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Risk Management

HOW-TO Losses can and will unfoldIn this video, we take a look at losses. Losses, or losing trades are important, because every trading system will have losses. I just think it is important that vendors talk about losses to make it clear to everybody that no matter how good a system looks or appears to be, it will have losing trades. In the video we take a look at our "History Triangles" (which are the small green triangles on the chart), these show trade setups that would have been printed on the chart at the time, and would have been filed on the next bar, but would have been recalculated if the market moves through the setup without enough Bars having unfolded to create a new swing Pivot . These are not always losing trades, as they can also appear at double tops/bottom (where the stop level would not have been breached), but are usually losses. Position Sizing is used to keep these losses small, at just -1R, or 1 risk unit. I hope you all enjoyed this video, as it is an important reminder, that all systems have losses and it is important that vendors talk about losses in their posts.
Education
by MTPredictor
1
The ABCs of risk management. How to calculate risk and stop-lossHello, Traders Today we are going to explore risk management. First of all, risk management is what keeps traders alive! 1. First of all - it’s very risky to get into a single trade with more than 20% of your trading deposit. 2. To begin with, you need to calculate the percentage of risk you plan for each trade. To simplify, it’s an amount of money you’re willing to lose if something goes wrong - and if the losses are equal to that amount, you get out of the trade automatically. The stop-loss needs to be calculated with consideration of your tolerated risk. Let’s say your trading deposit is 20000$. The risk for one trade is 1% of your deposit, in our case it’s 200$. If you make a trade for 10% of your deposit (20 000$), then the position size should be 2000$. The tolerated risk, in this case, is 200$ (10% of your trade amount). Therefore your stop loss for the trade should be 10%, after which the position will be closed. If your position is equal to 20% of your deposit (20000$), then the position size should be 4000$. The loss you’re willing to tolerate here is 200$ (5% of 4000$). That’s your maximum stop-loss. 3. It's very important to understand that you have to make trades with a good risk/return ratio. The recommended minimum is 2 to 1, but 3 to 1 is better. You have to calculate that in order to remain profitable, otherwise, you can end up having losses executing lots of trades. For example, if the R/R ratio is 1 to 2, and you succeed in 4 of 10 trades with an estimated 20% profits and close 6 of your positions with a stop-loss of 10%, you’ll have 4*20% (80% profit) minus 6*10% (60% loss) and that’s still 20% profit. So you get 20% profit even if only 40% of your trades are profitable. Good luck and watch out for the market!
Education
by UnknownUnicorn10064030
9
In depth look into double tops/bottoms price action structures Merry Christmas everyone: Hope everyone is well and healthy, and enjoy the holiday season as much as we can :) Back here with another quick educational video on price action structures/patterns. I am going to go into detail on double tops/bottoms type of price action. Many of you have asked me to elaborate more on what double tops/bottoms truly mean, and they sometimes get confused with a support/resistance. I will go into more detail on this topic to clarify the differences. In addition, I will bring out some different examples in the market, and demonstrate how I see double tops/bottoms the way that works for my trading and its analysis. How I confirmed what a true double tops/bottoms is, and how to look for potential entries once you see them form. Understanding that multiple time frame analysis, nature of the market plays a big role to determine if the double tops/bottoms are “valid” and to give us more confidence to enter a position. The higher the time frame, the more significant it is to that double tops/bottoms and the potential reversal move from it. As always, any questions or feedback please let me know. Merry Christmas and happy new year everyone :) Thank you Jojo
OANDA:US30USDEducation
by jojofang0901
12
Trader Profile - Asking Yourself The Right Questions1. YOUR TRADER PROFILE The first thing most traders will have to do is build a portfolio, this process is more complex than just choosing what assets to trade, and in order to build a good portfolio you will need to find your trader profile, which can be determined by asking yourself the following questions: What is your initial capital? What is your targeted return rate? What is your risk aversion? What is the investment horizon? What is your availability? All these questions are related to each other, and as such, it can be difficult to find non-conflictive answers to them. The following sections give information about the theme of each question so that you may more easily identify your trader profile. 1.1 Initial Capital The initial capital you are willing to invest is an important matter, again we could ask ourselves various questions to determine it, but let's go with a simpler approach. A low capital can have a wide variety of effects. Capital is directly related to buying power, and a low buying power will result in the trader being unable to trade certain assets, but more importantly, it comes with a reduced ability to diversify a portfolio, and as a result, makes traders unable to lower their risk level. Leverage can increase buying power without having to have higher capital but it involves significantly increased risk. Having a low capital also means potentially reducing the lifetime of your portfolio since you won't be able to tank more losses, thus conflicting with your investment horizon target. Certain markets are more accessible than others for traders with low capital, this is the case of the forex and cryptocurrency markets that offer high leverages compared to the stock markets. 1.2 Risk/Returns Risk/returns are two correlated concepts, the more returns you expect from an investment, the more risk you are taking, an investment with large potential profits and low risk does not exist. Knowing your risk aversion is crucial if you want to build a good portfolio, and you will need to choose this level in coherence with the other aspects of your trader profile. Financial instruments all have a different risk/return ratio, and it is important to choose them wisely based on your profile. It is also possible to mix various financial instruments in your portfolio, this is a good way to reduce risk, as such you can have a portfolio consisting of 60% derivatives (futures, options...) and 40% bonds. 1.3 Investment Horizon Your investment horizon will be a huge factor of your success in trading, certain traders focus on long term trading, holding positions for years, and will use the buy and hold strategy. Others might hold a position from several days to several months, they are often defined as "swing-traders". Finally, some traders might open and close positions within one trading day, and as such are named "day-traders", a particularly well-known type of day-traders are scalpers, who usually hold positions for only several minutes. Most beginners in trading will start day-trading, and a lot will try scalping, however, it must be noted that the shorter your investment horizon is, the more difficult it will be to be consistently profitable. This has various reasons, one of them is that shorter-term investments require more precise timing, also you are expecting smaller profits than ones you would get using longer-term investments, thus encouraging a trader to use higher leverage, thus maximizing risk, also opening a high number of positions will mean you will lose more from frictional costs (commission, spread...), and since your profits will mostly be smaller, frictional costs will have a higher impact on your profit margin. We strongly advise beginners to stay away from scalping. 1.4 Availability Trading requires time and effort, and it is impossible not to be involved with your positions (even when everything is automated). However, some users will still have more time than others. Traders will have to do certain tasks: Monitor existing positions Execute orders Research for information Users who can allocate a majority of their time to trading will be able to build & update more advanced portfolios and do shorter-term trades, however, traders with less time will often have to seek longer-term trading styles such as swing trading. Conclusion Trader profiles will vary across every trader and understanding the importance of asking yourself the right questions to identify your own trader profile will likely help you overall increase your chances of success in trading. Thank you for reading!
