USDJPY New York Session Buy Recap 51 pipsTook successful UJ buys after price broke resistance, waited for a pullback and entered anticipating price to move up with NY volume.
Looked to target a 4hr wickfill and stops were placed below support.
Riskmangement
The most important rule in trading, is to respect you plan 🧠Hello Traders!
Risk management primarily involves minimizing potential losses without sacrificing upside potential. This is often borne out in the risk/reward ratio, a type of cost-benefit analysis based on the expected returns of an investment compared to the amount of risk taken on to earn those returns.
CAKE Basic trend. Working with reversal zones. Money management.Logarithm. Time frame 1 week. Major trend. Combined education and potential trade in ideas.
Pivot zones from key liquidity zones.
The main idea and meaning of this idea is to show the logic of working with reversal zones from key resistance support levels, which will determine the further development of the trend. I have shown all possible scenarios of secondary trend development from more probable and logical to less probable, but which have the right to be realized. You should always keep even unlikely scenarios in your mind, even if you do not believe in them. Few people calculate different variants of trend development ahead of time. In most, as a rule, there is one scenario of price movement, but it is built in most cases on the desire that it was exactly as profitable.
This is how this trend looks like on a line chart.
Exchanges and surprises. Money management.
CAKE (PancakeSwap) is a decentralized exchange (DEX) token on the Binance Smart Chain, launched by anonymous developers
The coin as an example of similar crypto of the third liquidity group, which lose capitalization, that is, people's faith in the project itself - "the faith of the community is killed". It is quite possible that at one moment the faith in anonymous developers will be "killed" and they will use the existing liquidity for the last time.
I emphasize what blockchain the token is made on and how many bad triggers (FUD and not only) in the info space, not only with the designation “4”.
The idea (long-term trend) is more educational than trading because of the degree of risk (liquidity, “ugly chart” for the future, large depreciation, breaking a long horizontal channel at a very large %). My desire is to trace on a live chart how the fate of two exchanges will be reflected on the price of this token in the future. Liquid, popular, reliable and conditionally decentralized with “anonymous developers”.
Local trend. Work in it (only in it and nothing else). Risk Management.
But, in the local trend at the moment, this coin is interesting to work, especially since the triangle is almost formed and soon the dénouement. Stops will be quite short in the direction of the breakout, that is work. I will post an idea for local-medium term work below.
Take a local profit (maybe substantial) and forget once and for all about crypto fantasies and what will happen to the price next. No regrets if you took a relatively small profit and further development of the trend showed an order of magnitude more. In the end, it may be the other way around, you will be the lucky one who “made it” before the “sunset”. Learn to take profit from the market, it is better to take a little bit at a time, limiting risks, than to take a potentially large profit (which is what most “sectarians” are waiting for).
In the long run, I highly recommend not getting involved with this or other similar cryptocurrencies. You will be playing casino, and not so much with risk management (risk/profit ratio in trading) but with money management (money management in general, places to store and trade). So stops can be useless in some not quite trading situations.
Note how I've written a lot of information that doesn't really apply to this cryptocurrency directly, but only indirectly, as a potential consequence of more global yet equally potential events .
Observe money management and risk management in trading, diversify where you trade and store crypto assets, this will guarantee a sound sleep in the future. .
Secondary trend + local work. Time frame 3 days. 08 2023
AI-Driven Analysis: TSLA's Possible Outlook and Tactical EntriesDear Esteemed Members of the TradingView Community,
I n our continuous pursuit of precision, we've harnessed the analytical power of cutting-edge AI technology, utilizing a harmonious blend of Autoregressive Integrated Moving Average (ARIMA) and Seasonal Decomposition of Time Series (STL) methodologies to decode the market trends from June 26, 2023, to November 4, 2023.
O ur AI indicates a prevailing bearish sentiment in this time frame, which traditionally corresponds to a sequence of lower lows. The chart exhibits a prominent white trendline, gracefully outlining the descending support trajectory of this bearish trend and pinpointing potential regions for the emergence of new lower lows. Should this trendline remain intact, a target price range for short positions spans from $175 to $195.
F or those contemplating entry into a short position, we suggest closely monitoring the nearest resistance levels. In bearish trends, historical support levels often transition into formidable resistance points. To map these potential hurdles, the AI has nimbly employed the K-Nearest Neighbors (K-NN) algorithm, highlighting two key resistance zones: "Resistance 1" and "Resistance 2." Resistance 1, marked by the vibrant red line, stands as the immediate barricade, while Resistance 2, also vividly red, awaits in the wings should Resistance 1 be breached. These insights have inspired us to craft two scenarios for your strategic consideration.
I n Scenario 1, we envisage Resistance 1 rejecting the price action, ushering in a descent towards the coveted target price zone. In Scenario 2, an alternate narrative unfolds, where the bulls surge past Resistance 1, eventually carving out a consolidation phase between the two resistance lines. Ultimately, this tactical hiatus is followed by an ebbing of market enthusiasm, permitting the anticipated descent into the target zone.
A perceptive examination of the volume reveals an uptick in selling pressure on TSLA, commencing on October 17, 2023. The red volume candles in the white circle signify an influx of market sell transactions, surpassing the norm. This pattern aligns with a prevailing bearish sentiment, setting the stage for a potential decline in keeping with our bearish expectations.
W hile on the indicators, the Relative Strength Index (RSI) appears. It's a tool often wielded together with others by seasoned traders. Although we've already discussed various indicators, it's worth casting an eye over the RSI. The RSI is signaling a persistent selling inclination in the market, displaying no discernible signs of waning. When considered in conjunction with the volume data and AI-derived insights, it further bolsters the case for impending bearish continuations.
tl;dr version:
T o sum up, here's a snapshot of the elements of our analysis:
Position: Short
Trend: Bearish
Entry: Near Resistance 1 or Resistance 2 (depicted in red)
Target Price Zone: $175-$195
Stop Loss: Positioned above the noted resistances
Indicators: ARIMA, STL, K-NN, Volume Candle Analytics, Trendline Analytics, RSI
H owever, please be mindful that this analysis is not an investment advice. Past performance is not indicative of future results. The trading parameters should be in line with your unique risk tolerance. It's crucial to undertake your individual research and remember to implement a range of safeguards, such as Stop Loss, Trail Profit, Target Price, Trade Timeout, and Liquidity Check. The ever-fluctuating market can often spring surprises, venturing into scenarios that may differ significantly from those outlined in this analysis.
Warm regards,
Ely
Trading &/or GamblingThe difference between trading and gambling.
This article will shine a light on the most frequent mistakes that traders make. These mistakes blur the thin line between trading and gambling.
Many people have spoken on this topic, but we truly believe that it is still not sufficient, and traders should be better educated on how to avoid gambling behaviour and emotional outbursts. When we speak about trading versus gambling, we define gambling as the act of making irrational, emotional and quick decisions.
Most of the time, these decisions are based on greed, and sometimes fear of the trader. Let’s dive into the exact problems we have personally experienced thousands of times, and want to help others avoid.
1 ♠ Bad Money Management
This is something that everyone has heard at least once, but seems to naively ignore in the hopes that it is not that important .
It is the most important . When a trader enters trades, it is exceptionally alluring to enter with all of their money, or close to all of it. In gambling terms, that is going “All in”, or “All or nothing”.
As a rule of thumb, both traders and gamblers should only place or bet money that they can afford to lose.
Thankfully, at least in trading one can limit their loss for that specific trade, by placing a stop loss or exiting before total liquidation. In Poker, you can’t fold when you are “All in” and take a portion of your money back. However, that does not mean entering trades with full capital, even with a stop-loss, is going to give you exponential returns and feed your greed for profits.
Traders should enter positions with a small amount of their full capital, to limit the damage from losses. Yes, you also limit the possibility that you win a few trades in a row with all of your money and… There goes the greed we mentioned.
