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A trading plan - What is it and why do you need one?In one of my previous publications I stated that the majority of new traders fail in the first 90 days of their trading "career". I also mentioned that one of the reasons for it was the lack of a trading plan. So what is a trading plan and why do you need one? Rather than explaining, I decided to give you an example. Below is an elaborate example of a trading plan. If you read through it, you'll understand what purpose it serves on a daily basis. The goal of this publication is to give you an idea on how to build one for yourself that fits YOUR needs. ############################## TRADING PLAN 1️⃣ Trading Philospophy/Psychology I believe successful trading is a learned SKILL. It is a science, and consistent profitability is achievable and can be duplicated. I define success in trading as total financial freedom. The ability to stay home with my family. The freedom to choose my own schedule, and the ability to provide those I love with every excess, comfort and opportunity possible. My mental state is a major factor in my success as a trader. I will constantly assess and adjust my trading state in order to mainatin a mindset conducive to greatness. I accept as a fact, that my success is unlimited. I can achieve anything. Where others see impossibility, I will see unlimited opportunity. I will be disciplined in every regard, and at all times as it relates to my trading plan and execution. I recognize that I am in the markets to become a full time trader. I am interested in profit. Trading is my business. I accept as a fact that I will have losses. I will apply strict money management rules in order to limit those losses and maximize my profits. Markets control themselves, my sole goal is to participate. I trust my setups as I have backtested them and know how they perform historically. I am an aggressive swing trader in the forex market. I use harmonic patterns and structure as my basis for entry in the market. I will continue to educate myself on every aspect of trading, with the goal of broadening my market knowledge, and expand that knowledge into cryptocurrencies. Setbacks are expected, but failure is not acceptable. There is only one option, only one end ... Success... 2️⃣ Trading Goals On a daily basisI will try to find 2 good trade setups that answer my risk/reward criteria. I will not trade more than 2 setups per day. My goal is to reach 60% profitability, which at a Risk:Reward ratio of minimum 1:1 will guarantee constant increase of my equity. On a monthly basis I strive to achieve an equity growth of minimum 5%. My goal is to become a full-time trader. In order to switch to full-time trading and quit my daily job, the following requirements need to be met: A reserve capital needs to be built up that allows to maintain my current lifestyle without any other source of income. 50% of my total average profits per month should cover my monthly expenses, allowing me to live off trading while building my equity If above requirements are met on average 6 months in a row, I will quit my daytime job and commit to full-time trading. 3️⃣ Daily Routine Each morning I will wake up no later than 07:00, take a shower and have breakfast. The latest at 08:00 I will start my analysis and look for potential trade setups. I will also check what news is relevant for that day. While I am still on my daytime job, I will enter my trades with a market order if setup occurs during analysis time, with a limit order if it falls within my daytime job working hours. Limit orders will be avoided as much as possible once I amable to revert to full-time trading. On Mondays I do not place any trader before the US session open. On Fridays I will not place any trades after the NY mid-session. I will not open a new trade within 4 hrs before an important news even is expected/planned that might have an impact on the currency pair in question. I will aslo wait at least 1 hour after the news event to open a new trade for that pair. Therefore it is extremely important to be aware of upcoming news events. 4️⃣ Technical Analysis I will perform a top-down analysis of every pair that I trade during my daily technical analysis. I will determine the daily timeframe to determine whether the pair is trending or in consolidation and to determine relevant structure zones. After that I will go to my trading timeframe 120/240 minutes to look for potential trade setups. 