History of Forex | From Ancient to the Modern Day
We have come a long way from the previously practiced barter system to the modern-day system of trading currency. Following is a brief summary of the evolution of currency and how it gave rise to Forex Trading.
Here are the main stages that are illustrated on the chart:
1️⃣The Ancient system of Trading - Trading with Gold
As early as 6th century BC, the first gold coins were produced, and they acted as a currency because they had critical characteristics like portability, durability, divisibility, uniformity, limited supply and acceptability.
2️⃣Bank Notes Originated - Deposited Gold in banks in exchange for banknotes
3️⃣Role of Geography - Various banks of different regions printed different currencies
Gold Standard - Currency pegged to gold
In the 1800s countries adopted the gold standard. The gold standard guaranteed that the government would redeem any amount of paper money for its value in gold. This worked fine until World War I where European countries had to suspend the gold standard to print more money to pay for the war.
4️⃣Bretton Woods System - Currency pegged to USD
The first major transformation of the foreign exchange market, the Bretton Woods System, occurred toward the end of World War II.
The Bretton Woods Accord was established to create a stable environment by which global economies could restore themselves. It attempted this by creating an adjustable pegged foreign exchange market. An adjustable pegged exchange rate is an exchange rate policy whereby a currency is fixed to another currency. In this case, foreign countries would 'fix' their exchange rate to the US Dollar.
5️⃣Birth of Floating Currency - Currency that is not pegged to any assets or other currencies is known as a 'floating currency'.
And what will be next?
Very hard to say but blockchain technologies will make the system change again.
❤️Please, support this educational post with a like and lovely comment❤️
Stocks!
History of Forex | From Ancient to the Modern Day
We have come a long way from the previously practiced barter system to the modern-day system of trading currency. Following is a brief summary of the evolution of currency and how it gave rise to Forex Trading.
Here are the main stages that are illustrated on the chart:
1️⃣The Ancient system of Trading - Trading with Gold
As early as 6th century BC, the first gold coins were produced, and they acted as a currency because they had critical characteristics like portability, durability, divisibility, uniformity, limited supply and acceptability.
2️⃣Bank Notes Originated - Deposited Gold in banks in exchange for banknotes
3️⃣Role of Geography - Various banks of different regions printed different currencies
Gold Standard - Currency pegged to gold
In the 1800s countries adopted the gold standard. The gold standard guaranteed that the government would redeem any amount of paper money for its value in gold. This worked fine until World War I where European countries had to suspend the gold standard to print more money to pay for the war.
4️⃣Bretton Woods System - Currency pegged to USD
The first major transformation of the foreign exchange market, the Bretton Woods System, occurred toward the end of World War II.
The Bretton Woods Accord was established to create a stable environment by which global economies could restore themselves. It attempted this by creating an adjustable pegged foreign exchange market. An adjustable pegged exchange rate is an exchange rate policy whereby a currency is fixed to another currency. In this case, foreign countries would 'fix' their exchange rate to the US Dollar.
5️⃣Birth of Floating Currency - Currency that is not pegged to any assets or other currencies is known as a 'floating currency'.
And what will be next?
Very hard to say but blockchain technologies will make the system change again.
❤️Please, support this educational post with a like and lovely comment❤️
Don't Miss the Stock Market Boom By Fearing the Crash.It is absolutely normal to worry about the next stock market crash. You probably have a portion of your life savings wrapped up in your retirement fund, which is tied to the success of the stock market.
Should You Fear The Next Crash?
Except for the perma-bears out there, no one loves a stock market crash. But the fact is Governments, Central Banks and Economists are getting better at responding to existential financial disasters.
The recovery from the Corona crash has been nothing short of impressive. This crash was the most violent and volatile of all crashes, yet has been handled very well. It had the potential to be as big as 2000 and 2008, yet the response curbed the brunt of the disaster.
How Long Until Stock Markets Recover From A Crash?
If we analyze the 6 major US stock market crashes of the last 100 years, we see that the average peak loss was 57%. Also, the average duration of the recovery is 9.8 years. This can be somewhat misleading, though. The 1929 crash was exceptional in its size and duration. Additionally, governments and central banks have realized that they can manage inflation and stimulate the economy to speed economic and stock market crash recovery.
