Unpopular trading advice: fall in LOVE with one pair ONLYIn a world where you can love anyone and anything your heart desires, fall in love with ONE currency pair ONLY.
The notion of "the more pairs I trade, the more money I will make" is false. If you wanna be a consistently profitable trader, it is more beneficial to focus on a small selection of securities and master them, and there is a concrete reason for that. Concentrating on one or two currency pairs instead of trading every single major, minor, and exotic pair will be more efficient, less confusing, and more profitable. When you study every single movement of any given pair, you get more experienced at trading it and you make more rational decisions and analyses.
Looking at the chart illustration, we might observe the trading log of all transactions we executed in April and May so far. With 8 trade entries and all of them being EUR/GBP, a total return of +9.6% has been generated constituting an approximate win rate percentage of 70%. Obviously, not every trade resulted in being profitable as we encountered 2 losses and a breakeven closure. Nevertheless, as we always indicate, trading is a game of big numbers and probabilities. Instead of trading 10 securities, we have only been focusing on one single currency pair recently.
One crucial thing that needs to be noted is the following: not always will the one specific currency pair of your choice provide you with clear swing opportunities as the example of EUR/GBP portrayed on the graph. Periods of long and dull consolidations, indecisions, and some other moments will take place and make a derivative unlikeable and less efficient to trade for a period of time.
Therefore, always have one or two other trades on the radar to eventually monitor and analyse along with the currency pair of your preference.
Love will save the world.
Investroy.
Risk Management
Big non-farm data is coming, are you ready?
The monthly nonfarm payroll data is coming soon. Do you know how it will affect gold prices?
The "nonfarm" data is released by the US Department of Labor on the first Friday of each month. It consists of three values: nonfarm employment, employment rate, and unemployment rate, which reflect the development and growth of the manufacturing and service industries. A decrease in these numbers represents a reduction in production by businesses and an economic downturn. Therefore, the following basic rules apply to the price trends of gold:
1. A decrease in nonfarm values indicates an economic downturn, a reduction in production by businesses, and a weakening of the US dollar, which is favorable for gold.
2. An increase in nonfarm values indicates a healthy economic condition, which is favorable for increasing interest rates, strengthening the US dollar, and unfavorable for gold.
In general, if the overall economic data in the United States is weak and the ADP employment data is favorable for spot gold before the nonfarm data is released, the market may start to show a bullish trend for gold prices on Thursday and Friday. On the other hand, if there are signs of economic recovery in the United States before the release of the nonfarm data and the economy is strong, it will be bearish for gold prices, and investors can take advantage of short positions.
Therefore, if the newly added nonfarm data exceeds the market's expectations, the Federal Reserve's expectation of raising interest rates may rise again. However, the uncertain global economic recovery has led to continued expectations of monetary easing by central banks, and the combined effects of these factors have led to extreme fluctuations in gold prices during nonfarm data releases. As a gold investor, you can actively pay attention to the nonfarm market, but there is no need to demand excessive profits from the market. Instead, it is essential to understand the impact of this data on gold price movements.
I will provide analysis and trading strategies for gold and crude oil every day. Please click to follow, maintain your reading habits, and create opportunities for yourself. If you agree with my views, please click the rocket to support me.
COMEX:GC1! MCX:GOLD1! BIST:XAUUSD1!
How To Become A Millionaire | 2 Proven Ways
Seeing people announce their net worth on social media may have you asking yourself, "How do I become a millionaire?" Yet "millionaire" can feel like a huge, unobtainable word. However, the good news is that becoming one is actually more realistic than you might think.
The fast-track method of becoming rich in your twenties is to start a high-growth, high-return business with a plan to exit within five years or so.
But, of course, there's absolutely no guarantee you'll even make a penny, and the risk can often outweigh your other options for building a long-term income.
It's important to have a well-researched idea and a solid business plan before you start, as well as a clear picture of how you'll support yourself when there's no money coming in.
Having said all this, there may never be a better time to start in business than as a graduate. Your responsibilities are minimal and even if it all goes wrong, you've got a wealth of experience to build on and take forward.
With your business, you should either identify a need and fill it or find a problem and solve it. Solving for customer needs and exceeding expectations along the way drives business growth.
A customer need is a motive that prompts a customer to buy a product or service. Ultimately, the need is the driver of the customer's purchase decision.
Learning to solve the problems of people, you can make a huge wealth on that. Just look around and look for the things to solve.
What do you want to learn in the next post?
📈 The Trailing Stop Loss📍 What Is a Trailing Stop?
A trailing stop is a modification of a typical stop order that can be set at a defined percentage or dollar amount away from a security's current market price. For a long position, an investor places a trailing stop loss below the current market price. For a short position, an investor places the trailing stop above the current market price.
A trailing stop is designed to protect gains by enabling a trade to remain open and continue to profit as long as the price is moving in the investor’s favor. The order closes the trade if the price changes direction by a specified percentage or dollar amount.
📍Important Takeaways
🔹 A trailing stop is an order type designed to lock in profits or limit losses as a trade moves favorably.
🔹 Trailing stops only move if the price moves favorably. Once it moves to lock in a profit or reduce a loss, it does not move back in the other direction.
🔹 A trailing stop is a stop order and has the additional option of being a limit order or a market order.
🔹 One of the most important considerations for a trailing stop order is whether it will be a percentage or fixed-dollar amount and by how much it will trail the price.
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Practical Insights into the Risk ManagementHey there, amazing @TradingView community! It's @Vestinda, and we're on a mission to deliver content that truly makes a difference.
👉 To become a successful crypto trader, it's essential to have a solid understanding of trade and risk management concepts, such as stop losses, position sizing, and scaling. In this article, we'll explore these key concepts in-depth to help you minimize your risks and maximize your gains in the cryptocurrency market.
Four Risk Management Concepts Every Crypto Trader Should Understand
To effectively manage the risk associated with trading, it is essential to first develop a comprehensive trade management and risk management strategy. Before committing your capital to any position, it's critical to have a clear plan in place to minimize potential losses and optimize your overall trading performance.
Successful market speculation requires effective risk management to preserve capital, which is the primary objective. By minimizing losses and maximizing gains through a comprehensive trade and risk management strategy, traders can achieve long-term success in the market.
One of the key strategies employed by the most successful traders is to minimize their losses while allowing their profitable trades to run. This approach is essential for avoiding disastrous scenarios, such as allowing profitable trades to turn into losers or allowing a single bad trade to wipe out an entire account. By focusing on risk management and trade management, traders can increase their chances of success and protect their capital over the long term.
It's true that implementing the "cut losses quickly and let profitable trades ride" strategy can be challenging, especially for discretionary traders who need to constantly evaluate changes in fundamentals and market sentiment against price movements. However, there are trade and risk management ("TRM") tools and methods available that can help simplify this process.
While these tools and methods may seem complex at first, they are quite accessible and easy to learn. With the right TRM strategies in place, traders can effectively manage risk and optimize their performance in any market condition.
Before diving into trading, it's crucial to understand four key concepts in trade and risk management:
Stop losses: Stop losses are predetermined exit points designed to limit potential losses on a trade. By setting a stop loss, traders can automatically close a position if the market moves against them beyond a certain point, minimizing their losses.
Traders may use price action signals, technical indicator signals, fundamental analysis, or a combination of all three to determine the appropriate level for a stop-loss order. This helps to limit potential losses on trade and is a crucial component of effective risk management.
Position sizing: Position sizing refers to the amount of capital allocated to a specific trade. By properly sizing positions based on risk tolerance and market conditions, traders can optimize their overall risk management strategy and minimize the impact of potential losses.
Position sizing refers to the process of determining the quantity of cryptocurrency to long or short based on the maximum amount of value a trader is willing to lose if the trade fails, also known as "max risk." For novice traders, it is recommended that the maximum risk should not exceed 1-2% of their portfolio for short-term transactions and 5% for longer-term positions.
For example, if a trader has a cryptocurrency account with $ 1,000 and wishes to purchase a token with a market price of $ 10.0 per token, they would need to determine the appropriate position size to maintain their desired level of risk. If their analysis indicates that they should place a stop loss at $ 5.0 per token to limit their maximum risk to 2% of their account, or $ 20.0, then the appropriate position size would be 4 units (40$ position size). This way, if the token's value drops by $ 5.0, the resulting loss of $ 20.0 would equal 2% of the trader's account.