5️⃣ Trade Setups 🅰 Structure Trades ➖ Bounce of structure: ► Trading Method: check for minimumof 3 instances within the last 15 days where price action bounced off the structure, wait for candle closure and enter next bar market ► Targets and Stop Loss : § Trend following - TP1: 75% position size at .618 retracement of previous move - roll SL to 0.382 fib - TP2: 20% position size at 100% retracement of previous move - roll SL to 0.618 fib. - 5% of position remains open with a trailing stop 25 pips (and maximum.618 fib) § Counter trend & Consolidation - TP1: 75% of position size at .382 retracement of previous move - roll SL to break even - TP2: 20% of position size at .618 retracement of previous move - roll SL to .382 fib - 5% of position remains open with a trailing stop 25 pips (and maximum .382 fib) ➖ Break of structure: ► Trading Method: wait for break and close below/above previous structurewith a min of 20 pips, then look for a retracement into previous structure. If structure holds on candle close, enter next bar market. ► Targets and Stop Loss: - TP1: 75% at lowest low/highest high of the move that broke the structure, roll stops to break even - TP2: 20% at 1.618 extension of previous move - roll stops to previous LL/HH - 5% of position remains open with a trailing stop 25 pips (and max previous LL/HH) 🅱 Harmonic Patterns ➖Bat pattern .... * * Note : I have omitted the rest of the setups here to keep the publication a bit shorter 6️⃣ Traded currency pairs EURUSD GPBUSD USDCAD EURNZD ... 7️⃣ Weekly evaluation In order to improve my trading analysis and to learn from my mistakes, during the weekend I will do an analysis of my trades during the week. To be able to properly analyze trades: I will keep a journal of my trades with entry, profit targets and stop loss. I will alos make ascreenshot of the analysis done before entering the trade and the result after the trade is completed On the completed trade screenshot, I will makr any related events that might have influenced the trade. I will make a list of eventual mistakesmade and create an action plan in order to avoid them in the future. This action plan will be added to this trading plan. 8️⃣ Final Notes This trading plan is my road map to success. Not following this plan will result in inconsistent results and potential failure. Sticking to the plan is a must in order for my trading business to succeed andto becomean independent consistently profitable trader and free myself from working for an employer. It will give me financial freedom and is the only way I will be able to reach my goals. 💪🏽 STICK TO THE PLAN! 💪🏽 ############################## 💡 Alright, so now you saw an example of what a trading plan could look like. Having a clear and concise trading plan is crucial for concistent trading results. ❔ Do you have a trading plan? Does it look similar? Is there something you think is missing? ❔ If not, was this publication helpful and will you create one for yourself? Why? Why not? Look forward to your comments below. Oh, and if you like this post, you know what to do! 👍🏽 Thanks for your visit! 🙏🏽 PS : also check out my other educational ideas below
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Education
by Nico.Muselle
98
Price Action Candlestick Patterns Hello traders , here's a post about candlesticks. You must understand the context. This candlesticks patterns are very useful but useless if you don’t understand where they have been printed. Make sure to save this post . You must understand the context of the candles. For example an bullish engulfing at a supply level can be just a trap. A bearish shooting star in a strong uptrend can just mean that price is reaching a new zone, not rejecting it
by AIRFOREXONE_
19
Dealing with "failure" in your trading 😎Failure in trading is frequent, yet for some it is permanent and for the few it is temporary, the choice is always yours! In this video we go over our advice on how you should deal with failure so you can keep it as a learning experience and grow and develop as a trader! If you're having challenges in your trading and cant seem to find solutions to them just send us a DM and we'll do our outmost to help you overcome them and find solutions to your "trading problems' :) Have a great day!
DEducation
by PrimedGroup
1
Learning the TradingView Platform: Introduction to the Top PanelIn this video we will be covering what the Top Panel has to offer and some of its functions. This will be the first part of a video series where we will be providing video walkthroughs of tools and items on the TradingView platform. We hope that this helps both the brand new TradingView user as well as the seasoned user. Feel free to let us know what features you want to learn more about below!