The “globally perfect” percent of equity you need to enter trades to reach that balance between being too cautious and too greedy does not exist. There are methods, like the Kelly Criterion, as described in our previous Idea (see related ideas below), that help you optimize your money management.
Always ask yourself, “How much can I afford to lose?”. Aim for a balanced approach. This way you can position yourself within the market for a long and a good time, not just for a few lucky wins. Greedy money management, or lack thereof, ends in liquidations and heartbreak.
2 ♣ The Use of Leverage
Anyone who has tried using leverage, knows how easy it is to lose your position (or full) capital in seconds. Using leverage is mainly sold to retail traders as a tool for them to loan money from the exchange or broker and bet with it. It is extremely profitable for institutions, since it multiplies the fees you pay them ten to one hundred-fold.
In our opinion, leverage isn’t something that should be entirely avoided. However, it should be limited as much as possible.
We cannot deny that using 1-5x leverage can be beneficial for people with small accounts and a thirst for growth, however as the leverage grows, the more of a gambler you become.
We often see people share profits made using 20+ times leverage. Some even use ridiculous leverages within the range of 50-125x.
If you are doing that, do you truly trust your entry so much that you believe the market won’t move 1% against your decision and liquidate you immediately?
At this point, the gambling aspect should be evident, and it goes without saying that you should not touch this “125x Golden Apple”, like Eve in the Garden of Eden. Especially when you see a snake-exchange promote it.
If you use a low amount of leverage, and grow your account to the point where you don’t need it for your personal goals in terms of monetary profit. You should consider stopping the use of it, and at least know you’ll be able to sleep at night.
3 ♥ Always Being In A Position
Always being either long or short leads to addiction and becomes gambling. While we don’t have scientific proof of that, we can give you our own experience as an example. To be a profitable trader, you do not need to always be in a position, or chase every single move on the market.
You need to develop the ability just to sit back and watch, analyse and make conscious decisions. Let the bad opportunities trick someone else, while you patiently wait for all your pre-defined conditions to give you a real signal.
When you think of trading, remember that the market has a trend the minority (around 20-30%) of the time. If you are always in a position, this means that 70-80% of the time you are hoping that something will happen in your favour. That, by definition, is gambling.
Another aspect, that we have experienced a lot, is that while you remain in a position, especially if you have used leverage, you are constantly paying your exchange fees. You can be in a short position for a week and pay daily fees which only damage your equity, and therefore margin ratio. So why not just sit back, be patient and define some concrete rules for entering and exiting?
Avoid risky situations, and let the market bring the profits whenever it decides to.
4 ♦ Chasing Huge Profits
Hold your horses, Warren Buffett. Through blood, sweat and tears, we can promise you that you cannot seriously expect to make 100% every month, no matter what magical backtesting or statistics you are calculating your future fortune on.
Moreover, you will realise that consistently making 2-5% a month is an excellent career for a trader.
Yes, the markets can be good friends for a while, you may stumble into a bull-run and start making double-digit profits from a trade from time to time. Double-digit losses will also follow if you lose your sight in a cloud of euphoria and greed.
Many times, you can follow the “profit is profit” principle, and exit at a small win if the risk of loss is increasing.
5 ♠ Being Sentimental Towards Given Assets
You may have a fondness for Bitcoin and Tesla, and we understand that because we too have our favourites. Perhaps you’re deeply attached to the vision, community and purpose of certain projects. On the flip side, there may be projects that you completely despise and hope their prices plummet to zero.
What you personally like and dislike, should not interfere with your work as a trader. Introducing such strong emotions into your trading will lead you into a loop of irrational decisions. You may find yourself asking, “Why isn’t this price going parabolic with how good the project is?”.
This sounds, from personal experience, quite similar to sitting at a Roulette table and asking: “Why does it keep landing on red when I’ve been constantly betting black? It has to change any moment now”.
First and foremost, you may be completely wrong, but most importantly – it could go parabolic, but trying to predict the exact time or expecting it to happen immediately and placing your “bet” on that is again, gambling.
Don’t get attached to projects when trading. If you are an investor who just wants to hold their shares in an awesome company, or cryptocurrency, that is perfectly fine, hold them as much as you want.
The key is to make an important distinction between trading and investing, and to base your strategy on the hand that the market provides you with.
6 ♣ Putting Your Eggs In One Basket
We all have heard of diversification, but how you approach it is crucial. A trader should always have their capital spread between at least a few assets. Furthermore, the trading strategy for each asset must be distinct, or in other words – they should not rely on the same entry and exit conditions for different assets.
The markets behave differently for each asset, and you cannot be profitable with some magical indicator or strategy with a “one-size-fits-all” style. Divide your trades into different pairs and asset classes, and study each market individually to properly diversify. Manage the equity you put into each trade carefully!
Conclusion
The takeaway we want you as a reader to have from this article is that trading without consciously controlling your emotions inevitably leads to great loss and most importantly, a lot of stress.
We hate stress. Trading and life in general is exponentially harder when you are under stress. Control your risk, sleep easy, and let the market bring you profits.
Reaching this level of Zen will not be easy, but it is inevitable. Be happy when you make a profit, no matter how small or big. A lot of small profits and proper money management complete the vision you have of a successful business. Ultimately, trading is just that – work, not gambling or a pastime activity. Treat it as work and always remember to never rely on luck.
The advice we’ve included here is written by a few experienced gamblers… Oops, I meant traders 😉.
We hope that some of the lessons we’ve had to painstakingly learn through trial and error can now be shared with those who are interested. Of course, none of this constitutes investment advice. It’s merely a friendly heads-up.
How to know when you are wrong and what to do nextThe feeling of ever admitting that one’s action is wrong is something many people never acknowledges, outside the works of trading, you get to see that even in a bilateral misconduct between two sovereign nations, it’s always difficult or maybe impossible for one of those countries to accept that there were at fault( being wrong), it goes on in every aspect of human endeavors, No one wants to take the blame.
Now let’s take a case study into the current invasion of Russia into Ukraine, you will get to see that none of the presidents according to their speech has accepted to be wrong in their actions.
Russian president Vladimor Putin while delivering his annual state state of the nation’s speech at the Gosting Duor conference center on February 21, 2023 did in his statement puts the blames on West and Ukraine for provoking conflicts while the president of Ukraine while replying to his speech did debunked the allegations of the Russian President. So the big question now is who is to be blamed? Who is Wrong?
It’s the same thing that applies to trading, so many beginners and advanced traders can’t really beat their chest to tell when their analysis becomes invalid so that’s the reason am here to fix things up.
What is wrong in forex?
I won’t quote any dictionary or trader but I will simply put it this way that wrong in forex is a level or stage where you find PERSONALLY that the trade setup you had plan to trade or that you had traded is no more valid, useful or won’t be profitable if traded.
The main keywords there are personally, profitability and traded. As far as wrong is concerned, it has to do with one accepting to the fact that a signal won’t yield profit because it had passed a particular level or structure.
How to know that you are wrong
I will like to drop some factors that will help you know that a setup is soar or is wrong.
You have to set up parameters before entering a trade: wheather you use pending orders or market execution, you shouldn’t rush into a trade because of how attractive or how sweet looking the candles are being printed on the chart without knowing firstly where you will consider being wrong in the market. For me, since we are in a very sensitive environment while trading, then I feel identifying where your wrong zone would be is more important travel where your profit target would be.
Use a well backtested strategy that you trust: Using a strategy that you trust would always enable a trader to quickly identify certain trade management levels. Let’s take a case st udy of a driver who uses one route everyday while going to and fro work at night, then unluckily for him, while returning from work at night on a faithful day, his head light malfunctions and then refuses to work, you will notice that with the aid of streetlight, you will be amazed that even under such mysterious circumstance, the driver would still manage to scale through the road successfully back home. Now you will ask how? This is because he has been using this route repeatedly and knows where there could be portholes and bombs so he would avoid those areas. Same thing applies with trading, when you trade a particular strategy day in day out, you will always at the slight of a fingertip be acquainted with where to identify your wrong level(stoploss) and you right level (take profit).