Scaling: Scaling involves adjusting position sizes based on the performance of a trade or the overall market conditions. By scaling into or out of positions based on market conditions, traders can adjust their risk exposure and optimize their potential for gains while minimizing potential losses.
Scaling refers to the practice of dividing entries and exits into two or more orders around a trader's intended entry/exit area to reduce the likelihood of setting an entry too low or too high. This is particularly important because it is nearly impossible to predict the exact price or time at which the market's direction or volatility levels will change.
For example, if a trader intends to buy a token for $ 10.0 but their analysis indicates that it may drop as low as $ 8.0 before sentiment entirely flips bullish, they should consider dividing their entry/exit orders into multiple price levels. This way, they can enter the trade with a partial position if the token's price does not drop below $10.0, but if it drops to $ 8.0, they can scale into a lower average price of $ 8.75.
By using scaling and position sizing in conjunction with a maximum stop loss level, traders can effectively manage their risk and reduce the likelihood of incurring significant losses. While these concepts are relatively simple, understanding and applying them correctly can help traders avoid significant risks in the cryptocurrency market.
Leverage: Trading with leverage involves taking positions that exceed the account's total capital, which can be done through crypto exchanges (CEXs) offering margin trading or some DeFi protocols providing advanced borrowing mechanisms.
For instance, assume you have $ 100 in your account, and you want to purchase 1 unit of XYZ token worth $ 100, creating an open position valued at $ 100. Margin trading offered by a CEX may only require a 10% margin, meaning you only need to invest $ 10 instead of the entire $ 100. You can then utilize the remaining $ 90 to open additional positions, which can be tempting for many traders.
With a 10% margin requirement and a $ 100 account, you can open a position size of 10 XYZ tokens, having a notional value of $ 1000 ($ 100 x 10 units), with the CEX holding the $ 100 in your account as a margin for the trades.
This would make you leveraged 10x, which is considered an extremely high amount of leverage. If the token increases in value by 10% in a short period, the position value would grow from $ 1000 to $ 1100, which means you could double your account value from $ 100 to $ 200 (i.e., $ 100 profit + $ 100 margin). Alternatively, if the token rises by 20% to $ 1200, you would triple your account to $ 300 in value.
Although the potential for high profits may sound exciting, it is crucial to remember the risks associated with trading with leverage, and it is advisable to exercise caution and not get carried away by the prospect of quick and easy gains.
Many traders are lured by the potential profits of leveraged trading, but it's important to remember that leverage can be just as dangerous as it is rewarding. If a trader opens a position with 10x leverage and the position loses just 5%, that would be a loss of $ 50, which is 50% of their $ 100 account.
Additionally, if the position were to lose 10%, resulting in a $ 100 loss, the trader would receive a margin call and would need to deposit more money to keep their trades open.
If they are unable to do so, the CEX will close all positions, also known as being "liquidated". The CEX will use the margin that the trader had provided to cover the $ 100 loss, which means that the trader's account balance would be reduced to $ 0. It's essential to be aware of the risks of leveraged trading, as you could potentially lose everything you've invested.
It's important to remember that leverage in crypto trading is a double-edged sword that can either grow your account or quickly deplete it. While it's possible to make significant profits with leverage, it's equally possible to suffer substantial losses.
As a new trader, it's important to acknowledge that trading with leverage requires expertise and a sound risk management strategy, which can be challenging to implement successfully.
Therefore, it's wise to approach leverage with caution and focus on developing your skills and knowledge before considering this tool.
Here are some recommendations that can help you navigate the exciting but risky world of crypto trading:
First, it's important to be conservative with your risk-taking and to only invest in your very best trade ideas. Limiting your total exposure to the crypto sector to a small percentage of your total liquid capital, starting at 1%, is a good way to minimize your risk.
You should also limit your exposure to a specific crypto asset to a small percentage of your total crypto portfolio, with a 1% to 2% max risk on short-term trades and a max of 5% risk on longer-term positions. Using a stop loss with every position is also crucial to limit potential losses.
Remember, perfect timing is near impossible, so consider scaling into trading positions or "dollar cost averaging" into longer-term investments. Take profits along the way if a trade goes your way. And most importantly, avoid using leverage, which can be a double-edged sword and lead to substantial losses.
Lastly, only invest your capital in your very best ideas, which should be low-risk/high-reward setups on high-probability ideas. Don't force trades when there are no compelling opportunities, and remember that "no position" is a perfectly fine position when you don't see any good opportunities.
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Together, we'll navigate the markets with ease and achieve financial success. Don't miss out on this opportunity to grow and learn with us. Let's do this!
Trader ⚔️VS⚔️ Analyst !!!(Differences)Hi, everyone👋.
Do you like surfing or guiding surfers?
In this article, I will talk about how analysis differs from trading. A good analyst is not necessarily a good trader📉. Do you know what the point is❗️❓
The point is that analysts talk about all aspects, so they always tell the truth and explain what really happens on the market, but the traders ride the waves. Financial markets include high and low waves, so if a trader makes a mistake in measuring its depth, speed, and height may drown in the sea. If you are a trader, don’t be proud of yourself because the financial market sea is very cruel or a beast.
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There are four trading keys in financial markets:
Trading Strategy
Capital Management
Market Psychology
Trader Psychology
These keys are like four legs of a chair🪑 which should be sat on carefully and calmly. Although by removing one of the legs, it’s possible to sit on the chair, safety has to be considered.
I’ll explain all the trading keys in the market in other posts later, but for now, let me dig into the differences between Analysis📈 and Trading💰 .
What is considered in the analysis are the price targets in both rising🟢 and falling🔴 markets, the probability of its occurrence and non-occurrence, and the necessary conditions for both.
Considering the subtlety of an analyst's words and the mentality of the people studying - who are mainly looking for confirmation of their position - generally, the analyst will always be right unless he has declared only one direction decisively, which is not an analysis, but a signal and prediction.
Declaring an upward↗️ or downward↘️ trend in only one direction is not an analysis but a prediction. It’s noted that any prediction can be wrong. But in the comprehensive analysis of both sides, the necessary conditions for their occurrence and their probability are stated, so whatever happens, the analyst is right, and you will hear the famous saying "as predicted."
🔷 A successful trader can take the following steps:
Comprehensive analysis of the market situation in which he wants to trade:
The technical analysis must be prepared before opening a trade position. A wrong analysis does not always lead to a wrong trade, and vice versa, a correct analysis does not lead to a correct trade because you have to see whether the position trigger is activated or not.
Find useful trading strategies to achieve profitable trading:
A trading strategy can be a system that includes a combination of different indicators and oscillators, which can finally indicate the entry and exit points as well as profit and stop loss while trading. This system makes you behave like a robot; after understanding and analyzing the market, you’ll wait for the entry and exit points to appear. Trusting this trading strategy is one of the critical keys to successful trading.
All the points mentioned so far are related to the technical analysis aspects; otherwise, in the Fundamental field, a daily checklist of various factors affecting the market is needed, which is vital for Fundamental analysis.
Find your own timeframe:
Chart analysis and trading can be viewed from the 1-second time frame(short-term) to several years(long-term), but every trader should have his own time frame based on his trading strategy.
The time frame is important because:
The trading strategy should help traders find the entry and exit signals in the same time frame.
The Stop Loss(SL) should be determined based on entry points in the same time frame.
The time required to reach profitability is estimated based on the same time frame. You can't analyze on a daily time frame and expect to get a very good profit immediately after entering the position.
After determining the time frame and with the help of the trading strategy, the following tasks should be done.
Studying market analysis to identify market trends, the state of market movement waves, and daily, weekly, and monthly support and resistance zones.
Determining the Entry Points(EP) based on the strategy
Determining the Stop Loss(SL) based on the strategy
Determining the Take Profits(TP) based on the strategy
All the above must be done before entering the market, and the only thing done after entering the market is the last step—changing the exit point based on the variable stop loss to increase profit.
