How To Trade Triangles Like A Pro?Welcome, traders and investors, to our educational post on ascending and descending triangles!
In the fast-paced world of financial markets, understanding chart patterns like these is crucial for making informed trading decisions. Ascending and descending triangles are powerful tools that provide valuable insights into market dynamics and potential price movements. In this post, we will delve into the characteristics of these patterns, explore how to identify them on price charts, and discuss effective trading strategies to capitalize on their implications. Whether you're a novice trader or an experienced investor, mastering these patterns can greatly enhance your ability to navigate the markets with confidence and precision.
What Is An Ascending Triangle?
An ascending triangle chart pattern is formed during the upward price movement in an uptrend. The price tends to consolidate for a while and allows the trader to draw a horizontal trend line on the upside. Simultaneously, it allows the trader to draw a rising trend line downwards. The pattern implies that the price is consolidating and existing buyers are closing partial positions and the market is expecting new buyers to join and continue the Bullish trend.
As a result, the price consolidates on the upper trend line and is unable to move higher and make new higher highs. However, the price does not make lower lows either, instead makes higher lows. So technical analysts look for trading opportunities and enter the market once the pattern is spotted on a price chart.
How To Identify The Ascending Triangle?
The ascending triangle pattern is similar to the other triangle patterns, but the location and shape of the triangle formation is very important. The shape of the ascending triangle should strictly contain the upper horizontal trend line and the lower rising trend line, failing this will invalidate the pattern. The pattern must be located within the uptrend, so it can be validated as a trend continuation pattern.
The ascending triangle can be spotted easily by its shape. The horizontal upper trend line and the rising lower trend line make it easy to spot the triangle. An ascending triangle forms during a bullish uptrend as the pattern is a continuation pattern. However, the pattern may form in any part of the chart and trend. The ascending triangle pattern formed during a uptrend is significant and produces the best trading results. So traders should look for the pattern while prices are in an uptrend and identify it using the triangle shape.
Features That Help To Identify The Ascending Triangle:
▪️ There should be an existing uptrend in the price.
▪️ The upper trend line should be horizontal.
▪️ The lower trend line must be a rising trend line.
▪️ The trend lines should be touched at least twice. The greater number of times the trend line is touched, the stronger it gets.
How To Trade The Ascending Triangle?
As mentioned earlier, the pattern not only provides the best entry point but provides the stop loss and takes profit too. Moreover, these points can be clearly defined and understood by the trader.
Entry point: During the market consolidation phase, the upper trend line acts as a resistance and the lower trend line acts as a support. As the market consolidation ends and the price starts to get momentum, it breaks the upper trend line. The best entry point is the breakout of the upper trend line or the resistance.
Price breakouts are normally associated with spikes in the trading volume. The increased trading volume implies the entry of fresh buying orders. Traders should look for trading volume levels during the breakout and confirm the breakout before entering the market with a BUY position.
The next confirmation is the classic price action which shows that the resistance has changed into support. Normally, price once breaks the upper trend line tries to move lower but will have ample support from the upper trend line which now starts to act support. This price action confirms the buying interest and gives the trader with additional confirmation and confidence.
Stop Loss: The best stop loss method is to exit the trade if the price breaks the support or the lower rising trend line. The breakout of the lower trend line implies the non-availability of the upside momentum and indicates the possibility of the return of the bears. (In the cryptocurrency market, there are often fake breakouts, and that's also worth considering!)
Take Profit: The projected take profit target is the farthest distance between the upper and lower trend lines. At the beginning of the pattern, the upper and lower trend line will be wider from each other. This distance can be measured and can be projected from the entry point to the upside. As per the pattern, this is the best take profit target.
What Is An Descending Triangle?
A descending triangle appears during a downtrend. The price tends to move lower and then finds a consolidation area, this consolidation area is the potential price level at which the market allows the trader to draw a horizontal trend line, due to the failure to make lower lows.
On the other hand, the price tries to move higher and fails to make any higher highs. Oppositely, the failure to make higher lows results in lower lows so the price action allows the technical trader to draw a descending trend line on the upside.
The combination of the upper and the lower trend line forms the shape of the descending triangle. Traders look for trading opportunities once the price consolidation ends. Price breakout from the descending triangle pattern indicates the beginning of the trend resumption. So traders enter the market in the direction of the previous trend direction.
How To Identify The Descending Triangle Pattern?
The following are the features that help to identify the descending triangles chart pattern.
▪️ There should be an existing downtrend in the price. To validate the pattern, it should form during an existing downtrend. The pattern that forms during an uptrend should be invalidated and not taken into account. As the trend is a BEARISH continuation pattern the formation during the downtrend is essential.
▪️ A lower trend line should be horizontal. The price should fail to make lower lows and usually bounce from the low, as a result, the lower trend line should be as horizontal as possible.
The upper trend line must be a descending trend line. The price action on the upper side is very crucial for this pattern. The failure of the price to make higher highs and instead of making lower highs shows the failure of the price to reverse the trend direction.
▪️ The trend lines should be at least touched twice, the greater number of times the trend line is touched it gets stronger. Trend lines must be validated independently, as a general rule of the trend line the price should touch the trend line at least twice. However, the more times a trend line is touched it gets stronger.
The upper and lower trend lines converge each other and look to join at the end, thereby forming the shape of a descending triangle. Traders can spot the pattern easily due to the shape of the trend lines, as the chart will make it easier to spot a consolidation area during a downtrend.
How To Trade The Descending Triangle Like A Pro?
As discussed earlier the pattern is a completely trade-able pattern, meaning it provides the trader with the best entry point and stops loss, and takes profit points. It must be mentioned that all of the parameters can be measured and identified easily.
Entry Point:
During the market consolidation phase, the price action makes the price bounce from the lower trend line and prevents the price to move higher than the upper falling trend line. The resultant shape of the descending triangle will be broken the consolidation phase ends as traders enter a fresh buying phase. The price breaks the lower trend line and continues to move lower, which is the prevailing downtrend.
Traders should confirm the entry point using additional confirmation using the trading volumes. Any breakout of trend lines or triangles is generally associated with increased trading volumes.
The increased trading volumes provide the necessary momentum for the price movement. So traders should look for increased volumes, however, if the descending triangle breakout does not show any increase in volume traders should refrain from trading as it may be due to a false breakout.
The next type of confirmation is by applying the support and resistance or trend line trading rules. The lower horizontal trend line effectively acted as a support during the market consolidation phase, while the upper trend line acted as a resistance.
So once the price breaks the support, it becomes resistance. There may be few instances when the price broke the support line and fails to continue or displays a false breakout.
Stop Loss:
The stop loss is the upper falling trend line because, if the price makes higher highs it shows the market intent to move higher or reverse the trend. So the best method is to exit the position if the price breaks the falling upper trend line or resistance.
Take Profit:
The pattern allows identifying the take profit by measuring the longest distance between the trend lines. Normally during the beginning of the descending triangle pattern is the longest distance, this shall be measured. This measurement from the entry point will provide the potential take profit position.
Understanding ascending and descending triangles is essential for any trader navigating the financial markets. These chart patterns offer valuable insights into potential price movements, providing traders with opportunities to enter and exit positions strategically. Ascending triangles typically indicate bullish continuation patterns, suggesting that an uptrend may persist after consolidation. On the other hand, descending triangles often signal bearish continuation patterns, indicating potential downtrends following consolidation. By recognizing these patterns and applying appropriate trading strategies, traders can enhance their decision-making process and improve their overall trading performance. Remember to combine pattern analysis with other technical indicators and risk management principles for optimal results in the dynamic world of trading.
Happy trading!🩷
Thanks for Your attention 🫶
Always sincerely with You, Kateryna💙💛
Trend Analysis
Thoughts process to the perfect tradeHey, what's up, traders? In this video, I want to explain your complete thought process and basics of the AMD concept of the analysis for this gold trade which turned into a successful call !!
