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Tips and Tricks on How to Trade the Inside Bar Candlestick Tips and Tricks on How to Trade the Inside Bar Candlestick Formation
What is an Inside Bar?
An Inside Bar is a two-bar price action pattern where the second bar (the inside bar) is completely contained within the high and low range of the first bar (the mother bar). This often signifies a period of consolidation or indecision.
Trading the Inside Bar:
Breakout Strategy: Look for a strong breakout above the mother bar's high for a long position, or below the mother bar's low for a short position.
Volume Confirmation: Increased volume on the breakout candle can strengthen the signal.
Stop-Loss Placement: Consider placing your stop-loss at the opposite end of the mother bar.
Risk-Reward Ratio: Ensure a favorable risk-reward ratio before entering a trade.
False Breakouts: Be aware of false breakouts, especially in ranging markets.
Combine with Other Indicators: Use the inside bar in conjunction with other technical analysis tools for improved accuracy.
Remember, the inside bar is a powerful tool, but it's not a foolproof strategy. Always practice risk management and consider using it as part of a broader trading plan.
#tradingview #insidebar #priceaction #forex #stocks #tradingtips
Understanding the Power of Trend Lines in TradingHi! Today, I want to talk about trend lines and how useful they can be in your trading.
1. Valid Trend Lines
• For a trend line to be valid, it must connect at least three points.
• In the case of the US dollar versus Japanese yen, we are currently in an uptrend. Therefore, you should aim to connect three low points.
• Once you have a valid trend line, drawing it provides a visual aid, entry points, and stop levels. Each subsequent test of the trend line can indicate a place to add to your stops.
2. Importance of Trend Lines Over Time
• The older a trend line, the more significant it becomes.
• For example, a three-year trend line is more important than a three-month trend line, which is more significant than a weekly trend line.
3. Breaks in Trend Lines
• When a trend line breaks, it does not necessarily indicate a reversal. Sometimes, it means the market is just correcting lower and will resume its overall uptrend at a slower pace.
• For example, in the dollar-yen pair, a break might indicate a temporary correction rather than a complete reversal.
4. Long-term Trend Lines
• Long-term trend lines are crucial in trading.
• For instance, on the monthly US dollar versus Japanese yen chart, a significant breach in 2022 proved to be extremely dynamic.
5. Trend Lines as a Disciplinary Tool
• The most important aspect of trend lines is their role as a visual aid and their ability to enforce discipline.
• If a trend line breaks and you are still holding your position, you must question why you are holding it despite the trend line break.
In summary, trend lines are invaluable tools in trading, providing clear visual aids, guiding entry and stop points, and helping maintain trading discipline.
Disclaimer:
The information posted on Trading View is for informative purposes and is not intended to constitute advice in any form, including but not limited to investment, accounting, tax, legal or regulatory advice. The information therefore has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. Opinions expressed are our current opinions as of the date appearing on Trading View only. All illustrations, forecasts or hypothetical data are for illustrative purposes only. The Society of Technical Analysts Ltd does not make representation that the information provided is appropriate for use in all jurisdictions or by all Investors or other potential Investors. Parties are therefore responsible for compliance with applicable local laws and regulations. The Society of Technical Analysts will not be held liable for any loss or damage resulting directly or indirectly from the use of any information on this site.
why you should avoid trading after a trending marketHello traders,
I saw This learning post today in the London session(24-7-24).
you can go for 5 minutes to understand this concept better, you can see a clear pattern on the chart, trending -> sideways/choppy -> trending -> sideways/choppy.
in the trending market, you see fast movement; in the choppy market, you see lots of SL hunting and wicks.
try to avoid such a market so you can make money in trending.
Note : not a finance advice
Looking to start your day with an edge in trading?Good morning FX traders! 🌍 Looking to start your day with an edge in currency trading? Here's the best way to read market sentiment every morning:
1️⃣Economic calendar: Begin by checking the economic calendar for scheduled releases of important economic indicators, such as interest rate decisions, employment data, inflation figures, and GDP reports. These events can shape currency sentiment. Compare overnight data to your previous session's baseline bias.
2️⃣Central bank communications: Monitor upcoming and review overnight statements, speeches, and press conferences from central banks, especially those of major economies. Central bank actions and policymakers' comments can heavily influence currency market sentiment. Here too, compare your new bias to previous baseline to see if anything has changed.
3️⃣Technical analysis: Utilize technical tools like support and resistance levels, trendlines, and Fibs to analyze currency pairs' price action. Patterns and key indicators like RSI, Stochastics or MACD can offer insights into market sentiment. Reading price action momentum is important in order to come up with the best trade ideas. TradingView makes this extremely easy!
4️⃣Sentiment indicators: Keep an eye on sentiment indicators specifically tailored for currency markets, such as the COT report (Commitments of Traders), which reveals the positioning of large traders in futures markets. It can indicate prevailing sentiment. You can also use Central Banks odds trackers (such as FEDwatch), the FEAR/GREED meter and your own risk reading markers (I mostly use equities, Yen, commodity currencies and bond yields).
5️⃣News wires and social media: Follow trusted news wires and forex-focused social media accounts to stay updated on geopolitical developments, breaking news, and market chatter. This can provide valuable context and sentiment analysis, especially if you cannot afford a squawk service.
Remember, currency market sentiment is influenced by a multitude of factors. Stay well-informed, evaluate various sources, and trust your own analysis. Adapt swiftly and make prudent trading decisions. Wishing you profitable trades this week!
