Interpreting Economic Indicators for Forex Analysis
Introduction
CAPITALCOM:DXY TVC:BXY TVC:EXY TVC:JXY TVC:CXY TVC:AXY TVC:SXY TVC:ZXY
In short, we introduce the importance of economic indicators in forex trading and explain how they can show the health of an economy and affect the strength of the currency.
GDP Growth Rate
What it is: Gross Domestic Product growth rate measures economic activity and health.
Impact on currency: A higher growth rate can strengthen a currency due to increased investor confidence and potential for higher interest rates.
Unemployment Rate
What it is: Reflects the percentage of the labor force that is unemployed and actively seeking employment.
Impact on currency: Lower rates often correlate with a robust economy and therefore a stronger currency.
Inflation Rate
What it is: Indicates the rate at which the general level of prices for goods and services is rising.
Impact on currency: Moderate inflation is normal in a growing economy, but high inflation can devalue a currency.
Interest Rate
What it is: The rate at which central banks lend money to commercial banks.
Impact on currency: Higher rates can attract foreign investment, increasing demand for the currency.
Balance of Trade
What it is: The difference in value between a country's imports and exports.
Impact on currency: A trade surplus typically strengthens a currency as it reflects higher demand for the country’s goods.
Consumer Confidence
What it is: A statistical measurement of consumers' feelings about current and future economic conditions.
Impact on currency: Higher confidence can stimulate economic growth through increased spending.
Why should you follow important fundamental indicators?
Forex traders aim to predict currency movements to profit from trading. Economic indicators play a crucial role in forecasting these movements because they reflect the underlying health and potential future performance of an economy, which are primary drivers of currency strength or weakness. Here's why monitoring these indicators is essential for improving win rates in forex trading
1.Predicting Central Bank Actions: Indicators like inflation rates and GDP growth influence central bank policies, especially interest rate decisions. By anticipating such moves, traders can position themselves for currency fluctuations.
2.Economic Health: A strong economy, indicated by factors like low unemployment and high GDP growth, tends to attract foreign investment, leading to an appreciation of the currency.
3.Inflation Trends: Currencies generally weaken in countries with high inflation unless countered by high-interest rates. Tracking inflation can thus provide signals for currency devaluation or appreciation.
4.Sentiment Indicator: Consumer confidence can act as an early signal for future economic activity; high confidence often translates into increased spending and investment, strengthening the currency.
5.Trade Flows: The balance of trade can indicate a currency's demand on the global market. A surplus suggests strong demand for exports, and consequently, for the currency.
6.Interest Rate Differentials: Forex markets often move in anticipation of interest rate differentials between countries. Traders who follow these differentials can benefit from carry trades and other interest rate-based strategies.
By understanding and acting on the implications of these indicators, forex traders can make more informed decisions, thus potentially increasing their chances of executing successful trades
Here is an example based on the latest fundamental analysis
let's go through each economic indicator, understand its significance, and interpret the presented data in the context of currency strength and forex trading:
1.GDP Growth Rate
This measures the economic activity of a country. The U.S. shows the highest growth at 3.4%, indicating a robust economy, which is bullish for the currency. Conversely, the GBP showing negative growth is bearish.
2.Unemployment Rate
Lower unemployment rates are generally seen as positive because they reflect a strong job market. Here, CHF and JPY have the lowest rates, which could be positive for these currencies. A higher rate, like in the EUR, suggests economic challenges.
3.Inflation Rate
Inflation reflects the purchasing power of a currency. The CHF's low inflation rate of 1.2% is close to the often-targeted 2%, which can be good. However, too low can signal deflation. The NZD's high rate at 4.7% could indicate an overheating economy, often negative for the currency.
4.Interest Rate
A higher interest rate can attract foreign investment, increasing demand for the currency. The high rates for USD and NZD could make them more attractive to investors.
5.Balance of Trade
A positive balance, like those of EUR and AUD, suggests strong exports and can be positive for the currency. A negative balance, such as the USD's, might imply economic weakness but can also result from strong imports due to a robust domestic economy.
6.Consumer Confidence
This is a measure of economic optimism. High confidence, as seen with the NZD, can indicate future economic activity and spending, which is positive for the currency.
The combination of these factors indicates that the U.S. economy is in a strong position, with robust growth, reasonable inflation control, attractive interest rates for investors, and a confident consumer base. This comprehensive health can bolster the strength of the USD in forex markets. However, it is crucial to note that economic strength is relative and dynamic; thus, continuous monitoring of these indicators and global economic conditions is necessary for ongoing analysis.
Understanding the fundamental mechanisms of forex—like how interest rates, inflation, GDP, and political events affect currency values—is crucial. It’s the difference between reacting to the market and anticipating it. Just as a master chess player thinks several moves ahead, a skilled forex trader analyses multiple indicators to strategize their next move. This holistic approach can enhance your trading strategy, leading to more informed and potentially more successful trades.
The tip I shared is intended solely for educational purposes and is not for market analysis. I hope you've enjoyed it.
Fundamental Analysis
Break down of our 700 pip trade.Below, we explain why and how we entered the market. On the 30-minute timeframe, we identified an engulfing candle, marking it as a Point of Interest (POI). With a refined risk of just 1 pip, we patiently awaited price to retrace to this level, anticipating a high probability bounce to the upside..
We observed the price returning to our Point of Interest (POI), meeting perfectly with a 4-hour candle and rebounding as anticipated from the engulfing candle. Our target is now set at the previous high, where we plan to take profit 1. As the trade unfolded, a 4-hour trend emerged and was honored before propelling towards our target and surpassing it. This straightforward technique serves as a method to mitigate risks while aiming for substantial rewards, offering a valuable approach for your trading endeavors.
10 EMA strategy ^BEST TREND-FOLLOWING STRATEGY^Welcome! Today, I'm excited to share with you one of the most effective trend-following strategies that is adaptable to any timeframe and asset class ( OANDA:XAUUSD , NSE:NIFTY , FX:USDCHF ), boasting a remarkable risk/reward ratio of up to 1:10. Let's dive right in.
As mentioned, this strategy revolves around the Exponential Moving Average (EMA), specifically the 10-period EMA. For those unfamiliar, the EMA places greater emphasis on recent price data compared to a Simple Moving Average (SMA), providing a dynamic view of market trends.
When the price on your chart is above the 10 EMA, it signifies a bullish trend; conversely, when the 10 EMA is above the price, it indicates a bearish trend. Let's illustrate with an example:
Imagine a bullish trend with four consecutive green candles followed by a red candle. Our entry point occurs when this red candle, the trigger candle, fails to touch the 10 EMA. Subsequently, when a green candle crosses above the high of the trigger candle, we enter the trade. Setting our stop loss (SL) just below the EMA line beneath the trigger candle, we establish our take profit (TP) based on a risk/reward ratio, starting at 1:2 and potentially reaching an impressive 1:10.
Trailing the 10 EMA line allows us to stay in the trade longer, albeit experiencing initial stop-loss hits. However, perseverance reveals the strategy's efficacy over time.
Now, for short positions, such as during a downtrend characterized by three red candles followed by a green candle, our entry occurs when the low of the green candle is breached by the subsequent red candle. Setting the SL just above the EMA line above the trigger candle and TP based on the risk/reward ratio, we execute the trade.
For those interested in trailing stops, there are two options: firstly, trailing along the 10 EMA line; secondly, utilizing the Average True Range (ATR) for algorithmic trading enthusiasts.
With this strategy's flexibility and potential for significant returns, it offers traders a robust approach to navigating diverse market conditions.