BNC:BLXEducation
by LuxAlgo
8
10 reasons why being an active investor surpasses buy & holdMum and dad buy & hold (also known as "buy & forget" and "buy & hope") gets heavily promoted as some holy grail. Take advantage of the market rewards with the least effort, stress, and without having to pay fees to money managers, fees that will eat your retirement. To Bitcoin holders this is the greatest thing and they dream of wealth, they think they found the ultimate "best performing asset". But professionals don't really care about crypto, and anyone that is able to be somewhat competitive sees it as really bad. 1- The front page of this idea. Bitcoin holders are at 1.75R. In 3 years. 2- The risk adjusted returns are terrible. UBS Global Allocation Fund (buy & hold everything) has a max drawdown of close to 50% for a yearly return of something like 2.5%. The S&P averages about 7% a year and has drawdowns of 30%, 50%, and so on. Bitcoin has gone up 500% since september 2017, as well as march 2019, but it casually gets 85% drawdowns. Managed funds typically provide small returns for small risk, for example 5% annual returns and a max drawdown of 5%. Quants via ultra diversification (on assets and in time) get only green months, very little drawdowns and decent returns. Active traders, if they are good, get small volatility and consistent slow and steady growth. 3- It is what gets advised to noobs in investing as well as other competitive activities, like esports. Warren Buffett advises "just buy and hold". There is an equivalent. The game league of legends is popular so I think most people will get it. Players at the top say to poor players desperate to climb "just pick annie and roam", play an easy champion and rinse & repeat something simple. But no one is seeing armies of Annie one tricks in the higher elos. It's stupid advice that does not work. And if it does it's really the worse, second hand, "better than nothing" thing to do. 4- "Buy & Hold" is a one size fits all method, but there is no one size fits all opportunity. First an exception. People looking to pay their children university, or retire, have a 1 size fits all opportunity: fixed income. There are so many bonds and other contracts with all kinds of maturation dates, it's impossible to not find something right. Kid goes to uni in 10 year: Find a safe decent 10Y bond (still have to hedge currency risk if it is foreign...), collect some interest every year and get the entire amount in 10 years. So here you already see what can go wrong. What if you needed your money in March 2020? Bitcoin is down 80%. Sell? What if you bought and held Japan stock market and by the time you retire it's down in the gutter? Wait 30 years or more? 5- Some of the favored tools of passive investors do NOT buy & hold themselves. The vast majority US stocks go to zero. The S&P 500 which is buy & holders favorite itself does not buy & hold, performant stocks are added all the time, and poor ones are removed. So there is a fundamental flaw. And the S&P 500 strategy is as dumb as it gets, it simply buys winners sells losers. What if growth gets more volatile? It will be buying and selling all the time, or if there is a rule not to sell too often, hold losers too long and miss winners too. Besides the S&P 500 is only for the US and no matter what you think bull or bear it is basically betting on 1 single economy so still a simple buy & hold on a single thing (even with all the adding winners and removing losers). 6- Number 6 is abstract. Max simplicity and a total lack of effort and risk management cannot possibly create a reward. One cannot help but to think nothing can be free, there is no magical energy well, matter does not pop out of thin air, and in the same way there is no magical trick to get money without doing anything. Every critter on this planet needs to work to get something in return. In other activities being passive leads to no result. Do nothing, nothing happens. Why would this be different? The power of greed? Losing or gaining weight requires some action, magic trick special diets still do not work, buildings don't build themselves even government contractors have to work at some point. 7- No one successful does it. There might be a few lucky exceptions, but never lucky enough to really get to the top. George Soros was or is active, Buffett is active, every billionaire and centamillionaire on the planet is active. I have never heard of passive buy & holders that happily retired. The only "retired" passive novices are the ones that got lucky, bought dot coms before they went ballistic, bought Bitcoin early enough... 8- You'll miss out on great opportunities Giant contangos, mispricing, very underpriced stocks... Imagine being underwater rather than full of cash when a certain investment is super undervalued. And look at Bitcoiners, rushing in to buy "the dip" in january 2018 and laughing at me when I suggested a price decline and being patient as I thought there would be opportunities. They end up holding some $16000 BTC, then add more as the price goes down because let's risk everything. Each $16000 Bitcoin they have is 4 $4000 Bitcoin they did not buy. After 3 years BTC made it to 22000 wow fantastic! From 16k to 22k. If they "risked missing out", did something else with their cash, and bought $5000 BTC this year they'd have more than quadrupled their money. When BTC makes it to 20k then drops to 3000 it easily has much more upside than downside. I always said I would not short under 5000 even when I said it will eventually go to zero (it 100% will). Buying a coinflip ultra risky casino chip with no stop loss when it is close to ath. Just so bad. There is a difference between timing every top and bottom which only twitter crypto traders do, and avoiding really stupid actions. 9- "Buy & Hold" is a hoax perpetrated on credulous retail investors to milk them. You know what reduces risk and adds liquidity in the market? Dumb money consistently throwing money in the pot. Institutional investors that are happy to promote this hoax sell when they consider prices to buy too high, we witness phenomenal crashes, and why would anyone choose to not sell high prices and just hold the bag? Institutions are literally dumping on willing dumb money that has no idea how low prices will go and how long the drawdown will last. While they recommend to "just buy and hold" their own holding periods have never been shorter. And many of the professionals that buy and hold are just getting more AUM out of it. We know for a fact they are scamming energy ETF "investors" (USO), day traders, Robinhood "investors" From Jim Cramer: “Pick a couple of stocks, you gun them in the morning, and then you hope people are stupid enough and they buy them.” Like institutions cannot wait 9:30 to buy their shares, no no they are in a hurry they have to get in at terrible prices in the pre-market. Hedge funds are happy to rob dumb money. No matter how, no matter the time horizon. 10- I have no crystal ball do you? This scam summed up: "Hello individual investors. Today, based on available info, try guessing what will happen in the quarter century, and then for the next 25 years discard any new info". Emotions & logic are on a spectrum, and this idea is not on the more logic side of it. It makes less sense than buying a lottery ticket. At least the ticket buyer can say he is having fun, a sort of little adrenaline rush, and lottery ticket buyers can use flawed logic saying they only pay little and in their lives they'll never pay as much (not even close) as what the reward is. But buy & holders cannot even say they are having fun. What fun? Fun forgetting about something? "I'm having fun being passive sitting on a bench and not playing basketball and not even watching it". See it makes no sense. Or fun watching your money disappear while you do nothing maybe? And I don't see how they could use flawed logic here "ye so I make a bet on the future with limited info and as more info becomes available I put my fingers in my ears and go lalala".