Best Parabolic SAR Indicator SettingsBest Parabolic SAR Indicator Settings
Parabolic SAR is a key component of technical trading, or technical analysis, which involves assessing financial markets and guiding trading decisions through analysing historical price and volume data, along with utilising diverse technical indicators and chart patterns. This article aims to explore the significance of the Parabolic SAR indicator, finding out which settings make it an effective tool for market analysis.
What Is the Parabolic SAR Indicator?
The Parabolic SAR (Stop and Reverse), or simply PSAR, is a technical analysis indicator designed by J. Welles Wilder to assist traders in identifying potential trend reversals in financial markets. Calculated based on an acceleration factor and an initial SAR value, the indicator trails the price movement, moving towards the trend.
When the Parabolic SAR crosses the price, it signifies a potential trend reversal, serving as a signal for traders to buy or sell depending on the crossover direction. Widely used to identify trend direction and adjust to market volatility, it is often employed in conjunction with other technical tools to make more informed trading decisions, although traders should be cautious and consider risk management strategies. Also, traders widely use the indicator as a trailing stop mechanism.
The daily chart of EURUSD on the TickTrader platform by FXOpen shows the parabolic SAR.
Understanding Parabolic SAR Settings
The PSAR has default settings that determine its initial behaviour:
- Step: The default step value is 0.02. This parameter controls the acceleration factor of the indicator as it moves in the direction of the trend.
- Maximum: The default maximum value is 0.2. This is the maximum acceleration factor that the indicator can reach, regardless of the strength of the trend.
Parameters and Their Effects
Adjusting the step and maximum parameters can significantly impact the Stop and Reverse’s sensitivity and signals:
- Step: Increasing the step value accelerates the SAR, making it more sensitive to price changes. On the other hand, a smaller step value results in a slower acceleration, making the SAR less sensitive.
- Maximum: A higher maximum value allows the SAR to accelerate more before reaching its maximum value. This can prevent the PSAR from flipping too quickly, meaning it follows the trend more smoothly. Conversely, a lower maximum value makes the SAR more responsive but increases the chances of premature reversals.
Traders can customise the PSAR based on their trading style:
- Aggressive Traders: A smaller step and lower maximum value can be used for quicker reversals, suitable for short-term and more aggressive trading.
- Conservative Traders: A larger step and higher maximum value might be preferred for a smoother indicator that reacts less to short-term price fluctuations, which is suitable for long-term and conservative trading.
Choosing the Right Settings
To avoid false signals, traders need to choose the correct Parabolic SAR settings. Here are some points to consider:
- Market Conditions: In trending markets, default settings or smaller step values may work well. In choppy or ranging markets, adjusting the parameters for sensitivity might be necessary.
- Timeframes: Shorter timeframes may require more sensitive Parabolic SAR settings for scalping, while trading in longer timeframes might be more effective with less sensitive inputs to filter out noise.
- Volatility: Significant market movements may need you to make a few adjustments to the indicator. Higher volatility may require adjustments to lower sensitivity to avoid false signals. Lower volatility might call for more sensitivity.
- Risk Tolerance: Traders with higher risk tolerance might prefer lower settings for potentially earlier signals, while conservative traders may opt for less sensitive settings for confirmation.
Examples of Setting Combinations
Here are a few settings that market participants generally use while trading, including Parabolic SAR settings for intraday strategy:
Trending Market: Step = 0.02, Maximum = 0.2
Choppy Market: Step = 0.01, Maximum = 0.1
Short-Term Trading: Step = 0.01, Maximum = 0.1
Long-Term Trading: Step = 0.02, Maximum = 0.2
The 2 parabolic SAR, or double parabolic SAR, strategy is an example that involves employing two distinct timeframes rather than tweaking indicator inputs. Initially, a lengthier timeframe is utilised to ascertain the trend direction by assessing the movement of the indicator. Subsequently, trades are executed on a shorter timeframe, focusing exclusively on the direction aligned with the longer-term trend. This approach aims to synchronise shorter-term trading activities with the broader trend determined by the extended timeframe, providing a comprehensive strategy that integrates short- and long-term market perspectives.
Final Thoughts
A thorough understanding of technical tools is indispensable for making informed decisions in forex and CFD trading. While indicators like the Parabolic SAR, with their ability to identify potential trend reversals, provide valuable insights into market dynamics, it is crucial to integrate them into a broader technical analysis toolkit for signal confirmation.
Traders should remain vigilant about market shifts and consistently refine their skills to thrive in the dynamic trading landscape. Remember that there are no best parabolic SAR settings; the best parameters will depend on your trading approach. If you want to test various Parabolic SAR settings on over 600 markets, open an FXOpen account to trade with spreads from 0.0 pips and commissions from $1.50.
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.
How to Apply a Position Size Calculator in Forex Trading
In this educational article, I will teach you how to apply a position size calculator in Forex and calculate a lot size for your trades depending on a desired risk .
Why do you need a position size calculator?
Even though, most of the newbie traders trade with the fixed lot , the truth is that fixed lot trading is considered to be very risky .
Depending on the trading instrument, time frame and a desired stop loss, the risks from one trade to another are constantly floating .
With the constant fluctuations of losses per trade, it is very complicated to control your risks and drawdowns.
A lot size calculation , however, allows you to risk the desired percentage of your capital per trade , limiting the maximum you can potentially lose.
A lot size is calculated with a position size calculator .
How to Measure Lot Size for Trades?
Let's measure a lot size for the following trade on EURUSD.
Step 1:
Measure a pip value of your stop loss.
It is the distance from your entry level to your stop loss level.
In the example on the picture, the stop loss is 35 pips.
Step 2:
Open a position size calculator
Step 3:
Fill the form.
