Asymmetric Risk Reward: The Secret to Success in Trading?Be as bold as you want yet protect your capital with the asymmetric risk reward strategy — an approach adopted by some of the greatest market wizards out there. In this Idea, we distill the concept of asymmetric bets and teach you how to risk little and earn big. Spoiler: legendary traders George Soros, Ray Dalio and Paul Tudor Jones love this trick.
Every trade you open has only two possible outcomes: you either turn a profit or make a loss. Perhaps the greatest thing you can learn about these two outcomes is the balance between them. The fundamental difference between making money and losing money — the mighty risk-reward ratio .
The risk-reward ratio is your trade’s upside relative to the downside you baked in (or realized).
Let’s Break It Down 🤸♂️
Most traders believe that you have to take huge risks to be successful. But that’s not what the big guys in the industry do with the piles of cash they’ve got. Instead, they try to take the least amount of risk possible with the most upside. That’s what asymmetric risk-reward ratio means.
Think of it this way: you invest $1 only if you believe you can ultimately make $5. Now your risk-reward ratio is set at 1:5, or a hit ratio of 20%. Safe to say that you’ll likely be wrong lots of times. But step by step, you can risk another dollar for that $5 reward and build up a good track record or more wins than losses. That way you can be wrong four times out of five and still make money.
Let’s scale it up and pull these two further apart. Let’s say you want to chase a juicier profit with a small risk. You can pursue a risk-reward ratio of 1 to 15, meaning you risk $1 to make $15. The odds are very much in your favor — you can be wrong 14 times out of 15 and still break even.
What Does This Look Like in Practice? 🧐
Suddenly, the EUR/USD is looking attractive and you’re convinced that it’s about to skyrocket after some big news shakes it up. You’re ready to ramp up your long position. Now comes decision time — what’s a safe level of risk relative to a handsome reward?
You decide to use leverage of 1:100 and buy one lot (100,000 units) at the price of $1.10. That means your investment is worth €1,000 but in practice you are selling $100,000 (because of the leverage) to buy the equivalent in euro. In a trade of that size one pip, or the fourth figure after the decimal (0.0001), carries a value of €10 in either direction.
If the exchange rate moves from $1.1000 to $1.1100, that’s 100 pips of profit worth a total of €1,000. But if the trade turns against you, you stand to lose the same amount per pip. Now, let’s go to the practical side of things.
You choose to widen the gap between risk and reward and aim for profit that’s 15 times your potential loss. You set your stop loss at a level that, if taken out, won’t sink your account to the point of no return. Let’s say you run a €10,000 account and you’ve already jammed €1,000 into the trade.
A safe place to set your stop loss would be a potential drawdown of 2%, or €200. In pip terms, that’s equal to 20 pips. To get to that 1:15 ratio, your desired profit level should be 300 pips, aiming for a reward of €3,000.
If materialized, the €3,000 profit will bump your account by 30% (that’s your return on equity), while your return on investment will surge 200%. And if you take the loss, you’d lose 2% of your total balance.
It’s How the Big Guys in the Industry Do It
You’d be surprised to know that most of the Wall Street legends have made their fortunes riding asymmetric bets. Short-term currency speculator George Soros explains how he broke the Bank of England with a one-way bet that risked no more than 4% of his fund’s capital to make over $1 billion in profits.
Ray Dalio talks about it when he says that one of the most important things in investing is to balance your aggressiveness and defensiveness. “In trading you have to be defensive and aggressive at the same time. If you are not aggressive, you are not going to make money, and if you are not defensive, you are not going to keep money.”
Paul Tudor Jones, another highly successful trader, spotlights the skewed risk-reward ratio as his path to big profits. “5:1 (risk /reward),” he says in an interview with motivational speaker Tony Robbins,” five to one means I’m risking one dollar to make five. What five to one does is allow you to have a hit ratio of 20%. I can actually be a complete imbecile. I can be wrong 80% of the time, and I’m still not going to lose.”
What’s Your Risk-Reward Ratio? 🤑
Are you using the risk-reward ratio to get the most out of your trades? Do you cut the losses and let your profits run by using stop losses and take profits? Share your experience below and let’s spin up a nice discussion!
Community ideas
Sectoral Analysis in the beginning of the monthWe use our Customised Indicator called ECG to mark the most important support and resistance zones for the price in the respective time frame. Here we have plotted the index charts on day time frame which gives us the levels for positional trades which are valid for the whole month of August 2024.. Now the yellow colour lines form a zone which makes the home of the price.. Upper yellow line is the breakout line and the lower yellow line is the breakdown line. So if the price gives a valid crossover above the breakout then it is a bullish indication and if the price closes below the breakdown then it is a bearish indication. Above the Breakout zone we have the Upper PRZ zone which is a potential reversal zone and similarly below the breakdown level there is Lower PRZ zone.. the PRZ zones marked in red colour act as a trend changer and major moves are expected from these zones.. the zones are small hence they create good value proposition for us. Beyond the PRZs both on upper and lower end we have the cycle targets depicted in green colour.
So when the month starts we can refer to our Sector Analyser chart Setup and see which sector is looking good for the month and how they are progressing. We can also identify early change in trends from the PRZ zones.
We usually refer to the chart once in a day or at EOD to make our analysis.
Unlocking the Power of Option Analysis for Forex TradingFiltering Options by Sentiment: A Key to Profitable Trading
As traders, we're constantly on the lookout for ways to gain an edge in the markets.
Option portfolios analysis is not a magic solution for success itself, but it can and should be a great tool to add to your trading strategy.
Learning how to analyze the option portfolios of big and successful players on one of the world's biggest exchanges can really improve your market awareness and give you more confidence when reading the current market trends.
The Power of Option Analysis
Option analysis is not just about identifying bullish or bearish sentiment. It's about understanding the nuances of market psychology and identifying opportunities that others may be missing. By filtering options by sentiment, we can identify portfolios that are more likely to result in profitable trades.
