevents access to many global sites and ensures almost total dependence on Chinese internet infrastructure.
6) Ping An Insurance (Group) Company of China Ltd. HK
Ping An is a widely recognised name across China, mostly due to its core activity as a retail banking giant which provides personal and business banking services as well as retail trading accounts.
The company operates across more sectors than banking, however, and is actively involved in venture capital investment, especially in technology and internet-related firms offering financial products or developing financial technology, as well as more traditional areas of the financial services world, such as pensions and insurance.
Ping An’s insurance division has a listed entity in Hong Kong whose shares have more recently been trading under the 40 HKD mark, making it an interesting instrument that has enjoyed more robust performance in the past.
7) CITIC Securities Company Limited HK
It is one of China's most comprehensive investment banks. The company operates across the Chinese market in a similar vector to that of the giants of Wall Street across North America.
Founded in 1995, the company provides services across the underwriting, research, brokerage, asset management, wealth management, and investment advisory sectors and is another fascinating Chinese pillar of strength given that it is only 29 years old compared with its similar-sized counterparts in the West which in some cases have been established since the days of the explorations to the new world in the 17th century.
Over the past month, CITIC Securities HK stock has been sliding considerably, but given the overall size of the company itself and its intrinsic value to China's government-controlled financial markets system, it is interesting indeed.
8) Anhui Conch Cement Company Limited HK
The construction industry in China has been leading the world for many years as a reference point for incredible efficiency and ingenious city planning.
It has been possible to transform previously rural backwaters in central provinces into ultra-modern, highly productive cities with diversified industrial bases and luxurious living standards within just a matter of a few years.
Multi-use buildings, high-speed trains capable of over 300km/h connecting these cities to other hives of activity across the country, nuclear power stations and giant commercial and residential real estate investment trends have punctuated China’s remarkable growth over the past two decades.
However, there has been some over-exposure and, more recently, concern over the sustainability of the real estate market in China.
Cement manufacturing has been a vital source of material for such a huge development boom; however, in February this year, Anhui Conch Cement Company Limited HK stock hit 1-year lows.
An interesting move, considering that China is the largest economic superpower in the world and its production capacity remains on the increase; hence, manufacturing facilities and towns to support them may well continue to be built.
9) China Mobile Limited HK
China Mobile is a telecommunications giant, which is interesting as a corporate entity due to its major shareholder being the Chinese government.
State ownership, or majority shareholding by the state, is common among telecommunications and media entities in China, and China Mobile is the world's largest telecommunications network by number of subscribers and the largest telecommunications company in the world by revenue.
That is quite some feat. Although it is a Chinese company these days, its origins are actually in Hong Kong as it was founded in 1997 in Hong Kong as China Telecom (Hong Kong) Ltd.
China Mobile is yet another Chinese corporate giant that has risen to enormity in a relatively short time, and its stock is listed on the Hong Kong exchange, with buoyant performance in recent months.
Whether one is looking to gain exposure to China's leading technology companies or the region's robust financial sector, these stocks present a varied array of trading opportunities within one of the globe's most dynamic markets.
*FXOpen is adding Hong Kong stocks, which will take effect according to the approval of each specific regulator.
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.
Putting Risk Reward into PerspectiveMost newbies, and even intermediate traders don't really understand what high risk to reward trades require from themselves and from the market. They think it is something to strive for, and that high RR trades are reserved for the pros. This is far from the truth.
In this video I try to give more perspective to this concept.
- R2F
Uncommon Inflation Measures for Analyzing Attitude towards Risk In this analysis we breakdown certain inflation measures that can aid us in capitalizing on longer term trends in various asset classes. The Baltic Dry Index or BDI gives us a real world view of shipping costs. The Index is a measure of the cost to move commodities by the Sea. Therefore, It's a leading indicator for the demand of commodities around the world. The Baltic Dry Index dates back to the mid eighteenth century as the majority of sea trade was done between London and surrounding Baltic states. Each day the price is updated just prior to New York stock exchange open by the 26 largest shipping companies in the world. The Baltic dry index is a pure piece of data because there is no government or central bank manipulation behind it. The BDI can be quite volatile and this is due to the fact that there are a finite number of available transport ships at any given time. If suddenly commodities come into high demand globally .. this means there will be less ships.. and this results in higher prices to ship goods. This signals us that Inflation may be increasing and therefore higher interest rates may result as the economy heats up. A Falling Baltic Dry Index indicates to us a slowdown of demand for commodities and also of the broader world economy.
Next, we observe the GCC or an Exchange Traded Fund that is based upon the Continuous Commodity Index. The Fund intends to provide broad-based exposure to four commodity sectors : Energy, Agriculture, Precious metals, and Industrial Metals. The Baltic Dry Index generally leads commodity prices(and the commodity index) which was a concept we identified in our analysis.
If this was useful or interested you, Please leave a Rocket or comment in support of similar analysis in the future.
General Disclaimer:
The trade ideas presented herein are solely for informational and educational purposes only. The 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. 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.
FTSE 100 : HIGH IN THE SKY- The market still trades above a bullish trend line since mid-February 2024, strongly helped by a decreasing Pound Sterling. The mid-term trend is bullish for UK equities.
- Since the 3rd impact on its bullish trendline at the end of last week, the market has rallied to an hall-time high above 8,000pts.
Since the impact on the 8,200pts mark, we can notice a slowdown of the short-term bullish acceleration. Indeed, new highs are registered with less and less strength, a situation clearly confirmed with the bearish divergence from the MACD indicator.
Very short-term moving averages remain bullish, acting as dynamic support, while the market currently fails to clear the 8,200pts level for a second time in a row.
- The mid-term situation stays bearish for the market. However, on a very short-term view, all leads to a market correction.
The bullish trend slowdown taking place in uncharted territory may be the sign that some investors want to take some profit out.
If that happens to be proven in the next few session, the market will be likely to test the newly established floor around 8,045pts, with 8,152pts and 8,112pts as intermediate support zones, before registering new highs.
Pierre Veyret, Technical Analyst at ActivTrades
The information provided does not constitute investment research. The material has no been prepared in accordance with the legal requirements designed to promote the independence of investment research and such is to be considered to be a marketing communication.
All information has been prepared by ActivTrades ("AT"). The information does not contain a record of AT's prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.
Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not reliable indicator of future performance. AT provides an execution-only service. Consequently, any person acing on the information provided does so at their own risk.
Options Blueprint Series: Debit Spreads - Precision InvestingIntroduction to Options on Corn Futures
Corn Futures are one of the staple commodities traded on the Chicago Board of Trade (CBOT), representing a critical component of the agricultural sector's financial instruments. Each Corn Futures contract is standardized to 5,000 bushels, and the price is quoted in USD-cents per bushel.
Contract Specifications:
Point Value: 1/4 of one cent (0.0025) per bushel = $12.50.
Margins: Trading on margin allows traders to leverage positions while only needing to cover a fraction of the total contract value. For Corn Futures, the initial margin requirement is set by the CME Group and varies based on market volatility: Currently $1,300 per contract at the time of this publication.
Options trading introduces another layer of complexity and opportunity. Debit spreads involve purchasing one option and selling another, which helps manage the overall cost of entering the market.