Inputs: Account currency, account balance, desired risk %, stop loss in pips, currency pair.
Let's say that we are trading with USD account.
Its balance is $10000.
The risk for this trade is 1%.
Step 4:
Calculate a lot size.
The system will calculate a lot size for your trade.
0.28 standard lot in our example.
Taking a trade on EURUSD with $10000 deposit and 35 pips stop loss , you will need 0.28 lot size to risk 1% of your trading account.
Learn to apply a position size calculator. That is the must-use tool for a proper risk management.
Divergence: RSI vs. PriceHey everyone!
In my years of trading, I've really come to love Reversal Strategies and my favorite is in the form of a DIVERGENCE!
Today, I took some time to put together an Educational Video on:
1) What a Divergence Is?
2) How to Spot them!
&
3) How to Trade them!
I hope you find this helpful!
**Tips
- Divergence is never good enough to trade alone, YOU NEED CONFIRMATION!
- The longer the Divergence takes, the more reliable it is
- Change in Momentum is KEY!
Incorporating Alternative Investments into Portfolio BuildsIncorporating alternative investments such as private equity, hedge funds, and real assets can be a rewarding strategy for diversification and enhancing returns. These alternative assets provide unique risk-return profiles that can complement traditional investments in forex, commodities, and indices.
1️⃣ Understanding the Role of Alternative Investments
Alternative investments can play an important role in diversification due to their low correlation with traditional asset classes. By including assets like private equity, hedge funds, and real assets, you can reduce overall portfolio volatility. For example, during the 2008 financial crisis, many hedge funds and private equity investments outperformed traditional equities, providing a buffer against market downturns. Understanding the unique risk-return characteristics of each alternative investment is essential for effective integration.
2️⃣ Analyzing Historical Performance and Risk
To effectively incorporate alternative investments, it's important to analyze their historical performance and risk profiles. For instance, private equity has historically offered higher returns than public equities, but with greater risk and illiquidity. Hedge funds, on the other hand, provide diverse strategies such as long-short equity, market neutral, and global macro, each with different risk-return dynamics. Real assets like real estate and infrastructure provide stable cash flows and inflation protection, but come with their own set of risks.
3️⃣ Diversification Strategies
Diversification is the cornerstone of portfolio construction. When integrating alternatives, consider spreading investments across different types of alternative assets. For example, combining private equity with hedge funds and real assets can help mitigate the risk associated with any single asset class. A diversified portfolio might include a mix of growth-oriented private equity, income-generating real estate, and tactical hedge fund strategies.
4️⃣ Assessing Liquidity Needs
One of the main challenges with alternative investments is liquidity. Private equity and real assets typically have long lock-up periods, whereas hedge funds may offer more liquidity but still not as much as traditional assets. Assess your liquidity needs and time horizon before allocating significant portions of your portfolio to these investments. For example, an investor with a long-term horizon might allocate more to private equity, while those needing shorter-term liquidity might prefer hedge funds.
5️⃣ Evaluating Manager Expertise and Due Diligence
The success of alternative investments often hinges on the expertise of the fund managers. Conduct thorough due diligence by evaluating the manager’s track record, investment strategy, and risk management practices. For example, when selecting a private equity fund, consider the fund’s history of successful exits, management team’s experience, and alignment of interests. Similarly, for hedge funds, assess the manager's ability to generate alpha across different market conditions.
6️⃣ Tactical Asset Allocation
Integrating alternative investments requires a dynamic approach to asset allocation. Tactical asset allocation involves adjusting the portfolio mix based on market conditions and opportunities. For instance, during periods of low interest rates and high equity valuations, increasing exposure to private equity and real assets might provide better returns. Conversely, in volatile markets, hedge funds employing market neutral or global macro strategies can offer downside protection.
7️⃣ Monitoring and Rebalancing
Regular monitoring and rebalancing are essential to maintain the desired risk-return profile of the portfolio. Set predefined thresholds for rebalancing to ensure the portfolio stays aligned with your investment goals. For example, if the allocation to private equity exceeds the target due to strong performance, consider rebalancing by allocating more to underperforming or undervalued assets like certain commodities or forex positions. This disciplined approach helps in maintaining the optimal balance between traditional and alternative investments.
Incorporating alternative investments into a portfolio that includes forex, commodities, and indices offers a pathway to enhanced diversification and potential returns. By understanding the unique characteristics of private equity, hedge funds, and real assets, investors can craft a balanced and resilient portfolio. Remember to conduct thorough due diligence, assess liquidity needs, and regularly monitor and rebalance the portfolio to adapt to changing market conditions.
VOLATILITY DRAG - The Hidden ThiefThis is a super important subjective to touch on.. And that topic is Volatility Drag, also known as Percentage Loss Trap.
I believe that most traders do not consider this in their trading. They know about win-rate, risk/reward ratios, compounding, and perhaps even the fact that losing 50% of your account will require you to make 100% just to get back to break even. But few take into acccount Volatility Drag. It can be a sneaky thief, eating away at your PnL, causing you to lose money even though it seems that you are profitable.
Volatility Drag is basically the percentage loss of your account that occurs from the volatility in your wins and losses. In this video I illustrate it on a spreadsheet and graph for your understanding.
This is why slow and steady wins the race in trading. Anyone that presents you otherwise is a fool and you should absolutely stay clear of such people. One cannot have a volatile equity yet not have volatile emotions. Either that, or they have not considered the math.
Safe trading!
- R2F
Option Buying Learning Ideas!Hello, a simple trick to be successful when buying options is to wait for the candle to close. You have heard this rule many times before. In my experience, it takes time to learn it, and it takes time to implement what you have learned on the chart. But all your waiting will pay off for you.