How Does Recession Affect Financial Markets?How Does Recession Affect Financial Markets?
Recessions, marked by widespread economic decline, profoundly impact financial markets. Understanding how different markets – stock, forex, commodity, and bond – respond to these downturns is crucial for traders and investors. This article delves into the varied effects of recessions, highlighting strategies for navigating these challenging times and identifying potential opportunities for resilience and growth in the face of economic adversity.
Understanding Recessions
A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, typically visible in real GDP, real income, employment, industrial production, and wholesale retail sales. Economic experts often cite two consecutive quarters of GDP contraction as a technical indicator of a recession. However, it's more than just numbers; it reflects a noticeable slump in economic activities and consumer confidence.
Historically, recessions have been triggered by various factors, such as sudden economic shocks, financial crises, or bursting asset bubbles. For instance, the Global Financial Crisis of 2007-2008 stemmed from the collapse of the housing market bubble in the United States, leading to a worldwide economic downturn.
Recession impacts nearly every corner of the economy, leading to increased unemployment, reduced consumer spending, and overall economic stagnation.
Effects of Recession on Different Financial Markets
A recession's impact on financial markets is multifaceted, influencing everything from stocks and bonds to forex and commodities. However, each market reacts differently. To see how these various asset classes have reacted in past recessions, head over to FXOpen’s free TickTrader platform to access real-time market charts.
General Impact on Markets
During a recession, the financial landscape typically undergoes significant changes. Investors, wary of uncertainty, often reassess their risk tolerance, leading to shifts in asset allocation. Market volatility usually spikes as news and economic indicators sway investor sentiment. This period is often marked by cautious trading and a search for safer investment havens.
Impact on Stock Markets
Stock market performance in a recession can be quite varied. Generally, stock markets are among the first to react to signs of a recession. Prices may fall as investors anticipate lower earnings and weaker economic growth. This decline is not uniform across all sectors, however.
Some industries, like technology or luxury goods, might experience steeper drops due to reduced consumer spending. Conversely, sectors like utilities or consumer staples often include stocks that do well during a recession, as they provide essential services that remain in demand.
Impact on Forex Markets
In forex, recessions often lead to significant currency fluctuations. Investors might flock to so-called safe currencies like the US dollar or Swiss franc, while currencies from countries heavily affected by the recession weaken. Central bank policies, such as interest rate cuts or quantitative easing, play a crucial role in currency valuation during these times.
Impact on Commodities
Commodities can react differently in a recession. While demand for industrial commodities like oil or steel may decline due to reduced industrial activity, precious metals like gold often see increased interest as so-called safe-haven assets.
Impact on Bonds
Bond markets usually experience a surge in demand during recessions, particularly government bonds, seen as low-risk investments. As investors seek stability, bond prices typically rise, and yields fall, reflecting the increased demand and decreased risk appetite.
Types of Stocks That Perform Well During a Recession
During economic downturns, certain stock categories have historically outperformed others. The stocks that go up in a recession generally belong to sectors that provide essential services or goods that remain in demand regardless of the economic climate.
Consumer Staples: Companies in this sector, offering essential products like food, beverages, and household items, may appreciate during a recession. As these are necessities, demand usually remains stable even when discretionary spending declines.
Healthcare: Healthcare stocks often hold steady or grow during recessions. The demand for medical services and products is less sensitive to economic fluctuations, making this sector a potential safe haven for investors.
Utilities: Utility companies typically offer stable dividends and consistent demand. Regardless of economic conditions, consumers need water, gas, and electricity, providing these stocks with a buffer against recessionary pressures.
Discount Retailers: Retailers that offer essential goods at lower prices can see an uptick in business as consumers become more budget-conscious during tough economic times.
Types of Stocks to Hold in a Recession
While there are some stocks that perform well in a recession due to sustained demand for their products, there are other types of stocks that are valued for their financial resilience and potential to provide long-term stability.
Blue-Chip Stocks: These are shares of large, well-established companies known for their financial stability and strong track records. During recessions, their history of enduring tough economic times and providing dividends makes them attractive.
Value Stocks: Stocks that are undervalued compared to their intrinsic worth can be good picks. They often have strong fundamentals and are priced below their perceived true value, with the potential to rebound strongly as the economy recovers.
Non-Cyclical Stocks: These stocks are in industries whose services or products are always needed, like waste management or funeral services. Their demand doesn’t fluctuate significantly with the economy, which may offer stability.
The Role of Government and Central Banks During Recessions
During recessions, governments and central banks play a crucial role in stabilising financial markets.
Government interventions often include fiscal policies like increased spending and tax cuts to stimulate the economy. Central banks may reduce interest rates or implement quantitative easing to increase liquidity in the financial system.
These actions can bolster investor confidence, stabilise markets, and encourage lending and spending. However, their effectiveness can vary based on the recession's severity and the timeliness of the response.
The Bottom Line
Navigating recessions requires understanding their multifaceted impact on financial markets. From stocks and bonds to forex and commodities, each sector reacts uniquely, offering both challenges and opportunities.
To take advantage of the various opportunities a recession presents, opening an FXOpen account can be a strategic step. We provide access to a broad range of markets and trading tools designed to help traders adapt to a shifting economic landscape.
This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.
Comparing 2 Similar Stock Trading Moves You Might Want To TradeLosing on a trade when you think it will go up, especially after following EMA's does not feel okay.
If you look at these 2 charts one is Amazon NASDAQ:AMZN and the other is NASDAQ:MSFT Microsoft.
Now Microsoft crashed on the earnings report to about -4%
This type of move really shocked me.
Because I was expecting the price to follow the trend lines and in this case, it didn't do that,
instead when the news came out on that day of earnings the price dropped like a pile of bricks.
In this case, it gapped down.
while it was in an uptrend,
What do you think will happen to Amazon next week at the earnings report?
I think it will crash as well just like Microsoft but
we will have to wait and see exactly what happens after the market closes next week Tuesday
Remember Rocket boost this content to learn more.
Disclaimer: Trading is risky and you will lose money do not buy or sell anything I recommend to you. These are just ideas they are not facts.
Options Blueprint Series: Credit Spreads for Weekly PlaysIntroduction
Credit spreads are a sophisticated options strategy involving the simultaneous purchase and sale of options of the same class and expiration, but at different strike prices. This approach is particularly effective in scenarios where the trader seeks to capitalize on premium decay while maintaining controlled risk exposure. Commonly used in volatile markets, credit spreads can offer a strategic advantage by allowing traders to position themselves in accordance with their market outlook and risk tolerance.
Understanding Credit Spreads
Selling one option and buying another with the same expiration date but different strike prices is done to earn the premium (credit) received from selling the higher-priced option, offset by the cost of buying the lower-priced option. There are two main types of credit spreads: Call Spreads and Put Spreads, specifically Bull Put Spreads and Bear Call Spreads.
Bull Put Spreads: This strategy involves selling a put option with a higher strike price (receiving a premium) and buying a put option with a lower strike price (paying a premium), both on the same underlying asset and expiration. The trader anticipates that the asset's price will stay above the higher strike price at expiration, allowing them to keep the premium collected. This spread is termed "bull" because it profits from a bullish or upward-moving market.
Bear Call Spreads: Conversely, this strategy involves selling a call option with a lower strike price (receiving a premium) and buying a call option with a higher strike price (paying a premium). The expectation here is that the asset's price will remain below the lower strike price at expiration. This spread is called "bear" because it benefits from a bearish or downward-moving market.
Easy Way to Remember:
Bull Put Spread: Remember it as "selling insurance" on a stock you wouldn't mind owning. You're betting the stock price stays "bullish" or at least doesn't drop significantly.
