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Fundamental Analysis

Behind the Curtain The Economic Pulse Behind Euro FX 1. Introduction Euro FX Futures (6E), traded on the CME, offer traders exposure to the euro-dollar exchange rate with precision, liquidity, and leverage. Whether hedging European currency risk or speculating on macro shifts, Euro FX contracts remain a vital component of global currency markets. But what truly moves the euro? Beyond central bank meetings and headlines, the euro reacts sharply to macroeconomic data that signals growth, inflation, or risk appetite. Using a Random Forest Regressor, we explored how economic indicators correlate with Euro FX Futures returns across different timeframes. In this article, we uncover which metrics drive the euro daily, weekly, and monthly, offering traders a structured, data-backed approach to navigating the Euro FX landscape. 2. Understanding Euro FX Futures Contracts The CME offers two primary Euro FX Futures products: o Standard Euro FX Futures (6E): Contract Size: 125,000 € Tick Size: 0.000050 per euro = $6.25 per tick per contract Trading Hours: Nearly 24 hours, Sunday to Friday (US) o Micro Euro FX Futures (M6E): Contract Size: 12,500 € (1/10th the size of 6E) Tick Size: 0.0001 per euro = $1.25 per tick per contract Accessible to: Smaller accounts, strategy testers, and traders managing precise exposure o Margins: 6E Initial Margin: ≈ $2,600 per contract (subject to volatility) M6E Initial Margin: ≈ $260 per contract Whether trading full-size or micro contracts, Euro FX Futures offer capital-efficient access to one of the most liquid currency pairs globally. Traders benefit from leverage, scalability, and transparent pricing, with the ability to hedge or speculate on Euro FX trends across timeframes. 3. Daily Timeframe: Key Economic Indicators For day traders, short-term price action in the euro often hinges on rapidly released data that affects market sentiment and intraday flow. According to machine learning results, the top 3 daily drivers are: Housing Starts: Surging housing starts in the U.S. can signal economic strength and pressure the euro via stronger USD flows. Conversely, weaker construction activity may weaken the dollar and support the euro. Consumer Sentiment Index: A sentiment-driven metric that reflects household confidence. Optimistic consumers suggest robust consumption and a firm dollar, while pessimism may favor EUR strength on defensive rotation. Housing Price Index (HPI): Rising home prices can stoke inflation fears and central bank hawkishness, affecting yield differentials between the euro and the dollar. HPI moves often spark short-term FX volatility. 4. Weekly Timeframe: Key Economic Indicators Swing traders looking for trends spanning several sessions often lean on energy prices and labor data. Weekly insights from our Random Forest model show these three indicators as top drivers: WTI Crude Oil Prices: Oil prices affect global inflation and trade dynamics. Rising WTI can fuel EUR strength if it leads to USD weakness via inflation concerns or reduced real yields. Continuing Jobless Claims: An uptick in claims may suggest softening labor conditions in the U.S., potentially bullish for EUR as it implies slower Fed tightening or economic strain. Brent Crude Oil Prices: As the global benchmark, Brent’s influence on inflation and trade flows is significant. Sustained Brent rallies could create euro tailwinds through weakening dollar momentum. 5. Monthly Timeframe: Key Economic Indicators Position traders and institutional participants often focus on macroeconomic indicators with structural weight—those that influence monetary policy direction, capital flow, and long-term sentiment. The following three monthly indicators emerged as dominant forces shaping Euro FX Futures: Industrial Production: A cornerstone of economic output, rising industrial production reflects strong manufacturing activity. Strong U.S. numbers can support the dollar, while a slowdown may benefit the euro. Likewise, weaker European output could undermine EUR demand. Velocity of Money (M2): This metric reveals how quickly money is circulating in the economy. A rising M2 velocity suggests increased spending and inflationary pressures—potentially positive for the dollar and negative for the euro. Falling velocity signals stagnation and may shift flows into the euro as a lower-yield alternative. Initial Jobless Claims: While often viewed weekly, the monthly average could reveal structural labor market resilience. A rising trend may weaken the dollar, reinforcing EUR gains as expectations for interest rate cuts grow. 6. Strategy Alignment by Trading Style Each indicator offers unique insights depending on your approach to market participation: Day Traders: Focus on the immediacy of daily indicators like Housing Starts, Consumer Sentiment, and Housing Price Index. Swing Traders: Leverage weekly indicators like Crude Oil Prices and Continuing Claims to ride mid-term moves. Position Traders: Watch longer-term data such as Industrial Production and M2 Velocity. 7. Risk Management Currency futures provide access to high leverage and broad macro exposure. With that comes responsibility. Traders must actively manage position sizing, volatility exposure, and stop placement. Economic indicators inform price movement probabilities—not certainties—making risk protocols just as essential as trade entries. 8. Conclusion Euro FX Futures are shaped by a deep web of macroeconomic forces. From Consumer Sentiment and Oil Prices to Industrial Production and Money Velocity, each indicator tells part of the story behind Euro FX movement. Thanks to machine learning, we’ve spotlighted the most impactful data across timeframes, offering traders a framework to align their approach with the heartbeat of the market. As we continue the "Behind the Curtain" series, stay tuned for future editions uncovering the hidden economic forces behind other major futures markets. When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com - This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies. General Disclaimer: The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.

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Revenge Trading vs. Roaring Comeback: How to Tell the Difference “I’m going to get even with the market and I’m going to get even today!” We’ve all been there. You take a loss—maybe a small one, maybe an account-crushing one—and something inside you snaps. Logic leaves the chat, and a new trader takes over: the vengeful, angry version of you who’s out to "get back" at the market. Welcome to the world of revenge trading, where decisions are fueled by frustration, and the market does what it always does: punishes impatient and emotional traders. But what if there’s a better way? What if instead of spiraling into self-destruction, you could channel that energy into a thoughtful and strategic comeback? That’s the difference between revenge trading and a true trader’s rebound. Grab your hot coffee and let’s talk about it. 💥 Revenge Trading: The Fastest Way to Financial Self-Sabotage Revenge trading isn’t a trading strategy—it’s an emotional response masquerading as a quick-witted reaction. The thought process goes like this: "I just lost money. I need to make it back—fast." So you double down, size up, stretch out the leverage ratio and ignore your usual risk management rules. Maybe you trade assets you don’t even understand because the price looks juicy. Maybe you jump into a leveraged position without a stop loss because, hey, you’re in it to win it. What could go wrong? Everything. Everything can go wrong. Revenge trading is the financial equivalent of trying to punch the ocean. The market doesn’t care that you’re mad. It doesn’t owe you a winning trade. And when you start making impulsive decisions, the only thing that may get hurt is your trading mindset. 📢 Signs You’re Revenge Trading You’re taking trades you wouldn’t normally take. You’re increasing position sizes irrationally. You’re ditching risk management (stop losses, position sizing, logic, etc.). You feel desperate to "make it back"—right now. You’re ignoring your trading plan, assuming you had one to begin with. Recognizing these signs is the first step to stopping the cycle. But avoiding revenge trading is only half of the battle—you need to know how to stage a real comeback. 🦁 Staging the Roaring Comeback A roaring comeback isn’t about making back your losses in one dramatic trade. It’s about recalibrating, reassessing, and regaining control. Here’s how traders who actually recover from losses do it: 📌 Recognize the Signs Early If your heart rate spikes and your fingers are itching to “fix” a bad trade immediately, stop. That’s not a setup. That’s an emotional reaction. 📌 Set Daily Loss Limits If you hit your max loss for the day, you’re done. No exceptions. Your best decision at that point is to fight another day with a clear head. 📌 Step Away from the Screens Revenge trading thrives on impulsivity, and the best way to kill that impulse is to take a break. Go outside. Breathe. The market isn’t going anywhere. Now touch that grass. 📌 Post-Loss Review: What Actually Happened? Was the loss due to a bad strategy, poor execution, or just market randomness? Pull up your trading journal ( you do keep one, right ?) and break it down. 📌 Reaffirm Your Strategy (Tweak if Necessary) If your loss came from a solid trade setup that just didn’t work, then there’s nothing to change. If it came from a mistake, figure out how to prevent that mistake from repeating. 📌 Reduce Risk for the Next Trades After a loss, the worst thing you can do is over-leverage. Instead, cut your position size and take smaller, high-probability trades to rebuild confidence. Howard Marks, a firm believer in market psychology, always reminds investors that the biggest risk is emotional overreaction. Stay disciplined. 📌 Trust the Process The best traders understand that one trade does not define them. They trust their system, stick to their edge, and take losses as part of the game. Trading is a long-term play, not a single battle to be won or lost. 💚 Turning Losses into Lessons Losses are tuition fees for the market’s greatest lessons. Every great trader has taken hits—what separates them from the rest is how they respond. The thing is this can happen anywhere—from an ill-fated trade in the crypto market (it’s wild out there) to an account-battering reaction to anything that pops out of the earnings calendar . How do you deal with a trading loss? And when’s the last time you had to stiffen that upper lip and make your comeback? Share your experience in the comments!

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Crypto: From "HODL Paradise" to a Speculator’s Playground During past bull markets, a simple HODL strategy worked wonders. Bitcoin and Ethereum set the market trend, and altcoins followed with explosive gains. If you bought the right project before the hype wave, the profits were massive. However, today’s market is vastly different: ✅ Liquidity is unevenly distributed – Only a handful of major projects attract serious capital, while many altcoins stagnate. ✅ Investors are more sophisticated – Institutional players and smart money dominate, making retail-driven pumps less frequent. ✅ Not all coins pump together – Only projects with real utility and solid tokenomics see sustainable growth. ________________________________________ 2. What Matters Now? Strategies for the New Crypto Era To succeed in the current market, you need a more calculated approach. Here’s what you should focus on: 🔹 Technical Analysis You can’t just buy blindly and hope for a moonshot. Understanding support and resistance levels, price patterns, trading volumes, etc. is crucial. Example: If an altcoin has surged 50% in a few days and reaches a strong resistance level, it’s not a buying opportunity—it’s a sell signal for short-term traders. 🔹 Tokenomics and Supply Mechanics In 2017 and 2021, as long as a project had a compelling whitepaper, it could attract investors. Now, you need to analyze total token supply, distribution models, utility, and vesting schedules. Example: If a project has an aggressive vesting schedule where early investors and the team receive new tokens monthly, there will be constant selling pressure. No matter how good the technology is, you don’t want to be caught in a dumping cycle. 🔹 Market Psychology and Speculative Cycles Crypto is driven by emotions. You need to recognize when the crowd is euphoric (time to sell) and when fear dominates (time to buy). Example: If a project is all over Twitter, Telegram, and TikTok, it might already be near the top. On the other hand, when a solid project is ignored and trading volume is low, it could be a prime accumulation opportunity. ________________________________________ 3. Realistic Expectations: 30-50-100% Are the New "100x" If catching a 10x or 100x was common in the past, those days are largely over. Instead, 30-50-100% gains are far more realistic and sustainable. Why? • The market is more mature, and liquidity doesn’t flood into random projects. • Most "100x" gains were pump & dump schemes, which are now avoided by smart investors. • Experienced traders take profits earlier, limiting parabolic price action. Recommended strategy: 1. Enter early in a solid project with clear utility and strong tokenomics. 2. Set realistic profit targets (e.g., take 30% profit at +50%, another 30% at +100%, and hold the rest long-term). 3. Don’t wait for a “super cycle” to make money—take profits consistently. ________________________________________ 4. Conclusion: Adapt or Get Left Behind The crypto market has evolved from a “HODL Paradise” where almost any coin could 10-100x into a speculator’s playground, favoring skilled traders and informed investors. To stay profitable, you must: ✅ Master technical analysis and identify accumulation vs. distribution zones. ✅ Pick projects with solid tokenomics and avoid those with aggressive unlock schedules. ✅ Set realistic expectations—forget about 100x and aim for sustainable 30-100% gains. ✅ Stay flexible and adapt to market psychology and emerging trends. Crypto is no longer a game of luck. It’s a game of knowledge and strategy. If you don’t adapt, you’ll be stuck waiting for a 100x that may never come. So, at least this is my opinion. But what about you? Do you think crypto is still a "HODL paradise," or are we fully in the era of skilled traders and speculators? Will we ever see another cycle where almost everything pumps together, or is selective investing the new reality? I’d love to hear your thoughts—drop a comment below and let’s discuss