Thanks for Reading.
5 tips for building a professional trading mindsetHey traders
Building a professional trading mindset is crucial for success in the forex market. Here are five tips to help develop and maintain a professional approach:
1 . Develop Discipline and Patience:
Stick to a Trading Plan: Develop a detailed trading plan that outlines your strategies, risk management rules, and goals. Adhere to this plan consistently to avoid impulsive decisions.
Be Patient: Understand that success in trading doesn't happen overnight. Be patient and wait for the right trading opportunities that align with your plan.
2 . Embrace Continuous Learning:
Stay Informed: Keep up-to-date with market news, economic indicators, and geopolitical events that can impact the forex market.
Learn from Mistakes: Analyse your trades, both successful and unsuccessful, to identify what worked and what didn’t. Use this knowledge to improve your strategies.
3 .Manage Emotions:
Stay Calm Under Pressure: Trading can be stressful, especially during volatile market conditions. Practice techniques to manage stress and maintain a clear, focused mind.
Avoid Overtrading: Don’t let emotions drive you to overtrade. Stick to your trading plan and avoid chasing losses or getting overly greedy after wins.
4 . Implement Strong Risk Management:
Use Stop-Loss Orders: Protect your capital by setting stop-loss orders to limit potential losses on each trade.
Diversify Trades: Avoid putting all your capital into a single trade.
Diversify your trades to spread risk across different currency pairs or financial instruments.
5 . Set Realistic Goals and Expectations:
Define Clear Objectives: Set specific, measurable, achievable, relevant, and time-bound (SMART) goals for your trading activities.
Understand the Learning Curve: Recognise that becoming a successful trader takes time and effort. Set realistic expectations regarding your progress and returns.
By incorporating these tips into your trading routine, you can build a professional mindset that enhances your decision-making, improves your performance, and increases your chances of long-term success in forex trading.
Why Using Charts Can Help You with Your TradingImagine you've decided to buy a particular stock. Your position starts to make money, and you're thrilled. But what do you do now? Should you hold onto your position or cash it in? Has it made enough profit, or will it go further? It's painful to lose money, but it's also frustrating to take profits only to see your original investment quadruple in price after you've cashed out too early.
Is there something that can help you make these decisions? Yes, there is! It's called technical analysis. But what if you're a complete novice to technical analysis? It may look complicated and difficult, but don't worry.
The beauty of technical analysis is that it can help with your decision-making, and once you learn the rules, it's easy to apply.
I have attached a short video explaining the steps I go through when I first look at a chart. Do you know how to determine a trend? Do you know how to apply trend lines? Do you know what a momentum indicator is? Do you know why and how to use moving averages? Do you understand continuation and reversal signals?
Options Blueprint Series: Tailoring Yen Futures Delta ExposureIntroduction
In options trading, a Bull Call Spread is a popular strategy used to capitalize on price increases in the underlying asset. This strategy involves buying a call option at a lower strike price while simultaneously selling another call option at a higher strike price. The net effect is a debit trade, meaning the trader pays for the spread, but the risk is limited to this initial cost, and the profit potential is capped by the sold call option's strike price.
For traders interested in Japanese Yen Futures, the Bull Call Spread offers a way to potentially profit from expected upward movements while managing risk effectively. Delta exposure, which measures the sensitivity of an option's price to changes in the price of the underlying asset, is a crucial aspect of this strategy. By carefully selecting the strike prices of the options involved, traders can tailor their delta exposure to match their market outlook and risk tolerance.
In this article, we will delve into the mechanics of Bull Call Spreads, explore how varying the sold unit's strike price impacts delta exposure, and present a practical case study using Japanese Yen Futures to illustrate these concepts.
Mechanics of Bull Call Spreads
A Bull Call Spread is typically constructed by purchasing an at-the-money (ATM) call option and selling an out-of-the-money (OTM) call option. This strategy is designed to take advantage of a moderate rise in the price of the underlying asset, in this case, Japanese Yen Futures.
Components of a Bull Call Spread:
Buying the ATM Call Option: This option is purchased at a strike price close to the current price of the underlying asset. The ATM call option has a higher delta, meaning its price is more sensitive to changes in the price of the underlying asset.
Selling the OTM Call Option: This option is sold at a higher strike price. The OTM call option has a lower delta, reducing the overall cost of the spread but also capping the profit potential.
Delta in Options Trading:
Delta represents the rate of change in an option's price concerning a one-unit change in the price of the underlying asset. For call options, delta ranges from 0 to 1:
ATM Call Option: Typically has a delta around 0.5, meaning if the underlying asset's price increases by one unit, the call option's price is expected to increase by 0.5 units.
OTM Call Option: Has a lower delta, typically less than 0.5, indicating less sensitivity to changes in the price of the underlying asset.
By combining these two options, traders can create a position with a desired delta exposure, managing both risk and potential reward. The selection of strike prices is crucial as it determines the overall delta exposure of the Bull Call Spread.
Impact of Strike Price on Delta Exposure
Delta exposure in a Bull Call Spread is a crucial factor in determining the overall sensitivity of the position to changes in the price of the underlying asset. By adjusting the strike price of the sold call option, traders can fine-tune their delta exposure to align with their market expectations and risk management preferences.
How Delta Exposure Works:
Higher Strike Price for the Sold Call Option: When the strike price of the sold call option is higher, the overall delta exposure of the Bull Call Spread increases. This is because the sold option has a lower delta, contributing less to offsetting the delta of the purchased call option.