***Here are 2 examples of Long & Short: Long position in BINANCE:SOLUSDT
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Short in FOREXCOM:EURCAD
It's crucial not only to grasp the concept of this strategy but also to put it into practice. 💼 Start by implementing it with small capital or utilize paper trading, which platforms like TradingView offer. 📝 Additionally, don't hesitate to experiment. For instance, try using an 11-period EMA and assess its effectiveness. You might find that it better suits your trading style and objectives. 🧪💡 Remember, trading is a journey of discovery! 🚀 Don't be afraid to explore new strategies and techniques along the way.
🌟 Like (boost), follow, comment, and share this strategy to spread the knowledge and empower fellow traders! 📈🚀👍
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Here are 12 crucial insights every trader should keep in mindIn the fast-paced world of trading, where every tick of the clock can mean profit or loss, mastering the art requires more than just luck or intuition. Whether you're a seasoned veteran or just dipping your toes into the market waters, understanding some fundamental principles can make all the difference.
Adaptability is Paramount: In the ever-evolving landscape of financial markets, rigidity can be a trader's worst enemy. Markets are influenced by a myriad of factors, from economic indicators to geopolitical events, and they can shift direction swiftly. Successful traders understand the importance of remaining agile, ready to adjust their strategies in response to changing market conditions. This might involve switching trading styles, altering risk management techniques, or even completely reversing positions based on new information. The ability to adapt is not just a skill but a necessity for thriving in the unpredictable world of trading.
Quality Over Quantity: In the pursuit of profitability, it's easy to fall into the trap of chasing every potential trade opportunity. However, experienced traders recognize that success is not measured by the sheer number of trades executed but by the quality of those trades. Rather than spreading themselves thin across multiple positions, they focus their efforts on identifying high-probability setups with favorable risk-reward ratios. This disciplined approach allows them to maintain consistency and avoid unnecessary losses associated with impulsive trading decisions.
Stick to Your Strengths: The trading arena is vast and diverse, offering countless strategies and approaches. While it may be tempting to experiment with new techniques, seasoned traders understand the importance of sticking to what they know best. By honing their skills in a particular trading style or asset class, they can develop a deeper understanding of market dynamics and recognize opportunities that align with their expertise. This doesn't mean being stagnant or closed-minded but rather embracing a strategy that plays to their strengths and maximizes their chances of success.
Learn from Mistakes: Mistakes are an inevitable part of the trading journey, but they can also serve as valuable learning opportunities. Rather than dwelling on losses or repeating the same errors, successful traders approach each setback as a chance to grow and improve. They meticulously analyze their trades, identifying patterns of behavior or market conditions that led to unfavorable outcomes. By keeping detailed records and maintaining a journal of trades, they can track their progress over time and make adjustments to their strategy accordingly.
Patience Pays Off: In a world where information moves at the speed of light and markets can react in an instant, patience is a virtue that can't be overstated. Successful traders understand that waiting for the right opportunity is often more profitable than chasing every price fluctuation. They exercise patience and discipline, refusing to enter trades until all criteria of their trading plan are met. This approach not only reduces the likelihood of impulsive decisions but also increases the probability of success by focusing on high-quality setups with optimal risk-reward ratios.
Trade Wisely, Not Desperately: Desperation is the enemy of rational decision-making in trading. Whether driven by fear of missing out or a desire to recoup losses, impulsive trading can lead to disastrous consequences. Seasoned traders maintain a cool head and adhere to their trading plan, even in the face of adversity. They understand that forcing trades out of desperation is akin to gambling and prioritize long-term success over short-term gains. By staying disciplined and trading only when conditions are favorable, they avoid the pitfalls of emotional trading and preserve capital for future opportunities.
Stay Grounded: Market euphoria can be a dangerous sentiment, clouding judgment and fueling irrational exuberance. Successful traders remain grounded in reality, avoiding the temptation to get swept up in hype or hysteria. They approach each trade with a clear mind and objective analysis, unaffected by the emotions of the crowd. By maintaining a healthy skepticism and focusing on empirical evidence rather than speculative fervor, they can navigate volatile markets with confidence and composure.
Read the Market, Not Just the News: While staying informed about market news and economic developments is essential, successful traders understand that price action is the ultimate arbiter of market sentiment. They pay close attention to how prices react to news events, recognizing that market sentiment can often diverge from fundamental analysis. By reading the market's response in real-time, they can identify potential opportunities or threats that may not be immediately apparent from headlines alone. This nuanced understanding allows them to make informed trading decisions based on price action rather than speculation.
Look Beyond the Headlines: Major news events and economic indicators can often trigger significant market movements, but their impact may be short-lived or already priced into the market. Successful traders look beyond the headlines, focusing on the broader context and underlying trends that drive price action over the long term. They understand that market sentiment is influenced by a complex interplay of factors, including investor psychology, market structure, and macroeconomic trends. By considering the deeper implications of news events and anticipating market reactions, they can position themselves to capitalize on emerging opportunities and mitigate risks.
Know Your Comfort Zone: Emotional stability is essential for maintaining consistency and avoiding costly mistakes in trading. Successful traders know their emotional and financial limits, trading within their comfort zone to prevent fear or greed from dictating their decisions. They size their positions accordingly, ensuring that potential losses are manageable and won't disrupt their overall trading plan. By staying within their comfort zone, they can approach each trade with confidence and objectivity, regardless of market conditions or external pressures.
Embrace Your Unique Style: While there's no shortage of trading strategies and methodologies, successful traders understand that there's no one-size-fits-all approach to trading. Instead of blindly following the crowd or adopting the latest fad, they embrace their unique style and tailor their approach to suit their personality, risk tolerance, and market outlook. Whether it's day trading, swing trading, or long-term investing, they focus on strategies that play to their strengths and align with their objectives. By embracing their individuality and staying true to their convictions, they can navigate the markets with confidence and consistency.
Trade with Conviction: Confidence is a cornerstone of successful trading. Whether entering a new position or managing an existing trade, successful traders approach each decision with unwavering conviction, based on thorough analysis and a clear understanding of their strategy. They trust their instincts and remain steadfast in their convictions, even in the face of uncertainty or adversity. By trading with conviction, they project confidence to the market and instill trust in their own abilities, fostering a positive feedback loop of success and self-assurance.
In conclusion, trading is both an art and a science. While there's no guaranteed formula for success , mastering these fundamental insights can significantly improve your odds in the dynamic world of trading. Stay adaptable, stay informed, and above all, stay true to your strategy.
Happy trading!
WHAT PIVOT POINTS ARE IN SIMPLE TERMSLet's start with the fact that Pivot points are quite an old tool and have been used for a long time. The difference is that in the early days traders had to build Pivot points themselves, but today there are indicators that build these points.
✴️ BASIC CONCEPTS
Pivot points are key points of price chart reversal, i.e. the place from which the price chart is most likely to reverse. Different pivot points have different calculation formulas. This is very similar to Fibonacci, as there are no clear criteria and several possible courses of action.
The following is a list of the most popular calculation of data:
1. Traditional is the very first method of calculation, still popular in the stock exchange;
2. Classic derived from traditional, slight differences in calculations;
3. DeMark is the formula developed by the SAC Capital Advisors fund;
4. Woody the formula heavily references the previous day's closing price;
5. Camarilla derived from the classic one, slight differences in calculations;
6. Fibonacci is based on the Fibonacci formula.
Of course, the points don't always work and they have false signals, but how to filter let's figure it out. There are also Pivot points like this, these are just the ones built using the traditional formula:
✴️ TRADING STRATEGIES
We intentionally did not write each formula, as this information is fully available on the Internet and not everyone is interested in it. The most interesting thing is to learn how to use these indicators in practice, which we will do now.