Key Factors to Consider
When filtering options by sentiment, there are several key factors to consider:
1. Size and value of the option portfolio
2. Distance from the central strike (Delta)
3. Time to expiration
4.Appearance on the rise/fall of the underlying asset
By considering these factors, we can identify option portfolios that are more likely to result in profitable trades.
As mentioned above, option portfolios with names such as vertical spread, butterfly, and condor (in English - VERTICAL SPREAD, IRON FLY/FLY, CONDOR/IRON CONDOR) have predictive sentiment regarding the direction of the asset's price movement. However, it is critically important to be able to filter out such sentiment, since similar portfolios are widely used and appear almost daily in CME exchange reports, but only a small percentage of them have predictive value.
Portfolios that are traded during a price movement with an obvious trend have low value. On the other hand, if a portfolio appears in a sideways market before the start of a trend and meets other conditions, which will be discussed later, it is reasonable to fix such a portfolio on the chart and subsequently track its correction (closure/partial closure/re-sale).
If you "caught" such a portfolio that is already generating profit for its owner, i.e., the price is moving in the desired direction, you get an additional bonus: by tracking changes in this portfolio, you can understand whether the price movement will continue in the chosen direction or whether the movement is fading or has exhausted its potential and it's time to close your position.
It is necessary to track changes daily using QuickStrike and GlobexTradeBrowser by CME GROUP.
If you track less frequently, you can lose the thread of sentiment. I recommend performing analysis on a regular basis.
Some examples:
On July 17th, there was a really big beat on the Japanese yen in the options market for October. The bed was based on the idea that the yen futures would go up (or the dollar/yen forex rate would fall). As we saw, the bat started to pay off almost immediately, and the yen came really close to the target in just a few days!
Could we have used this information for forex trading? Absolutely. The risk-reward ratio on this trade was about 1 : 3, but importantly , when we made this trade, we had real insider information. Insiders are required by the exchange to disclose their trades, just like other market participants.
Not using this free information in your trades would be a big mistake for a serious trader who doesn't want to gamble in market.
Another example:
In April this year, we saw a strong bullish option sentiment for Silver prices rising between $32 and $35, based on a large options portfolio stated at around $27.5. We released our forecast for Silver, and you can find a copy of it with our reasoning at the link
Cooper example:
The forecast was made after analyzing option activity on the CME exchange on April 2. You can check the results yourself and see if the time we spent studying option sentiment and analyzing was worth it.
In conclusion, as you can see, incorporating option analysis into your toolkit can really help you make more informed trading decisions.
To all serious traders, I wish you patience and dedication on your journey to trading success. Remember that mastering the art of trading takes time, effort, and perseverance. Don't be discouraged by setbacks or losses, but instead, use them as opportunities to learn and improve. Stay focused, stay disciplined, and stay committed to your goals.
How I Stay Organized and Efficient During My Morning RoutineGood morning, traders! ☕️ As I gear up for the trading session, here's how I stay organized and efficient during my morning routine:
1️⃣ Plan the night before: I prep my trading station, review market news, and outline my trading goals before calling it a day. This sets a clear roadmap for the morning and reduces decision fatigue.
2️⃣ Start with a ritual: I kick-start my morning with a ritual that helps me get focused and energized. Whether it's meditation, visualization, exercise, or enjoying a cup of coffee/tea, this routine primes my mind for the challenges ahead.
3️⃣ Time blocking: I allocate specific time slots for key activities like fundamental and sentiment research, top down technical analysis, bias matrices, reviewing trade setups, and analyzing charts. This helps me stay on track, avoid distractions, and make the most of my pre-session hours.
4️⃣ Utilize checklists: I have a checklist that outlines essential tasks like reviewing economic data, assessing overnight market developments, rebalancing portfolio and updating my watchlist. If I have anything specific I need to focus on that session, I will take note too. This ensures I don't miss important steps or actions/tasks.
5️⃣ Stay organized digitally: I leverage technology tools like trading journals, note-taking apps, and calendar reminders to keep track of my trade ideas, record observations, and stay organized. This digital approach streamlines my workflow most of the time.
6️⃣ Focus on self-care: Prioritizing self-care is vital for optimal performance. I make sure to nourish my body with a healthy breakfast, hydrate adequately (especially important during the extended heat waves I experience where I live), and take short breaks to relax and recharge. A balanced mindset is key to success.
Finding an efficient morning routine is a personal journey. Experiment with different strategies, listen to your needs, and fine-tune your routine over time. Start your day right and set yourself up for trading success! 📈✨
AMP Futures - Chart Themes - Tradingview MobileIn this idea we will demonstrate how to create chart themes using Tradingview mobile app.
Taking On Discipline In StagesOnce you have decided that you need discipline in your trading, knowing where to start can be difficult and overwhelming. There are many pieces to a trading plan, and it's easy to feel overwhelmed.
You can break the task into manageable sections and master one discipline at a time, or focus on the the discipline you need. This approach makes the process more manageable and ensures that each aspect of your trading strategy is given the attention it deserves.
Trading Plan Components: Each of these sections should have objective rules so there isn't any escape room.
Method Rules
Entry Rules
Stop Rules
trailing Stop Rules
Exit Rules
Journaling
Trade Plan for TME, COIN
Shane
Trade out of balance markets like a pro (simple TPO concept)Educational video explaining in simple terms how to identify out of balance markets and use that in your day trading.
It simplifies the concepts of James Dalton from "Mind over Markets" using volume profile and TPO charts and breaks it down into actionable steps.
It also covers the thinking of Stacey Burke, with price always "trading in a box".
You learn the meaning of value area, point of control, other timeframe traders and out of balance markets.
You learn how institutional traders act in the market and how to observe and identify what they are doing and how to follow them. This can lead to massively profitable setups and trades
Prop Trading - All you need to know !!A proprietary trading firm, often abbreviated as "prop firm," is a financial institution that trades stocks, currencies, options, or other financial instruments with its own capital rather than on behalf of clients.
Proprietary trading firms offer several advantages for traders who join their ranks:
1. Access to Capital: One of the most significant advantages of working with a prop firm is access to substantial capital. Prop firms typically provide traders with significant buying power, allowing them to take larger positions in the market than they could with their own funds. This access to capital enables traders to potentially earn higher profits and diversify their trading strategies.