Education
by MrRenev
3
#1 Trading Psychology : Accept Losses Its Part of the Process.I'm sure many of you have experienced this before. Me included. The market moves against you, so you extend your stop loss. The market moves against you again, so you extend your stop loss again, thinking that the market will reverse in your favor. We all know what happened next. The market never reversed and you lost a huge chunk of your capital. It is very important to respect your stop losses and let the market take you out so that you will not have to take the mother of all losses.
Education
by mbn_global
6
How to scale into the impulsive phrase of the market condition? Hello everyone: I want to go over an important topic of scaling into the market. This is something more advanced in my opinion, and should be used cautiously when applicable. First you will need to understand that it's important to fully accept the risk when you try to scale in a trade. Essentially you are doubling down on a trade when you do so. What is your risk management when it comes to scaling in ? Second thing to watch out for is managing your first initial position. I would generally move my SL to at least BE or in 1:1 profit. This way even if the second trade that I scale in end up to be a lost, I am BE overall on the two trades. Third point to remember is before you scale in the trade, is there enough R:R to justify it? No random entries just because there is a continuation correction on the 5 min chart as an example. Some price action must be present and give you enough confidence that the price is likely to continue from a structure, and then look to scale in the trade. Any questions or comments please let me know :) Thank you
Education
by jojofang0901
12
BUDGET TO FINANCIAL FREE DOOM / 7 Steps To Paying Of Your Debt All You Need To Know About Managing Money Wisely October 3, 2016 by National Debt Relief managing moneyManaging money wisely is not as complicated as you think – but it can be quite tedious. Maintaining a healthy level of finances is the same as keeping yourself physically fit. Just because you achieved your ideal weight, you will cease making an effort to live a healthy lifestyle. It is a continuous endeavor that will never stop. Of course, once you have reached your goal, maintaining it will not be as difficult as the effort you had to exert previously. But the bottom line is, you still need to exert effort. Some people have used financial management as a way out of debt. Most people have used it to improve their financial situation. The reason for managing money wisely is not really important as long as you are doing it. Regardless of your situation in life, it will help you take your money to the next level. According to an article from MarketWatch.com, consumers are starting to feel more confident about their money. Data reveal that they are beginning to increase their spending in non-essential expenses like entertainment and travel. While there is nothing wrong with feeling confident about your money, it should be approached with caution. The increase in spending should be done with money management in mind. Although consumers may be more financially abundant, they should increase their spending in accordance with their knowledge of their financial position. Without financial management, this would be hard to determine. The danger lies in spending too much and getting used to it. When your income is suddenly compromised, you might find yourself unable to cope with the changes that you need to implement to keep your finances from sinking. Three concepts you should know to manage your money well The key to keeping your finances in top shape is to manage it smartly. According to an article published on USAToday.com, making more money is the key to having a high credit score. A credit score is one of the indications of a strong financial position. Earning more is not the way to improve it. The best way is to start managing money wisely. Some people feel overwhelmed by this task. However, it is actually not complicated. It can be tedious to maintain a good financial position but it is not a complex concept to understand. In fact, there are only a couple of financial thoughts that you need to master in order to manage your finances well. Here are three of the most important. Interest. Admittedly, this is one of the most confusing for most consumers. For a beginner, it seems complicated but once you get a general idea, it can help you make smart decisions about your money. The interest is important on two financial fronts. One is your debt. You need to understand how this affects the amount of debt that you owe. If you have a high-interest debt like a credit card, you might end up paying a lot more than what you actually used the credit for – just because of the interest. The interest is also something that you can use to your advantage – specifically when investing is involved. Investing is the best way to make your money work for you. When you place your money in profitable investments, it earns compound interest. That means the amount you invested earns interest and even the accumulated interest will help you earn more. If you choose the right investments, that can really help you grow your finances – even without doing anything! Budgeting. The next concept that you need to master is budgeting. This is probably the most direct tool that will help in managing money wisely. In fact, if you want to achieve financial independence, this is one of the first habits that you should learn. A budget plan monitors your income and the various expenses that it funds. It allows you to control and manage where your income will be spent. If you need to add an expense, you can easily see the current categories that you are spending on. A budget plan will allow you to identify what expenses to sacrifice in order to make way for a new one. Current numbers. Finally, you need to master your own financial position. No matter how sophisticated your budget plan is and even if you perfectly understand the concept of interest rates, it will be for nothing if you do not know your finances. You need to keep your financial knowledge current so you can update your budget plan. Not only that, you can use this knowledge to help you decide if you can afford to get new credit or not. It will also allow you to make the right decisions about your investments. The current numbers involve not just your own financial number but also that of the market. You do not have to be a financial expert but you should at least know when the interest goes up or down. That way, you can take advantage of it. For instance, late last year, it was reported that the Federal Reserve will raise interest rates. That means the rest of the financial institutions will follow. If you have this knowledge, you should start to be aggressive in paying off your high-interest debts. These three are the important concepts that you need to consider while managing money wisely. There may be other important financial ideas to learn but that would depend on your own financial goals. Why is it important to manage your finances It is important to manage your money well because you use it on practically everything. While we do not want to be materialistic, your finances play an important role in this consumerist society. This is the main reason why you need to manage it well. Here are the specific reasons why you need to boost your financial management efforts. It helps you make