If we think logically, there can be only two strategies:
Strategy for level breakout;
Strategy for the level rebound.
That's all, there is nothing else to think of.
✴️ LEVEL BREAKOUT STRATEGY
For the breakout of any level, you need to take into account several details:
1. The quality of the breakout, i.e. the presence of an impulsive movement;
2. The trend moves in the direction in which the breakout occurred, i.e. the exclusion of a false breakout;
If these factors are met, then we can say that the breakout is real and it is worth looking for an entry point. Ideally, it should be like this:
Obvious consolidation above the control resistance by pivot points. Stop in this case is placed slightly below the breakout candle, take profits can be stretched by a grid between the Pivot points above. That is, if there was a trade, it would look like this:
✴️ LEVEL BREAKOUT STRATEGY
The strategy for level breakout should also be accompanied by some additional model. For example, it can be a pinbar, RSI divergence and so on. That is, you can choose many variants, the main thing is the presence of a reversal level nearby. In the simplest form, it should look like this:
As you might expect, there are 3 factors to enter the trade and not to buy here would be a much bigger risk than to stay on the sidelines. There is RSI divergence, there is double bottom by candlestick analysis, there is Pivot level, risk/profit ratio is very good. It looks like this:
✴️ CONCLUSION
The pivot point indicator is a great way to find trend reversal points and corrections, for example, you can combine it with Fibonacci levels and find out the end of a correction more precisely. Try it, trade, the indicator is very easy to use and understand. Successful trading and good luck in the markets!
What is Confluence❓✅ Confluence refers to any circumstance where you see multiple trade signals lining up on your charts and telling you to take a trade. Usually these are technical indicators, though sometimes they may be price patterns. It all depends on what you use to plan your trades. A lot of traders fill their charts with dozens of indicators for this reason. They want to find confluence — but oftentimes the result is conflicting signals. This can cause a lapse of confidence and a great deal of confusion. Some traders add more and more signals the less confident they get, and continue to make the problem worse for themselves.
✅ Confluence is very important to increase the chances of winning trades, a trader needs to have at least two factors of confluence to open a trade. When the confluence exists, the trader becomes more confident on his negotiations.
✅ The Factors Of Confluence Are:
Higher Time Frame Analysis;
Trade during London Open;
Trade during New York Open;
Refine Higher Time Frame key levels in Lower
Time Frame entries;
Combine setups;
Trade during High Impact News Events.
✅ Refine HTF key levels in LTF entries or setups for confirmation that the HTF analysis will hold the price.
HTF Key Levels Are:
HTF Order Blocks;
HTF Liquidity Pools;
HTF Market Structure.
Stock Market Logic Series #9Two Daggers Buy Pattern EXPLAINED
This is a super powerful pattern for a buy. Especially if you are a value investor.
What do you want to look for?
1. You must see TWO daggers to the downside.
A dagger is an extremely abnormal drop in price with a HUGE volume.
You want to see the first dagger, and then pray for the price to continue falling at a normal rate.
Normal rate = people are trying to pick the bottom (without success).
Then you want to look for (wait = put alerts) for the SECOND DAGGER.
Then after the second dagger arrives and you get a second sharp drop in price, then you want to expect a rejection up and a new strong trend up should emerge.
2. Exterme volume on the daggers!
Ideally, you want the volume of the second dagger to be bigger than the first one.
This means that someone is loading all he can get since he KNOWS KNOWS KNOWS that the price is going to get higher for sure.
I bet you would have done the same... if you KNOW KNOW KNOW its going UP!
This pattern does not happen all the time, and it is more likely to happen near the end of a bear market. But prices get so unreasonably cheap, that its obviously for fundamental reasons that they are wrong! so someone who KNOWS will take all the money he can get to load into this stock at this price.
Negative Correlation Between Gold & USDJPYThere is a -94% correlation on the weekly timeframe (also known as negative correlation) between Gold & the Japanese Yen.
GOLD📉
=
USDJPY📈
When one market moves up, there is a high probability the other market will move down. Knowing this allows you to mitigate your risks, by not opening similar positions in both markets.
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I have prepared it for you here, just click on the link and save it as a watchlist. I wish you the best.
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6 More Trading Time WastersWith trading, time is money.
And every wasted moment is a missed opportunity.
Every day you skip. Every high probability trade you miss on whatever market you’re trading.
Even every loss you take according to your strategy, is one step closer you’re missing to success.
I wrote about time wasting in the previous article.
And I can’t stress enough how important it is to get yourself into gear.
It’s time to take control of your time and trading actions.
Here are 6 more trading time wasters.
#1. Chasing the News
Turn on Bloomberg, CNN or BBC.
Flicking lights.
Loud sounds.
Entertaining drama, drama, drama.
It’s like watching Netflix.
And if you become obsessed, it’s easy to fall into the trap of chasing the latest news headlines.
Breaking news is inevitable. And staying informed is great.
But it’s NOT necessary to adapt the news into your trading strategy.
In fact, the hyped up news will lead to impulsive and emotional decisions.
Don’t fall for the news mania. Save that for AFTER your trading. And watch it for entertainment and education.
Nothing else.
#2. Checking the Portfolio Often
Ahhh! The Perils of perpetual monitoring.
Listen… Your portfolio is not a ticking time bomb that requires constant supervision.
As a young trader I get that it’s tempting to check your gains and losses every few minutes.
But this is a long term game.
So if you adopt this checking bad habit, you’ll see it can breed anxiety and cloud your judgment.
Maybe check your portfolios once a day.
Or even every few days.
But lose the obsession please. You’re wasting precious time and energy on unnecessary stuff.
#3. Analysis Paralysis
Another mistake is drowning yourself in data.
Too much analysis can lead to paralysis.
Endless charts, intricate patterns, and an abundance of indicators might make you feel like a trading virtuoso.
But you’ll quickly learn that, it won’t necessarily translate to profits.
Rather stick to the K.I.S.S – Keep It Simple Stupid.
Simplify your approach, focus on key factors.
And please make decisions based on a clear understanding rather than drowning in a sea of data.
#4. Procrastination
Procrastination is the silent killer of trading success.
To leave it to tomorrow.
As they say. Tomorrow never comes.
All you have is NOW.
So, if you want to trade – Get a coffee and sit down and take action.
Delaying decisions can mean missing out on lucrative opportunities.
Set clear goals, establish a solid plan, and execute it without succumbing to the siren call of procrastination.
Time wasted is money lost in the dynamic world of trading.
#5. Overcomplicating – Don’t be a trading jack of all trades!
Trading doesn’t need to be a convoluted puzzle.
It doesn’t take a rocket scientist to trade well.
You don’t need a degree or even a complicated strategy.
In fact, if you overcomplicate your trading, it will lead to more confusion and poor decision-making.
Be a master of a few effective markets, time frames, strategies, money management and techniques.
#6. Fear of Taking Action
This my friend is the stagnation trap.
Inaction out of fear is a formidable enemy for traders.
You need to remember that fortune favors the bold in the world of trading.
Those who:
Deposit money.
Learn all about trading well.
Practice with a demo account.
Adapt a winning trading strategy.
Keep persistent with their trading.
Are the ones that will win…’
FINAL WORDS:
So stop wasting time and start doing more to achieve your trading dreams.
Let’s sum up the 6 trading time wasters.
#1. Chasing the News
#2. Checking the Portfolio Often
#3. Analysis Paralysis
#4. Procrastination
#5. Overcomplicating – Don’t be a trading jack of all trades!