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AMEX:SPYEducation
by TradingView
72
Trade like a casino! 🎰🎲💵Yep you heard me right you need trade like a casino 🎰 Key bit here is trade like the casino operates their business model. Don't trade like the clients that frequent the casinos. Why should you trade like a casino? Profitable traders understand how casinos are successful. Casinos are profitable and make money because they have an edge which they let play out. They know probability is in their favour. How many times have we all been at a roulette table thinking we have a 50% chance of winning betting on red or black. We all seem to forget about that green zero on the table and here in lies the casinos edge. With having an edge they let play out it's impossible for them not to make money. The casino is comfortable with every outcome on the bets placed knowing the edge will play out. Losses are seen as a cost of business, risk is controlled and emotions to are in check. This is why the house always wins! 🎰🤑 If you as a trader apply the same logic's to your trading strategies the end results will be the same as the casino. If you choose to trade like one of the clients in the casino with no fixed rules you essentially are gambling with you trading. Subjectivity and emotions will come in to play. Random winning and losing runs will occur which will impact trading psychology. This way of trading will only end in one way and that's by giving everything to the house or in this case your broker! Development of a strategies with proven mathematical edges ensures you will become the house 🏦💰 Once an edge is established trust your strategy and let that edge play out. ----------------------------------------- Please hit the 👍 LIKE button if you like my ideas🙏 Also follow my profile, then you will receive a notification whenever I post a trading idea - so you don't miss them. 🙌 No one likes missing out, do they? Also, see my 'related ideas' below to see more just like this. Thank you. Darren
Education
by pow_removetheguesswork
History of Forex | From Ancient to the Modern Day We have come a long way from the previously practiced barter system to the modern-day system of trading currency. Following is a brief summary of the evolution of currency and how it gave rise to Forex Trading. Here are the main stages that are illustrated on the chart: 1️⃣The Ancient system of Trading - Trading with Gold As early as 6th century BC, the first gold coins were produced, and they acted as a currency because they had critical characteristics like portability, durability, divisibility, uniformity, limited supply and acceptability. 2️⃣Bank Notes Originated - Deposited Gold in banks in exchange for banknotes 3️⃣Role of Geography - Various banks of different regions printed different currencies Gold Standard - Currency pegged to gold In the 1800s countries adopted the gold standard. The gold standard guaranteed that the government would redeem any amount of paper money for its value in gold. This worked fine until World War I where European countries had to suspend the gold standard to print more money to pay for the war. 4️⃣Bretton Woods System - Currency pegged to USD The first major transformation of the foreign exchange market, the Bretton Woods System, occurred toward the end of World War II. The Bretton Woods Accord was established to create a stable environment by which global economies could restore themselves. It attempted this by creating an adjustable pegged foreign exchange market. An adjustable pegged exchange rate is an exchange rate policy whereby a currency is fixed to another currency. In this case, foreign countries would 'fix' their exchange rate to the US Dollar. 5️⃣Birth of Floating Currency - Currency that is not pegged to any assets or other currencies is known as a 'floating currency'. And what will be next? Very hard to say but blockchain technologies will make the system change again. ❤️Please, support this educational post with a like and lovely comment❤️
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OANDA:XAUUSDEducation
by UnitedSignals
27
Bitcoin: The Ultimate Market Cycle Theory ExplainedIn this post, I'll be breaking down Bitcoin's market cycle theory, explaining my perspective on the target and time period I have in mind for this bullish rally. If you've been keeping track of my other posts, you'll notice that I've been very clear with the fact that the overall trend remains bullish on Bitcoin, as much as the short term trend may appear bearish. You can view my latest post, where I cover Bitcoin's daily chart here: Bitcoin: The Beginning of a Second Rally Disclaimer: This is not financial advice. This is for educational and entertainment purposes only. I am not responsible for the profits or loss generated from your investments. Trade and invest at your own risk. Bitcoin's Price Target Analysis / Explanation - This is a model that was inspired by that of DigitalKM on Twitter. - We can first arbitrarily divide Bitcoin's market cycle into three: the first cycle from 2010-2013, second cycle from 2013-2017, and the current third cycle. - We can then look at the fibonacci retracement levels based on the major pullbacks/corrections that took place during each market cycle. - What's interesting to note is how the 1.618 level initially plays a key level of resistance, but acts as the bottom support for the coming (next) cycle. - We can also see a pattern in which the market cycle peaks near the 2.272 fib resistance. - As such, given that price actions tend to repeat, we can expect a huge initial