smart decisions. Financial management involves a lot of decision-making. The more informed decisions you make, the better the outcome. Having a direct hand in managing your finances makes it easier for you to make informed and smart decisions precisely because you know your financial situation. When you know how much you have in your budget after sending out your monthly payments, you will know how much you can allot for your financial goals. It gives you an idea about the amount that you need to set aside for your retirement fund, reserves and even for your annual vacation. It allows you to avoid borrowing too much debt. According to the data from ValuePenguin.com, the average American Household Debt is currently as $16,048 – if you only include the households that are in debt. If you include all the households in the country, the average debt is $5,700. The current outstanding debt is $3.4 trillion with $929 billion specifically borrowed through revolving credit – the most common being credit card debt. 38.1% of households have some form of credit card debt and this high-interest debt is what can pull you down. If you fail in managing money wisely, all of these debts might go unnoticed. Not only that, poor financial management usually ends up compromising your savings. When you do not have savings, one emergency can push your finances over the edge and into a lot of debt. It lowers the risk of living from paycheck to paycheck. If you learn how to manage your money well, you can also avoid living from one paycheck to the other. You can budget your money well so you are not living up to your income limit. It is wise to live below your means because that leaves you with extra money to use on your financial goals or even emergencies. It keeps financial stress from ruining your life. When you are managing money wisely, that means you are in full control of your money. Being in full control will help eliminate or at least lower financial stress. Sometimes, we are stressed about something because we are uncertain about how it will end up. Having a full knowledge of your finances and being in full control will help you lower this uncertainty. It builds financial confidence. Apart from lowering stress, you will also feel more confident about your finances. This is a great trait to have when you are investing your money. It allows you to be braver in taking high-risk investments that will get you bigger returns. All of these make managing money wisely very important. You can significantly increase the opportunities for financial growth because you have a firm understanding of your finances. Common questions about managing money Question: What does managing money mean? Answer: This means you understand your financial position and you are organized in all your financial transactions. This keeps you from falling short on your budget and assures that important expenses are met. You are aware of every transaction and you are making smart financial decisions about it. Question: How should I manage money while self-employed? Answer: Managing your finances while self-employed is tougher because of your irregular income. The danger is budgeting for the lean months – which is usually the period when you do not have a high income coming in. To keep your household running, it might be best to base your budget on the income you get from the lean months. It is also best to give your emergency fund a boost to sustain your expenses when the income is quite low. Question: Why is managing money an important skill? Answer: This will help you avoid a lot of financial problems like wrong investment or credit decisions. It helps you reach your financial goals. More importantly, it helps you avoid incurring too much debt. Question: How can I start managing money wisely? Answer: You need to start by getting the tools that will help you keep track of your finances. A budget plan is a great way to start. Soon, you can add a spending plan, retirement plan, and a portfolio. These should cover the important aspects of your finances that you need to monitor. Question: Where can I learn to manage money? Answer: There are actually a lot of articles and self-help books that can give you the basic knowledge of managing money wisely. The challenge is in identifying which of them suits your purposes. It is best to know your financial goals first so you can choose the right advice that will help you reach your goals.
BITSTAMP:BTCUSDEducation
by GentleGoldenEngine
8
Investing for Beginners 101 - The power of Dollar Cost AveragingInvesting for Beginners 101 --------------------------- How do you build your investment fund? ---------------------------------------- There is no silver bullet to it, and it is easy when you build it across an extended period of time. Introducing the power of Dollar-Cost Averaging (DCA)! One of the easiest ways to get started. DCA is an investment strategy in which you purchase an asset over an extended period of time, to average in at a good price while avoiding the volatility of the market. This strategy proved to be quite effective for both novice and experienced investors. How do you do it? Let’s start with the easiest strategy. Example 1: ----------- Let’s say you want to invest 1000$ in bitcoin in one month, and you want to scale in twice per week, on Wednesday (W) and Friday (F). What you would do is divide the 1000$ by 8 (2 times per week over 4 weeks), and you would purchase 125$ on Wednesday and Friday. You’ll end up with 1000$ worth of BTC by the end of the month. Easy? Here’s another example. Example 2: ----------- You want to invest 1000$ in bitcoin for one month period, and you want to purchase daily: You end up splitting 1000$ by 30, and you’d purchase 33$ every day until the end. The trick here is finding the most optimal strategy, and calculating your average price. DCA aims to avoid making the mistake of making one lump-sum investment that is poorly timed with regard to asset pricing Investopedia. There are multiple strategies for DCA’ing into an asset. One way I do it is the following: After every successful trade, I invest 20% of the profits in both #Bitcoin or #Ethereum (equal split) and transfer another 10% $USDT over to my fund. Why is DCA effective? ----------------------- It removes the burden of buying at an optimal price and averages your whole purchases. Here’s a real example of how I did it at some point. I purchased on average 24$ worth of $BTC daily in the 9000-9400 range. Now notice that the average price I scaled in: 9175. While the price reached as high as 9400. Instead of purchasing 1 bitcoin at 13K for example, think how much you would save if you invested while the price fluctuates with time between 11K and 13K. That’s a lot. DCA works best when the price will eventually rise in the future. And you can truly reap its benefits on a macro scale. One last note, you do not trade with your investment fund. It’s best to leave it for years to come, and DCA’ing over multiple years into an asset that will increase in price in the next 10 years is the surest way to maximize your exposure to it. Hope you enjoyed this thread! Until next time 🙂
Education
by DarkMatter_CO
16