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Institute of Intermediation and 24 Coffee Lovers When the market is efficient, the most efficient strategy will yield zero financial return for the investor. Therefore, firstly, it is necessary to strive to find inefficiencies in the market itself to apply a strategy that will be effective for it. What creates market inefficiency? First, there are delays in disseminating important information about the company, such as the approval of a contract with a major customer or an accident at a plant. If current and potential investors do not receive this information immediately, the market becomes inefficient at the time such an event occurs. In other words, objective reality is not considered by market participants. This makes the stock price obsolete. Secondly, the market becomes inefficient during periods of high volatility. I would describe it this way: when uncertainty hits everyone, emotions become the main force influencing prices. At such times, the market value of a company can change significantly within a single day. Investors have too many different assessments of what is happening to find the necessary balance. Volatility can be triggered by the bankruptcy of a systemically important company (for example, as happened with Lehman Brothers), the outbreak of military action, or a natural disaster. Third, there is the massive action of large players in a limited market - a "bull in a china shop" situation. A great example is the story of 2021, when the Reddit community drove up the price of GameStop shares, forcing hedge funds to cover their short positions at sky-high prices. Fourthly, these are ineffective strategies of the market participants themselves. On August 1, 2012, American stock market trading company Knight Capital caused abnormal volatility in more than 100 stocks by sending millions of orders to the exchange over a 45-minute period. For example, Wizzard Software Corporation shares rose from $3.50 to $14.76. This behavior was caused by a bug in the code that Knight Capital used for algorithmic trading. The combination of these and other factors creates inefficiencies that are exploited by trained traders or investors to make a profit. However, there are market participants who receive their income in any market. They are above the fray and are engaged in supporting and developing the infrastructure itself. In mathematics, there is a concept called a “zero-sum game”. This is any game where the sum of the possible gains is equal to the sum of the losses. For example, the derivatives market is a perfect embodiment of a zero-sum game. If someone makes a profit on a futures contract, he always has a partner with a similar loss. However, if you dive deeper, you will realize that this is a negative-sum game, since in addition to profit and loss, there are commissions that you pay to the infrastructure: brokers, exchanges, regulators, etc. To understand the value of these market participants and that you are paying them well, imagine a modern world without them. There is only a company issuing shares and investors in them. Such a company has its own software, and you connect to it via the Internet to buy or sell shares. The company offers you a quote for buying and selling shares ( bid-ask spread ). The asking price ( ask ) will be influenced by the company's desire to offer a price that will help it not lose control over the company, consider all expected income, dividends, etc. The purchase price ( bid ) will be influenced by the company's desire to preserve the cash received in the capital market, as well as to earn money on its own shares by offering a lower price. In general, in such a situation, you will most likely get a huge difference between the purchase and sale prices - a wide bid-ask spread . Of course, the company understands that the wider the bid-ask spread , the less interest investors have in participating in such trading. Therefore, it would be advisable to allow investors to participate in the formation of quotes. In other words, a company can open its order book to anyone who wants to participate. Under such conditions, the bid-ask spread will be narrowed by bids from a wide range of investors. As a result, we will get a situation where each company will have its own order book and its own software to connect to it. From a portfolio investor's perspective, this would be a real nightmare. In such a world, investing in not one, but several companies would require managing multiple applications and accounts for each company at the same time. This will create a demand from investors for one app and one account to manage investments in multiple companies. Such a request will also be supported by the company issuing the shares, as it will allow it to attract investors from other companies. This is where the broker comes in. Now everything is much better and more convenient. Investors get the opportunity to invest in multiple companies through one account and one application, and companies get investors from each other. However, the stock market will still be segmented, as not all brokers will support cooperation with individual companies, for technical or other reasons. The market will be fragmented among many brokerage companies. The logical solution would be to create another market participant that would have contracts with each of the companies and universal software for trading their shares. The only thing is that it will be brokers, not investors, who will connect to such a system. You may have already guessed that this is an exchange. On the one hand, the exchange registers shares of companies, on the other hand, it provides access to trading them through brokers who are its members. Of course, the modern structure of the stock market is more complex: it involves clearing, depository companies, registrars of rights to shares, etc.* The formation of such institutions and their licensing is handled by a regulator, for example, the Securities and Exchange Commission in the United States ( SEC ). As a rule, the regulator is responsible for legislative initiatives in the field of the securities market, licensing of market participants, monitoring violations in the market and supporting its efficiency, protecting investors from unfair manipulation. *Clearing services are activities to determine, control and fulfill obligations under transactions of financial market participants. Depository services - services for the storage of securities and the recording of rights to them. Thus, by making a transaction on the exchange, we contribute to the maintenance of this necessary infrastructure. Despite the fashion for decentralization, it is still difficult to imagine how one can ensure speed, convenience and access to a wide range of assets due to the absence of an intermediary institution. The other side of the coin of this institution is infrastructure risk. You can show phenomenal results in the market, but if your broker goes bankrupt, all your efforts will be nullified. Therefore, before choosing an intermediary, it is useful to conduct a mental survey of the person you will be dealing with. Below you will find different types of intermediaries, which I have arranged according to their distance from the central elements of the infrastructure (exchanges, clearing houses, depositories). Prime broker Exchange Membership: mandatory License: mandatory Acceptance and accounting of your funds/shares: mandatory Order execution: mandatory Clearing and depository services: mandatory Marginal services: mandatory Remuneration: commission income from trades, clearing, depository and margin services This category includes well-known financial houses with history and high capitalization. They are easily verified through lists of exchange members, clearing and depository companies. They provide services not only to individuals, but also to banks, funds and next-level brokers. Broker Exchange membership: mandatory License: mandatory Acceptance and accounting of your funds/shares: mandatory Order execution: mandatory Clearing and depository services: on the prime broker side Margin services: on the prime broker side or own Remuneration: commission income from trades and margin services This category includes intermediaries with a focus on order routing. They delegate participation in depository and clearing services to a prime broker. However, such brokers can also be easily verified in the lists of exchange members. Sub-broker Exchange Membership: no License: mandatory Acceptance and accounting of your funds/shares: mandatory Order execution: on the broker or prime broker side Clearing and depository services: on the prime broker side Margin services: on the broker or prime broker side Remuneration: commission income from trades This category includes brokers who have a brokerage license in their country, but do not have membership in foreign exchanges. To provide trading services on these exchanges, they enter into agreements with brokers or prime brokers from another country. They can be easily verified by license on the website of the regulator of the country of registration. Introducing Broker Exchange Membership: no License: optional, depending on the country of regulation Acceptance and accounting of your funds / shares: no Order execution: on the side of the sub-broker, broker or prime broker Clearing and depository services: on the prime broker side Margin services: on the broker or prime broker side Remuneration: commission income for the attracted client and/or a share of the commissions paid by them This category includes companies that are not members of the exchange. Their activities may not require a license, since they do not accept funds from clients, but only assist in opening an account with one of the top-tier brokers. This is a less transparent level, since such an intermediary cannot be verified through the exchange and regulator’s website (unless licensing is required). Therefore, if an intermediary of this level asks you to transfer some money to his account, most likely you are dealing with a fraudster. All four categories of participants are typical for the stock market. Its advantage over the over-the-counter market is that you can always check the financial instrument on the exchange website, as well as those who provide services for its trading (membership - on the exchange website, license - on the regulator's website). Pay attention to the country of origin of the broker's license. You will receive maximum protection in the country where you have citizenship. In case of any claims against the broker, communication with the regulator of another country may be difficult. As for the over-the-counter market, this segment typically trades shares of small-cap companies (not listed on the exchange), complex derivatives and contracts for difference ( CFD ). This is a market where dealers rule, not brokers and exchanges. Unlike a broker, they sell you their open position, often with a lot of leverage. Therefore, trading with a dealer is a priori a more significant risk. In conclusion, it should be noted that the institution of intermediation plays a key role in the development of the stock market. It arose as a natural need of its participants for concentration of supply and demand, greater speed and security of financial transactions. To get a feel for this, let me tell you a story. New Amsterdam, 1640s A warm wind from the Hudson brought the smell of salt and freshly cut wood. The damp logs of the palisade, dug into the ground along the northern boundary of the settlement, smelled of resin and new hopes. Here, on the edge of civilization, where Dutch colonists were reclaiming their homes and future fortunes from the wild forest, everything was built quickly, but with a view to lasting for centuries. The wooden wall built around the northern border of the town was not only a defense against raids, but also a symbol. A symbol of the border between order and chaos, between the ambitions of European settlers and the freedom of these lands. Over the years, the fortification evolved into a real fortification: by 1653, Peter Stuyvesant, appointed governor of New Netherland by the West India Company, ordered the wall to be reinforced with a palisade. It was now twelve feet high, and armed sentries stood on guard towers. But even the strongest walls do not last forever. Half a century after their construction, in 1685, a road was built along the powerful palisade. The street received a simple and logical name - Wall Street. It soon became a bustling commercial artery for the growing city. In 1699, when the English authorities had already established themselves here finally, the wall was dismantled. She disappeared, but Wall Street remained. A century has passed Now, at the end of the 18th century, there were no walls or guard towers on this street. Instead, a plane tree grew here - a large, spreading one, the only witness to the times when the Dutch still owned this city. Traders, dealers, and sea captains met under its shadow. Opposite the buttonwood tree stood the Tontine Coffee House, a place where not just respectable people gathered, but those who understood that money makes this world go round. They exchanged securities right on the pavement, negotiated over a cup of steaming coffee, and discussed deals that could change someone's fate. Decisions were made quickly - a word, backed up by a handshake, was enough. It was a time when honor was worth more than gold. But the world was changing. The volume of trades grew, and chaos demanded rules. May 17, 1792 That spring day turned out to be decisive. Under the branches of an old buttonwood tree, 24 New York brokers gathered to start a new order. The paper they signed contained only two points: trades are made only between their own, without auctioneers, and the commission is fixed at 0.25%. The document was short but historic. It was called the Buttonwood Agreement, after the tree under which it was signed. Here, amid the smell of fresh coffee and ink, the New York Stock Exchange was born. Soon, deals were being concluded under the new rules. The first papers to be traded were those of The Bank of New York , whose headquarters were just a few steps away at 1 Wall Street. Thus, under the shade of an old tree, the history of Wall Street began. A story that will one day change the whole world. Buttonwood Agreement. A fresco by an unknown artist who adorns the walls of the New York Stock Exchange.

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Behind the Curtain: Unveiling Gold’s Economic Catalysts 1. Introduction Gold Futures (GC, MGC and 1OZ), traded on the CME market, are one of the most widely used financial instruments for hedging against inflation, currency fluctuations, and macroeconomic uncertainty. As a safe-haven asset, gold reacts to a wide range of economic indicators, making it crucial for traders to understand the underlying forces driving price movements. By leveraging machine learning, specifically a Random Forest Regressor, we analyze the top economic indicators influencing Gold Futures on daily, weekly, and monthly timeframes. This data-driven approach reveals the key catalysts shaping GC Futures and provides traders with actionable insights to refine their strategies. 2. Understanding Gold Futures Contracts Gold Futures (GC) are among the most actively traded futures contracts, offering traders and investors exposure to gold price movements with a range of contract sizes to suit different trading strategies. CME Group provides three types of Gold Futures contracts to accommodate traders of all levels: o Standard Gold Futures (GC): Contract Size: Represents 100 troy ounces of gold. Tick Size: Each tick is 0.10 per ounce, equating to $10 per tick per contract. Purpose: Ideal for institutional traders and large-scale hedgers. Margin: Approximately $12,500 per contract. o Micro Gold Futures (MGC): Contract Size: Represents 10 troy ounces of gold, 1/10th the size of the standard GC contract. Tick Size: Each tick is $1 per contract. Purpose: Allows smaller-scale traders to participate in gold markets with lower capital requirements. Margin: Approximately $1,250 per contract. o 1-Ounce Gold Futures (1OZ): Contract Size: Represents 1 troy ounce of gold. Tick Size: Each tick is 0.25 per ounce, equating to $0.25 per tick per contract. Purpose: Provides precision trading for retail participants who want exposure to gold at a smaller contract size. Margin: Approximately $125 per contract. Keep in mind that margin requirements vary through time as market volatility changes. 3. Daily Timeframe: Key Economic Indicators Gold Futures respond quickly to short-term economic fluctuations, and three key indicators play a crucial role in daily price movements: o Velocity of Money (M2): Measures how quickly money circulates within the economy. A higher velocity suggests increased spending and inflationary pressure, often boosting gold prices. A lower velocity indicates stagnation, which may reduce inflation concerns and weigh on gold. o Unemployment Rate: Reflects the strength of the labor market. Rising unemployment increases economic uncertainty, often driving demand for gold as a safe-haven asset. Declining unemployment can strengthen risk assets, potentially reducing gold’s appeal. o Oil Import Price Index: Represents the cost of imported crude oil, influencing inflation trends. Higher oil prices contribute to inflationary pressures, supporting gold as a hedge. Lower oil prices may ease inflation concerns, weakening gold demand. 4. Weekly Timeframe: Key Economic Indicators While daily fluctuations impact short-term traders, weekly economic data provides a broader perspective on gold price movements. The top weekly indicators include: o Nonfarm Payrolls (NFP): Measures the number of new jobs added in the U.S. economy each month. Strong NFP numbers typically strengthen the U.S. dollar and increase interest rate hike expectations, pressuring gold prices. Weak NFP figures can drive economic uncertainty, increasing gold’s safe-haven appeal. o Nonfarm Productivity: Represents labor efficiency and economic output per hour worked. Rising productivity suggests economic growth, potentially reducing demand for gold. Falling productivity can signal economic weakness, increasing gold’s appeal. o Personal Spending: Tracks consumer spending habits, influencing economic activity and inflation expectations. Higher spending can lead to inflation, often pushing gold prices higher. Lower spending suggests economic slowing, which may either weaken or support gold depending on inflationary outlooks. 5. Monthly Timeframe: Key Economic Indicators Long-term trends in Gold Futures are shaped by macroeconomic forces that impact investor sentiment, inflation expectations, and interest rates. The most influential monthly indicators include: o China GDP Growth Rate: China is one of the largest consumers of gold, both for investment and jewelry. Strong GDP growth signals robust demand for gold, pushing prices higher. Slower growth may weaken gold demand, applying downward pressure on prices. o Corporate Bond Spread (BAA - 10Y): Measures the risk premium between corporate bonds and U.S. Treasury bonds. A widening spread signals economic uncertainty, increasing demand for gold as a safe-haven asset. A narrowing spread suggests confidence in risk assets, potentially reducing gold’s appeal. o 10-Year Treasury Yield: Gold has an inverse relationship with bond yields since it does not generate interest. Rising yields increase the opportunity cost of holding gold, often leading to price declines. Falling yields make gold more attractive, leading to price appreciation. 6. Risk Management Strategies Given gold’s volatility and sensitivity to macroeconomic changes, risk management is essential for trading GC Futures. Key risk strategies may include: Monitoring Global Liquidity Conditions: Keep an eye on M2 Money Supply and inflation trends to anticipate major shifts in gold pricing. Interest Rate Sensitivity: Since gold competes with yield-bearing assets, traders should closely track interest rate movements. Higher 10-Year Treasury Yields can weaken gold’s value as a non-yielding asset. Diversification and Hedging: Traders can hedge gold positions using interest rate-sensitive assets such as bonds or inflation-linked securities. Gold often performs well in times of equity market distress, making it a commonly used portfolio diversifier. 7. Conclusion Gold Futures remain one of the most influential instruments in the global financial markets. By leveraging machine learning insights and macroeconomic data, traders can better position themselves for profitable trading opportunities. Whether trading daily, weekly, or monthly trends, understanding these indicators allows market participants to align their strategies with broader economic conditions. Stay tuned for the next "Behind the Curtain" installment, where we explore economic forces shaping another key futures market. When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com - This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies. General Disclaimer: The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.

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SUPPORTS AND RESISTANCE Support and resistance levels are key concepts that help investors navigate price movements. These levels are psychological and technical markers where a coin's price tends to slow down, reverse, or consolidate. Understanding them can make the difference between a successful trade and a missed opportunity. What Are Supports and Resistances? Support is a price level where demand for a cryptocurrency is strong enough to prevent further decline. Think of it as a floor where prices “bounce” upward. Resistance is the opposite— a ceiling where selling pressure prevents the price from rising further. These levels form due to the collective actions of traders. At support levels, buyers feel the price is low enough to enter the market. At resistance levels, sellers believe the price is high enough to secure profits. Why Don’t They Last Forever? Support and resistance levels are not permanent because market conditions, sentiment, and external factors are constantly changing. These shifts happen because of supply and demand imbalances or significant events, such as news about regulations, technological upgrades, or changes in market sentiment. Avoiding the Trap of Greed Many traders make the mistake of placing their buy or sell orders right at these levels, aiming for maximum gain. However, this approach can be risky: Support and resistance levels are zones, not fixed lines. A coin’s price might come close but not touch your order before reversing. Missed opportunities: Waiting for the “perfect” entry point might result in missing a profitable trade by a few cents. A wiser strategy is to avoid being too greedy: Place buy orders slightly above support and sell orders slightly below resistance to improve the likelihood of execution. The Big Picture Support and resistance levels are tools—not guarantees. Successful traders view them as part of a broader strategy.

