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The Illusion of Patterns: Why They Often Fail in TradingThe theory of pattern trading suggests that candlestick formations are rooted in psychological behavior. For instance, when a triangle or box pattern breaks out, it often signals a sudden surge of buying or selling following a period of consolidation. However, it's important to note that not all patterns yield reliable results. In this post, we will explore the reasons why some patterns fail and discuss how to enhance their effectiveness. A strong support level at which a doji appears, a breakout of the trendline by a large candlestick upwards is a clear signal for an uptrend. However, after the breakout, a new pattern appears, crossing out the signal of the previous one. The support level is eventually broken by the ongoing downtrend. Why don't patterns always work? Why should they work at all, considering that it's ultimately the trader who must take action? It's akin to expecting a hammer to drive nails without any effort on our part. A common misconception is to believe that the mere appearance of a pattern guarantees a certain outcome, while neglecting other crucial factors that can influence market behavior. A pattern is primarily a visual representation that should encourage traders to conduct a deeper analysis, not serve as a definitive signal for entry points. The theory behind patterns can be misleading; rather than promoting an analytical mindset when a pattern is identified, it often fosters a rigid response: “Buy if this pattern appears, and sell if that one does.” This approach is fundamentally flawed. A pattern is merely a compilation of historical data presented in a particular format, which does not inherently predict future price movements. Instead of relying solely on patterns, traders should focus on analyzing the broader context and underlying factors influencing the market. 📍 Why Patterns Do Not Work in Trading ? 1. Identification Errors. Once you've familiarized yourself with 15 of the most popular trading patterns, you may notice two significant points. First, theoretical analyses often feature illustrations rather than actual screenshots. This makes sense—capturing a "butterfly" or a "cup with a handle" can be quite challenging and may require either a vivid imagination or years of chart analysis. Second, patterns can transition from one to another; for instance, a long-tailed bar might evolve into three crows or soldiers. Additionally, there are instances when patterns may even contradict each other, further complicating their reliability. 2. Wishful Thinking. Traders often fall into the trap of wishing a pattern exists where it does not. This bias can lead to misguided decisions. 3. The Dominance of Other Factors. In addition to identification errors and wishful thinking, other factors—particularly fundamental ones—often have a much stronger influence on market movements. Patterns do not occur in a vacuum; they must be considered alongside economic indicators, news events, and broader market sentiment. Have you noticed that there is little research on the effectiveness of trading patterns? The reason for this is that accurately identifying the presence of a signal can be quite challenging. A pattern is simply a specific candlestick formation that has occurred in a particular way, but it does not guarantee any subsequent price movement. In contrast, indicators offer clear interpretations: for example, when the price crosses a moving average, that's a signal, or when an oscillator enters the overbought or oversold zone, it's a preliminary signal. The appearance of a doji, on the other hand, represents merely a balance in the market and is not always a definitive signal. Patterns cannot be rigorously tested like indicators because their signals tend to be ambiguous. 📍 How To Make Patterns More Effective ? • Remember that it’s not the pattern that dictates a trend or a reversal; it’s the underlying trend that shapes the pattern. For example, if a "triangle" forms within a consolidating market, it doesn’t necessarily indicate that a new trend will emerge. • Patterns tend to be more reliable over shorter time frames, typically represented by one to three candles. On the other hand, indicators provide an average value and, while less precise, they can have a longer-lasting impact. This means that following a reversal pattern, an opposing pattern might develop within just a few candles. If an indicator shows a significant deviation from the average price, there's still a good chance that the price might revert to the mean. Thus, while identifying corrections using patterns can be beneficial, we should exercise caution when predicting reversals. 📍 Conclusion Why don’t patterns always work? The answer lies in the approach taken by the trader. Patterns are merely tools; their effectiveness greatly depends on the skill and understanding of the person using them. There are no perfect tools in trading, but experience plays a crucial role in enabling traders to navigate various market conditions and make informed decisions. By honing your skills and deepening your understanding of both patterns and the broader market context, you can enhance your ability to utilize these tools effectively and respond to different trading scenarios. Traders, If you liked this educational post🎓, give it a boost 🚀 and drop a comment 📣
Education
by Lingrid
11
Trading Under Pressure: Building Stress Resistance For SuccessStress in trading is a response of the nervous system triggered by high levels of uncertainty, risk, and the fear of losing money. It often begins with a sense of excitement but can gradually escalate into panic, leading to panic attacks and intense fear. Some individuals thrive under stress, viewing it as a stimulating emotion. They consciously understand that they are not necessarily losing anything, having already accepted the possibility of loss. For these traders, trading is an adventure filled with excitement, impressions, and adrenaline. However, many of them may not be psychologically prepared for the realities of stress, and when it strikes, they can easily lose self-control. 📍 HOW STRESS CAN AFFECT YOUR PERFORMANCE Traders frequently find themselves in situations where quick decision-making and emotional management are crucial for achieving positive outcomes. Stress can create a psychological state that often hampers a person's ability to make logical and sound decisions. ✦ Decreased Concentration and Attention. Elevated stress levels often lead to diminished concentration, resulting in errors caused by overlooking important details or additional factors. ✦ Deterioration of Memory. Under stress, it becomes challenging to recall similar past situations or remember key factors, which can negatively impact decision-making. ✦ Decreased Reaction Speed. Stress can hinder your ability to react swiftly to changing market conditions. This makes strategies like scalping, fundamental trading, and trading on M5-M15 timeframes particularly difficult. ✦ Changes in Emotional State. Stress can trigger a range of emotional reactions, including anxiety, nervousness, irritation, and panic. These feelings can cloud judgment and lead to impulsive decisions. ✦ Physical Manifestations. Stress may also result in physical symptoms such as back pain, headaches, and stomach issues. The nervous system is often the first to suffer, with its effects potentially reverberating throughout the entire body. While many individuals experience negative effects from stress, some people demonstrate a unique response in which stress acts as a "sobering" force. For these individuals, a relaxed state may be characterized by laziness, lack of coordination, and a leisurely pace. However, when faced with stressful situations, they often shift into a heightened state of activity. In this altered state, their brains become more agile, allowing them to think more quickly and algorithmically, improving their capacity to respond effectively to challenges. 📍 EFFECTS OF STRESS IN TRADING 🔹 Increased Risk-Taking. Under stress, traders often become more inclined to make high-risk decisions in an effort to recover losses. Unfortunately, this behavior can lead to even greater losses. 🔹 Lack of Self-Control. Stress can impair your self-control, making it challenging to make well-considered decisions. Consequently, you may find yourself taking impulsive actions that deviate from your established trading strategy. 🔹 Closing Profitable Trades Too Early. In a state of anxiety, you might prematurely lock in profits due to a fear of losing them, which can prevent you from maximizing potential gains. 🔹 Holding Losing Trades for Too Long. Stress can hinder your ability to recognize mistakes, leading you to hold onto losing trades longer than necessary instead of cutting your losses. 📍 HOW TO DEAL WITH STRESS IN TRADING ? 1. Planning and Preparation. Creating a detailed trading plan in advance can significantly alleviate stress levels. Having a well-thought-out course of action ready for unexpected situations provides a sense of calm and direction. 2. Risk Management. Establishing a robust risk management system is essential for reducing the anxiety associated with potential losses. Implementing stop-loss orders ensures that your position is at least partially protected, which helps contain the emotional rollercoaster associated with trading. 3. Adhere to Your Daily Regimen. It's crucial to prioritize self-care by getting enough sleep, eating a balanced diet, and engaging in regular exercise. This timeless advice applies universally to all stressful situations and can greatly enhance your resilience. 4. Take Breaks. Avoid the temptation to stay glued to your screen. Taking breaks allows you to relax and recharge. Additionally, it gives your eyes a much-needed rest. 5. Relaxation and Meditation Techniques. Incorporating relaxation and meditation practices into your routine can significantly lower stress levels while improving concentration and emotional well-being. Techniques such as breathing exercises, yoga, and deep relaxation may seem unconventional to some, but many find them effective in managing stress. 6. Support and Communication. Sharing your emotions and challenges with fellow traders can help diffuse tension and provide you with valuable insights and encouragement. Building a network of support is vital. 7. Positive Thinking. Cultivating a positive mindset and fostering confidence in your abilities can significantly reduce stress levels and enhance your trading performance. A constructive attitude can empower you to face challenges with resilience. 📍 CONCLUSION Remember, stress is a natural response of the body, but it can significantly hinder your ability to work effectively and make sound decisions. There are numerous strategies available to manage stress; however, their effectiveness largely depends on your personal perspective, the specific circumstances you face, and your willingness to address the issue. It’s essential to identify and adopt individualized methods that resonate with your unique psychological makeup. By doing so, you can cultivate emotional resilience in challenging situations, enabling you to cope without relying on medication or professional therapy. Taking proactive steps to manage stress is key to maintaining both your trading performance and well-being. Traders, If you liked this educational post🎓, give it a boost 🚀 and drop a comment 📣
Education
by Lingrid
11
