Trading signals from traders - online trading forecasts

Trading price signals instead of emotional reactionsIt is said that over 90% of active traders in the Forex financial markets do not make money in the long term. There is a lot of confusion about the exact numbers, but it's safe to say that the more time you spend in the market, the harder it is to make profits on a consistent basis. Even experienced investors sometimes make buying and selling decisions at the wrong time, but why does this happen? It usually comes down to the trivial emotions (impulse actions) of the trader.Most Forex traders and investors' mistakes are emotional because they rely on internal signals. Their emotions give rise to unproven and often unproven buying and selling strategies. I think you too have witnessed many wild price swings that make no sense in the current market conditions. If you want to make a qualitative leap in profitability, the first thing to do is to stop buying or selling anything without a compelling, quantifiable external reason for doing so.The main driving force behind the NASDAQ 5000 bubble in March 2000 was greed instead of real asset valuation. Buyers continually invested in dotcom stocks with no real intrinsic value and held them because of greed for higher profits and higher highs. The NASDAQ 5000 trend could be traded at a profit with the right entry and exit signals. Simple chart patterns and moving averages made many traders a lot of money in 2000. And some people are the opposite. A trader I know had enough money to pay for a new house in March 2000, but he lost everything.The problem in this period was traders and investors who traded based on their personal euphoria, which allowed them to hold their positions during a parabolic uptrend, preventing them from taking profits and closing their positions. The use of trailing stops would have helped them exit and maintain large profits instead of rolling their technology stocks down completely.In March 2009, all major stock indices hit lows that seemed impossible a year ago. Selling escalated because of a fear of owning stocks and sellers were willing to give them up at ridiculously low prices. Long-term trend traders should have given up on stocks in long positions and locked in losses in 2008 using any reasonable sell signal.The easiest sell signal for a Forex trader or investor to use to preserve their capital is to dump their holdings and go into cash when the S&P 500 index, tracked by ETF SPY, closes below its 200-day simple moving average. For stock indices, this simple exit signal reduces capital drawdown by about 50% (this has been shown by history testing over the past 15 years). In most cases, it does not increase returns, but exiting when the 200-day simple moving average is lost will cut the loss in half!You have the ability to exit in cash during market corrections, bear markets, recessions and market crashes, and you can wait to start buying again when the indices start to close above their 200-day moving average. This could be possibly the most important signal in the Forex market! It is highly advisable for most Forex investors and traders to cash out when the stock market indices are trading below their 200-day moving average, and wait for better investment opportunities. Exchange-traded index-tracking funds such as SPY, QQQ, IWM or DIA, which track closes below the 200-day moving average, should be your first warning indicator of danger.Pride (or vanity) makes people hold what they thought was a good investment or long position, even if the price of that asset has fallen sharply. The only sensible reason to buy something is the possibility of a rise in price. Pride and unwillingness to admit they are wrong initially puts the trader in a losing position. These blinders, a visor that prevents the use of stop-losses and proper exit signals. A trader who is too proud will not even understand the exit signals, because he/she does not think about the possibility of making a mistake.Hope is another dangerous signal used by traders. A trader will buy a stock that is falling lower day after day based on an unfounded hope that it will still go up. Hope is not a signal to buy. A stock index approaching the 30 RSI and above the 200-day moving average on the daily chart during a bull market is a much better buy signal. You must have a quantifiable external reason for buying falling assets, which increases the chances of making the right decision based on price movement, not because you hope something good will happen.Fear is one of the internal trading signals that completely undermines a trader's ability to profit. There are two ways to be profitable: have more wins than losses, or have big wins and small losses. A system with a high winning percentage must have equal amounts of wins and losses for your system to be profitable. Similarly, having big wins and small losses, even a small winning percentage system can allow you to make money, as long as there are big enough wins. Huge losses will make you unprofitable regardless of big wins or high winning percentages because you will squander your profits from winning trades and eventually destroy your trading capital.Fear can signal a trader to make a small profitable trade while the profits are still there before they disappear, making it difficult to make any big wins. This is also a big detriment. It's better to use external indicators. Exit a trade based on a trailing stop, a time stop or because the target price has been reached, rather than giving in to your fears. Fear can also cause a trader to miss a real entry signal because they are afraid of losing money.Greed is the internal impulse that can probably hurt you the most, forcing you to trade with too much position size. Greed is a misguided confidence. Every trade signal you use should be designed to increase the probability in your favour, but even a good trade signal is not a guaranteed win, it is simply an opportunity with a good probability. Many excellent trading systems have only a 60% win rate. The key is how a trader manages to keep 40% of losing trades small while maximising profitable ones.Greed can also prevent a trader from completing a trade when their profit target has been met. Greed for profits after the risk to profit ratio has changed from the original entry can lead to losses when the trend reverses. One of the biggest mistakes a trader can make is not to lock in profits at his target mark when the market turns around, instead of waiting for the price to recover. It is usually too late. Greed dictates the desire to trade big and stay in winning trades forever. Your clear trading plan must overcome your greed, control position size and have a strategy to lock in profits when targets are available.The main cornerstone message of this article is that your emotions are the worst trading signals you can use. Emotions pull you to buy falling assets at the start of market corrections and bear markets instead of waiting for the market to find key price support levels. Indicators are created to give you a measurable reason to do the opposite of what your emotions tell you.Your trading success will depend heavily on your ability to approach the markets systematically, using a trading plan to use profitable buying and selling signals that fit your market beliefs and methodology. You need a good external guide that you will follow regardless of what your emotions tell you. Trade with external indicators, not with your feelings, opinions or emotions. IndexaCo

21.04.2021

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The foreign exchange market is better known as Forex or FX. Trading in this market has become very popular in recent years. However, this is not the case - Forex trading raises a number of questions. For example: what is the foreign exchange market? Which currency pairs are best to trade? Is currency trading risky? Some of the answers to these questions will be found in this article.What is the Forex market?The foreign exchange market is also called the Forex market or the English foreign exchange market. It is simply a market where currencies are exchanged. According to the Bank for International Settlements (BIS), the foreign exchange market is the largest market in terms of total volume, with up to USD 5 trillion traded daily. It is not a physical place, but rather an electronic network where institutions or individuals trade with each other.The left-hand currency is called the base currency and the right-hand currency is called the quote currency. The second currency indicates the value relative to 1 unit of the base currency. For instance, the formula EUR/USD = 1.4000 implies that EUR/USD trades at 1.4000, i.e., 1 Euro has a value of $1.40. The first currency is always expressed in the second currency. USD/JPY at 110.50 means that one USD is worth JPY 110.50. EUR/USDWhat are the best currency pairs to trade?The best currency pairs to trade effectively depend on your trading style. If you have a short term strategy, for example, if you like to scalp, then the major currency pairs will be most profitable for you because of the low spreads.On the other hand, for a fundamental trader, smaller currency pairs will be of interest based on long-term analysis. The most profitable currency pairs may be those involving the Australian dollar, Japanese yen or Canadian dollar.The best forex currency pairs:EUR/USD: this pair has the lowest spread and is not very volatile.GBP/USD: this pair is interesting in terms of spreads and possible gaps, but it is quite volatile.USD/JPY: this pair has low spreads and offers some interesting possibilities. GBP/USDHow to get started trading currencies online?To start trading currencies online, follow these steps:- Choose a regulated and reputable broker- Choose a broker by the quality of execution of trading instructions- Decide on the trading style that suits you best (scalping, intraday trading, swing trading - you keep your position open for several days)- Determine the appropriate leverage effect in the stock market according to your strategy and experience.- Do not invest more than you can afford to lose.- Choose an intuitive, simple and secure trading platform such as MetaTrader 4.- Try all the above steps on a demo account, before trading live.GoldIs online currency trading dangerous?Like any financial investment, currency trading online is subject to risks. However, there are different methods to control these risks:- Determine the price of the currency pair at which you want to close a position if developments are unfavourable (for example, if you buy and the price falls, or if you sell and the price rises),- Determine the size of the trade so that your potential loss should not exceed 2-3% of your capital per trade,- Estimate your risk/return ratio (loss/profit) before you open the trade. By default you should have a greater potential for profit than loss, e.g. risk 50 pips, but try to make a profit of e.g. 100 pips.For proper money management and risk reduction it is advisable to start trading on a demo account and try things out on the dirt first. Such an account will allow you to trade in real market conditions, but with fictitious capital, so that you have a complete understanding of the foreign exchange market without any risk. IndexaCo