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Momentum Trading Strategies Across Assets Momentum trading is a strategy that seeks to capitalize on the continuation of existing trends in asset prices. By identifying and following assets exhibiting strong recent performance—either upward or downward—traders aim to profit from the persistence of these price movements. **Key Components of Momentum Trading:** 1. **Trend Identification:** The foundation of momentum trading lies in recognizing assets with significant recent price movements. This involves analyzing historical price data to detect upward or downward trends. 2. **Diversification:** Implementing momentum strategies across various asset classes—such as equities, commodities, currencies, and bonds—can enhance risk-adjusted returns. Diversification helps mitigate the impact of adverse movements in any single market segment. 3. **Risk Management:** Effective risk management is crucial in momentum trading. Techniques such as setting stop-loss orders, position sizing, and continuous monitoring of market conditions are employed to protect against significant losses. 4. **Backtesting:** Before deploying a momentum strategy, backtesting it against historical data is essential. This process helps assess the strategy's potential performance and identify possible weaknesses. 5. **Continuous Refinement:** Financial markets are dynamic, necessitating ongoing evaluation and adjustment of trading strategies. Regularly refining a momentum strategy ensures its continued effectiveness amid changing market conditions. **Tools and Indicators:** - **Relative Strength Index (RSI):** This momentum oscillator measures the speed and change of price movements, aiding traders in identifying overbought or oversold conditions. - **Moving Averages:** Utilizing short-term and long-term moving averages helps in smoothing out price data, making it easier to spot trends and potential reversal points. **Common Pitfalls to Avoid:** - **Overtrading:** Excessive trading can lead to increased transaction costs and potential losses. It's vital to adhere to a well-defined strategy and avoid impulsive decisions. - **Ignoring Market Conditions:** Momentum strategies may underperform during sideways or choppy markets. Recognizing the broader market environment is essential to adjust strategies accordingly. By understanding and implementing these components, traders can develop robust momentum trading strategies tailored to various asset classes, thereby enhancing their potential for consistent returns. Source: digitalninjasystems.wordpress.com

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Don't Confuse "DYOR" with Confirmation Bias in Crypto Trading In the crypto space, influencers and self-proclaimed crypto gurus constantly tell you to " do your own research " (DYOR) while presenting coins that will supposedly do 100x or become the "next big thing." They always add, " this is not financial advice ," but few actually explain how to do proper research. On top of that, most influencers copy each other, get paid by projects to promote them, and—whether they admit it or not—often contribute to confirmation bias. What is confirmation bias? It’s the psychological tendency to look for information that confirms what we already believe while ignoring evidence that contradicts it. For example, if you want to believe a certain altcoin will 100x, you’ll naturally look for articles, tweets, and videos that say exactly that—while ignoring red flags. How do you distinguish real research from confirmation bias? This article will help you: • Understand confirmation bias and how it affects your investments • Learn how to conduct proper, unbiased research • Discover the best tools and sources for real analysis ________________________________________ What Is Confirmation Bias & How Does It Sabotage Your Investments? Confirmation bias is the tendency to seek, interpret, and remember information that confirms what we already believe—while ignoring evidence to the contrary. In crypto, this leads to: ✔️ Only looking for opinions that confirm a coin is "going to the moon" ✔️ Avoiding critical discussions about the project’s weaknesses ✔️ Believing "everyone" is bullish because you're only consuming pro-coin content The result? • You make emotional investments instead of rational ones • You expose yourself to unnecessary risk • You develop unrealistic expectations and are more vulnerable to FOMO ________________________________________ How to Conduct Proper Research & Avoid Confirmation Bias 1. Verify the Team & Project Fundamentals A solid crypto project must have a transparent, experienced team. Check: • Who are the founders and developers? Are they reputable or anonymous? • Do they have experience? Have they worked on successful projects before? • Is the code open-source? If not, why? • Is there a strong whitepaper? It should clearly explain the problem, the solution, and the technology behind it. Useful tools: 🔹 GitHub – Check development activity 🔹 LinkedIn – Verify the team's background 🔹 CoinMarketCap / CoinGecko – Check market data and tokenomics 2. Analyze Tokenomics & Economic Model A project can have great technology but fail due to bad tokenomics. Key questions to ask: • What’s the maximum supply? A very high supply can limit price growth. • How are the tokens distributed? If the team and early investors hold most of the supply, there’s a risk of dumping. • Are there mechanisms like staking or token burning? These can impact long-term sustainability. Useful tools: 🔹 Token Unlocks – See when tokens will be released into circulation 🔹 Messari – Get detailed tokenomics reports 3. Evaluate the Community Without Being Misled A large, active community can be a good sign, but beware of: • Real engagement vs. bots. A high follower count doesn’t always mean real support. • How does the team respond to tough questions? Avoid projects where criticism is silenced. • Excessive hype? If all discussions are about "Lambo soon" and "to the moon," be cautious. Where to check? 🔹 Twitter (X) – Follow discussions about the project 🔹 Reddit – Read community opinions 🔹 – See how the team handles criticism 4. Verify Partnerships & Investors Many projects exaggerate or fake their partnerships. • Is it listed on major exchanges? Binance, Coinbase, and Kraken are more selective. • Are the investors well-known VCs? Funds like A16z, Sequoia, Pantera Capital don’t invest in just anything. • Do the supposed partners confirm the collaboration? Check their official sites or announcements. Where to verify? 🔹 Crunchbase – Check a project's investors 🔹 Medium – Many projects announce partnerships here 5. Watch the Team's Actions, Not Just Their Words • Have they delivered on promises? Compare the roadmap to actual progress. • What updates have they released? A strong project should have continuous development. • Are they selling their own tokens? If the team is dumping their coins, it’s a bad sign. Useful tools: 🔹 Etherscan / BscScan – Track team transactions 🔹 DefiLlama – Check total value locked (TVL) in DeFi projects ________________________________________ Final Thoughts: DYOR Correctly, Not Emotionally To make smart investments in crypto, you must conduct objective research—not just look for confirmation of what you already believe. ✅ Analyze the team, tokenomics, and partnerships. ✅ Be skeptical of hype and verify all claims. ✅ Use on-chain data, not just opinions. ✅ Don’t let FOMO or emotions drive your decisions. By following these steps, you’ll be ahead of most retail investors who let emotions—not facts—guide their trades. How do you do your own research in crypto? Let me know in the comments!

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Learn To Invest: Global Liquidity Index & Bitcoin Global Liquidity Index & BitCoin: 🚀 Positive Vibes for Your Financial Journey! 🚀 BITSTAMP:BTCUSD Look at this chart! It's the Global Liquidity Index , a measure of how much extra money is flowing through the world's financial systems. Why is this important? Because when this index is high, it often means good things for investments like #Bitcoin! 📈 Think of it like this: when there's more money flowing, people are often more willing to take risks and invest in things like Bitcoin. See those "BullRun" boxes? That means things are looking bright! It's showing that money is flowing, and that's often a good sign for potential Bitcoin growth. 🌟 Even if you're not a pro, it's easy to see the good news here. Understanding these trends can help you make smarter decisions. Let's all aim for growth and success! 💪

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by Navid_Jafarian

Trading Psychology or Technical Analysis—When Mind Meets Matter There’s an age-old battle in trading that makes the bull vs. bear debate look like a game of pickleball (no offense, finance bros). It’s the clash between the traders who swear by their charts and the ones who insist it’s all about mindset. The technicals versus the psychologicals. Fibonacci retracements versus fear and greed. RSI versus your racing heart. TLDR? Both matter—a lot. But knowing when to trust your indicators, when to trust yourself, and when to blend both is the fine line that separates those who thrive from those who rage-quit. ⚔️ The Cold, Hard Numbers vs. the Soft, Messy Brain Think of technical analysis as your sometimes inaccurate GPS in trading. It’s structured, predictable, and gives you clear entry and exit points—until it doesn’t. Because markets, much like a GPS in a tunnel, don’t always cooperate. That’s where psychology creeps in. Your mind is the ultimate trading algorithm, but it’s often running outdated software. Fear of missing out? That’s just your brain throwing a tantrum. Revenge trading? A glitch in emotional processing. Overconfidence after three wins in a row? Well done, you genius. Technical analysis gives you signals, but trading psychology determines how you act on them. 🤷‍♂️ When the Chart Says One Thing, and Your Brain Says Another Picture this: You’ve mapped out the perfect setup. The moving averages align, volume confirms the breakout, and everything screams BUY . But then your brain whispers, What if it reverses? What if this is a trap? What if I’m about to donate my account balance to the market gods? You hesitate. The price moves without you. Now, frustration kicks in, and suddenly, you’re clicking BUY at the worst possible moment—just in time for a pullback. Sometimes, the best trade is the one you don’t take. And sometimes, trusting the chart over your overthinking brain is the only way forward. 🔥 The Big Guys and Their Choices Legendary investors have picked their sides in this debate. Howard Marks, the co-founder of Oaktree Capital, has long been a big believer in market psychology. He argues that understanding investor sentiment is more valuable than any chart pattern because markets are driven by cycles of greed and fear. On the other hand, Paul Tudor Jones—one of the greatest traders of all time—leans on technicals, famously saying, “The whole trick in investing is: ‘How do I keep from losing everything?’ If you use the 200-day moving average rule, you get out. You play defense.” Both approaches work. The question is: Are you the type who deciphers market mood swings, or do you trust that a well-placed moving average will tell you when to cut and run? 🌀 Overtrading: The Technical Trap and the Psychological Spiral Overtrading usually starts with a good trade, a small win, and a rush of dopamine that convinces you you’ve cracked the code. So, you take another trade. Then another. And before you know it, you’re firing off entries like a caffeinated gamer, except your PnL is the one taking the damage. Technical traders fall into this trap because they see too many setups. Every candlestick pattern, every little bounce, every “potential” breakout becomes a reason to trade. Psychological traders, on the other hand, may overtrade out of boredom, frustration, or the need to “make back” losses. The result? An emotional rollercoaster that ends with an account balance you don’t want to check the next morning. The fix? Trade selectively. The best setups don’t come every five minutes, and forcing trades is like forcing a bad joke—it just doesn’t land. 💪 Fear, Greed, and the Art of Holding Your Ground Every trader knows the feeling: You’re in profit, but instead of letting the trade play out, you close early because profit is profit, right? Wrong. Fear of losing profits is what keeps traders from maximizing their wins. And greed—the evil twin of fear—is what makes traders hold losing trades, hoping for a miracle. It’s the classic “let winners run, cut losers short” rule in reverse. Technical traders know where their stops and targets are. The problem? They often ignore them when emotions take over. Psychological traders “feel” the market but get crushed when that gut feeling betrays them. The best traders find the balance—using technicals to set logical targets and psychology to actually stick to the plan. 🤝 The Solution? A System That Checks Both Boxes So, what’s the verdict? Do you put matter over mind or mind over matter? The truth is, great traders do both. They develop strategies based on technicals but manage execution with discipline. They respect risk management rules not just because the chart says so, but because they know how destructive emotions can be. Here’s what the best do differently: ✅ They journal trades —not just the setups but how they felt during the trade. ✅ They stick to a trading plan so they can trust their system over impulse. ✅ They set rules that help them to properly bounce back from losses . ✅ They know the value of knowledge and never stop learning. (We’ve got you covered here, too. Go check the Top Trading Books if you’re a trader and stop by the Top Books on Investing if you’re an investor). 💚 Final Thoughts: Mind and Market in Harmony In the end, trading is never just one or the other. It’s not pure math, and it’s not pure mindset. It’s a dance between structure and instinct, strategy and psychology. The ones who get it right aren’t just great at reading charts—they’re great at reading themselves.

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Fair Value Gaps vs Liquidity Voids in Trading Fair Value Gaps vs Liquidity Voids in Trading Understanding fair value gaps and liquidity voids is essential for traders seeking to navigate the complexities of the financial markets. These concepts, deeply rooted in the Smart Money Concept (SMC), provide valuable insights into the dynamics of supply and demand, helping to identify potential price movements. In this article, we’ll delve into both ideas, exploring their characteristics, differences, and use in trading. Fair Value Gap (FVG) Meaning in Trading A fair value gap, also known as an imbalance or FVG, is a crucial idea in Smart Money Concept that sheds light on the dynamics of supply and demand for a particular asset. This phenomenon occurs when there is a significant disparity between the number of buy and sell orders for an asset. They occur across all asset types, from forex and commodities to stocks and crypto*. Essentially, a fair value gap in trading highlights a moment where the market consensus leans heavily towards either buying or selling but finds insufficient counter orders to match this enthusiasm. On a chart, this typically looks like a large candle that hasn’t yet been traded back through. Specifically, a fair value gap is a three-candle pattern; the middle candle, or second candle, features a strong move in a given direction and is the most important, while the first and third candles represent the boundaries of the pattern. Once the third candle closes, the fair value gap is formed. There should be a distance between the wicks of the first and third candles. Fair value gaps, like gaps in stocks, are often “filled” or traded back through at some point in the future. They represent areas of minimal resistance; there is little trading activity in these areas (compared to a horizontal range). Therefore, they are likely to be traded through with relative ease as price gravitates towards an area of support or resistance. Liquidity Void Meaning in Trading Liquidity voids in trading represent significant, abrupt price movements between two levels on a chart without the usual gradual trading activity in between. These are essentially larger and more substantial versions of fair value gaps, often encompassing multiple candles and FVGs, indicating a more pronounced imbalance between buy and sell orders. While FVGs occur frequently and reflect the day-to-day shifts in market sentiment, liquidity voids signal a rapid repricing of an asset, typically following significant market events (though not always). These voids are visual representations of moments when the market experiences a temporary absence of balance between buyers and sellers. This imbalance leads to a sharp move as the market seeks a new equilibrium price level. Such occurrences are not limited to specific times; they can happen after major news releases, during off-market hours, or following large institutional trades that significantly move the market with a single order. Liquidity voids are especially noteworthy on trading charts due to their appearance as particularly sharp moves. Though they appear across all timeframes, they’re most obvious following major news events when the market rapidly adjusts to new information, creating opportunities and challenges for traders navigating these shifts. Fair Value Gap vs Liquidity Void Fair value gaps and liquidity voids are effectively the same thing in practice; a fair value gap is simply a shorter-term liquidity void. Both indicate moments of significant imbalance between supply and demand. At the heart of both phenomena is a situation where one significantly outweighs the other, leading to strong market movements with minimal consolidation. The distinction between them often comes down to scale and timeframe. An FVG is typically identified by a specific three-candle pattern on a chart, signalling a discrete imbalance in order volume that prompts a quick price adjustment. These gaps reflect moments where the market sentiment strongly leans towards buying or selling yet lacks the opposite orders to maintain price stability. Liquidity voids, on the other hand, represent more pronounced movements in a given direction, often visible as substantial price jumps or drops. They can encompass multiple FVGs and extend over larger portions of the chart, showcasing a significant repricing of an asset. This distinction becomes particularly relevant when considering the timeframe of analysis; what appears as a series of FVGs on a lower timeframe can be interpreted as a liquidity void. On a higher timeframe, this liquidity void may appear as a singular fair value gap. This can be seen in the fair value gap example above. For traders, it’s more practical to realise that both FVGs and liquidity voids highlight a key market phenomenon: when a notable supply and demand imbalance occurs, it tends to create a vacuum that the market is likely to fill at some future point. Therefore, it’s important to recognise that both these types of imbalances can act as potential indicators of future price movement back towards these unfilled spaces. Trading Fair Value Gaps and Liquidity Voids Trading strategies that leverage fair value gaps and liquidity voids require a nuanced approach, as these concepts alone may not suffice for a robust trading strategy. However, when integrated with other aspects of the Smart Money Concept, such as order blocks and breaks of structure, they can contribute significantly to a comprehensive market analysis framework. Primarily, both FVGs and liquidity voids signal potential areas through which the price is likely to move rapidly to reach more significant zones of trading activity, such as order blocks or key levels of support and resistance. This insight suggests that initiating positions directly within an FVG or a liquidity void may not be effective due to the high likelihood of the price moving swiftly through these areas. Instead, traders might find it more strategic to wait for the price to reach areas where historical trading activity reflects stronger levels of buy or sell interest. Additionally, these market phenomena can inform the setting of price targets. If there is an FVG or liquidity void situated before a key area of interest, targeting the zone beyond the gap—where substantial trading activity is expected—could prove more effective than aiming for a point within the gap itself. It's also useful to note the relative significance of these features when they appear on the same timeframe. An FVG, being generally smaller and indicating a discrete order imbalance, is more likely to be filled before a liquidity void. This is because liquidity voids represent more considerable and pronounced market movements that can set market direction, marking them as less likely to be filled within a short space of time. Limitations of Fair Value Gaps and Liquidity Voids While fair value gap trading strategies and the analysis of liquidity voids offer insightful approaches to understanding market dynamics, they come with inherent limitations that traders need to consider: - Market Volatility: High volatility can unpredictably affect the filling of fair value gaps and liquidity voids, sometimes leading to incorrect analysis or false signals. - Timeframe Relativity: The significance and potential impact of gaps and voids can vary greatly across different timeframes, complicating analysis. - Incomplete Picture: Relying solely on these phenomena for trading decisions may result in an incomplete market analysis, as they do not account for all influencing factors. - Expectations: There is no guarantee that a FVG/void will be filled soon or at any point in the near future. The Bottom Line As we conclude, it's essential to remember that while fair value gap and liquidity void strategies provide valuable insights, they’re part of a broader spectrum of SMC tools available to traders. They’re best combined with other analytical techniques to form a comprehensive approach to trading. For those looking to delve deeper into trading strategies and enhance their market understanding, opening an FXOpen account can be a step toward accessing a wide array of resources and tools designed to support your trading journey. FAQs What Is a Fair Value Gap? A fair value gap occurs when there's a significant difference between the buy and sell orders for an asset, indicating an imbalance that can influence market prices. What Are Fair Value Gaps in Trading? In trading, fair value gaps reflect moments where market sentiment strongly favours either buying or selling, creating potential price movement opportunities. What Is the Difference Between a Fair Value Gap and a Liquidity Void? The main difference lies in their scale: a fair value gap is typically a smaller, discrete occurrence, while a liquidity void represents a larger, more pronounced price movement. How to Find Fair Value Gaps? Traders identify fair value gaps by analysing trading charts for areas where rapid price movements have occurred. A FVG consists of three candles, where the second one is the largest and the first and third serve as barriers. The idea of the FVG is that it leads to a potential retracement to fill the gap in the future. Is a Fair Value Gap the Same as an Imbalance? Yes, a fair value gap is the same as an imbalance in the Smart Money Concept. *Important: At FXOpen UK, Cryptocurrency trading via CFDs is only available to our Professional clients. They are not available for trading by Retail clients. To find out more information about how this may affect you, please get in touch with our team. This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