Mind Over Market: The Burden Of Continuous Chart WatchingNovice traders are often swayed by their emotions. Even when equipped with knowledge of technical and fundamental analysis, as well as risk management, individuals are invariably guided by psychological factors. This influence isn't limited to emotional extremes such as greed, excitement, or despair. It also encompasses feelings like curiosity, self-assertion, and the quest for validation of one’s decisions. While these feelings aren't inherently wrong, they do come with certain nuances. One research agency conducted an analysis of a broker's database, choosing to keep the names confidential to avoid advertising. The agency itself noted that the research was intended for private insights rather than a comprehensive analysis. The primary objective was to identify the actions traders tend to take most frequently. The findings revealed that the most predictable action among traders is closing a position. Interestingly, market orders are closed twice as often as limit orders. This suggests that most traders tend to follow market trends and manually close their trades, which may conflict with established risk management principles. This fact has been termed the “Monitoring Effect”. 📍 WHAT IS THE MONITORING EFFECT? The monitoring effect in trading describes a psychological phenomenon where excessive scrutiny of short-term market fluctuations leads to impulsive and often detrimental trading decisions. When a trader spends too much time staring at the chart, this constant observation distorts their perception of market movements. In essence, a trader who continuously monitors the chart may interpret the data differently than someone who examines it after a few hours of absence. This prolonged focus can create a skewed view of the market, resulting in rash choices that might not align with their overall trading strategy. 📍 NEGATIVE IMPACTS OF MONITORING EFFECTS ON TRADERS • Overemphasizing Short-Term Information. Traders may place excessive importance on recent price movements or news events, leading them to make reactionary decisions. For instance, an impulsive urge to close a trade can arise from a fleeting negative signal, such as a false pattern or a false breakout, even if the overall trading strategy remains sound. • False Perception of News. By constantly tracking news and events, traders can overestimate their significance, prompting rash decisions based on short-term fluctuations. This can lead to trades that are not aligned with long-term strategy or analysis. • Frequent Position Changes. The urge to change positions often is exacerbated by constant monitoring. Traders may respond to momentary shifts in market direction, resulting in frequent reversals of positions. This behavior not only increases trading costs due to commissions and spreads but can also lead to overall reduced profitability. A trader may incur losses as they jump in and out of trades based on short-lived movements. • Emotional Stress. Ongoing market observation can heighten emotional stress and lead to fatigue. As traders become more engrossed in monitoring, their ability to think clearly and make rational decisions diminishes. This emotional toll can distort judgment, further complicating the trading process. • Increased Risk Appetite. Prolonged engagement with the market can result in an increased appetite for risk. As traders become accustomed to fluctuations, they may become more willing to take on higher-risk trades, often without a solid foundation in their analysis. This increased risk tolerance can lead to larger potential losses, especially if the market moves against them. To watch the chart or not to watch the chart? The monitoring effect has some positive aspects. Firstly, you train your skills of instant reaction to an event. Secondly, you learn to quickly recognize patterns and find levels. 📍 TIPS TO MANAGE CHART MONITORING 1. Wait After News Releases Avoid Immediate Reaction. It’s crucial to refrain from making quick trades immediately after major news releases due to potential volatility and false spikes. Prices may not reflect fair value during that time, leading to uncertain outcomes. Trade After the Dust Settles. Waiting for 30-60 minutes allows the initial market reaction to stabilize, providing a clearer market direction and reducing the likelihood of entering a trade based on erratic price movements. 2. Develop Psychological Stability Practice Mindfulness. Engage in mindfulness techniques such as meditation or deep breathing exercises to enhance emotional regulation. Set Realistic Expectations. Understand that losses are a part of trading and work on accepting them without letting them influence your emotional state. Simulate Trading. Use demo accounts to practice trading strategies without real financial pressure, keeping emotions in check. 3. Focus on the Trading Process Emphasize Strategy Over Outcomes. Concentrate on executing your trading plan and strategies instead of being fixated on profit and loss. This shift in mindset can reduce stress and enhance performance. Track Your Progress. Regularly review your trades to identify patterns in behavior and decision-making, making adjustments as necessary without getting bogged down by the results of individual trades. 4. Avoid Unrealistic Goals Set Achievable Milestones. Goals should be specific, measurable, and realistic based on your skill level and market conditions. Aim for gradual improvement rather than sudden leaps in performance. Focus on Personal Growth. Compare your progress against your own benchmarks rather than against other traders, which can help foster a healthy mindset. 5. Use and Stick to a Trading Plan Define Your Strategy. Clearly outline entry and exit strategies, risk management rules, and market conditions for trading. A well-structured plan reduces impulsive decisions. Review and Adapt. Regularly review your trading plan to ensure it aligns with market conditions and your evolving trading style. Adjust it as needed, but avoid impulsive changes based on short-term outcomes. To mitigate the effects of constant monitoring, traders are encouraged to develop a clear trading plan that includes well-defined rules for entering and exiting trades. Utilizing automatic stop losses and take-profit orders is essential for effective risk management. Additionally, setting specific time frames for checking trading positions can help avoid the pitfalls of incessantly watching the market. For instance, you might establish a schedule to check in on your trades five minutes after the start of each new hourly candle. The key is to cultivate the discipline to adhere to this schedule and resist the temptation to deviate from it. 📍 CONCLUSION Everything is good in moderation. Long-term trading strategies do not require constant monitoring; instead, a quick five-minute check of the chart every few hours are often sufficient. Utilizing pending orders that align with your risk management guidelines can also enhance your trading approach. Taking breaks after each 1H candle can be beneficial. If there are no clear trading signals, allow yourself to step away from the chart for the duration of one hour. During this time, it's not necessary to search for signals on lower timeframes. Embracing this disciplined approach can help you maintain focus and improve your overall trading performance. Traders, If you liked this educational post🎓, give it a boost 🚀 and drop a comment 📣
Education
by Lingrid
1
What Is Yield Farming In Crypto? Yield farming can be likened to traditional bank deposits, where an investor puts in money and earns returns over time. However, in the world of cryptocurrencies, the concept takes on a more complex form. Yield farming is a broad term that encompasses various activities, including liquidity mining and staking. While these methods share similarities, they differ in their objectives, such as whether they involve issuing new tokens or not. 📍 HOW YIELD FARMING WORKS Yield farming is a way for cryptocurrency holders to generate income by lending or providing liquidity to decentralized financial (DeFi) protocols. By contributing their assets, users can earn rewards in the form of additional tokens or interest income. This opportunity allows individuals to participate in the DeFi ecosystem and benefit from the growing demand for decentralized financial services. 📍 THE PROCESS: 1. Providing liquidity: Users deposit their cryptocurrency assets into liquidity pools on the DeFi platform, which facilitates various financial transactions such as token exchanges, lending, and borrowing. 2. Earning rewards: In return for providing liquidity, users receive rewards, including: Commissions from transactions passing through the liquidity pool Native tokens of the platform (e.g. management tokens) Additional tokens through various incentive programs 📍 EXAMPLES OF DEFI PLATFORMS: Uniswap: A decentralized exchange (DEX) where users deposit tokens into liquidity pools, earning commissions on each transaction made through these pools. Compound: A lending platform where users can lend their cryptocurrencies and earn interest on their deposits. Borrowers pay interest on the use of these assets, providing a revenue stream for lenders. Aave: A platform that allows users to earn interest on deposited assets and use them as collateral for loans, providing a dual income stream. SushiSwap: A DEX similar to Uniswap, but with an additional twist - liquidity providers are rewarded with SUSHI tokens, providing an additional incentive to participate in the platform. 📍 MAKING PROFIT IN DEFI: 1. Analyze and Choose a Platform: Select a reputable platform with a stable income stream. Carefully review the terms and conditions of liquidity provision to ensure you understand the risks involved. 2. Diversify Your Assets: Spread your investments across multiple platforms and pools to minimize risks. This will help you ride out market fluctuations and potential platform-specific issues. 3. Optimize Your Strategy: Continuously compare different pools and platforms to find the best terms for your investments. Some platforms offer combination strategies that can help maximize returns. 4. Monitor and Adapt : Regularly review your investments and adjust your strategy as market conditions change. This will help you stay ahead of the game and mitigate potential losses. 📍 RISKS OF YIELD FARMING: • Technical Risks: Smart contract vulnerabilities can lead to irreversible losses, compromising the security of your funds. • Market Risks: Cryptocurrency price fluctuations can impact your income. In many cases, you're unable to withdraw your funds immediately, leaving you vulnerable to potential losses if token values decline. • Liquidity Risks: Low liquidity in pools can result in significant spreads and reduced returns, limiting your earning potential. • Platform Risks: The risk of platform hacking or closure can result in the loss of your invested funds, leaving you without access to your assets. 📍 CONCLUSION While yield farming can be an attractive option for earning additional income, one of the most significant risks is the potential for a price drop and the inability to quickly withdraw your locked coins. However, for those who have a long-term perspective and plan to hold their cryptocurrency for at least a year or more, temporary drawdowns are unlikely to significantly impact their overall returns. On the other hand, yield farming offers the possibility of generating significant additional income, potentially exceeding 10-15% per year. By carefully weighing the risks and rewards, investors can make informed decisions about whether yield farming is a suitable strategy for their investment goals.