Margin for Debit Spreads:
The margin for debit spreads typically reflects the premium paid for the long position minus any premium received from the short position. This results in a significantly lower margin requirement compared to trading the underlying futures contract outright. (In the below example the net premium paid for the spread is 7.26 points = $363, which is significantly lower than $1,300).
Understanding Debit Spreads
Debit spreads are a sophisticated options trading strategy utilized primarily to achieve a targeted investment outcome while managing risk exposure. They are constructed by purchasing an option (call or put) while simultaneously selling another option of the same type (call or put) but with a different strike price, within the same expiration period. The aim is to reduce the net cost of the position, as the premium received from the sold option offsets part of the cost incurred from the bought option.
Mechanics of Debit Spreads:
Long Position: You buy an option that you expect to increase in value as the market moves in your favor.
Short Position: You sell another option with a higher strike (in the case of a call spread) or a lower strike (in the case of a put spread). This option is expected to expire worthless or decrease in value, offsetting the cost of the long position.
Advantages of Using Debit Spreads:
Defined Risk: The maximum loss on a debit spread is limited to the net premium paid plus transaction costs. This makes it easier to manage risk, especially in volatile markets.
Potential for Profit: Although the profit potential is capped at the difference between the strike prices minus the net debit paid, these spreads can still offer attractive returns relative to the risk undertaken.
Lower Cost of Entry: Compared to buying a single option, spreads typically require a lower upfront investment, making them accessible to a wider range of traders.
This strategic application is what we'll explore next in the context of Corn Futures, where market conditions suggest a potential breakout.
Application in Corn Futures
For traders looking to harness the volatility in the agricultural sector, especially in commodities like corn, debit spreads can be a precision tool for structured trading. Given the current trading range of Corn Futures, with prices oscillating between 424 cents and 448 cents per bushel for a number of weeks, a strategic setup can be envisioned aiming for an upward breakout towards 471 cents, a resistance level indicated by Sell UnFilled Orders (UFOs).
Strategy Implementation with Debit Spreads:
Long Call Option: Buying a call option with a strike price near the lower end of the current range (450) positions traders to benefit from potential upward movements. Premium paid is 10.39 ($519.5)
Short Call Option: Simultaneously, selling a call option with a strike price at 475 cents caps the maximum profit but significantly reduces the cost of entering the trade. This strike is chosen because it aligns closely with the expected UFO resistance level, enhancing the probability of the short option expiring worthless. Premium received is 3.13 ($156.5).
The net cost of the spread ($519.5 - $156.5 = $363) represents the total risk. We are using the CME Group Options Calculator in order to generate fair value prices and Greeks for any options on futures contracts.
Setting up the Trade
To potentially capitalize on the anticipated market movement for Corn Futures, our debit spread strategy will involve a detailed setup of options trades based on specific strike prices that align with market expectations and technical analysis. This step-by-step guide will provide clarity on how to effectively enter and manage this options strategy.
Trade Details:
Long Call Option: Buy a call option with a strike price of 450. This option is chosen as it is near the current upper boundary of the trading range, providing a favorable entry point as we anticipate a breakout.
Short Call Option: Sell a call option with a strike price of 475. This strike is selected based on its proximity to the identified resistance level at 471, suggesting a high likelihood that the price may not exceed this level before expiration.
Cost and Profit Analysis:
Net Premium Paid: $363 as discussed above.
Break-even Point: Long strike price (450) plus the net premium paid = 457.26.
Maximum Profit: The maximum profit for this debit spread is capped at the difference between the two strike prices minus the net premium paid = 475 – 450 – 7.26 = 17.74 = $887.
Maximum Loss: The maximum risk is limited to the net premium paid.
Risk Management
By entering a debit spread, traders not only define their maximum risk but also set clear targets for profitability based on established market thresholds. This methodical approach ensures that even if the anticipated price movement does not fully materialize, the financial exposure remains controlled.
Risk Management Techniques:
Position Sizing: Determine the appropriate size of the position based on overall portfolio risk and individual risk tolerance.
Stop-Loss Orders: Although the maximum loss is capped by the nature of the debit spread (the net premium paid), stop-loss orders can be used if the underlying asset moves against the trader.
Rolling the Spread: If market conditions change or the initial price target is reached earlier than expected, consider 'rolling' the spread.
Adjusting the Trade:
If the price of Corn Futures approaches the short strike price (475) faster than anticipated, and market sentiment indicates further upward potential, the short call option can be bought back while a new higher strike call can be sold. This adjustment aims to extend the profitable range of the spread without increasing the original risk by much.
Conversely, if the price seems unlikely to reach the 450 mark, reassess the viability of keeping the spread open. It may be prudent to close the position early to preserve capital if fundamental market factors have shifted negatively.
Importance of Continuous Monitoring:
Regularly monitor market conditions, including factors like weather reports, agricultural policies, and economic indicators that significantly impact corn prices.
Stay updated with technical analysis charts and adjust strategies according to new resistance and support levels identified.
Effective risk management not only protects from downside risk but also enhances the potential for profitability by adapting to changing market conditions.
Conclusion
The strategic use of debit spreads in Corn Futures options trading offers a balanced approach to leverage market opportunities while maintaining strict control over potential risks.
Recap of Key Points:
Corn Options on Futures: Understanding the contract specifics is crucial for informed trading decisions.
Debit Spreads: These allow traders to benefit from expected price movements with reduced upfront costs and limited risk.
Trade Setup: Focused on a potential breakout from the 448-424 range aiming towards 471, utilizing 450 and 475 strikes for the long and short calls respectively.
Risk Management: Emphasizes the importance of position sizing, potential use of stop-loss orders, and the flexibility to adjust or roll the spread according to market changes.
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.
General 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.
Technical Analysis: USD/EUR Exchange RateAs of the latest trading sessions, the USD/EUR currency pair displays a complex interaction of technical indicators and price patterns, suggesting a cautious yet potentially bullish outlook. We will break down the technical analysis using various tools and patterns, integrating recent market news into our forecast.
Ichimoku Cloud Analysis:
The price is currently positioned below the Ichimoku cloud on the weekly chart, indicating a bearish sentiment. However, the cloud ahead appears to be thinning, suggesting that bearish momentum may be waning. A break above the cloud could be a significant bullish signal. For traders, a definitive close above the cloud might represent a buying opportunity, targeting the first resistance level at approximately 0.9400, as suggested by the Pivot Point analysis.
Moving Averages and Bollinger Bands:
The price has recently tested the upper Bollinger Band, indicating potential overbought conditions. A retraction towards the middle band, currently around 0.9240, could provide a more conservative entry point for buyers. The convergence of the 20-SMA with the middle Bollinger Band adds credence to this support zone. A drop below the 0.9200 level, however, may indicate increasing selling pressure, suggesting an exit or short-selling opportunity.
Fibonacci Retracement:
The Fibonacci retracement levels highlight key support and resistance areas. The recent price rebound from the 0.618 level at 0.9120 is indicative of underlying buying interest. Maintaining above this level is critical for bullish prospects. A decisive break below the 0.786 level at 0.9059 could negate the bullish scenario and point towards the 1.0 extension at 0.8980 as the next support.
RSI, Stochastic, and MACD:
The Relative Strength Index (RSI) hovers around the 55 level, neither overbought nor oversold, which aligns with a neutral market bias in the short term. The Stochastic Oscillator, however, is retreating from overbought levels, signaling a potential pullback. Conversely, the MACD histogram is shrinking on the bearish side, indicating that downside momentum is losing steam.
