Unraveling the bitter truth about compounding in trading"I'll start with $100 and flip it to $10k" is one of the lies we tell ourselves when we first start trading. Although compounding can do some wonders, without realistic expectations and targets, you will not reach your goal.
Illustrated on the chart, we can see a sincere and a deceitful statistical representation of a compounding system based on a year-long tracking. All numbers depicted in percentage-based returns are for example purposes. For both cases, we will have a $5000 beginning capital to work with.
Looking at the left hand-side of the screen where the realistic statistics are, we can observe that the ROE (return on investment) numbers differ from one month to another. Some months result in a small loss, some are in deep profits and so on. Just like every single trade, every single month should result in the following:
- A big win
- A small win
- A small loss
- A breakeven
On the contrary, looking at the table portrayed on the right side of the screen, we can see a blurry image of compounding. Expecting to make a fixed return of 10% every single month is nice, but unrealistic. No matter how well-backtested your trading strategy is, in the world of business and finance, nothing is 100%. Plus, there are several factors influencing our trading life: changing market conditions, negative impact of the surrounding environment on our everyday lives and so on. What we are trying to emphasise is that mentally and psychologically, it is impossible to make huge returns consistently on a monthly basis.
The bottom line: have a trading plan that fits your lifestyle the most, be disciplined, risk-tolerant, cold-blooded. And most importantly do not rush the process, as good things come to those who wait.
Investroy
GOOD BROKERS VS BAD BROKERSGood time of the day, TradingView community! The reason we decided to cover this topic are the alarming messages we’ve been receiving recently. “I am a representative for XXX, I’ll provide you with a white label brokerage, I instantly give you 50% of the loss of the customer who opened the account”. From the first glance, you can tell that there is something wrong ethically and legally. So how does one protect himself/herself and his/her capital from this danger. Simple answer: Education.
Scammy signal providers and fake mentors are much easier to identify. When it comes to brokers some might do a really good job covering up their true intent. Without further due, let’s get the broker guide started. Oh, well first of all, the word broker in this context is actually wrong to use. The so called “forex brokers” aren’t really brokers. In fact, even most of them don’t classify themselves as such. However, in order not to confuse you any further let’s keep it that way for this text.
We can break down all the forex brokers into Dealing Desk and No Dealing Desk. Dealing Desk can be classified as Market Makers and No Dealing Desk can be further broken down to “Straight-Through Processing” (STP) brokers, “Electronic Communication Network” and “Straight-Through Processing” (ECN/STP) brokers, “Direct Market Access” and “Straight-Through Processing” (DMA/STP) brokers.
To be honest, you don’t really need to know all that. Most you should know that there are 1) Good brokers looking for sustainable long-term collaboration 2) Bad brokers, not executing your trades and hoping for you to lose, so they can claim the collateral.
You may say: “Oh, Investroy, aren’t brokers waiting for us to lose anyway, so they can make profits? They automatically open a position equal and opposite to ours”. Well, that’s true. However, there is a big difference when it’s natural (there are more losing traders than winning ones) and when the broker is using mostly illegal ways to make you lose. This can be noticed when a broker has a discrepancy of more than 20 pips with the most trustworthy price outlets, suddenly increasing insanely large spreads and many other small tricks.
This all may want you think: “Oh, man, everybody wants to steal my money”. Not really, there are some honorable brokers out there with good reputation. Moreover, above in the chart we’re going to point out the main differentiations.
How to spot and avoid Stop Loss hunting: a complete guide Stop Loss hunting happens every trading day, and it's not something you would want to let fly under the radar.
We have carefully orchestrated some examples on the graph to give a clear picture of what this phenomenon really is, and listed some tips on how to avoid getting into this mouse trap.
In basic terms, Stop Loss hunting is the strategy of the price action spiking above/below key levels to enter the pool of Stop Loss orders and take the masses out of their positions before moving the price in the destined direction.
Looking at the first example, we can observe that a nice double top pattern has been formed. This is one of the clear indicators that the price might potentially drop after failing to rise above and forming a new top. Thus, a trader would most likely go short and set his Stop Loss a few pips above the freshly formed area of resistance. What happens next is obvious - a trader gets liquidated. Why? because him and tens of thousands of other market participants had set their Stop Losses at a very obvious key level - above the local zone of supply. After successfully spiking up and grabbing some liquidity, the price peacefully continues its bearish movements in the predetermined direction.