Education
by Lingrid
1
The Psychology of Trading:Identifying and Overcoming FrustrationFrustration in trading is an emotional state that traders experience as a result of unsuccessful trades, losing money, or being unable to follow their trading plan. It can be caused by a number of factors including unexpected changes in the market, errors in analysis or lack of discipline. Frustration occurs when expected results do not match reality or when a trader fails to achieve his or her goals. Imagine this scenario: you've been eyeing a specific gift for your birthday, available exclusively at a single store. However, when the time finally arrives to make the purchase, you discover that the item is sold out – and there's no alternative option. This sense of disappointment, accompanied by feelings of annoyance and irritation, is a common experience known as frustration. In the context of trading, frustration can manifest in similar ways. Imagine spending hours analyzing market trends, only to watch your carefully crafted trading plan fall apart due to unexpected market fluctuations. Or, picture yourself agonizing over a losing trade, unable to extricate yourself from a losing position despite your best efforts. In both cases, the emotional toll can be significant, leading to feelings of frustration that can compromise your decision-making and ultimately impact your overall performance. 📍 THE IMPACT OF FRUSTRATION IN TRADING: ➡️ Emotional Responses to Trading Challenges. Traders may experience a range of emotional responses to trading challenges, including irritation, anger, anxiety, and depression. Frustration can be particularly debilitating, as it can lead to feelings of dissatisfaction with oneself due to perceived missed opportunities or imperfect decisions. ➡️ Self-Doubt and Loss of Confidence. Frustration can also erode a trader's confidence in their abilities. A series of losing trades can lead to self-doubt, causing a trader to question their skills and judgment. This can have a negative impact on subsequent trades, ultimately resulting in significant losses. ➡️ Impulsive Decision-Making. Frustration can also prompt traders to re-evaluate their earlier decisions and seek changes to their strategies without sufficient analysis. This impulsive decision-making can lead to further mistakes and exacerbate the situation. ➡️ Loss of Motivation. As frustration builds, traders may experience a loss of motivation. The desire to achieve a goal or make progress in the market can fade, leaving them feeling disconnected from their trading activities. Without motivation, traders are less likely to make informed decisions or take calculated risks, which can hinder their long-term success. Frustration in trading can have far-reaching consequences, extending beyond the trading arena to impact one's overall well-being. Prolonged frustration can lead to nervous system disorders, insomnia, depression, and even unhealthy habits. However, in the early stages, frustration can be leveraged as a motivating force. Its benefits include: ⚡️ Increased Motivation and Perseverance: Frustration can propel an individual to redouble their efforts and push harder to achieve their goals. Those who are initially unsuccessful may be more likely to give up, but those who persist despite setbacks can emerge stronger and more resilient. ⚡️ Creative Problem-Solving: Frustration can stimulate innovative thinking and inspire out-of-the-box solutions. When standard approaches fail, individuals may need to think creatively to overcome challenges, leading to novel and effective problem-solving strategies. 📍 MANAGING FRUSTRATION: A STEP-BY-STEP APPROACH To effectively manage frustration, it's essential to first acknowledge and accept your emotions. Recognize when you're feeling frustrated and avoid denying the issue. Instead, focus on finding solutions. 🔹 Identify the Root Cause. To address the frustration, identify the specific trigger or event that led to it. This could be a particular action, situation, or decision. Once you understand the cause, you can develop a plan to address it. 🔹 Develop a Plan of Action. Create a plan that outlines potential solutions to the problem causing your frustration. This will help you feel more in control and empowered to take action. 🔹 Seek a Fresh Perspective. Talking to someone about your frustration can provide a valuable fresh perspective. They may help you see the situation from a different angle, and you may realize that the problem is not as severe as you thought. 🔹 Set Realistic Goals. When setting goals, aim for something achievable. Setting unrealistic expectations can lead to disappointment and further frustration. Instead, strive for a middle ground that is challenging yet attainable. 🔹 Work on Your Self-Esteem. Maintaining a healthy self-esteem is crucial for confidence and setting realistic goals. Avoid underestimating or overestimating your abilities, and focus on building a balanced sense of self-worth. 🔹 Emotional Management. Lastly, learn to manage your emotions by quickly shifting your focus away from negativity. Try to find something positive in the situation or practice mindfulness techniques to maintain a calm and centered state. 📍 CONCLUSION In the realm of trading psychology, several emotions and thought patterns are common pitfalls that can hinder performance. Frustration, Fear of Missing Out, and rumination are all closely related to mistakes and failures, which can snowball into negative consequences if left unchecked. However, it is crucial to recognize that these psychological states can be transformed from liabilities into assets. By acknowledging our mistakes, incorporating them into our learning process, and approaching challenges with creativity and resourcefulness, we can turn any psychological obstacle into an opportunity for growth. By doing so, we can break free from the cycle of negative thinking and cultivate a mindset that is resilient, adaptable, and ultimately successful. Traders, If you liked this educational post🎓, give it a boost 🚀 and drop a comment 📣
Education
by Lingrid
11
WHAT IS APY IN CRYPTO ?💹 APY (Annual Percentage Yield) is the amount of money an investor will earn in a year if the money is reinvested after each accrual period. The calculation formula is compound interest. In cryptocurrencies and decentralised finance (DeFi), APY is used to express the returns users can get from staking, liquidity mining and other types of income farming. 📍 UNDERSTANDING APY CALCULATION APY allows users to understand what annual returns they can expect from their investments, taking into account reinvestment of interest earned. This helps to compare different investment opportunities in cryptocurrency startups: ➡️ Comparing the returns of different cryptocurrencies in staking, income farming on one exchange. ➡️ Comparing the yield of staking one coin on different exchanges. The rate, which is calculated using the simple interest formula, only takes into account the initial investment amount. In comparison, APY gives a more accurate idea of how much an investor will earn, taking into account the re-investment of interest 📍 THE APY CALCULATION FORMULA IS: APY is the Annual Percentage Yield r is the interest rate per period (in decimal form, e.g. 0.05 for 5%) n is the number of times interest is compounded per year For example, if an investment has an annual interest rate of 5% compounded quarterly, the APY would be: APY = (1 + 0.05/4)^(4) - 1 = 5.127% This means that over a year, the investment would earn an effective annual return of 5.127%, taking into account the compounding effect. Note that this formula assumes that the interest is compounded at the end of each period, which is often referred to as "compounding frequency". The more frequently interest is compounded, the higher the APY will be. 📍 THREE CRUCIAL POINTS TO KEEP IN MIND ARE: 1️⃣ Frequency of interest accrual. The more frequently interest is accrued, the higher the APY will be, even if the nominal interest rate remains the same. 2️⃣ Reinvestment. APY assumes that all interest earned is reinvested, which increases the total return. 3️⃣ Transparency. APY provides a more accurate representation of potential returns compared to a simple interest rate. APY is a forecast and actual returns may vary. It may be affected by market volatility, changes in interest rates, risks associated with a particular investment product. APY is specified for each product and each coin separately, you can find this information on the website of the cryptocurrency exchange. To understand the amount of earnings, you need to know the period of accrual of income. For example, accrual in staking can occur both every minute and every day. In addition to APY, there is another key rate to consider: APR (Annual Percentage Rate). Similar to APY, APR is a rate that measures the yield of an investment, but it is calculated using the simple interest formula. While APR is commonly associated with the cost of borrowing at an interest rate, it can also be applied to investments. Like APY, APR is not a fixed value, as it can fluctuate based on network activity and other factors. 📍 CONCLUSION APY is a critical parameter that represents the return on an asset with compound interest, taking into account the reinvestment of profits after each accrual. This metric is essential when evaluating the feasibility of staking or other income-generating opportunities. For instance, it can help you decide whether to stake Coin A or convert it to Coin B and stake it instead. By comparing APY rates for different coins and staking options, you can make informed decisions about where to allocate your assets to maximize your returns. Traders, If you liked this educational post🎓, give it a boost 🚀 and drop a comment 📣
Education
by Lingrid
3