18.04.2021

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The coronavirus pandemic that struck the world in 2020 illustrated the reality of the marketplace. Companies that were able to demonstrate their strength even in the face of global change immediately emerged as leaders. Investors planning to invest in long-term investment assets to increase their returns over time are opting for companies that continue to expand and pay dividends to shareholders which can then be used as an investment vehicle. Analysts, having monitored the market, have compiled a list of organisations whose businesses have proved to be as sustainable as possible, hence we can now tell you which stocks to invest in in 2021. These are the companies that experts believe will be the most promising over the next 10 years. Starbucks Starbucks (SBUX) is the best-known coffee brand, with a chain of locations almost all over the world. In January 2021, there were 33,000 shops on the planet, and the company plans to open another 22,000 coffee shops by 2030, after which it will boast the largest international coffee and coffee drinks chain. In addition to its impressive organisational scale, Starbucks has been remarkably stable. Since the company first went public 30 years ago, Starbucks has experienced more than one crisis, but this has had no effect on its market position, profitability or sales numbers, which have been growing for 27 years! Note that only 3 years in the company's 30-year history have not been very good! Even in the "fateful" for many such institutions in 2020, despite the introduction of quarantines and a reduction in customer numbers, the company was able to go "in the plus" - the average purchase check went up slightly, and the coffee shop began working "to take away". An additional "plus" for the company's stock is the fact that dividends are rising in value, but Starbucks continues to pay them out to shareholders. For example, Starbucks shares are up 33.26% in 6 months. This shows the popularity of Starbucks coffee, the company's skillful management, and the opportunity to increase your income by investing in Starbucks stock. PayPal PayPal Holdings (PYPL for short) is a successful international payment corporation that most people in Russia are likely to have used. The company has only benefited from the coronavirus, or more precisely, from the transition of private consumers and businesses from cash payments to a cashless payment system. In 2015. PayPal evolved into a separate company whose total payment volume increased 3.5 times in 5 years. In January 2021, that figure stood at $936 billion and PayPal can compete on an equal footing with international brands such as Visa and Mastercard. The money earned by the company is invested in its own shares - management buys them back from individuals to add value for investors. Experts believe the e-transaction system is one of the market leaders in digital payments, but it is not the limit - PayPal's management has officially said it plans to triple its payment volumes by 2025, launching new financial services and expanding its cryptocurrency service. It also plans to double the free cash flow indicator, which will open up new opportunities for investors. PayPal has not yet paid any dividends to its shareholders in 2021, investing all of its money in its growth, but by 2025 it will return $12bn to $16bn to its shareholders through a share buyback, which has seen a 147.6% increase in value in one year alone. The US retail giant has suffered in recent years from competition from Amazon, the biggest online retailer. Despite the challenges, the supermarket chain has managed to hold its own. Now Walmart is delighting investors with a rapid move in the right direction. The retailer's new business model successfully combines online and offline commerce. With a wide network of shops at its disposal, Walmart can use them as pick-up points. At the same time, each supermarket becomes a processing centre for online orders and a dispatch point for parcels. Another innovation that the retailer has tested is the Walmart+ subscription program. It is designed to capture the value of the retail giant's offerings for consumers. In addition to its traditional role as a retailer, Walmart is preparing to become a healthcare provider. Plans include creating a network of clinics that will be located in close proximity to existing supermarkets. Along with gas stations already operating next to shops, Walmart will focus on mixed-use spaces where consumers can buy goods and receive services. The market believes in the retail giant's new vision: the company's share price has risen by almost a quarter in the past 12 months. However, Walmart's growth momentum has lagged behind the market as a whole. However, the company's success demonstrates that it has not exhausted its potential. Disney The Walt Disney Company has become a textbook example of the main principle of success in the current era. The ability to change by quickly adapting to consumer demands and new realities has helped Disney to maintain its leading position in the film and entertainment industry. The Disney+ streaming service brought the company the lion's share of its revenue during the pandemic. The platform allows users to enjoy content created by industry giants such as: Disney; Marvel; LucasFilm; Pixar; 20th Century Fox. After the closure of cinemas and theme parks, the streaming service continued to generate revenue for Disney. Its size even allowed the company to make up for the losses caused by the temporary shutdown of Disneyland. Before the pandemic, theme parks were Disney's main revenue stream. The entertainment giant recently released a report which revealed that the streaming service was able to attract more than 146 million paid subscribers. The company plans to increase this figure to 230-260 million by 2024, and to 300-350 million by global subscriptions. However, the current number of subscribers is also staggering: by comparison, streaming industry veteran Netflix boasts a figure of 195 million. Prospects for other lines of business should also inspire optimism in Disney's investors. Vaccination is gaining momentum around the world, which means the end of the epidemic is near. Once the restrictions are lifted, the company's films will return to the box office and the theme parks will be able to welcome guests again. Airbnb The pandemic took a heavy toll on the accommodation rental platform. Despite this, Airbnb is well-positioned to make a comeback. The company offers services that are in high demand and trusted by its customers. During the first nine months of 2020, Airbnb suffered losses but managed to turn a profit in the last quarter. The platform had 54 million registered users in 2019. Analysts agree that this is not the limit for growth and development. IndexaCo

28.03.2021

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Making money from price movements is the fastest way to make a profit. You can double or triple your investment in just a few minutes. This is what many people, tired of overwork or unemployment, would like to do. And so most of these people began to wonder how to become a trader from scratch, what it takes and how promising this kind of activity is. The answers to these questions are covered in the following overview. Who is a trader? To begin with, we must try to understand who a trader is. Essentially, he is a common speculator, who buys cheaper and sells dearer. To do this, he needs to have a stock of money - in today's world, this is electronic money. Also, he needs access to the quotes and assets to be traded, all these conditions are provided by numerous brokers. The trader earns money on the difference between the buy and sell price. And it does not matter whether the price is falling or rising. Anyway, with accurate analysis, he will always be in the black. Professional skills and knowledge of the trader To have such prospects let's consider what you need to become a trader: Firstly, one needs to have a trading terminal or access to one online; Secondly, you need to understand how to evaluate the possible rise or fall of quotes. And for this you need to have your own trading strategy; Thirdly, you need to know how to manage your money. This science is called money management; Fourthly, to become a trader from scratch you have to manage your emotions and control your behavior when analyzing or opening a deal; Fifthly, you need to choose fundamental or technical analysis. But these are not all the conditions. Although they are easy to follow, you will have to develop or strengthen your existing skills and personal qualities. A trader must be stress-resistant, ready to process huge amounts of information, and make numerous calculations. They must also: Know how to use his calculations; be able to stop and rest on time; be disciplined in their analyses, keep notes, and not disregard trivialities. At the same time, a future trader should not be complacent. This work is constant professional growth. Experienced traders never stop at their achievements. They have to improve their trading systems and find brokers with more favorable conditions. And in recent years, such traders have to master automated trading, where trading experts, expert advisors, systems, and robots are used. What else a true expert in trading should possess is the ability to choose assets for trading. There are hundreds of currency pairs available for those who want to become a Forex trader. The cryptocurrency market is gaining particular interest, especially among young traders. There are already hundreds of trading instruments with different volatility and yields. There are about the same number of commodities, stocks, options, and futures. This direction will be of interest to those who wish to become a trader in the stock market. Classification of traders Profitability and speed of making profit are the main criteria in classifying traders. There are such types of currency, stock, and cryptocurrency speculators: Scalper - trades in time intervals of no more than 5-15 minutes. They can open dozens of deals during a day and always have a lot of false signals, so they take as little profit as possible from each deal; Intraday trader (intraday) - works with timeframes from 15-30 minutes to 1 hour chart. He closes all his orders before the end of the trading day; Mid-term - trades for several days. As a rule, it is executed until the next weekend. Leaves deals with positions rollover to other days; analysis is conducted on H1-H4 timeframe; A trader with a long-term outlook - opens positions only on daily, weekly, and monthly charts. Its transactions can be active from 2-3 weeks to a year. You may become a trader in any of these categories, the main thing is to follow the sequence described below. The 6 steps of becoming a trader There are only a few steps to become a trader - some of them are very simple, others will take some time. So - how to become a trader, step by step: Get training - on the basis of the chosen broker, on books of famous speculators, on third-party resources, professional webinars. To choose the broker with the necessary set of instruments, official registration, financial license, and obligatory registration at the international regulator. Develop your own trading strategy. Open a demo account, which you can use to test the broker's conditions, service quality, and testing your trading system. Open and deposit an objective real account. Make a trading plan. That's basically it. Now become a professional trader, start earning and take pride in your new profession. Having passed all these stages, in the near future you will see whether it is worth becoming a trader or not. The fact is that you can earn by investing in trading. But it is a separate topic for discussion. Amount of profit and tips for beginners Profit depends on the size of the trading deposit, the number of opened orders, and the number of profitable deals. The trading lot size, the amount of leverage, broker's fees - all this affects the final sum of the profit. In practice, you will have to learn how to calculate all these things. Traders with experience advise not to make mistakes. For example - do not rush headlong into trading, leaving your main work. There is no need to borrow money to replenish your deposit - only use your own, even if it is small. Do not treat this activity as a game, an extra income - it is a job like any other. And now that you know everything you need to know about this job, take the first steps in mastering the profession and become a successful trader, and earn as much as you need for full financial well-being! IndexaCo

27.03.2021

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Bobby Lee, who is the founder of the BTCC crypto exchange, believes that by the end of this year, bitcoin can rise in price to 300 thousand dollars. In the summer, the quotes will rise to the level of 100 thousand dollars. At the same time, Bobby Lee warned that after such a significant increase, the price of bitcoin will begin to fall. The downtrend will be observed for several years. A year ago, the most popular cryptocurrency was trading at a price of 5-6 thousand dollars. Today, its cost exceeds 53 thousand dollars. In the middle of this month, the bitcoin exchange rate once again updated the record. It is now at $61844. Yesterday it became known that during trading on the peer-to-peer market in Turkey, the price of bitcoin reached the level of 100 thousand dollars. The reason for such a sharp rise in the price of the cryptocurrency was the fall of almost 14% of the Turkish lira after the head of the country's Central Bank was dismissed. Google reported that during this period, the number of requests from Turkish users regarding bitcoin jumped almost six times.