Lower Strike Price for the Sold Call Option: Conversely, a lower strike price for the sold call option decreases the overall delta exposure. The sold option's higher delta offsets more of the delta from the purchased option, resulting in a lower net delta for the spread.
Examples of Delta Exposure:
Example 1: Buying a call option with a strike price of 0.0064 and selling a call option with a strike price of 0.0065.
Purchased call option delta: 0.51
Sold call option delta: 0.34
Net delta: 0.51 - 0.34 = 0.17
Example 2: Buying a call option with a strike price of 0.0064 and selling a call option with a strike price of 0.0066.
Purchased call option delta: 0.51
Sold call option delta: 0.21
Net delta: 0.51 - 0.21 = 0.29
As illustrated, the higher the strike price of the sold call option, the greater the net delta exposure. This increased delta indicates that the position is more sensitive to changes in the price of Japanese Yen Futures, allowing traders to capitalize on more significant price movements. Conversely, a lower strike price reduces delta exposure, making the position less sensitive to price changes but also limiting potential gains.
Case Study: Japanese Yen Futures
Market Scenario: Recently, a downtrend in Japanese Yen Futures appears to have potentially reversed, presenting an opportunity to capitalize on a new potential upward movement. To take advantage of this potential uptrend, we will construct a Bull Call Spread with specific entry, stop loss, and target prices based on Yen Futures prices (underlying).
Underlying Trade Setup
Entry Price: 0.0064
Stop Loss Price: 0.00633
Target Price: 0.00674
Point Values and Margin Requirements
Point Values: For Japanese Yen Futures, each tick (0.0000005) equals $6.25. Therefore, a movement from 0.0064 to 0.0065 represents a 200-tick change, which equals $1,250 per contract.
Margin Requirements: Margin requirements for Japanese Yen Futures vary but are currently set at $2,800 per contract on the CME Group website. This amount represents the minimum amount of funds required to maintain the futures position.
Valid Bull Call Spread Setup
Given the current market scenario, the following setup is selected:
1. Purchased Call Option
Strike Price: 0.0064 (ATM)
Delta: 0.51
2. Sold Call Option Variations
Strike Price 0.0068:
Delta: 0.08
3. Net Delta: 0.42
Reward-to-Risk Ratio Calculation
Due to the limited risk profile of Debit Spreads, where the maximum potential loss is confined to the initial debit paid, stop loss orders will not be factored into this reward-to-risk ratio calculation.
Debit Paid: 0.000085 (call purchased) - 0.000015 (call sold) = 0.00007
Potential Gain: Sold Strike - Strike Bought - Debit Paid = 0.0068 - 0.0064 - 0.00007 = 0.00033
Potential Loss: Debit Paid = 0.00007
Reward-to-Risk Ratio: 0.00033 / 0.00007 ≈ 4.71
This ratio indicates a favorable risk-reward setup, as the potential reward is significantly higher than the risk.
Conclusion
In this article, we have explored the intricacies of using Bull Call Spreads to tailor delta exposure in Japanese Yen Futures trading. By strategically selecting the strike prices for the options involved, traders can effectively manage their delta exposure, aligning their positions with their market outlook and risk tolerance.
Key Points Recapped:
Bull Call Spreads: This strategy involves buying an at-the-money (ATM) call option and selling an out-of-the-money (OTM) call option to capitalize on moderate upward price movements.
Delta Exposure: The delta of the options involved plays a crucial role in determining the overall sensitivity of the spread to price changes in the underlying asset.
Strike Price Variations: Adjusting the strike price of the sold call option can significantly impact the net delta exposure, offering traders the flexibility to fine-tune their positions.
Case Study: A practical example using Japanese Yen Futures illustrated how varying the sold unit's strike price changes the delta exposure, providing concrete insights into the strategy.
Risk Management: We always emphasize the importance of stop loss orders, hedging techniques, avoiding undefined risk exposure, and precise entries and exits ensures that trades are structured with proper risk controls.
By understanding and applying these principles, traders can enhance their ability to navigate the complexities of options trading, making informed decisions that align with their trading objectives.
When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies.
General Disclaimer:
The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
Buy call option – at the money / in the money / out of the moneyDefinitions
Buy call option – a stock option is the right to buy a stock (but not the obligation) at a certain price for a limited period of time. The price at which the stock may be bought is called the striking price.
Three terms describe the relationship between the stock price and the options striking price: At the money / In the money / Out of the money
For example; stock XYZ trade at $100
At the money – the strike price of the option is $100
In the money - the strike price of the option is $90
Out of the money – the strike price of the option is $110
The strike price is one of the 6 factors that determine the price of the option.
Those factors are:
1. The price of the stock
2. The strike price of the option
3. The time until the option expires
4. The volatility of the stock also called “implied volatility”
5. The risk-free interest rate (usually the 90-day treasury bills)
6. The dividend rate of the stock.
The last two have less influence on the option price.
The option pricing has two elements, “time premium” and “intrinsic value”.
In this post, I’m not going to elaborate on those two. (But they are important to understand).
The Delta
The delta of an option is the amount by which the call option will increase or decrease in price if the stock moves by 1 point. The values of the delta are between zero to one, if the call option is in the money the delta is closer to 1 if the call option is out of the money the delta is closer to 0.
For example; if the stock option has a delta value of 0.8, this means that if the stock increases or decreases in price by $1 per share, the option price will rise or fall by $0.8.
The option pricing is based on a partial differential equation because of that the behaver of the option pricing is not linear, as we can see from the charts.