Over the last 20 years, we have had 3 major crashes, with an average loss of 62%, but with an average recovery time of 7 years. the last 2 crashes lasted only 5 years and under 1 year.
The History Of Crashes
Year Loss Years Recovery
1929 -89% 23
1973 -46% 10
1987 -35% 2
2000 -83% 16
2008 -54% 5
2020 -38% 1
Average -57% 9.8
Will There Be Another Crash?
Yes, there will be another crash, probably due to a needed correction of the current boom we are in.
What Will Cause the Next Crash?
Historically speaking, my analysis shows that the most common causes of crashes are:
- Equity Bubbles (1929,1987,2000)
- Easy Access to Credit (1929,1987,2000)
- Poor Institutional Risk Management (1929,1987,2000,2008)
- Asset Bubbles (2008)
Right now we are experiencing an Equity Bubble, Asset Bubble (Property), and Easy Access to Credit. The Crypto Bubble is also a major risk.
When Will Be the Next Crash?
My in-depth business cycle analysis indicates a high probability of a correction in 2022. This also coincides with potential increases in interest rates to begin cooling off the current boom.
Don't Be Crippled By Fear.
The markets are booming, now is not the time to be crippled by fear. If you miss out on these gains in the good times, what do you have to look forward to in the bad times?
Crashes do not happen overnight, they usually take 2 to 3 years to fully hit bottom, so you will have time to react. Just enjoy the ride for now.
The 3 Types of Traders. Who Do You Belong To? 🤔
There are thousands of different ways to trade the market.
During the last 100 years, various trading strategies and techniques were invented.
One of the ways to categorize them is to split them by types of traders.
Such a category type will lean on 2 main elements:
trading frequency and time frame selection.
1️⃣ - Scalper
I guess 99% of newbie traders start from scalping.
Trying to catch quick market moves and become rich quick,
newbies are practicing different scalping strategies.
What is funny about scalping is the fact that such a trading style is considered to be the easiest by the majority while remaining one of the hardest in the view of pros.
The main obstacle with scalping is a constant focus and rapid decision-making.
Scalpers usually open dozens of trading positions during the trading session, most of the time being in front of the screen constantly.
Paying huge commissions to the broker and dealing with complete chaos on lower time frames, the majority simply can't survive the pressure and drop, leaving the pie to true gurus.
2️⃣ - Day Trader
Day trading or intraday trading is the most appealing to me.
Staying relatively active, the market gives some time for the trader for reflection & thinking.
Opening and managing on average 1-2 trades per trading session, the intraday trader is granted a certain degree of freedom.
However, with declining volatility, quite ofter intraday traders get a relatively low risk/reward ratio for their trades,
3️⃣ - Swing Trader
Swing trading is the best choice for traders having a full-time job.
Primarily being focused on daily/weekly time frames, swing trading is not demanding for a daily routine and aims at catching mid-term/long-term market moves.
With an average holding period being around 2 weeks and opening 1-2 trading positions per week, swing trading is considered to be the least emotional and involves low risk.
The main problem with swing trading is patience.
Correctly identifying the market trend and opening a trading position,
the majority tends to close their positions preliminary not being patient enough to let the price reach their target.
Which trading type do you prefer?
The Art of Technical Analysis for Beginners part 3Hey Traders so In my last video we discussed what is support and resistance and why it is the most important concept in trading. Today I want to go over of the best tools we can use to find better trades called Fibonacci Retracements.
Enjoy!
Trade Well,
Clifford
PSYCHOLOGY OF A TRADER | MASTER EMOTIONS & MASTER THE MARKET
The market is driven by people.
The crowds are always behind strong market rallies.
What the majority fails to recognize is the fact, that being chaotics in its nature, the markets are always trading in predictable patterns.
Believe it or now, but the market participants are driven by the same emotional impulses. It does not really depend on how wealthy is the person.
With the core motive being to make a ton of money with a little risk possible, we can derive a universal archetype.
Every asset, every financial instrument has an element of a "potential value". Being 100% subjective, an attempt to calculate the future value drives the market.