Market News Context:
Recent news highlights a drop in the US dollar ahead of the FOMC meeting and employment data release. Investors will closely watch these events as they could trigger volatility and provide directional cues for the pair.
Price Prediction and Trade Strategy:
Speculatively, if the pair maintains support above the 0.9120 level, we forecast an uptrend towards 0.9400, with a possible extension to 0.9461, as marked by R1 Pivot Point resistance. Traders might consider long positions on dips near 0.9240, with a stop-loss order below the 0.9059 Fibonacci level. Conversely, should the price action break below 0.9059, a bearish target at 0.8980 could become plausible, where traders might consider short positions with a stop-loss order above the 0.9120 level.
Trade Entry and Exit Levels:
Conservative Buy Zone: Around the confluence of the 20-SMA and middle Bollinger Band at 0.9240.
Aggressive Buy Trigger: A decisive close above the Ichimoku cloud.
Sell/Short Entry: Break below the 0.9059 Fibonacci level.
Stop-Loss Placement: Just below 0.9059 for longs, and just above 0.9120 for shorts.
Take-Profit Targets: 0.9400 (initial bullish target), extended to 0.9461 (R1 Pivot level).
The ultimate guide on Elliott waves in crypto tradingMost of you have probably heard about Elliott waves and we are sure that you don’t use it in cryptocurrency trading strategy because it’s very complicated and subjective approach. Crypto trading for beginners is very challenging and stressful even without Elliott waves. To be honest when we first time tried to implement it to my crypto trading strategies it was a complete disappointment. We were sure that it does not suit for both trading bot and manual trades. Elliott waves were thrown into a garbage bin for almost two years and we developed our crypto trading algorithm using only linear programming approaches.
While we have been trying to invent the best automated trading bot using only indicators and support and resistance levels, best crypto traders have been successfully using Elliott waves in their analysis. Finally we make a decision to have a deep dive in this popular crypto trading tool and studied in details all available literature. As a result we found that Elliott waves will ruin your trading if you use it without special indicators for confirmation. Now we have 2 years of experience in trading with waves and almost one year ago we implemented them into our algorithmic trading bot. Today we prepared the best ultimate guide ever on Elliott waves using best practices and our unique experience how to use them in developing your own profitable crypto trading strategies. Let’s go!
Why it’s vital to use Elliott waves?
Before answer this question, let me ask another one! Why is important to use map to reach the final destination? I think here is the obvious answer! Talking about Elliott waves it’s almost the same reason. This is the only one approach which gives you a map for a price chart. I think you agree that technical indicators or support and resistance levels will not give you the answer which direction the price will choose. When you have, for example Stochastic Oscillator crossover or RSI oversold area hit you just open long because this is the most common strategy. You buy asset like a blind kitten. We are not criticize this approach, because using proper risk and money management you will earn with almost every strategy, but understanding the Elliott waves concept will dramatically increase your profit even if you combine them with your ordinary strategy. Why it’s happening? The answer is easy, because Elliott waves in the underlying structure of the market. You will be aware when you shall use your signals and when it’s better to skip trade. Now let’s dive into the Elliott waves to understand how to find them on the price chart. In the first part we will give you all needed theory and after that we will show in the real charts how it works.
Elliott waves
In general, Elliott waves concept is pretty easy. All markets are globally moving up with the five waves formations and then show the pullback with at the reactive waves. On the Bitcoin price chart above you can see the most common picture for Elliott waves. We had the bull run which consists of five waves and then was the bear market represented with the ABC correction.
Waves can be divided into two groups: impulsive and reactive. On the bullish phase waves 1, 3 and 5 are impulsive, 2 and 4 reactive. Impulsive waves consists also with five sub waves, while reactive have usually three waves (exception the triangle correction, will be covered later). On the bearish phase we have the opposite situation: waves A and C are impulsive, while wave B is reactive. Now let’s discuss each wave in details.
What will stop every wave in 90% of cases?
Before we will observe the wave it’s very important to understand what are the early signs that current wave is about to be finished. This is really crucial concept because without it almost impossible to use Elliott waves for profitable trading. We need four tools to make sure that our counting is correct. In this article we will not spend to much time for these indicators, we just show you in practice how to use them. These tools are: Awesome Oscillator, Market Facilitation Index (MFI), Fibonacci retracement and extension and Fractals. These four indicators produce five wave’s end conditions.
Divergence with Awesome Oscillator. If you found five sub waves inside any wave and you can see that price set the higher high (or lower low for bearish case), while AO set lower high (or higher low) it’s divergence between wave 3 and 5. This is the most powerful signal that trend is over.
Fractal at the top or bottom. When you see the divergence it’s just the first sign of trend weakness, we need confirmation with the fractal forming at the top or bottom. You can easily find this indicator in TradingView, it will show you all fractals.
MFI squat bar. We will cover MFI in one of the next educational articles, now you just need to know that it has squat state - the last battle between bulls and bears. One of the three top bars will be the squat in 80% of waves end. You can also find this indicator in TradingView.
AO momentum change. Another one confirmation that trend is over is when AO histogram changes color. It’s better to wait three consecutive columns of the other color or when AO will cross back the signal line, 5 period MA of the AO.
Target area. Using Fibonacci extension and retracement we can find the area where the reversal is the most likely. We will show you this targets when talking about waves.
Now you know the five basic rules and we are ready to discuss every wave using this concept.
Wave 1
When the previous trend is over the impulsive wave 1 begins. We can define the wave 1 start only establishing the previous wave end. It could be wave 5, C or E. It does not matter. You just need to apply our five rules: divergence, momentum change, target area, squat bar and fractal. On the chart you can see how in theory wave 1 can be looks like.
Wave 1 always consists of five waves. That’s why we can wait for the same five rules to complete between wave 3 and 5 inside the wave 1. When you anticipate the wave 1 finish you have two options: close trade and re-enter at the wave 2 bottom or hold for the entire cycle.
Wave 2
When wave 1 ends, you will see pull back in wave 2. It’s important to catch wave 2 bottom because wave 3 will bring you a lot of profit. Wave 2 can be classical ABC zigzag, flat or irregular correction. 70% probability it will be ended inside 0.38 and 0.62 Fibonacci retracement range of wave 1, in rare cases it can ends higher or lower. That’s why it’s better t count waves inside wave 2 and do not miss when all five trend killing conditions are met in wave C inside 2.
Wave 3
The most impulsive wave in the entire cycle is obligatory for trading. Here you can have the less risky and the most easy trading. Wave 3 has the great fundamental factors as a price drivers. For example, Bitcoin spot ETF triggered a huge pump recently. Let’s imagine you correctly entered at the wave 2 end. Now we have to define wave 3 targets. The target area using fibonacci extension can be found between 1 and 1.61. This is the most likely case. In crypto it’s very often when waves 3 are extended.
To have the most precise target it’s highly recommended to count waves inside wave 3. Found five waves? Check our favorite trend killing rules to exit a trade at the top. We know it sounds fantastic, but we managed to buy the exact bottom and sell at the top many times, but to be honest, we have never caught the top of the extended wave 3. Need more experience for that.
Wave 4
Wave 4 can be the most complicated because it has a lot of different variants: zigzag, flat, irregular or even triangle. But at the same time in wave 4 we can have the easiest setup. When you predicted wave 3 top, it’s time to setup the target for the wave 4. The most reliable one is between 0.38 and 0.5. This wave is not so rapid as wave 2 and takes much more time (up to 70% of all cycle).