Calculating Position Size based on Risk and Stop LossCalculating position size and setting a stop loss is key to managing risk within your trades and protecting your hard earned profits. Some traders will use a one-size fits all position size as a percentage of portfolio. I prefer to vary the position size based on where I'm setting the stop loss. The stop loss that I set is based either on the volatility of the stock or on a technical analysis of the chart. I use the average true range of the stock I represent position size as a multiple of risk (referred to as R). R is the amount of my portfolio I'm willing to risk on a trade. I also like to calculate my profit and losses as a multiple of R. I can summarize a trade as I risked R with a position size of R10 to earn a profit of R2.5. I can also summarize a series of trades as I made 10 trades in which 4 trades were successful and 6 trades failed (40% success rate). My average winning trade was R2.5, losing trade is R1. I had total profits of R10 and total losses of R6 for a net profit of R4 and my average profit per trade is R0.4. If I have $5000 and want to earn $1200 with this system, and never risk more than 1% ($50) per trade, then I'd need ~60 trades. With ~5 trades per month, you are earning a 24% return in a year. Add some compounding too and its more like 27%. Not bad! In the highly recommended book "Trade Your Way to Financial Freedom", Van K Throp refers to these numbers in the following way: Expectancy: R0.4 (average profit per trade) Opportunity: 5 (number of trades) Expectunity: R2 per month (Expectancy x Opportunity) Want more profits? You can increase the number of trades (opportunity), improve the success rate of your trades (expectancy) or increase the amount of R (more risk). On the losing side, if you are losing R2 on each failed trade with 60% failed trades, your expectancy is now a loss of R0.5 and your net losses will be $600 in a year. That's why position size and risk management is so important. Control your losses, or your profits are for nothing! Here is how I think about (1) Risk, (2) Stop Loss and (3) Position Size: (1) Risk The first step with every trade should be where to enter a position and how confident I am in the trade. I determine a buy point and ask myself how much I am willing to risk on that trade. For this Idea, let's assume a buy point of the last high in a volatility contraction pattern for AAPL. That would be the high on 11/9 of 121.99. It's already past the buy point, but typically try to enter within 3-5%. Also, I usually add 10-20 cents to make sure the breakout clears the buy point. (Read another great book called "Trade Like a Stock Market Wizard" by Mark Minervini for an explanation of the volatility contraction pattern) Buy Point: 121.99 Typically, investors will risk 1-2% of their portfolio value on a trade. If you think a trade has more likelihood to fail, then maybe reduce that amount to 0.25% - 0.50%. For the purposes of this Idea, let's assume we will risk 1% of a $5,000 portfolio. We call this value R for Risk. R: $5,000 x 0.01 = $50 (2) Stop Loss Next I decide where I would set my stop loss for the trade. Many traders will set a fixed stop loss at 7-8% under the buy point. I find this creates too many oops outs (a stop hits intraday and then price rebounds). I use two different methods: a) I will often use a stop loss based on the Average True Range (ATR) over 10 days and multiplied by a factor (x2.7). I've backtested different factors and found 2.7 to work well. On the AAPL chart the 10d ATR is 2.62. This is a pretty tight ATR and supports the idea that this is a volatility contraction. Stop Gap: 2.62 x 2.7 = 7.08 Stop Loss: 121.99 - 7.08 = 114.92 Stop Loss %: (7.08/121.99) = 5.80% b) I will also look at the chart for a technical stop that would indicate that the trade was failing. For example, on the AAPL chart, I would consider a move below the low of 11/24 at 112.59 to be a failure. Alternate Stop Gap: 121.99 - 112.59 = 9.4 Stop Loss: 112.59 Stop Loss %: (9.4/121.99) = 7.70% (3) Position Size Now that we have the buy point, risk (R) and stop loss, we can compute the proper position size. An easy way to do that is to take the Risk (R) and divide it by the Stop Gap to get the number of shares to buy. Position Size (Shares): 50 / 7.08 = 7 Position Size (Dollars): 7 * 121.99 = $853.93 Position Size: 853.93 / 50 = R17.07 Another easy way to compute the Position Size is to compute the quotient of 1 and the Stop %. Position Size: 1 / 0.0770 = R12.99 Of course, the second example, using the alternate and larger stop %, requires a smaller position size to manage the risk to $50. I use TradingView and/or an Excel spreadsheet to calculate all this for me, but the R notation really helps me conceptualize how big the position will be.
NASDAQ:AAPLEducation
by drewby4321
65
HOW-TO: Backtest Your Forex Strategy & Increase Your Win-RateIn my earlier article, " Proving Your Trading System with Backtesting ", I demonstrated how, in the Futures market, you could backtest your trading system, see what works and what doesn't, change your variables, and rinse & repeat until you have a winning trading formula. You GET this winning formula by torture-testing (ahem, *back*testing) your system under every market condition. My last video backtested Futures as an example and I received dozens of requests to demonstrate and develop a similar system using Forex, so here it is! This video will show you HOW you can backtest your own Forex Trading system over time, determine its results, and refine it until it is bulletproof (or marketproof!). All you need is a Trading System, a Spreadsheet, and a great trading platform (ahem, like TradingView) :-) Trading can be the most rewarding of careers, but only after putting in the hours of hard work. And like everything else in life, if you don't put in the work, you won't get the results. And if you put in the work AHEAD of time, you won't have to put a DIME of your hard-earned capital into the market until you are CONFIDENT that your system will multiply that money in your account rather than feed the market monster. I hope you enjoy the video... but more importantly I hope it will help you become a better trader. If this was beneficial to you please feel free to leave a like, a follow, or a comment... I'd love to hear from you and stay in touch as we all move forward in our trading journeys! Trade hard, and trade well! -Anthony
Education
by ocaptain
29
Take a closer look at price action analysis in trading Hi traders: Hope all is doing well. I want to do another quick educational video on price action analysis. Many have asked me to elaborate on this topic, and I thought video is the best way to do so. So basic understanding of price action analysis is that after a strong impulse phrase in the market, we will get a period of consolidation (correction) before the price is likely to resume the direction. This is what we can structures and patterns when the correction begin to form. Understand that when we dont see a correctional structure after a strong impulse, this is usually a sign from the market telling us the price may reverse soon. Its important to fully acknowledge what the market is presenting to us, and if we are seeing different clues from the market, then accept it, and change your analysis's view. As always let me know if you have any questions or comments. Thank you
OANDA:XAUUSDEducation
by jojofang0901
6