Depending on the current expectation of the crowd and its emotions it is necessary for a professional trader to learn to play with its behavior.
With many years of constant observations, the cyclic psychological curve was derived to explain the relationships between our emotions and market cycles.
On the chart, I have drawn 9 main stages of trader's psychology:
😶INDIFFERENCE - No opportunities are spotted, searching for the right pick.
🙂OPTIMISM – Positive outlook leading us to buy a certain asset
😃EXCITEMENT – Being initially right in our pick, we feel excited as bulls push the market to the new highs
The moment of happiness and feeling of being "a true investor"
🤑GREED – Being thrilled we start to ignore warning signs and add more and more cash to the market believing that the market will never stop.
😕ANXIETY – The market starts taking our gains back. Being biased and nihilistic we keep holding the position, thinking that it is just a pullback.
😩PANIC – Tremor. We are frozen. Emotions are draining our power. We are clueless and helpless. We totally lose the sense of control.
😭DEPRESSION – Position is closed. Money is lost. Considering trading & investment industry to be a scam.
🤔HOPE – The dawn. The market returns back to its normal state. Aspiration & desire to start again.
😆RELIEF – Again we start to believe in our strength. We return and the cycle repeats.
Do you recognize yourself in these stages?
Please, support our work with like and comment. It really helps.
PSYCHOLOGY OF A TRADER | MASTER EMOTIONS & MASTER THE MARKET
The market is driven by people.
The crowds are always behind strong market rallies.
What the majority fails to recognize is the fact, that being chaotics in its nature, the markets are always trading in predictable patterns .
Believe it or now, but the market participants are driven by the same emotional impulses . It does not really depend on how wealthy is the person.
With the core motive being to make a ton of money with a little risk possible, we can derive a universal archetype .
Every asset, every financial instrument has an element of a "potential value" . Being 100% subjective, an attempt to calculate the future value drives the market.
Depending on the current expectation of the crowd and its emotions it is necessary for a professional trader to learn to play with its behavior.
With many years of constant observations, the cyclic psychological curve was derived to explain the relationships between our emotions and market cycles.
On the chart, I have drawn 9 main stages of trader's psychology:
😶 INDIFFERENCE - No opportunities are spotted, searching for the right pick.
🙂 OPTIMISM – Positive outlook leading us to buy a certain asset
😃 EXCITEMENT – Being initially right in our pick, we feel excited as bulls push the market to the new highs
The moment of happiness and feeling of being "a true investor"
🤑 GREED – Being thrilled we start to ignore warning signs and add more and more cash to the market believing that the market will never stop.
😕 ANXIETY – The market starts taking our gains back. Being biased and nihilistic we keep holding the position, thinking that it is just a pullback.
😩 PANIC – Tremor. We are frozen. Emotions are draining our power. We are clueless and helpless. We totally lose the sense of control.
😭 DEPRESSION – Position is closed. Money is lost. Considering trading & investment industry to be a scam.
🤔 HOPE – The dawn. The market returns back to its normal state. Aspiration & desire to start again.
😆 RELIEF – Again we start to believe in our strength. We return and the cycle repeats.
Do you recognize yourself in these stages?
Please, support our work with like and comment. It really helps.
Success Rate of Popular PatternsRemember Do not trade solely on Patterns only. Ultimately, traders should seek out the best combination of patterns and price action to create an analysis strategy that works for them. Experiment with different approaches and combinations until you discover a method that suits your trading strategy and goals.
Here are the success rates for these patterns:
Inverted Head and Shoulders Pattern (83.44%)
Head and Shoulders Pattern (83.04%)
Bearish Rectangle Pattern (79.51%)
Bullish Rectangle Pattern (78.23%)
Triple Bottom Pattern (79.33%)
Triple Top Pattern (77.59%)
Double Bottom Pattern (78.55%)
Double Top Pattern (75.01%)
Ascending Channel Pattern (73.03%)
Descending Triangle Pattern (72.93%)
Ascending Triangle Pattern (72.77%)
Bull Flag Pattern (67.13% Success)
Bear Flag Pattern (67.72% Success)
Bullish Pennant Pattern (54.87%)
Bearish Pennant Pattern (55.19%)
These success rates presented are the result of a study conducted by a group of professional traders. They studied 10 different patterns independently from one another in 5 different markets (Forex, Futures , Equities, Crypto and Bonds), for a time period of 22 months with more than 50 case studies for each and every single pattern.
