Macro Monday 3 - SPDR Homebuilders XHBMacro Monday
SPDR Home builders ETF (XHB)
This equal weighted index tracks 35 holdings of the homebuilders segment of the S&P Total Market Index (TMI) and is spread across large, mid and small cap stocks.
These comprise of the Homebuilding sub-industry, and may include exposure to the Building Products, Home Furnishings, Home Improvement Retail, Home furnishing Retail, and Household Appliances sub-industries.
The Chart - AMEX:XHB
The Chart can be used as a leading indicator for the US housing market as the stocks in the XHB comprise of companies that provide the materials and products to build new houses and renovate homes. These products are higher up the supply chain and sold before construction commences or during.
In the past the XHB chart provided a significant advance warning of the 2007 Great Financial Crisis which is illustrated in red on the chart. A similar negative divergence would be worth watching out for in the future.
At present the performance of XHB is ahead of the S&P500. XHB is 5% from ATH’s at $87.00. This is in keeping with how this chart leads the market as it includes products and materials required for new builds and renovations. I would expect some resistance at the ATH which could act as a decision point for price. A break above the ATH with support established on it would be positive for price. A rejection off the ATH or a false break out and we would need to monitor price closely to see can price find support on the 10 Month SMA. If a lower high occurs on XHB (like in 2007), this could be an early warning signal of downward price pressure to follow on the S&P500.
As noted on the chart the average performance post MACD cross is a price increase of 80%;
- We are currently at $83.50 which is a price increase
of 21% from the recent MACD cross.
- A revisit of the ATH at $87.00 would be a price
increase of 26% from the recent MACD cross.
- An 80% average increase would lead us to the top
of the parallel channel (see chart).
- None of the above percentages are guarantees, we
are just looking at probabilities.
Factoring in that we are above the 10 month moving average and that it is sloping upwards, I remain positive about the continued performance of XHB, although I would not be surprised to see resistance at the ATH of $87.00 and a pull back to the 10 month SMA would be standard. If a weekly candle closed below the 10 month SMA, this is where I would start to get concerned and would then start to lean bearish. If we got follow through lower after that point, this would be alarm bells for me.
We can draw a correlation here to the first Macro Monday chart I shared on July 3rd, the Dow Jones Transportation Average Index DJ:DJT which also established a lower high as the S&P500 CBOE:SPX continued its ascent. Both the XHB and the DJT demonstrated they can be leading economic indicators by establishing lower highs prior to the 2007 Great Financial Crisis.
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Four of the Best Strategies for Swing TradingSwing trading is a style employed by many traders looking to combine the intensity of day trading with the strategic planning of long-term investing. In this article, we’ll be taking an in-depth look at four of the best strategies for swing trading, offering information on entry criteria, stop-loss placements, and taking profits.
What Is Swing Trading?
Swing trading is a style of trading that aims to profit from market movements over the course of a few days to several weeks. Unlike day trading, where positions are almost always opened and closed within the same day, swing traders hold positions for more than one day. They can be thought of as a happy medium between short-term day traders and long-term position traders/investors.
Generally speaking, swing traders will attempt to capture the bulk of short-term fluctuations within a broader trend. In other words, they attempt to buy an asset at the bottom of a “swing” and sell at the top, capitalising on temporary changes in price.
One of the main benefits of using swing trading techniques is the potential for significant returns over a relatively short period. The extended holding period, compared to shorter-term styles, allows for larger price movements to play out.
Moreover, because swing traders typically pay the most attention to the 1-hour, 4-hour, daily, and weekly charts, they can manage their trades without needing to constantly monitor the market.
However, swing trading methods aren’t without their disadvantages. The extended holding period exposes swing traders to overnight and weekend market events, which could lead to potential losses or even a “gap” up or down that doesn’t trigger the trader’s stop loss. Additionally, the importance of technical analysis in swing trading can’t be understated; accurately predicting price swings is crucial for success, so there may be a steeper learning curve associated with this form of trading.
Four Simple Swing Trading Strategies
Now that we’ve taken a brief look at the basics of swing trading let’s move on to four swing trading setups you can get started with right away. While we’ve applied these strategies to the commodities and forex markets, they can also be used as stock market swing trading setups.
Want to follow along? You can open up FXOpen’s free TickTrader platform to find each of the following tools ready to help you create your own swing trading stock strategy.
Fibonacci Retracement Pullback
The Fibonacci retracement tool has long been favoured by swing traders for its ability to highlight specific areas of support/resistance where possible reversals might occur. The most significant levels are 38.2%, 50%, and 61.8%.
Swing traders use this tool to anticipate potential pullbacks within a larger trend. In an uptrend, for instance, traders will look for the price to pull back to a Fibonacci level before resuming its upward move. Conversely, in a downtrend, they'll anticipate a bounce back up to a Fibonacci level before the trend continues.
To use this strategy, we need to set up a Fibonacci retracement. First, traders identify the broader trend that exists on their preferred timeframe. Then, they mark the most recent significant high and low in the trend. If they are looking at an uptrend, they apply the first point to the high and the second to the low and do the opposite for a downtrend.
When the price begins to approach the 38.2%, 50%, or 61.8% levels, we wait for signs of a reversal. As a simple swing trading strategy, we’ll just look for the hammer and shooting star candlestick patterns, but you can include whichever reversal patterns you prefer. When the candle closes and confirms the pattern, we can enter.
Stop losses can either be set just beyond the entry level, the next level, or the high/low of the entire tool, depending on the risk tolerance. Traders often begin taking profits at the high/low of the retracement or at the next significant support/resistance level.
Bollinger Bands with an Impulsive Candle
Bollinger Bands are a valuable tool that helps traders identify volatility and areas where the price may be overbought or oversold. They’re composed of three lines: the middle line being a simple moving average (SMA) and the other two representing standard deviations of price.
For this strategy, the default settings of the Bollinger Bands are suitable. For reference, the length of the SMA should be 20, while the multiplier should be 2. The crux of this strategy involves watching for reactions when the price touches or crosses a band, then waiting for an impulse (engulfing) candle through the SMA to confirm a change in direction and likely trend continuation. It’s best to look for this candle to close near its high/low, effectively printing a large, solid candle.
Once we see this impulse candle, we enter as the candle closes. We can set stop losses either above/below the impulse candle or just beyond the Bollinger Bands. Traders typically close the position when the price closes back above/below the SMA.
RSI Divergence
The relative strength index (RSI) is a momentum oscillator that quantifies the speed and change of an asset’s movements. It oscillates between 0 and 100, and traditionally, a level above 70 indicates overbought conditions, while a level below 30 indicates oversold conditions. When RSI moves into these areas, the likelihood of a reversal increases.
Divergences are identified when the price of an asset contrasts with the direction of the RSI. For instance, if the price is making higher highs while the RSI is making lower highs, this is considered a bearish divergence. Conversely, a bullish divergence occurs when the price makes lower lows while the RSI makes higher lows. Candlestick patterns such as the hammer and shooting star can further validate these signals.