#6. Fear of Taking Action
FAKE BREAKOUTS IN CRYPTO MARKETSHello traders! 👋
How often has it happened to you that you watch a certain level and wait for its breakout, and when the price breaks this significant level, the price does not tend in the direction of the breakout? After a while, it goes back down, putting your balance at risk of heavy losses. Now let's talk about what a fake breakout is in the crypto market in particular..
Definition And Types 📝
A fake breakout is a breakout of some horizontal or sloping level, after which the price immediately or gradually moves away in the opposite direction of the breakout. The candlestick that broke the level is called a breakout candlestick.
The most common fake breakouts in trading:
A fake breakout of a trendline.
A fake breakout of support or resistance.
A fake breakout of the borders of a technical pattern.
Now that we have a complete layout of possible breakouts, let's take a closer look at them. In the description of the breakout, I will immediately describe the trading principle of this pattern.
Fake Trend Breakout 📊
On the chart of BINANCE:ETHUSD I managed to find a great fake trend breakout during a bull run. The point was that the price started a great growth, then a trend line was formed, from which most traders bought the asset until all the buyers were dropped off the train. But for the others, who understood the principle of fake breakouts, it was, on the contrary, a great opportunity to enter the market.
We see an excellent trend breakout, a well-defined breakout candle. Here any trader has two options:
1. Enter in the direction of the trend. And since we have broken the trend line, the trend has changed to a downtrend.
2. Wait for a possible rebound and return above the trend line.
Let's start with the fact that it is not profitable to enter trades immediately after the trend breakout, as there is a high chance of such confusing cases. Therefore, it is advised to wait for a strong rebound and the continuation of the movement in the direction of the breakout. And what to do if the market has a situation as shown in the picture, i.e., the price breaks through and returns back above the trend line? Everything is even simpler here:
You wait for the return above the trend line.
As soon as it happens, you place a limit order on the upper or lower boundary (depends on the trend direction) of the breakout candle.
You wait for the market to fill up your order.
You place a stop-loss under or over the trend line (depending on the trend direction).
A Fake Breakout of Support or Resistance 📈📉
This type of breakout is the most popular, but it has its own interesting trick. As a rule, in such situations, the price chart hints that it wants to break some significant level and all traders freeze waiting for the breakout. The breakout happens, but there is no profit. This is a classic in the current realities, at least in the cryptocurrency markets.
The principle of trade entry is exactly the same. Only the nature of the breakout differs. By the way, as you can see from the post, and if you look at the charts of coins, the largest and strongest movements are usually accompanied by fake breakouts before them. This is due to the fact that thanks to a fake breakout, most panic traders or those who have extremely short stop loses are dropped off.
Fake Breakout of A Pattern 🔎
This fake breakout is the most rare, but it still occurs. Its essence is that when you see one of the technical analysis figures and, according to its own rules, understand in which direction this figure is most likely to break, it breaks in the opposite direction.
On the BINANCE:SOLUSDT chart, I managed to find a good example of this algorithm. A descending triangle with a flat bottom was clearly drawn on the chart, which, according to the classic technical analysis, should break towards the flat side, but they decided to give us a "haircut".
The algorithm of entering the trade is exactly the same as in the other two cases. But here you can resort to one more variant of entry, in addition to overcoming the top or bottom of the breakout candle. Also, if it is pattern from the classic technical analysis, you can simply enter the trade on the crossing of the pattern.
In cryptocurrency markets, the following picture often occurs:
• An important level is formed.
• The price breaks it and fixes itself above or below it.
• There is a pullback to the previous zone with a small continuation of the reverse movement (fake breakout).
• The price returns to this zone again and starts to consolidate.
• A true breakout occurs.
As a result, the stops of both those who did not earn on shorting and those who did not earn on the long position were accumulated. There is only one recommendation to avoid this case, just tighten the stops and do not be greedy. Remember the main rule, the more tests of the level, the more likely it is to break through. And here is another simple truth: levels are created in order to break them.
In conclusion , fake breakouts are a common phenomenon in trading, particularly in the cryptocurrency markets. They can occur in various forms, such as fake trend breakouts, fake breakouts of support or resistance, and fake breakouts of technical patterns. Understanding these scenarios and adapting appropriate trading strategies can help potentially capitalize on market opportunities. Recognizing and managing fake breakouts can contribute to more successful trading experiences.
Traders, If you liked this educational post🎓, give it a boost 🚀 and drop a comment
WHAT IS SMART MONEY TECHNIQUE DIVERGENCE?✴️ WHAT DOES SMART MONEY DOING: ACCUMULATING OR DISTRIBUTING?
SMT (Smart Money Technique) Divergence is the divergence of prices of correlated assets or the relationship to inversely correlated assets.
Analyzing the SMT Divergence allows you to determine the institutional structure of the market to determine what the smart money is doing accumulating or distributing.
Currency pairs are easy to analyze using the DXY US Dollar Index. Every price fluctuation must be confirmed by market symmetry. The occurrence of price asymmetry signals the formation of an SMT Divergence and a likely trend reversal.
SMT DIVERGENCE IN ACCUMULATION
SMT DIVERGENCE IN DISTRIBUTION
✴️ WHICH PAIR TO CHOOSE FOR TRADING?
As traders, we need activity in the markets, volatility is what makes trading easier.
The news background is the driver that drives this, which is why the trading day starts with a look at the economic calendar.
If GBP news is scheduled to be released, it does not mean that, for example, GBPUSD will be preferred over EURUSD.
The logic is that closely correlated pairs are likely to move symmetrically. But when SMT divergences are formed, one of the pairs will show strength or weakness, which signals the approaching high volatility on such a pair. GBPUSD updated the high, while EURUSD failed (showed weakness) which results in opening short positions on EURUSD.
As a result, despite the important news on the GBP, EURUSD showed a higher amplitude of movement (volatility).
In the following example, EURUSD updated the high, while GBPUSD failed (showed weakness) that as a result we open short positions on GBPUSD.
How does inflation affect the stock market?The world’s financial environment has become incredibly tangled and multifaceted. The global availability of information to investors, particularly in rural areas, thanks to the internet, has caused investor sentiment to shift from an emotional response to an analysis and data-driven one.
Inflation serves as a prime example of this. In the past, most individuals viewed inflation as an indication of an unhealthy economy.
However, in the present day, investors have become more knowledgeable about economic cycles and are capable of making sound investment decisions at each stage of a country’s economy.
Therefore, today, we will discuss inflation in general and evaluate its influence on the stock markets in India. Let’s start with a topic on How does inflation affect the stock market.
What is Inflation?
In simple words, inflation refers to the gradual increase in the prices of goods and services. As the inflation rate rises, so does the cost of living, resulting in a decrease in purchasing power.
As an example, suppose bananas were priced at Rs.100 per kilo in 2010. In an inflationary economy, the cost of bananas would have increased by 2020.
Let’s assume that the price of a Banana is now Rs.200 per kilo in 2020. Thus, in 2010, with Rs.1000, you could buy 10kg of Banana.
However, in 2020, due to the decrease in purchasing power caused by inflation, you would only be able to buy 5kg of Bananas for the same amount.
To understand inflation in detail, let’s have a look at what is the reason behind inflation. So, there are two major factors behind an increase in the rate of inflation in the economy.
1) Demand > Supply
One reason for an increase in the inflation rate is when the average income of individuals in an economy rises, and they want to purchase more goods and services.
During such times, the demand for these products and services can exceed their supply, resulting in a scarcity of these goods and services. Consequently, buyers are willing to pay more for them, which leads to a general increase in prices.