2. Professional Support and Guidance: Many prop firms offer traders access to experienced mentors, coaches, and support staff who can provide guidance, feedback, and assistance. This professional support can be invaluable for traders looking to improve their skills, refine their trading strategies, and navigate volatile market conditions.
3. Risk Management Tools: Prop firms typically have sophisticated risk management systems and tools in place to help traders monitor and manage their exposure to market risks. These systems may include real-time risk analytics, position monitoring, and risk controls that help traders mitigate potential losses and preserve capital.
4. Profit Sharing: Some prop firms operate on a profit-sharing model, where traders receive a share of the profits generated from their trading activities. This arrangement aligns the interests of traders with those of the firm, incentivizing traders to perform well and contribute to the overall success of the firm.
Overall, prop firms provide traders with access to capital, technology, support, and learning resources that can help them succeed in the competitive world of trading. By leveraging these advantages, traders can enhance their trading performance, grow their portfolios, and achieve their financial goals.
What is Confluence ?✅ Confluence refers to any circumstance where you see multiple trade signals lining up on your charts and telling you to take a trade. Usually these are technical indicators, though sometimes they may be price patterns. It all depends on what you use to plan your trades. A lot of traders fill their charts with dozens of indicators for this reason. They want to find confluence — but oftentimes the result is conflicting signals. This can cause a lapse of confidence and a great deal of confusion. Some traders add more and more signals the less confident they get, and continue to make the problem worse for themselves.
✅ Confluence is very important to increase the chances of winning trades, a trader needs to have at least two factors of confluence to open a trade. When the confluence exists, the trader becomes more confident on his negotiations.
✅ The Factors Of Confluence Are:
Higher Time Frame Analysis;
Trade during London Open;
Trade during New York Open;
Refine Higher Time Frame key levels in Lower
Time Frame entries;
Combine setups;
Trade during High Impact News Events.
✅ Refine HTF key levels in LTF entries or setups for confirmation that the HTF analysis will hold the price.
HTF Key Levels Are:
HTF Order Blocks;
HTF Liquidity Pools;
HTF Market Structure.
Market Structure Identification !!Hello traders!
I want to share with you some educational content.
✅ MARKET STRUCTURE .
Today we will talk about market structure in the financial markets, market structure is basically the understading where the institutional traders/investors are positioned are they short or long on certain financial asset, it is very important to be positioned your trading opportunities with the trend as the saying says trend is your friend follow the trend when you are taking trades that are alligned with the strucutre you have a better probability of them closing in profit.
✅ Types of Market Structure
Bearish Market Structure - institutions are positioned LONG, look only to enter long/buy trades, we are spotingt the bullish market strucutre if price is making higher highs (hh) and higher lows (hl)
Bullish Market Structure - institutions are positioned SHORT, look only to enter short/sell trades, we are spoting the bearish market strucutre when price is making lower highs (lh) and lower lows (ll)
Range Market Structure - the volumes on short/long trades are equall instiutions dont have a clear direction we are spoting this strucutre if we see price making equal highs and equal lows and is accumulating .
I hope I was clear enough so you can understand this very important trading concept, remember its not in the number its in the quality of the trades and to have a better quality try to allign every trading idea with the actual structure
Why a 30 to 50 Pips Fluctuation Means Little for XAU/USDUnderstanding Pips and Price Context
In the world of forex trading, a pip (percentage in point) represents the smallest price movement in the market.
For commodities like gold (XAU/USD), a pip is typically 0.01.
Therefore, a fluctuation of 30 to 50 pips in gold translates to a movement of 3 to 5 USD in price.
Currently, the price of gold (XAU/USD) hovers around 2400 USD per ounce.
In this context, a movement of 30 to 50 pips, equating to 3 to 5 USD, is relatively minor. To put this into perspective, it’s akin to a stock priced at 100 USD experiencing a movement of only 0.13 to 0.20 USD.
Gold's Historical Volatility
Gold is renowned for its volatility, influenced by a myriad of factors including geopolitical tensions, economic data, inflation rates, and currency fluctuations.
Historical data demonstrates that gold prices can swing dramatically within short periods.
For instance, during times of economic uncertainty or geopolitical strife, gold prices can move by tens or even hundreds of dollars in a matter of days or even hours.
Geopolitical Events: During geopolitical crises, such as wars or major political upheavals, gold prices often experience significant spikes as investors flock to safe-haven assets.
Economic Indicators: Economic data releases, like non-farm payrolls, GDP figures, and interest rate decisions, can cause substantial and rapid fluctuations in gold prices.
Market Sentiment: Changes in market sentiment, driven by news, investor behavior, and speculation, can also lead to large price movements.
Why 30 to 50 Pips is Insignificant
Given gold's price of 2400 USD per ounce and its historical volatility, a fluctuation of 30 to 50 pips is relatively insignificant. Here's why:
Percentage Impact: A 50-pip movement at a price level of 2400 USD is just 0.21% of the total price. This is a minor change, especially in a market as volatile as gold.
Daily Fluctuations: It's not uncommon for gold prices to fluctuate by more than 1% within a single trading day. This means price movements of 24 USD or more are typical, overshadowing a 3 to 5 USD change.
Trading Noise: In the context of gold trading, small pip movements often represent normal market noise rather than meaningful trends. Professional traders focus on larger movements to make informed decisions, as these are more indicative of market direction.
Practical Implications for Traders
For traders and investors, understanding the relative insignificance of small pip fluctuations is crucial. Here are some practical takeaways:
Risk Management: Traders should set their stop-loss and take-profit levels considering the high volatility of gold. Small pip fluctuations should not trigger premature exits from trades.
Strategic Focus: Swing trends and significant price levels (like psychological barriers at round numbers or technical important zones) are more important than minor intraday movements.
Market Analysis: Analyzing gold requires looking at broader economic and geopolitical factors rather than getting caught up in small pip changes.