The second example is a similar one as well. "What a beautiful ranging market. Let's buy at support and sell at resistance." Only if it was that easy...
What happens next, the price spikes below the lower boundary of the sideways-moving range and grabs liquidity before moving in the upside direction.
Stop Loss hunting scenarios will always happen, and to be honest, we cannot really avoid them all. However, there are some tips that we can follow in order to evade these traps.
Firstly, you should never rush into entering positions. Eventually, the price will come to your levels and develop into some patterns (Double Top, Head&Shoulders etc.) before starting its big moves.
With that being said, no FOMO either. There will always be fish in the sea, just like there will always be opportunities in the market. Be patient, cold-blooded, and wait for your time.
Do not set a tight Stop Loss, because you will most likely get taken out immediately. Either set a wide one so you can escape hunting in case the price starts spiking up and down, or wait for cases of a fake breakout a.k.a liquidation before entering a position.
Last tip is a pretty smart one: set your entry orders at levels where masses would put obvious Stop Loss orders. Then, you will notice how many times the price goes in that direction.
Hope you enjoyed this Educational Post, dear TradingView community members! If you have any suggestions or recommendations for the next educational idea, feel free to let us know in the comment section below.
Questions to ask yourself before entering a tradeThere is a set of questions to ask yourself before opening a transaction and we will talk about some of the common ones.
1) Are my entry criteria met?
Undoubtedly, everyone has his own style of trading. Entry and exit strategies should be included in each and every trading plan there is. Only if the entry criterium is met, should we enter a position on any security. No FOMO, if our entry criteria have not been met, we sit on our hands and patiently wait.
2) Am I being risk tolerant?
Am I risking my usual 1-2% per position or I am too confident in this setup and would rather go all in? If you see yourself risking more than you usually do on a single trade, pause for a minute and thoroughly reflect. Yes, you can have some winners while risking a big portion of your total capital on a position, but does that not make you a gambler? Always remember that it is a marathon and not a sprint.
3) Have I set a Stop Loss?
Many people will say that it is not mandatory to set an SL if you are a position trader. Let me tell you this: a trade without a Stop Loss is like jumping off a cliff without a parachute. No matter how confident you are in your analytical skills, you can never be 100% sure that a trade will play out thoroughly according to your technical setup. Use a Stop Loss and carry on!
While there are many more questions that you may ask yourself before executing a position, we have addressed some popular ones. Of course, it solely depends on your trading plan, but the aforementioned questions can be implemented in every strategy.
Hope you enjoyed the read and thank you!
Harmonic Symbiosis of Technicals and Fundamentals The eyes are the mirror of the soul and reflect everything that seems to be hidden. Is the same true about charts? Absolutely. After successful week on EUR/USD, we've been getting a lot of questions on how we "read the charts". Well, buckle up :)
There are people who trade purely on fundamentals or technicals. It's been an ongoing battle for quite a while. This whole situations reminds me of two armies that are about to collide holding flags. One side has a duck, the other has the inverted version of the same flag that looks like a rabbit.
The reality about markets is.. one doesn't go without another. Moreover, it is all imprinted in what we perceive as a chart. If will for June section of the EUR/USD chart, we can note that the major news release are coincidental with the larger trends; however, they're expected through technicals as well.
Let's consider the range in the chart above, as we were approaching the upper side, some important news were released keeping it from breaking upwards. When the range slightly broke the lower boundary and wiped off some long positions, we saw a positive CPI m/m data released.
This goes all the way around as well, when the price reached 1.04 European Central Bank made an effort to maintain the price at that level and recover, even though there were no actual economical drivers for that. The retailers, obviously, supported this process as they saw a quite strong and familiar patter of "triple bottom".
This is not some theory or conspiracies, this is just how economy works through oscillations. Top successful traders call it "feeling the market" and it mostly comes from experience, but once you see it, you can't see it.
I hope this helps and you have a whole weekend ahead to let it sink in :)
All the best to the entire TradingView community!