For this swing trade system, we will need the RSI indicator with its default setting of 14. We will wait for RSI to move beyond 30 or 70, then watch for a divergence to appear. This will commonly occur in areas of support or resistance. Once we spot the divergence, we will wait for a hammer or shooting star to appear. When the candle closes, we can enter the position.
Unlike the previous two strategies, there’s no defined area to place a stop loss here. However, a stop just beyond the entry candle should suffice. The theory states that profits can be taken at a nearby support/resistance level or when RSI moves into overbought/oversold conditions, depending on the direction of the trade.
Keltner Channel Breakout
The Keltner Channels is a volatility-based indicator that’s closely related to Bollinger Bands. However, instead of plotting standard deviations of price, it uses the average true range (ATR) to measure volatility. It’s made up of three lines: the middle line is an exponential average, while the upper and lower lines are multiples of the price’s ATR.
The Keltner Channels indicator is effective at helping swing traders jump on trends. After identifying a broader trend, we can look for certain signals from the channels to find suitable entry points.
To start, we will initialise the indicator with an ATR length of 20 and a multiplier of 2. Then, we will look for two consecutive closes outside of the channel. Once these closes are observed, we can wait for a retracement back to the EMA and enter as soon as it touches it. In other words, we are identifying a potential breakout and waiting for a pullback to enter.
Stop losses can be placed just beyond the opposing line. Profits may be taken at nearby support/resistance levels, or we can simply trail our stop above/below the opposing line if we’re unsure of a suitable profit target.
Final Thoughts
In conclusion, swing trading offers a balanced approach, sitting between intraday and position trading styles. Short-term swing trading allows traders to take a more active approach, while long-term swing trading enables them to benefit from market trends without getting caught up in daily volatility. Either way, you’re now equipped with four potent strategies that can be used to create your own comprehensive swing trading plan.
Feeling ready to put your newfound knowledge to the test? You can open an FXOpen account to apply these strategies across 600+ markets and benefit from lightning-fast execution, tight spreads, and the advanced TickTrader platform. Good luck!
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.
TSLA Approaches Major Resistance and May Stall into July 21Primary Chart: TSLA on Weekly Time Frame with a Downtrend Line from the All-Time High and Fibonacci and Measured-Move Levels
Preliminary Comments
TSLA is poised to stall soon, perhaps into July 21. By definition, a stall does not necessitate a crash or major trend reversal (at the primary degree of trend). A major reversal downward (crash) is always possible especially once shorts have been decimated—major downward reversals seem to always wait for clearing out of hedging and shorts, right?
Although a major trend reversal could occur here given major resistance levels just overhead on higher time frames, no one has a crystal ball. Finding the time and price components of such a major reversal can be exceedingly difficult (note the conclusion section of this article about probabilities).
And no one who were to have a crystal ball that worked properly would share it. And a securities regulator would be sniffing around for insider trading for sure with too many trades lining up too perfectly especially before major news catalysts. Humor aside, trying to be too clever by calling the exact top is a misplaced endeavor. But it can be prudent to analyze the charts and consider the idea of vulnerability for a trend’s continuation in the short-to-intermediate term, i.e., whether the move might encounter major resistance that could at a minimum cause a mean reversion or retracement of the recent rally .
Trend Analysis
The charts don’t lie. TSLA’s intermediate-term trend since January 6, 2023 remains upward. Similarly, short-term (2-6 weeks) and intraday trends remain upward. But the primary trend is still arguably sideways when considered over a 2-3 year period, while the secular trend since 2010 arguably still remains firmly upward.
1. Secular trend (since 2010): uptrend
2. Primary trend (since 2020/2021): sideways trend (range)
3. Intermediate / secondary trend (since early 2023): uptrend
4. short-term trend: uptrend near crucial resistance
5. intraday trends: uptrend near crucial resistance
Supplementary Chart A: Primary Trend
Supplementary Chart B: Secular Trend
The intermediate term trend has run fast and furious for 1H 2023 (since the Jan. 6, 2023 low). That alone is not enough to expect a reversal. Shorting something merely because it seems to have risen too far is a well-known trading mistake comparable to catching a falling knife in a downtrend. Shorting powerful uptrends is not an easy way to make a living.
But several charts suggest vulnerability for TSLA’s rally at this level. This comes right as earning will be reported this week along with a major monthly options expiration on July 21. Earnings reports like TSLA's upcoming one present a binary risk event that could stretch prices significantly in either direction, or it could a whipsaw price in both directions before settling on a final directional move (see the section below titled “Trend vs. Fundamentals.”)
Supplementary Chart C shows that TSLA’s price is nearing a crucial Fibonacci level on a linear chart. This is the 61.8% Fibonacci retracement ($299.05) of its entire decline from its all-time high into the early January 2023 low. Coincidentally, this level shows confluence with other important resistance levels shown on the chart such as the down trendline from the all-time high. (Some prefer Fibonacci levels adjusted for a logarithmic chart, which is not shown. The next relevant upside Fibonacci level on a log chart, however, is the .786 of the entire decline at $306, which is not far from the .618 level at 295.05.
Supplementary Chart C
If the .618 Fibonacci retracement is overcome and held (not just a false breakout), this suggests prices may run higher to at least $314.67 or the next higher Fibonacci level at $347. But these are upside levels conditioned solely on the .618 retracement being overcome and held.
Next, consider the down trendline from TSLA's all-time high. This is being approached at around $300, right were significant call OI exists. Trendlines can be somewhat rigid measures of trend, but they can provide some value especially when other support / resistance levels coincide with the trendline. The down trendline from TSLA's all-time high runs right into the measured-move zone, shown by the blue circle on Supplementary Chart D.1.
Supplementary Chart D.1
Some traders prefer to look only at logarithmic charts, though here it doesn't add much to the technical picture since the trendline is quite close to where it lies on the linear chart.
Supplementary Chart D.2
Finally, some bearish divergences in momentum and price/volume indicators suggest that price has become quite stretched right at a time when TSLA has reached some major resistance levels. Supplementary Chart E shows the Elder Force Index (EFI), a useful indicator that displays a combination of volume and price, weighing the extent of each price change along with the extent of volume. It tends to pick up divergences in the "force" or commitment behind a move with more sensitivity than RSI or other common momentum indicators, but with increased sensitivity often comes more noise (more false signals) which can be helped to some extent through indicator adjustment. Nevertheless, here is what that indicator shows for TSLA on the daily timeframe:
Supplementary Chart E
As TSLA has made higher highs, it has done so with less force and commitment for each high, creating a divergence between higher price highs and lower EFI highs. TSLA may make a new YTD high this week, and if so, it will be important to see where the EFI high prints for that new high. Given how low EFI is currently, it would take a lot of volume and price change to move the high to exceed the prior EFIs (erasing the divergence). In SquishTrade's view, EFI is unlikely to erase both the June EFI high and the January EFI high even if TSLA runs to $300-$320 post earnings.
Supplementary Chart F shows RSI and ROC, two common momentum indicators which most readers understand well. ROC shows a series of three highs that each make a successively lower high while price made higher highs at the same time: January 2023, June 2023, and July 2023. RSI only shows a series of two highs where price made a higher high and RSI made a lower high.