rejection at the 1.618 fib level, around 63k (which is exactly what happened), and a continuation upwards as we peak around the $200,000 mark for this cycle. Now that we have a rough estimate of where this cycle might end, then comes the big question: when exactly could we expect this market to top off? Bitcoin's Cycle Duration Analysis / Explanation - So there are two theories I initially had in mind for Bitcoin's market cycle duration. - The first theory is a case in which we see the cycle's top around December 2020. - Historically, all market cycle tops have peaked out in December, so it would make sense to see a parabolic move up to the top by the end of the year. - For a detailed explanation on this theory, check out my other analysis I posted on Nov 16, 2020: Bitcoin: Long Term Breakout Projection - The second theory for the cycle duration is based on Bitcoin's halving events and cycles. - After the btc halving in 2012, the rally lasted 372 days up to Nov 2013. - The second halving in 2016 lasted 520 days, up to Dec 2017. - In terms of time span, this is a 39% increase in the duration of the bull run. - So assuming that we apply the same increase in duration for this bull run, we’d see the rally last 722 days, which would end around May of 2022. - This aligns with Benjamin Cowen's model as well, where we see an extended duration for every Bitcoin cycle, and diminished returns. Conclusion Predicting the market is impossible, but as traders and investors, we need to understand the overall picture and understand market cycles in order to best position ourselves within a bull market backed by huge momentum. I believe that Bitcoin's price target of $200,000 by May 2020 is one of many highly probable scenarios based on the technicals of its price action, as well as the market's reaction to Bitcoin's supply change based on halving events. If you like this analysis, please make sure to like the post, and follow for more quality content! I would also appreciate it if you could leave a comment below with some original insight.
BNC:BLXLong
by Michael_Wang_Official
16
Impact of Fed Unchanged Interest Rate and Gold PricesHere I tried to show the movement of the day when Fed announces its unchanged Interest Rate decisions during the last 6 times. As you can see, the gold prices had been quite volatile during the last Fed decision on June the 16th and shed 1.45%. Since then, the yellow metal has not been able to overcome the loss and is in the downward trend. Please note that this is shared for educational and informational purposes only and is not intended for financial decisions. If you like the idea, please like and comment :)
OANDA:XAUUSDEducation
by UnknownUnicorn621491
Manage your emotionsTrading requires focus. It is crucial for traders to know exactly what to do to control their emotions while trading. It is also important to know when to accept a loss and move on. Here are 10 tips from the pros to manage your emotions while trading: 1) Manage your stops carefully. A cautious approach to stops and limits will keep you from making rash decisions. It hurts to get a trade stopped out, but over time you will save money on losses. Your trading journal can give you useful comparisons on levels for stops. 2) Don’t marry your positions. It’s easy for a trader to get stubborn, and to hold on to a trade just because he ‘hopes’ it will turn around. Close down a bad trade as soon as possible, take your loss and move on. Your trading journal will suggest the next move. 3) Follow each trade with a break. Trading goes on at a rapid pace, so don’t get caught up in the action. Take a moment to think about something else, and then come back and deliberate. Now look at your trading journal to get the next idea. 4) Set a fixed point at which you stop. After three, four, five or whatever number you choose, stop for a good long break. It’s when one trade follows another that most mistakes happen. Consult your trading journal and review your strategy. 5) Don’t keep track of profit and loss. Doing the math on your earnings will only get your emotions working. Concentrate on your trading strategy, and review your trading journal to develop it. Then, at the end of the trading day, you can check out how well or poorly you did. 6) Keep your mind on the plan. Don’t let the results of a few trades change your overall strategy and approach. Stick to what you have learned and what you have planned – use your trading journal to develop your next moves. 7) Don’t confuse prudence with fear. You want to trade prudently, using logic and reason. This may make you hold off on a trade. But make sure that prudence, and not fear, is behind your decision. Fear can wreck your trading by keeping you from making a trade. Use your trading journal to see if the trade makes sense, follows previous wins, or if the trade just doesn’t make sense. 8) Watch out for greed. Greed can make you stay in a trade when you had planned to exit, hoping to milk it for a little more profit. Such trades risk turning out badly, just when you thought you were winning. Use your trading journal to judge the best exit points based on past behavior. 9) Don’t act on anger. When you’re angry, hold out, wait until reason takes hold. There is no worse trade than a “revenge” trade, in which a trader follows up a loss by jumping right back in to recoup. Consult your trading journal to get back on track. 10) Don’t give up. There comes a point in every trader’s life when it just doesn’t seem worth it anymore. Don’t let yourself be intimidated. Trading is tough, but you can win.