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🔷 Conclusion:
According to the explanations given, it can be understood that analysis and trading have a significant differences. It should be noted that every wrong analysis published on social networks does not indicate that the analyst does not trade well and vice versa. So, to profit from the financial markets, you must be trained in the first step. Become an analyst and then trade. For this, you have to go step by step, don't be greedy, don't rush, so that you can stay in the financial markets and earn profit every day until you get a continuous profit one day.
TRADING OR A JOB? DEEP DIVE❗️
Are you torn between choosing a job and getting into trading? Both have their advantages and pitfalls, but by combining the two, you can reap the rewards of both worlds.
🚷Firstly, let's consider a traditional job. A job offers security, stability, and a predictable income. You work for a set number of hours, and you receive a paycheck. You have employer benefits such as healthcare, 401k matching, and paid time off.
On the downside, you are limited to your salary, which may not always reflect your hard work and dedication. You may feel stuck in your role as there are usually limited opportunities for career advancement. And if you lose your job, you lose that source of income.
💹Now let's consider trading. Trading offers the potential for uncapped income, flexibility, and the autonomy to make your decisions. You can trade anywhere with an internet connection, and there are many different markets to choose from, such as forex, stocks, and commodities. You have complete control over your financial destiny.
However, trading is not for everyone. It requires a lot of time, effort, and discipline to become successful. There are risks involved, and you can lose money if you do not know what you are doing. It can also be a lonely profession as you may be working alone most of the time.
💡Now, what if we combine the two? This is where the concept of "side hustles" comes into play. You can keep your job for the stability and security, but you can also trade on the side to increase your income and diversify your portfolio.
By trading on the side, you can use the abundance of time outside of your job to learn, practice, and implement trading strategies. Gradually, you may earn enough money from trading to eventually quit your job and become a full-time trader.
However, the combination of the two must be approached with caution. Trading can be time-consuming, and you do not want to sacrifice the quality of your work at your job. It is also essential to practice risk management and not invest money that you cannot afford to lose.
⚖️In conclusion, both a job and trading have their advantages and disadvantages. Combining the two is an excellent way to increase your income, diversify your portfolio, and potentially become a full-time trader. But proceeding with caution, discipline, and good money management is key to success. Remember, the goal is to build a better future for yourself, and with the right balance between a job and trading, you can achieve it.
Thanks for reading bro, you are the best☺️
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Position Size Calculation with Fees - Handle any LeverageExample:
The account size is $4500.
We risk 2%, 90 cash, for this 2R trade.
If the trade idea is a success
we would now have 4678 cash in our account
a profit of: 178 cash
And if loss, a total of 4410 cash, 90 cash loss)
Is this correct?
Explanation:
The example seems correct but only without the fees in calculation.
Even small fees like e.g. 0.04% Taker (market orders) and 0.02% Maker (limit orders) add up a lot. A lot!
The example does need a position size of $56250 , which would be $22.5 in fees just to open the position and the same amount again when the stop loss (market order) triggers or $11.25 when exit with a limit order.
The example does clearly need a leverage of 15 or higher to open that position size.
- Tradeable balance with 15x leverage: 4500 * 15 = 67500
- And to get a loss of 90 cash within 0.16 %: 56250 / 100 * 0.16 = 90
See Image on Chart: Calculation without fees
We will be fine with any kind of Leverage if we calculate it like that on every trade. The PnL is calculated from the real account balance. So we are on the right track to not blow our account.
If we calculate it with the Fees in mind, the example with 0.04% fees for open and close, then the position size would be $28125
See Image on Chart: Calculation with fees
The calculations show, even when it hits the Profit Target, the real Risk Reward lowers by a large amount . (The Example uses the same taker fee for open and close)
I personally recommend to automate those ever recurring calculations and set the orders via an API. Relative easy to code in e.g. Python.
I'm not allowed to link any external links here but some tools can be found on my Twitter (I'm not really active there otherwise):
- Some link to a Microsoft Excel sheet, which was used for the calculation images. It may be useful for some, just make a copy.
- And a public open source API Trade App can be found on my GitHub, link in the same Twitter feed.
No other funny links else.
And as last goodie: A small snippet example used in my automated strategies in PineScript, strategy.equity represents the account balance:
//Example 0.001 is minumum order
varip input_mathround = input(3, 'Decimal Math Round Size')
varip pnllosspercent = input(2, 'Dynamic PnL Loss - Percent of Balance')
getLongSizeDynamic(_entry, _sl) =>
pnl = strategy.equity / 100 * pnllosspercent
sl_percent = (_entry - _sl)/_entry
size_cash = pnl / (sl_percent*100) * 100
size_r = 1 / _entry * size_cash
size = math.round(size_r, input_mathround)
size
There are for sure different ways to optimise the math for the own liking.
This 'tutorial' is meant to give small insight into a proper position sizing, that you may too will not fear the leverage as useful tool when used correct.
With the calculations above, no matter if 10, 50, 100 or even crazy 1000x Leverage shall not blow our accounts! Still always keep the fees in mind, they take our money!
Common Fears in Trading and How to Overcome Them
As we discussed many types, psychology plans a crucial role in trading. Even the best strategy in the world, can be screwed by emotional decisions.
In this educational articles, we will discuss 5 common fears in trading and the ways to overcome them.
1️⃣Fear of the Unknown.
Lack of experience make many traders face "unusual" situations on the market: the setups, patterns, fluctuations and formation that they have never seen before. Such events cause inaction and paralyze. Not knowing how to deal with such situations, newbies make irrational decisions that most of the time incur losses.
✔️Solution:
The best way to beat the fear of the unknown is to keep learning:
reading the books, watching the charts, studying the historical data will help you to be prepared for various situations.
Also, your mindset plays an important role here: your adaptability, your willingness to accept the changing nature of the market are essential for your success in trading.
2️⃣Fear of Being Wrong.
Testing multiple strategies and trading techniques, the only way for the newbie traders to prove their efficiency is to try them, try them on real market. And of course, the majority of the stuff that you will try won't work. In trading, each mistake costs money, hence, losses will be inevitable.
The fear to make a mistake will be chasing you.
✔️Solution:
The best way to overcome the fear of being wrong is to build a confidence in your actions. After trying multiple strategies, you will certainly find the one that works. More you will trade with that, more winning trades you will catch, more confident you will become in your system.
3️⃣FOMO - Fear of Missing Out
There are thousands of instruments to trade. Many markets are opened 24 hours a day. Of course, you can not monitor them all, and even if you have a fixed watch list of the instruments that you trade, you can not monitor them 24/7.
Some opportunities will always be missed. Some trading setups will form while you are sleeping, and accurate patterns will form on the instruments that are not in your watch list.
Realizing the fact, that something will always be missed, is painful.
For that reason, newbie traders are trying to be present everywhere at anytime. But the paradox is that more options breed more confusion.
✔️Solution:
Always remember the fact that patience always pays.
Opportunities will always come, but in order to catch them, you need focus. And fewer instruments you have in your watch list, more attention you pay to them.
4️⃣Fear of Losing Money
The biggest risk in trading is the fact that your entire trading account can be blown in a glimpse of an eye.
Moreover, trading can be learned only by trading. And losses are inevitable, no matter how good you are.
That makes newbie traders be scared of opening just one single position.
✔️Solution:
I always give my students the recommendation to trade with the amount that they can afford themselves to lose.
Consider your trading account as an investment. With each single trade, you are investing in your skills, in your knowledge. You pay the market to teach you.
5️⃣Fear of Not Taking Profit at the Right Time
Imagine you opened a trade and the market suddenly starts moving in the direction that you expected. It is coming closer and closer to your target... A few seconds after, however, the market rolls over. You see how your profits start evaporation. Probably you chose incorrect take profit level? Maybe it is the moment to close the trade manually?
You are scared that all the profits will be gone.
✔️Solution:
Take profit level selection is a very hard element of each trading strategy. The only way to not let your emotions intervene is to build the solid system that proved its efficiency and learn to be disciplined to follow that no matter what.
Always remember that no one can teach you how to deal with yourself. How to deal with your emotions.
You should go through all these fears by your own and find the way to beat these dragons.
The solutions that I shared helped me to beat my dragons, I hope that they will help you to beat yours!