Different strategies of setting a Target ProfitSetting a Target Profit is an inalienable part of every individual's trading strategy, and each trader has his own plan and tactic of integrating a Target Profit into his or her trading style. While there are different ways and types of setting up a Target Profit, we are gonna go through four common and most well-known ones.
1. Key zones
Setting a TP at a crucial zone of support or resistance is a strategy used mainly by swing traders. If the market is ranging, buying a security at the lower barrier of the rectangular box and aiming for the upper barrier of it and vice versa is commonly implemented in the market by middle or long-term speculators.
2. Risk-to-reward
This technique is mostly utilised by day traders and it implies setting a fixed risk-to-reward ratio for every trade and use the "set and forget" logic. On the illustration on the top right graph, it can be inferred that even thought the price has more potential to drop to the downside, a fixed RR of 1:3 has been set.
3. Logic and intuition
The more you trade, the more experience you gain. After some time on the markets, you will easily spot some patterns and price movements in advance, without being in need to have more confluences than usual. On the 3rd chart, we can observe that the price is forming a "Triple Bottom" pattern on the 50% Fibonacci retracement level. Our intuition tells us that after some consolidations, an impulsive move should take place, and there is a high possibility for the price to keep rising and reach the zone of the Higher High illustrated on the graph.
4. Open Target
Lastly, there is a group of traders that prefers having an open Target Profit and letting their trades run for weeks or even months. This tactic is commonly used by position traders, where they set a Stop Loss, but leave their Target Profit open, making it possible for them to hold a transaction open for long periods of time.
How to remain consistent while trading the financial marketsToday is a big day for us, as two years ago, on the 6th of June in 2020, we launched our company in attempts to be a valuable contributor to the trading industry and help all types of traders: beginners, advanced traders, those who are lost in the journey and so on. However, our personal trading experience goes way back, as we have been trading for more than five years. Throughout this long and interesting journey, we have had many ups and downs. After all, nothing in life is easy, and you have to overcome some obstacles in order to become consistent in what you are doing.
Reaching the doors of consistency is the main aim of every beginning and practising trader. Although many individuals may think of consistency as an upward-sloping straight line, years of practice and experience show us that it is rather an ascending channel. Being consistent does not necessarily signify that every trading day/week/month must be a winning one. You will always have losing streaks, unsuccessful trades and so forth. Instead, it indicates that by having a working trading strategy and obeying it, you are gonna be profitable in the long run.
Below, we have listed and scrutinized some of the rules that you can implement in your trading that can give you a hand in becoming and remaining consistent:
1. Have a clearly identified trading plan and stick to it
This may seem like a pretty basic rule, but believe me, most people never go past this pretty fundamental stage. It is really straightforward and crucial that you need to have a backtested trading strategy, and it could be anything you feel comfortable with. Whether you like to open positions once two Exponential Moving Averages cross each other, or once specific patterns are formed and the price is ready to move according to your bias and so forth.
2. Stop changing your trading strategy every time you encounter losses and feel frustrated
Trading is a game of numbers. Yes, you will experience many losing days. Yes, you will feel frustrated and angry to the stage that you might smash the screen of your computer. After all, emotions and psychology play a huge role in trading. Believe me, changing your strategy every week and trying to do something new will never be an option in this case. I see many people make this mistake and get perplexed on why they are not profitable yet. The right thing to do is to stick to one single trading plan and ride along till the end. At the end, if you are risk tolerant and patient, you will always be profitable in the long run.
3. Manage your risk
This can’t be said enough. I see people trade the markets like a casino in attempts to be profitable and successful in the long run. Just because you think the setup is perfect, or that you have seen your favourite author’s technical analysis nicely align with yours, you should not be risking big portions of your account on a single position. You should have a well-defined risk management plan. Whether it is risking 1% on all positions, or risking 5% per position on Friday afternoons in order to drink lots of champagne on the weekends. Bottom line: whatever you do, do it with a plan and keep things consistent. Personally, we have always been risking 1-2% per single position, as this is something we are comfortable with. If you feel like you are not mentally ready to trade a live account, you can start even smaller (0.5% per trade) and then gradually go bigger.