Be psychologically ready to accept that you are wrong: This is one of the major problems encountered by traders because most traders even when their levels or an intending structure they acknowledged as their wrong level are taken out (those who believes in closing trades manually), they rather believe that things could get better (trades will surely reverse) so they keep holding their losses till it gets out of control. As a trader, you must be ready to boldly acknowledge that a setup you saw due to some factors is wrong and then immediately close it without second thoughts.
Some technical tools and indicators to help you be aware of being wrong
Thank God for the recent innovations that has been seen in the world of trading. With this, trading has been made more smart and rewarding because of there sophisticated tools and indicators that have been made available. Here are some of the tools that can help you identify when you are wrong
Support and Resistance indicator by Luxalgo
As we all know, trading is all about identifying key levels and structures which turns to become support and resistance levels. This indicator by Luxalgo makes it more easy to quickly identify market structures and trends on each timeframe so one could use the indicator to set a particular structure which will be used as his or her wrong level.
ATR indicator
You(Mindset) indicator
This indicator surpasses all other technical indicators and tools because it has to do with the trader itself. Having to make use of those mentioned indicators is all dependent on you. This indicator determines the progress that you make in the industry.
After Losing, What Next?
There are some traders that would love to acknowledge being wrong in its dealings( setups or analysis) but their biggest question would be “After I agree that am wrong, what next should I do”?
According to a book titled “Mastering trading psychology “ written collaboratively by Andrew Aziz( founder and CEO, Peak Capital Trading Founder,Bear Bull Traders) and Mike Baehr( Chief training officer , Peak Capital Trading Couch, Bear Bull Traders), one of their est technical analysis trainee who they had in mind to reserve as their full time trader after encountering a loss( wrong) had this to say and I quote “This is embarrassing. I was doing so well alternating between real and simulator this whole week. These were my results:
Monday: 4 green trades out of 4
Tuesday: 3 green trades out of 5 trades
Wednesday: 1 green trade out of 1 trade
Thursday: 2 green trades out of 2 trades
Total: 10 green trades out of a total of 12 trades: nice profits, and feeling on top of the world!
And today it all fell apart in spectacular fashion. I traded like a maniac and finished with a huge loss. It was all a blur, but this is my recollection of the events in question:
After two small losses 10 minutes after the open, I was a bit shook. Then on my 3rd trade, I made a hotkey mistake and doubled up my position rather than exiting. That ended in a huge loss. Shortly after that, I made another hotkey mistake and took another big hit. I was a psycho- logical mess. Rather than walking away, I went on a rampage. I started trading stocks not in play (JD, BABA, MU), and was reckless and vengeful. I said to myself,
‘Fuck it, let’s go!’ (literally out loud) and fired away at my hotkeys like there was no tomorrow. By 10:30 AM ET, I was 0 for 7. By noon, I had made 13 trades. When it was all said and done, I had made 20 trades total (not tickets, but trades). Only 2 of them turned out to be winners. Talk about lack of self-control...
I violated every single rule that I had been following reli- giously all week. I stopped caring about those A+ setups and traded anything that looked marginally good. And since SPY was a roller coaster today, I got destroyed by questionable entries and ‘make-believe’ strategies. I kept trading the same stocks over and over, even after admit- ting they were not in play. I was trading like it was going out of style. I thought I could outsmart the market and get back at it. It wasn’t even about the money anymore. The losses were a foregone conclusion and had evaporated to currency heaven.
The sad part about this whole tirade was that I knew I was breaking the rules while violating them—and I didn’t give a damn about it. In the moment, I turned into the Incredible Hulk and everything switched to autopi- lot mode. I smashed at my keyboard like a savage. Everything I had learned up to this point in my (short- lived) trading career was thrown out the window. I had literally unleashed an animal that I had no control of. I’ve never experienced such poor self-discipline in my normal life—ever.
Today was a reminder of how fragile the trading mindset can be. All it takes is one moment—a FILG one —to send you spiraling out of control. All of these rules and checklists I had been adhering to were useless in the face of such madness. They were nothing but delicate paper walls I had erected to trick myself into believing that my emotions were in check. They came crumbling down under the slightest pressure. It was all an illusion; I was delusional.
I have a lot of reflecting and contemplating to do this weekend. I might take a break from trading to rebuild my psyche. Maybe I’ll visit a monastery to cleanse myself of all these trading sins. But first I need to forgive myself. Now I’m just rambling like a fool.
Thanks for reading, and remember—don’t trade like a crackhead”.
I know being wrong hurts but here are the remedies to do in such circumstances.
Shut down your computer sets for that day: The is a saying that “He who doesn’t bet the farm on one trade lives to trade another day. Setups as far as trading is concerned is a repeatable outcome, as far as your strategy has an edge, then your setups will always come. Move away for that day and return the next day.
Have a source of happiness: It’s not just shutting down the system but what do you do after putting the system off, you must as a trader have something that brings happiness to you naturally, it could be hanging out with friends, playing soccer or having some cool time with your kids or maybe taking some yummy ice cream or whatever. Personally when bad days or wrong days usually comes around, I do play virtual games and this just has its own way of making me happy. After shutting down, make sure you locate your source of happiness immediately.
Return like a baby the next day: The mind of a baby according to research is like a flowing river, it always keeps moving without thoughts of what happened previously, your mind as a trader should be like a baby. You should learn from your mistakes but don’t let it weigh you down. Resume office the next day with joy forgetting what occurred the previous day. Take trading decisions according to your strategy and let the trades play out.
Conclusion
The key take away from this write up is learn to adjust, learn to accept your wrongs and act accordingly to it. Digest this my write up efficiently and still check out for other other resources I will be dropping soon. Always try as much as possible to see how you can improve both yourself and your trading carrier everyday of your life.
SEE YOU AT THE TOP!!
How I manage the order volume?How I manage the order volume?
I often trade Futures, where I can take advantage of leverage to optimize profits. But at first, I didn't know what was a reasonable amount to enter an order with. I know my maximum is 10% of my capital as I shared in the prev post. But when calculating with leverage, it made me quite confused at first.
Try the following example.
Suppose, I have 200USDT capital. I will enter 1 order, with a STOPLOSS level of 0.2%
So each of my orders will be a maximum of 20USDT (ie 10% of total capital)
And my maximum risk tolerance would be when I lose 25% of my money on a trade. That is 5USDT.
Because the volume you place on the order is constant (certainly 10% of capital), so it is necessary to change the leverage to achieve the maximum loss tolerance, how do you calculate the leverage?
Here's my way: 20*(25/0.2) = 2500x
2500x leverage? I certainly never had that much leverage lol.
The problem appeared when the calculated leverage was too large. So what now when the max leverage is only 100x (I assume so, realistically is that there are many exchanges with higher leverage.)
I will take the actual leverage needed when I use 10% of capital (here 2500x) and divide it by the available leverage (here 100x).
So the actual volume needed to use with 100x leverage and achieve the stop loss condition when losing 25% of the amount on 1 order and the actual stop loss is 0.2% is:
20*(25/0.2)/100 = 25USDT
You can enter an order with 25USDT, you will lose 5USDT (2.5% of total capital) when stoploss
In short, to calculate actual volume and leverage, I will calculate according to this formula:
A = 10% of total capital
B = Maximum risk tolerance (I usually take 30%)
C = Actual STOPLOSS Level
D = Maximum Leverage
Actual volume = A*(B/C)/D
That's it, I hope the way I share can help you, this is the way I am using, very effective. You can comment below, I will try to answer.
Enjoy
DYOR
BITCOIN BULLISH short term!!!Bitcoin has broken through a massive downtrend and is now retesting the diagonal or dynamic resistance. If bitcoin manages to hold these levels, I would exspect prices to move higher at tap the 28k level.