❤️Please, support my work with like, thank you!❤️
Cutting Expenses and Increasing Income
There are steps you can take to get a handle on your finances – and your financial stress. The very first step is to figure out if your income covers all of your current expenses. An increase in expenses or a drop in income usually means a change in lifestyle. The sooner you look at your household budget, the more options you have and the better off you will be in the long run. Once you have a better understanding of where your money is going, it’s time to look at ways to make the best use of your hard-earned dollar.
Cutting Expenses
If you find that your expenses are more than your income, you can take steps to develop a spending plan and move toward balancing your budget.
Begin by listing your expenses, starting with expenses that provide basic needs for living. Some of these are fixed, such as rent or mortgage payments, car payments, or installment loan payments. Some are variable, such as clothing or consumer goods. These expenses have some flexibility.
It is important to know what you are currently spending to find ways to reduce spending and balance your budget.
After you have your list, the next step is think about what can be reduced or completely cut out. Think about how a repeating weekly or daily expense will add up over an entire year.
How can you save more?
Buy gently used clothing. Instead of spending BMV:60 or more on name brand jeans with holes, your teenager may find “cool” jeans for $6.
Save on energy costs. Turn down the thermostat 5 degrees. Turn off lights or a television when no one is in the room to save money on the electric bill.
Deferring on a repair or doing it yourself. If you don’t have the skills or the tools, perhaps there is a neighbor or friend that can help.
It is essential to stick to your spending plan. With less income, each spending decision is critical. Finding ways to pinch pennies can add up to dollars you can use to make ends meet
Even in good economic times, financial experts recommend a spending plan for effective money management. But good financial planning is an even more essential tool in tough times. Setting priorities for spending is a necessary step in finding a way to balance your budget-especially when you have less money available to spend.
What do you want to learn in the next post?
How to use Volume and Volatility to improve your tradesVolume and volatility are two important factors that can affect your trading performance. Volume measures the number of shares or contracts traded in a given period, while volatility measures the degree of price fluctuations. Understanding how these two factors interact can help you identify trading opportunities, manage risk, and optimize your entry and exit points.
In this article, we will explain how to use volume and volatility to improve your trades in four steps:
1. Analyze the volume and volatility patterns of the market or instrument you are trading. Different markets and instruments have different volume and volatility profiles, depending on factors such as liquidity, supply and demand, news events, and market sentiment. For example, some markets may have higher volume and volatility during certain hours of the day, while others may have lower volume and volatility during holidays or weekends. You can use tools such as volume bars, volume indicators, average true range (ATR), and historical volatility to analyze the volume and volatility patterns of your chosen market or instrument.
2. Identify the volume and volatility signals that indicate a potential trade setup. Volume and volatility signals can help you confirm the strength and direction of a trend, spot reversals and breakouts, and gauge the momentum and interest of the market participants. For example, some common volume and volatility signals are:
- High volume and high volatility indicate strong conviction and participation in a trend or a breakout. This can be a sign of a continuation or an acceleration of the price movement.
- Low volume and low volatility indicate weak conviction and participation in a trend or a breakout. This can be a sign of a consolidation or a slowdown of the price movement.
- Rising volume and rising volatility indicate increasing interest and activity in the market. This can be a sign of a potential reversal or breakout from a consolidation or a range.
- Falling volume and falling volatility indicate decreasing interest and activity in the market. This can be a sign of a potential exhaustion or continuation of a trend.
3. Choose the appropriate trading strategy based on the volume and volatility conditions. Depending on the volume and volatility signals you observe, you can choose different trading strategies to suit the market conditions. For example, some possible trading strategies are:
- Trend following: This strategy involves following the direction of the dominant trend, using volume and volatility to confirm the trend strength and identify entry and exit points. You can use trend indicators, such as moving averages, to define the trend direction, and use volume indicators, such as on-balance volume (OBV), to measure the buying and selling pressure behind the trend. You can also use volatility indicators, such as Bollinger bands, to identify periods of high or low volatility within the trend.
- Reversal trading: This strategy involves identifying potential turning points in the market, using volume and volatility to confirm the reversal signals. You can use reversal patterns, such as double tops or bottoms, head and shoulders, or candlestick patterns, to spot potential reversals, and use volume indicators, such as volume profile or accumulation/distribution line (ADL), to measure the distribution or accumulation of shares or contracts at different price levels. You can also use volatility indicators, such as standard deviation or Keltner channels, to identify periods of overbought or oversold conditions that may precede a reversal.
- Breakout trading: This strategy involves trading when the price breaks out of a consolidation or a range, using volume and volatility to confirm the breakout validity and direction. You can use support and resistance levels, such as horizontal lines, trend lines, or Fibonacci retracements, to define the boundaries of the consolidation or range, and use volume indicators, such as volume breakout or Chaikin money flow (CMF), to measure the inflow or outflow of money during the breakout. You can also use volatility indicators, such as average directional index (ADX) or Donchian channels, to measure the strength or weakness of the breakout.
4. Manage your risk and reward based on the volume and volatility expectations. Volume and volatility can also help you determine your risk-reward ratio, position size, stop-loss level, and profit target for each trade. Generally speaking,
- Higher volume and higher volatility imply higher risk and higher reward potential. You may need to use wider stop-losses and profit targets to account for the larger price fluctuations. You may also need to reduce your position size to limit your exposure to the market.
- Lower volume and lower volatility imply lower risk and lower reward potential. You may need to use tighter stop-losses and profit targets to account for the smaller price fluctuations. You may also need to increase your position size to enhance your returns from the market.
By following these four steps, you can use volume and volatility to improve your trades in any market or instrument. Volume and volatility are dynamic factors that reflect the supply and demand forces in the market.
What is Trading Plan? Detailed Example
A short ⚠️disclaimer before we start:
the rules that will be discussed in this post are applicable only for technicians - traders that are relying on price action/structure/etc.
Also, we assume that structure levels do work and for us, key levels are considered to be the safest trading zones/points.
In order to increase the accuracy of your predictions analyzing different financial markets, you must learn to identify the direction of the market.📈
The identification of the market trend must be based on strict & reliable & testable rules.
It can be based on technical indicators or price action
Personally, I prefer to rely on price action.
There are three main types of market trends:
Bullish Trend
Bearish Trend
Sideways Market
Depending on the current direction of the market, on the chart, I drew a flow chart✔️ that will help you to act safely.
➡️Sideways market signifies consolidation & indecision. Usually being in such a state the market tends to coil in horizontal ranges.
To trade such a market safely, the best option for you will be to wait for a breakout of the range & wait for the initiation of the trend.
➡️Once you spotted a bullish market, do not rush to buy.
Your task will be to identify the closest strong structure support .
You must be patient enough to let the price reach that support first (and by the way, there is no guarantee that it will happen) and then you must wait for a certain confirmation.
Only once you get the needed confirmation you can buy the market.
➡️The same strategy will be applicable to a bearish market.
Spotting a short rally it is way early to just sell the asset from a random point.
You must find the closest strong structure resistance and wait for the moment when the price will approach that.
Then your task will be to wait for a confirmation and only when you got the reliable trigger you short the market.
🦉Try to rely on this flow chart and I promise you that you will see a dramatic increase in your trading performance.
And even though it may appear to you that this flow chart is TOO SIMPLE, in practice, even such a set of rules requires iron discipline and patience.
Thank you so much for reading this article,
I hope you enjoy it!
Let me know, traders, what do you want to learn in the next educational post?
Steps to Becoming a Profitable Trader
This is a roadmap to becoming a profitable trader. Follow these steps to avoid wasting time and bouncing around from idea to idea. We start with a basic strategy idea we like, then build off it. We MAKE it profitable by following the steps outlined.
1. Focus on One Idea or Strategy
Focus on one specific idea.
An idea is not “price action” or “technical analysis”. That is too broad.
But you could start with the idea of day trading an 8 and 21-period moving average crossover.
Or MACD signal crossovers on a 1-minute chart.
Or the rounded top or bottom or pattern, or triangles, or Keltner channel bounces off the center line in strong trends.
Basically, you need an idea and a time frame (1-minute chart, daily chart, etc).
2. Define the Strategy
Since you have your idea, you already know the basic concept of the strategy. If you don’t have a strategy yet, that’s where a bit of research comes in: finding something you like the idea of. There are loads of free strategy articles on this site, in the courses offered, and from other sources such as books, Youtube, etc.