Supplementary Chart F
Downside Targets
TSLA's price seems poised to pullback / retrace at a minimum. But referring to downside targets may seem a bit premature as price hasn't confirmed even a short-term reversal or the start of a retracement / consolidation within the intermediate trend yet. The technical conditions for a retracement are present, so if confirmation lower does occur in the next week or so, price can fall to trend support, however one decides to measure that within one's trading system.
Based on persistently and deeply inverted yield curves, many astute market players may be looking for more than just a retracement or consolidation within the intermediate uptrend. They want more than mean reversion, and that is understandable. Should TSLA followers expect that now? Today, July 15, 2023, confidence cannot exist about an impending trend reversal on higher time frames. Why? A major reversal where price retests / breaks January 2023 lows will likely coincide with recessionary economic data (e.g., rising UE rates), drastically changing EPS estimates based on disappointing earnings reports, and/or unexpectedly high interest rates across the curve because of sticky inflation won't budge further downward (the recent CPI print came in at 3% for headline but 4.8% for core for June 2023). Note: Fundamentals are discussed in greater depth in the next section below. But economic data has continued to come in better than expected. Recent real GDP print for Q1 2023 was recently raised to 2% and labor markets remain persistently tight as the Fed even has noted in its recent pressers. Inflation has cooled for June but this may result from basing effects.
Most importantly, trend structure on the weekly and daily time frames (intermediate and short-term) has not been broken. Until the intermediate trend structure is decisively broken, forecasting a major top / trend reversal is rash and unfounded from a technical viewpoint. This intermediate-term trend structure is the up trendline from January 2023 lows or some other more dynamic or flexible measures of trend.
So with the idea that price can run a bit higher before any retracement—since we haven't yet seen a confirmation lower yet—these downside targets remain conditioned on a short-term trend reversal. For now, the targets also must be considered corrective retracements / mean-reversion targets within the context of the current trend until the evidence proves otherwise.
Conservative Target: $245-$250
Moderate Target: $232-$238
Aggressive Target: $199-$218
Trends vs. Fundamentals
A purely technical analyst or technically oriented trend trader tends to consider only the trend and technical evidence supporting that objective. At critical junctures after retracements / corrective moves, this means favoring trend continuation rather than a reversal until the evidence says otherwise. And pure trend following means seeing the odds as favoring mean reversion when a trend gets too extended or stretched rather than reversal.
Ambiguity as to trend on varying time frames often confounds the discussion of trends. This is why it's important to remain precise and focused on time frames. For example, a long term secular trend in a given index can be upward while a primary trend can be downward or sideways (retracing / consolidating within the secular uptrend) while an intermediate trend can be upward (retracing or consolidating the primary downtrend)—and intraday traders levered up on calls and riding the short-term rip may be so hyperfocused on a rip in the short term that they dismiss a long-term analyst’s accurate characterization of corrective rally within a primary downtrend. This is just a hypothetical example of how vagueness around terminology and time frames doesn’t can obfuscate the proper technical approach to a given security.
As discussed, TSLA’s trend right now is upward on the intermediate trend and minor (short-term) trends. But the primary trend is still arguably sideways when considered from 2-3 years ago. And the secular trend since 2010 arguably still remains upward.
But may a trend trader peek outside the trend? That is a complicated question without a definite answer. For those wanting to explore whether it’s prudent to look at non-technical evidence outside the scope of the trend (e.g., considering the fundamentals and the broader macro), the following post offers some cost-benefit analysis and suggestions:
For those who wish to avoid being influenced by fundamental information, please skip this paragraph and read on to the next one. Andrew Dickson, the founder of Albert Bridge Capital and CIO of Alpha Europe Funds recently noted the following incongruities (downtrends) in EPS-estimate trends vs. price trends:
1. In late 2022, TSLA’s sell-side analysts expected $6.34 EPS in 2023 (about 9 months ago estimates).
2. After TSLA reported delivery numbers in early July, Dickson noted that “despite today's apparent 4% rev beat (implied from delivery-numbers) for Q2, 2023 EPS expectations have plummeted to $3.50. So earnings expectations for TSLA are now down -55% in 9 months and yet the stock is up +15%.”
3. He concluded that "the 2023 P/E multiple has expanded from 38x to 79x, or by 107%."
Dickson’s comments show that price is often not driven by fundamentals. Exactly what was priced in when the stock plummeted to $100 in January? And what is different now has nearly doubled off the lows? Or maybe the question is whether the data that gets priced in has different (and ever changing) weightings depending on the type of data. For example, maybe the data that affects price is most heavily weighted toward liquidity, capital flows, sentiment, seasonality, rather than fundamentals. But David Lundgren, a combined technical and fundamental analyst for whom SquishTrade has utmost respect, highly regards technical analysis, and especially favors technicals in the short / intermediate term, but says that fundamentals always matter in the long run. Here is a quotation from Lundgren from notes I've taken on his commentary in interviews and articles: "In the long-term, actual fundamentals will simply overwhelm any short-term technicals, emotions, sentiments driving a security or market price action."
Concluding Comments
Traders think in terms of probabilities, not certainties. Further, traders' time frames, risk management, and position sizes vary dramatically, which is why it seems imprudent to blindly follow another person’s signal service (whether paid or free). One very knowledgeable TV follower of mine has shorted TSLA with a position size that gives him a sizable margin of error. In other words, he can wait and allow significant fluctuations in price before getting shaken out of the position. My inference from our conversations is that his short thesis is based on deeply and persistently inverted yield curves, volatility being at major lows, deteriorating fundamentals at TSLA and other broader macro problems.
But macro and fundamentals can take a great deal of time to unfold, i.e., they do not play out immediately, and if they did, the big short should have been weeks or months ago. This year everyone thought a recession would be here by now, including experts with long-term experience managing or advising multi-billion dollar funds. This does not mean my fellow trader must be wrong. His thesis might yet succeed with time and patience, or it may yet experience more pressure or even be stopped out. This is why position size, risk management, and time frames matter. Before entering a trade or investment, one must consider time frame, position size, risk tolerance, risk management, technical or fundamental evidence, and an invalidation or stop level (which defines risk and relates integrally to position size). Shorter-term traders with leveraged, derivative, or supersized short positions would have already gotten crushed trying to short TSLA or other mega cap leaders the last few weeks or months.
7 Expert Risk Management Techniques for TradingRisk management refers to the techniques used to identify, evaluate, and mitigate the potential risks associated with trading and investing. Whether you are a day trader, swing trader, or scalper, effective risk management can help you minimize losses and protect your hard earned money all while maximizing potential profits.
Let's take a look at the top 7 risk management techniques for trading! 👌
Have a Trading Plan
Many traders jump into the market without a thorough understanding of how it works and what it takes to be successful. You should have a detailed trading plan in place before making any trades. A well-designed trading plan is an essential tool for effective risk management.
A trading plan acts as a roadmap, laying out a set of guidelines/rules that can help traders avoid impulsive decisions. It is crucial because it requires you to think deeply about your approach before you begin risking real money. Having a plan can help you stay calm under stress as your plan will have specific steps to take for anything the market throws at you.