Bear Call Spread: Think of it as "calling the top" on a stock. You're predicting that the stock won't go any higher, demonstrating a "bearish" outlook.
Risk Profile
The below graph illustrates the risk profile of a Bull Put Spread (Bullish Credit Spread that uses Puts):
WTI Crude Oil Options Contract Specifications
WTI Crude Oil options offer traders the opportunity to manage price risks in the highly volatile crude oil market. Key contract specifications include:
Point Value: Each contract represents 1,000 barrels of crude oil, with each point of movement equivalent to $1,000.
Trading Hours: Options trading is available from Sunday to Friday, providing extensive access to market participants around the globe.
Margin Requirements: Initial margins are set by the exchange and are adjusted according to market volatility. USD 6,281 at the time of this publication (based on the CME Group website).
Credit Spread Margin Calculation: For credit spreads, margins are typically lower as the margin for a credit spread in WTIC Crude Oil options is calculated based on the risk of the position, which is the difference between the strike prices minus the net credit received. This calculation ensures that the trader has sufficient funds to cover the potential maximum loss. (for example: a spread using the 78.5 and the 77.5 strikes which are 1 point away would require USD 1,000 minus the credit received).
Understanding these specifications is crucial for traders looking to employ credit spreads effectively, ensuring compliance with financial requirements and alignment with trading strategies.
Application to WTIC Crude Oil Options
Credit spreads are particularly suited to the Weekly Expiration WTIC Crude Oil Options due to their ability to capitalize on the oil market's frequent price fluctuations. The strategy's effectiveness is enhanced by the oil market's characteristics:
Market Dynamics: Crude oil prices are influenced by a myriad of factors including geopolitical events, supply-demand dynamics, and changes in global economic indicators. These factors can lead to significant price movements, creating opportunities for options traders.
Strategy Suitability: Given the volatile nature of crude oil, credit spreads allow traders to take a directional stance (bullish or bearish) while limiting risk to the difference between the strike prices minus the credit received. This is particularly advantageous in a market where sudden price swings can occur, as it provides a safety buffer in case WTI Crude Oil moves against the trader and then comes to back towards the desired direction.
By employing credit spreads, traders can leverage such market characteristics to potentially enhance returns while maintaining a clear risk management framework.
Forward-looking Trade Idea
For above TradingView price chart presents a trade setup as we consider the current market conditions and employ a put credit spread strategy, focusing on two UFO (UnFilled Orders) Support Price Levels that indicate potential support below the current market price of WTIC Crude Oil Futures. These levels suggest that prices are unlikely to drop below these thresholds anytime soon.
Trade Setup: Utilize the 78.5 and 77.5 put strike prices for the credit spread.
Sell a put option at the 78.5 strike price, where we expect the market will not fall below and collect 0.13 points (USD 130).
Buy a put option at the 77.5 strike price to limit downside risk and define the trade’s maximum loss and pay 0.07 points (USD 70).
Premium Collected: The credit received from this spread is the difference in premiums between the sold and bought puts, which contributes to the overall profitability if the options expire worthless. The net credit collected is USD 60 (130-70).
Expected Outcome: The best scenario is for WTIC Crude Oil prices to stay above the 78.5 strike at expiration, allowing the trader to retain the full premium collected while minimizing risk.
As seen on the above screenshot, we are using the CME Options Calculator in order to generate fair value prices and Greeks for any options on futures contracts.
This trade is predicated on the belief that the underlying crude oil price will remain stable or increase, ensuring that the prices do not fall to the strike price of the sold put, thereby maximizing the potential for profit from the premiums.
Risk Management
Effective risk management is crucial when employing credit spreads in trading. Given the defined risk nature of credit spreads, several strategies can be implemented:
Position Sizing: Adjust the number of spreads to fit within the overall risk tolerance of the trading portfolio, ensuring that potential losses do not exceed pre-determined thresholds.
Stop-Loss Orders: Although credit spreads have a built-in maximum loss, setting stop-loss orders based on market price can help lock in profits or prevent excessive losses in volatile market conditions.
Monitoring: Regular monitoring of market conditions and adjusting positions as necessary can help manage risks associated with unexpected market movements.
Conclusion
Credit spreads offer a strategic advantage for options traders looking to leverage market movements while controlling risk. By focusing on premium collection and employing a disciplined approach to risk management, traders can enhance their chances of success in the volatile WTIC Crude Oil options market.
When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies.
General Disclaimer:
The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
''Pulse'' of an asset times Fibonacci: Chapter 4: Impulse ReDuxThis is my 4th Idea or "Chapter" to collect evidence for my theories.
This Chapter is to observe the results of price Returning to Impulse.
I will be adding examples as ongoing "Updates" whenever I spot them.
Impulse = strong continuous force for a limited amount of time.
When there is a return to Impulse, it is a critical zone to watch.
Rejection from, Penetration of, or Traversal through are clues.
In this particular example, there was clear and exact Rejection.
The resulting move followed the same Ripples as original move.
Possible Deduction: the selling power in this Impulse is still 100%.
Please take momen to look at the previous Chapters below.
Original Edition with numerous examples:
Chapter 2 with more advanced exampels:
Chapter 3 to study the 9.618 Extension in particular:
ALSO see the numerous other examples in the "Related Ideas" below.
Top-5 tips for Top-Down Multiple Time Frame Analysis Trading
I am trading multiple time frame analysis for many years. After reviewing trading ideas from various traders on Tradingview, I noticed that many traders are applying that incorrectly
In this article, I will share with you 5 essential tips , that will help you improve your multiple time frame analysis and top-down trading.
The Order of Analysis Matters
Multiple time frame analysis is also called top-down analysis for a reason. When you trade with that, you should strictly start your analysis with higher time frames and then dive lower, investigating shorter-term time frames.
Unfortunately, most of the traders do the opposite. They start from a lower time frame and finish on a higher one.
Above are 3 time frames of EURGBP pair: daily, 4h, 1h.
To execute multiple time frames analysis properly, start with a daily, then check a 4h and only then the hourly time frame.
Limit the Number of Time Frames
Executing multiple time frame analysis, many traders analyse a lot of time frames.
They may start from a weekly and finish on 5 minute time frame, going through 5-8 time frames.
Remember that is it completely wrong. For execution of a multiple time frame analysis, it is more than enough to analyse 3 or even 2 time frames. Adding more time frames will overwhelm your analysis and make it too complex.
Analyse Particular Time Frames
Your multiple time frame analysis should be consistent and rule-based. It means that you should strictly define the time frames that you analyse.
For example, for day trading, my main trading time frames are daily, 4h, 1h. I consistently analyse ONLY these trading time frames and I look for day trades only analysing this combination of time frames.
Higher is the time frame, stronger the signal in provides
Trading with multiple time frame analysis, very often you will encounter controversial signals: you may see a very bullish pattern on a daily and a very bearish confirmation on 30 minutes time frame.
Always remember that the higher time frames confirmations are always stronger, and their accuracy is probability is always higher.
Above there are 2 patterns:
a head and shoulders pattern on a daily time frame with a confirmed neckline breakout, and an inverted head and shoulders pattern on a 4h time frame with a confirmed neckline breakout.
2 patterns give 2 controversial signals:
the pattern on a daily is very bullish and the pattern on a 4h is very bearish.
The signal on a daily time frame will be always stronger ,
so it is reasonable to be on a bearish side here.
You can see that the price dropped after a retest of a neckline of a head and shoulders on a daily, completely neglecting a bullish pattern on a 4H.
Each Time Frame Should Have Its Purpose
You should analyse any particular time frame for a reason.
You should know exactly what you are looking for there and what is the purpose of your analysis.
For example, for day trading, I analyse 3 time frames.
On a daily, I analyse the market trend and key levels.
On a 4H time frame, I analyse candlesticks.
On an hourly time frame, I look for a price action pattern as a confirmation.