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What Are Financial Derivatives and How to Trade Them?What Are Financial Derivatives and How to Trade Them? Financial derivatives are powerful instruments used by traders to speculate on market movements or manage risk. From futures to CFDs, derivatives offer potential opportunities across global markets. This article examines “What is a derivative in finance?”, delving into the main types of derivatives, how they function, and key considerations for traders. What Are Derivatives? A financial derivative is a contract with its value tied to the performance of an underlying asset. These assets can include stocks, commodities, currencies, ETFs, or market indices. Instead of buying the asset itself, traders and investors use derivatives to speculate on price movements or manage financial risk. Fundamentally, derivatives are contracts made between two parties. They allow one side to take advantage of changes in the asset's price, whether it rises or falls. For example, a futures contract locks in a price for buying or selling an asset on a specific date, while a contract for difference (CFD) helps traders speculate on the price of an asset without owning it. The flexibility of derivatives is what makes them valuable. They can hedge against potential losses, potentially amplify returns through leverage, or provide access to otherwise difficult-to-trade markets. Derivatives are traded either on regulated exchanges or through over-the-counter (OTC) markets, each with distinct benefits and risks. Leverage is a very common feature in derivative trading, enabling traders to control larger positions with less capital. However, it’s worth remembering that while this amplifies potential returns, it equally increases the risk of losses. These instruments play a pivotal role in modern finance, offering tools to navigate market volatility or target specific investment goals. However, their complexity means they require careful understanding and strategic use to potentially avoid unintended risks. Key Types of Financial Derivatives There are various types of derivatives, each tailored to different trading strategies and financial needs. Understanding the main type of derivative can help traders navigate their unique features and applications. Below are the most common examples of derivatives: Futures Contracts Futures involve a contract to buy or sell an asset at a set price on a specific future date. These contracts are standardised and traded on exchanges, making them transparent and widely accessible. Futures are commonly used in commodities markets—like oil or wheat—but also extend to indices and currencies. Traders commonly utilise this type of derivative to potentially manage risks associated with price fluctuations or to speculate on potential market movements. Forward Contracts A forward contract is a financial agreement in which two parties commit to buying or selling an asset at a predetermined price on a specified future date. Unlike standardised futures contracts, forward contracts are customizable and traded privately, typically over-the-counter (OTC). These contracts are commonly used for hedging or speculating on price movements of assets such as commodities, currencies, or financial instruments. Swaps Swaps are customised contracts, typically traded over-the-counter (OTC). The most common types are interest rate swaps, where two parties agree to exchange streams of interest payments based on a specified notional amount over a set period, and currency swaps, which involve the exchange of principal and interest payments in different currencies. Swaps are primarily used by institutions to manage long-term exposure to interest rates or currency risks. Contracts for Difference (CFDs) CFDs allow traders to speculate on price changes of an underlying asset. They are flexible, covering a wide range of markets such as shares, commodities, and indices. CFDs are particularly attractive as they allow traders to speculate on rising and falling prices of an asset without owning it. Moreover, CFDs provide potential opportunities for short-term trading, which may be unavailable with other financial instruments. Trading Derivatives: Mechanisms and Strategies Trading derivatives revolves around two primary methods: exchange-traded and over-the-counter (OTC) markets. Each offers potential opportunities for traders, depending on their goals and risk tolerance. Exchange-Traded Derivatives These derivatives, like futures, are standardised and traded on regulated exchanges such as the Chicago Mercantile Exchange (CME). Standardisation ensures transparency, making it potentially easier for traders to open buy or sell positions. For example, a trader might use futures contracts to hedge against potential price movements in commodities or indices. Over-the-Counter (OTC) Derivatives OTC derivatives, including swaps and forwards and contracts for difference, are negotiated directly between two parties. These contracts are highly customisable but may carry more counterparty risk, as they aren't cleared through a central exchange. Institutions often use OTC derivatives for tailored solutions, such as managing interest rate fluctuations. Strategies for Trading Derivatives Traders typically employ derivatives for speculation or hedging. Speculation involves taking positions based on anticipated market movements, such as buying a CFD if prices are expected to rise. Hedging, on the other hand, can potentially mitigate losses in an existing portfolio by offsetting potential risks, like using currency swaps to protect against foreign exchange volatility. Risk management plays a crucial role when trading derivatives. Understanding the underlying asset, monitoring market conditions, and using appropriate position sizes are vital to navigating their complexity. CFD Trading Contracts for Difference (CFDs) are among the most accessible derivative products for retail traders. They allow for speculation on price movements across a wide range of markets, including stocks, commodities, currencies, and indices, without owning the underlying asset. This flexibility makes CFDs an appealing option for individuals looking to diversify their strategies and explore global markets. How CFDs Work CFDs represent an agreement between the trader and the broker to exchange the difference in an asset's price between the opening and closing of a trade. If the price moves in the trader’s favour, the broker pays the difference; if it moves against them, the trader covers the loss. This structure is straightforward, allowing retail traders to trade in both rising and falling markets. Why Retail Traders Use CFDs Retail traders often gravitate towards CFDs due to their accessibility and unique features. CFDs allow leverage trading. By depositing a smaller margin, traders can gain exposure to much larger positions, potentially amplifying returns. However, you should remember that this comes with heightened risk, as losses are also magnified. Markets and Opportunities CFDs offer exposure to an extensive range of markets, including stocks, forex pairs, commodities, and popular indices like the S&P 500. Retail traders particularly appreciate the ability to trade these markets with minimal upfront capital, as well as the availability of 24/5 trading for many instruments. CFDs also enable traders to access international markets they might otherwise find difficult to trade, such as Asian or European indices. Traders can explore a variety of CFDs with FXOpen. Considerations for CFD Trading While CFDs offer potential opportunities, traders must approach them cautiously. Leverage and high market volatility can lead to significant losses. Effective risk management in derivatives, meaning using stop-loss orders or limiting position sizes, can help traders potentially navigate these risks. Additionally, costs like spreads, commissions, and overnight fees can add up, so understanding the total cost structure is crucial. Key Considerations When Trading Derivatives Trading derivatives requires careful analysis and a clear understanding of the associated risks and potential opportunities. Understanding the Underlying Asset The value of a derivative depends entirely on its underlying asset, whether it’s a stock, commodity, currency, or index. Analysing the asset’s price behaviour, market trends, and potential volatility is crucial to identifying potential opportunities and risks. Choosing the Right Derivative Product Different derivatives serve different purposes. Futures might suit traders looking for exposure to commodities or indices, while CFDs provide accessible and potential opportunities for those seeking short-term price movements. Matching the derivative to your strategy is vital. Managing Risk Effectively Risk management plays a significant role in trading derivatives. Leverage can amplify both returns and losses, so traders often set clear limits on position sizes and overall exposure. Stop-loss orders and diversification are common ways to potentially reduce the impact of adverse market moves. Understanding Costs Trading derivatives involves costs like spreads, commissions, and potential overnight financing fees. These can eat into potential returns, especially for high-frequency or leveraged trades. A clear understanding of these expenses may help traders evaluate the effectiveness of their strategies. Monitoring Market Conditions Derivatives are sensitive to their underlying market changes, from geopolitical events to macroeconomic data. In stock derivatives, this might be company earning reports or sudden shifts in management. Staying informed helps traders adapt to shifting conditions and avoid being caught off guard by sudden price swings. The Bottom Line Financial derivatives are versatile tools for trading and hedging, offering potential opportunities to access global markets and diversify strategies. While their complexity demands a solid understanding, they can unlock significant potential for informed traders. Ready to explore derivatives trading? Open an FXOpen account today to trade CFDs on more than 700 assets with competitive costs, fast execution, and advanced trading tools. Good luck! FAQ What Is a Derivative? The derivatives definition refers to a financial contract whose value is based on the performance of an underlying asset, such as stocks, commodities, currencies, or indices. Derivatives are financial instruments used to hedge risk, speculate on price movements, or access specific markets. Examples include futures, forwards, swaps, and contracts for difference (CFDs). What Are the 4 Main Derivatives? The primary categories of derivatives are futures, forwards, swaps, and contracts for difference (CFDs). Futures are commonly traded on exchanges, while forwards, swaps and CFDs are usually traded over-the-counter (OTC). Each serves different purposes, from risk management to speculative trading. What Is the Derivatives Market? The derivatives market is where financial derivatives are bought and sold. It includes regulated exchanges, like the Chicago Mercantile Exchange, and OTC markets where customised contracts are negotiated directly between parties. This market supports hedging, speculation, and risk transfer across global financial systems. What Is the Difference Between Derivatives and Equities? Equities signify ownership in a company, typically in the form of stock shares. Derivatives, on the other hand, are contracts that derive their value from the performance of an underlying asset, which can include equities. Unlike equities, derivatives do not confer ownership. Is an ETF a Derivative? No, an exchange-traded fund (ETF) is not a derivative. It is a fund that tracks a basket of assets, such as stocks or bonds, and trades like a stock. However, ETFs can use derivatives, such as futures, to achieve their investment objectives. Is the S&P 500 a Derivative? No, the S&P 500 is not a derivative. It is a stock market index that tracks the performance of 500 large companies listed in the US. Derivatives, like futures, can be created based on the S&P 500’s performance. This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

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Understanding Trump - Chapter 2: Excessive Debt Chapter 2: Excessive Debt The U.S. debt problem has already reached a critical level. As of July 2024, U.S. debt has reached $35 trillion, with interest payments exceeding defense spending. Paying off this debt is virtually impossible, especially since politicians rely on public support. It’s almost unthinkable for them to cut spending, knowing that doing so would weaken the economy. Who would vote for someone whose policies make their lives more difficult? So, the method the U.S. has relied on has been simple: Keep printing dollars, trigger inflation, and devalue the currency to reduce the real burden of debt. This has been the U.S.'s go-to strategy for a long time, and for a while, it worked. When money flows into the market, the private sector thrives. Up until the Biden administration, this approach seemed to be working to some extent. But during the COVID-19 pandemic, an excessive amount of money was injected into the economy, pushing inflation beyond a sustainable level and accelerating the pace of debt accumulation beyond control. Where Does U.S. Debt Come From? The U.S. debt problem largely stems from two sources: trade deficits and government spending deficits. - Government Spending Deficit The key to reducing government spending is "DODGE." As many people have noticed, Elon Musk has been aggressively cutting jobs. A typical politician could never do this, but both Trump and Elon Musk come from business backgrounds, so they don’t have the same aversion to making these kinds of tough decisions. Of course, cutting government spending and reducing the money supply will help control inflation. While this will be beneficial for the future of the U.S. economy, in the short term, it will hit the current economy hard. Historically, the U.S. stock market has risen whenever the Federal Reserve (Fed) lowered interest rates or the government injected money into the economy. That is, stock prices increased when there was more money circulating in the market. However, if Trump moves forward with spending cuts, it will likely have a negative impact on the stock market. Industries heavily reliant on government-funded projects may experience declining stock prices over the next 1–2 years. Of course, the future is uncertain, but it might be wise to explore investment opportunities outside these sectors. - Trade Deficit & Tariff Policy The U.S. is looking to resolve its trade deficit through tariff policies. The strategy involves pressuring companies to move manufacturing back to the U.S. Currently, Trump has stated that he plans to impose tariffs on all countries worldwide. However, in practice, it is unlikely that he will follow through with this on such a broad scale. The worst-case scenario for the U.S. would be if the country imposes tariffs on everyone, while other nations trade freely among themselves. This would severely undermine the competitiveness of American products, forcing U.S. consumers to pay significantly higher prices for lower-quality goods. If this situation persists—where U.S. trade shrinks while other countries' trade flourishes—it could even lead to global doubts about the necessity of using the U.S. dollar as the world’s reserve currency. Trump’s real strategy likely isn’t to tax all nations equally. Instead, he’s positioning himself in negotiations: Some countries will face high tariffs. Some will face lower tariffs, depending on the deal they strike with the U.S. The Shift Toward a Block Economy The global economic landscape is shifting away from full-scale free trade toward a "block economy" system. Going forward, the world will likely be divided into three or four major economic blocs, where countries within each bloc benefit from tariff exemptions. The U.S.-led economic block will likely include: - Countries that possess semiconductor or high tech material industries but lack food and resource self-sufficiency, making them dependent on the U.S. - Countries with cheap labor forces but structural limitations that prevent them from becoming major global powers. -Countries where the U.S. can have a trade surplus The primary goal of the U.S. in structuring block is to ensure that economic benefits from trade with the U.S. do not ultimately flow into "China". Additionally, the U.S. is actively working to weaken competing economic blocs, particularly the one led by China—BRICS (Brazil, Russia, India, China, South Africa). This is one of Trump’s top priorities. It is also why the U.S. has recently been more lenient toward Russia, despite it being part of BRICS. The strategy is simple: split Russia from China. Russia is rich in natural resources, and if the U.S. can pull it away from China’s economic influence, it will significantly weaken China’s position. Of course, the goal is not to completely ruin China, but rather to prevent it from challenging U.S. hegemony, similar to Japan's 'Lost 30 Years.' Instead of completely cutting off trade, the aim is to regulate it within limits that benefit U.S. dominance.