2) Increase in the cost of production
Another reason for an increase in the inflation rate is when the cost of production of goods and services increases due to an increase in the costs of raw materials, labour, taxes, etc.
While this leads to an increase in the cost of production, it also causes a decrease in the supply of these goods and services. With the demand remaining constant, the prices tend to increase.
Inflation and the Indian Stock Markets:
The price of a share in the stock markets is determined by the interplay of demand and supply, which is influenced by a variety of factors, including social, political, economic, cultural, and so on.
Anything that affects investors can have an impact on the demand and supply of stocks, and inflation is no exception. Here is a brief overview of the impact of inflation on stock markets:
1. The Purchasing Power of Investors
Inflation, by definition, is a rise in the prices of goods and services, and it is also an indicator of the diminishing value of money.
Therefore, if the inflation rate is 5%, then Rs.10, 000 today will be worth Rs.9, 500 after one year. If the inflation rate increases to 10%, then the same amount will be worth even less in the future.
So, as the inflation rate increases, the purchasing power of investors decreases. This decrease in purchasing power can directly impact the stock market since investors would be able to purchase fewer stocks for the same amount.
2. Interest Rates
When the inflation rate rises, the Reserve Bank of India ( RBI ) often increases interest rates for deposits and loans. This move is intended to encourage people to save money and limit excess liquidity, thereby reducing the inflation rate.
However, as loans become more expensive, the cost of capital for companies also increases. Consequently, the projected cash flows of companies are valued lower, which can lead to lower equity valuations.
3. Impact on Stocks
As the increase in the inflation rate, speculation about the future prices of goods and services can create a highly volatile market environment. Since prices are rising, many investors may speculate that companies will experience a drop in profitability. As a result, some investors might decide to sell their shares, leading to a drop in their market price.
However, other investors who remain optimistic about the company’s future profitability may continue to buy these stocks, which can create a volatile environment in the stock market.
Value stocks tend to perform well during times of inflation because they are often more established companies with stable earnings and a history of paying dividends, making them more attractive to investors seeking steady returns. In contrast, growth stocks are often newer companies with higher potential for future earnings, but they may not have established cash flows to support their valuations.
When inflation rises, investors may become more risk-averse and prioritize stable, predictable returns over potential growth, leading to a decline in demand for growth stocks and a corresponding drop in their market prices.
4. Long-term benefits of increasing inflation rates on stock markets
A certain level of inflation is required for an economy to grow, as it encourages spending and investment. A moderate and controlled rise in inflation rates can lead to an increase in the income of the people and help in boosting the economy.
However, if the inflation rate goes beyond a certain limit, it can have a negative impact on the economy. Therefore, it is crucial to maintain a balance between inflation and economic growth.
Conclusion:
Investors should analyse the trend of inflation rates in recent years before making any investment decisions. Sudden spikes in inflation rates may cause uncertainty and volatility in the stock markets, while a gradual and steady rise in inflation rates can provide a conducive environment for businesses to grow and expand, leading to higher stock valuations. Additionally, investors should consider investing in sectors that perform well in an inflationary environment, such as energy, commodities, and real estate.
___________________________
💻📞☎️ always do your research.
💌📫📃 If you have any questions, you can write me in the comments below, and I will answer them.
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How to Start Future and Options Trading?Future and option trading are popular investment strategies in the world of finance. Both involve making investments in financial instruments with the expectation of making a profit. While the two types of trading have their similarities, they are also quite different in terms of their structure and the risks involved.
Before you start trading in the Future and Options segment, you need to understand the basics of F&O first.
So, let’s understand its basics first.
What are futures?
Futures are financial contracts that allow traders to buy or sell an asset at a predetermined price and date in the future.
The price of the asset in the future is agreed upon at the time the contract is made. Futures trading can involve a wide range of assets, such as stocks, commodities, currencies, and bonds.
The main advantage of futures trading is that it allows traders to make investments in assets that they may not otherwise have access to.
It also provides a way for traders to hedge their existing investments. For example , if a trader owns a stock that they expect to decrease in value, they can sell a futures contract for that stock and lock in the current market price.
If the stock does decrease in value, the trader can buy back the futures contract at a lower price and make a profit.
What are the options?
Options are contracts that give traders the right, but not the obligation, to buy or sell an asset at a predetermined price and date in the future.
The price of the asset in the future is agreed upon at the time the contract is made, but the trader is not obligated to follow through with the trade. Options trading can also involve a wide range of assets.
The main advantage of options trading is that it provides traders with flexibility.
They can choose to buy or sell an option, depending on their investment goals. Options also provide traders with a way to limit their losses.
For example , if a trader owns a stock that they expect to decrease in value, they can buy a put option for that stock. If the stock does decrease in value, the trader can exercise the option and sell the stock at the predetermined price, limiting their losses.
Lot Size:
In the context of Futures and Options (F&O) trading, lot size refers to the standardized quantity of the underlying asset specified in the contract.
It represents the minimum number of units of the underlying asset that can be bought or sold in a single F&O transaction.
For example , if the lot size of a stock in the F&O market is 500, then a trader has to buy or sell a minimum of 500 units of that stock in a single transaction. The lot size is determined by the stock exchange and is specified in the contract specifications for each F&O instrument.
The lot size is an important factor in F&O trading as it determines the margin required for trading, the minimum quantity that can be traded, and the maximum loss that can be incurred in a single transaction.
Traders need to be aware of the lot size of the F&O contract they wish to trade to ensure they have sufficient capital to cover the margin requirements and to avoid inadvertently taking a larger position than intended.
It is also worth noting that the lot size of F&O contracts can change over time. Stock exchanges may adjust the lot size based on factors such as the liquidity of the underlying asset, market conditions, and regulatory requirements.
Traders should regularly check the contract specifications of the F&O instruments they are interested in trading to ensure they have the most up-to-date information on lot sizes.
Differences between futures and options:
While futures and options have some similarities, they also have some key differences. One of the main differences is that futures contracts are binding, while options contracts are not.
This means that traders who buy futures contracts are obligated to follow through with the trade, while traders who buy options contracts have the flexibility to choose whether or not to follow through with the trade.
Another difference is the level of risk involved. Futures trading is generally considered to be riskier than options trading because traders are obligated to follow through with the trade, even if the market conditions are not favourable.
Options trading, on the other hand, provides traders with more flexibility to limit their losses.
Future and option trading can be complex, and it is important for traders to understand the risks involved before making any investments.
It is also important for traders to have a clear understanding of their investment goals and to choose the trading strategy that best aligns with those goals.
Steps to start future and option trading:
Here are some steps to help you get started with F&O trading:
Learn the basics of F&O trading: F&O trading involves complex financial instruments and can be risky if you do not understand how it works.
You should educate yourself about the basics of F&O trading, including concepts such as lot size, margin, expiry, and strike price.
Develop a Trading Plan: Before you start trading, it is important to have a well-defined trading plan that includes your investment goals, risk tolerance, trading strategy, and money management rules.
You should also decide on the F&O instruments you want to trade, based on factors such as liquidity, volatility, and your level of expertise.
Start with a small investment: F&O trading involves high leverage and can result in significant profits or losses.
It is advisable to start with a small investment and gradually increase your exposure as you gain experience and confidence.
Monitor your positions: F&O trading requires active monitoring of your positions as the market can move quickly and your profit or loss can change rapidly.
You must use tools such as stop-loss orders and trailing stop-loss orders to manage your risk.
In conclusion:
F&O trading can be a profitable investment opportunity for traders who are willing to put in the time and effort to learn and develop a trading plan. However, it is important to understand the risks involved and to trade with caution.
___________________________
💻📞☎️ always do your research.