Whatever strategy you decide on, it needs to include these key components:
A trade setup. The trade setup is what needs to happen for us to even consider a trade. It could be a specific chart pattern, moving average crossover, price action signal, etc.
Where, when, and why we enter
A trade trigger is a precise event that tells us to get into the trade. When the “trigger” event occurs, it turns a possible trade setup into an actual trade.
Where, when, and why we exit profitable trades
Where, when, and why we exit losing trades
If and how we trail a stop loss.
3. Polish Your Strategy
Keep practicing. Keep improving your strategy.
Try that on different markets, under different circumstances.
Make it better and better till it starts making money.
Keep it simple and focused on one trading idea.
Get better and better at that idea. Keep refining and building your confidence in the method.
We gain confidence by seeing something work and being able to implement it. And that’s what all these steps are about.
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♦️BAD MINDSET IS YOUR ENEMY♦️
♦️Forex trading is one of the most exciting and lucrative ventures that anyone can undertake. With the right mindset and tools, one can make a lot of money by trading currencies. However, the opposite is also true. A bad mindset can lead to disastrous consequences in forex trading. It is, therefore, important for traders to understand the effects of a bad mindset and avoid them at all costs.
♦️One of the most common effects of a bad mindset in forex trading is overthinking. When traders overthink, they become too analytical and too cautious. This can lead to missed opportunities and bad trading decisions. Overthinking can also lead to indecision and second-guessing, which can be harmful in a fast-paced and dynamic market like forex.
♦️Another effect of a bad mindset is emotional trading. Emotions like fear, greed, and impatience can lead to irrational trading decisions. For example, a trader may hold onto a losing position for too long in the hope that it will eventually turn profitable. This can lead to bigger losses and a further deterioration of the trader’s mindset. Similarly, greed can lead to taking on too much risk, which can also lead to disastrous consequences.
♦️A bad mindset can also cause traders to be too dependent on their trading strategies. While having a good trading strategy is important, it is equally important to be flexible and open-minded. A trader who is too reliant on their strategy may miss out on profitable opportunities that do not fit their style. This can lead to missed profits and frustration.
♦️Lastly, a bad mindset can lead to overconfidence. Traders who are overconfident may take on too much risk or ignore important market signals. This can lead to catastrophic losses and a severe blow to the trader’s ego. Overconfidence can also lead to ignoring basic risk management principles, which is a recipe for disaster.
♦️In conclusion, a bad mindset can have a significant impact on forex trading success. Traders who are too analytical, too emotional, too dependent, or too overconfident may make bad trading decisions that can result in losses. It is, therefore, important for traders to stay calm, flexible, and open-minded in their approach to forex trading. A winning mindset can help traders achieve success and make profitable trades in the dynamic and exciting forex market.
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MASTER THE MARKET WITH CONFIDENCE & DISCIPLINEIf you asked me to distill trading down to its simplest form, I would say that it is a pattern recognition numbers game. We use market analysis to identify the patterns, define the risk, and determine when to take profits. The trade either works or it doesn't. In any case, we go on to die next trade. It's that simple, but it's certainly not easy. In fact, trading is probably the hardest thing you'll ever attempt to be successful at. That's not because it requires intellect; quite the contrary! But because the more you think you know, the less successful you'll be.
Trading is hard because you have to operate in a state of not having to know, even though your analysis may turn out at times to be "perfectly" correct. To operate in a state of not having to know, you have to properly manage your expectations. To properly manage your expectations, you must realign your mental environment so that you believe without a shadow of a doubt in the five fundamental truths. Today, I am going to give you a trading exercise that will integrate these truths about the market at a functional level in your mental environment. In the process, I'll take you through the three stages of development of a trader. The first stage is the mechanical stage. In this stage, you:
1. Build the self-trust necessary to operate in an unlimited environment.
2. Learn to flawlessly execute a trading system.
3. Train your mind to think in probabilities (the five fundamental truths).
4. Create a strong, unshakeable belief in your consistency as a trader
Once you have completed this first stage, you can then advance to the subjective stage of trading. In this stage, you use anything you have ever learned about the nature of market movement to do
whatever it is you want to do. There's a lot of freedom in this stage, so you will have to learn how to monitor your susceptibility to make the kind of trading errors that are the result of any unresolved self-valuation issues I referred to in the last chapter. The third stage is the intuitive stage. Trading intuitively is the most advanced stage of development. It is the trading equivalent of earning a black belt in the martial arts. The difference is that you can't try to be intuitive, because intuition is spontaneous. It doesn't come from what we know at a rational level. The rational part of our mind seems to be inherently mistrustful of information received from a source that it doesn't understand. Sensing that something is about to happen is a form of knowing that is very different from anything we know rationally. I've worked with many traders who frequently had a very strong intuitive sense of what was going to happen next, only to be confronted with the rational part of themselves that consistently, argued for another course of action. Of course, if they had followed their intuition, they would have experienced a very satisfying outcome. Instead, what they ended up with was usually very unsatisfactory, especially when compared with what they otherwise perceived as possible. The only way I know of that you can try to be intuitive is to work at setting up a state of mind most conducive to receiving and acting on your intuitive impulses.
The mechanical stage of trading is specifically designed to build the kind of trading skills (trust,confidence, and thinking in probabilities) that will virtually compel you to create consistent results. I
define consistent results as a steadily rising equity curve with only minor draw downs that are the natural consequence of edges that didn't work. Other than finding a pattern that puts the odds of a
winning trade in your favor, achieving a steadily rising equity curve is a function of systematically eliminating any susceptibility you may have to making the kind of fear, euphoric or self-valuation
based trading errors I have described throughout this book. Eliminating the errors and expanding your sense of self-valuation will require the acquisition of skills that are all psychological in nature.
The skills are psychological because each one, in its purest form, is simply a belief. Remember that the beliefs we operate out of will determine our state of mind and shape our experiences in ways that
constantly reinforce what we already believe to be true. How truthful a belief is (relative to the environmental conditions) can be determined by how well it serves us; that is, the degree to which it
helps us satisfy our objectives. If producing consistent results is your primary objective as a trader, then creating a belief (a conscious, energized concept that resists change and demands expression) that "I am a consistently successful trader" will act as a primaiy source of energy that will manage your perceptions, interpretations, expectations, and actions in ways that satisfy the belief and, consequently, the objective. Creating a dominant belief that "I am a consistently successful trader" requires adherence to several principles of consistent success. Some of these principles will undoubtedly be in direct conflict with some of the beliefs you've already acquired about trading. If this is the case, then what you have is a classic example of beliefs that are in direct conflict with desire. The energy dynamic here is no different from what it was for the boy who wanted to be like the other children who were not afraid to play with dogs. He desired to express himself in a way that he found, at least initially, virtually impossible. To satisfy his desire, he had to step into an active process of transformation. His technique was simple: He tried as hard as he could to stay focused on what he was trying to accomplish and, little by little, he de-activated the conflicting belief and strengthened the belief that was consistent with his desire. At some point, if that is your desire, then you will have to step into the process of transforming yourself into a consistent winner. When it comes to personal transformation, the most important ingredients are your willingness to change, the clarity of your intent, and the strength of your desire. Ultimately, for this process to work, you must choose consistency over eveiy other reason or justification you have for trading. If all of these ingredients are sufficiently present, then regardless of the internal obstacles you find yourself up against, what you desire will eventually prevail.