Forex Pairs Correlation: Avoiding Contradictory TradesHello, in this post I will be talking about Forex Pair Correlations. A problem new traders frequently find themselves in is opening/having positions that are contradictory. I will elaborate on that but for now, let's understand first what correlation is. A correlation is a statistical relationship which means that when A moves a certain way, B will move a certain way. The stronger the correlation, the more likely that the price will move along with each other/opposite of each other. There are 2 types of correlation; Positive correlation which is A and B will move together, and negative correlation which is A and B will move opposite of each other. Now that we understand what correlations are, I can address the problem that new traders have. Contradictory positions: For example, having a long position in GPBUSD and a short position in GBPJPY is contradictory since these 2 pair has a 87.5% correlation which means 87.5% of the time, it will move together. As you can see in the graph, when the GPBUSD (Blue) moves up, GBPJPY (Orange) moves up and vice versa. This applies to moving down as well. GBPUSD (Blue) and AUDNZD (Yellow) is an example of a negative correlation (-69.7%). My recommendation to avoid having these problems is if you do not yet have an understanding of which pairs will move up and down together, check this website: www.myfxbook.com This website will show you every pair and its correlation. Of course, there are some exceptions to when contradictory trades are fine like when hedging against each other or when 1 trade is short-term/intraday/scalping, looking at the smaller trends and the other one is swing trading/position trading looking at the bigger trend. However, I do not recommend new traders to hold/open contradictory trades until they have some confidence in what they are doing. Main points: 1. A correlation is a statistical relationship which means that when A moves a certain way, B will move a certain way. 2. Positive relationship = Pairs will move the same way. 3. Negative relationship = Pairs will move the opposite way. 4. New traders should avoid contradictory trades. 5. Website for checking correlations: www.myfxbook.com Please give a thumbs up if you agree with the educational post and if there are any questions, feel free to comment down below.
Education
by AresFx
2
Why having 2 TP targets is good Hello, in this educational post I will be talking about why having 2 or 3 TP targets is good. As an example, I will be using one of the trades I have running currently on EURUSD. My initial target for this short position is to hit the lowest point of yesterday and it was going well until a pullback happened which is currently happening right now and probably reaching my entry point. If I didn't have more than 1 TP target, this trade could potentially be a loss or a breakeven but since I had another target that is closer to my entry point, I could close half of my position, move my SL to breakeven, and secure some profit. On the graph, you can see that I secured 33.5 pips of profit by closing half of my position so that if the price reverses, I would still gain some profit off of this trade and it did eventually reversed. A rule of thumb I normally use for my first TP is half of my final target or a closer/weaker support/resistance level. I do not recommend having more than 2 or 3 targets if you are relatively new to trading. *This only applies to Intraday Trading, Scalp, and Short Swing Trades.* To conclude all my points: 1. Having another TP before your final target is good to secure profits in cases it reverses. 2. Move to SL to breakeven once your first target is reached so if it reverses, you are guaranteed profit. 3. A rule of thumb I normally use for my first TP is half of my final target or a closer/weaker support/resistance level. Please give a thumbs up if you agree with the educational post and if there are any questions, feel free to comment down below.
Education
by AresFx
How to utilize Multi-time frame analysis in your trading Hello everyone: In this educational video, I will discuss how I utilize multi-time analysis in my trading. -What multi-time frame analysis does is to help us to get more clarity on what the overall market is doing from a top down approach. -Analysis should always start on the higher time frames such as Monthly/Weekly/Daily. -Then, drop down to the lower time frames such as 4H/1H,30/15/5 Min to confirm the HTF move and look for possible entries. Price action and structures work inter-related with multi-time frame analysis. -In a HTF impulsive phrase, there will be many LTF impulses and corrections to push the price up/down. -In a HTF correctional phrase, there will also be LTF impulses and corrections, but within the larger HTF correction. The key to multi-time frame analysis is to properly identify the next HTF impulsive phrase, and capitalize it by entering on the LTF price action. This allows you to maximize your R:R greatly. In addition, combining multi-time frame analysis with price action will also give you clues on where the price is likely to go, hence calculating your targets and anticipating the movement from the market. As always any questions or feedback please let me know :) Thank you
Education
by jojofang0901
23
5 Steps Forex FOMO Battle PlanFOMO = Fear Of Misssing Out . Here's How You Can Counter it Trading Plan Following Your Trading Plan Doesn't Allow For Impulsive Trades > The Habit Will Control The Urge To Make FOMO Mistake's Confirmation Wait For Confirmation Before Trading > Better Enter a Trade late and be Right Than Enter Early and be Wrong Order Type Plan Ahead . Use limited and Stop orders instead of Market order's . it will take away the Stress Price Alerts Keep Up To Date of Market's Without Being in Front Of Forex Chart's 24 / 7 . Know Your Self Be Disciplined . Be Patient There Will Always Be Opportunities
TVC:GOLDEducation
by GentleGoldenEngine
2
Financial Plan PROCESE TO ACHEIVE 1 - Assessment You must have the right climate and the right environment to help you succeed. And extra money can meet your needs ----------- 2 - GOAL SETTING You must have clear goals, whether in the medium, long or long term, and you must work hard on them and have a plan for how to achieve those goals. 3 - Creating a Plan You must have a clear plan of action that you should not deviate from, no matter what it costs you, and calculate the risks and rewards, and not allow yourself to go beyond or out of context. ----------- 4 - EXECUTION Eliminate mistakes and learn from them so that you can always develop and keep pace with market conditions ---------- 5 - Monitoring Learning constantly and working on self- development and not being satisfied in a specific way for profit Always find new and effective methods with market variables
TVC:GOLDEducation
by GentleGoldenEngine
6
Backtesting Part 2: Testing Your Trading System in 3 Easy StepsIn my earlier article, " Proving Your Trading System with Backtesting ", I outlined the HOWs and WHYs of backtesting. Does your trading system work under all conditions? Under what conditions might it *not* work? Can you remove those instances from your plan? Under what conditions might you *improve* your win rate? In another article, " The Unexamined Trader ", Just as an unexamined life is not worth living, the unexamined trader should not be trading a system that has not been tested under every market condition (and I mean TORTURE tested under HUNDREDS of trades). This video will show you HOW you can backtest your own system over time, determine its results, and refine it until it is bulletproof (or marketproof!). All you need is a Trading System, a Spreadsheet, and a great trading platform (ahem, like TradingView) :-) It will take some time and effort, but like everything else in life, if you don't put in the work, you won't get the results. And if you put in the work, you won't have to put a DIME of your precious capital into the market until you are CONFIDENT that your system will multiply that money in your account rather than feed the market monster. I hope you enjoy the video... but more importantly I hope it will help you become a better trader. If this was beneficial to you please feel free to leave a like, a follow, or a comment... I'd love to hear from you and stay in touch as we all move forward in our trading journeys! Trade hard, and trade well! -Anthony