23.03.2021

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Trading in cryptocurrencies and investing in various types of such coins became a real panacea in terms of maintaining material prosperity during the downturn of the world economy. These assets allow you to save and increase your funds in the long term and earn money for everyday needs in the foreseeable future. All this is possible if the following conditions are met: the presence of an initial deposit and the ability to buy cheaper and sell more expensive. Since not everyone is ready to spend several months mastering all the subtleties of such analytics, services with trading signals for cryptocurrencies have appeared. Their essence, the rules of choice and use will be discussed further. What are cryptocurrency buy signals? Signals are advisory notices, notifications, or visual marks on the chart that indicate the prospects for buying or selling a particular cryptocurrency. They make it clear the main parameters of the upcoming transaction: which cryptocurrency is better to open an order for; in which direction will the price move-to rise or fall; at what price level it is necessary to close the deal and fix the profit. In addition, the signals may indicate points on the chart where it is desirable to stop trading, if suddenly the calculations turn out to be incorrect (yes, the signals are also not always perfectly accurate). The signals are intended for traders and investors. In the first case, they are short-term, and are calculated for a period of several minutes to several days. In the second case, the investor plans to make a profit on the growth of quotations in the long term, and signals for the purchase of cryptocurrency are focused on a period of several weeks to several months or even years. Types of cryptographic signals Taking into account the time differences between the described situations for traders and investors, we can distinguish such three categories of trading signals designed for operations with cryptocurrency: Short-term. Medium-term. Long-term. But the classification is not limited to this-there are three types of such notifications based on availability: free – fully available for all categories of participants in the cryptocurrency market. They are published on open services and platforms, they can easily be found on the Internet and even subscribe to them; conditionally free-they are also available without strict conditions except for one-the user must be registered either on the service where the signals are broadcast, or on the website of a specific crypto exchange or with a specific cryptocurrency broker; closed-such signals are provided to a narrow circle of investors and traders under certain conditions. These conditions may include adding a specific amount to an account with a partner company, paying for the service or analytics costs, or meeting the conditions for the number of open transactions. Naturally, taking into account this classification, such notifications about the prospects of buying or selling are paid and free. In addition, the signals differ in the analysis algorithms. They can be based on the fundamentals of fundamental analysis, the economic calendar, the Martingale principle, Elliott waves, oscillator readings, candlestick or graphical analysis models. Pump signals Special attention should be paid to the so-called pump signals. First you need to understand what this term is and what lies behind it. In fact, this is an artificially created hype around a certain coin, usually quite young and cheap. Pump notifications aim to provoke inexperienced investors to invest in such coins the maximum of their capital in the hope of intensive growth of quotations and, accordingly, huge profits. In fact, the big players are not going to invest in these coins, and are waiting for the peak maximum price to sell the coins bought for almost nothing to novice crypto traders. However, even beginners can avoid this hook, which is thrown to them along with the bait by experienced participants. And it is enough for them to pay attention to some signs of signals for cryptocurrency pumps: a sharp increase of more than 5% from the initial quote; no coins in the top, at least - in the first 50 positions; little-known coins with extremely low cost are growing; Suddenly, there is a surge in information about the growth of this cryptocurrency. If all these signs were noticed late – then all is not lost, since at the peak there will be a period of decline and growth with frequent alternation. And at this point, it is advisable to get rid of the coins purchased earlier, as soon as the price becomes higher than the purchase price. Where to look for trading signals on cryptocurrencies Signal compilation is a vast field of activity, where there is a place for both experienced traders, artificial intelligence, and, sad to say, outright scammers. Signals are usually broadcast in group accounts, channels, or on exchange websites. Common signal sources for cryptocurrency trading: channels in the Telegram service; trader forums; social networks – special groups and profile pages; mobile apps; bots and programs that can collect and analyze information from various sources. Recently, the most comfortable and fast conditions are represented by telegram channels. In closed channels, signals for different types of cryptocurrencies are published with entry and exit points, desired volumes, and an indication of the timeframes in which the analysis was conducted. How to choose signals for trading cryptocurrency assets As you can see, there are many sources and varieties of signals for the purchase of cryptocurrency. This makes it difficult to choose, but you can rely on the basic signs of reliability – this will help you avoid risks and not spend money on false signals from scammers: availability of a financial license or certificates from the signal provider; availability of reports on the site with signals; uninterrupted and competent feedback; availability of a legal address; duration of the service or channel activity; the number of subscribers to signals for cryptocurrency trading; reviews of accuracy on independent sites. It is also advisable to conduct your own audit. Namely, to mark several open signals, record their indications for entering and exiting a trade. Then track whether the signal is triggered in plus or minus. And after a few days, check whether the supplier has changed the characteristics of the signal retroactively. With this approach, trading cryptocurrency using trading signals will become reliable, fast and profitable. IndexaCo