The first step in the process of creating consistency is to start noticing what you're thinking, saying, and doing. Why? Because everything we think, say, or do as a trader contributes to and, therefore,
reinforces some belief in our mental system. Because the process of becoming consistent is psychological in nature, it shouldn't come as a surprise that you'll have to start paying attention to your various psychological processes. The idea is eventually to learn to become an objective observer of your own thoughts, words, and deeds. Your first line of defense against committing a trading error is to
catch yourself thinking about it. Of course, the last line of defense is to catch yourself in the act. If you don't commit yourself to becoming an observer to these processes, your realizations will always come after the experience, usually when you are in a state of deep regret and frustration.Observing yourself objectively implies doing it without judging about yourself. This might not be so easy for some of you to do considering the harsh, judgmental treatment you may have received from other people throughout your life. As a result, one quickly learns to associate any mistake with
emotional pain. No one likes to be in a state of emotional pain, so we typically avoid acknowledging what we have learned to define as a mistake for as long as possible. Not confronting mistakes in our everyday lives usually doesn't have the same disastrous consequences it can have if we avoid confronting our mistakes as traders. For example, when I am working with floor traders, the analogy I use to illustrate how precarious a situation they are in is to ask them to imagine themselves walking across a bridge over the Grand Canyon. The width of the bridge is directly related to the number of contracts they trade. So, for example, for a one-contract trader the bridge is very wide, say 20 feet. A bridge 20 feet wide allows you a great deal of tolerance for error, so you don't have to be inordinately careful or focused on each step you take. Still, if you do happen to stumble and trip over the edge, the drop to the canyon floor is one mile. I don't know how many people would walk across a narrow bridge with no guardrails, where the ground is a mile down, but my guess is relatively few. Similarly, few people will take the kinds of risks associated with trading on the floor of the futures exchanges. Certainly a one-contract floor trader can do a great deal of damage to himself, not unlike falling off a mile-high bridge.
But a one-contract trader also can give himself a wide tolerance for errors, miscalculations, or unusually violent market moves where he could find himself on the wrong side.
1. all our beliefs are in absolute harmony with our desires, and
2. all our beliefs are structured in such a way that they are completely consistent with what works from the environment's perspective.
Obviously, if our beliefs are not consistent with what works from the environments perspective, the potential for making a mistake is high, if not inevitable. We won't be able to perceive the appropriate
set of steps to our objective. Worse, we won't be able to perceive that what we want may not be available, or available in the quantity we desire or at the time when we want it. On the other hand, mistakes that are the result of beliefs that are in conflict with our objectives aren't always apparent or obvious. We know they will act as opposing forces, expressing their versions of the
truth on our consciousness, and they can do that in many ways. The most difficult to detect is a distracting thought that causes a momentary lapse in focus or concentration. On the surface this may not sound significant. But, as in the analogy of the bridge over the canyon, when there's a lot at stake, even a slightly diminished capacity to stay focused can result in an error of disastrous proportions. This principle applies whether it's trading, sporting events, or computer programming. When our intent is clear and undiminished by any opposing energy, then our capacity to stay focused is greater, and the more likely it is that we will accomplish our objective. You have to be able to monitor yourself to some degree, and that will be difficult to do if you have the
potential to experience emotional pain if and when you find yourself in the process of making an error.
If this potential exists, you have two choices:
1. You can work on acquiring a new set of positively charged beliefs about what it means to make a mistake,
along with de-activating any negatively charged beliefs that would argue otherwise or cause you to think less of yourself for making a mistake.
2. If you find this first choice undesirable, you can compensate for the potential to make errors by the way you set up your trading regime.
Avoiding and Managing Margin Calls
Trading on margin offers a variety of potential benefits, as well as some additional risks, including margin calls. This lesson explains margin calls, your obligations, and what you can do to help avoid them.
A margin call is a demand from your brokerage firm to increase the amount of equity in your account. You can do this by depositing cash or marginable securities to your account or by liquidating existing positions to generate cash.
To avoid margin calls, you need to understand fully what triggers a margin call, along with the steps you can take to minimize the risk of a margin sellout.
Margin calls can be a stressful experience with serious financial implications. Your brokerage firm may sell securities you own—without notifying you and without regard to tax consequences—in order to increase the equity in your account. Therefore, consider these suggestions to minimize the odds of experiencing a margin call:
Prepare for volatility: Leave a considerable cash cushion in your account that protects you from a sudden drop in the value of your loan collateral.
Set a personal trigger point: Keep additional liquid resources at the ready in case you need to add money or securities to your margin account.
Monitor your account daily: Consider setting up alerts to notify you when the value of your positions declines significantly.
If you fail to understand the concept of margin or not knowing what to do when faced with a margin call from your broker, you will definitely experience the shock of your trading account blow up.
What do you want to learn in the next post?
⚠️ Risk Management Examples Showcase📍What Is the Risk/Reward Ratio?
The risk/reward ratio marks the prospective reward an investor can earn for every dollar they risk on an investment. Many investors use risk/reward ratios to compare the expected returns of an investment with the amount of risk they must undertake to earn these returns. A lower risk/return ratio is often preferable as it signals less risk for an equivalent potential gain.
📍Consider the showcased example:
An investment with a risk-reward ratio of 1:3 suggests that an investor is willing to risk $100, for the prospect of earning $300. Alternatively, a risk/reward ratio of 1:4 signals that an investor should expect to invest $100, for the prospect of earning $300 on their investment.
Traders often use this approach to plan which trades to take, and the ratio is calculated by dividing the amount a trader stands to lose if the price of an asset moves in an unexpected direction (the risk) by the amount of profit the trader expects to have made when the position is closed (the reward).
It is very important to calculate your R:R before entering a trade. Sometimes the trade might not be worth the amount you're risking vs the reward you can get.
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📅 Daily Ideas about market update, psychology & indicators
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How Much Gold Does Your Portfolio Need?Economists make forecasts to make weathermen look good. Trying to forecast trends in complex systems is never easy. As with weather, financial markets are influenced by a myriad of factors which can make prediction akin to gambling. Time in the market beats timing the market so a far safer bet is building a diversified and informed portfolio.
As mentioned in our previous paper , gold is a crucial addition to any well-diversified portfolio. Gold offers investors the benefits of resilience during crises, diversification, and low volatility while also being a good hedge against inflation.
With crisis ever-present, from pandemics and geo-political conflict to financial instability and recession, uncertainty is on everyone’s lips, including central banks which bought a record 1,135 tonnes of gold last year. Central Banks have shown no signs of slowdown going into 2023, buying 74t in Jan and 52t in Feb, the strongest start to central bank buying since 2010. It is clear why, with rising global inflation due to 2 years of unprecedented QE. A decade of cheap money has its costs which are coming back to bite both consumers and central banks.
This is now being played with collapsing banks and crumbling businesses. Though governments may term these exceptions, they’re the inevitable consequence of hiking rates too fast. And even though inflation has now started to cool, it is proving stubborn and the risk of recession looms. In crisis, institutions and individuals rush to gold.
It’s no wonder then that gold prices spiked in March nearing an All-Time-High above USD 2,000/oz. Gold continues to trade above the key 2000 level even in April. Even now crises show no sign of slowing. Recession talks have become commonplace and phantoms of 2008 haunt with bank collapses. The world is increasingly moving towards reshoring and friendshoring, and de-dollarization is talked about more and more. It is almost inevitable that gold will break its all-time-high soon.
But, buying gold is the easy part, in fact, our previous paper covered 6 Ways to Invest in Gold. Managing gold as part of a larger portfolio is more nuanced. Allocating the right amount, finding the right entry, and knowing when to cash out are all critical.
This paper aims to address two questions –
1. What are the key drivers of gold prices in this decade
2. How should investors use gold in balancing portfolios to navigate turbulent times?
What Propels Gold After Its All Time High?
SVB and Credit Suisse pushed it to its brink. In fact, spot prices in India, Australia, and the UK sailed even above their All-Time-High. But what propels gold now?
Financial Instability
Was Credit Suisse the End?
“The current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come.” - Jamie Dimon
Unfortunately, Credit Suisse was likely just a symptom of the larger problem. 2-years of near-free money has inevitably led others to make risky bets which catch up to them during periods of QT.
Additionally, Credit Suisse and SVB’s collapse were both set off by an unprecedentedly aggressive rate hiking cycle. Fed is stuck between a rock and a hard place as they try to control runaway inflation with aggressive rate hikes. Higher rates for longer increase the risks of financial instability.
Stubborn Inflation and Recession Risks
Stubborn inflation? Wasn’t inflation on its way down after almost a year?
Yes and No. Although yearly inflation has definitely cooled in most countries from their peak last year, inflation continues to tick up month-by-month above the targets that central banks have set for themselves. It is not expected to reach below their targets even before 2025 in many countries.
This is because although energy and commodity prices have cooled with demand waning, core inflation continues to remain stubbornly high. Additionally, food and energy prices are still volatile.