The very important tip here is to look at the price where wave 4 inside wave 3 has been ended. If this level coincides with the 0.38-0.5 zone it can give you much more confidence. We have never made a mistake using this technique. As usual you have to look for the five trend killing rules in wave C inside wave 4 as well.
Another one thing we want to point out. You know the axiom, that wave 4 has not overlap wave 1 top. This rule can be slightly violated and we will show you the case. Don’t pay attention that much to this rule.
Wave 5
Finally we are in wave 5. This is really vital to define it’s top because bear market will follow this wave and can destroy your deposits. The target area for the wave 5 is defined as the distance between wave 1 bottom and wave 3 top, measured from wave 4 bottom. Area between 0.61 of this distance and 1 Fibonacci level is our target. There you have to find trend killing rules as usual but this time for all cycle, not subwaves.
Corrections
The most dangerous place for trading is the correction. From our experience only wave C in zigzag is tradable. You would better to skip corrections and try to catch it’s end. We have four types of corrections, but the most important knowledges is that wave C and E are always consists of five waves. It means you can use the rules how to catch wave 5 end inside these waves.
Zigzag ABC. If wave A consists of 5 waves the most like we will see zigzag. Wait when wave B reach 0.5-0.61 Fibonacci of wave A and be ready to trade in wave C.
Flat. Wave A has 5 waves inside. Waves A, B and C are almost equal to each other.
Irregular. Wave B top is higher that the previous impulsive wave. Wave A consists of 3 waves.
Triangle. Consists of A, B, C, D and E waves. Wave E consists of five waves. Usually occurs inside waves 4 and B of higher degree.
Now you have a theoretical description. It’s time to trade!
Trading Diverging Chart PatternsContinuing our discussion on trading chart patterns, this is our next tutorial after Trading Converging Chart Patterns
This tutorial is based on our earlier articles on pattern identification and classification.
Algorithmic Identification of Chart Patterns
Flag and Pennant Chart Patterns
In this tutorial, we concentrate on diverging patterns and how to define rules to trade them systematically. The diverging patterns discussed in this tutorial are:
Rising Wedge (Diverging Type)
Falling Wedge (Diverging Type)
Diverging Triangle
Rising Triangle (Diverging Type)
Falling Triangle (Diverging Type)
🎲 Historical Bias and General Perception
Before we look into our method of systematic trading of patterns, let's have a glance at the general bias of trading diverging patterns.
🟡 The Dynamics of Diverging Wedge Patterns
Diverging Wedge patterns are typically indicative of the Elliott Wave Structure's diagonal waves, potentially marking the ending diagonal waves. That means that the patterns may signal the ending of a long term trend.
Hence, the diverging rising wedge is considered as bearish, whereas the diverging falling wedge is considered as bullish when it falls under Wave 5 of an impulse or Wave C of a zigzag or flat.
For an in-depth exploration, refer to our detailed analysis in Decoding Wedge Patterns
Both rising wedge and falling wedge of expanding type offers lower risk reward (High risk and low reward) in short term as the expanding nature of the pattern will lead to wider stop loss.
🎯 Rising Wedge (Expanding Type)
Expanding Rising Wedge pattern is historically viewed with bearish bias.
🎯 Falling Wedge (Expanding Type)
Expanding Falling Wedge pattern is historically viewed with bullish bias.
🟡 The Dynamics of Diverging Triangle Patterns
Diverging pattern in general means increased volatility. Increased volatility during the strong trends also mean reducing confidence that may signal reversal.
🎲 Alternate Approach towards trading diverging patterns
Lack of back testing data combined with subjectivity in Elliott wave interpretation and pattern interpretation makes it difficult to rely on the traditional approach. The alternative method involves treating all expanding patterns equally and define a systematic trading approach. This involves.
When the pattern is formed, define a breakout zone. One side of the breakout zone will act as breakout point and the other side will act as reversal point.
Depending on the breakout or reversal, trade direction is identified. Define the rules for entry, stop, target and invalidation range for both directions. This can be based on specific fib ratio based on pattern size.
Backtest and Forward test the strategy and collect data with respect to win ratio, risk reward and profit factor to understand the profitability of patterns and the methodology.
Breaking it down further.
🟡 Defining The Pattern Trade Conditions
Base can be calculated in the following ways.
Distance between max and min points of the pattern. (Vertical size of the pattern)
Last zigzag swing of the pattern (This is generally the largest zigzag swing of the pattern due to its expanding nature)
This Base is used for calculation of other criteria.
🎯 Breakout Zone - Entry Points
Breakout zone can be calculated based on the following.
Long Entry (top) = Last Pivot + Base * (Entry Ratio)
Short Entry (bottom) = Last Pivot - Base * (Entry Ratio)
If the direction of the last zigzag swing is downwards, then top will form the reversal confirmation and bottom will form the breakout confirmation. Similarly, if the direction of the last zigzag swing is upwards, then top will become the breakout confirmation point and bottom will act as reversal confirmation point.
🎯 Stops
Long entry can act as stop for short and vice versa. However, we can also apply different rule for calculation of stop - this includes using different fib ratio for stop calculation in the reverse direction.
Example.
Long Stop = Last Pivot - Base * (Stop Ratio)
Short Stop = Last Pivot + Base * (Entry Ratio)
🎯 Invalidation
Invalidation price is a level where the trade direction for a particular pattern needs to be ignored or invalidated. Invalidation price can be calculated based on specific fib ratios. It is recommended to use wider invalidation range. This is to protect ignoring the potential trades due to volatility.
Long Invalidation Price = Last Pivot - Base * (Invalidation Ratio)
Short Invalidation Price = Last Pivot + Base * (Invalidation Ratio)
🎯 Targets
Targets can either be set based on fib ratios, as explained for other parameters. However, the better way to set targets is based on expected risk reward.
Target Price = Entry + (Entry-Stop) X Risk Reward
🟡 Back Test and Forward Test and Measure the Profit Factor
It is important to perform sufficient testing to understand the profitability of the strategy before using them on the live trades. Use multiple timeframes and symbols to perform a series of back tests and forward tests, and collect as much data as possible on the historical outcomes of the strategy.
Profit Factor of the strategy can be calculated by using a simple formula
Profit Factor = (Wins/Losses) X Risk Reward
🟡 Use Filters and Different Combinations
Filters will help us in filtering out noise and trade only the selective patterns. The filters can include a simple logic such as trade long only if price is above 200 SMA and trade short only if price is below 200 SMA. Or it can be as complex as looking into the divergence signals or other complex variables.
How Does Recession Affect Financial Markets?How Does Recession Affect Financial Markets?
Recessions, marked by widespread economic decline, profoundly impact financial markets. Understanding how different markets – stock, forex, commodity, and bond – respond to these downturns is crucial for traders and investors. This article delves into the varied effects of recessions, highlighting strategies for navigating these challenging times and identifying potential opportunities for resilience and growth in the face of economic adversity.
Understanding Recessions
A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, typically visible in real GDP, real income, employment, industrial production, and wholesale retail sales. Economic experts often cite two consecutive quarters of GDP contraction as a technical indicator of a recession. However, it's more than just numbers; it reflects a noticeable slump in economic activities and consumer confidence.