It is essential to clearly define your trading goals and objectives. Are you aiming for short-term gains or long-term wealth generation? Are you focused on a specific asset class or trading strategy? Setting specific and measurable goals helps you stay focused and evaluate your progress.
Another important part is to describe the trading strategy you will employ to enter and exit trades. This includes the types of analysis you will employ (technical, fundamental, or a combination), indicators or patterns you will rely on, and any specific rules for trade execution. Determine your risk tolerance, set appropriate position sizing rules, and establish stop-loss levels to limit potential losses.
The Risk/reward ratio
When you are planning to open a trade, you should analyze beforehand how much money you are risking in that particular trade and what the expected positive outcome is. Here is a useful chart with some examples to understand this concept:
As you can see from the data above, a trader with a higher RR (risk-reward ratio) and a low win rate can still be profitable.
Let’s examine this a little more by looking at a profitable example with a 20% success rate, a RR ratio of 1:5, and capital of $500. In this example, you would have 1 winning trade with a profit of $500. The losses on the other 4 trades would be a total of $400. So the profit would be $100.
An unprofitable RR ratio would be to risk, for example, $500 with a success rate of 20% and a risk/reward ratio of 1:1. That is, only 1 out of 5 trades would be successful. So you would make $100 in 1 winning trade but in the other 4 you would have lost a total of -$400.
As a trader, you need to find the perfect balance between how much money you’re willing to risk, the profits you’ll attempt to make, and the losses you’ll accept. This is not an easy task, but it is the foundation of risk management and the Long & Short Position Tools are essential.
You can use our 'Long Position' and 'Short Position' drawing tools in the Forecasting and measurement tools to determine this ratio.
Stop Loss/Take Profit orders
Stop Loss and Take Profit work differently depending on whether you are a day trader, swing trader or long term trader and the type of asset. The most important thing is not to deviate from your strategy as long as you have a good trading strategy. For example, one of the biggest mistakes here is to change your stop loss thinking that the losses will recover... and often they never do. The same thing happens with take profits, you may see that the asset is "going to the moon" and you decide to modify your take profit, but the thing about markets is that there are moments of overvaluation and then the price moves sharply against the last trend.
There is an alternative strategy to this, which is to use exit partials, that is closing half of your position in order to reduce the risk of your losses, or to take some profits during an outstanding run. Also remember that each asset has a different volatility, so while a stop loss of -3% is normal for a swing trading move in one asset, in other more volatile assets the stop loss would be -10%. You do not want to get caught in the middle of a regular price movement.
Finally, you can use a trailing stop, which essentially secures some profits while still having the potential to capture better performance.
Trade with TP, SL and Trailing Stop
Selection of Assets and Time intervals
Choosing the right assets involves careful consideration of various factors such as accessibility, liquidity, volatility, correlation, and your preference in terms of time zones and expertise. Each asset possesses distinct characteristics and behaviors, and understanding these nuances is vital. It is essential to conduct thorough research and analysis to identify assets that align with your trading strategy and risk appetite.
Equally important is selecting the appropriate time intervals for your trading. Time intervals refer to the duration of your trades, which can span from short-term intraday trades to long-term investments. Each time interval has its own advantages and disadvantages, depending on your trading style and objectives.
Shorter time intervals, such as minutes or hours, are often associated with more frequent trades and higher volatility. Traders who prefer these intervals are typically looking to capitalize on short-term price fluctuations and execute quick trades. Conversely, longer time intervals, such as days, weeks, or months, prove more suitable for investors and swing traders aiming to capture broader market trends and significant price movements.
Take into account factors such as your time availability for trading, risk tolerance, and preferred analysis methods. Technical traders often utilize shorter time intervals, focusing on charts, indicators, and patterns, while fundamental investors may opt for longer intervals to account for macroeconomic trends and company fundamentals.
For example, If you are a swing trader with a low knack for volatility, then you can trade in assets such as stocks or Gold and ditch highly volatile assets such as crypto.
Remember that there is no one-size-fits-all approach, and your choices should align with your trading style, goals, and risk management strategy.
Here is a chart of Tesla from the perspective of a day trader, a swing trader, and an investor:
Backtesting
Backtesting plays a crucial role in risk management by enabling traders to assess the effectiveness of their trading strategies using historical market data. It involves the application of predefined rules and indicators to past price data, allowing traders to simulate how their trading strategies would have performed in the past.
During the backtesting process, traders analyze various performance metrics of their strategies, such as profitability, risk-adjusted returns, drawdowns, and win rates. This analysis helps identify the strengths and weaknesses of the strategies, allowing traders to refine them and make necessary adjustments based on the insights gained from the backtesting results.
The primary objective of backtesting is to evaluate the profitability and feasibility of a trading strategy before implementing it in live market conditions. By utilizing historical data, traders can gain valuable insights into the potential risks and rewards associated with their strategies, enabling them to manage their risk accordingly.
However, it's important to note the limitations of backtesting. While historical data provides valuable information, it cannot guarantee future performance, as market conditions are subject to change. Market dynamics, liquidity, and unforeseen events can significantly impact the actual performance of a strategy.
There are plenty of ways to backtest a strategy. You can run a manual test using Bar Replay to trade historical market events or Paper Trading to trade real examples. Those with coding skills can create a strategy using Pine Script and run automated tests on TradingView.
Here is an example of the Moving Averages Crossover strategy using Pine Script:
Margin allocation
We are not fortune tellers, so we cannot predict how assets will be affected by sudden major events. If the worst happens to us and we have all of our capital in a particular trade, the game is over. There are classic rules such as the maximum allocation percentage of 1% per trade (e.g. in a $20,000 portfolio this means that it cannot be risked +$200 per trade). This can vary depending on your trading strategy, but it will definitely help you manage the risk in your portfolio.
Diversification and hedging
It is very important not to put all your eggs in one basket. Something you learn over the years in the financial markets is that the unexpected can always happen. Yes, you can make +1000% in one particular trade, but then you can lose everything in the next trade. One way to avoid the cold sweats of panic is to diversify and hedge. Some stock traders buy commodities that are negatively correlated with stocks, others have a portfolio of +30 stocks from different sectors with bonds and hedge their stocks during downtrends, others buy an ETF of the S&P 500 and the top 10 market cap cryptos... There are unlimited possible combinations when diversifying your portfolio. At the end of the day, the most important thing to understand is that you need to protect your capital and using the assets available to you a trader can hedge and/or diversify to avoid letting one trade ruin an entire portfolio.
Thank you for reading this idea on risk management! We hope it helps new traders plan and prepare for the long run. If you're an expert trader, we hope this was a reminder about the basics. Join the conversation and leave your comments below with your favorite risk management technique! 🙌
- TradingView Team
XRP: FINALLY💥 RIPPLE Victory in SEC CaseHi Traders, Investors and Speculators of Charts📈📉
Congratulations to all the XRP HODLERS 🤩🥂
(quick recap) ...The SEC case against Ripple was a legal battle between the US Securities and Exchange Commission (SEC) and Ripple Labs, the company behind the XRP cryptocurrency. The SEC sued Ripple in December 2020, alleging that XRP is a security and that Ripple had violated securities laws by selling XRP without registering it with the SEC. Ripple Labs denied the SEC's allegations, arguing that XRP is not a security but a digital currency.