Conclusion:
In summary, a 30 to 50 pip fluctuation in XAU/USD is relatively meaningless when considering the broader context of gold's price and inherent volatility.
At a price level of 2400 USD per ounce, such movements are minor and often lost in the daily trading noise.
Traders and investors should focus on larger price movements and underlying market factors to make informed decisions in the volatile gold market.
How to Do Your Own Research (DYOR) in Crypto? – by WhiteBITDisclaimer: the following post was originally published by WhiteBIT .
Hello, Traders!
Have you ever heard the phrase “Do Your Own Research,” or DYOR? No, it's neither a trendy clothing brand nor just a catchy phrase — it's an important practice. DYOR has become the primary guiding principle for crypto investors to make informed decisions. Let’s explain what DYOR means and how to conduct your research effectively.
What Does DYOR Mean? Why Is It Important?
DYOR is a call to action for investors to research and dig into the fundamentals of any asset or project before investing. Sounds simple, right? But why is it so important? Well, think about it this way: the Internet is flooded with all sorts of information, and not all of it is reliable.
So, DYOR urges you to dig deep, find the facts, and make your own decisions. It is your shield against misinformation and hype. It’s about diving deep into the project’s details and understanding its technology, team, and market potential. By researching, you’re not just relying on someone else’s opinion — you’re forming educated conclusions. Now that we’ve covered why DYOR is critical, let’s look at some of the ways traders and investors used to do proper research.
How to Do Your Own Research? How to Research a Crypto Project?
Crypto research involves using various sources and tools to get all the information you need:
– Analytical Platforms: Visit popular analytics platforms to get a first impression of the cryptocurrency. These platforms offer essential data, including market capitalization, trading volume, price history, and other key metrics.
The numbers can tell you a lot. Take social media and community channels, for example. They can give you a sense of how popular a project is. But here’s the catch: 🚩 watch out for bots and fake accounts. They can skew the numbers and paint an inaccurate picture of real interest. So, ask yourself: Is the community actively engaged? Are conversations genuine and buzzing naturally?
You also need to consider factors such as asset price, market capitalization, circulating supply, total supply, daily active users, token/coin holder distribution, and trading volume to get a sense of the project’s progress and the community’s involvement.
– White Paper Analysis: It’s a smart move to dive into a project’s core documents, like the White Paper – the project’s manifesto. It’s crafted by the team to pinpoint a problem and lay out how their product, technology, or token/coin plans to solve it. These are the sources you must explore when doing crypto research. Key points also include the technology behind it, the development team, tokenomics, and the project roadmap.
– Sentiment Analysis: It is all about working out the general mood of the market or a specific asset. By understanding how investors feel about a cryptocurrency, you can identify whether it is overvalued or undervalued. Tools like the Fear and Greed Index can help track market sentiment.
– Competitor Analysis: Analyzing competitors helps you understand the strengths and weaknesses of various projects. Compare technologies, use cases, and market performance to identify the best investment opportunities.
– Project Website and Social Media Analysis: A website should provide transparent information about the team and technology. 🚩 include poorly designed websites, missed deadlines, and a lack of transparency. Media activity can offer insights into a project's community and current status. Look out for active and engaged followers, how often the project updates, and what kind of community interactions there are.
Questions to Answer Before Investing
Before diving into any cryptocurrency investment, it's essential to ask yourself several key questions to ensure you're conducting thorough research. Here's a checklist to guide your DYOR crypto process:
What Problem Is the Project Solving?
How Does It Differ from Competitors?
Does It Follow Its Roadmap and White Paper?
What Are the Legal Regulations in Your Country?
Has It Raised Funding? Who Are the Investors?
Who Are Its Partners and Supporters?
How Is It Promoted? What Marketing Strategies Are Used?
What Are the Trends on Google and Social Media?
What Is the Tokenomics? How Are Tokens Distributed?
Are There Any Red Flags?
So, doing your own research is more than just a suggestion. Any information you can gather about a crypto project is invaluable and worth the time and effort. The more you know, the better equipped you are to make informed decisions and avoid potential pitfalls.
Remember, “Knowledge is power". As Benjamin Franklin famously said, “An investment in knowledge pays the best interest.” So, commit to your due diligence—your future self will thank you. D.Y.O.R.
Trading EURUSD | Judas Swing Strategy 30/07/2024Risk management ought to be a trader's closest ally, as the previous week demonstrated the practical significance of incorporating risk management into every trader's toolkit. Last week, we executed four trades; despite having only one win and three losses, we concluded the week with a mere 1% loss on our trading account. This has heightened our excitement for the opportunities that this week may present. As is customary, at 8:25 AM EST, we commenced the day by reviewing the essential items on our Judas Swing strategy checklist, which comprises:
- Setting the timezone to New York time
- Confirming we're on the 5-minute timeframe
- Marking the trading period from 00:00 - 08:30
- Identifying the high and low of the zone
The next 5 minute candle swept liquidity resting at the low of the zone, which meant our focus would be on identifying potential buying opportunities for the trading session.
To increase the likelihood of success of our trades, we wait for a break of structure (BOS) towards the buy side. Once the BOS occurs, we anticipate price to retrace to the initial Fair Value Gap (FVG) created during the formation of the leg that broke the structure.
We patiently waited for price to retrace into the created Fair Value Gap (FVG), and executed our trade upon the closing of the first candle that entered the FVG, as all the conditions on our checklist for trade execution were satisfied. Please note that our stop loss is set at the low of the price leg that broke structure, and we implement a minimum stop loss of 10 pips. The minimum stop loss value was not chosen randomly; it was determined through extensive backtesting. This allows trades sufficient space to fluctuate, avoiding premature stop-outs and trades later moving in our anticipated direction.
After 15 minutes, a large bearish marubozu candle formed, which could have exited us from the trade if we had set our stop loss solely based on the low of the price leg that broke structure, without including a minimal stop loss in our checklist. By using that price leg, our stop loss would have been around 6 pips, whereas a 10 pip stop loss provides the trade with sufficient breathing room.