On GBPAUD on a daily, I see a test of a key horizontal resistance.
On a 4H time frame, the price formed a doji candle.
On an hourly, I spotted a double top, giving me a bearish confirmation.
These trading tips will increase the accuracy of your multiple time frame analysis. Study them carefully and adopt them in your trading.
❤️Please, support my work with like, thank you!❤️
USDJPY nearing resistance of Fib 127.1% extensionUSDJPY is nearing critical resistance zone level which is 127.1% Fib extension. When a chart enters unchartered territory these Fib levels help us identify supports and resistances.
Countertrend Impulse StrategyCountertrend Impulse Strategy
Countertrend trading is a well-respected way to trade. Combining it with the predictive power of impulse movements can help traders act on market reversals. This article delves into the components and practical application of this strategy, providing insights for any trader looking to enhance their trading skills.
Understanding Countertrend Trading
In trading, a trend represents the general direction in which a market or asset is moving. Trends are either upward, downward, or sideways. Countertrend trading, on the other hand, involves taking positions that are opposite to the prevailing trend.
Recognising countertrends is vital, as they provide new opportunities in the market. Traders look for signals that a trend might be losing momentum, such as weakening volume or specific candlestick patterns. They then seek opportunities to profit from the anticipated reversal.
Basic techniques to identify countertrends include using tools like moving averages, Relative Strength Index (RSI), and trendlines. By understanding and identifying countertrends, traders can position themselves to capitalise on potential market shifts, making it a fundamental aspect of various trading strategies.
Impulse Strategies: An Overview
An impulse strategy focuses on identifying and trading based on momentum changes within the market. An impulse in the market is a sudden and strong move in a particular direction, often triggered by news or fundamental events.
The key elements of impulse strategies include identifying a sudden movement, analysing its underlying cause, and predicting how it might impact future price action. Traders often look for candlestick patterns, like engulfing candles, and momentum indicators, such as the Moving Average Convergence Divergence (MACD), to gauge these impulses.
Integrating countertrend trading with an impulse strategy offers a method to identify when a reversal has weight behind it. It builds upon the foundational principles of recognising countertrends by adding a focus on sudden and significant market moves. This combination allows traders to recognise both gradual shifts and sudden changes in market direction.
Impulse-Based Countertrend Trading Strategy
This strategy involves a nuanced approach that combines the principles of countertrend trading with the detection of market impulses. Here's how it can be applied practically.
To try your hand at applying this setup for yourself, head over to FXOpen’s free TickTrader platform. There, you’ll find all of the trading tools and indicators you need to countertrend trade.
Identifying Overbought/Oversold Areas Using RSI: Traders use the Relative Strength Index (RSI) to determine when an asset is overbought (above 70) or oversold (below 30). If there's a divergence between the RSI and price, it adds further confluence, although it's not a necessary condition.
Looking for Specific RSI and Candle Patterns: The strategy becomes actionable when the RSI moves back above 30 or below 70, coupled with an engulfing candle that is noticeably larger than the previous few candles. This pattern indicates a strong impulse against the prevailing trend.
Setting Stop Losses: A stop loss is placed above or below a nearby swing point, usually just before the impulse. This protects the position if the anticipated reversal doesn't materialise.
Taking Profits at Support and Resistance Levels: Profits are taken at nearby support and resistance levels. Traders often aim to gradually scale out of their position, allowing flexibility in response to market movements.
Risks and Benefits of Countertrend Trading
Countertrend trading can offer opportunities for profit, but it's important to understand both the risks and benefits involved in this approach:
Benefits
Opportunity in Reversals: Identifying and trading reversals can yield profits in otherwise overlooked market situations.
Diversification: Adding countertrend strategies to your arsenal may offer diversification benefits.
Risks
Potential for False Signals: Countertrend trading might identify a reversal that does not materialise, leading to losses.
Challenging Timing: Accurate timing of the market reversal requires skill and experience, and errors can be costly.
Increased Volatility Exposure: This strategy might expose traders to increased volatility, making risk management vital.
The Bottom Line
In essence, combining countertrend trading with impulsive movements in the market can be an effective strategy. While it goes contrary to the typical advice of “the trend is your friend,” with the right setup, it can offer a way to capitalise on unique market opportunities.
For anyone interested in employing these strategies, opening an FXOpen account can be a good first step toward putting these techniques into practice. You’ll gain access to a wide range of markets to deploy your skills and benefit from competitive trading costs and rapid execution speeds. Good luck!
This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.
QUICK GUIDES: Fibonacci SettingHere is a quick guide on how I have my FIB RETRACEMENT TOOL set up with Retracement & Extension levels.
5 Hidden Dangers of Trading with FOMOIn the previous TradingView article we spoke about FOMO (Fear of Missing Out).
And why it is really not necessary to deal with.
There is always the next trade coming.
There is always another opportunity coming your way.
There is always time to take the next one.
No we are going to unpack the five hidden dangers of trading with FOMO and how to sidestep them like a pro.
The Emotional Rollercoaster: Stress & Anxiety
Remember when I said.
“Trading is not just a financial challenge, but an emotional marathon”?
That’s never more true than when FOMO kicks in.
When you miss a trade, I know that you could feel stress and anxiety creeping in.
You feel like you’ve missed the most important trade of the year.
Well guess what, you might have missed one trade – but that’s it.
Success is based on 1,000s of trades not just one.
So the key is to remember this, so you eradicate the feelings of stress and anxiety next time you miss a trade.
The Short-Term Mirage: Losing Sight of Long-Term Goals
FOMO pushes you to focus on short-term gains.
Yes it’s important to try and spot high probability trades on a daily basis.
But, if you miss the trade – just go on and look for another.
There is bound to be more ready for you to execute or at least prepare for.
And while you’re at it, remember these are lessons to help you to be more punctual and vivid with your trades.
Following the Herd: The Danger of Sheep Behaviour
Ever heard the saying, “If your friend jumps off a bridge, would you do it too?”
That’s FOMO in a nutshell.
YOUR job is NOT to take a trade based on what your friend, foe, analyst or stranger tells you to buy or sell.
Your job is to either follow your own trading plan and strategy or your mentor’s.
Resist the urge to follow the flock and rather, trust your own research, strategy and instincts.
You’ll form Bad Habits
Each time you give in to FOMO and you take a trade for the sake of it, you’re not just making a bad trade.
You’re also cultivating bad habits for the future.
And once the bad habit forms, it then cultivates and becomes harder to escape from it.
Break the cycle by sticking to your disciplined trading routine. You’re better than that!
Ignored analysis
When you have that FOMO you want to then take impulse trades.
And all your hard work and analyses and discipline is thrown out of the window.
It’s like trying to navigate yourself without a map or GPS.
And you’re depending on your instincts or your “memory”.
It’s a very risky gamble and it could take a LOT longer to find your way.
Don’t go against the strategy. Don’t take trades for the sake of it. Don’t have FOMO because you missed one or two trades.
Just keep to your strategy and move on. It’s your trading compass for a reason.
FINAL WORDS 🚀🌟:
Trading with FOMO is like sailing in stormy seas – it’s risky, stressful, and often leads to nowhere good.
Let’s go other the 5 danger of trading FOMO
Stress & Anxiety: Keep emotions in check and stick to your trading plan.
Short-Term Focus: Remember your long-term goals and don’t get distracted by short-lived trends.
Sheep Behaviour: Be an independent thinker, not a follower.
Bad Habits: Avoid developing harmful trading habits by maintaining discipline.
Ignored Analysis: Trust in your research and analysis; they are your best tools for successful trading.
What is FLAT in the markets, practical tips☝️Do not act based on my analysis, do your own research!!