The case went to trial in February 2023, and on July 12, 2023, Judge Analisa Torres ruled in favor of Ripple Labs. Torres found that the SEC had failed to adequately prove that XRP is a security, and she dismissed the case.
The ruling is a major victory for Ripple Labs and the cryptocurrency industry as a whole. It could have far-reaching implications for the regulation of cryptocurrencies in the United States.
👉The SEC failed to prove that XRP is a security.
👉The ruling could have far-reaching implications for the regulation of cryptocurrencies in the United States.
👉The ruling is a major victory for Ripple Labs and the cryptocurrency industry as a whole.
This furthermore confirms my bias for the beginning of AltSeason 2023, check it out here:
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COIN H&S Breakout ContinuesCoinbase continues to gain after breaking up and out of the neckline of an inverse head and shoulders pattern, price is up +10% today - trade was initiated last week upon seeing the inverse head and shoulders breakout.
Due to the pop in price today I've raised my stop-loss level to $85.75 in case price reverses on profit taking. This stop level ensures that I exit the trade with a gain if price reverses, while at the same time leaves some room for volatility if price begins to fluctuate.
Lower PPO and TDI indicators are still reading bullish, but the green RSI line of the TDI indicator is now above the 80 level which is considered overbought meaning a correction to the downside can be expected.
Buy Price: $79.21
Stop-Loss: $85.75
Take Profit: $136-ish
Gain if I get stopped out at $85.75: +8.2%
Gain if price reaches take-profit level: +71%
This stop level will remain adaptive to price movement, price has gained another 3% in the few minutes it took me to write this and COIN is now up +13% on the day.
NVIDIA - Bears, This Is Your ChanceIn a previous post on NVIDIA following its earnings gap all time high, I posited that a bearish three drives was a real possibility, which would involve the stock actually going down and then driving up a few more times in accordance with the overall market topping:
NVIDIA - A Scenario Few Are Considering. Few. Few. Few.
That never panned out, and instead what we're looking at instead, as you can tell with all the insider selling, is a very likely bump and run reversal.
But distribution patterns take a very long time to manifest, and one of the biggest tells with NVIDIA is despite it going from $366 to $440, it really has never targeted the sell side, not even rebalancing the original gap.
As far as this company goes... well, when you come across something like this whose CEO is a Taiwanese dude prancing around in a leather jacket for every photo op while it's trading like a Chinese Communist Party pump and dump, a number of red flags beyond the 250x P/E it's trading at should emerge.
Companies and their officers who have connections to the CCP are very dangerous, for the geopolitical situation is tense. Much is at stake right now with Mainland China and whether or not Xi Jinping is intelligent enough to get rid of the Party.
If Xi can't get rid of the Party, then the International Rules Based Order will do it for him and will go to install their own people from Taiwan in the Mainland.
Xi always has the option to weaponize the 24-year persecution of Falun Gong, started by the Jiang Zemin faction that's rooted in Shanghai, to take down the Party and defend China from the groups that wish to invade.
Live organ harvesting isn't a sin that can survive public scrutiny, really.
None of this is healthy for the markets, and if you're long on stocks at the top, some of them aren't coming back.
The indexes might come back, but many companies definitely go to zero and will be replaced by a future generation.
When you look at NVIDIA on the monthly, does this look like somewhere that you want to go long?
A monthly "gap" like this will certainly always be filled, and it just happens to be right around the actual level we're looking to target.
The weekly bars are severely ranged compressed, which tells us that a big move is coming
I have a call on that Nasdaq that we're about to get a pretty violent and serious correction, but that it will really be a bear trap:
Nasdaq - The Great Bear Trap
You might feel right now that stocks ONLY GO UPPY. But considering you're in a bear market and these things have been mooning for like an entire quarter right now, you might want to check that notion before that notion wrecks you.
The problem with NVIDIA going and making a new high right now is it's failed to do so twice. Friday's end of the day was a big rejection on everything Nasdaq.
And this is a time when price stopped just 1.8% short of the high.
So what it was really doing was covering the old range, and taking stops over the most subordinate high to the all time high.
Another big tell is the SOXS and SOXL 3x leverage semiconductor ETFs are simultaneously setup on weekly and daily candles to breakout/retrace, and both started to do that in sync on the Friday dump.
NVIDIA is the top component of the index underlying the ETF at roughly 9%.
The most obvious place for it to retrace to to start taking out sell stops is the $395 gap.
But this is only 5% at this point and not very scary.
Meanwhile, all the bulls and all the bears start selling on a break of $366, because Discord and Reddit told them to and some books and guru videos told them to "because confirmation."
Once the gap is finally balanced, I believe that Nasdaq is going to rip to something like 16,000 before we're done, and NVIDIA will actually finish its lifespan with a 5-handle.
So for bears: here's your opportunity. But you better have realistic expectations.
For bulls: here's your opportunity. But you better have patience in buying the dip, and you'll find you "made a lot of money getting out of the market too early."
And for bulls and bears: stay away from ponzi companies and social distance from the CCP and all the Marxist-Leninist and atheist things.
If you don't, you'll face more than the liquidation of your brokerage accounts, to say the very least.
A Bollinger Band Strategy THAT ACTUALLY WORKS (1-Min Timeframe)In this video i'm going to explain you how to use the Bollinger Bands while trading BTC/USD in the 1-Minute and 5-Minute timeframe.
If you have any questions, feel free to leave a comment!
Please Boost this idea if you like it. This will help the algorithm and motivates me to push more educational videos for you :)
Cheers,
Ares
Monero Cup and Handle Just flipped the Monthly SARIntroduction
I have been waiting for an OG coin alt season for over a year now. A lot of the top 10 or top 20 coins from 2015, 2017 and 2017 massively over performed compared to bitcoin and Ethereum and have had to go through an even longer cooling off period than those cryptos did. Monero has dropped to the 20s in coinmarketcap.com’s rankings and some of the coins I favor as trades and ideologically are a lot lower.
I got a bit excited around February/march of 2022 but did not get the follow through that I was hoping for. Now that I have see a flip of the monthly parabolic SAR I am a lot more optimistic that a high probability move to the upside is beginning in Monero and my choice alts. Since they are lower down in market cap one cannot build a position as easily as one could in a top 10 or 20 coin. There is a lot of wicks and slippage when entering a position too enthusiastically or carelessly. I cannot just market into a margin position without creating a wick that immediately puts me under water and messes up my margin level. But if I am right the gains will be worth it.
Main Analysis
The Parabolic SAR is quite a nice indicator on the higher time frames. It was literally named Stop And Reverse and was designed to find places where price can take a U turn. If you are expecting a multi-month or multi-year to happen based on whatever (analysis, fundamenals, etc) a flip of the SAR helps clear “technical resistance” much in the same way clearing the 200SMA in a bear market is a sign that a bull market is brewing.