21.03.2021

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By Lebo and Lucas: Directional Movement Indicator (DMI) Average Directional Movement Index (ADX) The vast majority of profitable trading systems involve some form of trend following, however most of the time they are not in a trend strong enough to produce worthwhile returns. For the reason that successful traders employ the tactic of taking small losses and letting the profits flow, non-trend markets seem to generate only small losses. As a result, those who follow the trend tend to lose money and most of the time in most markets. Their cherished dream of success is due to finding a random market with a trend strong enough to bring in big profits. A common method of "finding" big trends is to invest in different markets in the hope of hitting one of the profitable markets. Unfortunately, such investing adds more losing markets than winning ones. The usual procedure for investing consists of seeking the best market results by hitting a few good markets while having to endure a wide range of bad ones. Fortunately, there is a very practical solution to the problem of identifying and measuring the trend direction of the market. A proper interpretation of the Average Directional Movement Index (ADX) allows traders to significantly improve their performance in finding good markets and cutting off the bad ones. We have probably done more research and work with the ADX than any other indicator because we have found the ADX to be an amazingly valuable technical tool with many practical applications. In order to give our readers a complete understanding of the ADX, we must begin with a basic explanation of the Directional Movement Indicator (DMI) used to derive the ADX. The DMI Concept Directional Movement is a concept that J. Wells Wilder Jr. first described in his 1978 book "New Concepts in Technical Trading System", a classic work on technical analysis that we heartily recommend. (See "Recommended Reading" at the end of the chapter.) The Directional Movement Indicator (DMI) is a useful and versatile technical study that has two remarkable functions. First, the DMI itself is an excellent market directional indicator. Second, one derivative of the DMI is the important Average Directional Movement Index (ADX), which not only allows us to identify markets that are trending, but also provides a way to assess trend strength. The calculation of directional movement (DI) is based on the assumption that when there is an uptrend, today's price peak should be higher than yesterday's. Conversely, when there is a downtrend, today's bottom price should be lower than yesterday's. The difference between today's and yesterday's peak is an upward move or +DI. The difference between today's and yesterday's troughs is a downward move or -DI. Internal days where today's peak or trough is not superior to yesterday's are essentially ignored. The positive and negative DI are separately averaged over a period of a few days and then divided by the average "true range". The results are normalised (multiplied by 100) and shown as oscillators. For readers with mathematical inclinations, we have included detailed calculations. Fortunately, we can now produce the necessary indicators with only three or four taps on the computer keyboard. Calculation of Directional Movement (DM - Directional Movement) 1.A Directional Movement is the largest part of today's price range that is outside yesterday's range. 2. Outside days will have both +DM and -DM. Use the larger one. 3. The inside days have zero DM. 4. Limit days will have a DM calculated as in the diagrams shown above. For example, for an upper limit day (first chart) +DM will be the difference between A and the upper limit reached on the next C day. ADX calculation 1. Measure the directional movement (DM). 2) Measure the true range (TR - true range) which is defined as the greater of: a) The distance between today's peak and today's trough. b) The distance between today's peak and yesterday's close. c) The distance between today's trough and yesterday's close. Divide DM by TR to obtain a directional indicator (DI- directional indicator). DI=DM/TR The result can be positive or negative. If it is positive, it is the percentage of the true range that has risen on the day. If it is negative, it is the percentage of true range that is down for the day. +DI and -DI are usually averaged over a time period. Wilder recommends 14 days. Then we get the following calculations: +DI14 = +DM14/TR14 or -DI14 = -DM14/TR14 +DI and -DI are two of the three values normally shown as DMI. The third is the ADX obtained as follows: 4. Calculate the difference between +DI and -DI. DI DIFF=|[(+DI)-(-DI)]| 5. Calculate the sum of +DI and -DI. DISUM=|[(+DI)+(-DI)]| 6. Calculate the directional index of motion (DX). DX=( DI DIFF/ DISUM)*100 100 normalises the value of DX so that it falls between 0 and 100. The DX itself is usually very volatile and is not shown. 7. Calculate the moving average DX to obtain the Average Directional Movement Index (ADX). The smoothing is usually on the same number of days as the +DI and -DI calculation. 8. Further smoothing can be done by calculating a derivative of the ADX moment type called the average directional movement index rating (ADXR -average directional movement index rating). ADXR = (ADX t + ADX t-n) /2 where t is today and t-n is the day the ADX calculation started. Displayed on the computer screen as an oscillator, directional movement moves upwards when +DI is greater than -DI. If +DI is less than -DI, the movement is directed downwards. As the two lines diverge, the directional movement increases. The greater the difference between +DI and -DI, the greater the directionality of the market or the steeper the trend. Wilder used 14 days as the basis of his calculations because he considered 14 days an important half cycle. We think there are more optimal time periods depending on what you are going to do with DMI and ADX. DMI studies on a computer monitor usually appear as three lines: +DI, -DI and ADX. (Some programs present the ADX separately for convenience.) As we said, the results of DMI calculations are normalized (multiplied by 100), so the lines will fluctuate between 0 and 100. The important ADX indicator is derived directly from +DI and -DI and measures the magnitude of the market trend. The higher the ADX, the more directional the market has moved. Correspondingly, the lower the ADX, the less directional the market has moved. Note that when we say "directional" we can mean either upward or downward. The ADX does not distinguish between a rising and falling market. It is important to clearly understand that the ADX measures the magnitude of a trend, not its direction. It is perfectly normal for the ADX to clearly rise while prices are falling because its rise reflects the increasing strength of the downtrend. The other oscillators, +DI and -DI, show the direction. When +DI crosses with -DI and goes higher, the trend is up. When +DI crosses with -DI and goes lower, the trend is downward. The further apart the lines then diverge, the stronger the trend. (See Figure 2-1). In his book, Wilder also describes the calculation of the average directional moving index rating or ADXR (average directional moving index rating). This is simply the sum of the ADX at the beginning of the period (say 14 days ago) and today's ADX divided by two. This extra smoothing of the ADX was done by Wilder to attenuate the fluctuations to the point where ADXR can be used in a market comparison calculation called the Commodity Selection Index. From our perspective, the ADX has been sufficiently smoothed initially and additional smoothing is not necessary. In fact, for our purposes, the smoothing that has been done to produce the ADXR reduces the performance of the indicator. DMI Performance Testing Quite a few DMI and ADX performance tests have been published. The results have generally been better than most other indicators. Here we will give some examples. Bruce Babcock has tested the DMI and described the results in his book "The Dow Jones - Irwin Guide to Trading Systems" (see references at the end of the chapter). When testing the DMI, Babcock entered into a long position at the close when the general directional movement was positive. When the general directional movement was negative, the system conversely entered into a short position. The results of Babcock's testing showed that over a five-year period, the 28-day DMI was profitable over a wide range of markets. However, the internal losses were significant because no stops were applied. The system tested by Babcock was the simplest use of the indicator and many of Wilder's basic rules were broken. Importantly, Wilder's suggestion to use waiting for the top or bottom of the day to cross the DI on entry was ignored (we found Wilder's recommendation for entry significantly reduces twitching). In Babcock's test, income was taken clearly at the crossovers and no attempt was made to take income earlier. The fact that the DMI showed significant returns under these conditions is amazing! Although we do not recommend trading DMI in this way, the Babcock test showed that a fairly long DMI could prove to be a useful indicator for setting entry times. A more realistic test/optimisation was conducted by Frank Hochheimer of Merill Lynch Commodities. Hochheimer tested two cases: case 1, which followed Wilder's basic rules, and case 2, which simply traded on crossovers. Most of the markets used 11 years of data. Since this test was also optimization, it tested +DI and -DI by independently changing the number of days used in each (something we don't recommend doing). Not surprisingly, case 1, which followed Wilder's suggestion of entering a buy or sell at the level of the previous day's peak or trough, proved more profitable. Optimisation of DI periods showed that the best time intervals lay between 14 and 20 days. Our independent testing of ADX on different data sets confirms the profitability of this range from 14 to 20 days with the best results shown on 18 days. The Encyclopedia of Technical Market Indicators, Colby and Meyers did a very curious DMI test with the ADX built in. They entered at the +DI and -DI intersection only when the ADX was rising. They exited when the ADX fell or a reverse crossover occurred. They only tested the New York Composite on weekly data, using intervals from 1 to 50. The best returns were on time intervals of 11 to 20 weeks. They noted that of the many indicators they tested, the DMI method had the fewest losses and is worth further investigation. At first glance it may appear that Colby and Mairs were following the trend, trading only on the rise of the ADX. However, because they applied trading based on +DI and -DI crossovers after the ADX rise, the system was more of a counter-trend method because the rising ADX was the result of the presence of the trend before the current crossover. When +DI and -DI crossed after the ADX rose, it was a signal to trade in the opposite direction of the trend as measured by the rising ADX. We find the ADX moderately useful as a timing indicator, despite some positive test/optimisation results mentioned earlier. The DMI is a trend following indicator, and is subject to the same weaknesses as any form of trend following. When markets are not in trend, +DI and -DI cross in different directions constantly, producing one painful twitch after another. These are sensitive indicators that give good results in trend-following markets, but it is precisely this sensitivity that leads to twitching when the market gets into a sideways trend. However, we are very enthusiastic about using the ADX as a derivative of the DMI as a filter to help select the most successful trading method for each market at any time. Using ADX We suspect that the ADX indicator is often neglected due to the obvious drawback of its lack of correlation with price movements. Someone examining the ADX rising in passing while prices are falling could conclude that the indicator gives false signals about the direction of the market. It is critical to properly understand from the start that the ADX alone does not tell you the direction of the market. The ADX can fall when prices are rising and rise when they are falling. The purpose of the ADX is to measure the strength of a trend, not its direction. To determine the direction of the market, you must use additional indicators such as DMI. (See Figure 2-2.) Some technical analysts attach great importance to the ADX level as an indicator of trend strength, and they would argue that a value of 28 indicates a stronger trend than a value of 20. We have found that the direction of the ADX is much more indicative than its absolute value. A change upwards, for example from 18 to 20, shows a stronger trend than a negative change from 30 to 28. A good basic rule of thumb could be formulated as follows: as long as the ADX is rising, any ADX value above 15 indicates a trend. We recommend you become familiar with ADX and use it in conjunction with your favourite technical indicators. You will soon discover certain levels of rising ADX produce outstanding results with your favourite indicator. One indicator works well when the ADX rises above 15, and another works well when the ADX rises above 25. When the ADX begins to decline at either level, it is an indication that the market has gone sideways and is forming a sideways trend. We'll explore the significance of rising and falling ADX in more detail and suggest suitable trading strategies. (See Figure 2-3.) Rising ADX A rising ADX indicates an advancing strong trend and suggests the incorporation of trend-following trading strategies. Technical indicators that need strong trends, such as moving average crossovers and breakout methods, to generate large returns should work very well. Almost any trend following method should produce excellent results in a favourable environment, predicted by a rising ADX. (See Figure 2-4.) Keep in mind that a rising ADX also provides valuable information about which trading technique might fail. Knowing what not to do can be just as important as knowing what to do. For example, popular trading techniques use overbought/oversold oscillators, such as RSI or stochastic oscillator, and look for sell signals when the market is trading at overbought levels. However, if the ADX is rising steadily, it should serve as a warning that a strong uptrend is underway and the oscillators' sell signals should be ignored. When the ADX is rising, overbought/oversold indicators tend to approach one extreme or the other and remain at that level, giving repeated signals to trade against the trend. If you follow the oscillator signals, the losses can become very significant. The fact that the ADX is rising does not necessarily mean that we cannot use our favourite oscillators. It simply means that we must accept signals going in the direction of the trend. (See Figures 2-5 and 2-6.) A falling ADX Falling ADX indicates a non-trending market, where we should use a counter-trend strategy instead of trend following techniques. Overbought or oversold oscillators, which give signals to buy on troughs and to sell on rises, are the preferred strategies when the market is in such a trading corridor. Indicators such as the stochastic oscillator and RSI should give correct signals when the price is fluctuating within the limited area of its trading range. Due to the fact that buying on troughs and selling on uptrends produces very modest returns at best, many traders prefer to trade only in the direction of the major trends. In that case, it would be best to simply ignore trend-following signals while the ADX is falling. Of course, ideally one would like to have a profitable counter-trend strategy in addition to a trend following strategy, and apply each method in line with the direction of the ADX. (See Figure 2-7.) ADX Problems: Spikes We would be doing a bearish disservice by claiming that ADX will solve every problem a trader can encounter. ADX also has its own disadvantages. One problem is that on long periods (we prefer 18 days, as mentioned earlier), which are best applied to most markets, the ADX suddenly changes direction, taking the form of a spike. Spikes usually occur at market peaks when prices suddenly shift from a strong uptrend to a strong downtrend. The source of the problem with the ADX is that it cannot correctly recognise a new downtrend. ADX will still include in its calculations a historical period with a strong move in the positive direction, while at the same time taking data from a new period with a strong move in the negative direction. As a result of the input conflict, the ADX will fall for a while until the old movement in the positive direction is squeezed out of the data, at which point the ADX will begin to rise again due to the new downtrend. In a market that has produced a spike, the ADX may not alert to the trend in time, preventing it from catching much of the rapid downtrend. (See Figure 2-8.) We will try to find a solution to this problem. One possibility is to switch to a shorter ADX period when the market is at a level where a spike can be expected. We have noticed that some markets often produce spikes (such as metals and grains), while others tend to produce flat tops (Treasuries and securities). ADX does very well on flat tops without the kind of problems that arise on spikes. We would prefer to refrain from any subjective classification of markets, if at all possible, so we continue our search for more objective solutions. Fortunately, market troughs rarely take the form of spikes and the ADX does a very timely job of identifying uptrends as they develop. ADX problems: Lagging One characteristic of the ADX that can turn into a problem is that it is slightly slower than many other technical studies. When the ADX begins to rise, many trend-following indicators will already give a signal to enter. For example, +DI and -DI will cross before the ADX begins to rise. It is more than likely that at the time of this early entry signal, the ADX was still falling, so the entry will need to be ignored. In practice, in this situation, the rising ADX becomes a signal of timing to enter the market in the direction of the trend. Faster technical studies are able to determine the direction of the trend, and the ADX is used to set the time of entry. During a trend, faster indicators can provide additional entry signals which, if the ADX continues to rise, must be followed. You will find that some thought and planning will be required to coordinate the ADX with other technical tools. We view the delay as a small price to pay in order to avoid the costly twitching that can occur if you enter a trade during an ADX deviation. However, the lag time can be set depending on market characteristics and individual trader's preferences. A few markets are more likely to be in a trend than others. For example, the currency markets have moved well over the last few years. In markets which have been trending well, the time frame of the ADX could be shortened to produce faster signals. If lagged entries are frustrating for you, shorten the ADX time frame. If twitching frustrates you, keep the ADX period at 18 days. Lagging is not a problem when using a counter-trend strategy during an ADX drop. Day Trading with ADX Perhaps due to distortions caused by large gaps between yesterday's close and today's open, ADX does not work as well when applied to charts with a period of less than one day. Using a 5-minute chart and ADX with a period of 12, the gaps between the open and close can be wiped out after an hour of trading, and the ADX will give the usual first hour trend strength information. However, many day traders prefer to use 20-minute or 15-minute charts, in which case it is difficult to avoid possible DMI and ADX distortions caused by gaps between the close and the open. More often than not, the standard 18-day ADX can provide valuable long-term information which helps in day trading. The day trader should pay attention to the presence of any trend indicated by a rising ADX, and only enter short-term trades if they are going in the same direction as the trend. When the ADX is falling, short-term trades can be held in either direction. Almost any day trading method can be improved by first checking the ADX to determine if a trend exists. (See Figure 2-9.) In short, we consider the ADX to be one of the most useful technical indicators. When we trade our management programmes, we usually look at the ADX first before performing further analysis. We find that the trend measure extracted from the ADX is an invaluable guide in choosing the best strategy for each market. The simple but important information provided by the ADX allows us to increase our winning percentage in trades by a significant amount. Many of our trend-following results tests only show the importance and value of the ADX when it rises. Waiting for the ADX to rise often means a delay in relation to our desired entry time, but the belief in mandatory trading success combined with the obvious benefits of reducing the number of losing trades is a more important reward. In addition to its usefulness on entries, the ADX can be an exceptional help in timing exits from trades. An important pattern noted by Wilder is the possible short-term top or bottom, heralded by the intersection of the +DI, -DI and ADX lines. A market turning point often occurs when the ADX line first turns down, after the ADX crosses first +DI and then -DI from below. We agree with Wilder's conclusion that this downward pivot could be a good time to lock in gains following the trend, or at least close most contracts that are part of a profitable multi-contract position. (See Figure 2-10.) The ADX can be very useful to exit in a different way. When the ADX is falling, it shows that we should take a small income instead of letting the income flow in. When the ADX is rising, it shows the possibility of large returns and therefore we should refrain from exiting prematurely. Having an accurate indication of when to take small profits and when to expect large returns can be a huge advantage to any trader. This rarely mentioned use of ADX can be just as important as its use in choosing an entry technique.