The main purpose of my resources is free, actionable education for anyone who wants to learn trading and improve mental and technical trading skills. Learn from hundreds of videos and the real story of a particular trader, with all the mistakes and pain on the way to consistency. I'm always glad to discuss and answer questions. 🙌
☝️ALL videos here are for sharing my experience purposes only, not financial advice, NOT A SIGNAL. YOUR TRADES ARE YOUR COMPLETE RESPONSIBILITY. Everything here should be treated as a simulated, educational environment. Important disclaimer - this idea is just a possibility and my extremely subjective opinion. Do not act based on my analysis, do your own research!!
RISK MANAGEMENT the most important setting?Trading without a structured risk management strategy turns the market into a game of chance—a gamble with unfavorable odds in the long run. Even if you possess the skill to predict more than half of the market's movements accurately, without robust risk management, profitability remains elusive.
Why?
Because no trading system can guarantee a 100% success rate.
Moreover, the human element cannot be disregarded. Over your trading career, maintaining robotic discipline, free from emotional or impulsive decisions, is challenging.
Risk is inherently linked to trading—it represents the potential for financial loss. Continually opening positions without considering risk is a perilous path. If you're inclined to take substantial risks, perhaps the casino is a more fitting arena. In trading, excessive risk doesn't correlate with greater profits. This misconception often leads beginners to risk excessively for minimal gains, jeopardizing their entire account.
While eliminating all risk is impossible, the goal is to mitigate it. Implementing sound risk management practices doesn't guarantee profits but significantly reduces potential losses. Mastering risk control is pivotal to achieving profitability in trading.
A risk management system is a structured framework designed to safeguard trading capital by implementing specific rules. These rules aim to mitigate potential losses resulting from analytical errors or emotional trading decisions. While market predictions can be flawed, the margin for error in risk management should be minimal.
Key Principles of Risk Management:
1. **Implement a Stop Loss:**
- While this might seem elementary, it's often overlooked.
- Many traders, especially when emotions run high, are tempted to remove or adjust their stop loss when the market moves unfavorably.
- Common excuses include anticipating a market reversal or avoiding a "wasted" loss.
- However, this deviation from the original plan often leads to larger losses.
- Remember, adjusting or removing a stop loss is an acknowledgment that your initial trade idea might be flawed. If you remove it once, the likelihood of reinstating it when needed diminishes, clouded by emotional biases.
- Stick to your predetermined stop loss and accept losses as part of the trading process, void of emotional influence.
2. **Set Stop Loss Based on Analysis:**
- Never initiate a trade without a predetermined stop loss level.
- Placing a stop loss arbitrarily increases the risk of activation.
- Each trade should be based on a specific setup, and each setup should define its stop loss zone. If there's no clear setup, refrain from trading.
3. **Adopt Moderate Risk Per Trade:**
- For novice traders, a recommended risk per trade is around 1% of the trading capital.
- This means that if your stop loss is hit, the loss should be limited to 1% of your total account balance.
- Note: A 1% risk doesn't translate to opening a trade for 1% of your account balance. Position sizing should be determined individually for each trade based on the stop loss level and total trading capital.
By adhering to these risk management principles, traders can build a solid foundation for long-term success in the markets, safeguarding their capital while allowing for growth opportunities.
In the scenario of a losing streak—let's say five consecutive losses—with a conservative risk of 1% per trade, the cumulative loss would amount to slightly less than 5% of your trading capital. (The calculation of 1% is based on the remaining balance after each loss.) However, if your risk per trade is set at 10%, enduring five consecutive losses would result in losing nearly half of your trading capital.
Recovering from such losses, especially with a high-risk approach, presents a significant challenge. The table below illustrates this challenge: if you lose 5% of your capital (approximately five losing trades), you would need to generate a mere 5.3% profit to break even—equivalent to just one or two successful trades. However, if you overextend your risk and suffer, for instance, a 50% loss, you would need to double your remaining capital to restore your original deposit.
4. Utilize a Fixed Percentage of Risk, Not a Fixed Amount for Position Sizing
Position sizing should be dynamic, tailored to both your predetermined risk percentage and the distance to your stop-loss level. This approach ensures that each trade is individually assessed and sized according to its unique risk profile. In the following section, we will delve into the methodology for calculating position size for each trade.
5. Maintain Consistent Risk Across All Positions
While different trading styles like scalping, intraday, and swing trading may warrant varying risk levels, it's crucial to cap your risk at a reasonable threshold. A general guideline is to not exceed a 5% risk per trade. For those in the early stages of trading or during periods of uncertainty, a risk of 1% or less is advisable.
The table below offers an illustrative example of the outcomes achievable by adhering to risk percentages tailored to individual trades. Regardless of your confidence level in the potential profitability of a trade, maintaining consistent risk per trade is paramount.
6. Avoid Duplicating Trades Based on the Same Setup
Opening identical trades based on a single setup doubles your exposure to risk. This principle is especially pertinent when dealing with correlated assets. If you identify a favorable combination of factors across multiple trading pairs, opt to execute the trade on the pair where the setup is perceived to have a higher probability of success.
7. Aim for a Risk-to-Reward Ratio of at Least 1:3
The Risk-to-Reward (RR) ratio measures the potential profit of a trade relative to its inherent risk. A RR ratio of 1:3 signifies that for every 1% risked through a stop-loss activation, a trader stands to gain 3% of their deposit upon a successful trade.
With a 1:3 RR ratio, a trader doesn't need to be correct on every trade. Achieving profitability in just one out of every three trades can result in a net positive outcome. While RR ratios of 1:1 or 1:2 can also be profitable, they typically require a higher win rate to maintain profitability.
For instance, if you're willing to risk 1% to gain 1%, you'd need at least 6 out of 10 trades to be profitable to yield a positive return. It's worth noting that a high RR ratio doesn't guarantee profitability. It's possible to have trades with a 1:6 or greater RR ratio and still incur losses if the win rate is insufficient.
Create an income producing Covered Call.If you like to trade volatility, then BITX is for you. BITX is a leveraged Bitcoin-linked ETF that aims to provide daily investment results that correspond to twice the daily performance of the S&P CME Bitcoin Futures Daily Roll Index With an IV30 of 136.90, (SPY is 14.78 as a comparison), you will find selling the option premiums advantageous. Consider this Covered Call idea using the price of BITX on April 22, 2024. Buy 100 shares of BITX @ $44.82, and at the same time, Sell to Open 1 Call, strike $45, price $2.19, expiring April 26, 2024. Your net cost of the trade is $4,263,00. If BITX is $45.00 or higher at the market close on April 26, your shares will be sold at $45.00 leaving you a profit of $237.00. This is a 5-day return of 5.29%, annualized at 275% (for comparison purposes). If BITX is below $45 you keep the shares and the $219,00 premium. The cost basis will be $42.63 per share. You can sell the shares anywhere above $42.63 for a profit, or you can sell another Call for additional income and possible net cost reduction.
Building my algorithms on a weekly chartThis has been a highly requested video and AMD may not have been the best place to start - but it is helpful to see nonetheless.
I will start to do this type of analysis video more in the future if people find it helpful toward building their own algorithms and their own "story".
See you all next time!
Happy Trading :)
- TraderDaddyOG
Portfolio Beta Hedging Ahead of Super Seven EarningsYou cannot predict the future. But you can prepare for it. Mega cap tech stocks have collectively lost USD 930 billion in value since Nasdaq 100 peaked on 21st March 2024. Will Super Sevens earnings turn the tide?
Starting this week, the Super Sevens will start announcing first quarter results. NASDAQ:TSLA is up first on 23/Apr (Tue) followed by NASDAQ:META on 24/Apr (Wed) with NASDAQ:GOOGL and NASDAQ:MSFT on 25/Apr (Thu).
NASDAQ:AAPL reports on 2/May followed by NASDAQ:NVDA on 22/May.