4. Do not overtrade and learn to stay off the markets when necessary
Many people think that opening more trades will generate them more profits. However, less is always more, and quality will always be over quantity. Depending on what type of a trader you are and what your trading strategy looks like, there should be an average number of trades that you enter every day/week. If you are a swing traders that tries capturing nice long-term waves, 3-5 trades per week would most likely be more than enough. If you are a scalper that loves sitting in front of the charts for hours, your strategy would probably consist of entering 15-20 short-term positions per day. Long story short, have a predetermined range and do not go off the barriers of it.
The above stated points are some of the tips and strategies that could help you in remaining consistent in the markets. They may seem pretty simple, but remember that beauty lies within simplicity. There is no need to make things more complicated when you can simply stick to basic principles and succeed in this industry.
Have a great trading week, family!
Investroy
1 MINUTE OF THIS WILL SAVE 10 MINUTES OF YOUR TIME 🕒Yes, we’re talking about planning. We’ve all heard this from different “gurus”, professionals, even friends and family. “What is your plan” is one of the most frequently asked questions in the world, yet most people usually don’t have a clear answer to it. Why? Most people don’t know the technique of proper planning. Investroy is here to help clarify this basic yet vital skill.
When you want your road to a better life to begin right now, planning may seem inconvenient. Getting around unfamiliar territory is much easier with a map and planning is our key here. It is important to note when we say planning in this context, we don’t only mean your trades. You have to look at the bigger picture. Why are you trading? To attain financial independence, make some extra money or maybe you just enjoy it (hmm.. we might have a psycho here). Without much talking, let’s jump right into it.
First of all, “Make a list of your objectives”. Well, some of you might have heard about the SMART formula. This means that your objectives have to be: Specific, Measurable, Achievable, Relevant and Time-Bound. In simpler words, you have to know exactly what you want, you need to have means to measure the progress, they have be realistic, make sense to you and have a timeline with an end date.
Secondly, “Make a strategy by breaking down your goal into manageable bits”
The first step is to figure out what you want to achieve. Big ambitions, on the other hand, might be intimidating, and you may feel as if you don't know how to get there. Unfortunately, here is when a lot of people lose up. Break it down into segments now that you know where you want to end. Where do you need to be in one year if your objective is to create a profitable business in two years? Is it really six months? What about next week? Make a strategy that breaks down your aim into tiny, manageable steps. Make a list of each step and establish a deadline for completing it.
Third step is to review your plan on a daily basis. Sometimes reality is different from what we have in mind, that’s fine. Make some adjustments and move along.
Lastly, you MUST stay focused and have a tunnel vision regarding your plan. “Sticking” to the plan sounds easy and complicated at the same time. Personally for us, creating habits off the market (going to the gym and having a healthy routine) helps significantly with following the planning process on the markets.
We truly this made you stop and think for a second and start planning now. At the end a goal without a plan is just a wish!
Power of Having Multiple Confluences in TradingThe more confluences you have, the more confident you are in the fact that your technical setup will play out according to the plan. Confluences come in different shapes and styles, whether it is combining some Moving Averages and Bollinger Bands with price action, or having your grandma flip a coin a decide the faith of Bitcoin.
On the graphical illustration that you can see on the screen, 3 confluences have been utilised to back up our idea and they are the following:
1) "Break + retest" formation
2) "Triple Top" pattern
3) Fibonacci retracement tool
It can be noticed from the left hand side of the screen, that the price has nicely broken out of the ascending channel and re-tested the local key structure. Moving to the next step, it can be emphasised that a nice "Triple Top" pattern has been formed. Lastly, we add another confluence to back up a possible scenario that we have eyes on by using the 61.8% Fibonacci retracement level, which is referred to as the "Golden Zone". Taking a look at the chart, we can clearly observe that long candle wicks are nicely rejecting this very zone.
All in all, combining multiple confluences give us enough confluence to back up our sentiment. However, nothing is 100% guaranteed in the markets, meaning that it is not promised that your trade will play out perfectly no matter how many confluences you have. Thus, be risk-tolerant, patient, and cold-blooded!
Have a great upcoming weekend, everyone!
WHAT TYPE OF ENTRIES DO YOU PREFER?Hey, traders, we just wanted to share this as an "Experience" thread, where everybody can share their input on types of entries they make. As depicted in the chart above, there are mainly two types of entries when it comes to patience level and strategy; however, we would totally love to hear your unique ways of executing the trade. Let's learn and earn together!