Education

by hcinteractivegames

Index Investing: A Practical Approach to Market Participation Index Investing: A Practical Approach to Market Participation Index investing has become a popular way for traders and investors to access the broader market. By tracking the performance of financial indices like the S&P 500 or FTSE 100, index investing offers diversification, lower costs, and steady exposure to market trends. This article explores how index investing works, its advantages, potential risks, and strategies to suit different goals. Index Investing Definition Index investing is a strategy where traders and investors focus on tracking the performance of a specific financial market index, such as the FTSE 100 or S&P 500. These indices represent a collection of stocks or other assets, grouped to reflect a segment of the market. Instead of picking individual assets, index investors aim to match the returns of the entire index by investing in a fund that mirrors its composition. For example, if an investor puts money in a fund tracking the Nasdaq-100, it’s effectively spread across all companies in that index, including tech giants like Apple or Microsoft. This approach provides instant diversification, as the investor is not reliant on the performance of a single stock. This style of investing is often seen as a straightforward way to gain exposure to broad market trends without the need for active stock picking. Many investors choose exchange-traded funds (ETFs) for this purpose, as they trade on stock exchanges like individual shares and often come with lower fees compared to actively managed funds. How Index Investing Works Indices are constructed by grouping a selection of assets—usually stocks—to represent a specific market or sector. For instance, the S&P 500 includes 500 large-cap US companies, weighted by their market capitalisation. This means larger companies like Apple and Amazon have a greater impact on the index performance than smaller firms. The same principle applies to indices like the FTSE 100, which represents the 100 largest companies listed on the London Stock Exchange. Index funds aim to mirror the performance of these indices. Fund managers have two primary methods for this: direct replication and synthetic replication. With direct replication, the fund buys and holds every asset in the market, matching their exact proportions. For example, a fund tracking the Nasdaq-100 would hold shares of all 100 companies in that index. Synthetic replication, on the other hand, uses derivatives like swaps to mimic the index's returns without directly holding the assets. This method can reduce costs but introduces counterparty risk, as it relies on financial agreements with third parties. Because index investing doesn’t involve constant buying and selling of assets, funds typically have lower management fees compared to actively managed portfolios. Fund managers don’t need to research individual stocks or adjust holdings frequently, making this a cost-efficient option for gaining exposure to broad market trends. Advantages and Disadvantages of Index Investing Index investing has become a popular choice for those looking for a straightforward way to align their portfolios with market performance. However, while it offers some clear advantages, there are also limitations worth considering. Let’s break it down: Advantages - Diversification: By investing in an index fund, investors gain exposure to a broad range of assets, reducing the impact of poor performance from any single stock. For instance, tracking the S&P 500 spreads investments across 500 companies. - Cost-Efficiency: Index funds often have lower fees compared to actively managed funds because they require less trading and oversight. Passive management keeps costs low, which can lead to higher net returns over time. - Transparency: Indices are publicly listed, so investors always know which assets they are invested in and how those assets are weighted. - Consistent Market Exposure: These funds aim to match the performance of the market segment they track, providing reliable exposure to its overall trends. - Accessibility: As exchange-traded funds (ETFs) are traded on stock exchanges, this allows investors to buy into large markets with the same simplicity as purchasing a single stock. Disadvantages - Limited Flexibility: Index funds strictly follow the composition of the underlying assets, meaning they can’t respond to other market opportunities or avoid underperforming sectors. - Market Risk: Since these funds mirror the broader market, they’re fully exposed to downturns. If the market drops, so will the fund’s value. - Tracking Errors: Some funds may not perfectly replicate an index due to fees or slight differences in holdings, which can cause performance to deviate. - Lack of Customisation: Broad-based investing doesn’t allow for personalisation based on individual preferences or ethical considerations. Index Investing Strategies Index investing isn’t just about buying a fund and waiting—an index investment strategy can be tailored to suit different goals and market conditions. Here are some of the most common strategies investors use: Buy-and-Hold This long-term index investing strategy involves purchasing an index fund and holding it for years, potentially decades. The aim is to capture overall market growth over time, which has historically trended upwards. This strategy works well for those who value simplicity and are focused on building wealth gradually. Sector Rotation Some investors focus on specific sectors within indices, such as technology or healthcare, depending on economic trends. This strategy can help take advantage of sectors expected to outperform while avoiding less promising areas. For instance, in periods of economic downturn, investors might allocate funds to the MSCI Consumer Staples Index, given consumer staples’ defensive nature. Dollar-Cost Averaging (DCA) Rather than investing a lump sum, this index fund investing strategy involves putting money away regularly—say monthly—into indices, regardless of market performance. DCA reduces the impact of market volatility by spreading purchases over time. The Boglehead Three-Fund Index Portfolio Inspired by Vanguard founder John Bogle, this strategy is a popular approach for simplicity and diversification. It involves splitting index investments across three areas: a domestic stock fund, an international stock fund, and a bond fund. This mix provides broad market exposure and balances growth with risk. According to theory, the strategy is cost-efficient and adaptable to individual risk tolerance, making it a favourite among long-term index investors. Hedging with Index CFDs Traders looking for potential shorter-term opportunities might use index CFDs to hedge against broader market movements or amplify their exposure to a specific trend. With CFDs, traders can go long or short, depending on their analysis, without owning the underlying funds or shares. Who Usually Considers Investing in Indices? Index investing isn’t a one-size-fits-all approach, but it can suit a variety of investors depending on their goals and preferences. Here’s a look at who might find this strategy appealing: Long-Term Investors For those with a long investment horizon, such as individuals saving for retirement, this style of investing offers a practical way to grow wealth over time. By capturing the overall market performance, investors can build a portfolio that aligns with steady, long-term trends. Passive Investors If investors prefer a hands-off approach, index funds can be an option. They require minimal effort to maintain, as they simply track the performance of the market. This makes them appealing to those who want exposure to the markets without constantly managing their investments. Cost-Conscious Investors These passive funds typically have lower management fees than actively managed funds, making them attractive to those who want to minimise costs. Over time, this cost-efficiency might enhance overall returns. Diversification Seekers Investors who value broad exposure will appreciate the inherent diversification of index funds. By investing in an index, they’re spreading risks across dozens—or even hundreds—of assets, reducing reliance on any single stock. CFD Index Trading However, not everyone wants and can invest in funds. Index investing may be very complicated and require substantial funds. It’s where CFD trading may offer an alternative way to engage with index investing, giving traders access to markets without needing to directly own the underlying assets. With CFDs, or Contracts for Difference, traders can speculate on the price movements of an index—such as the S&P 500, FTSE 100, or DAX—whether the market is rising or falling. This flexibility makes CFDs particularly appealing to those who want to take a more active role in the markets. One key advantage of CFDs is the ability to trade with leverage. Leverage allows traders to control a larger position than their initial capital, amplifying potential returns. For instance, with 10:1 leverage, a $1,000 deposit can control a $10,000 position on an index. However, it’s crucial to remember that leverage also increases risk, magnifying losses as well as potential returns. CFDs also enable short selling, allowing traders to take advantage of bearish market conditions. If a trader analyses that a specific index may decline, they can open a short position and potentially generate returns from the downturn—a feature not easily accessible with traditional funds. CFDs can also be used to trade stocks and ETFs. For example, stock CFDs let traders focus on individual companies within an index, such as Apple or Tesla, without needing to buy the shares outright. ETF CFDs, on the other hand, allow for diversification across sectors or themes, mirroring the performance of specific industries or broader markets. One notable feature of CFD trading is its accessibility to global markets. From the Nikkei 225 in Japan to the Dow Jones in the US, traders can access indices from around the world, opening up potential opportunities in different time zones and economies. In short, for active traders looking to amplify their exposure to indices or explore potential short-term opportunities, CFD trading can be more suitable than traditional indices investing. The Bottom Line Index investing offers a practical way to gain market exposure, while trading index CFDs adds flexibility for active traders. With CFDs, you can get exposure to indices, ETFs and stocks. Moreover, you can take advantage of both rising and falling prices without the need to wait for upward trends. Whether you're aiming for long-term growth or potential short-term opportunities, combining these approaches can diversify your strategy. With FXOpen, you can trade index, stock, and ETF CFDs from global markets, alongside hundreds of other assets. Open an FXOpen account today to explore trading with low costs and tools designed for traders of all levels. Good luck! FAQ What Is Index Investing? Index investing involves tracking the performance of a specific financial market index, such as the S&P 500 or FTSE 100, by investing in funds that mirror the index. It provides broad market exposure and is often seen as a straightforward, passive investment strategy. What Are Index Funds? Index funds are financial instruments created to mirror the performance of a particular market index. They’re commonly structured as mutual funds or ETFs. At FXOpen, you can trade CFDs on a wide range of ETFs, including the one that tracks the performance of the S&P 500 index. What Makes Indices Useful? Indices offer a benchmark for understanding market performance and provide a way to diversify investments. By representing a segment of the market, they allow investors and traders to gain exposure to multiple assets in one investment. Is It Better to Invest in Indices or Stocks? It depends on your goals. According to theory, indices provide diversification and potentially lower risk compared to picking individual stocks, but stocks might offer higher potential returns. Many traders and investors combine both approaches for a balanced portfolio. Does Index Investing Really Work? As with any financial asset, the effectiveness of investing depends on an investor’s or trader’s trading skills and strategy. According to theory, the S&P 500 has averaged annual returns of about 10% over several decades, making index investments potentially effective. However, this doesn’t mean index investing will work for everyone. What Are the Big 3 Index Funds? The "Big 3" index funds often refer to those from Vanguard, BlackRock (iShares), and State Street (SPDR), which collectively manage a significant portion of global fund assets. For example, at FXOpen, you can trade CFDs on SPDR S&P 500 ETF Trust (SPY) tracking the S&P 500 stock market index and Vanguard High Dividend Yield ETF (VYM) which reflects the performance of the FTSE High Dividend Yield Index. This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

Education

Don’t Buy a Single Dollar of Crypto Without Knowing These 7 Rule Hello and greetings to all the crypto enthusiasts,✌ Spend 3 minutes ⏰ reading this educational material. The main points are summarized in 5 clear lines at the end 📋 This will help you level up your understanding of the market 📊 and Bitcoin 💰. 📊 My Personal Take on Bitcoin’s Current Market Trends: Since the primary focus of this analysis is educational content, I have deliberately kept the chart simple and easy to understand. The goal is to ensure that you quickly grasp the key insights, particularly the projected minimum decline of 8% 📉 and the primary target of $75,000 for Bitcoin. Now, let's dive into the educational section, which builds upon last week's lesson (linked in the tags of this analysis). Many of you have been eagerly waiting for this, as I have received multiple messages about it on Telegram. 7 Key Considerations Before Investing in the Crypto Market: 🔍 1️⃣ Only Invest Money You Can Afford to Lose The most fundamental principle of investing—especially in high-volatility markets like crypto—is to allocate funds that are not essential to your financial well-being. Never invest money that could jeopardize your lifestyle if lost. Adhering to this principle can prevent financial ruin in many cases. 2️⃣ Choose Cryptocurrencies That Meet Essential Criteria Not all digital assets are worth investing in. Before committing to any coin or token, ensure that it satisfies at least the following factors: 📊 Market Capitalization: The asset should have a reasonable and sustainable market cap. 💰 Liquidity: Sufficient trading volume and liquidity are critical for smooth transactions. 👥 Community Strength: A strong, engaged, and active community is a sign of long-term viability. 🔧 Utility & Innovation: The project should offer a clear use case, technological innovation, and a meaningful solution to real-world problems. 🏆 Credibility & Backing: Look for coins supported by well-known figures, reputable teams, or influential institutions. 3️⃣ Always Set Clear Entry and Exit Strategies Whether you are in profit or loss, having a well-defined plan for when to enter and exit the market is crucial. Establishing these targets in advance will help you avoid emotional decision-making, such as falling into FOMO (Fear of Missing Out) or excessive greed. 4️⃣ Diversify Your Portfolio to Minimize Risk A well-balanced investment strategy involves spreading your capital across multiple assets rather than concentrating it all in one place. This diversification should include exposure to different sectors and types of cryptocurrencies to mitigate risk. 5️⃣ Altcoins Alone Won’t Make You Successful While altcoins can offer high returns, they come with increased volatility. A well-structured portfolio should also include Bitcoin and other major market movers to ensure stability and long-term sustainability. 6️⃣ Secure Profits and Reduce Risk Over Time If you are holding assets for the long term, a risk-free approach would be to withdraw your initial investment once you reach a profitable threshold. Reinvesting those profits into more stable assets—such as real estate 🏡, gold 🏆, or traditional markets—can provide a hedge against crypto volatility while allowing your remaining portfolio to continue growing. 7️⃣ Look for Emerging Opportunities, Not Just Former Market Leaders Instead of focusing solely on past high-performing assets that may have peaked, keep an eye on new, innovative projects with strong potential. Identifying the next big opportunity before it gains mainstream attention can be a game-changer for your portfolio. In next week's educational segment, I will explore this last point in greater detail, providing insights on how to effectively spot promising new investments in the ever-evolving crypto landscape. Stay tuned! However , this analysis should be seen as a personal viewpoint, not as financial advice ⚠️. The crypto market carries high risks 📉, so always conduct your own research before making investment decisions. That being said, please take note of the disclaimer section at the bottom of each post for further details 📜✅. 🧨 Our team's main opinion is: 🧨 If you're diving into crypto, only invest money you can afford to lose—never risk your financial stability. 💸 Pick coins wisely: strong market cap, real liquidity, a solid community, and real-world use. ✅ Spread your investments, set clear entry/exit plans, and take profits—reinvest in stable assets like gold or real estate. 🔄🏡 Avoid FOMO, don’t chase overhyped coins, and always keep an eye on new opportunities. A balanced portfolio is key! 🚨 Give me some energy !! ✨We invest countless hours researching opportunities and crafting valuable ideas. Your support means the world to us! If you have any questions, feel free to drop them in the comment box. Cheers, Mad Whale. 🐋

Education

Understanding Trump and future of US and BTC Understanding Trump As investors, we constantly analyze news and charts to find opportunities to make money. But today, I want to take a step back and look at the bigger picture. This is a story about Donald Trump. Predicting his future actions could be key to making profits in various markets. Lately, Trump may seem like a madman—Hunting down on illegal immigrants, imposing tariffs on countries, trying to befriend Russia, and being outright rude to other alliences. He even once demanded that Greenland be put up for sale. Over the next few chapters, I’ll explain my idea about why Trump does what he does. You will realize he’s not as crazy as he seems. Hopefully, this will help us gain some foresight into the future and, in turn, make profitable investments. Chapter 1 : The U.S. A Frog in a Boiling Pot From Trump’s perspective, America today is like a frog sitting in a pot of water that’s about to boil. Not just lukewarm, but dangerously close to reaching a boiling point. Like a setting sun, the U.S. is slowly losing its position as the world's dominant superpower and is, in his eyes, on the verge of decline. What we are feeling about US is more like this. On the surface, it looks like things are going well. Ordinary Americans seem to be doing fine, the stock market keeps hitting new highs, employment numbers are strong, and the U.S. military remains the most powerful in the world. There are no obvious signs that America is losing its status as the world’s leading power. But Trump sees things differently. In his view, if the U.S. continues on its current path, it will eventually lose its dominance to China and decline into a second-tier nation, much like Britain or Spain. Why does he think that? This perspective is likely influenced by books like Ray Dalio’s The Changing World Order and Paul Kennedy’s The Rise and Fall of the Great Powers. These books analyze how once-great powers—such as Britain, the Roman Empire, and Spain—declined over time. They outline three key reasons why major powers historically collapse: 1 Excessive debt – Poor government management and uncontrolled money printing lead to inflation. 2 Overextension through war or expansion – Excessive military spending due to prolonged wars or imperial overreach. 3 Extreme wealth inequality and social conflict – Rising tensions and divisions among the population. And I would add one more factor to this list. 4 Failure to adapt to new economic, social, and technological trends - Trump believes that these factors are causing the U.S. to lose its status as the world's leading power. In a few decades, he sees America becoming like Britain—reminiscing about its past glory—or like Russia—resource-rich but lacking real global influence. So, will the U.S. really decline? "The water in the pot is already getting hot. No one knows exactly when it will start boiling, but if these four factors continue fueling the fire, eventually, it will."