Another technical resistance we have cleared is the resistance line of the flag. We popped through quite nicely and have been going sideways for about 10 days after the initial move began. While there is a chance that we can retest the flag’s previous resistance as support I think it is more likely that price pumps. A lot of biases of a lot of traders should have flipped to bullish with the SAR. The bull season is still in the early stages and there is still a lot of doubt but generally the bulls will be winning.
Other Charts
The monthly chart for both other times the Parabolic SAR flipped bullish look amazing when viewed with Heiken Ashi candles. Massive 50-70 percent pull backs don’t seem to matter anymore when viewed on the HA chart. The idea that I can get into this trade the first week it is happening is pretty exciting.
The Parabolic SAR is usually used with some momentum indicator and the inventor of the Parabolic SAR liked to use another of his creations, the ADX. Here is a simplified version. Looks promising.
The chart below shows the long term SMA situation. Price is winding up for its next move between the 200 and 100 SMAs. I think it will be to the upside in a big way.
My channels chart set up has the gaussian and Keltner channel (1 and 2 ATR multipliers). Price is struggling at the guassian midline and I think we will see an upside resolution. The chart also shows that the keltner midline (the 20 EMA is a good place to buy pull backs on this uptrend if it is similar to the 2016 uptrend.
Lots of people like to talk about price action but don’t spend enough time talking about volume action. One of the best indicators for volume is the On Balance Volume and with some moving averages it is really easy to tell when the long term buying and selling pressure has flipped. I am very optimistic that XMR’s OBV SMAs will flip bullish.
Since volume can vary by exchange here is Binance as well
Where is the money going to come from?
Money has to come from somewhere to pump XMR and the other OG coins I favor. I think it is going to be rotated out from the ETH ecosystem. Many times a W pattern will have price pump to a double top or even all time highs and then price returns to the rise between the valleys. The chart below shows that both XMR and LTC had price return to the rise between the valley.
Also, my linked ideas will have my bearish post on NDX. I think the equity markets will be howling here shortly as price retraces deeper.
My plan
I am looking to add to my positions with a simple pull back strategy. When both the Log MACD and Stoch are below zero know we have just had a pull back and that pull back will have generated some support and resistance lines. I will look to buy when price is again above that resistance line and catch some momentum. This will help me not buy and have the price continue to fall which is always nice. I will not be buying the bottoms though.
I do not like the idea of buying things and having it be the same price six months to a year later. Much nicer to buy the pull back and watch price climb out of the hole and not return.
I have this planned for a lot of the OG coins, many of which are now in obscurity. Zcash and Dash are in the 70s and 90s. Very low market cap. XPR, BCH and others are still rather big but not as exciting but they are going to be bought on pull backs just the same.
XMR also topped over 200 days before total 2 did on this last uptrend. I have to be prepared to rotate out of XMR and into other coins if XMR reaches its major targets.
Relative Strength Index StrategyWhat is RSI?
The Relative Strength Index (RSI) is a widely used indicator used by traders in technical analysis that evaluates the strength of a financial instrument’s price movement over a given period. It measures the speed and change of price fluctuation on a scale of 0 to 100, providing insights into overbought or oversold conditions, as well as potential trend reversals.
RSI can be used for trading all markets and asset classes, from stocks to foreign exchange (forex), with a variety of RSI trading strategies to choose from.
Highlights
RSI is a technical analysis tool that measures price movement strength and identifies overbought and oversold conditions in financial markets.
RSI could be applied to different timeframes and customised periods depending on a trading strategy.
RSI trading strategies include (but are not limited to) overbought/oversold identification, 50-crossover, divergence, and failure swings.
Combining RSI with other indicators like moving averages, Bollinger Bands, MACD, Stochastic Oscillators, and Fibonacci retracements may enhance market analysis.
RSI has limitations, such as producing false signals and not predicting the size of price reversals.
RSI indicator explained
The RSI was formulated by mechanical engineer turned trader and technical analyst, J. Welles Wilder Jr., which he first revealed in his 1978 book New Concepts in Technical Trading Systems.
Like most oscillators, RSI is typically plotted underneath a price chart. It can be used on any candlestick or bar chart timeframe, including minutes, hours, days and weeks.
The RSI can also be calculated over different periods. The standard setting is 14 periods, but some traders can use custom RSI indicator settings like two periods, nine periods or 50 periods. For example, to optimise RSI for day trading, traders may adjust the settings to a shorter look back, such as 7 or 10 periods, to increase sensitivity to recent price changes.
By comparing the magnitude of recent gains to recent losses, the RSI generates a value from 0 to 100 that reflects the strength or weakness of the asset’s price momentum.
When the RSI value rises above 70, it is generally considered to be overbought, signalling that the asset may be overvalued and a price correction may be imminent.
When the RSI value falls below 30, it is considered to be oversold, indicating that the asset may be undervalued and a price rebound could be on the horizon.
How is RSI calculated?
It is not necessary to remember the calculation to use RSI trading strategies as the indicator is typically embedded in a trading platform, but it helps to conceptualise what the indicator is showing.
The RSI is calculated by normalising the relative strength factor (RS). RS is measured by average gain divided by average loss.
The average gain is the sum of the upward price changes over the last X periods (typically 14 as recommended by Welles Wilder) divided by the number of periods to attain the average.
The average loss is the sum of downward price changes over the same number of periods, divided by that same number of periods.
The relative strength factor (average gain divided by average loss) is then converted to a Relative Strength Index between 0 and 100, to produce the RSI formula.
What is an RSI trading strategy?
An RSI trading strategy is a set of rules and techniques that utilises the RSI indicator to identify potential trading entries based on overbought and oversold conditions or momentum shifts. There are four key ways to use the RSI indicator in trading.
Overbought and Oversold
As we have already discussed, if the RSI indicator shows an asset has become overbought and then starts to point lower, it suggests the price might follow it downwards. Likewise, if RSI is oversold and then starts to point higher, the price could be about to turn higher too.
Those following this RSI trading strategy may consider waiting until the RSI falls below 70 from an overbought condition level to take a possible short position. Then when the RSI rises above 30 from oversold conditions, the idea is to take a long position.
50-crossover
Traders could use the RSI 50 level (the centreline) to confirm that a price trend is occurring. According to this strategy, a downward trend is confirmed when the RSI crosses from above 50 to below 50. Similarly, an upward trend is confirmed when the RSI crosses above 50.
Divergence
Another way to trade with RSI is to look for divergence between the RSI and the market price. Put simply, traders are looking for situations when momentum moves in the other direction to the price, signalling a possible turning point.
When the price hits a ‘higher high’ but the RSI makes a ‘lower high’ – this is known as bearish divergence.
When the price makes a ‘lower low’ and the RSI forms a ‘higher low’ – this is known as bullish divergence.
When divergence occurs, the theory states that there is a higher probability of price reversing. This could present potential short-term sell-and-buy signals.
RSI failure swings
This is a similar concept to divergence but on a much smaller scale. The ‘swings’ are small highs and lows that a price makes when it is in a trend. The RSI tends to track the highs and lows made in the price.
Uptrends see higher highs and lows. Downtrends see lower highs and lows. If RSI swings lower but the price continues higher, this could be a sign of a short-term trend reversal.