Broad US equity markets are facing multiple headwinds. Rate cut hopes are fading. Geopolitics are turning for the worse with tensions escalating in the middle east. Investor sentiments are gloomy. Consequently, both S&P 500 and Nasdaq 100 have endured their worst week in a long time.
Investors are pinning hopes on AI-infused tech earnings to stem the downdraft and to turn the tide. Bloomberg reports that Super Seven earnings are forecast to rise 38% during Q1 2024 compared to a year ago. If true, those earnings would dwarf the overall S&P 500’s meagre +2.4% forecasted YoY earnings growth.
This paper is set in two parts. Part 1 summarises idiosyncratic factors affecting each of the Super Sevens. Second part of the paper illustrates beta hedging using index options to help portfolio managers defend against downside risk while retaining upside potential.
ARTIFICIAL INTELLIGENCE. EXCITEMENT TO EXHAUSTION?
AI hype remains palpable. But monetising AI is hard. That is becoming increasingly clear. Even among the Super Sevens, not everyone has cracked the AI monetisation formula.
Investors are starting to moderate AI linked expectations. They need a clear path to profits from AI initiatives. Investor scepticism is showing up even among Super Sevens.
NASDAQ:NVDA has been selling shovels to AI gold miners. Expectedly, their earnings and consequently their stock prices are up sharply. Its share prices are up 54% YTD leaving the rest in dust. NASDAQ:META is up 36%, compared +10% for NASDAQ:GOOGL and +6% for $NASDAQ:MSFT.
NASDAQ:AAPL and NASDAQ:TSLA are increasingly losing shine. NASDAQ:TSLA (down a colossal 41%) risks being booted out of the Super Seven grouping.
“Investors are expecting not just strong results — but strong guidance,” said Quincy Krosby, chief global strategist at LPL Financial. “Any disappointment from the mega-tech names reporting could push this week’s oversold market deeper into oversold territory” as reported by Bloomberg.
NASDAQ:AMZN is expected to deliver modest EPS growth.
Analysts remain strongly bullish with 60 of 63 analysts giving a Strong Buy or Buy rating.
Source: TradingView
NASDAQ:GOOGL is facing justified scepticism by investors about its AI capabilities after multiple missteps. AI powered search engines potentially threatens Google’s dominance.
Despite the headwinds, analysts remain bullish on NASDAQ:GOOGL with average 12-month price target offering an 8% upside.
Source: TradingView
Falling smartphone market share, slowdown in innovations, nothing to show for in AI, lacklustre demand for Vision Pro, closure of Apple Car project, Anti-trust fines and more. Adverse news is hammering NASDAQ:AAPL share prices non-stop.
While overall analyst rating remains bullish, the number of hold and sell calls are rising fast for NASDAQ:AAPL .
Source: TradingView
Bloomberg reports that NASDAQ:META is expected to show revenue growth of 26% this quarter and almost double the net earnings from a year ago.
Analysts remain very bullish on NASDAQ:META with an average 12-month price target of USD 540.90 a share.
Source: TradingView
NASDAQ:MSFT is expected to benefit from AI. It has cleverly implemented Copilot AI into its product suite. Last quarter, demand for AI fuelled growth in its Azure cloud-services business.
Analysts remain constructively bullish on NASDAQ:MSFT with 54 out of 57 analysts holding a Strong Buy or Buy rating on the stock.
Source: TradingView
NASDAQ:NVDA will be the most watched quarterly earnings yet again. Its stock is priced to perfection. Feeble earnings or guidance could send its share prices into a free fall.
Fifty-three of Sixty analysts have either a Strong Buy or a Buy rating on NASDAQ:NVDA with average 30% upside over next 12-months.
Source: TradingView
EV market contraction. Price wars from Chinese EV makers. Deep discounts. All these are heavily weighing down on NASDAQ:TSLA shares.
Not unexpectedly, analysts remain neutral on NASDAQ:TSLA .
Source: TradingView
ILLUSTRATING BETA HEDGING USING INDEX OPTIONS
Super Seven earnings are critical to US equities given their outsized impact due to substantial index weightings. Valuations remain lofty. Despite the recent selloff, these mega caps trade at an aggregate thirty-one times forward earnings.
Earnings can and does have enormous impact on share prices. When valuations are priced to perfection, even a hint of negative news will plummet stock prices down.
Astute portfolio managers defend their portfolio using beta hedging. Beta hedge requires that notional of the hedging trade is equivalent to the beta-adjusted notional value of single stocks.
Illustration of the beta hedge below assumes that a portfolio manager holds thirty shares in each of the Super Sevens.
TradingView publishes trailing twelve month beta values for each firm which is the stock’s sensitivity to the S&P 500 index.
In the lead up to results, implied volatility on shares expands rapidly. While hedging using equity put options is an alternative, but it is an expensive one.
A portfolio manager can cleverly deploy short-dated equity index options to minimise hedging costs. CME offers Micro E-Mini S&P 500 Options (“Micro S&P500 Options”) with each contract providing a notional coverage of USD 5 times the S&P 500 index which translates to USD 25,000 per lot based on current S&P 500 levels of 4,967.23.
Using Micro S&P500 put options expiring on 25th April 2024 at a strike of 4950, a portfolio manager incurs a premium of USD 105 per lot based on close of market prices on 19th April 2024. It requires approximately 4 lots (USD 25,000 per lot times 4 lots = USD 100,000) notional of put options to hedge the above beta adjusted portfolio of USD 107,153.
Source: CME
Table below illustrates hedging pay-off under different price action scenarios during quarterly earnings:
Long Options delivers financial convexity. Options allow portfolio managers to harvest asymmetric gains. It provides protection when markets plunge and allows portfolio managers to capture gains from rising markets.
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
Why Would Countries Devalue Their Currency?Why Would Countries Devalue Their Currency?
Currency devaluation is a nuanced aspect of fiscal policy with profound implications globally. This article demystifies the strategic reasons and consequential effects when nations choose to devalue their currency. From influencing trade balances to adjusting economic strategies, understanding these dynamics is crucial for traders and investors alike. Dive into the complex world of currency devaluation and its far-reaching impact on global economics.
Devalued Currency Definition
So, what is currency devaluation, and how does a country devalue its currency? Currency devaluation is a deliberate downward adjustment of a country's currency value relative to another currency, group of currencies, or standard. This monetary policy decision is typically made by a national government or its central bank. Devaluation is distinct from depreciation, which is a market-driven decrease in currency value.
In a practical sense, devaluation reduces the cost of a country's exports and increases the cost of imports. For countries with fixed or semi-fixed exchange rates, this involves officially lowering the exchange rate by the revaluation of the peg or a change in the pegged currency.
Countries with a free-floating currency system can influence devaluation through monetary policies like lowering interest rates, which can decrease investor demand for the currency, thereby reducing its value. Also, central banks can intervene by buying foreign currency and selling domestic. These fluctuations are visible across many currency pairs in FXOpen’s free TickTrader platform. Additionally, governments might engage in expansive fiscal policies or public statements to sway market perceptions, indirectly impacting the currency's market value.
Devaluation of Currency Example
In 1994, Mexico experienced a notable devaluation of its currency, the peso. This event is often referred to as the Mexican Peso Crisis. Prior to the devaluation, Mexico maintained a fixed exchange rate regime, pegging the peso to the US dollar. However, due to a combination of political uncertainty, economic pressures, and dwindling foreign exchange reserves, the Mexican government found it increasingly challenging to maintain the peso's value.
In December 1994, the government decided to devalue the peso by around 15%. The immediate effect was a dramatic fall in the peso's value, plunging nearly 50% against the dollar within months. This devaluation led to significant economic turmoil, including high inflation and capital flight, but it also eventually helped to make Mexican exports more competitive in the international market.