Education

by hcinteractivegames

DISASTER Recipe for trading destruction (5 Points)🏊‍♂️ Do You Ever Try Swimming Upstream? Unless you’re doing it for exercise and the strain… You’ll know it’s exhausting. And if you go against the direction of the waves, you’ll get nowhere very slowly—until you either reach the destination or give up. Well, I find that trading against the trend is just as bad. When you trade against the trend – your EGO starts to talk. Your opinions start to enhance, and your irrational mind begins to take over. I feel I need to explain why it’s so dangerous to go against the trend. Let’s dive in. 🚫 Never Force a Trend The worst thing you can do is bottom or top pick a market. What makes you feel that you know the market is about to turn? ❓ Do you have inside information? ❓ Do you have a stronger intuition? ❓ Did you do some crazy future analysis? And what’s the point? Let the market reach its bottom or top, turn around – move a bit in the new direction until you have confirmation. And then POUNCE. You only need 30% of the trend and then close for a profit. ⏳ Patience Pays Off The market moves in cycles. 📈 Sometimes it’s a roaring bull. 📉 Other times it’s a sulking bear. 🐢 And other times, it’s a bladdy tortoise – going sideways to Timbuktu. The best thing to do is wait for the market to move from an unfavourable environment into a favourable time for your system and strategy. 🔄 Reassess and wait. There’s no rush in trading. 🔄 Adjust and Act The markets are always evolving. You need to continuously adapt and act on: 📌 New markets to add 📌 Old markets to rid of 📌 Strategy tweaks to improve your win rate 📌 System considerations to boost winners and cut losses Flexibility within your trading strategy is key. 🌊 Flow with Momentum Ever noticed how surfers ride waves? They don’t fight the ocean; they flow with it. Traders should do the same with market momentum. 📈 When the market is going up – Go up with it. 📉 When the market is going down – Go down with it. (I mean short and sell, of course!) ➡️ When the market is moving sideways – Observe, report, and wait for better conditions. Align your trades with the sentiment. Going against the current market mood can be disastrous. ❌ Never Predict Everything you see in the charts and fundamentals is based on past data. So, it’s IMPOSSIBLE to predict with certainty where a market will go. This is why you need risk management rules and stop losses with EVERY trade. You can’t predict, BUT you can probability predict. And that’s the difference between knowing and potential. 🎯 Recap: Trade Smart! 📌 Never Force a Trend: Be patient and wait for the right market conditions. 📌 Patience Pays Off: Let the market cycle play out before jumping in. 📌 Adjust and Act: Regularly review and tweak your strategy with new information. 📌 Flow with Momentum: Align your trades with the current market sentiment. 📌 Never Predict: React to market conditions rather than trying to predict them. 💡 Remember: The best traders ride the waves – not fight them.

Education

What Is a Spot Rate and How It Is Used in Trading?What Is a Spot Rate and How It Is Used in Trading? Spot rates are a cornerstone of trading, reflecting the real-time price for immediate settlement of assets like currencies and commodities. They provide traders with crucial insights into market conditions and influence strategies across various domains. This article explores what spot rates are, how they work, and their role in trading. Spot Rate Definition The spot rate is the current price at which an asset, such as a currency, commodity, or security, can be bought or sold for immediate delivery. In essence, it’s what the market says something is worth right now, reflecting real-time supply and demand. Unlike future prices, which are influenced by expectations and contracts for later delivery, this type of pricing is all about the present. Spot rates are especially crucial in highly liquid assets like forex and commodities, where prices can change rapidly based on global events. To use an example, if the rate for the euro against the dollar is 1.1050, that’s the price at which traders can exchange euros for dollars at that moment. It’s dynamic, adjusting instantly to factors like economic news, interest rate changes, and geopolitical developments. Spot pricing also serves as a benchmark in derivative contracts, such as futures, influencing how traders and businesses hedge against potential price movements. For instance, a gold producer might monitor these quotes closely to decide when to lock in prices. Spot Rate vs Forward Rate: What's the Difference The spot and forward rates (or spot rate vs contract rate) are both used to price assets, but they serve different purposes. While the spot rate is the current price for immediate settlement, the forward rate is the agreed-upon price in a transaction set to occur at a future date. The former reflects conditions right now—shaped by immediate supply and demand. Forward rates, on the other hand, factor in expectations about future conditions, such as borrowing cost changes or potential economic shifts. For example, if a company expects to receive payments in a foreign currency within a certain period, it can use a forward rate to guarantee the amount it will receive and avoid adverse exchange rate fluctuations. One key link between the two is that forward rates are derived from spot pricing, adjusted by factors like interest rate differentials between two currencies or the cost of carrying a commodity. In forex trading, if borrowing costs in the US are higher than in the eurozone, the forward rate for EUR/USD may price in a weaker euro relative to the dollar. Specifically, a forward rate is determined by three factors: its underlying spot rate, interest rate differential, and the contract’s time to expiry. Backwardation and Contango Backwardation and contango are terms used to describe the pricing structure of futures markets, specifically the relationship between spot prices and futures contract prices. These concepts help traders understand broader expectations and supply-demand dynamics. In backwardation, the spot price of an asset is higher than its future prices. This often happens when demand for immediate delivery outweighs supply. In the oil market, backwardation might occur if there’s a short-term supply disruption, causing the current price to spike while future prices remain lower, reflecting expectations of supply returning to normal. On the other hand, contango occurs when future prices are higher than spot quotes. This can indicate that holding costs, such as storage fees or insurance, are factored into the future price. For instance, in gold, contango might be typical since storing gold involves costs, which are priced into future contracts. These structures aren’t just theoretical—they directly affect trading strategies. CFD traders can use these concepts to anticipate market movements and hedge against adverse price changes. By understanding market sentiment and expectations, traders can speculate on the direction of prices. How Spot Rates Are Determined Spot prices are dynamic and reflect the immediate balance of supply and demand. They fluctuate based on several key factors that shape trading activity and market conditions. - Supply and Demand Dynamics: When demand for an asset outpaces its supply, the rate rises, and vice versa. For example, a spike in demand for oil due to geopolitical tensions can push its price higher. - Economic Indicators: Inflation data, GDP growth, and employment figures heavily influence spot quotes, particularly in forex. A strong economic report can lead to currency appreciation, while weak data may have the opposite effect. - Interest Rate Differentials: In forex, differing interest rates between countries impact currency spot rates. Higher borrowing costs in one country can attract investment, driving up demand for its currency and its price. - Liquidity: Highly liquid assets, like major currency pairs, might have more consistent prices. Less liquid assets can see greater price volatility due to fewer participants. - Geopolitical Events: Elections, wars, and natural disasters can cause sudden price shifts by disrupting supply chains or altering economic outlooks. Types of Spot Markets Spot markets are where assets are traded for immediate settlement, offering real-time pricing and instant transactions. - Forex: The largest spot market, where currencies like the euro or dollar are exchanged at the current rate, often used by traders to capitalise on short-term price movements. - Commodities: Includes trading raw materials like gold, oil, or wheat. Buyers and sellers agree on the spot price for immediate delivery, reflecting current supply-demand dynamics. - Equities: Shares of publicly traded companies are bought and sold at the prevailing market price on exchanges like the London Stock Exchange or NYSE. - Cryptocurrencies*: Although not mentioned earlier, these involve buying and selling digital assets like Bitcoin at current prices and receiving an instant ownership transfer. What Spot Rates Mean for Traders and Markets Spot rates are effectively snapshots of reality, reflecting the current balance of supply and demand. For traders, they provide a critical context for decision-making and deeper insights. Market Sentiment and Timing Opportunities These rates offer a real-time lens into market sentiment. Sudden price movements often signal shifts in supply, demand, or broader economic conditions. For instance, a rapid rise in the spot price of oil might indicate geopolitical tensions affecting supply chains, which could have knock-on effects across energy-related sectors. Traders monitoring these shifts can identify potential opportunities to capitalise on short-term volatility or avoid unnecessary exposure. In addition, spot rates reveal liquidity levels. Highly liquid markets, such as major forex pairs like EUR/USD, typically have tighter spreads and more consistent prices. By contrast, less liquid assets might exhibit greater price discrepancies, signalling caution or potential opportunities to analyse deeper. Impact on Strategy and Broader Markets Spot rates directly influence trading strategies, especially in markets tied to commodities or currencies. Futures pricing, for instance, is often built upon the spot quote. Traders use these quotes to gauge whether hedging or speculative strategies align with current dynamics. A mismatch between spot and futures prices can indicate a contango or backwardation scenario, providing insight into whether traders are expecting costs or supply changes in the near term. Beyond individual strategies, they also ripple through broader markets. For businesses and investors, they act as barometers in cost evaluating and pricing. For example, airlines keep a close eye on the current price of jet fuel to decide when to secure future contracts, directly impacting operational costs and profitability. Similarly, multinational companies use spot pricing in forex to manage cross-border expenses or revenue. The Bottom Line Spot rates are at the heart of trading, offering real-time insights into market conditions and influencing strategies across financial markets. Understanding how they work can help traders navigate potential opportunities and risks. Whether you trade forex, commodities, stocks or other markets, choosing the right broker is essential. Open an FXOpen account to access competitive trading conditions, 700+ markets, and user-friendly platforms and trade CFDs designed for all levels of traders. FAQ What Is a Spot Rate? A spot rate represents the price at which an asset, such as a currency, commodity, or security, is currently available for immediate settlement. Traders and businesses often use these prices as benchmarks in transactions and to assess market conditions. What Does Spot Price Mean? The spot rate meaning refers to the exact market price for an asset at a specific moment in time. It’s the price buyers are willing to pay and sellers are willing to accept for immediate delivery. These prices are dynamic, changing with broader conditions. When to Use Spot Rate? Spot rates are commonly used when immediate delivery of an asset is required. Traders often rely on them in short-term positions, while businesses might use them for immediate currency exchanges or raw material purchases. They’re also used as reference points when evaluating forward contracts and derivatives. How Are Spot Exchange Rates Determined? Spot exchange rates are determined by the forces of supply and demand. Factors like interest rates, economic data, geopolitical events, and liquidity can influence them. Is Spot Trading Risk Free? No, all trading carries risks. Prices can be volatile, and unexpected market events may lead to losses. Understanding these risks and using proper risk management techniques can help potentially mitigate losses. *Important: At FXOpen UK, Cryptocurrency trading via CFDs is only available to our Professional clients. They are not available for trading by Retail clients. To find out more information about how this may affect you, please get in touch with our team. Trade on TradingView with FXOpen. Consider opening an account and access over 700 markets with tight spreads from 0.0 pips and low commissions from $1.50 per lot. This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

Education

How to Spot a Reversal Before It Happens (Before Your SL Hits)You know the feeling. You’re confidently riding a winning trend, high on the euphoria of green candles, when—BAM—the market flips faster than a politician in an election year. Your once-perfect trade is now a humiliating red mess, and your stop loss is the only thing standing between you and financial pain. But what if you could see that reversal coming before it smacks you in the face? What if, instead of watching your profits evaporate, you could exit like a pro—or better yet, flip your position and ride the reversal in the other direction? Reversals don’t happen out of thin air. The signs are always there—you just have to know where to look. In this idea, we break down how to spot reversals before they happen. 😉 Price Action: The Market’s Way of Dropping Hints Markets don’t just change direction because they feel like it. Reversals happen when sentiment shifts—when buyers and sellers agree, sometimes all at once, that the current trend has run its course. The first clue? Price action itself. Look for hesitation. A strong uptrend should be making higher highs and higher lows. A downtrend should be carving out lower lows and lower highs. But what happens when that rhythm starts breaking? A higher high forms, but the next low dips below the previous one? Warning sign. Price approaches a key resistance level, but momentum stalls, and candles start looking indecisive? Caution flag. A massive engulfing candle wipes out the last three sessions? Somebody just hit the eject button. Before markets reverse, they throw up some red flags first—and depending on your time frame, these red flags can give you a heads up so you can prepare for what’s coming. 🔑 Divergence: When Your Indicators Are Screaming "Lies!" Indicators might be lagging, but they’re not useless—especially when they start disagreeing with price. This is where divergence comes in. If the price is making new highs, but your favorite momentum indicator (RSI, MACD, Stochastic—you name it) isn’t? That’s a major warning sign. Bearish Divergence: Price makes a higher high, but RSI or MACD makes a lower high. Translation? The momentum behind the move is fizzling out. Bullish Divergence: Price makes a lower low, but RSI or MACD makes a higher low. Translation? Sellers are losing their grip, and a bounce might be coming. Divergences don’t mean immediate reversals, but they do suggest that something’s off. And when the market starts whispering, it’s best to listen before it starts shouting. 📍 Volume: Who’s Actually Driving the Move? A trend without volume is like a car running on fumes—it’s only a matter of time before it stalls. One of the clearest signs of a potential reversal is a divergence between price and volume. If price is pushing higher, but volume is drying up? Buyers are getting exhausted. If price is tanking, but selling volume isn’t increasing? The bears might be running out of steam. If a major support or resistance level gets tested with huge volume and a violent rejection? That’s not a coincidence—it’s a battle, and one side is losing. Reversals tend to be violent because traders are caught off guard. Watching the volume can help you avoid being one of them. 📊 Key Levels: Where the Market Loves to Reverse Price doesn’t move in a vacuum. There are levels where reversals love to happen. Support and Resistance: The most obvious, yet most ignored. When price approaches a level that’s been historically respected, pay attention. Fibonacci Retracements: Markets are weirdly obsessed with 38.2%, 50%, and 61.8% retracement levels. If a trend starts stalling near these zones, don’t ignore it. Psychological Numbers: Round numbers (like 1.2000 in Forex , $500 in stocks , or $120,000 in Bitcoin BITSTAMP:BTCUSD act like magnets. The more traders fixate on them, the more likely they become reversal points. Smart money isn’t chasing prices randomly. They’re watching these levels—and if you’re not, you might consider doing it. 🚨 Candlestick Warnings: When the Market Paints a Picture Candlesticks aren’t just pretty chart elements that give you a sense of thrill—they tell stories. Some of them hint at “reversal.” Doji: The ultimate indecision candle. If one pops up after a strong trend, the market is questioning itself. Engulfing Candles: A single candle that completely erases the previous one? That’s power shifting sides. Pin Bars (Hammer/Inverted Hammer, Shooting Star): Long wicks show rejection. When they appear at key levels, reversals often follow. Candlestick patterns alone aren’t enough, but when they show up alongside other reversal signals, they’re hard to ignore. 📰 The News Factor: When Fundamentals Crash the Party Technical traders like to pretend breaking news doesn’t matter—until it does. Earnings reports , economic data , interest rate decisions ECONOMICS:USINTR —these events can turn a strong trend into a dumpster fire instantly. A stock making all-time highs right before earnings? Tread carefully. A currency pair trending up before an inflation report? One bad number, and it’s lights out. A crypto rally before a major regulation announcement? That could end badly. Reversals don’t always come from charts alone. Sometimes, they come from the real world. And the market rarely gives second chances. ✨ The Reversal Cheat Sheet: When Everything Aligns A single signal doesn’t guarantee a reversal. But when multiple factors line up? That’s when you need to take action. If you see: ✅ Divergence on indicators ✅ Volume drying up or spiking at a key level ✅ A major support/resistance level getting tested ✅ Reversal candlestick patterns forming ✅ News lurking in the background Then congratulations—you’ve likely spotted a reversal before your stop loss takes the hit. ✍ Conclusion: Stay Ahead, Not Behind Catching reversals before they happen isn’t magic—it’s just about knowing where to look. Price action, volume, key levels, indicators, and even the news all leave clues. The problem? Most traders only see them after their account takes the hit. Don’t be most traders. Pay attention, recognize the signs, and act before the market flips the script on you. Because the best time to spot a reversal? Before it happens. Do you use any of these strategies to spot reversals in your trading? What’s the last time you did it and what were you trading—forex, crypto, stocks or something else? Let us know in the comments!