Education
by MoonBets
5
TYPES OF TRADING ORDERS AND HOW TO USE THEMPending orders Somewhere you can find the term as "Deferred orders". These are orders that will be filled in the future, once a certain condition is met. Most often this condition is reaching a certain market price. The most popular pending orders are Stop and Limit! Both types of orders become market orders when the initially set price is reached. The difference between them is that Stop Orders can be activated at a worse price than the set price, depending on market conditions. Limit orders cannot be activated at a price lower than the set price, the price must be either equal to the set price or even more advantageous. Depending on the purposes of the trade, different deferred orders are used. A breakout of a level is traded with a Stop order A pullback from a level is traded with Limit order. The types of Pending Orders are: Buy Limit; Sell Limit; Buy Stop; Sell Stop; OTO; OCO; and other. Market order This is an order where you enter a trade, regardless of buy or sell, which is executed at the current best price. For example, if you want to buy GBP/USD, you click directly on the corresponding button and the trading platform automatically places the deal on the market. When you click on the "Sell" or "Buy" button, you actually place a market order. Keep in mind that depending on market conditions, there may be some difference between the price you see and the price at which the order will be executed. Stop Forex orders - Buy Stop and Sell Stop The Stop orders to enter a deal are different from the Stop Loss order to limit the loss! Buy Stop order is used when you want to buy at a level higher than the current market price. It is placed higher than the level at which the price is currently. Sell Stop order is used when you want to sell at a level lower than the current market price. It is set lower than the current price level. For example, EUR/USD is currently trading at a price of 1.1860, you think that if it reaches a price of 1.1960 it will continue to move in an uptrend. In this situation you have two options: To sit in front of the screen waiting for price to reach 1,1960 so you can buy, or; To place a Buy Stop order at the 1,1960 level. However, if you think that the price will fall in the coming periods, instead of staying at the computer and wait for a convenient time to sell, you can place a Sell Stop order at a level lower than the current market price - on the chart 1.1760. Limit Forex orders / Buy limit and Sell Limit Buy Limit order is used when you want to buy at a level lower than the current market price. It is set lower than the current price level. Sell Limit order is used when you want to sell at a level higher than the current market price. It is placed higher than the level at which the price is currently. For example, EUR/USD is currently trading at a price of 1.1860, you think that if it reaches a price of 1.1960 it will bounce off the level and go into a downtrend. In this situation you have two options: To sit in front of the screen waiting for price to reach 1,1960 so you can sell, or; To place a Sell Limit order at the 1,1960 level. However, if you think that the price will fall in the following periods and then rise, instead of you sitting at the computer and wait for a convenient time to buy, you can place an order to buy a limit below the current market price - on chart 1,1760. Above is a summary chart of the orders and where they are placed. Let’s summarise: Buy Limit - pending buy order placed at a price lower than the current one; Buy Stop - pending buy order placed at a price higher than the current one; Sell Limit - pending sell order placed at a price higher than the current one; Sell Stop - pending sale order placed at a price higher than the current one; OCO orders / One Cancels The Other The OCO order is a combination of two orders to enter into a trade. One order is placed above the current market price and the other below the current market price. When one of the orders is reached, it is executed and the other one is automatically deleted from the trading platform. For example, EUR/USD is currently trading at 1.1850. You expect great volatility in the market and you do not want to miss the movement. In this case you place an OCO Forex order at the level of 1.1880 (above the market price) in anticipation of an upside move and at the level of 1.1820 (below the market price) in case the price goes down. When the market reaches 1.1880, you will buy EUR/USD at this level, and the order placed at 1.1820 will be deleted from the trading platform. OTO orders / One Triggers The Other OTO allows the trader to place two orders simultaneously, the second one being activated after the first one. This type of order allows many different combinations. For example, a buy order can be placed at a pre-set price, above the current one (Buy Stop) and a second order can be placed together with it to limit the