THE EMOTIONAL TRAP: UNDERSTANDING THE DANGERS OF TILT IN TRADINGAs everyone knows emotions are one of the main components of success in trading. And not only in trading, but also in life. And the problem is that everyone knows about the negative sides of excessive emotionality, but they still keep making the same mistakes. The mistake is that in the moment of calmness a person underestimates the harm that emotions can cause. They miss the moment when signs of leaving the state of calmness appear and then they have to deal with the consequences of actions made in an unbalanced state. In trading, tilt is an equivalent of an ordinary argument. A situation in which a person goes out of the balanced state and actually loses control over what is happening. In legal terminology, this is called a "Heat of Passion". But if in law the legislation calls the heat of passion a mitigating circumstance, then in trading the market does not care about emotions - all the consequences fall on the trader. 📍 THE HIDDEN DANGERS OF TILT The more emotion is eliminated from trading, the more logical and effective it becomes. However, emotions are an inherent part of human character, and it is impossible to completely eradicate them. Statistics reveal that traders between the ages of 20 and 30, as well as those above 50, are most susceptible to emotional influences. This can be attributed not only to their level of experience but also to their ability to manage themselves and remain objective. Young adults, just starting their careers, often exhibit a sense of recklessness, while the older generation tends to become complacent and lose their grip on their emotions. 📍 THE DANGERS OF TILTING IN TRADING ARE: • Loss of emotional control, leading to impulsive decisions that are not guided by logic or a well-thought-out trading system. • Emotions, whether negative (such as fear and anxiety) or positive (like euphoria and excitement), can take over, causing mistakes and irrational decisions. • Emotional reaction to every emergency situation becomes a habit, making it challenging to separate rational thinking from emotional responses. This habit can be difficult to break and can lead to consistent mistakes in trading decisions. • Tilting can also result in the violation of risk management rules, such as closing profitable trades prematurely or holding onto losing positions for too long, which can have severe consequences for one's trading account. One common occurrence that can lead to tilt is when a trade almost reaches its target level, only to suddenly reverse, resulting in a loss or lost profit. This can be frustrating and demotivating. Another scenario is when a trader opens a trade based on an obvious trend, only to see it turn unprofitable. When a trader is 100% certain of their forecast, but it proves to be incorrect, it can lead to an emotional outburst. This emotional response can cloud their judgment and lead to impulsive decisions that worsen the situation. Interestingly, professionals in other fields, such as poker and chess, have identified similar causes of tilt. In these games, tilt is often categorized into distinct groups. Understanding these causes can help us develop strategies to recognize and manage our own tilt, ultimately improving a performance and overall trading experience. 📍 THE CAUSES OF TILT IN TRADING CAN BE ATTRIBUTED TO SEVERAL FACTORS 1. Bad luck: Despite probability theory suggesting that the outcome of positive or negative events is 50/50, a streak of bad luck can still occur. This is due to the variability in trading systems and the role of luck. A trading system may perform well on one occasion but poorly on another. 2. Unfairness: Unjust market practices, such as sudden spread widening, market maker manipulation from brokers, can evoke feelings of tilt. Cryptocurrency markets, in particular, are susceptible to market maker games. While it's challenging to combat broker injustice, acknowledging and accepting market unpredictability can help manage tilt. 3. Fear of loss: Defeat is an inherent part of trading, but not everyone is willing to accept it. The way individuals perceive loss can significantly impact their emotional response. Some people learn from their mistakes, while others become overwhelmed by emotions. 4. Mistakes: Regrettable mistakes, especially those caused by inattention or failure to acknowledge a correct prediction, can lead to tilt. It's essential to recognize that mistakes are inevitable and develop strategies for addressing them without allowing emotions to dictate decision-making. 5. Uncertainty: Doubts about the accuracy of a signal or fear of loss can prevent traders from taking action, even when they're confident in their forecast. Developing intuition, trusting oneself, and practicing self-awareness through demo accounts or small accounts can help alleviate this type of tilt. 6. The desire to win back losses: The urge to recoup losses at all costs can lead to impulsive decisions and further losses. 7. Despair: This emotional state is characterized by a complete breakdown in judgment, leading to reckless decisions and potentially resulting in the loss of one's deposit and abandonment of trading altogether. 📍 THE CONSEQUENCES OF TILT IN TRADING CAN BE SEVERE AND FAR-REACHING Some common consequences include: 1. Impulsive and reckless trading decisions, often characterized by haphazardly opening trades without a clear plan or strategy. 2. Emotional fear can lead to premature exits from the market, even when the exit signal is not supported by technical or fundamental factors. This can result in missed opportunities and lost profits. 3. Doubts about the correctness of one's actions can lead to chaotic decision-making, causing traders to hastily change trade volumes, pending orders, and other settings. 4. When a stop-loss is triggered, emotional traders may impulsively open a trade in the opposite direction, often due to a local pullback on a strong trend or market maker manipulation. This is a classic example of emotional decision-making. 5. In an attempt to salvage a large loss, traders may decide to "wait it out" in the hope that the price will eventually break even. However, this approach often ends in a stop-out, as the loss continues to grow. 6. Greed can also be a consequence of tilt, as traders become obsessed with maximizing their profits and take excessive risks. This can lead to devastating losses and damage to the trading account. Tilt in trading is often more prevalent after a losing trade, rather than after a profitable one. This is because the emotional impact of a loss can be more significant and lingering, whereas a winning trade may prompt a sense of relief and complacency. However, this second type of tilt, which occurs after a winning trade, can be particularly dangerous. When a trader experiences a series of profitable trades, they may start to relax and let their guard down, leading to a loss of control and discipline. This can quickly snowball into a desire to win back their profits, which can spiral out of control and ultimately lead to emotional exhaustion and burnout. This phenomenon can be attributed to the psychological principle of "relapse," where individuals who have made significant progress in overcoming their biases or impulses may revert to old habits when faced with success. In the context of trading, this can manifest as reckless behavior, impulsive decisions, and an inability to distinguish between rational and emotional decisions. 📍 CONCLUSION Ultimately, the responsibility for our actions and emotional state lies solely with ourselves. The key to maintaining emotional control is to stick to our system, regardless of the outcome. This means resisting the temptation to deviate from our strategy, even when we're experiencing a streak of success or facing a series of losses. It's crucial to recognize that emotions can be unpredictable and potentially destructive forces. When we feel the urge to take action outside of our predetermined plan, whether due to elation or frustration, we must take a step back and reassess. If we're experiencing a series of successful trades, it's essential to take a break before we become complacent and let our emotions get the better of us. Similarly, if we're on a losing streak, taking a break can help us clear our minds and approach our trading with a clearer head. The ability to control ourselves is often the deciding factor between success and failure in any endeavor. By acknowledging this and prioritizing emotional regulation, we can develop the discipline necessary to maintain a consistent and profitable trading strategy. Remember, self-control is not about suppressing our emotions, but about acknowledging them and making conscious decisions that align with our goals. Traders, If you liked this educational post🎓, give it a boost 🚀 and drop a comment 📣
Education
by Lingrid
14
ADVANTAGES OF DEX: A New Era in Cryptocurrency TradingDecentralized exchanges, or DEXs, revolutionize the way we conduct transactions by empowering counterparties to directly interact with each other without the need for a central authority. In contrast to traditional centralized exchanges (CEXs), where all transactions are controlled by a single entity, DEXs operate on the principles of smart contracts, ensuring the autonomy and decentralization of the transaction process. This decentralized approach eliminates the risk of a single point of failure, promoting a more secure, transparent, and community-driven trading experience. Binance, the world's largest centralized exchange by capitalization and trading volume, is a prime example of a traditional centralized exchange. With a clear chain of command, ownership, and management structure, this type of exchange operates under the oversight of its administrators. In contrast to DEXs, Binance requires users to undergo mandatory verification procedures, including facial recognition and recording, and stores user funds in its own accounts. This level of control and oversight makes it a prime target for regulatory bodies, which are increasingly seeking to establish clear guidelines and standards for the global crypto market. 💡 DIFFERENCES BETWEEN DEX AND CEX 🗝️ THE KEY POINTS OF CEXs: ➡️ Centralized Exchanges operate under the umbrella of a centralized organization, where a clear chain of command and management structure governs all operations. This means that the exchange has direct control over user assets, with specific individuals responsible for overseeing day-to-day activities. ➡️ The registration process for CEXs typically involves verification of identity (KYC) and compliance with regulatory requirements. While some exceptions may be made for marketing purposes, such as allowing withdrawals up to a certain amount without verification, this is not the norm. As a result, exchanges may be compelled to disclose transaction data and customer account information to tax authorities, courts, or other parties upon request. ➡️ In terms of ease of use, CEXs often feature a familiar interface and rapid transaction processing times. They can also act as intermediaries, providing a guarantee for transactions and blocking funds until the trade is complete. ➡️However, this centralized approach also introduces security risks. With user assets stored on the exchange, CEXs are vulnerable to hacking attacks, which are unfortunately all too common. The hacking of centralized exchanges has become a frequent occurrence, making it essential for users to prioritize security when choosing a platform. One notable example of a centralized exchange is FTX, which was once among the top 5 largest exchanges by capitalization. However, its collapse serves as a stark reminder of the risks associated with centralized exchanges. The exchange's management was accused of misusing funds, leading to its eventual bankruptcy. In a devastating blow to users, their assets were locked, leaving them without access to their money. This incident highlights the importance of regulatory oversight and accountability in the cryptocurrency space. Centralized exchanges, like FTX, are often touted for their ease of use and security features, but they also concentrate user assets, making them vulnerable to mismanagement or even theft. The collapse of FTX is a cautionary tale for investors and users alike, emphasizing the need for due diligence when choosing a platform and the importance of transparency and accountability in the crypto industry. 