This is a great area to enter a long while managing your risk for a 2% max loss on trade if your stop-loss hits.
You can also see that on the 6hr TF is is well oversold which is more bullish than bearish in the medium term.
Calculate Your Risk/Reward so you don't lose more than 1% of your account per trade.
Every day the charts provide new information. You have to adjust or get REKT.
Love it or hate it, hit that thumbs up and share your thoughts below!
This is not financial advice. This is for educational purposes only.
HHRU - Leading job-search company hints that... ... Russian labor market is far from being week.
Due to massive wave's extensions beyond classic fibonacci levels, I am not placing big confidence on my EW count, but solely from market price and volume dynamics there is an argument to be made for price starting new advance to at least prior Sep's highs.
Although, I am not a fan of big late-August weekly reversal candle, creating overhead supplies (potential downside pressure from those buyers who bough the Aug's highs and still holding loses), I do like how price finds support on ascending 10w MA line, that coincides with an ideal area for wave "iv" correction's support zone. So from the mid-term bullish price trend nothing is wrong or to be consider abnormal.
Zooming in to the Daily landscape, we may observe, how the selling pressure subsides and price tries to form the right side of the potential "cup". Volume profile looks like how we want it to be with higher selling volume on the left side of the "cup" and higher buying volume on the right side of it. That potentially illustrate that sellers and their shares are being absorb by the buyers, that are starting to dominate moving the price up.
General thesis : until price holds above 50D MA and in particular above 3050 area, at least one more wave to 4300 or even to 4900-5150 resistance zone could be considered. Short/Mid-Term thesis is wrong bellow 4300 zone.
I did started building position in early October, I will consider holding if the price will not move below -3 and -5% from my average cost. I don't have any issues with stepping aside being stoped out and re-entering at the higher prices, if the price so wishes. All I need is tight risk-management parameters and price cooperating with my thesis in timely manner.
Unlocking The Trader's PyramidIn the realm of trading, success isn't solely derived from intricate technical analysis.
Surprisingly, the key to triumph lies in an unconventional ratio: 20% technical analysis and a staggering 80% blend of emotions, discipline, psychology, risk management, and money management.
If you appreciate our charts, give us a quick 💜💜
The 20%: Technical Expertise
Yes, technical analysis is crucial, comprising the foundational 20% of your crypto trading journey. This segment encompasses chart patterns, indicators, and market trends. However, it's not the sole determinant of your success.
The 80%: The Pillars of Triumph
The real magic happens within the 80%. Embracing your emotions, mastering discipline, understanding market psychology, and implementing astute risk and money management techniques form the cornerstone of your success. Emotional intelligence allows you to navigate market highs and lows, discipline ensures you stick to your strategies, and psychological resilience helps you stay steady amidst volatility. Effective risk and money management safeguard your capital and nurture your profits.
This symbiotic blend of technical expertise and emotional intelligence propels you towards trading mastery. By allocating your focus and energy according to this pyramid, you're not just trading; you're sculpting success . Let this balanced approach be your guiding light in the trading journey!
Happy trading! 💜
HOW TO EARN IN TRADING WITHOUT WATCHING THE CHART.Explore the fascinating investment strategy known as Shannon's Demon Theory. Unlike technical analysis, this method focuses on steadily growing your assets without the hassle of market timing, price fluctuations, or complex charts. I'll simplify it step by step, making it accessible for anyone to embark on a stable investment journey.
Meet Claude Shannon , the genius mathematician and computer scientist born on April 30, 1916, in the United States. Known as the father of information theory and digital technology, Shannon revolutionized the way we comprehend and transmit information. Thanks to him, we can effortlessly send messages and share digital memories with friends.
One of Shannon's remarkable contributions is the Balanced Portfolio Investment Theory, which we'll explore today. Imagine a simple coin-tossing game with a 50% chance of getting heads or tails. Shannon discovered how to profit from these random outcomes, showing that you can double your investment by winning with heads and only lose half if tails appear.
In simple terms, if you invest $1,000 and win, you'll get $1,000, but if you lose, you'll only lose $500. Shannon emphasized the importance of not investing all your assets to mitigate risks.
In reality, when tossing a coin multiple times, you'll often encounter situations where you get multiple heads or tails in a row, deviating from the expected 50-50 probability.
However, Shannon argued that if there's an investment product that ultimately converges to a 0% return, you should invest in it immediately. He claimed that by investing only half of your money each time in this game, regardless of short-term results, you can achieve tremendous long-term returns.
As you can see, by balancing your cash and investment in a 50-50 ratio, your returns gradually trend upward over time, even in a game that ultimately converges to 0%. This strategy can lead to incredible returns compared to investing all your assets.
Imagine following Shannon's Demon method, alternating wins and losses for ten games starting with $1,000. With a natural 50% win rate, our initial $1,000 becomes an impressive $1,800, resulting in an 80% return on investment.
To optimize outcomes, it's crucial to exercise caution and avoid excessive trading, which incurs transaction fees. Frequent trading can result in returns similar to long-term value investing or worse. Instead, adopting an appropriate trading frequency like rebalancing once a week or once a month helps maintain consistent growth in assets.
Following Shannon's Balanced Portfolio Investment Theory may result in profits in a bull market or losses during unfavorable market conditions. However, over an extended period, the returns will ultimately follow an upward trajectory, regardless of the starting point.
What sets Shannon's theory apart is its advantage in providing easy and stable investing without the need for market predictions. As you gather more trading statistics, you'll witness the significant difference in returns between simple value investing and Shannon's theory.
Since the abandonment of the gold standard, the financial market has experienced significant changes. Money has become an infinite asset, while financial products have turned finite. Consequently, financial markets have exhibited an upward bias over the long term. With an ample trading dataset, Shannon's approach proves more advantageous in financial markets than relying solely on chance.
Between 1950 and 1986, Shannon achieved an average annual compound return of 28%, surpassing Warren Buffett's returns based on statistics. By rebalancing between one week and one month, he reported no negative returns during those 36 years.
Consistency and compounding lead to substantial profits and accomplishments over time. We can learn two essential truths from Shannon's Demon investment method:
1. You don't need to force yourself to invest in all seed money with every trade.
2. Long-term statistics are more important than short-term statistics.
These two principles are like timeless rules in the world of investment. If you lack a deep understanding of technical analysis and market timing or struggle with risk management despite having some market timing knowledge, consider applying this theory.
Follow and Boost for your financial success !
Write your thoughts in the comment section.
EURUSD Continuous or reverse 📉📈Hello guys. My idea on EURUSD is that According to H4 and Daily bearish move we have the high chance of continuing in that direction and we have small chance of reversal so that means that the probability is to the downside. Trade Safe. James ❤
Kelly Criterion and other common position-sizing methodsWhat is position sizing & why is it important?
Position size refers to the amount of risk - money, contracts, equity, etc. - that a trader uses when entering a position on the financial market.
We assume, for ease, that traders expect a 100% profit or loss as a result of the profit lost.
Common ways to size positions are:
Using a set amount of capital per trade . A trader enters with $100 for example, every time. This means that no matter what the position is, the maximum risk of it will be that set capital.
It is the most straight-forward way to size positions, and it aims at producing linear growth in their portfolio.
Using a set amount of contracts per trade . A trader enters with 1 contract of the given asset per trade. When trading Bitcoin, for example, this would mean 1 contract is equal to 1 Bitcoin.
This approach can be tricky to backtest and analyse, since the contract’s dollar value changes over time. A trade that has been placed at a given time when the dollar price is high may show as a bigger win or loss, and a trade at a time when the dollar price of the contract is less, can be shown as a smaller win or loss.
Percentage of total equity - this method is used by traders who decide to enter with a given percentage of their total equity on each position.
It is commonly used in an attempt to achieve ‘exponential growth’ of the portfolio size.