We are aware that our strategy does not guarantee a 100% win rate but rather hovers around 50% on EURUSD, indicating that some losses were inevitable. To avoid becoming emotional over the position, we used only 1% of our trading account with the goal of achieving a 2% gain. Upon checking our position later, we observed that the position was a few pips away from hitting SL.
We remained calm despite the drawdown we were experiencing and were prepared for any outcome of the trade. All that was left was to wait for either our stop loss or take profit to be triggered to determine the result of our trade. A few hours later, the trade began to move in our favor.
After 13 hours, our Take Profit was triggered, and our patience paid off as we hit our target on EURUSD, resulting in a 2% gain from a 1% risk on the trade.
How to Use Artificial Intelligence for Stock TradingHow to Use Artificial Intelligence for Stock Trading
As you may know, AI can mimic human intelligence and make decisions based on data analysis. Artificial intelligence can be used in stock trading to analyse historical market and stock data, generate investment ideas, form portfolios, and automatically buy and sell stocks. AI is able to quickly process huge amounts of data and make informed trading decisions. AI-based trading strategies can be used to identify patterns and trends in real time.
This FXOpen article explores the process of using artificial intelligence in stock trading and highlights the pros and cons of AI automated trading.
How Does Trading with AI Work?
Using AI for trading stocks is a relatively new practice. AI analyses markets with accuracy and efficiency and makes forecasts that help traders mitigate risks and provide higher potential returns. Here’s an overview of how AI stock trading works.
The first stage needed for an AI model to function properly is robust data collection and preprocessing. This stage is akin to gathering raw materials to create a final product.
During the second stage, specialists load historical data and algorithms into the model, which serve as the basis for identifying trends and price fluctuations that took place in the past. This way, the model obtains the information it will then analyse and learns how to analyse it.
During the third stage, the model uses real-time data from various sources, such as financial news and economic indicators, to make forecasts. As new data becomes available, the models can be adjusted and refined. The best AI stock trading software can only be created using cleaned, structured, and prepared data.
The final stage includes making trading decisions, such as when to buy or sell stocks, based on the processed data. AI systems can execute trades automatically. AI can also manage investment portfolios by adjusting the allocation of assets depending on market conditions.
What to Look Out for When Using AI in Trading
When creating an AI system for trading, choosing the most appropriate algorithm is of paramount importance. There’s a wide range of algorithms; for example, support vector machines (SVMs) are well suited for classification tasks and recurrent neural networks (RNNs) for sequence prediction.
The choice of algorithms depends on trading goals and the type of data a trader will be working with. It’s a good idea to look at performance metrics such as accuracy, precision, recall, and F1 score to determine which algorithm is the best fit for your trading strategy.
If you decide to implement AI in stock market trading, you’ll need to pay attention to a few things that will allow you to minimise risks.
Risk Management and Control
Although AI offers many benefits in trading, it creates a new set of risks, in particular, the risk of automated decision-making. It’s important to have human oversight to ensure that the AI is making informed decisions. Human expertise helps identify potential risks and adjust the AI model as needed. Traders can take precautions, such as setting stop-loss and take-profit levels, to make sure that AI algorithms do not cause excessive losses.
Data Quality
Poor-quality data can lead to inaccurate predictions and incorrect trades. It’s important that the data uploaded to the system is accurate, relevant, and up-to-date and that the AI stock market trading software provider is trustworthy and reliable.
Ideally, an AI system will continuously analyse incoming data and adapt to changing market conditions. For example, if an unexpected economic event occurs, the AI model must be capable of adjusting its strategies in real time.
Regulatory Compliance
The adoption of AI in trading also brings forth regulatory challenges. When using AI, it is critical to comply with financial regulations to avoid legal issues. This includes ensuring that the AI model is transparent and explainable and that it does not engage in illegal activities such as insider trading. AI trading strategies should comply with all relevant laws.
Case Studies and Examples
One real-life example of successful AI adoption in trading is the case of the hedge fund Renaissance Technologies, which uses proprietary trading algorithms based on artificial intelligence. The New York-based hedge fund has a reputation as one of the most successful investment companies in the world using AI.
Bridgewater Associates, also one of the world’s largest hedge funds, uses AI to analyse market data and make trading decisions. The fund has been successful in using AI to identify patterns and trends in market data.
The third example is the use of AI in high-frequency trading. High-frequency trading involves using algorithms to execute trades at high speed. AI makes it possible to execute trades with speed and accuracy that exceeds human capabilities.
Benefits and Challenges of AI Trading
The new technology has both advantages and pitfalls. Here’s a table summarising the benefits and challenges of using AI algorithmic trading.
Benefits
- Increased efficiency
- Improved accuracy
- Effective risk management
- Real-time analysis
- Diversified trading strategies
- Enhanced liquidity management and execution of large orders
- Improved decision-making
Challenges
- Low-quality data
- Overfitting
- Limited human oversight
- Compliance with financial regulations
- Cost
- Potential for increased complexity
- Potential for reduced transparency
Using AI can result in increased efficiency, improved accuracy, effective risk management, and much more. Of course, there are other ways to analyse the market. For example, on the TickTrader trading platform, you can trade using advanced tools for analysing and assessing risks.
Data quality issues, model overfitting, and limited human oversight are the potential risks that can hinder the effectiveness of trading. To mitigate these challenges, consider validating data, testing the model, and adapting to evolving market conditions.
Final Thoughts
AI allows traders to analyse vast amounts of data, identify patterns, and make informed decisions quickly. However, it’s important to manage and control the risks associated with the use of AI in trading. Carefully consider the challenges and limitations and endeavour to take steps to mitigate them. You can open an FXOpen account to start trading, and as you gain experience, consider implementing advanced technologies, including AI.
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.
AMP Futures - Chart Trading - Tradingview mobileIn this idea we will demonstrate how to execute trades directly off the chart using TradingView mobile app.
Are Two Heads Better Than One? Team vs. Individual Trading█ Are Two Heads Better Than One? Team VS Individual Trading Performance
The age-old question of whether two heads are better than one finds new relevance in the world of stock trading. A comprehensive study titled "Are Two Heads Better Than One?" delves into this question by comparing the performance of individual traders and two-person teams in a simulated share-trading environment. This article explores the key findings of the study, provides actionable insights, and discusses how traders can apply these insights to enhance their trading strategies.