09.04.2021

IndexaCo Read

Commodity Channel Index (CCI - Commodity Channel Index) The Commodity Channel Index was first described by Donald Lambert in the October 1980 issue of Commodities (now Futures) magazine. Despite CCI's 11-year history and its presence in almost all futures-oriented software packages, we know of few traders who actually use it. We do not know why, but we suspect that one of the reasons may be the lack of literature on this indicator, as well as Lambert's insistence on binding CCI to the theory of cycles. Despite the references to cycle theory, Lambert's original article is probably still the most accessible explanation of how to use CCI. Like most technical studies, CCI requires some understanding of its origins in order to be used effectively. The mathematical and statistical concepts behind CCI are a bit difficult to understand when first examined because its formula is more complex than RSI, MACD and the stochastic oscillator, which can be more or less intuitively understood. The CCI formula is partly statistical, which makes it difficult to show the relationship between the price change charts and the resulting indicator charts. The CCI formula creates a usable number that statistically indicates how far recent prices have moved away from the moving average. If prices have moved far enough, a trend is established and a trading signal is generated. We tend to divide the technical studies into two groups; those which are best used as counter-trend indicators, such as the RSI and the Percent R, and those which are good at following the trend, like the moving averages. The CCI is an indicator which follows the trend. An overview of Lambert's basic theories The CCI formula calculates a simple moving average of the average daily prices [(peak + trough + close)/3] and then calculates the average deviation. The standard deviation is the sum of the differences between the average price of each period and the simple moving average. The average deviation is then multiplied by a constant (Lambert suggests 0.015) and divides the difference between today's average price and the simple moving average. The result is presented as a single number, which can either be positive or negative. The trader can change the number of periods, which are used to calculate the simple moving average. As you might expect, shortening the time span makes the index faster and more responsive to small market movements, while lengthening the time span slows down the index and smooths out market volatility. On a computer screen, the CCI is usually displayed as an oscillator or histogram, which oscillates in different directions around the zero mark. Since the index measures how far prices have moved away from the moving average, the CCI allows us to measure the strength of a trend. In theory, the higher the value of the CCI, the stronger the trend and the more profitable the trade should be in the direction of the trend. (See Figure 2-19.) Lambert originally developed the CCI to find the beginning and end of supposed seasonal cyclical price patterns. He felt the need to have an indicator that would identify where cycles start and end. This seems like a clear contradiction to cyclical theory, because if you know there is a cycle, you must know where it starts and where it ends, otherwise there is no cycle. The obvious need for an indicator like the CCI shows that imaginary cycles must have been completely uncontroversial and unrepeatable. Lambert made the moving average part of the formula modifiable so that the user could somehow adjust the CCI to the intended cycle length. His research showed that for best results, the moving average used in CCI should be less than one-third the length of the expected cycle. But the test results tables in the article showed that the five-period moving average performed best, regardless of cycle length (another indication of the weakness of Lambert's cycle assumption). CCI uses a simple moving average instead of an exponential one so that prices of the distant past will be discarded and will not affect the results. Some arbitrary constant of 0.015 used in the CCI formula has been added to scale the index so that 70 to 80 percent of the values fall into a channel between +100 percent and -100 percent. Lambert's premise was that fluctuations between channel boundaries were considered random and had no trading value. He suggested going long only when the CCI was above +100. A significant drop below +100 is considered a signal to exit a long position. The rules for a short position are the same: sell below -100, buy back above -100. (See figure 2-20.) As we mentioned earlier, Lambert did research which indicated that the CCI period length should be set to less than one third of the cycle length. He tested a number of different period lengths, ending with 20 as the standard number, but suggested that this number should be adjusted for each market individually. (We do not dispute that the period length should be set in such a way as to satisfy the historical data.) Twenty is the default value for CCI by most programs. Some positive test results Colby and Meyers in their book "The Encyclopedia of Technical Market Indicators" tested the CCI on weekly prices of the New York Composite using the original trading rules. This procedure seems to be a curve fitting, but their results are interesting. The most profitable time period tested turned out to be very long - 90 weeks. However, anything between 40 and 100 weeks gave good results and could easily be as profitable today as the 90 week period. Our caveats regarding optimisation can be found in chapter three. Colby and Meyers pointed out one important aspect of the 90-week CCI that should not come as a surprise. CCI on a 90 period almost always misses the early phases of an incipient trend. In today's stock market, skipping the early phases of a trend often means missing out on much of the potential return. Lambert's early research showed that the shorter-term CCI would be a leading or coincident rather than a lagging indicator, and Lambert used a time period of 5 to 20 days. To regulate the time lag produced by the 90 week CCI, Colby and Meyers decided to ignore the +/-100 extremes and use zero line crossings to produce earlier entry and exit signals. They called this indicator the "zero" CCI and found it much more advantageous than the original +/-100 signals. As an aside, note: even though when testing a trading system using the concept of zero CCI on weekly NYSE Composite data, Colby and Meyers got better results than the popular 39- and 40-week moving average systems now defended by many stock market traders, this does not mean anything yet. Using the CCI as a long-term trend indicator The monthly CCI can be very effective as an indicator of long-term market trends. Take a look at the following monthly charts with CCI signals with a period of 20 on the zero line instead of the +/-100 mark. The first chart (in Figure 2-21) is for the Japanese Yen. In addition to the sequence of trading signals there are two other noteworthy features of this chart. First, the faster the rise in the CCI from 0 to 100, the stronger and more decisive the trend it has detected. Second, the faster the fall in the CCI after it reaches 100 usually means that the trend is losing its strength and that profits should be protected by a halt at this point. On the treasuries chart (see Figure 2-22) we should note the use of CCI trend lines for early exits. We recommend trying to use a monthly CCI with a period of 20 for a longer-term directional move, while using a shorter-term indicator to set entry and exit times in the direction of the monthly trend. This strategy should be particularly effective during a rapid rise in the CCI from 0 to 100. After the monthly CCI peaks, it would be wise to consider suspending trading in this market until the CCI starts rising again. A situation similar to the monthly CCI can be seen on the weekly charts. A quick rise from 0 to 100 should definitely indicate an established trend. Try using the weekly CCI to set trading times in the direction of the monthly charts when the CCI is in a rising period. Exit when the weekly CCI makes a peak or when another indicator warns you that the intermediate-term trend is losing strength. An alternative strategy is to start trading small lots when the zero line is first crossed and then add positions as the CCI accelerates and the trend strengthens. Start closing positions when the CCI stops, indicating that the market is ending the move. Trading multiple positions based on weekly charts will obviously work best in markets with slower movement and controlled risk, where large long-term positions are preferred. (Refer to the Eurodollar chart in Figure 2-23.) Using the daily CCI Our research has shown that the 20-day CCI, used on its own, does not work well in most markets. Its main drawback of missing the beginning of strong trends can be a really negative trait in fast and volatile markets. This slowness can be overcome by using the 10-day (or even shorter term) CCI or by entering at zero. But faster methods become extremely vulnerable due to frequent twitching. We can always set the CCI to meet each market, but we are pretty sure it is just tweaking the curve and do not recommend this method. We recommend combining the CCI with another indicator for daily trading. Because one of the problems with the CCI is its tendency to err in estimating the volatility of trending markets, it seems logical to look to the DMI/ADX as a duplicate trend indicator. If the ADX is rising, then the market is in a trend, and it can begin to trade on the signals CCI. If the ADX is falling, then the market is volatile and should not be traded, at least not with a trend-following indicator such as the CCI. Exit after the CCI creates a peak and moves further towards the zero mark. An alternative exit strategy could be to use stops on the last peaks or troughs after the CCI correction has begun. Our testing has shown the usefulness of each of these basic approaches. A few observations Our research has shown that in a general sense CCI is a tool, in many ways similar to ADX, which can help in assessing the overall trendiness of the market. As we pointed out earlier, the faster the CCI rises, the stronger the market is trending. While it is mathematically possible for the CCI to move upwards when the market is not trending, this is unlikely in practice. Remember that the CCI can provide traders with important information even when it does not provide entry signals. If the market stays inside the +/-100 range most of the time, it shows no trend, so you should avoid this market or use a counter-trend strategy. We have found that the best markets to trade are those where the CCI has recently produced spikes multiple times, protruding beyond 100 in one direction. We have also observed that first trades against a set CCI trend are usually very unprofitable. If the market has been trending and showing a series of CCI moves on one side of the 100 range as we have just described, do not reverse your trading direction on the first CCI move that breaks the 100 mark in the opposite direction. A short pass to the opposite side of the range is probably an opportunity to add a new position, not a demonstration of a trend reversal. Avoid jerking We have also seen that our often-recommended technique of waiting for confirmation after a trading signal is an exceptional method of avoiding most of the jitters when using CCI with a faster period. We have found that when CCI generates spikes after the +/-100 level, it is almost always better to wait for signal confirmation before making any moves. When the CCI rises above 100 wait for the market to produce a significantly higher close before buying. We have noticed that much of the 100 level breakout has only turned out to be a one or two day event, especially on the shorter term. The entry confirmation technique avoided most of the twitching and at the same time caught all the big moves. The confirmation technique also allows us to switch to the faster CCI we need to overcome the lag problem without getting caught in the twitching as one might expect. For example, a 10-day CCI with a confirmation requirement will produce much faster signals and probably produce twitching less often than a 20-day CCI applied in the normal way. (See Figure 2-24.)