Historically, recessions have been triggered by various factors, such as sudden economic shocks, financial crises, or bursting asset bubbles. For instance, the Global Financial Crisis of 2007-2008 stemmed from the collapse of the housing market bubble in the United States, leading to a worldwide economic downturn.
Recession impacts nearly every corner of the economy, leading to increased unemployment, reduced consumer spending, and overall economic stagnation.
Effects of Recession on Different Financial Markets
A recession's impact on financial markets is multifaceted, influencing everything from stocks and bonds to forex and commodities. However, each market reacts differently. To see how these various asset classes have reacted in past recessions, head over to FXOpen’s free TickTrader platform to access real-time market charts.
General Impact on Markets
During a recession, the financial landscape typically undergoes significant changes. Investors, wary of uncertainty, often reassess their risk tolerance, leading to shifts in asset allocation. Market volatility usually spikes as news and economic indicators sway investor sentiment. This period is often marked by cautious trading and a search for safer investment havens.
Impact on Stock Markets
Stock market performance in a recession can be quite varied. Generally, stock markets are among the first to react to signs of a recession. Prices may fall as investors anticipate lower earnings and weaker economic growth. This decline is not uniform across all sectors, however.
Some industries, like technology or luxury goods, might experience steeper drops due to reduced consumer spending. Conversely, sectors like utilities or consumer staples often include stocks that do well during a recession, as they provide essential services that remain in demand.
Impact on Forex Markets
In forex, recessions often lead to significant currency fluctuations. Investors might flock to so-called safe currencies like the US dollar or Swiss franc, while currencies from countries heavily affected by the recession weaken. Central bank policies, such as interest rate cuts or quantitative easing, play a crucial role in currency valuation during these times.
Impact on Commodities
Commodities can react differently in a recession. While demand for industrial commodities like oil or steel may decline due to reduced industrial activity, precious metals like gold often see increased interest as so-called safe-haven assets.
Impact on Bonds
Bond markets usually experience a surge in demand during recessions, particularly government bonds, seen as low-risk investments. As investors seek stability, bond prices typically rise, and yields fall, reflecting the increased demand and decreased risk appetite.
Types of Stocks That Perform Well During a Recession
During economic downturns, certain stock categories have historically outperformed others. The stocks that go up in a recession generally belong to sectors that provide essential services or goods that remain in demand regardless of the economic climate.
Consumer Staples: Companies in this sector, offering essential products like food, beverages, and household items, may appreciate during a recession. As these are necessities, demand usually remains stable even when discretionary spending declines.
Healthcare: Healthcare stocks often hold steady or grow during recessions. The demand for medical services and products is less sensitive to economic fluctuations, making this sector a potential safe haven for investors.
Utilities: Utility companies typically offer stable dividends and consistent demand. Regardless of economic conditions, consumers need water, gas, and electricity, providing these stocks with a buffer against recessionary pressures.
Discount Retailers: Retailers that offer essential goods at lower prices can see an uptick in business as consumers become more budget-conscious during tough economic times.
Types of Stocks to Hold in a Recession
While there are some stocks that perform well in a recession due to sustained demand for their products, there are other types of stocks that are valued for their financial resilience and potential to provide long-term stability.
Blue-Chip Stocks: These are shares of large, well-established companies known for their financial stability and strong track records. During recessions, their history of enduring tough economic times and providing dividends makes them attractive.
Value Stocks: Stocks that are undervalued compared to their intrinsic worth can be good picks. They often have strong fundamentals and are priced below their perceived true value, with the potential to rebound strongly as the economy recovers.
Non-Cyclical Stocks: These stocks are in industries whose services or products are always needed, like waste management or funeral services. Their demand doesn’t fluctuate significantly with the economy, which may offer stability.
The Role of Government and Central Banks During Recessions
During recessions, governments and central banks play a crucial role in stabilising financial markets.
Government interventions often include fiscal policies like increased spending and tax cuts to stimulate the economy. Central banks may reduce interest rates or implement quantitative easing to increase liquidity in the financial system.
These actions can bolster investor confidence, stabilise markets, and encourage lending and spending. However, their effectiveness can vary based on the recession's severity and the timeliness of the response.
The Bottom Line
Navigating recessions requires understanding their multifaceted impact on financial markets. From stocks and bonds to forex and commodities, each sector reacts uniquely, offering both challenges and opportunities.
To take advantage of the various opportunities a recession presents, opening an FXOpen account can be a strategic step. We provide access to a broad range of markets and trading tools designed to help traders adapt to a shifting economic landscape.
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.
How To Grow A Forex or Crypto Acc Scalping A 5m Time FrameIn this video, we delve into a high-probability scalping strategy, building upon the concepts introduced in our previous videos on developing a trading plan and risk management. This third installment in the series focuses on refining entry points for high-probability trades. We explore a basic trend continuation strategy on the 4-hour time frame, then zoom in on the 5-minute time frame to identify specific price action that provides a precise entry point. Our approach involves identifying when price action begins to trade sideways, forming a range on the 5m time frame, and waiting for signs of volatility, where price takes out stop losses above or below the range. Once this occurs, the trend typically sets up on the lower time frame, allowing us to enter our trade on the 5-minute chart. We always place stops above or below the previous high, targeting the previous price swing. Please note that this video is for educational purposes only and should not be construed as financial advice.
XRP to 1$We can see a huge bullish Harmonic bat pattern that formed from the 2020 lows to the 2021 highs to the 2022 lows.
On July 13, 2023, the first target price(0.382) was reached.
Now we can look forward to the secondary price target(0.618).
If we look at a longer chart, we can see that a huge triangle pattern is forming.
We can expect a breakout in the near future.
Meta Shares Decline 15% Despite Strong Earnings reportTech Giants Experience Significant Decline, Erasing $300 Billion Amid Meta's Weak Guidance and Q1 Stagflation Concerns
During a volatile trading session, the combined market capitalization of the top seven tech companies experienced a sharp decline exceeding $300 billion within the first hour of trading on Thursday. This downturn was primarily triggered by Meta Platforms Inc.'s ( NASDAQ:META ) announcement of a revenue outlook for the upcoming quarter that fell short of market expectations, alongside apprehensions stemming from the release of first-quarter gross domestic product data.
Key Developments:
Meta Platforms NASDAQ:META exceeded analyst forecasts by reporting first-quarter revenue of $36.45 billion, marking a notable 27% increase year-over-year. Additionally, earnings per share reached $4.71, surpassing the anticipated figure of $4.32. However, investor sentiment soured following Meta's issuance of a cautious guidance for the next quarter, leading to a retreat in the company's stock price.
The Roundhill Magnificent Seven ETF NASDAQ:MAGS fell 3%.
Treasury yields, especially for the two-year note, have risen above 5%, indicating increasing investor concern about inflation and its possible impact on future Federal Reserve decisions.
This concern led to a widespread sell-off in the bond market, with notable declines in long-term treasury ETFs, including the iShares 20+ Year Treasury Bond ETF ( NASDAQ:TLT ), which fell by 0.8%.
Meta Shares Decline 15% Despite Strong Earnings Report
Meta reported robust earnings that surpassed both consensus and whisper estimates. Despite these strong results, Meta's stock experienced a 15% decline. This downturn is commonly attributed to substantial investments in AI technology and remarks by CEO Mark Zuckerberg regarding the non-immediate profitability of these expenditures. While momentum-driven analysts might overlook this, seasoned analysts are aware that returns on AI investments will not be immediate.