Education

What Is Market Capitulation, and How Can You Trade It?What Is Market Capitulation, and How Can You Trade It? Market capitulation occurs when investors collectively surrender to market fears, leading to a sharp decline in asset prices. This article delves into the mechanics of capitulation, how to identify it, and ways to trade effectively during these tumultuous times. Understanding Market Capitulation Market capitulation refers to a phenomenon where a large number of investors simultaneously give up on the market, leading to a rapid and substantial decline in asset prices. This mass surrender is driven primarily by panic and fear of further losses. Capitulation often marks the peak of a bearish trend and is typically characterised by a significant spike in trading volumes and sharp price declines. Stock capitulation occurs when investors, overwhelmed by fear and uncertainty, rush to sell their assets to avoid further losses. This behaviour is often triggered by prolonged market downturns or significant economic events. For instance, during the COVID-19 pandemic in March 2020, the S&P 500 experienced a nearly 5% drop in a single day, a classic example of market capitulation. This event led to a subsequent 17% rebound in the index over the following week, highlighting how capitulation can precede a market turnaround. Psychologically, capitulation represents the point where investor sentiment shifts from hope to despair. The collective mindset of "cutting losses" leads to a cascade of selling pressure, pushing prices to extreme lows. The intensity of selling can be so severe that it wipes out significant market value in a very short period. While capitulation can be daunting, it also presents opportunities. For contrarian investors and traders, these periods of panic selling can offer attractive entry points. As prices plummet, fundamentally strong assets may become undervalued, providing a chance to buy at lower prices. However, caution is essential as markets can remain volatile, and further declines are possible before a sustained recovery takes hold. Identifying Market Capitulation Identifying market capitulation involves recognising several key indicators that signify a dramatic surge in selling pressure and a sharp decline in asset prices. Here are the most notable indications to look for: Steep Price Decline Capitulation is typically associated with a rapid and substantial drop in asset prices. This sharp decline occurs as panic selling accelerates, pushing prices down swiftly, often with large candles and minimal wicks. High Trading Volume During capitulation, there is often a significant spike in trading volume as investors rush to sell their holdings. This increase in volume is a key signal that a large number of market participants are exiting their positions simultaneously. Extreme Bearish Sentiment Market sentiment during capitulation is overwhelmingly negative. News and investor sentiment indicators turn highly pessimistic, contributing to the panic and further driving down prices. Technical Indicators Various technical analysis tools can help identify capitulation: - Volume Oscillator and On-Balance Volume (OBV): These indicators track changes in volume and can signal when selling pressure is peaking. A sharp decrease in these indicators often accompanies capitulation. - Candlestick Patterns: Patterns like the hammer candlestick, which shows a recovery from intraday lows, and other patterns like the three white soldiers, can indicate that the market may have reached a bottom. The presence of such patterns, especially when accompanied by high volume, suggests a potential reversal. - Bollinger Bands: These bands plot 2 standard deviations above and below a moving average. During capitulation, prices often touch or fall below the lower band, which indicates extreme selling conditions and potential oversold levels. This is especially true if the price falls beyond 3 standard deviations. - Average True Range (ATR): The ATR is an indicator that’s used to measure market volatility. A sudden, sharp increase in ATR during a downtrend can signal capitulation as it reflects the heightened panic and large price movements typical of such periods. Exhaustion of Selling Capitulation often marks the point where selling pressure exhausts. This occurs when most investors who intend to sell have done so, leaving fewer sellers in the market. This depletion of sellers can indicate that a bottom is near and that a reversal may be imminent. The Impact of Market Capitulation on Markets Market capitulation has significant effects on financial markets, influencing both short-term and long-term trends. Short-Term Impact Immediately following capitulation, markets often experience extreme volatility and uncertainty. The intense selling pressure often drives asset prices sharply lower, causing values to drop significantly below their intrinsic worth. This phase is characterised by wild price swings as the market seeks a new equilibrium. The pervasive negative sentiment and widespread fear can further exacerbate the situation; across a broader downward move, there can be multiple points of capitulation with high volatility surrounding these additional selloffs. Long-Term Implications Over the long term, capitulation often marks the bottom of a market downturn. As the selling pressure diminishes and fewer investors remain to sell, the market begins to stabilise. This stabilisation allows new investors to enter the market, often leading to a gradual recovery in asset prices. However, it is essential to recognise that not every capitulation results in an immediate market reversal. Some markets may continue to decline or consolidate before a sustained recovery takes hold, with these new investors falling prey to the same fear-driven trading as another potential capitulation occurs. Psychological and Sentimental Effects Capitulation also has a lasting impact on investor sentiment. The severe downturn and associated losses can create a long-term negative perception of the affected assets, causing investors to remain cautious even after the market begins to recover. This psychological impact can lead to reduced trading volumes and prolonged periods of low investor confidence. How to Trade Around a Market Capitulation Event Trading around a market capitulation event can be challenging due to the difficulty in accurately identifying capitulation in real-time. Capitulation often becomes clear only in hindsight, which complicates the process of trading or anticipating it effectively. Avoiding the Falling Knife After identifying potential capitulation—characterised by a sharp price drop, likely on increased volume, and backed by extreme bearish sentiment—,it's typically unwise to try and buy during the initial plunge. The sharp decline often leads to further drops, even if they are less severe. Trying to "catch the falling knife" can potentially result in further losses as prices continue to fall. Taking a Short Position During a Dead Cat Bounce One of traders’ approaches is to take a short position during a "dead cat bounce" or brief pullback before another downward leg. However, this strategy carries a less favourable risk/reward ratio because it involves selling low with the intention of selling lower. This might be effective but requires precise timing and strong risk management. Waiting for Stability The most prudent strategy is often to wait until market volatility subsides and a bottom appears to form. Signs of a market bottom include the price overcoming a previous swing high or breaking through a prior level of resistance. This indicates a potential shift in market sentiment, offering the trader an opportunity to buy low and sell high with a much more favourable risk-reward profile. Using Confluence in Analysis Combining different forms of analysis can provide greater confidence in identifying a market bottom. For example, if prices fall to a key support level or the decline seems disproportionately sharp compared to fundamentals, it might indicate an oversold condition. Momentum indicators and moving averages can also help confirm potential reversal points. Risk Management Strong risk management practices are crucial. Limiting position sizes and always adhering to a stop loss can potentially prevent severe losses if the market experiences another leg down. This means that traders can potentially protect themselves against unexpected volatility and further declines. Common Mistakes Traders Make During Market Capitulation Navigating market capitulation is challenging due to the extreme volatility and widespread panic that characterise these events. Here are some specific mistakes that traders frequently make during market capitulation: Panic Selling One of the most common mistakes is succumbing to panic and selling off assets hastily. During capitulation, the market is driven by extreme fear, and many traders sell to avoid further losses. This emotional response can lead to selling at the lowest point, locking in significant losses and missing out on potential rebounds once the market stabilises. Holding onto Losing Positions Traders often make the mistake of holding onto a losing position, hoping for a reversal. When a trader holds a long position and witnesses market capitulation, the instinct might be to wait for the market to recover. However, this can lead to further losses as the asset's value continues to decline. Instead of cutting losses early, some traders let the losses accumulate, which can deplete their capital and limit future trading opportunities. This contradicts the previous point, and you may be confused about whether you sell or hold onto the trade. In any case, you will face a decision to either sell or hold on to their position if the capitulation is severe and protracted. It will always depend on the context and fundamental reason behind the capitulation, it’s worth noting that stocks generally recover over time. Trying to Time the Bottom Attempting to time the market bottom during capitulation is exceedingly difficult and can easily lead to additional losses. Capitulation typically involves sharp price declines and increased volatility, making it challenging to determine the exact bottom. Traders who try to catch the falling knife may find themselves buying into a market that continues to drop. Overexposing Positions Another mistake is overexposing oneself to high-risk positions during periods of extreme market volatility. Instead of taking bolder positions, traders are best served to limit their exposure with smaller positions, stop losses, a diversified portfolio, and more judicious entries. It's essential to maintain a balanced approach and avoid putting too much capital into volatile trades. The Bottom Line Understanding and navigating market capitulation can be challenging but offers potential opportunities for informed traders. By recognising key indicators and avoiding common mistakes, traders can better manage their strategies during these volatile periods. For a robust trading experience, consider opening an account with FXOpen to leverage these insights and trade with a broker you can trust. FAQs What Is Capitulation in the Stock Market? The capitulation meaning in the stock market refers to the moment when investors and traders, overwhelmed by fear and panic due to a prolonged decline in stock prices, decide to sell their holdings at any price to stop further losses. This mass selling leads to a sharp and rapid drop in stock prices. The term is derived from the military concept of surrender, indicating that investors are giving up on their positions. Is Capitulation Bullish or Bearish? Capitulation is both bullish and bearish. It is bearish during the actual event, as it involves widespread panic selling and a significant drop in stock prices. However, it can be bullish afterward, as it often marks the end of a severe downtrend and the beginning of a recovery or rally. This is because the selling pressure is exhausted, and buyers start to step in, finding attractive entry points. How Does Capitulation Work? Capitulation works through a cycle of fear and panic. Initially, as prices decline, some investors start selling to cut their losses. This selling pressure causes prices to drop further, leading more investors to panic and sell their holdings. This cycle continues until the majority of investors have sold their positions, leading to a sharp decline in prices. Eventually, the market stabilises as the selling pressure diminishes, often followed by a recovery. What Are Signs of Capitulation? Signs of capitulation include a sharp decline in prices, high trading volumes, extreme bearish sentiment, and market exhaustion, where selling pressure diminishes, stabilising the market. What Is Capitulation in Crypto*? Capitulation in the cryptocurrency market* follows a similar pattern to that in the stock market. It occurs when crypto* investors, driven by fear and panic due to a prolonged decline in prices, sell their holdings en masse, leading to a sharp drop in prices. This can be triggered by negative news, regulatory actions, or broader market downturns. *Important: At FXOpen UK, Cryptocurrency trading via CFDs is only available to our Professional clients. They are not available for trading by Retail clients. To find out more information about how this may affect you, please get in touch with our team. Trade on TradingView with FXOpen. Consider opening an account and access over 700 markets with tight spreads from 0.0 pips and low commissions from $1.50 per lot. This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

Education

HIGH Volatility Alert! Everything You Need to Know Have you ever wondered why the certain trading instruments are very rapid while some our extremely slow and boring? In this educational article, we will discuss the market volatility , how is it measured and how can it be applied for making smart trading and investing decisions. 📚 First, let's start with the definition. Market volatility is a degree of a fluctuation of the price of a financial instrument over a certain period of time. High volatility reflects quick and significant rises and falls on the market, while low volatility implies that the price moves slowly and steadily. High volatility makes it harder for the traders and investors to predict the future direction of the market, but also may bring substantial gains. On the other hand, a low volatility market is much easier to predict, but the potential returns are more modest. The chart on the left is the perfect example of a volatile market. While the chart on the right is a low volatility market. 📰 The main causes of volatility are economic and geopolitical events. Political and economic instability, wars and natural disasters can affect the behavior of the market participants, causing the chaotic, irrational market movements. On the other hand, the absence of the news and the relative stability are the main sources of a low volatility. Here is the example, how the Covid pandemic affected GBPUSD pair. The market was falling in a very rapid face in untypical manner, being driven by the panic and fear. But how the newbie trader can measure the volatility of the market? The main stream way is to apply ATR indicator , but, working with hundreds of struggling traders from different parts of the globe, I realized that for them such a method is complicated. 📏 The simplest way to assess the volatility of the market is to analyze the price action and candlesticks. The main element of the volatile market is occasional appearance of large candlestick bars - the ones that have at least 4 times bigger range than the average candles. Sudden price moves up and down are one more indicator of high volatility. They signify important shifts in the supply and demand of a particular asset. Take a look at a price action and candlesticks on Bitcoin. The market moves in zigzags, forming high momentum bullish and bearish candles. These are the indicators of high volatility. 🛑 For traders who just started their trading journey, high volatility is the red flag. Acting rapidly, such instruments require constant monitoring and attention. Moreover, such markets require a high level of experience in stop loss placement because one single high momentum candle can easily hit the stop loss and then return to entry level. Alternatively, trading a low volatility market can be extremely boring because most of the time it barely moves. The best solution is to look for the market where the volatility is average , where the market moves but on a reasonable scale. Volatility assessment plays a critical role in your success in trading. Know in advance, the degree of a volatility that you can tolerate and the one that you should avoid. ❤️Please, support my work with like, thank you!❤️ I am part of Trade Nation's Influencer program and receive a monthly fee for using their TradingView charts in my analysis.