08.04.2021

IndexaCo Read

1. What is a trading strategy? A trading system or strategy is the result of careful and meticulous study of the financial markets. It is the apogee and logical outcome of the future trader or active investor. It reflects all analytical work and willingness to react to any changes on the market. A trading system allows bringing orderliness into trading operations, adjusting prognostic methods to individual needs of a trader, removing or reducing the psychological burden during the decision-making process. Professionally built trading system is a pledge of success in carrying out operations. It is not enough just to analyze the market, it is also necessary to build a forecast and implement it, as well as take into account risks that the trader assumes. A trading system includes a certain set of conditions and rules that determine moments and order of performing the following actions: opening of a position position closing When constructing a TS, a number of questions should be answered: what tools to use when carrying out operations (stocks, commodities, currency pairs)? which method of analysis to use (technical, fundamental or a combination of these)? what time interval should be used? which indicators to use? operating principle (trend, channel) What lot to work with? what rules apply for opening and closing the position? How long should the position be held? how to set a stop-loss? 2. Basic rules for building a TS To build a trading strategy, the trader needs to consider the basic rules of constructing the TS: Positive expectation - a property of the system to be generally profitable over a long period of time. It is determined by the fact that the average profit of all trades during the testing period is greater than 0. Small number of rules. Stability of the system. Varying of trade lots Risk control, capital management and diversification. Mechanistic nature of the system. Applicability. To correctly approach the construction of TS, taking into account deep understanding of how financial markets work, you should remember about some principles: Principle 1.Price is determined by the supply and demand ratio. Conclusion: Only the behaviour of the price is relevant. Principle 2. The future behaviour of prices is probabilistic. Conclusion: You can make a lot of money in the market if you estimate the probabilities correctly; the probability of winning increases with an investment horizon. Principle 3. The market moves along the path of least resistance. Conclusion: Overcoming resistance levels indicates the path of further movement. Principle 4. The market has inertia. Conclusion: do not count on a quick change in the direction of the price movement. 3. Options Based on the aforementioned conditions, the main examples of TS operation are working on the level breakout and rebound (it's recommended to remember the theory of Dow about the construction and purpose of support and resistance levels, and the candlestick analysis). To begin with let's remember about types of resistance and support levels. First of all they are not just lines on the chart plotted on price highs and lows, they are zones, which are several points wide and are determined by how participants react to certain movements (spread, expectations, aggressiveness or conservativeness of entry, etc.) Resistance and support levels are of 2 types: inclined, which form price channels horizontal, which are divided into 3 types - technical (built directly on the maximum and minimum price points or on the greatest contact) - psychological (they are usually round figures or price comfort levels for central banks) - historical (the same as technical but with a longer time horizon or built on a longer time frame). The levels are described in increasing order of importance. The passage of such levels has several stages: Piercing - the price passes the level (resistance or support) only by the shadow of the candle and then goes back. It is a "Warning!" signal and only confirms the presence of the level. A breakout is a signal to open a trading position. It appears when the price closes below the support or above the resistance level. It can be of 2 types: - Breakout with confirmation - when the price returns to the level, determining its changed status (resistance to support and vice versa). It is used for conservative strategy. It is the best signal! It is used less often, than the other varieties - Classical breakout - when the price goes sharply below (above) the level. It is a good variant for a pending order and happens much more often. As a rule, upon exiting the channel, the price makes a sure distance equal to the channel width - that's our profit according to TS work on breakout. The placing of pending orders in such TS is determined by general rules (buy-stop, buy-limit, etc.). A good example of breakout of a sloping price channel is a price exit from a triangle pattern. Question: Find the points of opening a trading position here. To determine the necessity of the concept of money management, you need to clearly understand the non-linear relationship between losses and profits that exists in trading in general. A loss of 10% would require you to make a subsequent profit of 11% to get back on track. And after a loss of 50%, you would need to make a profit of 100% to get back on track. The general consensus of analysts is that the maximum allowable loss, which would still allow a turnaround, is 30%. At this loss, it would be necessary to make a 50% profit afterwards - this is considered achievable. A loss of 50% or more is almost certain to result in the financial death of the investor. What is capital management? Rules for placing a stop - order. Selection of trading lots. The % of TS in the ratio of profitable to losing trades. The ratio of risk-return. When to close a trade or where to place the profit? The basic rule of stop-order installation: Stop order is placed only where there is a high probability of price moves in the opposite direction! Stops are placed on 2 principles: at levels of previous highs or lows in target zones restricted by our deposit. The choice of trade lots is closely related to your deposit and is subject to the recommendation of not more than 10% of total trades at a time. The average percentage return of the trading system is 3 / 7, i.e. 30% of profitable trades. This is a perfectly working TS. A good one is 50/50. Here the explanation will be the risk-profit ratio or the rule of stop and profit order placement. A simple recommendation: for each point of loss, the expected profit should be 3 points. Example. A stop order is placed 30 pips away from the current price value. In this case the expected return should be 90 pips. Using the risk-profit ratio 3 / 7, the total loss after 10 trades will be 7x30 = 210 points, while the profit will be 3x90 = 270, which is a profit according to the results of the reporting period. The most difficult thing in the future is to determine the profit point: Expected target zone (Fibonacci series, support and resistance levels) Indicative exit (the most popular) - an exit based on indicator signals. Statistical expectation (channels, triangles)