Why Might a Country Choose to Devalue Its Currency? 3 Reasons
Why would a country devalue its currency? While this move can have widespread implications, there are strategic reasons behind such a decision. Understanding these reasons is crucial in comprehending global economic dynamics.
Reason 1: Boosting Exports
One of the primary reasons for a country to devalue its currency is to make its exports more competitive in the global market. A weaker currency lowers the price of a country's goods and services in foreign markets, making them more attractive to international buyers. This increase in demand for exports can stimulate the country's manufacturing sector and, in turn, boost economic growth. For instance, a country heavily reliant on exports might use devaluation to gain a competitive edge, especially if its major trading partners have stronger currencies.
Reason 2: Reducing Trade Deficits
Devaluation can be a tool to address trade imbalances. A country with a significant trade deficit – where imports exceed exports – might devalue its currency to make imports more expensive and exports cheaper. By doing so, it can reduce the volume of imports as they become costlier for domestic consumers and businesses, while simultaneously increasing exports due to their lower prices on the international market. This adjustment can help in narrowing the trade deficit, bringing more balance to the country's external trade.
Reason 3: Managing National Debt
Countries with high levels of debt denominated in foreign currencies may resort to devaluation as a strategy to reduce the real value of their debt. When a currency is devalued, the amount owed in the local currency increases, but the actual value in terms of foreign currency decreases. This may ease the burden of debt repayment for the government, particularly if the country is facing fiscal challenges. However, this approach can be risky, as it might lead to loss of investor confidence and increased cost of borrowing in the future.
Devalued Currency Effects
The effects of devaluing a currency ripple through various sectors of an economy. In the short term, it often leads to increased inflation. As the cost of imports rises, domestic prices generally increase, affecting the purchasing power of consumers. This inflationary pressure can be particularly challenging for economies that heavily rely on imported goods.
On the business front, while export-oriented industries may thrive due to increased competitiveness abroad, import-dependent businesses face higher costs, which can lead to reduced profit margins or increased prices for consumers. Additionally, the immediate aftermath of devaluation often includes volatility in financial markets, as investors may react to perceived risks by pulling capital out of the country.
In the long term, if managed well, devaluation can lead to a more competitive export sector, potentially resulting in economic growth and job creation. However, the benefits depend on the elasticity of demand for exports and the country's ability to capitalise on the weakened currency.
Finally, devaluation can impact a country's global reputation. Frequent or large-scale devaluations might lead to a loss of investor confidence, affecting foreign investment and the country's ability to borrow money on international markets. Such decisions, therefore, must balance immediate economic needs with long-term fiscal stability and credibility.
The Bottom Line
Understanding currency devaluation's complex dynamics is vital in today's interconnected world. Whether to boost exports, manage debt, or address trade imbalances, nations employ this strategy with varied outcomes. For those looking to take advantage of forex trading, consider opening an FXOpen account to access comprehensive resources and trading opportunities in this dynamic field.
This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.
SIMPLE STEPS IN CREATING A TRADING SYSTEMTrading system and strategy are often equated, but this is not quite right. Both a strategy and a trading system is a single algorithm of actions, including the process of searching for signals and opening trades. But strategy is often understood as following certain rules, while a trading system is a combination of technical, fundamental and psychological components. In other words, the creation of a trading system implies a combination of several strategies that work depending on the situation and their combination with external factors (emotions or news).
📊 CREATING A TRADING SYSTEM
Creating a trading system is the basis of trading. No one prevents you from finding interesting strategies on the Internet, but a trading system is the very core that defines a trader's personality. After all, all people are different. A system is a set of rules, which takes into account the risk appetite, psychological qualities, and way of thinking. The market is influenced by hundreds of different variables, and in order not to drown in the flow of information, it is necessary to identify the basic path and the most influential factors. Building a trading system starts with choosing a narrow niche, which can/should then be gradually expanded.
📝 THE TRADING SYSTEM SHOULD ANSWER THE FOLLOWING QUESTIONS:
• What is currently happening in the market?
• What can happen in a fixed period of time?
• How can a trader use the obtained information and forecast at the moment?
There are several basic variants of price action, which most often form the basis of trading systems:
1️⃣ TREND FOLLOWING
When it comes to trend following, the key is to pinpoint the start of a trend and monitor any corrections without mistaking them for a trend reversal. This strategy typically utilizes tools such as wave analysis, patterns, and support&resistance levels. Trend following strategies are commonly implemented on an intraday basis.
2️⃣ BREAKOUT OF RESISTANCE AND SUPPORT LEVELS
The direction of the trend is not the key focus. What truly matters is the price breaking through significant levels. The primary challenge lies in distinguishing between a genuine breakout and a false one.
3️⃣ TRADING INSIDE THE CHANNEL
This is an alternative to the second option. If the price does not break through the level, it returns to its average value. The main tools are the same levels, oscillators, channel indicators.
Additionally, it is important to consider time allocation when creating a trading system. It is crucial to determine the timeframe that best suits your trading style and objectives. Different timeframes, such as intraday, mid-term, and long-term, offer various opportunities and challenges in the market. Understanding how to effectively allocate your time based on your chosen timeframe will help you make well-informed trading decisions:
Intraday. Trades are opened and closed within the day with savings on swaps. They can also include scalping. But if scalping is a high-frequency exhausting trade, then intraday means strategies with the frequency of opening trades up to 3-5 per day.
Mid-term. Can be held for several days, less often - several weeks. They have a strong dependence on the fundamental factor.
Long-term. One of the investment options, providing for the creation of a diversified portfolio of different types of assets.
✔️ The trading system should also answer the following questions:
Which asset optimally corresponds to individual preferences (level of average daily volatility, liquidity, winrate, principle of using leverage/margin percentage).
What are the main parameters of the risk management system: risk level per one trade and for all open positions, lot calculation formula, etc.
What timeframes and technical/fundamental analysis tools to use.
What signals correspond to a successful point of opening a trade.
At what moment to close trades.
✔️ All these points are obvious, but it is the lack of a clear plan that causes mistakes and panic. A trading system plan is a kind of "road map", which provides for:
Different combinations of risk management system parameters. It is not necessary to stick to one risk control strategy. Sometimes an increase in risk is justified. Flexibility is important.
Scenario in case of deviation of actual results of the trading system from statistical results (obtained during testing).
Behavior in different emotional states.
Sources of reliable information.
Order of actions in case of force majeure.
📍 In conclusion , developing a trading system is essential for any trader looking to achieve success in the financial markets. A well-thought-out trading plan with a systematic approach helps traders make informed decisions, manage risks effectively, and stay disciplined in their approach. To trade without a plan is to hope for luck, and luck is not comparable with the theory of probability. Therefore, do not neglect the trading plan.
H4 trend: how to trade itA small tutorial on how to use EMAs for gauging trend and relative strength
EMAs used
white: Daily EMA 100
green: H4 EMA 200
dark green: H4 EMA 100
Some simple principles:
What a 100MA does, is show you the average closing price of the last 100 candles of trading. This means that if price is trading below the 100MA, we can see it as a majority of buyers being underwater.
In reality, it isn't that simple of course: we need to consider the amount of volume that was traded during each candle and inside those candles, but it helps me visualise the importance of these "magical lines".
EMA changes the formula so that more recent price action is weighted heavier than less recent price action. I found that it works better for my purposes, as it's more likely that somebody who bought yesterday will be impacted by price movements than somebody who has been in the position for 99 days (again: very simplistic example to make it easier to understand for me).
Because both MA and EMA are lagging indicators, I use H4 EMA to gauge daily trend, D1 EMA to gauge weekly trend, etc.
Trading H4 EMA
As long as price keeps bouncing at H4 trend, it's easy: buy at trend, sell at x% deviation or TA target levels.