Trading in Books vs Trading in RealityWhat we study in the books is always different from what we have in real life. For example, French language that people learn and exercise in textbooks is slightly different from the French that we speak in France, as we tend towards using informal language and slang phrases. Same rule applies to trading, as the market is not 100% accurate with what we have in the books that educate us on trading. What we have in the books is absolutely crucial to learn the basics and even more. However, while applying the learned theorem in practice, in our case in the real-life markets, we notice that things are different. Thus, it is important to combine these two elements (on and off the market education) to master the craft.
Furthermore, beauty always lies within simplicity. What's written and illustrated in the books, is the most understandable language of trading. Hence, the expression "textbook stuff" exists. The more experience you gain in this field, the more you will realise that it is crucial to keep things super simplistic if we want to have a crystal clear vision of the market.
IGNORE THE NOISE AND NEGATIVE EXTERNAL ENERGYTrading is a one big system that consists of various different components: technicality, psychology, money management and so forth. The most difficult one out of all the elements is definitely psychology. Human psychology is a perplexing system that studies our mental process and behaviour. Our behaviour and mood rely on multiple internal and external factors. In our everyday life, our behaviour towards something can easily change when being affected by negative energy. The very same principles apply to trading. Our decision-making process can easily get fogged and mood get ruined after experiencing some losses, opportunity misses and so on. Even worse, our desire and will to keep trading and striving for success can get intercepted by some negative opinions and attitiudes of surrounding people.
It is totally acceptable to live a life that others do not understand. If you want something really bad, nothing can get in your way and stop you from achieving it. Block all the negative energy. Keep prospering, working towards your ambitions, and proving all the people that did not believe in you wrong!
Investroy
What Traders Want vs What Traders Get"It is a marathon, not a sprint". One of the statements that perfectly describes trading. But what does this proclamation really mean? I quote William Shakespeare: "Go wisely and slowly. Those who rush, stumble and fall". Great things take lots of time. 90% of all people get false expectations about trading before they enter the industry. They think it is a "get-rich-quick" scheme. In reality, it takes months/years of practice, hard work and experience to reach the doors of consistency and profitability. Furthermore, consistency in trading does not necessarily imply that every trade will be a winning one. It just indicates that if you keep following your trading plan, be risk tolerant and disciplined, you will be profitable and successful in the long-run.
We encourage you all to be patient and just ride with the trend as there is no need to rush anywhere. After all, Rome was not built in a day.
Hope you all enjoyed this quick educational and informative post! The purpose of this publication was to give you all some guidance and keep you motivated so you can continue your journey to the top of the mountain. If you have any more suggestions and recommendations on what our next educational idea should be about, feel free to let us know in the comments section below.
Investroy
Stop Loss hunting: the whole truth and the logic behind itGood time of the day, dear TradingView family! Welcome on another educational post by Investroy. Today we are gonna be talking about Stop Loss hunting. We will scrutinise what it is, how it happens and what's the logic behind it, and how to possibly avoid being "liquidated".
Have you ever had the price trigger your Stop Loss before impulsing all the way to your Target Profit and hitting it? If the answer is yes, then you have probably been a victim of Stop Loss hunts. But what is Stop Loss hunting? In simple terms, it is a strategy that forces some participants out of the game by driving the price to the level where they have set their Stop Loss orders. As we all know, retail traders always look for some sort of confirmations before entering a position. It can be a candlestick pattern, a moving average cross, a double top / double bottom formation and so on. They enter a position and set their Stop Loss a few pips above/below the local supply/ demand level . What happens 90% of the time is the price spikes up/down, hits the Stop Loss, liquidates so many positions and participants from the trade, and then continues moving alongside the trend. Why does it happen? Institutional traders know exactly what they need to do and which levels they need to buy/sell. Consequently, they set their buy/sell limit orders at places where they know retailers would set their Stop Losses, because they need to generate liquidity before jumping in the train. It does not necessarily signify that they track where retailers put their Stop positions, it is just they are more than sure which levels are crowded with Stop Loss orders.
We have prepared some examples in order to better elaborate on the issue and scrutinise how the case looks visually. Of course, these are only simple exemplars. It does not unquestionably mean that the price will always behave this way as the market conditions change quite often.