07.04.2021

IndexaCo Read

The main purpose of the lecture: lies in the short but very succinct phrase of the famous Jesy Levermore: "There is a time to buy. There is a time to sell. And there is a time to go fishing". 1. Psychological basics of stock trading Why does the price change? Because the relationship between supply and demand is changing. Why does it happen? Because an event occurs. A chart is nothing but a market reaction to an event. The reaction is a behavior (which is what psychology studies). Thus, studying the price change chart is the study of behavior (psychology) of market participants. How will a person behave in an extreme situation? For this you need to know the character, sex, upbringing, etc. But in another situation a person will behave differently - the experience will affect it! But in a crowd reaction to events acquires certain patterns - the crowd is primitive. A diagram shows the crowd behaviour patterns and they are subject to prediction. What guides us? Desires are acquired feelings. Instincts are inherited from birth and are subdivided into: Sexual Self-preservation Nutritional Herd The herd instinct contradicts all the others. That's why trading is a process of self-discovery and an obligatory personal experience. The main purpose of the market is to inform, namely to communicate your wishes to others, and then to inform you and the world of the answers to your wishes, whether they bring you gains or losses. Being a good analyst is difficult. Being a good trader is even harder. Many think they will get rich as a smart, computer-literate person or because of past success in business, you can even buy a mechanical trading system - it's like sitting on a chair with 3 legs, sooner or later you will fall down, because there is no 4th leg - psychological preparation and money management. The question of choice: who to live with, where to work, what markets to trade - answers for many appear by accident, without much thought - no wonder many are unhappy. A simple test: put punctuation marks in a sentence Win hard to lose easy to make money here and now Trading is a process of self-discovery and an obligatory personal experience. The main purpose of the market is to inform, namely to communicate your wishes to others, and then to inform you and the world of the answers to your wishes, whether they bring you profits or losses. Pros and cons of stock trading: + freedom in time and space, independence, interest - psychological burden, risk. Question: Do you really want to make money in stock trading, or do you want the thrill of it? The thrill of trading may be a loss as well as a gain. Mostly they come from the process itself (from riding fast) short-term exhilaration from the thrill of trading 1.1 The psychology of the market A market is nothing more than an agreement in price and a divergence in value. No deal is made until there is a discrepancy in value and an agreement on price. We buy government bonds when we prefer to have government obligations instead of holding the money that is paid for them. Our fantasy (trading is a fantasy game, but more on that later) is that the "value" of the bonds will increase. We buy them from some unknown trader who is convinced otherwise. Namely, that their value will go down. We have a clear disagreement about today's value and future value, but we agree on the price. The market is the perfect mechanism for determining the true price. But psychologically, price and value are linked by a rubber band a mile long - the market swings on it. The search for and determination of the exact price takes place in a market where at every moment there is an absolute balance between the energy of those who want to buy and those who want to sell. The social purpose of artful investing is to defeat the dark forces of time and ignorance that envelop our entire future. The real, private goal of the most skillful investing today is to "outdo anything and everything," as Americans well say about it, to outsmart the crowd, to slip a bad or devalued coin to another. So in defeating the dark forces of time and ignorance, we are left with the alternative of submitting only to our personal and subjective hunches. And these, of course, are intertwined with our personal and subjective emotions such as hope, fear and greed. The basic rules of the market: Rule 1: market ahead. The combined acumen of all current and potential investors is usually greater than that of a single individual. Is it possible that "others" know something we don't? We can never be sure of that. We would have to agree that it is a risky task to stay ahead of the knowledge of the entire market and disregard this market knowledge of prices in advance. Rule 2: The market is irrational. The market can react quickly to the facts, but it can also be subjective, emotional and subject to just one whim of changing trends. Sometimes prices can fluctuate according to the financial situation and interests of investors, wandering between mass hysteria and indifference rather than between securities rates. Consequently, the private investor's attempts to be sensible may in fact prove to be absurd behavior. (Try opening a position before the American session on the Euro/Dollar pair) Rule 3: The environment is chaotic. Macroeconomic forecasts are usually too imprecise to be of any value to investors, and that's because economic correlations are constantly being affected by small but significant factors which no one can predict or estimate, but which can change everything. Even worse: the same is true of financial markets. These three rules have been around as long as markets have existed, and yet very few people understand what they mean. But today we have a fourth rule, formulated by technical analysts who use charting in market analysis: the rule states that these charts are self-fulfilling. If many people draw similar lines on similar charts and equip their computers with a homogeneous decision-making system, the results will be self-fulfilling. Rule 4: Graphs are self-fulfilling. If many people use the same charting systems, they can make profits on their trades, regardless of whether they are actually right. Factors that additionally play against us: the market is organised in such a way that many people lose money Commissions and price differences Every trader is responsible for his own behavior. An indispensable component of maturity is the ability to sort oneself out and approach the choice of activity responsibly. The consequences of an immature decision or flirting with trading can include psychosis, increased neurosis, exacerbations of disease, and even suicide. On the other hand, the decision to go into trading, as a happy epiphany of a mature mind, promises priceless treasures, and it is not just about monetary gain. Markets today are the most accurate and sophisticated psychological monitors in the world. Trading may prove to be the most accessible and effective psychotherapeutic program in existence if handled properly. 1.2 Trader's Psychology. From defeats to victories! The average trader experiences serious stress when trading the markets. This raises the following questions for traders: How can I enjoy and profit from trading on markets at the same time? Why do I enjoy it so much if it often leads to disappointments (losses)? How do I maintain inner harmony and peace of mind - mine and those close to me - in the raging whirlwind of the markets? How do you cope with nerves and worries, constantly being in an atmosphere of danger and risk? Why do many traders/investors constantly lose money? How do you find reliable brokerage companies among the many ones that offer their services? Emotions. Those who treat trading calmly, and not engage in it as in a battle to the death, those who look beyond their losses and master the art of "dancing with the market", are constantly winning. The key to a good dance, i.e. making a profit on the market, is the ability to relax and simply move with the flow. Dancing with the market means moving with the flow of the market - up, down or sideways with a sense of harmony, trust, gratitude and, even love. To dance really well and enjoy the process of dancing, you must allow yourself to move to the beat of the music, not according to a pre-determined plan. How can you treat a person? As a partner, friend or girlfriend as an enemy or rival as an object (neutrally) lovingly How do you view the market? - Neutral! The market offers a host of temptations and the market creates a thirst for new acquisitions and a fear of losing what we have gained. These feelings disturb our appreciation of new opportunities: your feelings have a direct impact on your account When you're in the market, you're up against the best minds in the world. The field of your game is designed for you to lose; if you let your emotions interfere with the process, the battle is over. After winning many feel like geniuses (it feels good to feel so smart that you can break your own rules and win!) Such players go into self-destructive mode, abandoning their own rules, then they take revenge on the market (there are many examples of leaps from riches to poverty and back). The sign of a successful trader is the ability to build a fortune! Beliefs. To dispel doubts, we need to understand the game we are playing. This game is a competition of our own beliefs. If we want to change our results, we must change our beliefs. Beliefs are what we believe to be true. We almost never question our own beliefs, but that is what a loss-taking trader must do: assess their own beliefs not only about the market, but also about themselves. Few traders know why they trade, far fewer know how they trade. We all usually give superficial reasons: to make money fast, for the fun of competing with other traders, for the prestige of the profession, etc. Having made your last trade, what caused you to lose - because you didn't guess that the market would move the other way, or because of an underlying, unexamined belief that you can't get rich that easily? If the reason is the latter, it's time to get rid of some old beliefs. How do you free yourself from your beliefs? Understanding the difference between process and content is very important for success in the market. Generally speaking, we've been taught to be goal-oriented, prioritising, evaluating what's more important than that. We make lists of our goals, plan for them, and then neglect the present and mentally live in the future. The abnormality of living in the goal space rather than the present moment space is that we focus on the future and cannot control or even be aware of what is happening now. We cannot trade well while we plan how we will trade tomorrow. Living today is a prerequisite for good trading. Pay attention to the process, not to future goals and desires. One way to live for today is to make sure that all (or most) of our beliefs are based on "grounded versus unfounded" assessments. This is not an economic, fundamental, technical or mechanical approach. It is a behavioural approach using information generated by the market. We traders are usually influenced by our latest mistake and do not pay attention to what is happening in the market at the moment. In other words, we base our beliefs on our past circumstances, and any incoming information will be filtered so that it does not conflict with our beliefs. If reality conflicts with our beliefs, we will deny reality and distort incoming information in an effort to preserve our precious beliefs. It is no surprise that we fail in the market, having been exceptionally successful in other professions. In the market, you either face reality or suffer losses. It's easy to make money on the stock market! Changing your beliefs is not easy! Discipline. Making money is easy if you understand the basic