🗝️ KEY POINTS OF DEXs: ⚡️ Decentralized exchanges, on the other hand, operate on a different principle. Transactions are facilitated by smart contracts, which ensures that users retain full control over their assets at all times. Unlike centralized exchanges, there is no management or authority figure that can exert influence or control over the platform. Instead, developers work alongside the cryptocurrency community to maintain and improve the operation of the exchange. ⚡️ One of the significant benefits of decentralized exchanges is the lack of need for identity verification. Users can trade directly with their cryptocurrency wallets, ensuring complete anonymity and privacy. Additionally, decentralized exchanges do not require users to register an account, making it a more convenient and secure option. ⚡️ Transparency is another key advantage of decentralized exchanges. All transactions are recorded on the blockchain, providing a public ledger of all activity. While it may be challenging for average users to access this information, it at least ensures that there is no room for abuse or manipulation. ⚡️ However, decentralized exchanges are not without their risks. Since users retain control over their assets, the risk of hacking is significantly reduced. However, vulnerabilities in smart contracts can still pose a threat to the security of the platform. Despite this, decentralized exchanges offer a more secure and transparent alternative to traditional centralized exchanges. 💡 ADVANTAGES OF DEXs 📍 One of the most significant advantages of decentralized exchanges is asset control. Unlike traditional centralized exchanges, users maintain full control over their funds, storing them securely in their own wallets. This means that users are not reliant on a third-party exchange to manage their assets, reducing the risk of hacking or theft. 📍 Another major benefit is the enhanced security offered by decentralized exchanges. Since there is no central storage of funds, the risk of an exchange being hacked is significantly reduced. This provides an added layer of protection for users, giving them greater peace of mind when trading. 📍 Decentralized exchanges also offer unparalleled anonymity. Users can trade without having to provide personal information, allowing for a level of privacy that is not typically found with centralized exchanges. 📍 Furthermore, decentralized exchanges offer a unique advantage when it comes to geographical restrictions. With no central authority, there are no restrictions on countries or regions for users, making it accessible to a global audience. 📍 Finally, decentralized exchanges provide a range of tools for earning money. While they may not offer the same breadth of options as centralized exchanges (such as margin trading, bi-currency investments, and liquid staking), they do provide a platform for buying and selling cryptocurrencies, giving users a way to engage with the market and potentially generate returns. 💡 DISADVANTAGES OF DEXs 📍 While decentralized exchanges offer many benefits, they also come with some drawbacks. One of the main limitations is speed and scalability. Due to the load on the blockchain, transactions can be slower and more expensive, which can be frustrating for users who need quick and seamless transactions. 📍 Another challenge is the interface. Decentralized exchanges often have a more complex interface compared to centralized exchanges, which can be overwhelming for new users. This may require a steeper learning curve and more technical knowledge to navigate. 📍Liquidity is also an issue with decentralized exchanges. Often, the liquidity is lower compared to centralized exchanges, resulting in higher spreads and less attractive prices for users. This can make it harder for users to find the best deals and execute trades efficiently. 📍 Furthermore, decentralized exchanges require a certain level of technical expertise from users. To use these platforms effectively, users need to have a basic understanding of cryptocurrency wallets, how they interact with the blockchain, and other technical aspects of decentralized finance. This can be a barrier to entry for those who are new to the space. 📍 Finally, decentralized exchanges are not immune to vulnerabilities. Smart contracts, which power these platforms, can be vulnerable to errors in their code. This means that risks are associated with possible errors in the code, which could compromise the security and integrity of the platform. While developers work hard to ensure the security of these contracts, it's essential for users to remain vigilant and aware of potential risks. ✅ CONCLUSION Decentralized exchanges are often referred to as "shadow exchanges," but they don't belong to the gray market category. As the cryptocurrency community continues to grow, there is a growing trend towards adopting DEXs, which operate through wallets. The benefits of this approach are numerous. For one, users don't have to worry about regulatory interference, as there is no centralized authority to govern their transactions. Secondly, users are free from the risk of their accounts being blocked or their money being refused by the exchange. On the other hand, DEXs can act as an arbitrator in disputes that may arise during transactions, providing an added layer of security and trust. However, it's essential to note that transactions conducted through DEXs are fully the responsibility of the participants involved, and any errors or frauds would fall on the shoulders of the individual parties. Ultimately, using DEXs requires a higher level of technical expertise and responsibility from users. It also means that users must take steps to withdraw their funds to instruments controlled by regulators, such as banks or other financial institutions. Despite these added complexities, the appeal of DEXs lies in their ability to offer a decentralized, secure, and transparent way to buy and sell cryptocurrencies. As the cryptocurrency market continues to evolve, it's likely that DEXs will play an increasingly important role in shaping its future. Traders, If you liked this educational post🎓, give it a boost 🚀 and drop a comment 📣
Education
by Lingrid
1
EURUSD: 2 Bearish Confirmations 🇪🇺🇺🇸 I see 2 strong bearish signals on EURUSD. After a formation of a strong bearish impulse, the pair started to steadily recover within a bearish flag pattern on a 4H. The price also formed the inside bar formation within the boundaries of the flag. Today, both the support of the flag and the range of the mother's bar were broken. It is a very strong technical confirmations. I think that the market may drop to 1.069 ❤️Please, support my work with like, thank you!❤️
Short
by VasilyTrader
1
NEW TOKEN LISTING: A Double-Edged Sword for Investors💡 The cryptocurrency market is a realm of endless opportunities, where prices can fluctuate wildly, shooting up 5-10% in a single day in either direction. This volatility can be both exhilarating and intimidating, as it can either wipe out investors or leave them with a quick windfall. However, not everyone is suited to navigate this fast-paced landscape. For those seeking more conservative returns, there are other options available. On the other hand, there are those who are willing to take greater risks in pursuit of substantial profits. One such strategy is to buy coins during the pre-sale period and sell them at their initial listing on the exchange. This approach can be lucrative, as savvy investors can capitalize on the initial hype and sell their coins at a significant markup. To generate buzz and attract attention, many new projects offer their coins for free in exchange for performing simple tasks or purchasing them at a discounted rate. When these coins are listed on the exchange, their value tends to plummet due to oversupply and subsequent sales. However, for those who manage to get in early and sell their coins before the price drops, the potential for significant returns – even 100% or more – is very real. 📍 PRE-LISTING INVESTMENT Recently, a new earning opportunity emerged in the online space, with BINANCE:NOTUSDT being the center of attention. The project's developers cleverly leveraged their marketing expertise to create a buzz around the coin. As a result, it gained widespread visibility, with numerous media outlets and cryptocurrency channels promoting the project. The idea was to generate revenue by simply tapping on your smartphone screen, with active users potentially earning around $300-$400. However, as soon as the coin listed on Binance, its price took a drastic dip. The price recovered after a few weeks, though. In a recent analysis of cryptocurrency tokens listed on Binance, it was found that a staggering 80% of new tokens have lost significant value over the past six months. The notable exceptions to this trend are a few meme coins, including BINANCE:MEMEUSDT and BINANCE:WIFUSDT , as well as tokens associated with the Solana protocol. 📍 THE STUDY HIGHLIGHTS THE FOLLOWING KEY REASONS 1️⃣ Firstly, developers often artificially inflate the cost of their tokens by issuing them at an undervalued price, which creates a surge in demand. Simultaneously, they sell their own share of the tokens, reaping the benefits. 2️⃣ Moreover, many coins lack a genuine long-term investor base and a strong community backing. This lack of support can be a red flag, indicating that these coins may be pre-destined to fail as a potential scam. 3️⃣ Furthermore, listed coins often lack growth potential, failing to meet the criteria for a sound investment instrument. Instead, they tend to attract attention from insiders and retail buyers who are willing to take risks and gamble on their investment. A portfolio comprising newly listed coins suffered an 18% decline in value over the past six months, while the market's blue-chip coins enjoyed significant gains during the same period. This stark contrast has led analysts to sound the alarm, warning that such a phenomenon can have far-reaching implications for the market's integrity. When investors, serving as the primary source of liquidity, inject their funds into poorly performing projects, they become disillusioned with the entire market. As a result, their money migrates towards established coins, leaving new initiatives struggling to secure funding and ultimately forcing them to shut down. Even innovative ideas with great potential are stifled by a lack of interest and resources. The solution to this problem lies in stricter regulation by cryptocurrency exchanges, which currently allow unscrupulous projects to exploit the market. However, exchanges are driven by profit, so this issue remains unresolved for now. 📍 CONCLUSION Identifying a token with potential for significant profit after listing can be a challenging and high-risk endeavor. The key factor in determining success is the interest of investors. If a coin is solely speculative, it is likely to experience a decline in value after listing. Conversely, if a token is backed by developers and has inherent value, it may have a chance to grow. However, with the vast majority of new tokens being scams, the risk of loss is significantly higher than the potential gain from a successful investment. From a risk perspective, this investment model appears unreasonable compared to long-term investments in established coins like BINANCE:BTCUSDT or top-tier cryptocurrencies. Traders, If you liked this educational post🎓, give it a boost 🚀 and drop a comment📣
Education
by Lingrid
5