The interesting part is when H4 trend is broken:
Often we look for a few candle closes below trend to validate the trend break
Underside rejection of the H4 EMA 200 confirms the idea
From there, I keep my eyes on D1 EMA 100, expecting the gap between those two levels to be filled
From here the assumption is that price will chop or range between those two EMAs. This works best in confluence with horizontal s/r levels, and personally I prefer using a volume profile as well.
When price starts reclaiming H4 EMAs, we can look at H1 timeframe to look for signs of price respecting H1 trend, which will then cause H4 to trend again etc.
If price keeps chopping around H1 and H4 EMAs, the assumption is that we are trading a range and I'll be quicker to take profits.
If price starts losing or chopping around D1 EMA 100, or constantly rejecting at H4 EMA resistance, we need to flip our mindset to trading a downtrend instead of uptrend.
To conclude
Of course this is all mostly a system to gauge strength of particular assets and get an idea of the bigger picture. If I see BTC is trending down, I will avoid looking for longs and buying dips, but will instead look to short into H4 EMA. All of this in confluence with price action and other signals you might use.
Using Fibonacci Spirals With Fib Price TheoryEven though I was interrupted by a phone call (lol) hear the end of this video, it still clearly illustrates how to use Fibonacci Price Sprials in conjunction with Fibonacci Price Theory to identify breakouts and targets.
Remember, I don't believe Fibonacci Price Spirals are very useful for targeting/predicting trends. I do believe they act as a means of identifying phases/cycles related to price though. And that could be helpful for traders trying to catch/identify opportunities for trades.
Hope this helps.
Tradingview Indicator (Orderblocks, FVG)Timeframes: It takes the user-defined high and low timeframes.
Lower Lows (LL) and Lower Highs (LH) Pattern (15 minutes): Calculates the lowest and highest prices in the high timeframe and identifies a pattern.
Order Block (OB) Identification: Defines the order block in the low timeframe.
Valid Order Block (Cross from opposite side): Determines if an order block is valid.
Entry Condition: Determines entry conditions, such as the formation of a specific pattern and the presence of a valid order block.
Plots: Adds shapes and lines to the chart, such as entry points and high/low prices.
This code is used to create technical analysis strategies in Pine Script. It generates buy/sell signals based on user-defined conditions and adds indicators to the chart accordingly.
How to use Williams Alligator Indicator in crypto trading?You have probably heard about Alligator, indicator which is used by top crypto traders. This powerful tool can increase performance of every cryptocurrency trading strategy and help you to make money on the market. Alligator gives us the precise answer if now price is in impulsive or reactive wave. This knowledge is very useful in building your own crypto trading strategies or even in automated trading bot strategies. Even if you use grid bot strategy Alligator can increase your return on investment because it’s vital to set up grid bot in reactive wave and sideways movements. What is the beast Alligator, let’s have a deep dive into this topic today!
What is Alligator?
Alligator is the best indicator for trend detection. It consist of three moving averages which are called jaw, teeth and lips. Moving averages are frequently used in algorithmic trading bots. They can be exponential, smoothed or weighted depending on particular crypto trading algorithm, but we will use smoothed moving averages (SMA).
Jaw (blue line) - 13 period SMA shifted 8 bars is the future. This is the balance lie of the current time frame, for example 1D
Teeth (red line) - 8 period SMA shifted 5 bars in the future. This is balance line of lower degree time frame, for example 4h
Lips (green line) - 5 period SMA shifted 3 bars in the future. This is balance line of two times lower degree time frame, for example 1h
Please, be careful when you use Alligator on different cryptocurrency trading platforms. Check the correct settings and moving average type. On TradingView it’s correct, don’t worry!
Trend detection with Alligator.
The main Alligator’s feature is the detection the trending markets and markets which are about to explode in any side. This powerful tool can enhance your crypto trading algorithm if you use it in the correct way. On the ATOM price chart you can see the example of an Alligator. As you can see it has two conditions: sleeping and hungry.
Sleeping Alligator is when all lines are crossing each other and the price. This period of time can takes up to 80% of time. This is the market cycle stage where you shall avoid any trading and be prepared for the trending market
Hungry Alligator is when after a long period of consolidation price chose the trend direction. It’s an impulsive move. Alligator’s mouth is widely opened and do not crosses the price.
It’s very important to distinguish the trending market because only this type of a market gives you opportunity for the fast and huge profit. Otherwise, in the range bounded market you don’t have enough space for price to make profit for you. Most of stop losses occur while Alligator is sleeping. Another one very useful hint for you. If you use Elliott waves analysis. You don’t need to understand in which wave market is now. You just jump into the impulses and avoid corrections.
How to trade with Alligator
Here is the most interesting part. How to start crypto trading using Alligator? Our basic strategy is to wait when the price will create the first fractal above the Alligator’s mouth and place conditional order to buy one tick above the fractal’s top. We will discuss fractals in details next time. Now you have to understand how to use Alligator.
Another one hint from our experience is to use fractals only when Alligator has been sleeping for a long time, like you see on the BTC chart. After long sleep and fractal breakout Bitcoin showed the greatest bull run in the history.
Let’s notice where we should close trade. Almost at the top! When price started showing weakness we don’t need to be in the market anymore. Using this strategy on 1W time frame you can hold assets during entire bull run and sell then before bear market. Fantastic! Isn’t it?
Conclusion
In this article we discussed how you can implement Alligator indicator in your trading routine. This indicator will help you to avoid boring market when you can only lose money and catch every big move. Moreover you can use even sideways market detection if you use cryptocurrency trading bot which earns money in range bounded market. For sure this in not the only one strategy using Alligator. Next time we enhance our approach with other tools and see in details how Alligator improve their profitability. Moreover, soon we will live stream where practice trading with Alligator. See you next time!
Best regards,
Skyrex Team
Bitcoin halving: Why it’s important for BTC scarcityGood day, traders
The Bitcoin Halving has happened again.
~1st Halving (Nov 2012): BTC price was $12.0. It reached its highest price ever at $1163.
~2nd Halving (July 2016): BTC price was $638.51. Then, it skyrocketed to a new all-time high of $19333.
~3rd Halving (May 2020): BTC price was $8475. It later surged to a new record of $68982.
~4th Halving (April 2024): BTC price is now $63839. What will the new all-time high be?
What's different this time around?
1. A Bitcoin Spot ETF is in play.
2. Big institutions and investors are jumping in.
3. More people are aware of cryptocurrencies.
4. Governments are making new rules for cryptocurrencies.
5. Cryptocurrencies like Bitcoin are being accepted globally.
Let's get to the topic
Bitcoin's halving is a critical event that helps establish Bitcoin's value as a digital asset. It reduces the rate at which new Bitcoins are created, enhancing its scarcity and potentially positioning it as a reliable store of value for the digital era, more fluid than real estate or gold.
In the most recent halving, which occurred at the 840,000th block, the reward for mining a new block dropped from 6.25 BTC to 3.125 BTC. This reduction in mining rewards means that fewer new Bitcoins are entering circulation, making existing Bitcoins more scarce.
Karim Chaib, CEO of crypto platform Dopamine App, explains why this matters:
"Scarcity is a basic economic concept that impacts asset value. By design, Bitcoin becomes scarcer over time due to the halving events, which decrease its supply at a predictable rate."
Bitcoin's halving is built into its code and occurs approximately every four years, or every 210,000 blocks. The first halving was in 2012, when the reward went from 50 BTC to 25 BTC per block. Since then, the reward has halved again in 2016 and 2020, and now stands at 3.125 BTC per block.
This predictable scarcity sets Bitcoin apart from assets like gold, which can become less scarce over time as technology improves mining efficiency. Bitcoin, with its fixed supply limit of 21 million coins, is designed to be immune to inflationary pressures.
In summary, Bitcoin's halving events ensure its scarcity over time, boosting its potential as a valuable digital asset compared to traditional stores of value like gold.
This is just for informational purposes.
Thank you for reading.