Key Reasons for Meta's Stock Decline
Ahead of Meta's earnings announcement, Wall Street's positioning was overwhelmingly positive.
This positioning often leads to contrary market movements. Understanding this Wall Street dynamic is crucial for maximizing returns from the market. Due to their significant implications, these mechanics are often closely guarded by financial professionals.
Impact of Other Notable Earnings on Market Sentiment:
IBM Common Stock: NYSE:IBM Prior to its earnings report, there was significant anticipation around IBM due to its AI initiatives. However, the earnings fell short of whisper numbers, leading to a roughly 10% drop in its stock price. It is worth noting that The Arora Report capitalized on this by taking a short position, securing profits shortly thereafter.
Caterpillar Inc. : NYSE:CAT Reported earnings that were below expectations.
Merck & Co Inc: NYSE:MRK Surpassed whisper numbers with its earnings report.
Market Reactions to Recent Economic Indicators:
The latest auction of $70 billion in five-year Treasuries saw weaker demand, though it is not indicative of a larger economic issue:
High yield: 4.659% (When-Issued: 4.655%)
Bid-to-cover ratio: 2.39
Indirect bids: 65.7%
Direct bids: 19.2%
Momo Crowd And Smart Money In Stocks
The momo crowd is buying stocks in the early trade. Smart money is selling stocks in the early trade.
In gold trading, the momentum crowd exhibited volatile behavior, while the smart money remained inactive. The SPDR Gold Trust ( AMEX:GLD ) remains the most popular gold ETF, and the iShares Silver Trust ( AMEX:SLV ) for silver.
Similar patterns were observed in the oil market, with volatile trading by the momentum crowd and inactivity from the smart money. The primary ETF for oil is the United States Oil ETF.
For further details on long-term ratings, please refer to our comprehensive reports on gold, silver, and oil markets.
The profitability of TA trading rules in the Bitcoin market█ The profitability of technical trading rules in the Bitcoin market
The Bitcoin market, known for its wild fluctuations, poses a unique challenge for traders: Is it possible to consistently profit using technical trading rules?
Recent research analyzing Bitcoin's price data from July 2010 to January 2019 has shed light on this question, focusing on the effectiveness of seven trend-following indicators.
The research was conducted by Gerritsen et al. Notably, the trading range breakout rule emerged as a promising strategy, often outperforming the traditional buy-and-hold approach.
█ Some Background into the Bitcoin Market
Bitcoin's price path suggests market inefficiency, likely due to its short history and the erratic behaviors of market participants. Previous studies on Bitcoin's efficiency mainly focused on its predictability from a random walk perspective, leaving the performance of technical trading rules on Bitcoin prices largely unexplored.
The core aim of this study is to examine the profitability of technical trading rules, specifically to determine if these rules can surpass a basic buy-and-hold strategy.
By applying seven well-documented trading rules and analyzing their performance through the Sharpe ratio, the study seeks to provide practical insights for Bitcoin traders.
█ Methodology
The study uses daily price data from July 17, 2010, to December 31, 2018, totaling 3,084 daily observations. Gerritsen and team removed a brief period in 2011 due to a Mt. Gox hack and integrated data from Coinmarketcap starting April 28, 2013. The research also considers the risk-free rate, using 3-month US Treasury bill returns for its analysis.
█ Trading Rules Analyzed
1. Moving Averages (MA): This strategy issues buy signals when the recent price or its short-term average exceeds a longer-term average and sell signals in the opposite scenario. It tested combinations like 1-day vs. 50-day, 2-day vs 150-day, and 5-day vs 200-day averages.
2. Trading Range Breakout (TRB): It looks for price breakouts beyond the highest and lowest prices of a predefined period (50, 150, 200 days), signaling buys for breakouts above the high and sells below the low.
3. Moving Average Convergence Divergence (MACD): The MACD rule uses two exponential moving averages (EMAs), and triggers buy signals when the MACD line (the difference between a 12-day and a 26-day EMA) is above zero, and sell signals when it is below zero. It also examines the MACD signal line and MACD histogram as additional signals.
4. Rate of Change (ROC): This rule compares the current price with the price n days ago (commonly 10 days) to determine market momentum and issue buy/sell signals. The rule suggests buying when the ROC is positive, indicating upward momentum, and selling when it is negative, indicating downward momentum.
5. On-Balance-Volume (OBV): This volume-based indicator predicts price movements based on volume flow, asserting that volume changes precede price changes. The study applied MA rules to the OBV to generate signals, buying when the short-term MA of OBV crosses the long-term MA from below, and selling when it crosses from above.
6. Relative Strength Index (RSI): A momentum oscillator that identifies overbought or oversold conditions, suggesting buy signals when below 30 and sell signals above 70.
7. Bollinger Bands (BB): This strategy uses a moving average with upper and lower bands based on standard deviations from the MA, issuing buy signals when the price touches the lower band and sell signals at the upper band.
█ Strategies and Evaluation
The study applied each trading rule in three distinct strategies:
Literal Interpretation: Buying or selling Bitcoin directly based on the signal, including short positions.
Long Positions Only: Considering only buy signals due to the practical challenges of shorting Bitcoin on many exchanges.
Default Long Position with Adjustment on Signals: Maintaining a default long position, doubling investment on buy signals, and moving to risk-free assets on sell signals.
The performance of these strategies was evaluated using the Sharpe ratio, comparing the excess returns of the trading strategies over the risk-free rate to their volatility. A higher Sharpe ratio indicates a more efficient risk-adjusted return. The study used bootstrapping to assess the statistical significance of the Sharpe ratio differences between each trading rule strategy and a benchmark buy-and-hold strategy.
█ Key Findings
The study finds mixed results across different technical trading strategies when applied to Bitcoin.
Notably, the trading range breakout (TRB) rule consistently offers higher Sharpe ratios than a buy-and-hold strategy, signifying its superior performance.
On average, TRB strategies yield a Sharpe ratio of around 0.08, marking them as statistically significant against the buy-and-hold benchmark. This rule's success is further highlighted in specific periods, such as 2011–2012, 2013–2014, and 2017–2018, where its Sharpe ratios were notably higher than those of the buy-and-hold approach. The significant outperformance in these periods underscores the TRB rule's adaptability to market dynamics.
While most other technical trading rules did not consistently outperform the buy-and-hold strategy, certain strategies like MACD showed significant outperformance in specific applications (Strategy 2), illustrating the nuanced effectiveness of technical trading rules in the Bitcoin market.
Counter-trend indicators, such as the Relative Strength Index and Bollinger Bands, generally underperformed compared to the buy-and-hold benchmark, sometimes yielding negative Sharpe ratios.
█ Sensitivity to Market Conditions
The effectiveness of the TRB strategy, in particular, seems to be highly dependent on the prevailing market conditions. During periods of strong trends (either bull or bear markets), the TRB rule demonstrated notable outperformance.
However, during more stable periods, like 2015–2016, the TRB rule and most other trading rules did not show a significant advantage over the buy-and-hold strategy, aligning with the adaptive market hypothesis suggesting that the performance of trading strategies is contingent upon environmental factors.