In the right chart, we see In the money option with a delta of 0.92, meaning the option price is behaving very similar to the stock price, we see that the lines are nearly flat.
In the left chart, we see Out of the money option with a delta of 0.12, meaning the option price does not move like the stock price, for every $1 the stock will move the option price will move $0.12.
Also, note the difference between the profit lines, to make 3 points with In the money option the stock needs to move to above $190, but the Out of the money option needs only to move above $145.
This was the profit side, the losing side as you can see if the stock will remain at the same place the In the money options will break-even while the Out of the money options will expire worthless and will lose 1 point.
The options that were used (input):
Right chart: Option price -> $25.9, Stock price -> $115 , Strike price -> 90$ , Interest rate -> 0 , Days to expire -> 56 , Implied volatility -> 40.8%
Left chart: Option price -> $1.17, Stock price -> $115 , Strike price -> $140 , Interest rate -> 0 , Days to expire -> 56 , Implied volatility -> 40.8%
One option contract is the right to buy 100 shares so the cost for the options would be: $2590 and $117 respectively, not include commissions.
For clarification: If you hold it to expiration and it is not worthless, that means you need to buy 100 shares at the strike price, $9000 in the right chart, $14,000 in the left chart. (not include what you already paid)
Top 7 Books to Learn Advanced Technical Analysis for StocksTop 7 Books to Learn Advanced Technical Analysis for Stocks
Mastery of advanced technical analysis is one of the factors that separates casual traders from experienced ones. Financial markets are not simple, so it’s important to understand the subtleties of price movements and chart patterns.
This FXOpen article is best suited for experienced traders who already have basic trading knowledge but are looking to delve into advanced technical analysis. We’ve compiled a list of the 7 best books to learn stock trading that explain its complexities and offer invaluable insights and strategies to potentially enhance your trading.
What Are the Best Books to Learn Stock Trading?
Typically, sketchy knowledge from blogs or YouTube videos won’t be enough to allow someone to understand and improve technical analysis. Then, people turn to reading, trying to find the best books to learn the stock market that are available.
The best stock market books are characterised by their practicality, expertise, and ability to provide valuable insights for investors and traders. They often cover a range of topics and are authored by experienced professionals in the field. Below, you’ll see a list of 7 books and their descriptions.
1. The Art and Science of Technical Analysis: Market Structure, Price Action, and Trading Strategies
Author: Adam H. Grimes
This book is a pioneering work that connects an academic view of markets, technical analysis, and effective trading. It explores why randomness dominates markets most of the time but not always. The author focuses on how technical analysis can be used to identify statistically validated patterns in certain market conditions.
In reviews of the work, readers state that the book demolishes TA misconceptions and provides insight into the psychology of market players. The book is supported by extensive research and helps readers recognise technical patterns.
2. The Definitive Guide to Point and Figure
Author: Jeremy Du Plessis
One of the top books on stock trading is the work of Jeremy Du Plessis. This book is dedicated to technical analysis and Point and Figure charting. It includes a detailed explanation of the history and development of the technique from its invention to the present day and covers the construction of graphic patterns, the reasons for their creation, and ways of interpreting them. According to reviewers, the book provides knowledge that gives you an edge. After reading it, you will no longer look at price targets and risk-reward ratios like you used to.
3. Elliott Wave Principle: Key to Market Behavior
Authors: Robert R. Prechter Jr., A.J. Frost, Charles J. Collins
This book is a worthy reference for technical traders. It gives a good understanding of the Elliott wave principle, a form of technical analysis that traders use to analyse financial market cycles and trends. It’s not for amateurs, but experienced traders love it.
The book is rather specialised as it contains material on one narrow topic, so it’s not a complete guidebook to mastering trading. Nevertheless, it’s very informative and concentrated. Reviewers note that the book teaches readers how to apply Elliott wave theory not only on stocks but also on commodities and forex markets.
4. Encyclopedia of Chart Patterns
Author: Thomas N. Bulkowski
This book is dedicated to trading on news and significant events, including quarterly earnings announcements, retail sales, and stock upgrades and downgrades. It offers empirical data illustrating the effectiveness and ineffectiveness of the patterns.
The Bulkowski Encyclopedia has been a bestseller for a long time, and now the author has released an updated, improved version and added many new patterns and strategies, as well as updated market statistics. Everything you will read in the theoretical part is backed up with figures and calculations and validated.
5. Technical Analysis Using Multiple Timeframes
Author: Brian Shannon
This is one of the books for the stock market dedicated to many aspects of trading at once. You will learn how you may enter established trends with low risk, recognise and take advantage of cyclical capital movements in all markets, evaluate the potential of a trade using technical analysis, and much more.
Reviewers mention that it provides powerful insights into how to use different timeframes to determine trends, confirm signals, and manage risk. The book is not complicated, but it is suitable for experienced traders, as it collects and systematises a huge block of information about the market.
6. Beyond Candlesticks: New Japanese Charting Techniques Revealed
Author: Steve Nison
This book provides a detailed analysis of Japanese candlestick charting techniques and how to use them in technical analysis. It discusses how to use candlestick patterns to identify trends, confirm signals, and manage risk.
Readers value its step-by-step instructions, detailed charts and graphs, and clear guidance on tracking results. Moreover, the book helps readers understand the psychology of traders in the stock market and the logic behind their decisions.
7. Effective Trading In Financial Markets Using Technical Analysis
Authors: Ashish Kyal, Smita Roy Trivedi
Along with other books in this list, the work of Ashish Kyal and Smita Roy Trivedi explains how to use technical analysis in financial markets. It covers technical analysis tools, backtesting, and algorithmic trading in detail. It teaches readers how to use technical indicators and chart patterns, confirm signals, and manage risk.