Looking at Example #1, we can see that the price spiked above the level of the right shoulder of the formed H&S pattern before continuing its downside movements. Now, which action do most retailers take once they spot these textbook patterns? They execute right away with their Stop Loss above/below the structure, which results in the positions getting wiped out.
Example #2 shows how the price spikes below/above obvious levels of support/resistance before continuing movements in the deliberate destinations.
Example #3 illustrates how obvious ascending/descending/sideways channels are, and how easy it is to get liquidated instantly, before the price carries on moving in the destined end.
How to avoid being eliminated? Well, you won't always be able to run away from Stop Loss hunting, but if you develop a proper working strategy against it, you will be able to identify possible zones filled with Stop Loss orders and avoid setting one around that area. If you are not gonna think long and hard about where you are gonna put your Stop orders, you will easily get eliminated in a sea of Stop Losses. Thus, think outside of the box and have patience before jumping in a particular trade.
Hope this educational idea is useful! If you have any comments or enquiries, do not hesitate to ask in the comment section below. Also, if you want us to make an educational post on a topic that interests you, feel free to drop your recommendations and suggestions in the comment box as well!
Have a great rest of the week!
Investroy
What type of trader are you?Everything in this world comes down to several important aspects: how much time are you willing to spend, how much risk are you willing to take, how much realistic reward you expect, and what is your stress capacity. This is no foreign to the world of trading and investing. In order to be a successful trader, first, one should understand what type of trader he/she is. The breakdown above generalizes answers when it comes to the 3 most popular trader types. Let us know in the comment section which one suits you the best and why! As per usual, have a great trading week, family!
Trading Mountain: How to reach the top step-by-stepHey, family! Good time of the day and welcome on another educational post.
As we all know, the road that leads to successful and consistently profitable trading is a pretty difficult and long one. It takes years of hard work, patience, dedication, and experience to reach the top of the trading mountain. Many beginners make similar mistakes before starting their journey. They tend to have false expectations and a distorted vision of the big picture.
As it can be inferred from the graphical illustration, the mountain pattern connects dots and shows a realistic path of a successful trader to the top of the hill.
We all start somewhere, right? We start taking our first steps and making ourselves familiar with the thing we are interested in. In the example of trading, it can be the first YouTube video that we watch, a chapter of a book related to investments that we read, first chart analysis that we make and many more.
What comes next? We decide on the type of a trader that we are. Do you have enough time to sit in front of the charts for several hours and press BUY/SELL buttons, or you are busy 90% of the time and prefer having a portfolio full of long-term positions?
After we have decided what our strategy will look like, we build a trading plan around it and make it a part of our lifestyle. We identify our trade entry criteria, risk management plan and so forth.
Backtesting our trading plan is a vital part for the journey. It can take days, weeks or even months. However, it will be worth it at the end of the day, as it is crucial to link our strategy with the trading plan and find out how profitable it will be.
Executing, optimising, journaling. Where did I make a mistake? What could have been done better? What should I change in my trading plan? It is important to stick to one single trading plan and optimise it along the way.
Before trading with real money, it is recommended to open positions on a demo account with virtual money. Getting a hand of things, practising the market and gaining experience is important.
After having traded on a demo account for several consecutive weeks, months or even years, we can move to a real trading account. Demo account is completely different from a real account, both psychologically and mentally. Putting real money on the line is much harder than playing around with fake simulation money. Thus, it is advised to start with a small amount and get used to it before moving to larger sums of money and increasing the trading capital.
After everything is went through and all hills are climbed, the top of the mountain will be reached. Of course, being a professional trader does not necessarily signify that there will be no failing trades and the win rate will always be above 90%. Losing days, weeks and even months will always happen. However, as long as you diversify your portfolio, stay cold-blooded, disciplined, and follow risk management principles, you will be profitable in the long-run.
Economics you need to understand before clicking BUY/SELL buttonHow does FED affect money supply?
Before, we get into our main topic, we just wanted to clarify a small common misconception. Quick answer to the question above is the monetary policy; however, a lot of people confuse monetary and fiscal policies or use the terms interchangeably. Indeed, both are macroeconomic tools used to stimulate/slow down the economy. Interest rates and the amount of money in circulation are dealt with by monetary policy, which is usually administered by a central bank (a.k.a. FED). Taxation and government expenditure are addressed by fiscal policy, which is mostly controlled by government law.