💌📫📃 If you have any questions, you can write me in the comments below, and I will answer them.
📊📌❤️And please don't forget to support this idea with your likes and comment
Do you have what it takes?Hey everyone, here are the lists that helps me separate between "go getters vs average joes"
It is really important to find potential candidates/one candidate to help you in this rough journey of living the life to either make it as a full time hustle or side hustle.
On my next posts, I will explain why each of these variables are important to have as day trader/investor
Like and leave a comment!!
What is Dow Theory?The Dow Theory is a financial concept based on a set of ideas from Charles H. Dow‘s writings. Fundamentally, it states that a notable change between bull and bear trend in a stock market will occur when index confirm it.
The trend that is recognized is considered valid when there is strong evidence supporting it. The theory states that if two indicators move in the same way, the primary trend that is identified is genuine.
However, if the two indicators don’t align, then there is no clear trend. This approach mainly focuses on changes in prices and trading volumes. It uses visual representations and compares different indicators to identify and understand trends.
Dow Theory:
The Dow Theory originated from the analysis of market price movements and speculative viewpoints proposed by Charles H. Dow. It served as a fundamental building block for technical analysis, especially in a time when modern software-based technical analysis tools did not exist.
Robert Rhea’s book “The Dow Theory” thoroughly explores the evolution and significance of the theory in speculative endeavours, closely examining the Wall Street Journal editorials written by Charles H. Dow and William Peter Hamilton in the 19th century.
This theory represents one of the earliest efforts to comprehend the market by considering fundamental factors that provide insights into future trends.
The main version of the theory primarily focuses on comparing the closing prices of two averages: the Dow Jones Rail (or Transportation) (DJT) and the Dow Jones Industrial (DJI). The premise was that if one average surpassed a specific level, the other average would eventually follow suit. Dow used an analogy to illustrate this concept, likening the market to the ocean.
He explained that just as waves rise to a certain point on one side of the beach, waves on another part of the beach will eventually reach that same point. Similarly, in the market, different sectors are interconnected, and when one sector shows a particular trend, others tend to follow suit as they are part of a larger whole.
The Paradigms of Dow Theory:
To comprehend the theory, it is essential to grasp the various rules formulated by Dow. These principles, often referred to as the tenets of Dow theory, serve as guiding paradigms
Three major market trends:
The tenets of Dow Theory classify trends based on their duration into primary, secondary, and minor trends. Primary trends can be either upward (uptrend) or downward (downtrend) and can last for months to years.
Secondary trends move in the opposite direction to the primary trend and typically last for weeks or a few months. Minor trends, on the other hand, are considered insignificant variations that occur over a shorter time span, ranging from a few hours to weeks, and are considered less significant than the primary and secondary trends.
Primary trends have three distinct phases:
Bear markets can be divided into three distinct phases: distribution, public participation, and panic.
In the distribution phase, there is a gradual selling off of assets by investors.
The public participation phase occurs when more individual investors start selling their holdings, leading to a broader decline in the market.
The panic phase is characterized by widespread fear and selling pressure, often resulting in a sharp and rapid decline in prices.
On the other hand, bull markets experience three phases: accumulation, public participation, and excess.
During the accumulation phase, astute investors start buying assets at lower prices, anticipating an upward trend.
The public participation phase occurs as more investors join the market and buy assets, contributing to the market’s upward momentum.
The excess phase represents a period of exuberance and speculative buying, often marked by overvaluation and unsustainable price increases.
Stock market discount everything:
Market indexes are highly responsive to various types of information. They can reflect the overall condition of an entity or the economy as a whole.
For example, any significant economic events or problems in company management can impact stock prices and cause movements in the indexes, either upward or downward.
Trend confirms with volume:
When there is an uptrend, trading volume rises and decreases while a downtrend starts
Index confirm each other:
When multiple indices move in a consistent manner, following the same pattern, it indicates the presence of a trend.
This alignment among indices provides a strong signal of market direction. However, when two indices move in opposite directions, it becomes challenging to determine a clear trend. In such cases, conflicting signals make it difficult to deduce a definitive market trend.
Trends continue until solid factors imply the reversal:
Traders should be careful of trend reversals, as they can often be mistaken for secondary trends. To avoid this confusion, Dow advises investors to exercise caution and verify trends with multiple sources before considering it a genuine reversal.
How Does Dow Theory Work in Technical Analysis?
The Dow Theory played a crucial role in the development of technical analysis in the stock market and served as its foundational principle. Which, approach to analysis highlights the importance of closely observing market data to identify trends, reversals, and optimal entry and exit points for maximizing profits.
As the market is considered an indicator of future performance, the application of technical analysis based on the Dow Theory helps investors make profitable trading decisions by identifying established long-term, mid-term, or short-term trends. By using this approach, investors can gain insights into market dynamics and make informed decisions to enhance their trading outcomes.
In conclusion:
The Dow Theory has significantly influenced technical analysis in the stock market, serving as a cornerstone for its development and advancement. By analysing the careful examination of market data, this theory helps traders to identify trends, spot reversals, and determine optimal buy and sell points for maximizing profits.
The market itself is considered a reliable indicator of future performance, and technical analysis aligned with the Dow Theory assists investors in making profitable trading decisions by detecting established long-term, mid-term, or short-term trends. By using this analytical framework, investors can gain valuable insights into market behaviour and make well-informed choices to improve their trading outcomes. The Dow Theory’s enduring impact continues to guide traders in their pursuit of success in the dynamic world of stock market investing.
___________________________
💻📞☎️ always do your research.
💌📫📃 If you have any questions, you can write me in the comments below, and I will answer them.
📊📌❤️And please don't forget to support this idea with your likes and comment
Let's Talk Liquidity! ⚒️At first, Liquidity may seem like an abstract and confusing concept reserved for only those Finance nerds and geeks to tackle. Turns out it's really not too sophisticated after all and can be though of in terms of Fomo. Fomo if you are not aware already is simply a concept related to chasing the market because of a Fear of missing out. Any action out of fear is typically not the best choice. In trading, this is especially true.
Liquidity is what the market needs prior to a big move. Liquidity doesn't necessarily mean that the market needs to pin an extreme low or high from the previous session. Liquidity is also gathered when the market ranges/consolidates for awhile. If you go back and backtest, you will observe that preceding a large move, the market usually consolidates first. Liquidity also dries up during Asian session. You can observe that the volatility is much smaller than London/Ny session as the market moves alot less # of pips. Liquidity dries up prior to news annoucnemnts becuase of uncertainty obviously. This is the very reason why the market moves so much during news is because of lower participation from larger market participants, therefore an increased chance of wild and random price movements.
This is explained more in depth in this concept video, Let's talk Liquidity.
6 Top Trading Time WastersYou need to stop wasting precious time.
I have had members who’ve been with me for 15 years and haven’t even taken a trade.
I have written this article in a way that you can relate to the problems with traders wasting time.
Ready?
#1. Wait for Inspiration
Trader A: “I just can’t trade today. I’m waiting for that magical moment when inspiration strikes!”
SOLUTION:
Waiting for inspiration in trading is like waiting for money to rock up at your doorstop.
It doesn’t happen!
Successful traders create their own inspiration, discipline and integration by TAKING ACTION.
You want a sign.
Here’s a sign.
Start today, do not delay and don’t wait for another sign.
#2. Complaining
Trader A: “The market is so unpredictable and complicated! I can’t catch a break.”
SOLUTION: Stop complaining and start acting, adapting, growing and evolving.
Markets change, that’s the only constant about it.
And they move up, down and sideways.
So, instead of moaning about it, embrace the volatility.