█ Limitations and Future Research
One notable limitation is the focus solely on Bitcoin, leaving the question of whether these findings can be generalized to other cryptocurrencies.
Additionally, the analysis does not account for transaction costs, potentially affecting the trading strategies' profitability. Future research is encouraged to extend the investigation to other leading cryptocurrencies and to consider the impact of transaction costs on the profitability of the trading range breakout rule and other technical trading strategies.
█ Reference
Gerritsen, D.F., et al. (xxxx). The profitability of technical trading rules in the Bitcoin market. Finance Research Letters, xxx(x), xxx-xxx.
-----------------
Disclaimer
This is an educational study for entertainment purposes only.
The information in my Scripts/Indicators/Ideas/Algos/Systems does not constitute financial advice or a solicitation to buy or sell securities. I will not accept liability for any loss or damage, including without limitation any loss of profit, which may arise directly or indirectly from the use of or reliance on such information.
All investments involve risk, and the past performance of a security, industry, sector, market, financial product, trading strategy, backtest, or individual's trading does not guarantee future results or returns. Investors are fully responsible for any investment decisions they make. Such decisions should be based solely on evaluating their financial circumstances, investment objectives, risk tolerance, and liquidity needs.
My Scripts/Indicators/Ideas/Algos/Systems are only for educational purposes!
Assessing Market sentiment using the Vix and Dxy 📑Hello Traders and welcome back to another Video analysis. We break down the relationship amongst different asset classes when gauging market sentiment. In particular, how to analyze market direction on the Nasdaq 100 by looking at the Volatility and Dollar Indexes. We combine this sentiment analysis with candlesticks, and how they leave clues for us when anticipating market direction.
If you aren't familar, the Dollar Index represents the strength or weakness of the USD against a basket of 4 currencies. The Euro, Yen, Aud, and the Gbp. The US dollar is the safe haven of the world and when it increases in value, this represents risk off sentiment as investors and market particpants look to preserve the value of thier monies. On the other hand, the Nasdaq is a stock index, and therefore represents an asset class where investors are looking to grow their capital. In theory, they should be inversely correlated and generally are, thereby giving us clues when anticipating market movements in one another. In this example, we look at how we can use the (DXY) dollar index when anticipating market movements in the Nasdaq 100 stock index.
The Vix or Volatility Index represents the options market for the S&P500 stocks. When the Vix goes up this equates to investors and market participants buying puts and anticipating future downside for the S&P 500 stock index. When the Vix goes down, this represents anticipated upside in the U.S. stock indexes by investors and market particpants buying calls in the options market.
Please a Rocket or comment in support of similar analysis in the future
GBPUSD: Bullish Momentum Ahead! Friday Trading OutlookGreetings Traders!
In this video, I'll provide a comprehensive analysis of the DXY and GBPUSD, offering insights into what to anticipate in tomorrow's trading session. We've reached a crucial juncture on both the DXY and GBPUSD charts, so what lies ahead?
Stay tuned for valuable insights, and feel free to leave any questions in the comment section below.
Kind Regards,
The_Architect
Short Covering in GBP/USD - Trend Reversal The trend is your friend! I agree but the trend is also meant to be bought at the low and meant to be sold at the high.
We have used the Fibonacci to determine that buying is a high-probability trading decision this morning.
We have seen a pullback into the buy zone on the 15 Mins chart.
The area of Targets are:
1.] 1.2392
2.] 1.2468
Stop at the LOD: 1.2330
Portfolio Beta Hedging Ahead of Super Seven EarningsYou cannot predict the future. But you can prepare for it. Mega cap tech stocks have collectively lost USD 930 billion in value since Nasdaq 100 peaked on 21st March 2024. Will Super Sevens earnings turn the tide?
Starting this week, the Super Sevens will start announcing first quarter results. NASDAQ:TSLA is up first on 23/Apr (Tue) followed by NASDAQ:META on 24/Apr (Wed) with NASDAQ:GOOGL and NASDAQ:MSFT on 25/Apr (Thu).
NASDAQ:AAPL reports on 2/May followed by NASDAQ:NVDA on 22/May.
Broad US equity markets are facing multiple headwinds. Rate cut hopes are fading. Geopolitics are turning for the worse with tensions escalating in the middle east. Investor sentiments are gloomy. Consequently, both S&P 500 and Nasdaq 100 have endured their worst week in a long time.
Investors are pinning hopes on AI-infused tech earnings to stem the downdraft and to turn the tide. Bloomberg reports that Super Seven earnings are forecast to rise 38% during Q1 2024 compared to a year ago. If true, those earnings would dwarf the overall S&P 500’s meagre +2.4% forecasted YoY earnings growth.
This paper is set in two parts. Part 1 summarises idiosyncratic factors affecting each of the Super Sevens. Second part of the paper illustrates beta hedging using index options to help portfolio managers defend against downside risk while retaining upside potential.
ARTIFICIAL INTELLIGENCE. EXCITEMENT TO EXHAUSTION?
AI hype remains palpable. But monetising AI is hard. That is becoming increasingly clear. Even among the Super Sevens, not everyone has cracked the AI monetisation formula.
Investors are starting to moderate AI linked expectations. They need a clear path to profits from AI initiatives. Investor scepticism is showing up even among Super Sevens.
NASDAQ:NVDA has been selling shovels to AI gold miners. Expectedly, their earnings and consequently their stock prices are up sharply. Its share prices are up 54% YTD leaving the rest in dust. NASDAQ:META is up 36%, compared +10% for NASDAQ:GOOGL and +6% for $NASDAQ:MSFT.
NASDAQ:AAPL and NASDAQ:TSLA are increasingly losing shine. NASDAQ:TSLA (down a colossal 41%) risks being booted out of the Super Seven grouping.
“Investors are expecting not just strong results — but strong guidance,” said Quincy Krosby, chief global strategist at LPL Financial. “Any disappointment from the mega-tech names reporting could push this week’s oversold market deeper into oversold territory” as reported by Bloomberg.
NASDAQ:AMZN is expected to deliver modest EPS growth.
Analysts remain strongly bullish with 60 of 63 analysts giving a Strong Buy or Buy rating.
Source: TradingView
NASDAQ:GOOGL is facing justified scepticism by investors about its AI capabilities after multiple missteps. AI powered search engines potentially threatens Google’s dominance.
Despite the headwinds, analysts remain bullish on NASDAQ:GOOGL with average 12-month price target offering an 8% upside.
Source: TradingView
Falling smartphone market share, slowdown in innovations, nothing to show for in AI, lacklustre demand for Vision Pro, closure of Apple Car project, Anti-trust fines and more. Adverse news is hammering NASDAQ:AAPL share prices non-stop.
While overall analyst rating remains bullish, the number of hold and sell calls are rising fast for NASDAQ:AAPL .
Source: TradingView
Bloomberg reports that NASDAQ:META is expected to show revenue growth of 26% this quarter and almost double the net earnings from a year ago.
Analysts remain very bullish on NASDAQ:META with an average 12-month price target of USD 540.90 a share.
Source: TradingView
NASDAQ:MSFT is expected to benefit from AI. It has cleverly implemented Copilot AI into its product suite. Last quarter, demand for AI fuelled growth in its Azure cloud-services business.
Analysts remain constructively bullish on NASDAQ:MSFT with 54 out of 57 analysts holding a Strong Buy or Buy rating on the stock.