structure. It's also easy because the market itself becomes the ultimate teacher. It will always tell you exactly what to do and when to do it. If things aren't going well for you, it will correctly point out where you went wrong and what you should have done. A great teacher, the market gives way to no one and is always eager to show you how to act. To tune in to the market you must make your goals less stringent! Contrary to the claims of all-knowing gurus, we downplay the importance of the present whenever we set goals. In the market, things don't always work out the way we want them to. We don't enjoy getting ready to trade in the market if we worry about possible losses. We don't enjoy spending time with our children if we worry about their future. We don't enjoy maturity if we worry that illness may suddenly rob us of the joys of life. We deprive ourselves of the joys of free flight, of enjoying the rich opportunities that life and the market offer us, here and now. If you set yourself up for a certain trading result when you are bidding, you lose "elasticity". If, on the contrary, you loosen up, open your heart, you enter a state of flow. Question: How can you trade without having a goal? Answer: define as many goals as you want. Then do the necessary preparatory work and then - work until you reach your goal. When you are satisfied that you have made the most successful trade so far, leave the market alone and wait for the result. Example: "If you were a farmer, and farmed the way you trade, you would plant seeds and then come back every day to dig them up to see how things are going. Once you've decided to do the trade, let the fruit grow and ripen and then reap it. Stop digging up the seeds." If you are anxious, you are at the mercy of a bad habit. If - honestly - you are not, you are trading well and you want what the market wants. Whenever you are anxious, you want what you want, not what the market wants. The market is neutral. It does not know or care about what you want.Most traders confront the purpose and function of the market and therefore incur losses. Picking tops and bottoms is inconsistent with the nature of the market. A jumble of conflicting indicators united by the power of greed is the worst tool for trading the market. We don't need a new indicator or strategy. We need a new experience - a new sense of what should be born in the right hemisphere and an intuitive understanding of the market. Important characteristics for success in trading the financial markets, according to traders themselves: Reaction speed Discipline Experience Focus Stress tolerance Willingness to take risks Intuition Emotional stability Ability to work in a team Ability to process several types of information simultaneously Ability to correctly evaluate information sources Learning ability Communication skills Integrity Independence Analytical thinking Aggressiveness Optimism Mathematical ability Curiosity Organisational skills Computer literacy Social skills Now compare with the personal success factors. According to the 100 largest investors and investment managers, active and successful in the financial markets for more than a year Discipline Quick decision making ability (stress resistance, aggressiveness, willingness to take risks) Understanding of the market Emotional stability Ability to process information Demanding integrity (inquisitiveness) Autonomy Information processing (computer literacy, social skills, mathematical ability) Most traders spend most of their time expecting a good gamble, but once they have entered the market - they lose control - an essential element is missing, which is controlling emotions! If your mindset does not match the market, if you ignore changes in mass psychology, then you have no chance of winning! You need to be able to focus on reality, to see the world as it is. There is an opinion that the Market is a game for men? -Because 95% of active traders are men, but the number of women is higher among corporate traders and women are more successful. Stock market game is like an extreme sport - only 1% of them are women. Men gravitate to risk, the more monotonous their work, the stronger their desire for extreme sports. But experienced extreme gamers die more often, because they take more risks. You can succeed in the stock market if you treat it as a job. Emotions are death! For a long time, zoologists have wondered why gorillas don't breed in captivity. It doesn't mean they're not sexually active. It turns out that this is because they do not have the right conditions for it. All animals need a sense of danger to get a taste of life. If there is no risk, we try to create risks artificially, because risk and the feeling of life are two sides of the same coin. Risk is incentive to live. Life without risk loses its meaning and value. Today we don't know where to put this free time, and we have lost the opportunity to struggle. Most people fill this gap with television, but you and I can fill it with market work. We have to understand, firstly, what our needs are, and secondly, how they relate to the market. We have to make choices every day, come to terms with the results and gain experience. Risk is the trigger in life. The actual reason why most traders are constantly making losses is because they are working with new information using old, inappropriate categories. There are only two kinds of working with new information: Changing it (distorting it) to the extent that it conforms to the old organisation. Allowing new incoming information to self-organise, taking other, new and unpredictable forms of organisation. This is the difference between a successful approach to trading and another - more widespread - approach that leads to losses. Traders who allow new information to organise their trading will act in sync with the market, making them winners. Trying to align new information with old categories distorts both the information itself and the trade. 2. The Psychology of Loss If we briefly describe the "road to ruin", it goes something like this: Specialize in a small number of markets and trade only in them all the time. Get information about these markets from random tips, hearsay and good advice from friends and taxi drivers. Trust the information you want to hear to a greater extent. Adjust the information so that it confirms what you have done. Buy when your neighbour and everyone else is buying and sell when the market has crashed. No one likes to be out of the market, especially selling short. So most of your time you think the market will go up. Make sure you get a huge amount of scrappy information and never important information in perspective. Improve the practice of looking at prices in breakdowns (on computer screens, in stock lists) instead of studying them in perspective . Don't create a policy of potential losses and take advantage of the huge opportunities that appear in the market. Close long-term investments in a week's time because they have already yielded profits . ...And keep short-term investments if they have produced losses... ...renaming them as "long-term investments". Or instead using an inverted pyramid structure when things are going well. Replenishing stocks to "improve average performance" in a downtrend. Use the same tactics whether the market is trending, in a consolidation zone or performing a trend reversal. Move stop-loss orders when the market is going against you, because you are hoping for a reversal soon. Relying more on the opinions of others than the facts themselves. Use market prices as your main criterion for determining fundamental value. Hide losses by hedging instead of taking them. Evaluate each investment individually. Forgetting that this financial market is the cruelest in the world. If you don't know who you are, the market is too expensive a place to find out. 3. Psychology of personality We all trade on our own core sets of beliefs. Trading success has little to do with price and time. From our point of view, markets are not economic, fundamental, technical or mechanistic - they are behavioural. Markets are made up of traders with all the variety of their timing, levels of preparedness, amounts of capital and goals. That's why at times markets seem to us very much like a person - then angry, then irritable, then confused, then moody, then alert, or even drowsy. Let us ask ourselves the question and try to answer it honestly ourselves: "Why play in the financial markets?" It`s freedom, it is chess, a preference and a crossword puzzle at the same time (many participants are singles). Achieving self-realisation. Many have an intrinsic need to achieve excellence, but the best are hard working people and the goal of a professional is not to make money, but to work competently and confidently. Winning should not make you happy and losing should not make you sad. The problem with self-realisation is that people are inherently self-destructive, while the market offers unlimited opportunities for both, and those who have no peace with themselves satisfy their conflicting desires in the market. What should be done? Fix in your mind the fundamentals of trading. I have come to trade for life! Take your time! It is easy to lose money! You must develop your trading system. Always remember about money management. Always remember - that the weakest link, is the trader himself! If you do not know what you want, you will appear where you do not want to be. It is necessary and sufficient to want what the market wants. 3.1.Fantasy and reality of the market The successful player is a realist. Only losers act based on fantasies. Here are some universal fantasies of market players: The myth of intelligence or trading without a head. It is not terrible to make mistakes - it is bad to make them again! If you make a mistake for the first time - it means you live. You search, you experiment. If you repeat mistakes - it is a neurotic syndrome. I lost money because I didn't know the secrets (a demoralized player gets money and buys secrets) from an intellectual point of view the game is very simple (you need cunning and cleverness) Blame the broker, the Guru, the news. Self-deception. When the pain builds up slowly and gradually - the natural reaction is to endure and wait for improvement. The dream trader also holds a losing position, hoping that the course will change in the right direction. The myth about insufficient capital Often market carves out stops and moves on losers take market trends as a confirmation of their conclusions amateurs do not anticipate losses and do not prepare for them The myth of autopilot. Try driving a car on cruise control during rush hour on the main highway of a major city. It won't work for you. Autopilot enthusiasts are trying to relive their childhood experiences - their mothers fed them, fed them milk, gave them warmth and cared for them, taking full responsibility for them. You cannot count on the goodwill of the market Cult of personality Many people pay lip service to independence, but when they get into a bind they start looking for gurus. Every trader should have 3 basic components A realistic personality psychology. Always most failures in life are caused by self-destruction and one should not look for various reasons everywhere, the reason is in oneself. A logical working system. To change, you need to find the reason (keep a diary, analyse trades, work through mistakes) A money management plan. Almost all professions provide insurance for participants (your boss, a colleague at work can warn of wrong behaviour - in the stock market game there is no such support) Self-destruction must be controlled, a psychological insurance (money management rules) is necessary. Those who do not learn from their mistakes will relive them.

07.04.2021

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