FLOATING SPREAD VS FIXED SPREAD🌐 The trading conditions of any account specify the type of spread: floating or fixed. As a rule, the value of a fixed spread is larger, but a floating spread has an insidious wording “from...” in the terms and conditions. This means that the floating spread may well be greater than the fixed one. Nevertheless, it is considered better. What are its advantages and disadvantages, what spread to choose? 📍 ADVANTAGES AND DISADVANTAGES OF FLOATING SPREAD ▶️ FIXED SPREAD The difference between the buy and sell price of an asset is constant. This indicates that the broker works according to Straight Through Processing (STP) model - directly with a specific liquidity provider, the size of the spread with which is pre-agreed. The broker charges its commission (markup) and the trader sees the final difference. The fixed spread is only theoretical. Often in the offer there is a clause that the broker can unilaterally change it. And broker does it at the moment of news release, when volatility increases sharply. ▶️ FLOATING SPREAD The difference between price/offer is formed by the market. The broker only adds its small commission, that's why there are no zero spreads. Floating spreads are set on ECN accounts, where orders are not placed to a specific liquidity provider, but to the general market. Such accounts have a high entry threshold and a fixed commission for each lot placed on the account. 📍 THE FLOATING SPREAD DEPENDS ON: 🔘 Market Liquidity. During the vacation season, on the eve of vacations, at the moment of flat trading activity decreases. The smaller the volumes and the fewer traders, the bigger the gap between Bid and Ask prices. 🔘 Currency Liquidity. Or investors' interest. The FX:EURUSD pair is liquid, the pair of the US dollar with the South African rand is called exotic and the spread on it is one of the largest. 🔘 Volatility. Or the speed of trend movement. If after the news release the imbalance of bids in the direction of buyers or sellers sharply increases, the spread will also grow. 🔘 Time of day. Or the period of activity of traders of this or that region. 📍 ADVANTAGES OF A FLOATING SPREAD: ➡️ Most of the time it is less than the fixed spread. ➡️ No requotes - the transaction is executed in any case. ➡️ Floating spread is more profitable than fixed spread for liquid currencies. Fixed spread is more profitable for “exotics”. ➡️ It is favorable for scalping, where every tenth of a point is important for profit. 📍 DISADVANTAGES OF FLOATING SPREAD: ➡️ There are slippages at the moment of sharp spread widening. ➡️ It is necessary to constantly monitor its change. ➡️ It can sharply increase when a fundamental factor appears. ➡️ There is still a risk of artificial spread widening by the broker (it is not easy to prove). ➡️ Increases emotional tension. With a fixed spread a trader always knows the amount of expenses. Expansion of a floating spread can turn a profitable trade into a losing one. If you open a new account with a broker, pay attention to the following points. In what cases the broker has the right to change the fixed spread. What quotes we are talking about. Outdated data on the website may turn out to be conditions for 4-digit quotes. Compare spreads at different brokers on a demo account; install a script showing the current spread. Run it on one asset, watch how and when the floating spread might widen. 📍 CONCLUSION The choice between a fixed spread and a floating spread depends on several factors, including market liquidity, currency pair, volatility, and time of day. While fixed spreads offer a set and predictable price difference, floating spreads can be more competitive and profitable, especially for scalping strategies. However, floating spreads also come with risks, such as slippage and the need to constantly monitor spread changes. When opening a new account with a broker, it's essential to pay attention to the terms and conditions, clarify quotes, compare spreads across different brokers, and test the floating spread on a demo account. Traders, If you liked this educational post🎓, give it a boost 🚀 and drop a comment
Education
by Lingrid
5
EXPLAINING LIQUIDITY IN SIMPLE WORDSLiquidity plays a vital role in shaping market prices, particularly among large market players such as banks, hedge funds, and other influential entities. These entities, often referred to as market makers, manipulators, and others, are driven by their pursuit of liquidity. In fact, liquidity is the foundation upon which successful trading is built, and it's where traders should begin their journey. In the context of Smart Money Concepts (SMC), liquidity refers to the levels of asset price where multiple market participants have placed limit orders, stop orders, and liquidations. Stop orders are essentially reverse orders designed to mitigate losses by buying back positions that have gone against a trader's expectations. When a trader sets a Stop-Loss order, they're essentially trying to limit potential losses if the market moves against them. The concentration of stop orders creates a gravitational effect, making it attractive for larger players to gain an advantage. By identifying areas with high concentrations of stop orders, big players can exploit these liquidity zones to collect profits from retail traders who are unaware of these market dynamics. As a result, the movement of prices from one liquidity zone to another is driven by the actions of these powerful entities, ultimately shaping the market landscape. ❓ HOW TO IDENTIFY LIQUIDITY ON THE PRICE CHART? Before we dive into trading and trades, we must first identify obvious liquidity pools. These will be our closest target for the price to converge upon. There are several types of liquidity in the market: Equal highs and lows (EQH/EQL), which mark significant turning points Swing structural points, including notable highs and lows that can be significant drivers of market activity Boundaries in sideways price movement, such as ranges or sideways trends, where liquidity is concentrated Trend movement, where liquidity tends to accumulate below or above the trendline 📊 SIGNIFICANT PRICE HIGHS AND LOWS The SMC features six key extrema that significantly impact trading: • The previous month's high and low values • The previous week's high and low values • The previous day's high and low values • The current trading day's high and low values • Equal highs and lows, which can be particularly significant in determining market trends 📈 Equal Highs (EQH) or Equal Lows (EQL) 📉 The double bottom or double top candlestick formation is a common indicator of a potential price reversal. When the price reaches these formations, it typically signals a change in direction, with the price moving in the opposite direction. For retail traders, equal highs and lows are crucial levels of support and resistance, prompting them to place stop orders at these levels. These levels act as a gravitational force, attracting large capital flows and creating a significant amount of liquidity. When the price approaches these levels in reverse, it's not uncommon to see a cluster of stop orders forming, as traders anticipating a bounce from the level wait for the price to react. However, large players often take advantage of this expectation by executing stop-loss orders through a false breakout, ultimately triggering a price reversal. 💲 SIGNS OF A SUCCESSFUL LIQUIDITY GRAB Let's consider a buy scenario as an example. Traders identify a strong low price, and large capital players recognize an obvious accumulation of liquidity at this point. When the price returns to this low and breaks it, but without forming a full candle, the price closes above the broken low. To better understand this concept, let's examine the schematic representation of liquidity grab in buying scenario. Liquidity is a top priority for big players, known as “smart money”. A significant player is actively seeking to find it to secure their position. The reason is that if they were to open trades without sufficient liquidity, they would be exposed to price slippage, as there may not be enough buy or sell orders in the market to execute their trades efficiently. 🔎 IS IT A LIQUIDITY GRAB OR NOT? Distinguishing between a liquidity grab and a breakout of market structure is crucial, as they share similarities. In the case of a liquidity grab, the price fails to close at an important structural highs or lows, instead takes liquidity forming long tailed candles. In contrast, a breakout of the structure sees the price breaks and closes above or below new level. Notably, liquidity grab often precedes a price reversal, whereas breakout of the level typically perpetuates the underlying trend. 📍 TREND LIQUIDITY In a clear trending market, liquidity forms in both directions, at the lows and highs. Let's take a closer look at a downward trend movement. When we see the price moving downwards, we initially take liquidity at the lows, which has been building up since the price reached its maximum. Then, we take liquidity at the minimum, creating a natural flow. At the highs, we deliberately leave liquidity on purpose, allowing it to build up and eventually be taken away naturally. The liquidity at the lows acts as a price magnet, attracting a large player who begins to accumulate their position. In some cases, the price may form equal lows, known as a double bottom in technical analysis. This signals to traders that it's time to enter a trade, and they place stop losses above these levels. At this point, a major player manipulates the price, taking this liquidity and reversing the trend. The first target is then the trend highs, where liquidity is located – it was left earlier to be taken away. 📝 HOW TO WORK WITH LIQUIDITY? When working with liquidity, it can be a valuable tool for entering a trade, as well as helping to set a stop loss by avoiding arbitrary price levels. Instead, you can use liquidity to guide your trading decisions and create more informed stop-loss strategies. Moreover, take profits can also be placed on liquidity levels, as the price is constantly moving between these levels, making it essential to take profits before they're taken away. 💎 CONCLUSION The benefits of liquidity analysis extend to any time frame, whether it's weekly, daily, or even 1-minute charts. This means that liquidity can be effectively applied to analyze forex market, indices, cryptocurrencies and shares of companies for investment purposes, making it a versatile tool for traders and investors alike. Traders, If you liked this educational post🎓, give it a boost 🚀 and drop a comment
Education
by Lingrid
23
XAUUSD Analysis (13th May 2024) Market Analysis PT2/2 (13th May 2024) XAUUSD Analysis On the daily timeframe, we have created a Change of Character to the upside at the 2352 level. Currently price is creating a pullback towards that key level. What i want to see is for price to come down lower towards the 2352 level before deciding whether to long or short. If price fails to create a 15 minute change of Character with a Body candle close above, i will be patient on longs and will be more short biased. However, if price action confirmations a retest of the 2352 level and creates a 15 minute Bullish CHOCH, i will be actively looking for longs to target the 2400 level.