On the back of this, recession risks remain high. Recently released FOMC meeting minutes showed that officials expect a recession in the second half of the year. A recession in many countries now seems inevitable. Gold shines during recession and high-inflation environments.
High Interest Rates
Wasn’t the Fed done hiking?
Currently, CME’s FedWatch tool shows a ~72% chance of another 25bps hike next month despite the surprisingly low US CPI print.
Does another 25bps matter?
What’s more important is that 25bps is the peak rate and most central banks are calling this summit a pause and not a pivot. As such, rates will likely remain high for the remainder of 2023. Gold tends to perform well during high interest rate and risk-off environments.
Escalating Tensions, Friendshoring, and De-Dollarization
Last but definitely not least are central banks and their gold-buying binge. Though some of this can be explained by the ultra-high inflation. It is undeniably also driven by rising political tensions. The conflict in Ukraine continues to rage and the US extend its trade war against China with the CHIPS act. This is driving many of the largest economies to reshore and friendshore key supply chains.
This also means relying less on the USD which can be weaponized by the US. De-dollarization has been underway for the last 23 years as the share of USD holdings in foreign exchange reserves has declined from 71.5% to 58.3% over the past 23 years. Current conditions make it more likely that the trend will accelerate. Gold inevitably benefits from all of this as it is one of the only assets that no other central bank can print or freeze.
All of these factors will likely drive gold in the coming decade. But instead of setting a price target, investors can be prudent and methodical by properly allocating it as part of a larger portfolio.
Using Gold in a Portfolio
From 2000 until now, the following portfolios would deliver:
Since 2000, gold has been the best performing asset out of the 3 main components of a basic portfolio – Large Cap stocks (SPY), Treasury Bonds (10Y), and Gold. Gold price has risen 609% compared to SPY at +193%. Investing in 10-year maturity treasury bonds would have netted investors 110% during these 23 years.
As such, larger portfolio allocation towards gold would have yielded investors far more during this period. However, this comes at the downside of higher volatility. Gold has had an average 12-month rolling volatility of 15.8% over the last 23 years, slightly higher than SPY’s 14%.
Still, not all volatility is bad, especially if the returns outweigh the risk. Volatility to the upside can be beneficial to investors. In order to measure the returns from the portfolio after accounting for higher volatility-associated risk, investors can measure the risk-adjusted returns using the Sharpe Ratio and Sortino Ratio.
Sharpe Ratio measures the amount of excess return generated by taking on additional volatility-related risk. The higher the Sharpe Ratio, the better the portfolio is performing relative to its risk. The figure below contains the Sharpe Ratio for each of the portfolios across the last 23 years.
Since each year had a different risk-free rate due to changing monetary policy, the Sharpe ratios vary for every year and there are periods during which gold-heavy portfolios have highest Sharpe ratios and others where it has the lowest. This highlights gold's sensitivity to changes in monetary policy.
Sortino Ratio also measures risk-adjusted returns like the Sharpe Ratio however it only considers the risk of downside volatility. In other words, it measures return for every unit of downside risk. The figure below contains the Sortino Ratio for each of the portfolios.
A key difference between the Sharpe and Sortino Ratios can be seen in the readings for 2009. Sharpe Ratio for a gold-heavy portfolio is the lowest in 2009 due to high volatility in gold prices. However, since this was volatility to the upside, the Sortino Ratio for a gold-heavy portfolio in 2009 is the highest.
In 2023, a Gold heavy portfolio has performed the best and has the highest Sharpe and Sortino Ratio due to gold's relative overperformance amid the banking crisis.
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
❗️CONFIRMATION BIAS IS YOUR ENEMY❗️
🏛As traders, we are constantly bombarded with information on the global economic landscape, market trends, and potential investments. With so much information at our fingertips, it is easy to fall victim to a cognitive bias known as confirmation bias.
🏛Confirmation bias, also known as selective perception, is the tendency for individuals to seek out and interpret information in a way that confirms their existing beliefs or hypotheses. In the world of trading, confirmation bias can be particularly dangerous, as it can lead traders to make decisions based on incomplete or biased information.
🏛For example, imagine you hold a strong belief that apple stocks are going to rise in the coming months. You begin to search for information to support this belief - perhaps you read articles, listen to news broadcasts, and consult financial websites that all confirm your hypothesis. Meanwhile, you are dismissing any information that contradicts your belief, such as negative earnings reports, changes in the market, or negative press.
🏛The problem with this type of thinking is that it can lead traders to ignore crucial signs that could indicate a shift in the market. Confirmation bias can cloud our judgment and hinder our ability to make objective, data-driven decisions.
🏛To avoid confirmation bias, traders need to actively seek out and consider evidence that contradicts their established beliefs. By doing so, traders can obtain a more comprehensive view of the market and make informed decisions based on all available information.
🏛Furthermore, it is essential to rely on multiple sources of information, including information from trusted analysts, financial experts, and data-driven research. Traders must be able to evaluate information objectively and dispose of preconceived notions that may color their decision-making process.
🏛In conclusion, confirmation bias is a cognitive bias that can significantly impair traders' abilities to make sound decisions in the market. Traders must be cognizant of this bias and actively work to identify and address it by seeking out multiple sources of information, analyzing data objectively, and challenging their preconceived beliefs. Only by doing so can traders ensure that their decisions are based on informed and rational conclusions, rather than biased opinions or incomplete information.
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The Process of Creating StrategyHello traders,
In this post i am going to show that how we can create and develop the trading strategy that works.
Now the first step we need to do is just search and find the any trading method that suitable for us for example that would be like elliott wave, ict concept, VSA, just using indicators and maybe you can also create your own method and backtest it. when you learned the method now its time to create your trading rules every strategy has own different rules like what is your risk to reward ratio? what is your trade management plan? either you manage your trade or just take the trade and come back after its hit TP or SL, how much is your daily limit means how much trades you will be taking in a day or in a week if you want to become a swing trader depends on you, what is your risk per trade? can you will be cutting the risk to half or just use fixed risk after lose trade? what is your daily limit of losing? can you hold trade overnight or over weekend? what is your trading timeframe? what is your trading sessions? etc...
These all kind of rules you will be require to create for yourself they might be different rules depends on your strategy method now we learned the method and created the rule move forward to the next step is open the live demo trading account and trade with your strategy and apply the rules don't break the rules that you created trade at least 30 days and journal your data your taking trades after 30 days check the journal you will see your data for example in your rules you set 1/2 risk reward ratio so you need to have around 40% winning ratio check the journal check the results did you have a 40% winning ratio if the answer is yes then good to go i am sure that you know what to do next but if you failed and your winning ratio is below 40% now analyze your journal data the trades you taken you will see some of bad trades that you don't wanted to trade again just avoid those trades next time and try again the process for the next 30 days. repeat the process one day you will be profitable and consistent but if you not then try again again learn from your mistakes and don't do that mistakes again.
When yo have been profitable this is the time you wanna enter in the market open the real live trading account and start trading with your strategy and follow the rules that you created for yourself run the process and always remember trading is not quick rish scheme you need to have a lot of patience, trading is a long run game like marathon race and its required patience. some of my advice is don't try to break the rules, don't depend on one trade, some times market will give you some results that you don't want from it but be patient and be consistent with your strategy with your rules, you will be facing drawdowns but that is the learning process you will learn a lot from the drawdown so with the time you will be better consistent and be profitable just don't leave the process too soon and believe in yourself and try again again and again, trading is a very beautiful and also the easiest thing to live life but firstly in the starting it required from us to pass the test. trading is a very easiest thing but also a very hardest thing. i hope you find this post useful, i wish you good luck and good trading.
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The Two Types of Risk Management PlanHello traders,
1) Fixed Risk
Calculates position size for next trade as a percentage of account depend on how much risk you willing to take every time every trade you taking you need to use fixed risk for every trade like for example 1% risk per trade so in this type of risk management plan we should require 100 losing trades in a row to blowing out our account a lot of people just using this simple method and this is very easy and understandable.