However, the following fictional scenario will show how luck plays a major role in the outcome of such a sizing method.
Let’s assume that the trader has chosen to enter with 50% of their total capital per position.
This would mean that with an equity of $1000, a trader would enter with $500 the first time.
This could lead to two situations for the first trade:
- The position is profitable, and the total equity now is $1500
- The position is losing, and the total equity now is $500.
When we look at these two cases, we can then go deeper into the trading process, looking at the second and third positions they enter.
If the first trade is losing, and we assume that the second two are winning:
a) 500 * 0.5 = 250 entry, total capital when profitable is 750
b) 750 * 0.5 = 375 entry, total capital when profitable is $1125
On the other hand, If the first trade is winning, and we assume that the second two are winning too:
a) 1500 * 0.5 = 750 entry, total capital when profitable is $2250
b) 2250 * 0.5 = 1125 entry, total capital when profitable is $3375
Let’s recap: The trader enters with 50% of the capital and, based on the outcome of the first trade, even if the following two trades are profitable, the difference between the final equity is:
a) First trade lost: $1125
b) First trade won: $3375
This extreme difference of $2250 comes from the single first trade, and whether it’s profitable or not. This goes to show that luck is extremely important when trading with percentage of equity, since that first trade can go any way.
Traders often do not take into account the luck factor that they need to have to reach exponential growth . This leads to very unrealistic expectations of performance of their trading strategy.
What is the Kelly Criterion?
The percentage of equity strategy, as we saw, is dependent on luck and is very tricky. The Kelly Criterion builds on top of that method, however it takes into account factors of the trader’s strategy and historical performance to create a new way of sizing positions.
This mathematical formula is employed by investors seeking to enhance their capital growth objectives. It presupposes that investors are willing to reinvest their profits and expose them to potential risks in subsequent trades. The primary aim of this formula is to ascertain the optimal allocation of capital for each individual trade.
The Kelly criterion encompasses two pivotal components:
Winning Probability Factor (W) : This factor represents the likelihood of a trade yielding a positive return. In the context of TradingView strategies, this refers to the Percent Profitable.
Win/Loss Ratio (R) : This ratio is calculated by the maximum winning potential divided by the maximum loss potential. It could be taken as the Take Profit / Stop-Loss ratio. It can also be taken as the Largest Winning Trade / Largest Losing Trade ratio from the backtesting tab.
The outcome of this formula furnishes investors with guidance on the proportion of their total capital to allocate to each investment endeavour.
Commonly referred to as the Kelly strategy, Kelly formula, or Kelly bet, the formula can be expressed as follows:
Kelly % = W - (1 - W) / R
Where:
Kelly % = Percent of equity that the trader should put in a single trade
W = Winning Probability Factor
R = Win/Loss Ratio
This Kelly % is the suggested percentage of equity a trader should put into their position, based on this sizing formula. With the change of Winning Probability and Win/Loss ratio, traders are able to re-apply the formula to adjust their position size.
Let’s see an example of this formula.
Let’s assume our Win/Loss Ration (R) is the Ratio Avg Win / Avg Loss from the TradingView backtesting statistics. Let’s say the Win/Loss ratio is 0.965.
Also, let’s assume that the Winning Probability Factor is the Percent Profitable statistics from TradingView’s backtesting window. Let’s assume that it is 70%.
With this data, our Kelly % would be:
Kelly % = 0.7 - (1 - 0.7) / 0.965 = 0.38912 = 38.9%
Therefore, based on this fictional example, the trader should allocate around 38.9% of their equity and not more, in order to have an optimal position size according to the Kelly Criterion.
The Kelly formula, in essence, aims to answer the question of “What percent of my equity should I use in a trade, so that it will be optimal”. While any method it is not perfect, it is widely used in the industry as a way to more accurately size positions that use percent of equity for entries.
Caution disclaimer
Although adherents of the Kelly Criterion may choose to apply the formula in its conventional manner, it is essential to acknowledge the potential downsides associated with allocating an excessively substantial portion of one's portfolio into a solitary asset. In the pursuit of diversification, investors would be prudent to exercise caution when considering investments that surpass 20% of their overall equity, even if the Kelly Criterion advocates a more substantial allocation.
Source about information on Kelly Criterion
www.investopedia.com
Role of Risk Management in Trading and How to calculate riskThe Foundations of Solid Risk Management 🛡️📊:
Risk management in trading involves a series of strategic decisions aimed at minimizing potential losses. It revolves around understanding the risks associated with each trade and employing measures to mitigate them. Whether you're a novice or an experienced trader, risk management remains a non-negotiable aspect of sustainable trading.
👍 Pros of Effective Risk Management:
Shields your trading capital from significant losses.
Provides a structured framework for decision-making.
Fosters discipline and rationality in the face of market fluctuations.
👎 Cons of Neglecting Risk Management:
Exposes your portfolio to undue risks that can lead to substantial losses.
Increases the likelihood of emotional decision-making driven by fear and greed.
The Emotional and Financial Benefits of Risk Management 🧘♂️❤️:
Effective risk management isn't just about preserving your financial resources; it's also about maintaining emotional equilibrium. When traders implement robust risk management strategies, they reduce the psychological stress and anxiety that often accompany trading. This enables traders to make more logical decisions, avoiding impulsive actions triggered by heightened emotions.
Calculating Position Size and Setting Stop Losses 📈🛑:
Two key elements of risk management are calculating the appropriate position size and setting stop-loss levels. These practices are integral to controlling the amount of capital at risk in each trade. By determining the position size based on a percentage of your capital and setting stop-loss orders to limit potential losses, traders ensure that no single trade can significantly erode their account balance.
Comparing Potential Losses and Gains for Different Risk Management Scenarios 💹📉:
Let's explore how the 2% rule affects potential outcomes for different risk management scenarios:
Risking 2% of a $1000 Deposit:
Maximum Risk per Trade: $20 (2% of $1000)
Potential Loss: Limited to $20 per trade
Potential Gain: Can vary, but the focus is on maintaining risk control
Risking 5% of a $1000 Deposit:
Maximum Risk per Trade: $50 (5% of $1000)
Potential Loss: Larger at $50 per trade
Potential Gain: Higher, but the risk of significant losses is elevated
Risking 10% of a $1000 Deposit:
Maximum Risk per Trade: $100 (10% of $1000)
Potential Loss: Considerably larger at $100 per trade
Potential Gain: Higher compared to 2% risk, but risk of capital depletion is significant
How to calculate your position size ?
You can easily calculate risk directly in TradingView using the built-in calculator!
Choose the direction of your position - long or short.
The next step is to set up according to your deposit and risk per trade.
After that, simply drag it onto the chart in line with your stop loss and take profit (more on this in the upcoming article), and it will automatically calculate the position size for you!
BluetonaFX - AUDCAD LONG Trade IdeaHi Traders!
There is bullish momentum forming on the AUDCAD 1D chart as the pair looks to possibly retest the resistance area.
Price Action 📊
There are higher highs and higher lows above the trendline support, and a bullish momentum candle is forming to break above the 20 EMA.
Looking for a momentum break and a close above the 20 EMA for possible long entries to exit at the resistance area between 0.86668 and 0.88486
Fundamental Analysis 📰
The market's outlook on the AUD has been very positive this week, with a significant improvement in the employment situation in Australia.
Support 📉
0.86668: SUPPORT TRENDLINE
Resistance 📈
0.88198: FIRST RESISTANCE
0.88486: SECOND RESISTANCE
Risk ⚠️
No more than 2% of your capital
Reward 💰
At least 4% of your capital.
Please make sure to click on the like/boost button 🚀, as your support greatly helps.
Trade safely and responsibly.
BluetonaFX
Clean Trades on Both Levels Hello guys my idea on USDJPY. Expecting both buy and sell from both levels good trade ..
Trade safe. Tell me what you think about it.