How to trade using RSI and other indicators
Traders may choose to use RSI in conjunction with other indicators to enhance their market analysis and gain a more comprehensive understanding of price movements. Below are some of the popular indicators that may complement an RSI trading strategy.
Moving Averages (MA)
Traders often use moving averages (MA) in conjunction with RSI to identify trends and potential entry or exit points. For example, when the price crosses above a moving average and RSI moves out of oversold territory (above 30), it may signal a potential long entry. Conversely, when the price crosses below the moving average and RSI moves into overbought territory (above 70), it could indicate a short entry point.
Bollinger Bands
By combining Bollinger Bands with RSI, traders could gain additional confirmation of overbought or oversold conditions. When the price touches the upper Bollinger Band and RSI is above 70, it may suggest that the asset is overextended and due for a pullback. Similarly, if the price touches the lower Bollinger Band and RSI is below 30, it might indicate an oversold condition and a potential buying opportunity.
MACD
Using Moving Average Convergence Divergence (MACD) together with RSI could provide further confirmation of trend changes and momentum shifts. For instance, if RSI shows a bullish divergence (price makes lower lows while RSI makes higher lows) and MACD experiences a bullish crossover (the MACD line crosses above the signal line), it may reinforce the likelihood of a potential trend reversal to the upside.
Stochastic Oscillator
The Stochastic Oscillator, like RSI, identifies overbought and oversold conditions. By comparing the two indicators, traders could look for confirmation or divergences to better gauge potential market reversals. For example, if both RSI and Stochastic Oscillator move from oversold to overbought territory, it may strengthen the case for an upward price movement.
Fibonacci Retracements
Combining Fibonacci retracements with RSI could help traders identify potential support and resistance levels during price corrections. If RSI reaches oversold levels near a significant Fibonacci retracement level, it could signal a higher probability of a price rebound at that level, providing a potential entry point for long positions.
RSI limitations
False signals: The RSI is a leading indicator, designed to potentially get you into a profitable trade earlier than lagging indicators. However, leading indicators are less reliable and can often produce false signals. This is because not every change in momentum means the price will change direction.
Size of reversal unknown: The RSI indicator signalled many turning points in the markets over the years, but it does not predict how big or small the following price move will be. The RSI might be signalling a top or bottom or simply a temporary reversal in the direction of a stock’s price.
Conclusion
In conclusion, RSI is a popular technical analysis tool used to measure the strength of price movements for various financial instruments. Developed by J. Welles Wilder Jr., it gauges overbought or oversold conditions and potential trend reversals, providing valuable insights for traders.
The RSI can be applied to different timeframes and periods, with the standard setting being 14 periods, although traders may customise. For example, RSI settings for day trading are typically on a shorter lookback, such as 7 or 10 periods, to increase sensitivity to recent price changes.
RSI strategies include identifying overbought/oversold conditions, 50-crossover, divergence, and failure swings. Traders often use RSI in conjunction with other indicators, such as moving averages, Bollinger Bands, MACD, Stochastic Oscillator, and Fibonacci retracements, to enhance market analysis and support decision-making.
However, RSI does have limitations, including the possibility of producing false signals and not predicting the magnitude of price reversals. Despite these drawbacks, RSI remains a useful indicator for traders seeking to navigate the complexities of financial markets.
Top 4 Strategies for Position TradingPosition trading is a time-tested approach to the financial markets, allowing traders to profit from long-term trends. In this article, we’ll explore the top four strategies for positional trading, discuss the features of successful position traders, and briefly examine three essential indicators that can help with your position trading journey.
What Is Position Trading?
Position trading is a type of trading where a trader holds onto their positions for an extended period, typically ranging from weeks to months or even years. In contrast to day traders, who attempt to profit from intraday price fluctuations, or swing traders, who hold their positions for days or weeks, position traders adopt a more patient approach, allowing their trades to develop over a longer period. This can lead to potentially greater profits, as well as reduced transaction costs and stress associated with constant monitoring of the markets.
The main goal of position trading is to capitalise on long-term trends in a given market, such as stocks, forex, or commodities. Position traders typically rely on a combination of fundamental analysis, technical analysis, and market sentiment to make their trading decisions. They use this analysis to identify and participate in trends on the daily, weekly, and monthly timeframes.
Features of a Position Trader
Successful position traders often exhibit unique characteristics that set them apart from other types of traders. Some of the key features are:
- Patience: Position trading demands patience as traders wait for opportunities to arise and positions to develop over weeks, months, or years. Remaining calm and focused during market uncertainty is essential.
- Discipline: Position traders must maintain discipline in their approach. This includes sticking to their trading plan, managing their risk effectively, and resisting the urge to exit their positions prematurely.
- Long-Term Focus: Successful position traders concentrate on overall market direction, not short-term price movements, enabling them to identify opportunities that short-term traders might overlook.
- Strong Fundamental Analysis Skills: Since fundamental factors often drive long-term trends, exceptional fundamental analysis skills are crucial for gauging where the market may be headed next.
Positional Trading Strategies
Now that we have an overview of position trading let’s examine four effective positional trading strategies.
Support and Resistance Trading
At the heart of many positional trading strategies are support and resistance. Support refers to a price level where buying interest is strong enough to overcome selling pressure, leading to a pause or reversal in a downward movement. Resistance is the opposite: a price level where sellers overtake buyers, prompting a stall or reversal in an upward trend.
Support and resistance can be identified through various methods, including:
- Examining historical turning points in the market
- Identifying broken support/resistance, which may now act as resistance/support, respectively
- Using trendlines
- Using technical indicators, like Fibonacci retracements or moving averages.
Position traders will usually highlight areas of support/resistance on the daily, weekly, or monthly charts in the direction of the broader trend, then enter a position when the price reaches the area. They may take profits at an opposing significant support/resistance level and set their stop losses beyond the area they entered at.
Breakout Trading
Breakout trading, as the name suggests, involves taking positions once these key areas of support or resistance are broken through. This approach can be particularly effective since it allows traders to potentially catch the start of a substantial move.
Position traders will wait for a higher timeframe support/resistance level to break. To confirm breakouts, position traders often look for an increase in volume, which may indicate a surge in market interest and momentum. It’s also best to wait for the candle to close before entering the position, as this helps to confirm the breakout.
Stop losses are usually set beyond a nearby swing point, while profits can be taken at a significant opposing level. As breakouts are generally part of a larger trend continuation, some traders may prefer to trail their stop losses at swing points to maximise profits.
Pullback Trading
Pullback trading is effectively an extension of breakout trading. However, instead of entering when the level is broken, traders wait for a retracement, allowing them to optimise their entry points and risk/reward ratio.
A pullback occurs when the price temporarily moves counter to its broader trend before resuming its original direction. Position traders commonly look for a retracement to a previous area of support in a downtrend (expected to act as resistance) or resistance in an uptrend (expected to act as support). Alternatively, they may use the Fibonacci retracement tool. For confirmation that the area will hold, traders will often look for reversal candlestick patterns like hammers or shooting stars.