FOREXCOM:XAUUSD
by CallistoFX
WHAT ARE REAL WORLD ASSETS (RWA)?Just 3-5 years ago, the concept of "real assets" was clear-cut - physical items that could be owned such as stocks, gold, and currency. On the other hand, "derivatives" referred to intangible assets like swaps, options, and CFDs that allowed for profit-making. However, the emergence of cryptocurrencies and blockchain technology has completely transformed this landscape. Not long ago, cryptocurrencies were seen as a separate entity, often labeled as a risky and unsecured financial scheme. But today, they are being recognized as valuable commodities and even as securities. What's even more fascinating is the rise of a new category - Real World Assets. 💡 Real World Assets are a unique category of financial instruments that are based on blockchain technology. 💹 Real World Assets is a market where real world assets are tokenized on the blockchain. These tokenized assets, which we refer to as real assets, are essentially moving traditional assets into decentralized financial applications. The goal is to leverage technology to potentially lower fees and management costs associated with these assets. 📍 REAL WORLD ASSETS EXAMPLES: ➡️ Stablecoins are a type of cryptocurrency that are centralized and backed by real assets. For instance, Tether's USDT is backed by stocks, government bonds, and fiat currencies, and undergoes some level of auditing. This process is known as tokenization, where the value of the collateral is denominated in stablecoins equivalent to fiat money. The pegging ratio is 1:1, meaning that the value of the stablecoin is directly tied to the value of the underlying assets. Any fluctuations in the value of the assets are balanced out by adding more collateral to maintain the stability of the stablecoin. 🔴 One major drawback of this model lies in the vulnerability to fluctuations in exchange rates of the real asset. In the event that stocks experience significant drawdowns of 20-30%, it is essential for the collateral to be able to mitigate this risk. Furthermore, as the stock value increases, Tether continues to issue additional USDT. Traders are already familiar with the challenges of decoupling stablecoins from their corresponding assets, particularly in the case of centralized stablecoins as opposed to algorithmic ones. ➡️ Private lending, specifically in the form of decentralized lending, has seen a significant player emerge in the form of DAO MakerDAO, the issuer of the DAI stablecoin. In a major move, this startup secured a hefty $100 million credit line with a US bank in mid-2022, backed by real assets as collateral. The startup was able to profit from this arrangement with an impressive 3% annual return. It is noteworthy that regulators did not pay attention to this deal. ➡️ Government bonds are a popular choice for investors seeking stability. Some companies have taken this a step further by issuing stablecoins that are backed by government securities. For example, Ondo Finance offers the USDY stablecoin, while Mountain Protocol offers USDM, which is based on Ethereum. These startups manage stablecoins backed by U.S. Treasury bonds, considered one of the most reliable instruments in the market. Investors can also earn passive income of 5% on top of the stability these investments offer. ➡️ Tokenized securities are on the rise, although the market has not yet reached its full potential. Bitfinex exchange is at the forefront of this trend, with their subsidiary launching the first tokenized bonds in October 2023. These bonds offer investors a tempting yield of 10% and a three-year maturity period. In essence, these tokenized securities work much like traditional bonds, where investors trade tokens for a share of the security and receive passive income in return. 🔴 Investors should be intrigued by the inquiry into how the issuer plans to allocate the funds raised and where the profit is being generated from. This question remains unanswered, as the tokenization process is still evolving. By 2024, HSBC, the British bank, is gearing up to introduce a service for managing tokenized bonds. In October 2023, JPMorgan and Barclays, along with investment firm BlackRock, unveiled a platform for transforming shares into digital assets called the Tokenized Collateral Network. ➡️ Green tokens are an emerging trend in the world of digital assets, with artificial intelligence specifically identifying them as a key player in the future. An interesting fact is that KlimaDAO, a startup backed by billionaire Mark Cuban, ultimately did not succeed in its mission to raise funds to incentivize companies to reduce their emissions. Despite this setback, the concept of green investments and tokens is likely to become a prominent tool in the future. This new form of investment may revolutionize the way companies approach sustainability and incentivize environmentally conscious behaviors. Stay tuned for more developments in the world of green tokens. ➡️ Paxos, a startup in the cryptocurrency industry, has made a connection to precious metals through the creation of gold tokens. Pax Gold has successfully replicated the value of physical gold, allowing investors to easily participate in the gold market without the need to purchase actual bullion or deal with brokers and confusing financial instruments like CFDs and swap fees. By purchasing PAXG cryptocurrency, investors can securely store it in a cold wallet, minimizing the risks associated with exchange bankruptcies or broker insolvencies. ➡️ In January 2023, the real estate startup MarketDAO facilitated a $7 million loan in cryptocurrency DAI to a French conglomerate. The loan was backed by mortgage bonds worth $40 million in US dollars. While this practice is still inconsistent, it marks the beginning of a promising trend in the real estate industry. ➡️ Paintings, sculptures, and other works of art, as well as collectibles, have long been valued for their beauty and uniqueness. The original concept behind NFTs was to revolutionize ownership by tying it to the blockchain, thereby ensuring copyright protection. In 2021-2022, we witnessed the initial steps towards digitizing and transferring paintings onto the blockchain. The future of this trend remains uncertain, but the concept has proven to be functional and shows promise for the art world. 🔴 The prospects for Real World Assets are significant and promising. However, accurately assessing these prospects is currently difficult as the tool is still in development and has not yet found its niche. Several factors are necessary for its success. 1️⃣ Firstly, there needs to be greater user engagement in cryptocurrency and digital technologies. Despite the widespread availability of the internet, not everyone has sufficient knowledge about these topics, let alone blockchain technology. 2️⃣ Secondly, there needs to be real interest and potential benefits from the tool. This can manifest in various ways, such as generating profit or simplifying certain actions. For example, the tool could speed up data transfers, protect copyrights, and make it more accessible for everyday users. Users must see the usefulness of the tool for it to be successful. 📍 CONCLUSION Currently, the reality is that the global market is valued at hundreds of trillions of dollars, a figure that the cryptocurrency market cannot compete with. For instance, as of 2020 estimates, the worldwide real estate market is valued at approximately $326 trillion in US dollars. According to RWA.xyz, the funds locked in blockchain technology total $4.5 billion, with just over $500 million in loans issued. However, the revolution of Real World Assets technology is on the horizon. In the next 1-2 years, this tool will begin gaining traction among the masses, similar to the rise of artificial intelligence in 2023. It is predicted that in 5 years, RWA technology will reach its peak of popularity. Traders, If you liked this educational post🎓, give it a boost 🚀 and drop a comment
Education
by Lingrid
1
“DRAGON” PATTERN IN TRADINGAs we dive into studying price action, we can't help but be intrigued by the interesting names given to various patterns. Names like "Two Rivers" and "Shooting Star" not only sound captivating but also accurately describe the patterns they represent. In this post, we'll introduce you to another powerful pattern known as the Dragon. This pattern, belonging to the reversal patterns, is not only commonly found in the Forex market but is also highly effective. 💡 HOW THE DRAGON PATTERN IS FORMED? The pattern has known points, without which the formation is not possible: HEAD LEFT FOOT RIGHT FOOT HUMP TAIL Each of the points, should be placed in the specified place, without distortions and various force majeure. The Dragon pattern is a reversal pattern in the forex market. In order to successfully trade the Dragon formation, it is crucial to have a clear understanding of the important data associated with it. 📍 Firstly, in a downtrend, you must identify the last local lower high, which will serve as the head of the Dragon pattern. Subsequently, the market will continue to decline and reach a specific level that it cannot surpass, marking the left foot of the formation. 📍 The Dragon's Hump is then formed through a corrective movement from point 1 to point 2. It is essential that this correction does not exceed 38.2% to 50%. Following this correction, the market should attempt to retest the previous lows, ideally failing to do so. This failure indicates a potential shift in momentum, allowing for a buying opportunity. 📍 Drawing a trendline from the head to the hump serves as a signal line. Once this trendline is broken, the Dragon pattern is confirmed, signaling a long position entry. 📍 Setting a Stop Loss below the dragon's feet helps to manage risk, while the first target is set at the level of the hump and the second target at the head. Take Profit levels can be set at these targets to maximize profitability. Another possible scenario is when the bears successfully bring the market below the initial support level. Personally, I find this detail somewhat undermining to the pattern. In such a situation, it can be interpreted as follows: if the bears succeed in pushing the market to new lows, it indicates that they may not be as weak as they seemed at first, which encourages caution in buying. However, if the price returns above the last local low and creates a false breakout with a bullish divergence, it can be considered a strong signal. The bullish reversal pattern Dragon has its counterpart in the bearish reversal pattern known as the Inverted Dragon. Just like its bullish counterpart, the Inverted Dragon follows similar patterns and characteristics, so there is no need to describe it separately. As mentioned earlier, these patterns are named for their resemblance to real-life examples, and I have included a chart overlay in the screenshot below for reference. It is essential to have a strategy and a set of rules when considering any reversal combination in forex market. As many books suggest, patterns often form at the bottom of the market. Although the market bottom may shift quickly, it is important to stay disciplined and adhere to the rules. The concept of identifying the market bottom involves recognizing key levels where the market has previously rebounded. If a price has bounced off a certain level in the past, there is a higher probability of it happening again in the future. Therefore, it is crucial to look for potential patterns, such as the Dragon pattern, when the price nears a support level (for bullish patterns) or a resistance level (for bearish patterns). 📒 TO AVOID MISIDENTIFYING PATTERNS, IT CAN BE HELPFUL TO FOLLOW THESE GUIDELINES: 1️⃣ Start by identifying the current trend movement. In a downtrend, look for a dragon pattern, while in an uptrend, look for an inverted dragon pattern. 2️⃣ Remember that price reversals are more likely to occur at important levels. Without a significant level, there may not be a reversal. 3️⃣ Pay attention to the hump of the dragon pattern, ensuring it does not exceed 38.2% to 50% of the distance from the head to the left foot. 4️⃣ Consider the length of the right foot, which should be 5-10% of the distance from the left foot. Ideally, the right foot should be higher, but it can also be lower. 5️⃣ If there is a trendline breakout, take your time before opening a trade. Assess the potential gain and compare it to the expected loss. If everything checks out, go ahead and take the trade. 📊 USING THE DRAGON PATTERN IN TRADING As you can see, identifying the pattern is not difficult at all. Remember the key rules: The hump should be between 38.2% and 50% of the head, indicating left foot movement. The right leg should be aligned as closely as possible with the left foot. Most importantly, pay attention to the pattern at significant levels. The appearance of a pattern does not guarantee that the trend will reverse, but it is considered a strong signal. It is important to make sure that the pattern is formed on a sufficient amount of data. Take into account other factors such as fundamental analysis and the market context. ✅ BOTTOM LINE The Dragon pattern is widely recognized as a strong indicator of a trend reversal, making it a valuable tool for traders looking to capitalize on market movements. While it can be a helpful guide for entering trades in line with the anticipated trend, it is important to remember that no technical indicator is foolproof and a pragmatic approach is always advised. In addition to the suggested rules, it is essential to incorporate your own money management strategies to ensure profitable implementation of the Dragon pattern. Your feedback and any further perspectives are welcomed. Thank you for your time and input. Traders, If you liked this educational post🎓, give it a boost 🚀 and drop a comment