Complaining won’t make you a better trader, but adapting to change will.
#3. Doubting
Trader A: “I’m not sure if I can make this trade. It’s going to be a loser.”
SOLUTION: Doubt is the enemy of success.
Trust your analysis, track record and your stats.
Stick to your strategy just keep at it.
This is a long term game to success.
When you doubt yourself, you manifest a deeper element of self-failure.
You need to stop wasting precious time and opportunities.
Confidence, certainty and trust is key!
#4. Comparing
Trader A: “Look at their profits! I wish I could trade like them.”
SOLUTION: Comparison is the thief of joy and the delayer of self success.
You should only focus on your own journey.
You are running your own marathon.
It doesn’t matter how much money you have.
It doesn’t matter how long you’ve been trading.,
It doesn’t matter if others are doing better.
You need to focus on your trading time line.
#5. Excuse Giving
Trader A: “I didn’t trade well because the market was too volatile.”
SOLUTION: Excuses won’t make you a better trader.
I don’t have enough time.
I don’t have enough money.
I don’t have enough experience
I don’t have enough patience.
I don’t have enough anything.
I repeat – Excuses won’t make you a better trader.
Take responsibility and take accountability for your decisions, good or bad.
Learn from your mistakes and use them to refine your trading strategy, stats and track record.
Excuses only waste time; accountability fuels improvement.
#6. Fear of Failure
Trader A: “What if I lose all my money? I can’t handle the risk.”
SOLUTION: As I always like to say.
You ONLY fail when you quit.
Fear is natural, but letting it control your actions is a mistake.
You need to manage your trading and risks better.
You need stay laser focused with tunnel vision.
With trading you should not AVOID losses – as they are inevitable.
You should embrace both winners and losses to come with the trading venture.
You can’t win them all. But you also can’t lose them all.
Keep that in mind when you trade.
FINAL WORDS
So, by now you should have one thing in your mind.
Stop wasting time with your trading.
Every day you delay is another profit opportunity you’re letting go of.
Let’s sum up the 6 Time Wasters with trading.
#1. Wait for Inspiration
#2. Complaining
#3. Doubting
#4. Comparing
#5. Excuse Giving
#6. Fear of Failure
THE PSYCHOLOGY OF CHART ANALYSIS:THE ILLUSION OF CONTROLThe psychology of chart analysis is the ability to quickly find patterns and key levels on a chart. It is the ability to quickly switch timeframes and see the main trend. But traders often fall into the other side of the equation. They turn into hypnotized people who do not take their eyes off the magic of charts. The trader hypnotizes the chart and the chart hypnotizes the trader. And it is difficult to break this vicious circle, but it is necessary.
Psychological Dependence On The Price Chart 📉🧠
Chart hypnosis has a major problem when it comes to graphical hypnosis constant monitoring of charts takes away time that could be used more productively. It drains the trader's energy: eyes get tired, attention gets tired. The trader takes wishful thinking for reality and makes mistakes.
PSYCHOLOGICAL PITFALLS OF GRAPHICAL ANALYSIS: 📊
Constant Monitoring 👀
The chart is captivating, especially when a trade is open. You can follow the price movement for hours, enjoying inwardly when it goes in the right direction and worrying when it reverses. The brain is switched off. A person does not think, does not even analyze the meaning of the changing pictures. This is the most real hypnosis.
You can watch water flow forever, fire burn forever. And you can watch price charts forever. Remember how much time you spend watching essentially useless shorts on YouTube? And how much time uselessly watching charts? The only difference is that video relaxes you, while constant price monitoring leads to stress, because your money is at stake.
The Nervous Chef Phenomenon 😓
Another psychological trap of chart analysis is constant checking of price changes. It would seem that a trade has been opened within the framework of risk management, stops have been set, take profit has been set. Why do you need to look at the chart every five minutes? But a trader persistently checks every 5 minutes "is the water boiling?" or "are the potatoes boiled?". Such dependence is not only in trading. Similarly, every 5 minutes we check social networks and phone: "What if someone wrote a comment under my photo?", "What if someone sent me a new message?".
It is logical that after checking the chart every minute extra money will not appear on the account. But there will be a false sense of control, not counting the loss of time. The more often you open the lid of the pot, checking the boiling of water, the longer the water takes to boil.
Emotional Mistakes 📌
Statistics show that 70% of the time the price moves chaotically. Trying to constantly look for a trend or pattern on the chart, you fall into the trap of emotions. Under the emotional influence you open a trade in a bad time zone or close it prematurely, although initially there was a clear direction; to strictly follow the risk management, the established rules of the trading system.
Illusion Of Control 💡
According to statistics, a person has a much higher chance of losing their life in a traffic accident than flying in an airplane. But people continue to fear airplanes more than cars. To the person behind the steering wheel, it's like: "I'm buckled up, I know the traffic regulations, I'm in control." This is called the illusion of control.
There is a classic experiment in psychology. One group of participants is asked to choose a lottery ticket, the second group is given one. Then they are offered to exchange tickets. The second group goes to the exchange without questions, while the first group is less willing to exchange. The experiment shows that people who made an independent decision feel responsible for it and therefore are more confident in winning.
There is a similar trap in trading. The trader thinks that she/he has mastered technical analysis, has considered all the risks, and therefore opened the trade correctly. And now she/he watches the chart every 5 minutes to make sure that she/he is right. In psychology, this is called "thirst for control".
How to Overcome It? ✅
Catch yourself thinking that you've already fallen into one of these traps. And if so, force yourself to simply turn off the screen. Convince yourself that all the rules of risk management have been followed, which means you don't need to spend time on constant monitoring. Force yourself away from the monitor. Watch TV, take care of the garden, do some repairs, go for a bike ride. In other words, there is a temptation to constantly sit at the monitor - try to be as far away from it as possible.
In summary, the psychology of chart analysis in trading is crucial for identifying patterns and key levels and understanding the overall trend. However, overdependence on charts can lead to psychological pitfalls like constant monitoring, causing mental fatigue and mistakes. To overcome these challenges, we should recognize when we fall into these traps, trust our risk management strategies, and engage in other activities to maintain a balanced life.
Traders, If you liked this educational post🎓, give it a boost 🚀 and drop a comment
Bubble theory 🫧 BTC minersThere are two type of bubbles and they burst for different reasons? A bubble is when too many people hold something and what has driven prices up, now as a force works against them.
There's a saying. Buy things when everyone is a skeptic. Sell when a taxi driver starts talking about investing. There are no more buyers left on top.
First bubble is when volume dries up as the price hits extremes.
Second is when peoples attitudes or sentiment, or opinions change to bearish. And that can happen over night, like a switch. It's interesting and finance is a social science.
Some bubbles can burst due to external events, like start of wars or some financial crisis.
There can be strong bull markets and most of times, these external events would just be noise?
> Was btc miners in bubble? And what type of bubble?
I think Yes and No? Whenever there's a risk free trade, supported by factors a bubble emerges? The price of Mara was rallying hard, trend was strong. You could argue people got over optimistic, knowing the ETF decision was a risk event. -> therefor (the burst) was sentiment driven. But also predictable?
Bubble is when too many people hold asset and there re no buyers left. Similar how a taxi driver is hype about investing.
Technical analysis gives you perspective and context. In 1st instance, impulse was too high and volume indicates crowding? It's tricky because it looks so bullish.
In 2nd instance, impulse was too low. Price action looked bullish? bubbles happen when too many people hold the shares and expect them to rise.
If 1st instance was sentiment switch driven, then 2nd time, the bubble must burst due to exhaustion (or no people left to buy... at these prices.. similar how taxi driver hops in the trade at the wrong time).