CME_MINI:ES1!Education
by ocaptain
171
Respecting RiskA friend of mine send me a question yesterday, "hey, curious question. how much was the a great day / swing/ scalp trader looking to make per day prior to Bitcoin?" This was my answer yesterday: That's an invalid question to ask a real trader. A trader takes what the market gives them. One may go days, weeks, perhaps a month without a signal that fits their rules that they have tested to be successful. A big part of being a trader is patience and staying true to their system that they have confidence in. A lot of "trading education" advertises "Make $XXX per day" but I'd be very wary of them. That's marketing I think in many cases to draw people in because it's something their customers can understand and desire. The reality is that a real trader goes through ups and downs and you just have to take a month-by-month or even year-by-year approach. I have had a great year. But I had a crappy October. I lost money in October straight up. But it's ok because this month I'm recovering. That's just the way it goes. Another reason I don't particularly like that way of looking at it is because I think you have to look at gains in % terms. Someone making $100/day on a $100,000 account is very different from someone making $100/day on a $1,000 account. The first is making 0.1% and the other is making 10%. To make 10% the trader has to take on much bigger risk relative to their account size. More risk = bigger losses when they inevitably occur. It's more important to focus on having good risk adjusted returns rather than dollar amount because if you build the skills to have good risk management all you have to do then is grow steadily. I get a little verbose when I'm asked simple questions about trading because it's my thing and I want to make sure to dump all I know on folks so that they can know the TRUTH. My friend followed up today with a revision to his question which I answered and made this annotated demonstration above. Thanks, you’re right, I should’ve framed the question better. Would your answer be different if I framed the same question as a percentage return regardless of principle investment? That is a much better way to frame it but then that still opens the question of risk. You simply must take on more risk (of loss) to get more return (of gain). There's really no way around that. The billion dollar hedge funds are like the pro athletes of trading. If they make over 10%/year rich people and retirement funds will invest millions with them. That is considered really good returns at that level of the game. Basically if you beat the "6-7% average yearly return of just investing in the stock market" you're winning. What the S&P500 does that year is called the Benchmark. So beating the benchmark means you're better than what everyone else is doing. If you fail to beat the benchmark then you've failed that year. That's sort of how the NBA of trading goes. Being a smaller trader on a smaller account you actually have advantages they don't. You can be faster, more agile, take on more risk, not be restricted by size and not kept down by regulations. So you can do better than 10% for sure. But I think a lot of people want to double their account in a year. This is possible to a seasoned trader for sure but it's dangerous. I usually say to that "something that can double your account one way can cut it in half the other way". That's the nature of risk in trading. There is also the factor of what you're trading and when you're trading. Trading crypto this year someone could have definitely doubled their account just going long anything. But what about if you'd started in January and been trading the big down move. We all know that there are down moves and that's what I mean by risk. You will take hits and the bigger your position the bigger the gains... but the bigger the hits. The only way to stay in the game is to stay tight with the risk and that means giving up some of the big YOLO potential. There is no easy answer is what I'm getting at. It's a game. That is a much better way to frame it but then that still opens the question of risk. You simply must take on more risk (of loss) to get more return (of gain). There's really no way around that. The billion dollar hedge funds are like the pro athletes of trading. If they make over 10%/year rich people and retirement funds will invest millions with them. That is considered really good returns at that level of the game. Basically if you beat the "6-7% average yearly return of just investing in the stock market" you're winning. What the S&P500 does that year is called the Benchmark. So beating the benchmark means you're better than what everyone else is doing. If you fail to beat the benchmark then you've failed that year. That's sort of how the NBA of trading goes. Being a smaller trader on a smaller account you actually have advantages they don't. You can be faster, more agile, take on more risk, not be restricted by size and not kept down by regulations. So you can do better than 10% for sure. But I think a lot of people want to double their account in a year. This is possible to a seasoned trader for sure but it's dangerous. I usually say to that "something that can double your account one way can cut it in half the other way". That's the nature of risk in trading. There is also the factor of what you're trading and when you're trading. Trading crypto this year someone could have definitely doubled their account just going long anything. But what about if you'd started in January and been trading the big down move. We all know that there are down moves and that's what I mean by risk. You will take hits and the bigger your position the bigger the gains... but the bigger the hits. The only way to stay in the game is to stay tight with the risk and that means giving up some of the big YOLO potential. There is no easy answer is what I'm getting at. It's a game. Let me illustrate this for you. So let's say you bought Bitcoin on January 1, 2020 with 3 different "risk profiles". You could have just bought 1 Bitcoin, with cash, for 7170, and held. Or you could have taken 2x Leverage meaning you only put down $3585 Or you could have done 3x which means you put down $2390. If you'd held those positions you would have done as the chart shows above. 3x would have blown your account... you wouldnt have been in the position to make gains by the end because you got margin called. 2x You'd be sitting on 4x your money... but at one point you'd been looking at an 88% loss. 1x and you'd taken a hit but by the end you're doing pretty good. Believe it or not... I've been trading so long and taken so many hits... that I don't even do 1x. I do something like 0.5x most of the time. I just have a strong respect for risk AND I'm trying to put myself on that level of the NBA players of Hedge funds and how they do things.