Readers say that it’s written in simple language, and there are multiple examples, case studies, comparisons, and figures for different assets and markets. Unlike many classic trading books, this work focuses a lot on the Indian market. It will be useful to those who are interested in that region.
Final Thoughts
It’s not an easy task to list the best books for trading in the stock market. If everything is clear in terms of materials for those who are just entering the world of trading, advanced books are harder to choose.
Experts say that if you already have background knowledge, you can select books that either combine and systematise information about trading or deal with one specific area in detail. The more you read, the more experience and skills you will gain. And if you want to put your knowledge into practice, you can open an FXOpen account. Log in to the TickTrader trading platform to see real-time asset charts and try out your strategies.
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.
Power of 3 - ICT Concept ExplainedIn this video I cover the topic of Power of 3 or otherwise known was PO3. This concept is also the same as AMD, which is Accumulation, Manipulation, Distribution.
PO3 is the basis in which Smart Money approaches the market. As we have covered before, liquidity is the lifeblood of the market. To maximize efficiency for Smart Money, liquidity is engineered for the purpose of trapping uninformed money on the wrong side of the market and assuming the counter-party to their trades.
At the open of a candle, Smart Money is accumulating positions, usually in some sort of range. The next stage is the manipulation, where price makes a fast run towards liquidity, usually in the opposite direction of where price is intended to go, and then reversing rapidly.
The final stage is distribution, where Smart Money is offloading their positions above or below the marketplace depending on whether it is a buy or sell program.
The whole purpose of understanding this concept is to be able to anticipate the future direction of price, and to ideally buy below or above the open of a candle, again depending on what type of candle it is. I show how I anticipate the PO3 in this video.
- R2F
What Is Yield Farming In Crypto? Yield farming can be likened to traditional bank deposits, where an investor puts in money and earns returns over time. However, in the world of cryptocurrencies, the concept takes on a more complex form. Yield farming is a broad term that encompasses various activities, including liquidity mining and staking. While these methods share similarities, they differ in their objectives, such as whether they involve issuing new tokens or not.
📍 HOW YIELD FARMING WORKS
Yield farming is a way for cryptocurrency holders to generate income by lending or providing liquidity to decentralized financial (DeFi) protocols. By contributing their assets, users can earn rewards in the form of additional tokens or interest income. This opportunity allows individuals to participate in the DeFi ecosystem and benefit from the growing demand for decentralized financial services.
📍 THE PROCESS:
1. Providing liquidity: Users deposit their cryptocurrency assets into liquidity pools on the DeFi platform, which facilitates various financial transactions such as token exchanges, lending, and borrowing.
2. Earning rewards: In return for providing liquidity, users receive rewards, including:
Commissions from transactions passing through the liquidity pool
Native tokens of the platform (e.g. management tokens)
Additional tokens through various incentive programs
📍 EXAMPLES OF DEFI PLATFORMS:
Uniswap: A decentralized exchange (DEX) where users deposit tokens into liquidity pools, earning commissions on each transaction made through these pools.
Compound: A lending platform where users can lend their cryptocurrencies and earn interest on their deposits. Borrowers pay interest on the use of these assets, providing a revenue stream for lenders.
Aave: A platform that allows users to earn interest on deposited assets and use them as collateral for loans, providing a dual income stream.
SushiSwap: A DEX similar to Uniswap, but with an additional twist - liquidity providers are rewarded with SUSHI tokens, providing an additional incentive to participate in the platform.
📍 MAKING PROFIT IN DEFI:
1. Analyze and Choose a Platform: Select a reputable platform with a stable income stream. Carefully review the terms and conditions of liquidity provision to ensure you understand the risks involved.
2. Diversify Your Assets: Spread your investments across multiple platforms and pools to minimize risks. This will help you ride out market fluctuations and potential platform-specific issues.
3. Optimize Your Strategy: Continuously compare different pools and platforms to find the best terms for your investments. Some platforms offer combination strategies that can help maximize returns.
4. Monitor and Adapt : Regularly review your investments and adjust your strategy as market conditions change. This will help you stay ahead of the game and mitigate potential losses.
📍 RISKS OF YIELD FARMING:
• Technical Risks: Smart contract vulnerabilities can lead to irreversible losses, compromising the security of your funds.
• Market Risks: Cryptocurrency price fluctuations can impact your income. In many cases, you're unable to withdraw your funds immediately, leaving you vulnerable to potential losses if token values decline.
• Liquidity Risks: Low liquidity in pools can result in significant spreads and reduced returns, limiting your earning potential.
• Platform Risks: The risk of platform hacking or closure can result in the loss of your invested funds, leaving you without access to your assets.
📍 CONCLUSION
While yield farming can be an attractive option for earning additional income, one of the most significant risks is the potential for a price drop and the inability to quickly withdraw your locked coins. However, for those who have a long-term perspective and plan to hold their cryptocurrency for at least a year or more, temporary drawdowns are unlikely to significantly impact their overall returns. On the other hand, yield farming offers the possibility of generating significant additional income, potentially exceeding 10-15% per year. By carefully weighing the risks and rewards, investors can make informed decisions about whether yield farming is a suitable strategy for their investment goals.
Optimizing Technical Analysis with Logarithmic Scales▮ Introduction
In the realm of technical analysis, making sense of market behavior is crucial for traders and investors. One foundational aspect is selecting the right scale to view price charts. This educational piece delves into the significance of logarithmic scaling and how it can enhance your technical analysis.