The Power of Risk ManagementRisk management is one of the key topics in forex trading that is not emphasised enough. Instead, there is too much emphasis on solely focusing on being on the right side of the market to consistently make money while ignoring proper risk management in the process. This post will completely debunk this, so after you have finished reading, you will hopefully have a completely new mindset on how to actually succeed long-term in forex.
Absolute Uncertainty
The forex market is a place where the majority of people struggle to find consistency. This is due to the nature of the market, where uncertainty is constant. What I mean by this is that the market is completely irrational and neutral; when you want to buy, there is somebody else on the other side that wants to sell, and vice versa. The market is filled with millions of other participants with their own goals, beliefs, and motivations; therefore, the market will go where it wants to go. Unfortunately, not enough people really grasp what this means and are obsessed with how many trades they can get right to make money.
The main purpose of risk management in forex is to reduce your trading risk and grow your trading capital safely. It is great to have good skills in determining the market's direction, but more importantly, you need to have good risk management skills too.
Two different traders, Same Trades, Two different outcomes
Let's put this into practice. Let us assume that two different traders both took the exact same ten trades and both won five of the ten trades taken. Let's call these traders 'Trader A' and 'Trader B. Trader A is just obsessed with being right in the market. The trader is quite skilled in understanding the market, but the trader is just focused on how many trades are closed at profit. Trader A risks about 2% per trade; however, trades are usually cut short, and thus ends up taking profit at about half of the initial risk (2% risk per trade and 0.5:1 risk-reward). Trader B understands that the market is completely irrational, where anything can happen at any time, and to trade the market succesfully, must treat trading like a business, causing the trader to have strict risk management rules (2% risk per trade and 2:1 risk-reward) that are stuck to at all times.
As you can see from the above image, Trader A ended up with a 5% decrease to the account and Trader B ended up with a 9.98% increase to the account after both traders taking the same ten trades, why did this happen? The answer is simple Trader A cut the profits short and ran the losses whereas Trader B ran the profits and cut the losses. It does not matter if you are right or wrong in trading what matters is how much you make from your right trades and how much you give back to the market on your wrong trades.
Forex Journey Ends Before Getting Started
Due to many people not understanding the power of risk management, their journey in forex ends before it even gets started. To explain further, a lot of traders either do not calculate their risk before they trade the markets or they are aware of their risk but decide not to place high importance on it (a fatal mistake). This is one of the biggest killers of forex traders, and all it takes is one bad trade before the market takes all your hard-earned money and you are out. The market is an unforgivable place that will not care if you are blown out; it will continue to go on with or without you participating, and you must give it respect. The higher your risk, the lower your long-term survivability probabilities are. Remember, if you don't have funds to trade, you can't participate! It is as simple as that, so you must treat trading as a business and not as a casual hobby if you aim to consistently make money over the long term. Let's see how your survivability chance decreases the more you risk.
Position Sizing
Now that you understand how crucial it is not to risk too much of your account in a trade but do not know exactly how to calculate how much you should be risking per trade, how do we calculate this?
In forex, a pip movement on a one-lot contract is approximately $10, so if you enter a trade on a forex pair and it moves 20 pips against you, you will be approximately $200 down. It is very important to understand this because if you do not, you will not know how much you should be risking per trade, and you may end up overexposed in the market with a high chance of blowing your account. For example, if you have a $10,000 account balance and want to risk 2% ($200) of your account per trade on a one-lot contract, that is 20 pips; therefore, your stop loss should be around 20 pips.
However, on the same account balance, if your stop loss is 100 pips, let's say, and you are not aware of pip calculations, you are potentially risking 10% of your account in that trade alone, which is extremely dangerous, and as seen in the above example, it only takes 10 trades in a row to blow your account on 10% risk per trade. But what if your strategy requires a 100-pip stop loss, as that is where your stop loss level is, and you really want to enter the trade? You just have to trade a smaller position size! 2% of $10,000 is $200, and we know that 1 pip is equal to around $10, so $200 is equal to 20 pips. Now how do we trade this with good risk management if we want a 100-pip stop? Let's see the image below:
So as you can see in the above image, if you are on a 2% rule, which is good risk management, all you need to do is reduce the position size if your strategy requires a larger stop. There is nothing stopping you from entering the position. In the forex market, safety must come first at all times. To add, it is not worth having a smaller stop loss just to be able to trade a bigger position size, as this can be very detrimental to your trading due to the fact that in forex, there is a lot of market noise due to so many participants, and it is very easy to get whipsawed on a small stop loss and get taken out of your position.
The next time you are about to enter a position, ask yourself if it would be better to have a larger stop to protect yourself from getting squeezed out of the position. If so, just reduce your position size accordingly and have a larger stop. Always remember that the market does not limit you from trading your opportunities if you have a larger stop but do not want to risk a large percent of your account in the trade; you just have to trade smaller.
Plan, Analyse, Assess, Review
1. Plan
Before you take a trade, always have a plan for your risk management. The 2% risk per trade rule is always a safe rule, and the best traders tend to use this rule. Always know what your account balance is, what your risk amount should be, and exactly where your stop-loss needs to be. Always remember that if your stop is too tight, try trading a lower position size to give you more leeway.
2. Analyse
When you get a trade setup, before you pull the trigger and enter the trade, ask yourself, "Is there enough reward in this trade setup that it is worth entering the trade?" If the answer is no, do not take the trade! Remember, trading is not just about being right or wrong; it is also about how much you take or give to the market when you are right or wrong. The reward must always be worth the risk, and you must constantly analyse this before entering the market.
3. Assess
Make sure you often assess your current risk management, especially when you are in a trading position. For example, if your position is about to reach your take-profit target but the market looks like it wants to keep going past your target, instead of coming out of the position completely, why don't you instead take some of the position out and keep the rest of the position in? You can trail your profit to your original target and potentially make extra profits this way with nothing to lose. The same goes on the other side: if you enter a trade and at some point are no longer comfortable with the position, do not be scared to cut the position short and exit the position. Always listen to your gut instinct, as it may be telling you something for a reason.
4. Review
Always review your risk management. Take a look at your past trades and try to learn from them. Was your stop-loss too tight in a lot of your trades? Was your stop not tight enough in a lot of your trades? Are you cutting yourself short, and could you have a higher risk-to-reward ratio in a lot of your trades? There is always room for improvement, and the only way to improve your risk management is to review your previous trading history to see what possible adjustments you could make to your risk management. Remember, you should treat trading as a business if you want to succeed long-term, and most, if not all, successful businesses constantly review their risk management.
The power of risk management is absolute. If this post has not done enough to convince you of this, always remember that you are always one bad trade away from being put out of business. The majority of beginner traders blow their accounts in the first three months of trading; this is not due to them not understanding the markets but due to poor risk management and not treating trading as a business. Always remember to maximise your profits and cut your losses. All trading involves risk, and there is no 'holy grail' strategy that can eliminate risk entirely. However, by managing your risks effectively, you can reduce the impact of risk on your trading and increase your chances of long-term success.
BluetonaFX
USDCAD ..A Very Big Decline Coming in on USDCADHello guys, My Idea on USDCAD is for a Big Push to the Downside , Which from the Daily Timeframe Down to the H4 Timeframe we are Overall Bearish and Which the H4 has Currently Switched Bearish and We are Expecting the Continuation Trend to the Downside for a Good Selling Opportunity from Level 1.36110 . Like and Drop your Comments ❤
Are You Taking the Right Risks in Trading? Best RISK Per Trade
What portion of your equity should you risk for your trading positions?
In the today's article, I will reveal the types of risks related to your position sizing.
Quick note: your risk per trade will be defined by the distance from your entry point to stop loss in pips and the lot size.
🟢Risking 1-2% of your trading account per trade will be considered a low risk.
With such a risk, one can expect low returns but a high level of safety of the total equity.
Such a risk is optimal for conservative and newbie traders.