BITFINEX:BTCUSDEducation
by norok
4
How forecasting can benefit your trading journey Hi everyone: In this quick educational video, I will go over how I incorporate “forecasting” in my trading, and how that helps me to be a better trader overall emotionally and psychologically. Couple things you “forecast” prior to the actual entry: 1. You should draw out the different possibilities on the price’s movement. Different possible scenarios if possible. IF you are looking for short, then draw out the actual move from where the current price is, and take a screenshot of the possible move. This allows you to remember your plan to execute the position once it appears. 2. You should also think about a back up plan, what if the price goes up now instead of down from your analysis ? Are you still looking for short then? Or are you going to change your bias if price action then develops bullish price action instead? You should prepare yourself if your bias is wrong, then what would you do next. 3. Utilize the R:R tool box, “forecast” the actual entry, SL, potential TP. This will allow you to understand your R: R and where you would set your first, second targets. Take screenshots if necessary to remember. 4. Forecast what you will do once price hits your TP. Are you simply just going to exit the trades now, or will the further development of price action give you extra confidence that the trade can keep going, and you should hold on to the trade? What do you want to see from the price action in order to change your thoughts? This will eliminate emotions as to whether to hold onto a trade or take profit. As you do more and more of these forecasts, the actual entry will be relatively easy. You have already forecast the possible scenarios, entry, SL, TP, continuation..etc. So there won't be any fear of losing, or fear of missing out. That will help you to keep your emotions at bay, and execute the trades accordingly. Many beginner traders often lose money because they are not prepared for what the market will do. When something happens, then they react to the situation. Often enough it's too late, and they will make a decision based on emotion. Forecasting allows you to eliminate those emotions, and let your plan run. As always, let me know if you have any questions or comments. Thank you
Education
by jojofang0901
9
Levels of Reasoning on the Reasoning of OthersHere is another chart, giving Money Man’s view on the market, followed by some constructive escapism or another set of glasses to try on. Money Man has stretched some indoctrinated traders who read these posts quite far and here he is going even further. He is aware of the negative ‘modern’ view on metaphors. Is it not strange that this is exactly how many profound things have been stated in the past, for good reason, but now it is passé? Here he asks you to see the chart as art and mathematics as a tool to quantify and rationalize, looking for intent. Art, because of the emotions of fear and greed expressed on the chart. There is a second level to the chart that puts things in perspective a bit like composition of great paintings and architecture relies on the Fibonacci sequence. Surely there is an element of self-fulfilling prophecy in Fibonacci levels, but the point here is about a second level expressing measurability, reason, and illusive intention. A PS is added as an expansion on this idea. People tend to consume what is in front of them in an ‘at face value’ way. Few looks deeper for finding the story hidden in between the setup of a noisy ‘story line’. Money Man touched on this in the ed post “Sandwiches and Lollies” and there is more on this in “Reading the Markets”. A great illustration and measurement of levels of effort and thinking, is the thought experiment done in game theory introduction classes. Do not be intimidated by game theory (why will be explained later and you definitely do not need to be a Von Neumann to trade) but knowing your trading instrument of choice will allow you to get more out of it. This idea is of even more value if you trade an instrument with a fickle relationship with another, like BTC to the economy and politics, BTC to ETH and BTC combined with ETH to alts, etc. Money Man had to scour the net to find what he read long ago. It made enough of an impact on him that it changed his view on trading, traders, and life. It goes something like this: Guess the average number that is half of the average number guessed by the other participants in the experiment. The numbers to choose from for all participants are 0 to 100. This is obviously a question to teach a principal and thus needs you to think deeper. Think about it and soon you will realize that the average should not be over 50 and that results in an answer of 25, but what then, what about the other participants who figured that out as well and then affects the answer with their answers? The answer, after many participants were surveyed, was around 12. Let us say that the realization that 25 is the rational answer if nobody thinks about how others would think – is level 1. Level 2 would then be considering that others will think about the thinking of others and cause 12 to be the answer. Obviously, this can go on and on till close to zero. Have a look on the net for “Planet Money Here’s The Winner In Our Pick-A-Number”. And so, you could end up reading on the net about the “Keynesian beauty contest”, etc. Do not let the game theory confuse you. Money Man believes that type of thinking is already baked into the market (please read “Hive Mind v Irrational Markets), but the principal that made him remember it while regretfully forgetting where he was first introduced to it, is that the majority of people with their thinking caps on (knowing there is a catch to the question), perceives the average game “opponent” to think or make an effort to level 1 – reasoning that themselves going one step further is the answer. It is not the levels of reasoning that made him remember this, but the level of planning of a typical trader to that of the successful traders. Successful traders reason to the next level / make an effort to calculate and consider further. Money Man believes that the chart, minus the noise, gives a reasonable array of outcomes to consider and be proactive on. Proactive traders are not devoid of emotion, only keep their emotions away from their trading. Conclusion: Traders are often accused of gambling. Planning changes things from gambling to a learning journey and ultimately into the realization of an edge. You do not have to be a mathematician to trade as much as (Money Man knows that he has said it too many times but allow him to once more) you need to be a planner, accepting results before they materialize. PS I am sure that most who had to sit through art or literature classes had the experience I had. I remember sitting in class, watching a Star Trek episode (not Shakespeare as I think the teacher would have seen that as too anticipated). He, as teachers do, had his lesson planned to make it a teachable moment. After watching it he asked seemingly irrelevant questions about the characters and the characteristics of this and that, etc. He wrote it on the blackboard and there it appeared: a second level, a story within the story, enriching the story. Could a Star Trek episode be art? Money Man thinks so as he sees art as intent expressed through effort, not necessarily effortless. The difference between art and randomness lies in intent. A way to find if intent is present is to measure. Get your measurement to resonate with the market. How? Step one: Start measuring what resembles consistency – the basis of what Money Man is attempting to provide with his charts. There is measured intent all around us. Money Man is not claiming to be an expert and he is not trying to sound cooky or like a clever fool. Rolling ideas around in your head could break walls in there that you did not realize you had.
COINBASE:BTCUSDEducation
by Rule72
1