Source: TradingView
NASDAQ:NVDA will be the most watched quarterly earnings yet again. Its stock is priced to perfection. Feeble earnings or guidance could send its share prices into a free fall.
Fifty-three of Sixty analysts have either a Strong Buy or a Buy rating on NASDAQ:NVDA with average 30% upside over next 12-months.
Source: TradingView
EV market contraction. Price wars from Chinese EV makers. Deep discounts. All these are heavily weighing down on NASDAQ:TSLA shares.
Not unexpectedly, analysts remain neutral on NASDAQ:TSLA .
Source: TradingView
ILLUSTRATING BETA HEDGING USING INDEX OPTIONS
Super Seven earnings are critical to US equities given their outsized impact due to substantial index weightings. Valuations remain lofty. Despite the recent selloff, these mega caps trade at an aggregate thirty-one times forward earnings.
Earnings can and does have enormous impact on share prices. When valuations are priced to perfection, even a hint of negative news will plummet stock prices down.
Astute portfolio managers defend their portfolio using beta hedging. Beta hedge requires that notional of the hedging trade is equivalent to the beta-adjusted notional value of single stocks.
Illustration of the beta hedge below assumes that a portfolio manager holds thirty shares in each of the Super Sevens.
TradingView publishes trailing twelve month beta values for each firm which is the stock’s sensitivity to the S&P 500 index.
In the lead up to results, implied volatility on shares expands rapidly. While hedging using equity put options is an alternative, but it is an expensive one.
A portfolio manager can cleverly deploy short-dated equity index options to minimise hedging costs. CME offers Micro E-Mini S&P 500 Options (“Micro S&P500 Options”) with each contract providing a notional coverage of USD 5 times the S&P 500 index which translates to USD 25,000 per lot based on current S&P 500 levels of 4,967.23.
Using Micro S&P500 put options expiring on 25th April 2024 at a strike of 4950, a portfolio manager incurs a premium of USD 105 per lot based on close of market prices on 19th April 2024. It requires approximately 4 lots (USD 25,000 per lot times 4 lots = USD 100,000) notional of put options to hedge the above beta adjusted portfolio of USD 107,153.
Source: CME
Table below illustrates hedging pay-off under different price action scenarios during quarterly earnings:
Long Options delivers financial convexity. Options allow portfolio managers to harvest asymmetric gains. It provides protection when markets plunge and allows portfolio managers to capture gains from rising markets.
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
Why Would Countries Devalue Their Currency?Why Would Countries Devalue Their Currency?
Currency devaluation is a nuanced aspect of fiscal policy with profound implications globally. This article demystifies the strategic reasons and consequential effects when nations choose to devalue their currency. From influencing trade balances to adjusting economic strategies, understanding these dynamics is crucial for traders and investors alike. Dive into the complex world of currency devaluation and its far-reaching impact on global economics.
Devalued Currency Definition
So, what is currency devaluation, and how does a country devalue its currency? Currency devaluation is a deliberate downward adjustment of a country's currency value relative to another currency, group of currencies, or standard. This monetary policy decision is typically made by a national government or its central bank. Devaluation is distinct from depreciation, which is a market-driven decrease in currency value.
In a practical sense, devaluation reduces the cost of a country's exports and increases the cost of imports. For countries with fixed or semi-fixed exchange rates, this involves officially lowering the exchange rate by the revaluation of the peg or a change in the pegged currency.
Countries with a free-floating currency system can influence devaluation through monetary policies like lowering interest rates, which can decrease investor demand for the currency, thereby reducing its value. Also, central banks can intervene by buying foreign currency and selling domestic. These fluctuations are visible across many currency pairs in FXOpen’s free TickTrader platform. Additionally, governments might engage in expansive fiscal policies or public statements to sway market perceptions, indirectly impacting the currency's market value.
Devaluation of Currency Example
In 1994, Mexico experienced a notable devaluation of its currency, the peso. This event is often referred to as the Mexican Peso Crisis. Prior to the devaluation, Mexico maintained a fixed exchange rate regime, pegging the peso to the US dollar. However, due to a combination of political uncertainty, economic pressures, and dwindling foreign exchange reserves, the Mexican government found it increasingly challenging to maintain the peso's value.
In December 1994, the government decided to devalue the peso by around 15%. The immediate effect was a dramatic fall in the peso's value, plunging nearly 50% against the dollar within months. This devaluation led to significant economic turmoil, including high inflation and capital flight, but it also eventually helped to make Mexican exports more competitive in the international market.
Why Might a Country Choose to Devalue Its Currency? 3 Reasons
Why would a country devalue its currency? While this move can have widespread implications, there are strategic reasons behind such a decision. Understanding these reasons is crucial in comprehending global economic dynamics.
Reason 1: Boosting Exports
One of the primary reasons for a country to devalue its currency is to make its exports more competitive in the global market. A weaker currency lowers the price of a country's goods and services in foreign markets, making them more attractive to international buyers. This increase in demand for exports can stimulate the country's manufacturing sector and, in turn, boost economic growth. For instance, a country heavily reliant on exports might use devaluation to gain a competitive edge, especially if its major trading partners have stronger currencies.
Reason 2: Reducing Trade Deficits
Devaluation can be a tool to address trade imbalances. A country with a significant trade deficit – where imports exceed exports – might devalue its currency to make imports more expensive and exports cheaper. By doing so, it can reduce the volume of imports as they become costlier for domestic consumers and businesses, while simultaneously increasing exports due to their lower prices on the international market. This adjustment can help in narrowing the trade deficit, bringing more balance to the country's external trade.
Reason 3: Managing National Debt
Countries with high levels of debt denominated in foreign currencies may resort to devaluation as a strategy to reduce the real value of their debt. When a currency is devalued, the amount owed in the local currency increases, but the actual value in terms of foreign currency decreases. This may ease the burden of debt repayment for the government, particularly if the country is facing fiscal challenges. However, this approach can be risky, as it might lead to loss of investor confidence and increased cost of borrowing in the future.
Devalued Currency Effects
The effects of devaluing a currency ripple through various sectors of an economy. In the short term, it often leads to increased inflation. As the cost of imports rises, domestic prices generally increase, affecting the purchasing power of consumers. This inflationary pressure can be particularly challenging for economies that heavily rely on imported goods.
On the business front, while export-oriented industries may thrive due to increased competitiveness abroad, import-dependent businesses face higher costs, which can lead to reduced profit margins or increased prices for consumers. Additionally, the immediate aftermath of devaluation often includes volatility in financial markets, as investors may react to perceived risks by pulling capital out of the country.
In the long term, if managed well, devaluation can lead to a more competitive export sector, potentially resulting in economic growth and job creation. However, the benefits depend on the elasticity of demand for exports and the country's ability to capitalise on the weakened currency.
Finally, devaluation can impact a country's global reputation. Frequent or large-scale devaluations might lead to a loss of investor confidence, affecting foreign investment and the country's ability to borrow money on international markets. Such decisions, therefore, must balance immediate economic needs with long-term fiscal stability and credibility.
The Bottom Line
Understanding currency devaluation's complex dynamics is vital in today's interconnected world. Whether to boost exports, manage debt, or address trade imbalances, nations employ this strategy with varied outcomes. For those looking to take advantage of forex trading, consider opening an FXOpen account to access comprehensive resources and trading opportunities in this dynamic field.
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.