Now that we clarified this small moment, let’s get back to our main topic. Central banks have always utilized monetary policy to either boost or restrain an economy's growth. The goal of monetary policy is to stimulate economic activity by motivating people and firms to borrow and spend. Monetary policy, on the other hand, may serve as a brake on inflation and other ills associated with an overheated economy by constraining expenditure and rewarding savings. To impact the economy, the Federal Reserve has regularly employed three policy tools: open market operations, adjusting bank reserve requirements, and setting the discount rate. The Federal Reserve buys and sells U.S. government bonds on a daily basis in order to either pump money into the economy or remove money from circulation. The Fed directly controls the quantity of money generated when banks issue loans by adjusting the reserve ratio, or the proportion of deposits that banks must maintain in reserve. Changes in the discount rate (the interest rate the Fed charges on loans to financial institutions) can also be targeted by the Fed, with the goal of influencing short-term interest rates across the economy. A picture above would be a great illustration of the process.
Why is this important for traders?
Let’s face the reality, most traders fail to lack of education. All they see are bars and wicks. Profitable traders see economical trends, which are backed by real time tendencies in the whole economy (if we cancel out the noise and speculations). If you understand the mechanism behind money, it’s 100x times easier to make it.
Note: Our article doesn’t imply that fiscal policy isn’t as important to market as the monetary one, even though it’s important to understand that fiscal policy takes months/years to get passes and have any effect on the economy, meanwhile monetary policy swifts the sentiment overnight.
The Power of a good Risk-to-Reward ratio. Reality of tradingRisk Management, alongside with discipline, experience and skillset, is one of the keys to unlock the doors of successful and profitable trading. As it can be inferred from the table, even with as low as 40% win rate, it is more than possible to stay consistent and make nice returns, as long as risk management principles are followed.
*We used 30 pips Stop Loss and 60/90/120 pips Target Profits as a projection. It does not necessarily signify that 1% risk equals 30 pips Stop Loss, as different pairs have different pip values, price differences etc. Moreover, we determine our Stop Loss based on the amount of capital we are willing to risk on a particular trade, price action, intuition and other factors.*
Signal Providers vs Confluence Providers “If you give a man a fish, he will be hungry tomorrow. If you teach a man to fish, he will be richer forever.”
Except for the actual execution of trade entries, forex signal services perform all of the functions of a robot. A "professional" trader may provide trading signals (for a price, of course) for customers to act on, in addition to maybe employing an automated program. You may, however, be paying for a signal for which you have no idea what the reasoning is or how the "expert" came up with it. You have no understanding what the transaction is based on; all you know is that the "expert" says it's a good time to buy or sell. Finally, you're depending on a third-party source's analysis rather than your own. In a normal forex signal service, the programmer builds a set of technical indicators and rules, which are then followed by the software. If the price action meets the signal service's criteria, the user will get an email or text message with a notification or alert to respond. The user must eventually determine whether or not to take the signal and trade it. While it may appear that you have greater control over whether or not to trade, the signal service is still programmed to follow a set of regulations. If such case was so profitable, why would anyone bother with forex signals in the first place? Instead, they should concentrate on trading with their signals and amassing a fortune for themselves.
Now let’s look at evolved way to help traders. Let’s call this group confluence providers. Confluence providers also share the trade they’re taking on; however, unlike “Signal providers” they fully explain the reasoning behind the trade. This group is called confluence providers, because you can usually compare your own bias and analysis with the detailed description of theirs. The picture above can serve as a good comparison between these two categories. Feel, free to share your personal experiences.
NOTE: Forex market is full of unethical people trying to steal your money, so use your common sense when something is too good to be true.
Trading Alphabet: Friday FundayHey, wizards! Happy time of the day.
It's Friday, so we have decided to have a little bit of fun and put out a Trading Alphabet, or in other words, which trading-related tools, securities, phrases do we associate with each and every letter in the Latin alphabet.
Do you agree with the list? What would you add or modify?
Happy upcoming weekend and big love to you all!