loss from the buy order, in case the price goes in the opposite direction. In this case, the loss limit order will only be activated if the buy order is activated. The orders described so far are for entering into a trade, but you must also exit the trades. This is done by using “Stop Loss” and “Take Profit”. Trailing stop Trailing stop is an order to limit the loss, which moves along with the market price. It can be said that this is a moving Stop Loss. And here is how to do it! Suppose you want to buy GBP/USD at a price of 1.2820. You place a trailing stop at a distance of 20 pips at a price of 1.2800. When the price goes in your direction and reaches the level of 1.2840, then the trailing stop will move by 20 pips or at the level of the entrance to the transaction. Then if the price reaches the level of 1.2860, then the trailing stop will move to the level of 1.2840. Keep in mind that if the price returns from 1.2860 to 1.2850, the trailing stop will NOT go down to 1.2830, but it will remain at 1.2840. If it was to move down back with the price, it makes no sense, because it will never be reached and will not be able to limit the loss of the deal. And then you will find out first hand what Margin Call and Stop Out is! Another important feature to keep in mind is that the trailing stop is only active if the trading platform is active. If the platform is closed, then you do not have a Stop Loss order at all! Conclusion These are the most frequently used orders on the Forex market and they are totally enough, there is no need to complicate trading. Before you start trading live, get familiar with the conditions of the broker regarding the orders. Make sure that you understand them and that you can use them correctly. The best teacher remains the practice, therefore, open a demo account and test the capabilities of the platform. 👍 Please support this tutorial with like and comment so we can help more people together. Thank you in advance! 🙏
Education
by ForexTrendline
32
History of Forex | From Ancient to the Modern Day We have come a long way from the previously practiced barter system to the modern-day system of trading currency. Following is a brief summary of the evolution of currency and how it gave rise to Forex Trading. Here are the main stages that are illustrated on the chart: 1️⃣The Ancient system of Trading - Trading with Gold As early as 6th century BC, the first gold coins were produced, and they acted as a currency because they had critical characteristics like portability, durability, divisibility, uniformity, limited supply and acceptability. 2️⃣Bank Notes Originated - Deposited Gold in banks in exchange for banknotes 3️⃣Role of Geography - Various banks of different regions printed different currencies Gold Standard - Currency pegged to gold In the 1800s countries adopted the gold standard. The gold standard guaranteed that the government would redeem any amount of paper money for its value in gold. This worked fine until World War I where European countries had to suspend the gold standard to print more money to pay for the war. 4️⃣Bretton Woods System - Currency pegged to USD The first major transformation of the foreign exchange market, the Bretton Woods System, occurred toward the end of World War II. The Bretton Woods Accord was established to create a stable environment by which global economies could restore themselves. It attempted this by creating an adjustable pegged foreign exchange market. An adjustable pegged exchange rate is an exchange rate policy whereby a currency is fixed to another currency. In this case, foreign countries would 'fix' their exchange rate to the US Dollar. 5️⃣Birth of Floating Currency - Currency that is not pegged to any assets or other currencies is known as a 'floating currency'. And what will be next? Very hard to say but blockchain technologies will make the system change again. ❤️Please, support this educational post with a like and lovely comment❤️
OANDA:XAUUSDEducation
by UnitedSignals
12
The RSI explained ! how to identify buy and sell signals Hello everyone , as we all know the market action discounts everything :) I have created this short video to explain what is the RSI and how to use it to identify buy and sell signals with this oscillator , everything you need to know about this indicator is right here. Its been around since the late 70s so its probably one of the more established oscillators out there . So lets check out the formula and how the RSI works : RS=100 -100/1-RS RS (relative strength) average X day up / average X day down So simply lets say we are using a 10 days average so we check how many days the price closed up and we add them and we divide by 10 which would give us the average X days up. And we do the same for the average X days down but we calculate how many days the price closed down and then we add them and divide by 10 ,And after all of that has been calculated we will always get a value between 0% and 100% And