With limited account drawdowns, one will remain psychologically stable during the negative trading periods.
🟡2-5% risk per trade is a medium risk.
With such a risk, one can expect medium returns but a moderate level of safety of the total equity.
Such a risk is suitable for experienced traders who are able to take losses and psychologically resilient to big drawdowns and losing streaks.
🔴5%+ risk per trade is a high risk.
With such a risk, one can expect high returns but a low level of safety of the total equity.
Such a risk is appropriate for rare, "5-star" trading opportunities where all stars align and one is extremely confident in the positive outcome.
That winner alone can bring substantial profits, while just 2 losing trades in a row will burn 10% of the entire capital.
🛑15%+ risk per trade is considered to be a stupid risk.
With such a risk, one can blow the entire trading account with 4-5 trades losing streak.
Taking into consideration the fact that 100% trading setups does not exist, such a risk is too high to be taken.
The problem is that most of the traders does not measure the % risk per trade and use the fixed lot. Never make such a mistake and plan your risks according to the scale that I shared with you.
❤️Please, support my work with like, thank you!❤️
Guard Your Funds: Only risk what you can afford to lose.🎉 Risk Management tip for Vesties and @TradingView community! 🚀
😲 We all know the saying "only risk what you can afford to lose," but do you know the powerful impact it can have on your trading journey? 🤔
In the ever-evolving world of cryptocurrency and futures trading, one fundamental principle stands as the cornerstone of profitable and sustainable trading journeys: Only risk what you can afford to lose. Embracing this essential concept is crucial for preserving capital, maintaining emotional stability, and cultivating a disciplined approach to risk management. In this article, we will delve into the significance of operating money and risk within the confines of one's financial capacity and explore the key pillars that underpin this approach.
Understanding Risk Tolerance and Capital Allocation:
1. Assessing Individual Risk Tolerance:
To truly understand one's risk tolerance and establish a robust risk management strategy, traders are encouraged to engage in a thought exercise that involves imagining potential losses in tangible terms. Visualize throwing money into the bin or burning it completely, purely to experience the feeling of losing money. This exercise may seem unconventional, but it serves a crucial purpose: it helps traders gauge their emotional response to monetary losses.
During this exercise, consider the two extreme scenarios: the first being the largest amount of money you can lose without causing significant distress, and the second being the maximum amount of loss that would completely devastate you financially and emotionally. These two amounts represent your Fine Risk and Critical Risk , which reflects the sum you are willing and able to lose over a specific period of time without compromising your financial well-being.
👉 The next step involves breaking down the Fine Risk into smaller, manageable parts. 🔑 Divide the Fine Risk into 10 or even 20 equal parts, each representing the risk amount for every individual trade. This approach is designed to create a safety net for traders, especially when they encounter unfavorable market conditions.
For instance, imagine a scenario where you face five consecutive losing trades. With each trade representing only a fraction of your Fine Risk, the cumulative loss remains relatively small compared to your risk capability, providing emotional resilience and the ability to continue trading with confidence.
By splitting the Fine Risk into smaller portions, we can safeguard their capital and ensure that a string of losses does not result in irreversible damage to our trading accounts or emotional well-being. Additionally, this approach promotes a disciplined and structured trading mindset, encouraging us to adhere to their predefined risk management rules and avoid impulsive decisions based on emotions.
Remember, risk management is not solely about avoiding losses but also about preserving the means to participate in the market over the long term.
2. Establishing a Risk-to-Reward Ratio:
The risk-to-reward ratio is a critical metric that every trader must comprehend to develop a successful trading system. It is a representation of the potential risk taken in a trade relative to the potential reward. For a well-balanced and sustainable approach to trading, it is essential to ensure that the risk-to-reward ratio is greater than 1:1.10.
A risk-to-reward ratio of 1:1.10 implies that for every unit of risk taken, the trader expects a potential reward of 1.10 units. This ratio serves as a safety measure, ensuring that over time, the profits generated from winning trades will outweigh the losses incurred from losing trades. While there is a popular notion that the risk-to-reward ratio should ideally be 1:3, what truly matters is that the ratio remains above the 1:1.10 mark.
Maintaining a risk-to-reward ratio of at least 1:1.10 is beneficial for several reasons. Firstly, it allows traders to cover their losses in the long term. Even with a series of losing trades, the accumulated profits from winning trades will offset the losses, allowing traders to continue trading without significant setbacks.
Secondly, a risk-to-reward ratio higher than 1:1.10, combined with proper risk management and a well-executed trading system, enables traders to accumulate profits over time. Consistently achieving a slightly better reward than the risk taken can lead to substantial gains in the long run.
3. Determining Appropriate Position Sizes:
Once you have a clear understanding of your risk amount and risk-to-reward ratio, you can proceed to calculate appropriate position sizes for each trade. To do this, you can use a simple formula:
Position Size = (Risk Amount per Trade / Stop Loss) * 100%
Let's take an example to illustrate this calculation:
Example:
Risk Amount per Trade: $100
Risk-to-Reward Ratio: 1:2
Stop Loss: -4.12%
Take Profit: +8.26%
Using the formula:
Position Size = ($100 / -4.12%) * 100%
Position Size ≈ $2427.18
In this example, your calculated position size is approximately $2427.18. This means that for this particular trade, you would allocate a position size of approximately $2427.18 to ensure that your risk exposure remains at $100.
After executing the trade, let's say the trade turned out to be profitable, and you achieved a profit of $200. This outcome is a result of adhering to a well-calculated position size that aligns with your risk management strategy.
By determining appropriate position sizes based on your risk tolerance and risk-to-reward ratio, you can effectively control your exposure to the market. This approach helps you maintain consistency in risk management and enhances your ability to manage potential losses while allowing your profits to compound over time.
Emotions and Psychology in Risk Management:
A. The Impact of Emotions on Trading Decisions:
Emotions can significantly influence trading decisions, often leading to suboptimal outcomes. Traders must recognize the impact of emotions such as fear, greed, and excitement on their decision-making processes. Emotional biases can cloud judgment and result in impulsive actions, which can be detrimental to overall trading performance.
B. Recognizing and Managing Fear and Greed:
Fear and greed are two dominant emotions that can disrupt a trader's ability to make rational choices. By developing self-awareness and recognizing emotional triggers, traders can gain better control over their reactions. Implementing techniques to manage fear and greed, such as setting predefined entry and exit points, can help traders navigate turbulent market conditions.
C. Developing a Disciplined Trading Mindset:
A disciplined trading mindset is the bedrock of successful risk management. This involves adhering to a well-defined trading plan that outlines risk management rules and strategies. By staying committed to the plan and maintaining a long-term perspective, traders can resist impulsive actions and maintain discipline during times of market volatility.
D. Techniques for Avoiding Impulsive and Emotional Trading:
To avoid impulsive and emotional trading, traders can employ various techniques. Implementing cooling-off periods before making trade decisions allows traders to gain clarity before acting. Seeking support from trading communities or mentors provides valuable insights and helps traders stay grounded. Utilizing automated trading systems can reduce emotional interference and ensure trades are executed based on predefined criteria.
In the world of cryptocurrency and futures trading, the fundamental principle of "only risk what you can afford to lose" remains the cornerstone of successful trading. Embracing this concept is essential for preserving capital, maintaining emotional stability, and cultivating a disciplined approach to risk management.
Understanding individual risk tolerance and breaking down total risk into smaller portions allows traders to navigate unfavorable market conditions with resilience. Maintaining a risk-to-reward ratio above 1:1.10 ensures that profits outweigh losses over time, while determining appropriate position sizes enables effective risk control.
Emotions play a significant role in trading decisions, and managing fear and greed empowers traders to make rational choices. Employing techniques to avoid impulsive trading, like cooling-off periods and seeking support, reinforces a disciplined trading mindset.