▮ Understanding Scales
- Linear Scale
This is a common graphing approach where each unit change on the vertical axis represents the same absolute value.
- Logarithmic Scale
Unlike the linear scale, the logarithmic scale adjusts intervals to represent percentage changes.
Here, each step up/down the axis signifies a constant percentage increase/decrease.
▮ Why Use the Logarithmic Scale?
The logarithmic scale offers a more insightful way to analyze price movements, especially when the price range varies significantly.
By focusing on percentage changes rather than absolute values, long-term trends and patterns become more apparent, making it easier to make informed trading decisions.
▮ Comparative Examples
Consider the Bitcoin price movement:
- On a linear scale, a 343% increase from $3,124 to $13,870 looks smaller compared to the same percentage increase from $13,870 to $61,769. This disparity occurs because the linear scale emphasizes absolute changes.
- On the logarithmic scale, both 343% increases appear proportional, giving a clearer representation.
Additionally, in a falling price scenario, a linear graph might show a smaller box for an 84% drop compared to a 77% drop, simply because of absolute values' significance. The logarithmic scale corrects this, showing the true extent of percentage declines.
▮ Advantages and Disadvantages
Advantages:
- Fairer comparison of price movements.
- Consistent representation of percentage changes.
- More reliable support and resistance lines.
Disadvantages:
- Potential misalignment of alerts (www.tradingview.com).
- Drawing inclined lines might create distortions when switching scales:
A possible solution is the use the "Object Tree" feature on TradingView to manage graphical elements distinctly for each scale.
▮ How to Apply Logarithmic Scale on TradingView
Enabling the logarithmic scale on TradingView is straightforward:
- Click on the letter "L" in the lower right corner of the graph (the column where prices are shown);
- Another option is use of the keyboard shortcut, pressing ALT + L .
▮ Conclusion
The logarithmic scale is an invaluable tool for technical analysis, providing a more accurate representation of percentage changes and simplifying long-term pattern recognition.
While it has its limitations, thoughtful application alongside other analytical tools can greatly enhance your market insights.
PART 4 67years back in timeWe have previously established the close relationship between the 1899-1929 period and the 1997-2028 market cycle. Various arithmetic sequences and planetary cycles that influenced the price movement during the 1899-1929 cycle are true to happen in the current cycle. As we saw in this video, the price movements already recorded obeyed the same laws as of the 1899-1929 period and would continue to do same..
Check back for PART 5 as we look at the small timeframe and possible ways we can trade the market.
How to read the VIX properly
This video explains the VIX indicator, how I use it to guide my trading decisions, and my perspective on the market. You can download the TradingView indicator for free, as it is open-source. Additionally, I'll provide a link to my Thinkorswim version in the YouTube video description. The VIX is an excellent tool for market guidance, based on options trading activity 30 days out on the S&P 500. It indicates market fear when it rises due to increased options buying and selling. Thank you for watching! If you have any questions or comments, feel free to share them—I enjoy discussing these topics. No indicator is perfect, but I use this one daily to gauge the market.
Bitcoin Halving DatesThis indicator marks the dates of Bitcoin halving events on your chart, providing valuable context for long-term Bitcoin price analysis.
What are Bitcoin Halvings?
Bitcoin halvings are pre-programmed events in the Bitcoin protocol that occur approximately every four years (or every 210,000 blocks). During a halving, the reward for mining new blocks is cut in half, effectively reducing the rate at which new bitcoins are created. This mechanism is designed to control Bitcoin's supply and mimic the scarcity of precious metals.
Why are Halvings Important?
Halvings are significant because they:
1. Reduce the inflation rate of Bitcoin
2. Increase scarcity, which can impact supply and demand dynamics
3. Often coincide with increased public interest in Bitcoin
4. Have historically preceded periods of price appreciation
Indicator Features:
• Displays vertical lines at each Bitcoin halving date
• Shows labels with key information for each halving event
• Includes countdown to the next halving
• Customizable colors and label positions
Each label displays:
1. The ordinal number of the halving (1st, 2nd, 3rd, etc.)
2. The exact date of the halving
3. Bitcoin's price at the time of the halving
4. Days remaining until the next halving
Usage:
This indicator is particularly useful for:
• Visualizing Bitcoin's price history in relation to halving events
• Analyzing potential long-term price trends
• Planning long-term investment strategies
• Educational purposes to understand Bitcoin's emission schedule
Customization:
Users can adjust:
• Line color and width
• Label color and position
Note: Future halving dates are estimates and may be subject to slight variations due to fluctuations in block times.
Disclaimer: This indicator is for informational and educational purposes only, and it is not financial advice. Always conduct your own research before making investment decisions.
I hope you find this indicator helpful in your Bitcoin analysis. Feedback and suggestions for improvement are welcome!
4 Stages of Price Delivery (ICT Concepts)In this video I go through the 4 stages of price delivery as it pertains to ICT Concepts.
Generally, the market is going through either of the following:
Consolidation
Expansion
Retracement
Reversal
Price starts from a consolidation, where Smart Money accumulates their position, and then an expansion, where price is trending in a direction for the purpose of seeking liquidity and/or manipulating sentiment. From an expansionary phase, price will either retrace to re-accumulate orders and expand again, or have a complete reversal.
Now, it is important to note that price is fractal, meaning the signatures you see on a lower timeframe perspective could also be seen on a higher timeframe perspective. In a singular candlestick, there can be multiple phases of price delivery happening.
Once one can fit all these pieces together in regard to how market makers book price, one can have a clear insight into where price is likely going and where it likely won't go again, all with a high degree of accuracy.
Thanks for watching and reading!
- R2F