Factors and thesis can be bullish - and bubble still bursts.
Is NVDA and SMCI a bubble?
I think there is difference between NVDA, SMCI investors and their time horizon? It could be. I think people believe their investment is supported by the tech drivers. Every dip should be bought out by smart investors and these are the best assets to own in next 5-10 years.
It doesnt mean there cant be external events and risks.
again- bubble is when too many people are in investment. So bubble can burst either by them changing their sentiment or beliefs (maybe fundamentals must change?). Or if price is just so ridiculously high or there is no money left at sidelines, that trend can't be sustainable.
When markets rally - everyone only reads good news and ignores bad news. And vice versa. #HowardMarks #MarketCycle
---> The Risk-Reward buying at these tops just isn't great. That's why they burst. Accompanied by sentiment risks, that hide behind the hood.
The top Forex Market correlations1-Gold (XAU/USD) and AUD/USD: Gold prices often exhibit a positive correlation with the Australian dollar (AUD/USD). Australia is a major producer of gold, and the Australian dollar is sensitive to changes in gold prices. When gold prices rise, AUD/USD tends to appreciate, and when gold prices fall, AUD/USD tends to weaken.
2-Gold (XAU/USD) and USD Index (DXY): Gold prices tend to have a negative correlation with the US Dollar Index (DXY). When the DXY strengthens, gold prices often weaken, and when the DXY weakens, gold prices tend to strengthen. This inverse relationship is because gold is priced in US dollars, and a stronger dollar makes gold more expensive for holders of other currencies.
3-S&P 500 Index and USD/JPY: The USD/JPY currency pair often exhibits a positive correlation with the S&P 500 Index. When the S&P 500 Index rises, USD/JPY tends to appreciate, and when the index falls, USD/JPY tends to weaken. This correlation is because both assets are seen as risk-on indicators, meaning they tend to move in the same direction in response to changes in market sentiment.
4-Crude Oil (WTI) and CAD/JPY: Crude oil prices, particularly West Texas Intermediate (WTI) crude, often have a positive correlation with the Canadian dollar/Japanese yen (CAD/JPY) currency pair. Canada is a major exporter of oil, and the Canadian dollar is sensitive to changes in oil prices. When oil prices rise, CAD/JPY tends to appreciate, and when oil prices fall, CAD/JPY tends to weaken.
WHAT IS THE POWER OF THREE (PO3)?Lets look at the basic model of manipulation for the purpose of accumulation and distribution within separately taken time periods the power of three. Understanding this model is a fundamental skill for working through the methodology of trading disciplines such as swing, short-term and intraday trading.
✴️ WHAT IS THE POWER OF 3?
The power of three is a candlestick/bar formation stages relevant for all timeframes, especially applied within daily and weekly trading ranges, where the opening price is considered to be the beginning of the period. For intraday trading, we only need to apply the weekly and daily powers of three, but we should also pay attention to the monthly candle, as the zones of interest on the higher timeframes increase the chances of success.
✴️ WEEKLY POWER OF 3
The logic of the weekly PO3 is useful for constructing a trading bias.
Bullish Bias. Expect a move below the opening price early in the week, which would be a weekly manipulation (Judos Swing). The low of the week is usually formed between Monday and Wednesday, most often on Tuesday or Wednesday. If the price moves back above the opening level after leaving it, a reversal scenario is possible.
Bearish Bias. We expect a move above the opening price at the beginning of the week, which will be a weekly manipulation (Judos Swing). The high of the week is usually formed in the interval between Monday and Wednesday, most often on Tuesday or Wednesday. If the price moves back above the opening level after leaving it, a reversal scenario is possible.
✴️ DAILY POWER OF 3
The opening price level is used to determine a favorable opening zone to take a trade.
Manipulation (Judas Swing). We wait for the completion of the liquidity grab before making a decision.
Expansion is a price action that traders capitalize on.
Distribution is an area in which we take profits.
How to Use Price Action in Stock Sector RotationsIn the intricate world of technical analysis (TA), Price Action Correlation Models stand out as a sophisticated strategy that leverages the interconnected movements of stocks within the same industry. This approach is underpinned by the premise that stocks in the same sector often move in tandem due to shared economic, market, and sector-specific factors. By analyzing these correlations, traders can anticipate market movements and make informed decisions. This article delves into the definition of Price Action Correlation Models, explores their strengths, and provides examples of their successful application.
Price Action Correlations in Sector Models
At its core, a Price Action Correlation Model is an algorithmic framework that examines the price movements and relationships among stocks within a particular industry. These models focus on index stocks, which are the most highly capitalized companies in an industry, as benchmarks for the sector. By monitoring how other stocks correlate with these benchmarks, the algorithms can identify potential trading opportunities when trends align. The strategy is predicated on the assumption that stocks within the same sector are likely to exhibit similar price movements over time, influenced by overarching industry trends, economic factors, and market sentiment.
The Strengths of Correlation Models
Sector Focus: One of the key advantages of Price Action Correlation Models is their ability to capitalize on sectoral correlations. This focus allows traders to benefit from the diversification within a specific industry, reducing the risk associated with single-stock investments.
Simple Implementation: Compared to more complex quantitative models, Price Action Correlation Models are relatively straightforward to implement. This simplicity makes them accessible to a wider range of investors, including those with limited technical expertise.
Diversified Exposure: By spreading investments across multiple correlated stocks within the same sector, these models offer a layer of risk management. This diversification can mitigate the impact of adverse movements in any single stock.
Swing Trading in Sector Rotation Strategy
An exemplary case of Price Action Correlation Models in action is the Swing Trader Sector Rotation Strategy. This algorithmic approach capitalizes on the rotational movement of sectors within the market. By identifying sectors poised for growth and analyzing the correlations among leading stocks within those sectors, the strategy aims to enter trades aligned with sectoral trends. The use of fixed stop-loss and take-profit levels provides a disciplined exit strategy, mitigating potential losses and locking in gains.
This strategy exemplifies the practical application of Price Action Correlation Models, demonstrating their potential to yield positive returns through a focused, sector-based approach. However, as with any investment strategy, success is contingent on a range of factors, including market conditions, investor discipline, and the ability to adapt to changing dynamics.
The algorithm of the robot consists of two parts:
Analysis of the price action correlation between the movement direction of main stocks and other stocks included in the same sector. This analysis of correlated stocks is a popular method used by hedge funds to create trading strategies. Our team of quants conducted multi-level backtests on a large amount of historical data to identify correlation relationships between the sector leaders and other stocks included in it.
Creation of an optimal diversification model based on a quantitative analysis of the efficiency of various combinations of industries. The robot uses 22 sub-industries from different sectors such as Industrials, Energy, Consumer Services, Real Estate, and Finance. This approach ensures that our users are not overly dependent on market cycles or external events that could negatively affect the dynamics in a particular industry.
The average duration of a trade is only 2 days, allowing our users to effectively use capital and avoid getting stuck in a single position for an extended period. The maximum number of open trades is 86, which ensures good diversification to reduce the impact of a single trade on overall profitability.
After entering the trade, the AI Robot places a fixed order "Take profit" at the level of 4% of the position opening price. To exit the trade, the robot uses a fixed stop loss of 4% of the position opening price, which helps our users avoid large drawdowns.
The robot's trading results are shown without using margin. For complete trading statistics and equity charts, users can click on the "show more" button on the robot page. In the "Open Trades" tab, users can see live how the AI Robot selects equities, enters, and exits in paper trades. In the "Closed Trades" tab, users can review all previous trades made by the AI Robot.
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