█ Key Findings of the Study
The research examined the trading performance of novice traders, both individuals and teams, in an electronic share-trading simulation. The results offer a nuanced understanding of how team dynamics and individual attributes impact trading outcomes.
⚪ Firstly, the study found no statistically significant difference in trading profits between teams and individual traders. While teams showed higher average profits, the variation was not substantial enough to declare teams as definitively better. Interestingly, profit volatility was more sensitive to trading activity in teams than in individuals.
⚪ Confidence emerged as a crucial factor in trading performance. Traders with higher confidence, whether trading alone or as part of a team, tended to achieve better results. However, this confidence needed to be task-specific, focusing on particular trading activities like setting bids and asks, rather than a general sense of capability.
⚪ Another significant insight was the impact of trading activity on profitability. The study revealed a negative relationship between the number of trades and profit. In simpler terms, traders who engaged in fewer transactions generally earned higher profits. This applied to both individuals and teams.
⚪ The dynamics within teams also played a role in trading performance. Teams that displayed a positive attitude towards the trading task and perceived it as less difficult performed better. Additionally, mutual respect among team members correlated with less frequent trading and, consequently, higher profits.
█ Actionable Insights for Traders
The findings of this study offer several actionable insights for traders looking to improve their performance.
⚪ Balancing Confidence with Caution
Confidence is a double-edged sword in trading. While it is essential for making decisive moves, overconfidence can lead to excessive trading, which often diminishes profits. Traders should aim to build confidence in specific trading tasks through practice and education. For instance, focusing on developing skills in setting precise bids and asks can enhance performance without falling into the trap of over-trading.
⚪ Optimizing Trading Activity
One of the most actionable insights from the study is the importance of trading less frequently. Traders should adopt a more strategic approach, focusing on the quality of trades rather than quantity. This means conducting thorough research and analysis before making a trade, and resisting the urge to engage in frequent buying and selling. Implementing rules that limit the number of trades per day or per week can help maintain this discipline.
⚪ Enhancing Team Dynamics
For those trading in teams, fostering a positive group attitude and mutual respect is crucial. Effective communication and collaboration can significantly improve trading outcomes. Teams should regularly discuss strategies and specific trades, ensuring that all members are on the same page. Moreover, teams should strive to build a cohesive unit where members respect each other's abilities, as this can lead to more deliberate and profitable trading decisions.
⚪ Training and Development
Trading firms can leverage these insights to design better training programs. Emphasizing the importance of confidence in specific tasks and the dangers of over-trading can help traders develop more effective strategies. Training should also focus on building strong team dynamics, teaching traders how to communicate effectively and collaborate efficiently.
⚪ Performance Monitoring
Traders should regularly assess their performance, paying close attention to the correlation between their trading activity and profits. Tools and metrics that measure both confidence levels and trading frequency can provide valuable feedback. This data can help traders make informed adjustments to their strategies, ensuring they stay on the path to profitability.
█ Conclusion
The study "Are Two Heads Better Than One?" offers important insights into how individuals and teams trade. Although two heads are not always better than one in terms of profits, the research shows that confidence, trading activity, and team dynamics are crucial for trading success.
To improve trading results, traders should:
Balance confidence with caution
Trade less frequently but more strategically
Strengthen team dynamics
Focus on specific training
Regularly review their performance
Whether you're new to trading or have experience, remember to prioritize quality over quantity in your trades. Build confidence in specific tasks, and if you're working in a team, create a collaborative and respectful environment. These approaches will enhance your trading performance and lead to more consistent and sustainable profits.
█ Reference
Heaney, R., Foster, F. D., Gregor, S., O'Neill, T., & Wood, R. (2010). Are two heads better than one? An experiment with novice share traders. Australian Journal of Management, 35(2), 119-143. doi:10.1177/0312896210370078.
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Disclaimer
This is an educational study for entertainment purposes only.
The information in my Scripts/Indicators/Ideas/Algos/Systems does not constitute financial advice or a solicitation to buy or sell securities. I will not accept liability for any loss or damage, including without limitation any loss of profit, which may arise directly or indirectly from the use of or reliance on such information.
All investments involve risk, and the past performance of a security, industry, sector, market, financial product, trading strategy, backtest, or individual's trading does not guarantee future results or returns. Investors are fully responsible for any investment decisions they make. Such decisions should be based solely on evaluating their financial circumstances, investment objectives, risk tolerance, and liquidity needs.
My Scripts/Indicators/Ideas/Algos/Systems are only for educational purposes!
Navigating the Waves: Elliott Wave Theory and Key IndicatorsEducational Technical Analysis on example chart of UFO Moviez India
Elliott Wave Analysis and Key Moving Averages
Disclaimer
This study is for educational purposes only and does not constitute trading or investment advice. The analysis presented focuses on one potential scenario based on Elliott Wave Theory and other technical indicators. Trading and investing involve substantial risk, and individuals should consult a financial advisor before making any decisions.
Introduction to Elliott Wave Theory
Elliott Wave Theory is a form of technical analysis that traders use to analyze financial market cycles and forecast market trends by identifying extremes in investor psychology, highs and lows in prices, and other collective activities. The theory posits that stock prices move in predictable patterns or "waves" based on investor sentiment.
Principles of Elliott Wave Theory
1. Wave Patterns: According to Elliott, market prices move in five waves in the direction of the main trend (impulse waves) and three waves in a correction against the main trend (corrective waves).
2. Wave Degrees: Waves are fractal in nature, meaning that smaller waves form part of larger waves, and this pattern repeats on all time frames.
3. Wave Characteristics:
- Wave 1: Usually the smallest impulse wave.
- Wave 2: Corrects Wave 1 but does not exceed its starting point.
- Wave 3: Typically the strongest and longest wave.
- Wave 4: Corrective wave that is usually less severe.
- Wave 5: Final leg in the direction of the main trend.