that's why the RSI is considered a bounded oscillator it means that the value will always be between 0 % and 100% The oscillator has 2 major zones which are the overbought and oversold zones. Anything above 70% is considered overbought and anything below 30% the market considered oversold . So when the market reaches overbought zone it tells us that the market has gone up to far and its due a bounce back down , and the same when it reaches oversold zone it means that the market has gone to far down and its due a bounce back up. So looking to buy or sell when the market reaches oversold and overbought is one strategy . But because the market moves a lot and reaches these levels so much this way is not as reliable that much , the better way to use the RSI is to check if it has a divergence with the market price. what is a divergence you may ask !!! A Divergence is when the price of the market is moving in the opposite direction of a technical indicator, such as an oscillator, Divergence warns that the current price trend may be weakening, and in some cases may lead to the price changing direction. These signals of divergences doesn’t happen that often but they do give us a better way to use the RSI . And there is it that’s everything you need to know about the RSI and how it works it’s a really simple oscillator and its one of the most popular oscillators used by technical analysts. _____________________________________________Make sure to Follow, Like & comment for more content_____________________________________________ If you have any questions please ask Thank you for reading & watching .
Education
by GabiDahduh
1
Option Greeks and Implied VolatilityThere are many reasons why an investor or trader trades options. The main reasons, as with other derivatives markets, is to hedge another position or to speculate on the performance of the underlying security. 1) Hedging: A hedge is like an insurance policy in that it can help mitigate risk for a small fee. For example, a portfolio manager buys a large position in Company A stock for its long-term price appreciation potential but is worried that the next earnings report will show short-term issues. He or she can buy put options on that stock that will increase in value if the price of the stock falls on its earnings news. 2) Speculation: Options allow both buyers and sellers to capitalize on their market forecasts, whether they are bullish, bearish, or neutral. However, because options prices depend on many factors, including market volatility, traders can profit from increases or decreases in those factors as well. While traders can look at individual options data, a very widely used display called an “options chain” lists all options, or a subset, available for a given expiration month. Options traders also look at derivatives of the price that measure how fast their prices decay over time, how fast their prices change with a given change in the price of the underlying, and more. These derivatives are designates with Greek letters such as delta and gamma, so traders call them “the Greeks” . I. Delta – measures how much an option price changes for a one-point move in the underlying. Its value ranges between 0 and 1 for calls and between -1 and 0 for puts. II. Gamma – measures the rate of change in delta. It is essentially the second derivative of price. III. Vega – measures the risk from changes in implied volatility. Higher vol makes options more expensive since there is a greater change than the underlying security price will move above the strike price for a call. IV. Theta – measures the rate of time-value decay and is always a negative number as time moves in only one direction. V. Rho – measures the impact of changes in interest rates on an option’s price. Implied volatility (IV) is the estimated volatility of a security’s price and is critical in the pricing of options. Although not a guarantee, implied volatility tends to increase while the market in the underlying security is bearish. Conversely, when the underlying security is bullish, implied volatility tends to decrease. This is due to the common belief that bear markets are riskier than bull markets. The most important is that implied volatility is an estimate of the future volatility, or fluctuations, of a security’s price. While levels of implied volatility are associated with bullish and bearish markets in the underlying security, it really does not predict market direction. It only forecasts the sizes of potential price swings. Implied volatility is not the same as historical volatility, also known as realized volatility or actual volatility. Historical volatility measures past market changes in the price of the underlying asset. Trade with care. If you like our content, please feel free to support our page with a like, comment & subscribe for future educational ideas and trading setups.
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FX_IDC:XAUUSDEducation
by financialflagship
54