Education

by VasilyTrader

US Nonfarm Payroll Report: Market Insights US Nonfarm Payroll Report: Market Insights Navigating the complex waves of the financial markets requires an astute understanding of various economic indicators. Among them, the nonfarm payroll report stands out as a pivotal monthly metric that can significantly sway financial markets. This article demystifies the intricacies of this influential report, walking through what to know before trading it. Nonfarm Payroll Definition The nonfarm payroll (NFP) is a key economic barometer that tallies the number of employed individuals in the US, excluding the agricultural sector. Besides the farm workers, government, private household, and nonprofit organisation workers are not included. This nonfarm payroll, meaning the workforce in industries like manufacturing, services, construction, and goods, reflects the health of corporate America and, by extension, the US economy. It’s one of the components of the Employment Situation report released on the first Friday of every month by the US Bureau of Labor Statistics. Nonfarm employment change data is released along with unemployment rate and average hourly earnings data. Given its encompassing nature, the NFP and its importance to economic vitality makes it a beacon for investors and traders, who see the data as a projection of economic trends and an influencer of the Federal Reserve's monetary policy. Fluctuations in NFP numbers can cause significant movements in currency, bond, and stock markets. The Nonfarm Payroll Report and Market Volatility The release of NFP figures is a major event on the economic calendar, often triggering heightened market volatility. As nonfarm payroll news hits the wires, traders and investors brace for potential rapid swings in asset prices, particularly in the forex market. The immediate aftermath can see significant fluctuations in currency pairs with the US dollar. The anticipation and reaction to the nonfarm payroll in forex markets exemplify the weight this report carries. Impact of NFP on USD Pairs The nonfarm payroll report has a profound influence on USD pairs. When the NFP data is released, traders immediately compare the figures to market expectations, leading to price adjustments based on how well the actual data aligns with analyst forecasts. The broader trend of NFP data is also important, but it generally takes a backseat compared to actual vs expected figures. For example, if the report indicates stronger-than-expected job growth, the US dollar typically strengthens, especially against currencies like the euro, yen, and pound. A robust employment outlook suggests economic health, potentially raising expectations for tighter monetary policy from the Federal Reserve. On the flip side, if the NFP numbers fall short of expectations, the US dollar may weaken, particularly if the data points to economic slowdown or stagnation. In such cases, currencies like the euro or Japanese yen might rise against the dollar, as traders speculate that the Federal Reserve could delay interest rate hikes or even consider easing measures to boost the economy. The NFP report also reverberates through other major currency markets. For instance, currencies in economies closely tied to US trade and investment—such as the Canadian dollar or Mexican peso—may experience volatility as changes in US employment data often reflect shifts in economic demand for their goods and services. The Role of Employment Rates and Wages in Market Sentiment Within the US nonfarm payroll release, two key indicators—unemployment rates and average hourly earnings (month-on-month)—are pivotal in influencing market sentiment. Unemployment Rates The unemployment rate measures the percentage of the labour force actively seeking employment but currently without a job. A falling unemployment rate generally signals that more people are finding work, a positive indicator for economic growth. As a result, equities may rally, and the US dollar often strengthens, particularly if the data beats expectations. Traders interpret lower unemployment as a sign of economic resilience, which could influence the Federal Reserve to maintain or tighten monetary policy, further boosting the dollar. Conversely, a rising unemployment rate may signal economic weakness, spurring concerns over reduced consumer spending and slowing economic activity. This could lead investors to shift towards so-called safer assets like bonds or gold. In the forex market, a rising unemployment rate tends to weaken the US dollar as it lowers expectations for interest rate hikes and prompts speculation about potential stimulus or rate cuts by the Federal Reserve, further pressuring the dollar and encouraging risk-off sentiment. Average Hourly Earnings Alongside unemployment, average hourly earnings (m/m) is another key metric that traders closely monitor. This indicator tracks changes in wages from one month to the next and offers insight into inflationary trends. When average hourly earnings rise, it can indicate that workers have more disposable income, which can increase consumer spending. Higher wages often fuel concerns about inflation, prompting markets to anticipate interest rate hikes to combat potential overheating in the economy. This expectation typically strengthens the US dollar. However, if average hourly earnings come in below expectations or show signs of stagnation, markets may interpret this as a sign of weaker inflationary pressures. In such cases, traders may anticipate a more dovish stance from the Federal Reserve, potentially delaying or even reversing interest rate hikes. This can weigh on the US dollar and boost equities. Execution Tactics for the Nonfarm Payroll Report Release On the day the NFP data is released, specific execution tactics tailored to the NFP's unique market footprint can add substantial value. Due to the potential for rapid price movements, traders narrow their focus to liquid markets, like EUR/USD, USD/JPY, and GBP/USD, to facilitate quick entries and exits. They’ll typically trade on the 1m, 2m, 5m, or 15m charts and often require platforms built with speed in mind. Nonfarm payroll trading involves comparing the actual data against market expectations. The outcomes can typically be categorised as follows, with each scenario influencing forex markets differently: - As Expected: Currency values may experience minimal immediate impact if the report aligns with analyst forecasts, as the anticipated news is already priced into the market. - Better than Expected: A robust report can boost the US dollar, as higher employment rates suggest economic strength, potentially leading to rising interest rates. - Worse than Expected: Conversely, weak employment figures can devalue the US dollar, reflecting economic concerns and pressuring policymakers towards accommodative measures. Given the volatility, many traders prefer limit orders to manage slippage, potentially ensuring they enter the market at predetermined points. Lastly, spreads can widen substantially, inadvertently triggering a stop loss. Some traders choose to set a wider stop loss than normal for this reason. Traders usually monitor not just the headline number but also revisions of previous reports and associated metrics, such as unemployment rate and wage growth, which can influence market sentiment. High-speed news feeds and an economic calendar containing nonfarm payroll dates are employed to access the numbers in real-time, enabling immediate analysis. Analysing Unemployment and Wage Growth Numbers Together with NFP When trading around the nonfarm payroll release, it's essential to look beyond the headline number and integrate unemployment and wage growth data into your analysis. The NFP number alone can drive initial market reactions, but combining it with unemployment and wage growth figures provides a more nuanced view of the economy’s direction. Traders start by comparing the trends across these three metrics. For example, if the NFP report shows strong job creation but unemployment remains stubbornly high, this could indicate that the economy is absorbing a larger labour force, potentially due to discouraged workers returning to job-seeking. This dynamic might lead to a more muted market response, as the overall labour market picture is mixed. On the other hand, rising average hourly earnings alongside strong US nonfarm payrolls often signals not just employment growth but increasing inflationary pressure. If wages grow faster than expected, especially when paired with a low unemployment rate, it could indicate that labour shortages are driving up pay, raising inflation risks and making Federal Reserve action more likely. In this scenario, traders might anticipate a stronger US dollar, as higher interest rates become more probable. To streamline your analysis during nonfarm payrolls, consider the following approach: - Aligning Expectations: Traders compare actual numbers for NFP, unemployment, and wage growth with analyst forecasts. If NFP and wages grow but the unemployment rate falls, the market is likely to favour USD strength, while mixed results can trigger choppier price action as traders digest the implications. - Gauging Momentum: Looking at the broader trend can provide further insight. If unemployment has been trending down and wages are steadily increasing (i.e. an expanding economy), the overall market sentiment may remain bullish even if NFP slightly underperforms. Conversely, if there’s a rising unemployment rate despite decent NFP growth, it could signal that the economy is slowing down. - Assessing Policy Impact: It’s good to know how the Federal Reserve might interpret the combined data. For instance, moderate NFP growth with stagnant wage numbers may not trigger immediate policy shifts, allowing for more accommodative conditions in the near term. However, strong wage growth and low unemployment alongside robust NFP numbers are more likely to prompt a hawkish response. Trading the NFP: A Strategy Traders often consider analytical nonfarm payroll predictions to calibrate their strategies. However, an approach to take advantage of whichever direction the market takes uses an OCO (One Cancels the Other) order. This order straddles the current price range just before the report is released. Such a strategy prepares the trader for movement in either direction, as the NFP release can generate a significant breakout from the prevailing range. According to theory, the strategy unfolds: - An OCO order is placed with one order above the current price range and another below it. This setup positions the trader to catch the initial surge regardless of its direction. - Stop losses might be set on the opposite side of the pre-report range to potentially manage risk. - Profit targets might be established within a four-hour window post-release, aiming for a favourable risk/reward ratio, such as 1:3. - Alternatively, a trailing stop may be utilised, adjusting above or below newly formed swing points to protect potential returns as a trend develops. Such strategies allow traders to potentially capitalise on the new trend direction ushered in by the NFP data. Risk Management When Trading NFP Trading the NFP report often brings heightened volatility, making risk management crucial for protecting capital during these market swings. Below are some key risk management practices often employed when trading the NFP: - Awareness of Spreads: Spreads can widen substantially during NFP releases. This can trigger even wide stop losses; tight stop losses can suffer extreme slippage, where the stop loss execution price differs substantially from the desired price. - Conservative Position Sizing: Some traders take smaller positions when entering pre- and post-NFP release. The increased volatility when the report is released can lead to slippage and greater-than-anticipated losses as a consequence. Likewise, post-release conditions can also be unpredictable if data is mixed. - Avoiding Overtrading: Aim to be selective with trades to avoid chasing price swings in a highly reactive market. It might be preferable to wait for a clear direction to emerge before entering a trade. Comparative Analysis with Other Economic Indicators The NFP report serves as a primary mover in the forex market, but its full value is best understood in concert with other economic indicators. Investors compare its findings with the Consumer Confidence Index for insights into spending trends, as employment health can influence consumer optimism and spending behaviours. Likewise, juxtaposing NFP data against the Gross Domestic Product (GDP) figures provides a more complete narrative of the economic cycle since higher employment typically signals increased production and economic growth. Additionally, assessing the Consumer Price Index (CPI) and Producer Price Index (PPI) alongside NFP numbers can offer insight into inflationary pressures; strong employment data may point to higher inflation, a significant factor in central bank policy decisions. The Bottom Line In closing, learning how to trade nonfarm payroll data today may sharpen your market acumen and create exciting trading opportunities in the future. For those ready to apply these insights when NFP data is released, opening an FXOpen account provides access to over 700 markets, high-speed trade execution, tight spreads from 0.0 pips, and low commissions from $1.50. Happy trading! FAQ What Is NFP and How Does It Work? The NFP meaning refers to the nonfarm payroll report, data that measures the number of jobs added in the US economy, excluding the agricultural sector. Released on the first Friday of every month by the US Bureau of Labor Statistics, the NFP is a key indicator of economic health, affecting currency, bond, and stock markets. How Does Nonfarm Payroll Affect the Stock Market? NFP data can drive stock market volatility. Strong job growth signals economic strength, often boosting equities. Conversely, weak NFP figures may indicate a slowing economy, leading to stock market declines as investors anticipate weaker corporate earnings. What Happens When NFP Increases? An NFP increase suggests robust job growth, typically strengthening the US dollar and stock markets, as investors expect economic expansion and potentially tighter monetary policy from the Federal Reserve. Why Is Nonfarm Payroll So Important? An NFP report is crucial because it reflects the overall health of the US labour market and economy. Traders and investors use the data to gauge economic trends, determine Federal Reserve actions, and understand where markets are headed. Trade on TradingView with FXOpen. Consider opening an account and access over 700 markets with tight spreads from 0.0 pips and low commissions from $1.50 per lot. This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

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Effective inefficiency Stop-Loss. This combination of words sounds like a magic spell for impatient investors. It's really challenging to watch your account get smaller and smaller. That's why people came up with this magic amulet. Go to the market, don't be afraid, just put it on. Let your profits run, but limit your losses - place a Stop-Loss order. Its design is simple: when the paper loss reaches the amount agreed upon with you in advance, your position will be closed. The paper loss will become real. And here I have a question: “ Does this invention stop the loss? ” It seems that on the contrary - you take it with you. Then it is not a Stop-Loss, but a Take-Loss. This will be more honest, but let's continue with the classic name. Another thing that always bothered me was that everyone has their own Stop-Loss. For example, if a company shows a loss, I can find out about it from the reports. Its meaning is the same for everyone and does not depend on those who look at it. With Stop-Loss, it's different. As many people as there are Stop-Losses. There is a lot of subjectivity in it. For adherents of fundamental analysis, all this looks very strange. I cannot agree that I spent time researching a company, became convinced of the strength of its business, and then simply quoted a price at which I would lock in my loss. I don't think Benjamin Graham would approve either. He knew better than anyone that the market loved to show off its madness when it came to stock prices. So Stop-Loss is part of this madness? Not quite so. There are many strategies that do not rely on fundamental analysis. They live by their own principles, where Stop-Loss plays a key role. Based on its size relative to the expected profit, these strategies can be divided into three types. Stop-Loss is approximately equal to the expected profit size This includes high-frequency strategies of traders who make numerous trades during the day. These can be manual or automated operations. Here we are talking about the advantages that a trader seeks to gain, thanks to modern technical means, complex calculations or simply intuition. In such strategies, it is critical to have favorable commission conditions so as not to give up all the profits to maintaining the infrastructure. The size of profit and loss per trade is approximately equal and insignificant in relation to the size of the account. The main expectation of a trader is to make more positive trades than negative ones. Stop-Loss is several times less than the expected profit The second type includes strategies based on technical analysis. The number of transactions here is significantly less than in the strategies of the first type. The idea is to open an interesting position that will show enough profit to cover several losses. This could be trading using chart patterns, wave analysis, candlestick analysis. You can also add buyers of classic options here. Stop-Loss is an order of magnitude greater than the expected profit The third type includes arbitrage strategies, selling volatility. The idea behind such strategies is to generate a constant, close to fixed, income due to statistically stable patterns or extreme price differences. But there is also a downside to the coin - a significant Stop-Loss size. If the system breaks down, the resulting loss can cover all the earned profit at once. It's like a deposit in a dodgy bank - the interest rate is great, but there's also a risk of bankruptcy. Reflecting on these three groups, I formulated the following postulate: “ In an efficient market, the most efficient strategies will show a zero financial result with a pre-determined profit to loss ratio ”. Let's take this postulate apart piece by piece. What does efficient market mean? It is a stock market where most participants instantly receive information about the assets in question and immediately decide to place, cancel or modify their order. In other words, in such a market, there is no lag between the appearance of information and the reaction to it. It should be said that thanks to the development of telecommunications and information technologies, modern stock markets have significantly improved their efficiency and continue to do so. What is an effective strategy ? This is a strategy that does not bring losses. Profit to loss ratio is the result of profitable trades divided by the result of losing trades in the chosen strategy, considering commissions. So, according to the postulate, one can know in advance what this ratio will be for the most effective strategy in an effective market. In this case, the financial result for any such strategy will be zero. The formula for calculating the profit to loss ratio according to the postulate: Profit : Loss ratio = %L / (100% - %L) Where %L is the percentage of losing trades in the strategy. Below is a graph of the different ratios of the most efficient strategy in an efficient market. For example, if your strategy has 60% losing trades, then with a profit to loss ratio of 1.5:1, your financial result will be zero. In this example, to start making money, you need to either reduce the percentage of losing trades (<60%) with a ratio of 1.5:1, or increase the ratio (>1.5), while maintaining the percentage of losing trades (60%). With such improvements, your point will be below the orange line - this is the inefficient market space. In this zone, it is not about your strategy becoming more efficient, you have simply found inefficiencies in the market itself. Any point above the efficient market line is an inefficient strategy . It is the opposite of an effective strategy, meaning it results in an overall loss. Moreover, an inefficient strategy in an efficient market makes the market itself inefficient , which creates profitable opportunities for efficient strategies in an inefficient market. It sounds complicated, but these words contain an important meaning - if someone loses, then someone will definitely find. Thus, there is an efficient market line, a zone of efficient strategies in an inefficient market, and a zone of inefficient strategies. In reality, if we mark a point on this chart at a certain time interval, we will get rather a cloud of points, which can be located anywhere and, for example, cross the efficient market line and both zones at the same time. This is due to the constant changes that occur in the market. It is an entity that evolves together with all participants. What was effective suddenly becomes ineffective and vice versa. For this reason, I formulated another postulate: “ Any market participant strives for the effectiveness of his strategy, and the market strives for its own effectiveness, and when this is achieved, the financial result of the strategy will become zero ”. In other words, the efficient market line has a strong gravity that, like a magnet, attracts everything that is above and below it. However, I doubt that absolute efficiency will be achieved in the near future. This requires that all market participants have equally fast access to information and respond to it effectively. Moreover, many traders and investors, including myself, have a strong interest in the market being inefficient. Just like we want gravity to be strong enough that we don't fly off into space from our couches, but gentle enough that we can visit the refrigerator. This limits or delays the transfer of information to each other. Returning to the topic of Stop-Loss, one should pay attention to another pattern that follows from the postulates of market efficiency. Below, on the graph (red line), you can see how much the loss to profit ratio changes depending on the percentage of losing trades in the strategy. For me, the values located on the red line are the mathematical expectation associated with the size of the loss in an effective strategy in an effective market. In other words, those who have a small percentage of losing trades in their strategy should be on guard. The potential loss in such strategies can be several times higher than the accumulated profit. In the case of strategies with a high percentage of losing trades, most of the risk has already been realized, so the potential loss relative to the profit is small. As for my attitude towards Stop-Loss, I do not use it in my stock market investing strategy. That is, I don’t know in advance at what price I will close the position. This is because I treat buying shares as participating in a business. I cannot accept that when crazy Mr. Market knocks on my door and offers a strange price, I will immediately sell him my shares. Rather, I would ask myself, “ How efficient is the market right now and should I buy more shares at this price? ” My decision to sell should be motivated not only by the price but also by the fundamental reasons for the decline. For me, the main criterion for closing a position is the company's profitability - a metric that is the same for everyone who looks at it. If a business stops being profitable, that's a red flag. In this case, the time the company has been in a loss-making state and the size of the losses are considered. Even a great company can have a bad quarter for one reason or another. In my opinion, the main work with risks should take place before the company gets into the portfolio, and not after the position is opened. Often it doesn't even involve fundamental business analysis. Here are four things I'm talking about: - Diversification. Distribution of investments among many companies. - Gradually gaining position. Buying stocks within a range of prices, rather than at one desired price. - Prioritization of sectors. For me, sectors of stable consumer demand always have a higher priority than others. - No leverage. I propose to examine the last point separately. The thing is that the broker who lends you money is absolutely right to be afraid that you won’t pay it back. For this reason, each time he calculates how much his loan is secured by your money and the current value of the shares (that is, the value that is currently on the market). Once this collateral is not enough, you will receive a so-called margin call . This is a requirement to fund an account to secure a loan. If you fail to do this, part of your position will be forcibly closed. Unfortunately, no one will listen to the excuse that this company is making a profit and the market is insane. The broker will simply give you a Stop-Loss. Therefore, leverage, by its definition, cannot be used in my investment strategy. In conclusion of this article, I would like to say that the market, as a social phenomenon, contains a great paradox. On the one hand, we have a natural desire for it to be ineffective, on the other hand, we are all working on its effectiveness. It turns out that the income we take from the market is payment for this work. At the same time, our loss can be represented as the salary that we personally pay to other market participants for their efficiency. I don't know about you, but this understanding seems beautiful to me.

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Select market data provided by ICE Data services. Select reference data provided by FactSet. Copyright © 2025 FactSet Research Systems Inc.© 2025 TradingView, Inc.

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