2) Cutting the Risk :
In this method cutting the risk we just normally trade 1% risk per trade but if we lose that trade so we just cut the risk to half for example if i trade with 1% risk and i lose so now the next second trade which i am taking i will be using 0.5% risk in that trade if i lose then i will be just keep using the same risk 0.5% some traders are are keep reducing the risk size like they come all the way to to 0.25% maybe they work for it but in our scenario if we keep losing we will be not reducing more than 0.5% risk per trade and when win comes then after our winning trade we will be back to the normal risk which is 1% risk per trade and keep trading with 1% risk per trade so short summary is if we lose cut the risk to half if we when if we win back to the normal risk if we win again stay with same normal risk but if lose then reduce the risk to half.
The reason behind that is in the fixed risk you have 100 traders to blowing out your account means 100 chances but in cutting the risk now we just calculate if we lose 100 trades in a row like fixed risk we would not blow out our account,, let's say we take our first trade and we lose now we are in -1% then another trade we will be taking with 0.5% per trade risk so here is 0.5% × 100 trades = 50 means if we continue to lose in a row after 100 trades we will be facing -50 draw down, so cutting the risk to half after lose trade is the safest method who wants to play safe and more chances to survive in the market.
I wish you good luck and good trading.
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Peter Lynch's Updated Investment StrategiesPeter Lynch's Investment Model: Adapting the Wall Street Legend's Strategies to Today's Markets
As someone who has been inspired by Peter Lynch, another of my investing mentors, I am excited to explore how his strategies can be adapted to the ever-evolving financial landscape. In this article, my goal is to share valuable insights that fellow investors can apply in today's dynamic markets while still drawing from the wisdom of this Wall Street legend. This is a follow-up to the article I wrote about Warren Buffett's investment model, as both figures have greatly influenced my investment approach.
Peter Lynch has long been regarded as one of the most successful mutual fund managers in history. His investment strategy, which focuses on growth and finding "tenbaggers" (stocks that can increase in value tenfold), has proven to be highly effective. However, as the financial landscape evolves, it's essential to examine the continuing effectiveness of his approach in today's markets. This article will explore key aspects of Lynch's investment model and assess which elements remain relevant and which may have lost their edge.
Section 1: The Core Principles of Peter Lynch's Investment Model
1.1 Growth investing and finding "tenbaggers"
a. Earnings growth: Lynch focuses on companies with strong earnings growth potential, as this is often the primary driver of stock price appreciation.
b. Market-beating returns: By identifying "tenbaggers," investors can achieve market-beating returns and significantly grow their portfolios.
c. Industry trends: Lynch pays close attention to emerging trends and industries, which can provide opportunities to invest in high-growth companies.
1.2 Investing in what you know
a. Understanding the business: Lynch emphasizes the importance of investing in companies whose business models are easy to understand, increasing the likelihood of making informed decisions.
b. Personal experience: Investors can leverage their personal experience and knowledge to identify promising investment opportunities.
c. Thorough research: Lynch advocates for thorough research and due diligence before making any investment decisions.
1.3 Valuation and price-to-earnings ratio (P/E)
a. Relative valuation: Lynch often uses the P/E ratio to compare the valuation of different companies within the same industry.
b. Earnings growth and P/E ratio: Lynch's strategy focuses on finding companies with high earnings growth rates trading at reasonable P/E ratios.
c. PEG ratio: The price-to-earnings-to-growth (PEG) ratio is a key metric in Lynch's approach, which compares a company's P/E ratio to its expected earnings growth rate.
Section 2: The Changing Landscape: Points of Lynch's Strategy Losing Effectiveness
2.1 Overemphasis on P/E ratio
a. Limitations of P/E ratio: The P/E ratio may not accurately capture the value of companies with significant intangible assets or those experiencing temporary earnings fluctuations.
b. Alternative valuation methods: Investors should consider incorporating alternative valuation methods, such as discounted cash flow (DCF) analysis and enterprise value-to-EBITDA (EV/EBITDA) ratio, to better assess a company's true worth.
2.2 Rigid focus on growth investing
a. Cyclical nature of growth stocks: Growth stocks can be more susceptible to market fluctuations and economic downturns, making them potentially riskier investments.
b. Value investing opportunities: A rigid focus on growth investing may cause investors to overlook undervalued stocks with strong fundamentals.
c. Portfolio diversification: Balancing growth and value stocks can help manage risk and enhance overall portfolio performance.
Section 3: Adapting Peter Lynch's Investment Model to Today's Markets
3.1 Incorporating technology and disruptive innovation
a. Embracing technology: Investors should seek out companies with innovative technologies that have the potential to become industry leaders in their respective sectors.
b. Identifying disruptive companies: The rapid pace of technological innovation has led to disruptive companies reshaping entire industries, with early investors often reaping substantial rewards.
c. Balancing growth potential and risk: Investing in technology and disruptive companies may carry higher risks, but also the potential for greater rewards, which can be balanced through careful portfolio diversification.
3.2 Expanding the investment horizon
a. Global opportunities: By investing in companies from diverse regions, investors can capitalize on global growth opportunities and reduce dependence on specific markets.
b. Mitigating regional risks: Diversification across geographies helps to mitigate risks associated with regional economic downturns or political instability.
c. Tapping into emerging markets: Investors can seek opportunities in emerging markets with strong growth potential and favorable demographic trends, further diversifying their portfolios.
3.3 Incorporating ESG factors and long-term sustainability
a. Aligning with growth investing: Companies with strong ESG performance are more likely to be sustainable in the long term, aligning well with Lynch's growth investing approach.
b. Improved risk management: Incorporating ESG factors into the investment decision-making process can help identify potential risks and opportunities that may not be apparent through traditional financial analysis.
c. Attracting investor interest: As ESG investing gains traction, companies with strong ESG performance may attract increased investor interest, potentially driving higher valuations and returns.
Peter Lynch's investment model has stood the test of time, but in today's dynamic and rapidly changing financial landscape, it's crucial to adapt and evolve his principles. By embracing new technologies, diversifying investments, incorporating ESG factors, and expanding the investment toolkit to include passive investing and quantitative analysis, investors can continue to benefit from the wisdom of this Wall Street legend and successfully navigate the complexities of modern markets. The spirit of Peter Lynch's investing philosophy remains relevant, but adapting and tailoring it to the current environment can help ensure continued success in today's investment world.
One Trade Does Not Define Your Trading Performance...
Hey traders,
👨🏻💻I am trading forex for more than 8 years.
During the last 5 years, I am actively posting my analysis & trades on TradingView.
Growing my audience, it was very peculiar for me to contemplate the reaction of my followers to my trading performance.
(by the way, we must say thanks to tradingview where the posting system does not allow to delete the posted trades so that each and every author is easily backtestable).
👩👩👧👧👨👨👧👧Those who follow me at least a half a year know that occasionally I have winning streaks when 9 out of 10 of my forecasts play out nicely. Sometimes, however, I face the drawdowns and catch a sequence of losing trades.
And sometimes the performance is mixed with the probabilities being on my side slightly.
🥇While the reaction to winning streaks is quite predictable:
I am praised by the members and get nice tips.
The reaction to losing streaks is worth discussing in detail.
It turned out that quite a huge portion of a trading community has a completely wrong understanding of a trading nature.
🤬The single loss is considered by them to be a failure, a mistake.
Facing the sequence of losses, they quickly become negatively biased to the person that they have just recently praised.
With the continuation of a drawdown, they blame the analyst and launch a barrage of criticism towards him.
🔍Then they are in a search again. They are looking for a trader that will be constantly right. Catching the new one during a winning streak, the cycle repeats.
At some moment such people become disappointed in trading and drop this business...
❗️Losses, losing streaks and negative days/weeks/months are inevitable. If you want to become a full-time trader, you must be prepared for the fact that trading won't give you a stable income.
Your equity curve will be in constant fluctuation.
Your goal in this game is simply to lose less than you make.
You must become disciplined enough to keep following the rules of your trading strategy no matter what.
You must learn to be consistent in your actions.
You should learn to perceive losing trades not as a failure but simply as the moment when the market takes its share.
Feeding you, giving you the opportunity to make money out of thin air,
the market definitely has a right to claim its dividends from you.
⭐️Change your mindset, learn to lose and the magic thing will happen.
Let me know, traders, what do you want to learn in the next educational post?