Current Analysis of example chart of UFO Moviez India
Based on the chart and Elliott Wave Theory, UFO Moviez India is currently suggesting an impulsive and momentum-driven 3rd of the 3rd wave ahead, with an invalidation level at 106.
Key Observations:
1. Wave Count:
- Wave (1): An initial 5-wave impulse has completed.
- Wave (2): A corrective ABC pattern.
- Wave (3): Currently unfolding with sub-waves i, ii, iii, iv, and v marked.
- Wave 3: In the larger context is forming.
2. Breakout:
- There is a breakout above the downward trendline with good volumes, indicating strong bullish momentum.
3. Key Moving Averages:
- Price Trading Above:
- 50 EMA, 100 EMA, and 200 EMA
- 50 WEMA, 100 WEMA, and 200 WEMA
- Crossed above 20 MMA
Technical Indicators and Levels
- Price: 148.54 INR (as of the latest close)
- Support Levels:
- Nearest Invalidation Level: 106 INR
- Major Support: 57.20 INR
- Resistance Levels:
- Immediate Target: 175.58 INR (Wave 1 of larger degree)
- Fibonacci Extension Target: 220.51 INR (1.618 extension of Wave 1)
Conclusion
The Elliott Wave analysis of example chart of UFO Moviez India indicates a potentially strong bullish trend as the stock is in the 3rd wave of a larger impulse. The breakout above the trendline with significant volume further supports this bullish outlook. However, it is crucial to monitor the invalidation level at 106 INR, as a break below this level could invalidate the current wave count and suggest a different scenario.
Educational Purpose Notice
This analysis is provided for educational purposes only. It is not an investment or trading advice or tip. Trading and investing in financial markets involve risk, and it is important to do thorough research and consult with a financial advisor before making any investment decisions.
I am not Sebi registered analyst.
My studies are for educational purpose only.
Please Consult your financial advisor before trading or investing.
I am not responsible for any kinds of your profits and your losses.
Most investors treat trading as a hobby because they have a full-time job doing something else.
However, If you treat trading like a business, it will pay you like a business.
If you treat like a hobby, hobbies don't pay, they cost you...!
Hope this post is helpful to community
Thanks
RK💕
Disclaimer and Risk Warning.
The analysis and discussion provided on in.tradingview.com is intended for educational purposes only and should not be relied upon for trading decisions. RK_Charts is not an investment adviser and the information provided here should not be taken as professional investment advice. Before buying or selling any investments, securities, or precious metals, it is recommended that you conduct your own due diligence. RK_Charts does not share in your profits and will not take responsibility for any losses you may incur. So Please Consult your financial advisor before trading or investing.
Less is more...If you don't know me, I have been a trader a very long time. Nearly 25 years to be exact.
Over the years, I have spent a lot of time studying a wide array of techniques, tools, patterns and market sentiment. Lucky enough, the markets have also been very kind to me.
I've been fortunate enough to have two trading books published by large traditional publishing companies. So it's safe to say, I live and breathe trading.
I am going to do a series of posts here covering a couple of key educational topics - starting with Elliott Wave theory.
When it comes to Elliott Wave theory, there seems to be a love hate relationship for many people. Some get it, some see it as not relevant. To be honest, both are correct.
Now before you jump on the high horse "it doesn't work for crypto" - let me start by saying, this is not a lesson on how to use Elliott Theory. I covered that in these posts below;
And step two;
In terms of using Elliott, it's not as simple as trying to figure out each and every move. (this is often why, it does not work.) Instead the benefit of Elliott, is to accept it as a bias tool that aids in understanding the current market sentiment.
We often see posts online about things like the Wall Street cheat sheet. I also covered this in another post here on @TradingView
Where the theory has any real value, is simply to obtain a bias. The market is always searching for liquidity. In order to obtain liquidity, the market needs to attract players for the game.
Now, you have probably entered a trade and felt almost immediately that the market has pushed against you, it's out to get you and the brokers are playing 1 vs 1 against you.
This is where sentiment really comes in.
As a retail trader you have likely been exposed to tools such as RSI, MACD or even dabbled with Elliott and Wyckoff. But the reason the market does, what the market does, is not to get you as an individual, instead it's there to collect liquidity from a crowd.
Elliott wave theory isn't a technical tool, it's a sentiment tool.
So instead of trying to guess every internal and nested swing, you can make an awful lot of money by simply giving a directional bias.
I wrote an article in 2021 here -
About the emotions, I used the Simpsons to get the point across. The general idea is to understand where liquidity is likely to be and use that to make informed trading decisions.
If you have any specific questions, even topics you would like covered, leave a comment below. I'll add to this in another post as part of this series.
Stay safe and wish you all the best.
Disclaimer
This idea does not constitute as financial advice. It is for educational purposes only, our principle trader has over 20 years’ experience in stocks, ETF’s, and Forex. Hence each trade setup might have different hold times, entry or exit conditions, and will vary from the post/idea shared here. You can use the information from this post to make your own trading plan for the instrument discussed. Trading carries a risk; a high percentage of retail traders lose money. Please keep this in mind when entering any trade. Stay safe.
Example of Divergence - USDJPYIn a forex chart, one expect the price on the chart and the value of the indicator to move in same direction. Well, sometimes the price and the indicator may show different movements.
For example :
On This Chart : The price movement on the main chart is clearly falling as the price keeps forming lower lows.
Indicator Window : The indicator window(RSI in this case, any oscillator may be used) is moving upwards as it keep having higher highs as compared to the main chart.
This is known as DIVERGENCE and in many cases I have seen, the price corrects after it's occurance. It helps keeping any eye on such.
Please do your own analysis before placing any trades.
Cheers and happy trading !!!!
What Lot Size to Use in Forex for $10, $100, $1000 Account
I will share with you a simple guide, that will help you to calculate a lot size for your forex trading account easily.
In brief, let me explain to you why you should calculate a lot size for your trades.
If you trade Forex with Fixed lot, you should be extremely careful. Too big lot size may lead too substantial losses or even blown trading account, while with a too small lot you may miss good profits.