In conclusion, adhering to the principle of only risking what you can afford to lose leads to sustainable success in the dynamic trading world. By implementing effective risk management practices, traders enhance their chances of achieving profitability and longevity in their trading journeys.
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Gbp/Usd Reaches Fair Value.Gooday to you all.
Gbp/Usd Reaches Fair Value.
Today's idea is around the British pound vs The US Dollar (Gbp/Usd)
We spotted fair price for the fX/Currency pair that we believe will produce a potential buy opportunity for the pair.
We will buy the pair should we we have a 1hr candle close above the identified price zone at 1.28200 with profit target set to 1.29300
Use adequate risk management if you are to execute a trade with this analyses.
Enjoy and happy trading! We are the #ExodusTradingDesk.
Understanding US Economic newsUS Economic Indicators:
We know about trends and trend changes, but why a trend changes?
The tops and bottoms of the market are determined by the fundamentals, like news releases, while the technicals show us how we get between those two points.
So a news release can be the cause or trigger of a trend change.
So it is to our advantage to at least be aware of upcoming news releases.
Here are some releases to watch for:
Non-Farm Payrolls
Non-Farm Payrolls have proven itself to be one of the most significant fundamental indicators in recent U.S. history. As a report of the number of new jobs created outside the farming industry each month, a positive or negative NFP can get traders to act very hastily. A better than expected figure is very bullish for the dollar, whereas a more sluggish number usually results in the dollar being sold off. There is another component of unemployment released on the same day: The Unemployment Rate. Unemployment measures the amount of people that are out of a job, but are actively seeking one. If this number is smaller, then it means that the people that are seeking jobs are finding them, possibly meaning that businesses are well off and that the economy is expanding. The NFP is a number, usually between 5-6 figures, whereas the Unemployment rate is a percentage. A higher NFP number and lower unemployment number are generally bullish for the dollar and vice versa. It is difficult to trade the NFP and Unemployment Rate only because many times traders will not pay attention to what seems to be the most significant components, but will instead focus in on what reinforces their bias. Also, the release causes a significant amount of volatility in the markets.
FOMC Rate Decision Interest
Rate decisions for the Fed Funds Rate are very important when trading the U.S. Dollar.
When the Fed raises interest rates, the yield offered by dollar denominated assets are higher, which generally attracts more traders and investors.
If interest rates are lowered, that means that the yield offered by dollar denominated assets is less, which will give investors less of an incentive to invest in dollars.
When the decision is made about the rate it is always accompanied by a statement where the Fed gives a brief summary of what they think of the economy as a whole. When reading the statement it is important to check the exact language.
Many times by the time that the decision is published, it is usually factored into the market. This means that only slight fluctuations are seen if the decision is as expected. The statement on the other hand is analyzed word for word for any signs of what the Fed may do at the next meeting. Remember the actual interest rate movement tends to be less important than the expectations for future interest rate moves.
Retail Sales
The Retail Sales figure is an important number in a series of key economic data that comes out during the month.
Because it measures how much businesses are selling and consumers are purchasing, a strong retail sales figure could signal dollar bullishness because it means strength in the US economy, whereas a less-than-expected number could lead to dollar bearishness.
Again, the logic behind this is that if consumers are spending more, and businesses are making more money, then the economy is picking up pace, and to keep inflation from creeping in during this time period, the Fed may have to raise rates, all of which would be positive for the US dollar.
Traders tend to use the Retail Sales figure more as a leading indicator for other releases such as Consumer Confidence and CPI, and thereby don’t usually “jump the gun,” unless the numbers are terribly out of proportion.
Foreign Purchases of US Treasuries (TIC Data)
The Treasury International Capital flow (TIC) reports on net foreign securities purchases measures the amount of US treasuries and dollar denominated assets that foreigners are holding.
A key feature of the TIC data is its measurement of the types of investors the dollar has; governments and private investors. Usually, a strong government holding of dollar denominated assets signals growing dollar optimism as it shows that governments are confident in the stability of the U.S. dollar. Looking at the different central banks, most important seems to be the purchases of Asian central banks such as that of Japan and China. Waning demand by these two giant US Treasury holders could be bearish for the US dollar.
As for absolute amount of foreign purchases, the market generally likes to see purchases be much stronger than the funding needs of that same month’s trade deficit. If it is not, it signals that there is not enough dollars coming in to match dollar going out of the country.
As a side note, purchases by Caribbean central banks are generally seen to be less consistent since most hedge funds are incorporated in the Caribbean.
Hedge funds generally have a much shorter holding period than other investors.
US Trade Balance
The Trade Balance figure is a measure of net exports minus net imports and tends to be negative for the U.S. as it is primarily a “consuming” nation. However, a growing imbalance in the Trade Balance suggests much about the current account and whether or not if the U.S. is “overspending” on foreign goods and services.
Traders will understand a decreasing Trade Balance number to implicate dollar bullishness, whereas a growing disparity between exports and imports will lead to dollar bearishness.
Because the figure precedes the Current Account release, it pretty much helps project the direction of change in the Current Account and also begins to factor in those expectations.
Current Account Balance
The U.S. Current Account is a figure representing the total accrued deficit of the U.S per quarter against foreign nations. Traders will interpret a greater deficit as bad news for the U.S. and will consequently sell the dollar, whereas a shrinking deficit will spark dollar bullishness.
Usually, the Current Account Deficit is expected to be funded by the net foreign securities, but when ends don’t meet in these data, the Current Account could signal a big dollar sell-off. Additionally, because the Current Account data comes out after the Trade Balance Numbers, a lot of its expectations begin to get priced into the market, so a surprise to either side of expectations could result in big market movements for the dollar.
Consumer Price Index (CPI)/Producer Price Index (PPI)
The Consumer Price Index is one of the leading economic gauges to measure the pace of inflation. Many investors and the Fed constantly monitor this figure to get an understanding about the future of interest rates. Interest rates are significant because not only do they have a direct impact on the amount of capital inflow into the country, but also say much about dollar-based carry trades.
If the inflation number comes in higher than expected, traders will interpret that to mean that an interest rate hike is more likely in the near future and will thus buy dollars, whereas a figure that falls short of expectations may cause traders to wait on the sideline until the Fed actually makes a decision. Essentially, trading a negative change in CPI is much more difficult than trading a positive change due to the nature of different interpretations. A significant increase in the CPI will result in much dollar bullishness, but a decrease will not necessarily result in dollar bearishness.
The CPI measures inflation at the retail level (consumers), while the PPI measures the inflation at the wholesale level (producers).
Gross Domestic Product (GDP)
The U.S. Gross Domestic Product is a gauge of the overall output (goods & services) of the U.S. economy. If the figure increases, the economy is improving, and often the dollar will strengthen. If the number falls short of expectations or meets the consensus, dollar bearishness may be triggered.
This sort of reaction is again tied to interest rates, as traders expect an accelerating economy to be mired by inflation and consequently interest rates will go up. However, much like the CPI, a negative change in GDP is more difficult to trade; just because the pace of growth has slowed does not mean it has deteriorated. On the other hand, a better than expected number will usually result in the dollar rising as it implicates that a quickly expanding economy will sooner or later require higher interest rates to keep inflation in check.
Overall though, the GDP has fallen in significance and its ability to move markets since most of the components of the report are known in advance
Durable Goods
The Durable Good figure measures the amount of capital spending the U.S. is doing, such as on equipment, transportation, etc., both on a business and personal level.
Essentially, the more the U.S. spends the more the dollar stands to benefit; the opposite is also true. This is because increased spending could very well be a harbinger for inflation, and thus consequently, interest rate hikes.
Traders will usually focus in on the durable goods figure, but not too deeply, as it usually precedes data regarding housing starts and the annualized GDP figure release. Therefore trading based on the Durable Goods number is only voluminous when stagnancy in other key economic releases has been confirmed by a market consensus.
EURUSD I Starting to consolidate I Will head downWelcome back! Let me know your thoughts in the comments!
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