Education
by Lingrid
1
WHAT ARE THE DIFFERENT TYPES OF STABLECOINS?👋 Hello everyone, today we will be discussing stablecoins, which currently have a market capitalization of around $160 billion. Those who are not very familiar with cryptocurrencies often use stablecoins for various purposes such as making payments, storing money in a stable currency as an alternative to the US dollar, and for international transactions as well. However, stablecoins actually have a wide range of potential uses beyond these basic functions. In this post, you will learn about the different types of stablecoins available in the market. 💎 DIFFERENT TYPES OF STABLECOINS, THEIR APPLICATIONS, AND POTENTIAL RISKS The type of stablecoin and its purpose are typically defined by the developer, who also establishes the asset to which it is pegged, and creates the system for issuing and burning coins. Stablecoins that are listed on the top 20 exchanges globally in terms of capitalization are the ones that garner the most interest. 💎 SECURED BY FIAT WITH A PEG TO A SPECIFIC CURRENCY Binding can be done in various currencies such as USD, EUR, and others. One of the most well-known coins for binding is Tether. According to its developers, the coin is fully backed by real currency, stocks, bonds, and low-risk assets. ⚠️ However, there are risks involved with backing. For instance, Tether has faced challenges with verifying its backing. The company was not forthcoming in providing all necessary information to auditors. As a result, there are doubts about whether the security can serve as a protection fund in times of unexpected events. In another example, the second largest USDC stablecoin pegged to the USD fell below 87 cents in early March 2023. This drop was widely attributed to the bankruptcy of Silicon Valley Bank, where the startup had held approximately $3.3 billion in collateral. While the situation has since been stabilized, the potential for another bank failure to affect the value of a stablecoin remains a concern. 💎 SECURED BY A SPECIFIC ASSET One example of this is the PAXG coin, which is backed by physical gold. This means that the value of the coin is directly linked to the price of gold, eliminating the need for complicated stock market investments or futures trading. By simply purchasing the coin, you can potentially earn money. ⚠️ However, there are risks involved, particularly regarding security. The price of PAXG is not determined by traditional supply and demand forces, as it is tied to the value of gold regardless of the number of tokens in circulation. The algorithm controls the number of tokens, but there is uncertainty about whether the startup behind the coin will fulfill its obligations in case of unforeseen circumstances. 💎 ALGORITHMIC STABLECOINS One of the most complex models of operation to comprehend is the concept of stablecoins. These digital currencies are built on computer code, which is essentially an algorithm that governs the creation and destruction of coins. There are primarily two types of algorithmic stablecoins 1️⃣ The first type operates without any external backing. When the price of the stablecoin rises, the algorithm mints more coins. Conversely, when the price drops, it burns existing coins. This mechanism seems logical from an economic perspective, but it becomes problematic during times of crisis when everyone rushes to convert their virtual coins into real money. ⚠️ There are inherent risks associated with algorithmic stablecoins as they lack any physical backing. When you purchase stablecoins by providing USD, the developers may use the funds as they see fit. You can only expect to retrieve your investments if someone else injects more USD into the system. The story of Do Kwon and his Luna stablecoin serves as a cautionary tale of such a pyramid scheme. 2️⃣ The second type of algorithmic stablecoins introduces a more sophisticated concept, exemplified by the workings of DAI created by the startup MakerDAO. The innovative approach involves a redundant reservation system, where the responsibility of securing the collateral lies with the user rather than the developers. Each user can mint a DAI coin, pegged to the value of 1 USD, by locking up another cryptocurrency as collateral in excess of 100%. This surplus serves as a safety net in case the value of the pledged cryptocurrency experiences a significant drop, potentially by 50% or more. If the value of the collateral falls below the 100% threshold, the investor's position is automatically liquidated. Notably, developers have no control over the issuance of DAI, with the stability of its price reliant on the collateral provided by users. ⚠️ Despite the innovative approach, there are inherent risks involved. A sudden decrease in the value of the collateral cryptocurrency can result in standard "slippages", where users not only lose their collateral asset but are left with a stablecoin experiencing a drastic devaluation from 1 USD to just a few cents. 💎 WRAPPERD STABLECOINS One popular example is Wrapped Bitcoin (WBTC). Bitcoin and Ethereum are the two largest platforms, but they are not compatible with each other. Developers who deploy startups on Ethereum find that their users also work with BTC as a reliable investment tool. WBTC was created as an intermediary to bridge this gap. The coin is deployed on the Ethereum network and is tied to WBTC in a 1:1 ratio. ⚠️ However, there are risks involved in using WBTC. As it belongs to people, there is a lack of decentralization. Only the portion of WBTC that is in demand is secured, leading to a smaller capitalization compared to bitcoin. The extent to which this network can be trusted is a complex question that requires careful consideration. ✅ CONCLUSION Stablecoins are an effective asset when utilized as a medium of exchange rather than as an investment, unlike gold-backed coins which function more as an investment tool. These coins provide protection against price fluctuations as they are linked to a stable asset. However, they still carry similar risks to altcoins such as detachment from the collateral, a decrease in the collateral's book value, and potential fraud by developers. Traders, If you liked this educational post🎓, give it a boost 🚀 and drop a comment
Education
by Lingrid
1
BTC Analysis (27th April 2024) Crypto Analysis (27th April 2024) BTCUSD Analysis On the 4 hour timeframe, price action has swept the buyside liquidity and created a bearish Change of Character, leaving behind a large 4 hour bearish FVG. Price retraced into the fvg, respected it and continued to create a 4 hour Bearish BOS. Dropping to the 1 hour timeframe, price has created a 1 hour Bearish unmitigated orderblock we can look to take sells from if bearish confirmations shows after testing the OB. Else, if price decides to break past the bearish OB, we can capitalise on a break and retest to continue higher.
BINANCE:BTCUSDShort
by CallistoFX
SIMPLE STEPS IN CREATING A TRADING SYSTEMTrading system and strategy are often equated, but this is not quite right. Both a strategy and a trading system is a single algorithm of actions, including the process of searching for signals and opening trades. But strategy is often understood as following certain rules, while a trading system is a combination of technical, fundamental and psychological components. In other words, the creation of a trading system implies a combination of several strategies that work depending on the situation and their combination with external factors (emotions or news). 📊 CREATING A TRADING SYSTEM Creating a trading system is the basis of trading. No one prevents you from finding interesting strategies on the Internet, but a trading system is the very core that defines a trader's personality. After all, all people are different. A system is a set of rules, which takes into account the risk appetite, psychological qualities, and way of thinking. The market is influenced by hundreds of different variables, and in order not to drown in the flow of information, it is necessary to identify the basic path and the most influential factors. Building a trading system starts with choosing a narrow niche, which can/should then be gradually expanded. 📝 THE TRADING SYSTEM SHOULD ANSWER THE FOLLOWING QUESTIONS: • What is currently happening in the market? • What can happen in a fixed period of time? • How can a trader use the obtained information and forecast at the moment? There are several basic variants of price action, which most often form the basis of trading systems: 1️⃣ TREND FOLLOWING When it comes to trend following, the key is to pinpoint the start of a trend and monitor any corrections without mistaking them for a trend reversal. This strategy typically utilizes tools such as wave analysis, patterns, and support&resistance levels. Trend following strategies are commonly implemented on an intraday basis. 2️⃣ BREAKOUT OF RESISTANCE AND SUPPORT LEVELS The direction of the trend is not the key focus. What truly matters is the price breaking through significant levels. The primary challenge lies in distinguishing between a genuine breakout and a false one. 3️⃣ TRADING INSIDE THE CHANNEL This is an alternative to the second option. If the price does not break through the level, it returns to its average value. The main tools are the same levels, oscillators, channel indicators. Additionally, it is important to consider time allocation when creating a trading system. It is crucial to determine the timeframe that best suits your trading style and objectives. Different timeframes, such as intraday, mid-term, and long-term, offer various opportunities and challenges in the market. Understanding how to effectively allocate your time based on your chosen timeframe will help you make well-informed trading decisions: Intraday. Trades are opened and closed within the day with savings on swaps. They can also include scalping. But if scalping is a high-frequency exhausting trade, then intraday means strategies with the frequency of opening trades up to 3-5 per day. Mid-term. Can be held for several days, less often - several weeks. They have a strong dependence on the fundamental factor. Long-term. One of the investment options, providing for the creation of a diversified portfolio of different types of assets. ✔️ The trading system should also answer the following questions: Which asset optimally corresponds to individual preferences (level of average daily volatility, liquidity, winrate, principle of using leverage/margin percentage). What are the main parameters of the risk management system: risk level per one trade and for all open positions, lot calculation formula, etc. What timeframes and technical/fundamental analysis tools to use. What signals correspond to a successful point of opening a trade. At what moment to close trades. ✔️ All these points are obvious, but it is the lack of a clear plan that causes mistakes and panic. A trading system plan is a kind of "road map", which provides for: Different combinations of risk management system parameters. It is not necessary to stick to one risk control strategy. Sometimes an increase in risk is justified. Flexibility is important. Scenario in case of deviation of actual results of the trading system from statistical results (obtained during testing). Behavior in different emotional states. Sources of reliable information. Order of actions in case of force majeure. 📍 In conclusion , developing a trading system is essential for any trader looking to achieve success in the financial markets. A well-thought-out trading plan with a systematic approach helps traders make informed decisions, manage risks effectively, and stay disciplined in their approach. To trade without a plan is to hope for luck, and luck is not comparable with the theory of probability. Therefore, do not neglect the trading plan.
Education
by Lingrid
5