To calculate the best lot size, follow these 5 simple steps.
1. Make a list of all Forex pairs that you trade
Let's say that you trade only major forex pairs:
EURUSD,
GBPUSD,
USDJPY,
USDCAD,
NZDUSD,
AUDUSD
2. Back test every pair and identify at least 5 past trading setups on each pair
Above, you can see 5 last trades on each 6 major forex pairs.
3. Measure stop losses of each trade
4. Find the trade with the biggest stop loss in pips
In our example, the biggest stop loss in on GBPUSD pair.
It is 34 pips.
Remember this number and the name of a currency pair.
Why we need to do that? Your lot size will primarily depend on your risk in pips. For example, scalpers may have 10/15 pips stop losses, while swing traders may have even 100 pips stop losses.
5. Open a Forex position size calculator
You can use any free calculator that is available.
They are all the same.
6. Input your account size, 2% as the risk ratio and a currency pair with the biggest stop loss (GBPUSD in our example)
In "stop loss in pips" field, write down the pip value of your biggest stop loss - 34 pips in our example.
For the account size of 1000$,
the best lot size to use 0.05 standard lot.
The idea is that your maximum loss should not exceed 2% of your account balance, while the average loss will be around 1%.
Remember to carefully back test your strategy and now exactly your maximum risks in pips, to make proper calculations!
❤️Please, support my work with like, thank you!❤️
When to PAUSE Trading – NOT Stop – 4 TimesThere is a time where you might need to PAUSE with your trading.
It will save you from a potential portfolio crash.
And it happens either when – The market environment isn’t playing nice with your system.
And there are moments when you need to step back from your trading.
But even when you halt trading, it doesn’t mean you can just take a vacation and chill.
No! The key is to track your performance each day, until the conditions improve.
This will make sure, you’re poised to leap back in when the time is right.
Let’s dive into the signs that it might be time to hit the pause button.
Big Drawdowns Over 20%
Picture this:
Your portfolio is sliding, and suddenly, you’re staring at a 20% drawdown.
It’s VERY rare – and I haven’t seen such downside since I started trading. But this applies to new traders who try to do too many things at once.
Anyways, 20% is Ouch.
If this ever happens, it’s a signal to halt trading and reassess.
Then you’ll need to analyze and see what is going wrong.
See if there is a flaw in your system.
See if the market is the right one to trade your system with.
Is it a market anomaly or is it psychological where you keep making silly mistakes.
Remember, it’s about surviving to trade another day.
Feeling Very Emotional with Trading Losses
Trading is a game of numbers, not emotions.
Now losses do sting. But that’s only when the risk is too high or you’re psychologically unable to handle them.
The trick is to manage emotions and take countless trades (wins and losses), to lower the effect of the losses.
But, if you find yourself riding an emotional rollercoaster with every loss, it’s time to halt.
Trading with a cloudy mind, over emotions and fear is a recipe for disaster.
Emotions can lead you to take impulsive and revenge trades.
And this will lead to EVEN bigger losses.
So, take a breather.
Step away from the screens and give yourself time to cool off.
Recenter your focus until you feel you have a clear, rational mindset for trading.
A trader who controls their emotions controls their destiny.
No Confirmed Strategy
Trading without a plan is like navigating a minefield blind.
If you’re unsure about your strategy or it’s not delivering consistent results, halt.
Spend time to refine and optimise your approach.
Backtest, analyze, and validate your strategy until you’re confident it can withstand the market’s ups and downs.
Only then should you resume trading LIVE.
A solid strategy is your roadmap to success.
Do Not Trust Trading
Trust is the cornerstone of trading.
If you find yourself doubting the entire process, it’s a red flag.
Maybe it’s because of repeated losses, unreliable signals, or just plain bad luck.
Whatever the reason, if you don’t trust your trading, halt. You will manifest a very negative outlook on what trading can help generate you during your career.
Remember trading is all about probabilities, risk and reward.
Use this time to rebuild your confidence.
Educate yourself, seek mentorship, and engage with the trading community.
Trust isn’t rebuilt overnight, but with patience and perseverance, you’ll get there.
Once you regain your trust, you’ll trade with renewed vigor and clarity.
FINAL WORDS: The Power of the Pause
Hitting the pause button isn’t a sign of weakness.
It’s a powerful strategic move to know when something is NOT working.
When you HALT trading you recognize when you need to protect your capital, preserve your mental health, and prepare for a stronger comeback.
Always track your performance and be ready to adapt.
Remember, the market isn’t going anywhere, and neither should you—just be smarter about your approach.
Let’s sum up the times when you should HALT trading.
Big Drawdowns Over 20%: Pause to reassess and prevent deeper losses.
Feeling Very Emotional with Trading Losses: Step back to cool off and regain a clear mindset.
No Confirmed Strategy: Refine and validate your approach before resuming.
Do Not Trust Trading: Rebuild your confidence and trust in the process.
Why Whales Accumulate ? In the vast ocean of financial markets, there exists a fascinating phenomenon: the accumulation by entities often referred to as "whales". These whales are large institutional investors or wealthy individuals who wield significant influence due to their substantial financial resources. Their actions can sway market sentiments, trigger price movements, and even manipulate certain assets. Why do these whales accumulate assets in the first place?
1- Buying maximum quantities at lower prices : At the heart of whale accumulation lies the pursuit of profit. Whales strategically accumulate assets when they perceive them to be undervalued or poised for growth. By accumulating a substantial position, they can benefit greatly from future price appreciation, thus maximizing their returns on investment.
2- Controling a price level : Whales accumulate assets as part of a broader investment strategy. For instance, they might establish long-term positions in assets they believe have strong fundamentals or offer promising growth prospects. By patiently accumulating over time , they can ride out short-term market fluctuations and capitalize on the asset's long-term potential. You can notice through the charts the different strategic positioning .
3- Making market participants quit their investment for other opportunities : Whales closely monitor market sentiment and investor psychology. By accumulating assets during periods of pessimism or market downturns , they can capitalize on undervalued opportunities when others are fearful.
Happy investing !