For instance, position traders wait for a support/resistance level to be broken. However, they then observe the price action until a retracement occurs, watching for a reversal candlestick pattern. Once the pattern forms, they enter at the close of the candle.
Profits can be taken at the high or low that originated the pullback or at a significant support/resistance level. Conversely, traders may prefer to trail their stop loss as the trend progresses.
Triple Moving Averages
Moving averages (MAs) are technical indicators that smooth out price data to reveal underlying trends. By combining multiple MAs, position traders can better understand where the price may be headed next.
In this position trader’s strategy, we use the exponential moving average (EMA), which is slightly more responsive to recent price action. Simple moving averages (SMAs) are a good alternative. Want to see the difference for yourself? Hop over to FXOpen’s free TickTrader platform to find EMAs, SMAs, and a whole host of versatile trading tools.
There are three components: a short-term EMA (20 periods), an intermediate-term EMA (50 periods), and a long-term EMA (200 periods). Combining the three allows us to account for both recent price changes and long-term trends. They are coloured blue, orange, and red, respectively, on the chart above.
Trades can be taken when the short-term EMA crosses the long-term, but it’s best to wait for both the short-term and intermediate-term EMAs to break through the long-term in the same direction. In doing so, we have confirmation that trend momentum is picking up.
Traders open a long position when the short and intermediate-term EMAs cross above the long-term one and open a short position when they cross below the long-term one. Stop losses can be placed just beyond the long-term EMA. The theory states that a profit can be taken when MAs cross over again.
Position Trading Indicators
Alongside the strategies listed, position traders use a variety of technical indicators to help identify and improve entries. Some of the most popular indicators employed by positional traders include:
- Relative Strength Index (RSI): RSI is a momentum oscillator that shows overbought and oversold areas, helping traders spot potential reversals.
- Bollinger Bands: Bollinger Bands are a volatility-based indicator that plots standard deviations of price. They can be used to identify impending trend reversals and periods of increased volatility.
- On Balance Volume (OBV): OBV is a volume-based indicator that measures buying and selling pressure, allowing traders to confirm potential breakouts and trend reversals by analysing changes in volume.
Final Thoughts
In summary, position trading is a unique approach that removes much of the stress of intraday styles. If you’re ready to find the best positional trading strategy for you, consider opening an FXOpen account. You’ll be able to put these strategies to the test in over 600 markets, safe in the knowledge that you’re partnering with Traders Union’s Most Innovative Broker of 2022. Good luck!
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.
GLOSSARY Smart Money Concepts – Complete Terms!It’s taking the world by a storm.
Smart Money Concepts is what has become famous lately.
Now I’ve been trading for 20 years and even I have learnt to adapt and adjust SMC to my trading strategy.
I guess we have to evolve and adapt with what there is.
Anyways, today I’ve written a complete Glossary on Smart Money Concepts terms for you.
Enjoy!
SMART MONEY CONCEPTS GLOSSARY
Break Of Structure (BOS) (CONTINUATION)
A BOS is when the price breaks above or below, and continues in the direction of the trend. (CONTINUATION).
Break Of Structure Down
When the price breaks and closes BELOW the wick of the previous LOW in a DOWNTREND.
Break Of Structure Up
When the price breaks and closes ABOVE the wick of the previous HIGH in an UPTREND.
Buy Side Liquidity (Smart Money SELLS)
Where an Order Block forms where Smart Money SELLS into retailers (dumb money) BUYING orders – Pushing the price DOWN.
Change of Character (CHoCH) (REVERSAL)
Refers to a much larger shift in the underlying market trend, dynamic or sentiment.
This is where the price moves to the point where there is a change in the overall trend. (REVERSAL)
Change of Character Down
When the price breaks and closes below the previous uptrend.
Change of Character Up
When the price breaks and closes above the previous downtrend.
Daily bias
Tells us which direction, trend and environment the market is in and what we are looking to trade.
Daily bias Bearish
When the market environment is DOWN and the trend is DOWN – we look for shorts (sells) in the market.
Daily bias Bullish
When the market environment is UP and the trend is UP – we look for long positions (buys) in the market.
Discount market <50%
The market is at a discount when the price trades BELOW the equilibrium level. We say the price is at a discount (low price).
Equilibrium
Equilibrium is a state of the market where the demand and supply are in balance with the price. We say the price of the market is at fair value.
Fair Value Gap (FVG)
A 3 candle structure with an up or down impulse candle that indicates and creates an imbalance or an inefficiency in the market.
Fair Value Gap Bearish
A 3 candle structure with a DOWN impulse candle that indicates and creates an imbalance or an inefficiency in the market.
Between candle 1 and 3, do NOT show common prices. The price needs to move back up to rebalance and fill the gap.
Fair Value Gap Bullish
A 3 candle structure with an UP impulse candle that indicates and creates an imbalance or an inefficiency in the market.
Between candle 1 and 3, do NOT show common prices. The price needs to come back down to rebalance and fill the gap.
Levels of liquidity
The area of prices where smart money players, identify and choose to BUY or SELL large quantities.
E.g. Supports, resistances, highs, lows, key levels, trend lines, volume, indicators, psychological levels.
Liquidity
The degree, rate and ability for an asset or security to be easily bought (flow in) or sold (flow out) in the market at a specific price.
Liquidity sweep (Liquidity grab)
Smart money buys or sells (and sweeps or grabs liquidity) from traders who enter, exit or get stopped.
Market down structure
When the price makes lower lows and lower highs.
Market structure
Indicates what a market is doing, which direction it’s in and where it is more likely to go.
Market Structure Shift (MSS)
MSS shows you when the price is breaking a structure or changing the direction in the market.
Market up structure
When the price makes higher lows and higher highs.
Order block
Large market orders (big block of orders) where smart money buys or sells from different levels of liquidity.
Order Block Bearish
A strong selling or a supply zone for smart money.
Order Block Bullish
A strong buying or a demand zone for smart money.
Order block events
Large market orders where smart money buys or sells from certain events i.e. High volume, supports, resistances, highs, lows, key levels, Break Of Structure, Change of Character, News or economic event.
Point Of Interest (POI)
POI is an area or level in the market where there is expected to be a large amount of buying or selling activity i.e. Order blocks.
Premium market >50%
The market is at a premium when the price trades ABOVE the equilibrium level.
We say the price is at a premium (high price).
Sell Side Liquidity (Smart Money BUYS)
Where an Order Block forms where the Smart Money BUYS into the retail (dumb money traders orders – Pushing the price UP.
Smart Money
These are the smart, informed, and savvy financial institutions that invest (buy and sell) their large capital into different financial markets.
Smart Money Concepts
SMC is a more sophisticated method of price action to spot, identify and locate where smart money is buying and selling their positions
Sweep Buy Side Liquidity (Smart Money SELLS)
Smart Money SELLS into positions (and sweeps liquidity) from retail traders who are short (get stopped) and for long traders who buy and enter their trades.
Sweep Sell Side Liquidity (Smart Money BUYS)
Smart Money BUYS into positions (and sweeps liquidity) from traders who are long (get stopped) and for short traders who enter their trades.
Feel free to print this out and have it as a guide to your Smart Money Concepts trading journey.
All the best!