Investroy
Journey of a Trader: All of us have gone through this!Good time of the day, dear TradingView family. Happy new month! May March bring you lots of happiness, love, and profits.
Today we are gonna be doing a quick reality check and scrutinizing a long way every trader goes through before becoming successful and consistent.
All beginning traders get super motivated and excited before beginning this long journey. Instagram “gurus” create false expectations and trick people into thinking they will be making quick profits and becoming millionaires with a $100 capital. Beginner’s luck is real and super relevant in this case. Without having a proper trading plan and a backtested strategy, newbies jump into the markets and start trading full-speed. “Wow, I made my first profits! I can keep going like this and make lots of “Benjamins”. Overtrading, greed and self-confidence lead to a losing streak, panic, anger, and loss of faith. Solutions need to be found, and therefore traders start changing strategies and trying to find a way to the doors of success. They lack motivation and hunger to keep going. They start questioning themselves and thinking whether they should quit or keep pushing. At this stage of the journey, around 90% of beginners give up and leave the markets. The remaining 10% still have hope, so they keep grinding and enhancing their trading capabilities. After some time, they start seeing some progress in their abilities. They start having more winning trades now, and they become breakeven traders, meaning they neither make any profits nor encounter any losses. They stick to their strategy and optimize it along the way. They plan, execute and journal all trades. After a few months, they finally reach the doors of success and profitability. Of course, they do not get greedy or self-confident. Though, they still have losing days/weeks/months, their main focus is concentrated on long-term growth and prosperity. They know that if they keep following their trading strategy, obeying risk management principles and being disciplined, they will always be profitable in the long run.
To sum up and to motivate the beginners reading this: if you are going through hard time in the markets, if you do not know what to do or how to make thing work, keep pushing more and more. There is always a golden sky at the end of every storm. Therefore, never feel discouraged, do not give up, and keep grinding. YOU WILL ALL MAKE IT!
What is going on in the markets? Aftermaths of Russian invasionRight after Russia declared war and started its military operations in Ukraine, the markets started going crazy. Investors started moving to "safe heaven" trades and sticking with "risk-off" securities.
GOLD (XAU/USD) is everyone's favourite to trade for the moment, as the price plummeted straight after the escalation of the war. It has experienced a growth of +4.5% so far, and it has more upside potential.
EUR/USD, having a strong negative correlation with GOLD, has endured a 200 pip drop so far, constituting a 1.8% dip. AUD/USD, GBP/USD and other highly correlated USD pairs have deteriorated as well.
BITCOIN, often claimed as "digital Gold", is still continuing its downside movements, experiencing a 12.6% drop in 24 hours.
Sticking to the safe heavens and riding the trend would be the best possibility right now. Also, remember to stay risk tolerant and cold-blooded, as the markets could get really volatile from time to time, taking into account the current situation.
Stairway to Success Let’s start our day with some good news: if you’re reading this article, you’re already ahead of 90% people and have successfully completed the first stage “Start”, right now and right here. Most of us see success as something chaotic, lucky coincidence per say. Recently, we made an article, where success was depicted as a visible tip of the iceberg, while underneath there were much more to it. What about the road to success? As you would rightfully guess, it’s not quite linear either. Usually, people would show it with arrows: up and down. Indeed, that is the way progress works. However, growth to success on the other hand is an absolute value of that graph. It reminds me more of a staircase. Let’s go over each step on the picture.
As mentioned right at the beginning, you’ve already done a major step by opening TradingView and reading this article. Let’s not stop here. Start thinking. What currency pair or stock I want to trade today? Once that’s established move on to your “Analysis”. After performing thorough fundamental/technical analysis, you have a sense of where the trade is going. It’s important to note that this is only a small portion of the way. Success and Failure are not black or white, they’re part of a spectrum. Planning is extremely crucial, as it would determine the level of success/failure. Setting Stop Losses, Take Profits, having a trading plan are part of it. However, what’s the point of all this if you’re too scared to execute? Don’t let FOMO run your life, but plans without execution are just dead ideas. So, TRY and DO. If necessary, do again. Keep on doing until you achieve the result you wanted at the beginning of this staircase.
Note from author: when we say keep on doing, it’s implied that this is done in a healthy manner, without the destructive emotions such as revenge. Learn and earn, fellow TradingView members!