Eco/monetary news n°32> Dividends and buybacks are coming back in the United States and Europe
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Europe allowed companies to resume dividends and buybacks in December 2020 but they set limits and the ECB "ECB calls on banks to refrain from or limit dividends until 30 September 2021". They might have eased it but I cannot find a source, I just know that Banque of France president was agreeing a few weeks ago with people calling for the end of restrictions. otherwise it will be by September.
The United States, this week, allowed buyback programs to resume. The Nasdaq website has a 1 line article about it but only about banks. Seriously it's hard to find sources about the subject. Some would call me a conspiracy theorist. I get called so when I have ample proof so here...
In any case companies are apparently sitting on a pile of cash and the stock market has rallied without buybacks, the biggest price support of the last 10 years, and companies have put their "buybacking" to the side for over a whole year. When that money pours in... It's going to create an upwards storm. Haha and to think 85% of FXCM clients are still short, and are actually adding now that the price is going higher!
I do not think they know the IQS of their clients, but could we ask them their socio-economic background? Journalists, sociology and economics college professors, boomer state worker leeching taxpayer money, burger flippers and unemployed welfare recipients?
> Record everything in stock markets including retail fomo & fx traders short selling
***********************
While FX brokers continue to publish their short term traders positions which are around 85% short, the S&P 500 breaks record after record.
Yesterday the S&P 500 was at its highest level in history, again. According to TD Ameritrade saw the biggest influx in investors ever, it started recording it in 2010. According to Bloomberg the indice had a record run, the longest streak since 1997, and retail investors poured in. "Whether they'll stick around when volatility inevitably resurfaces remains to be seen". I already know the answer to that question.
The New York FED "Expectations of higher stock prices" number is at its average of 40% close to where it has almost always been for the last 7 years. Investors are worried about a covid wave and I think that's all. They can always panic sell on the way, but if something real happens, by the time it reaches the donkeys brains I'd have sold long ago.
> Western politicians are refusing to return their covid emergency powers
***********************
Several politicians have declared they had no plans, or saw no reason, to relinquish their emergency covid powers.
The same, and others, have also ignored CDC guidelines as well as the WHO recommendations about re-opening and granting freedoms.
Noooo how could be possibly have seen this coming? There was absolutely no way to predict this would happen!
It's only going to get worse. Look at Ivory Coast investors ~20 years ago. I think they invested in the sugar industry a lot.
I think investors in the UK take into account this kind of risk, but US, French, and probably Germans too have an ideology and separate politics from economics. And they're always all in complete denial. Well, just wait and see. Better keep an eye open for certain keywords "outlaw buybacks", "capital controls" and so on. You want to get out BEFORE.
> Turkey central bank governor found to have copy pasted central bank report in his thesis
***********************
I am crying. The previous governor got replaced after hiking interest rates from 17 to 19% in the pyramid scheme country, something Erdogan dislikes because it gets in the way of him stealing the people's money to pretend there is growth.
So the new guy took office Şahap Kavcıoğlu, and a few weeks later he ends up under investigation because they found this irl griefer shamelessly copy pasted, in his thesis in 2003, entire blocks from a central bank report of 2001.
You know when I copy paste bloomberg first I only take a sentence, then whether I copy paste the whole thing or write it with my own words I say "according to Bloomberg" or something. This guy takes entire sections with no source whatsoever and just claims it as his own "oh boy that was some hard work".
It's not the first time! A previous governor, in 2019, faced similar accusations.
Can you guess what he hadn't done his own research on and simply copy pasted? The part about INFLATION TARGETING. I am actually crying.
> ECB aims for 2 percent inflation target and focusses on changing climate change
***********************
When asked if they wanted to allow it to go higher because it was below target for a while they mumbled something incoherent.
Are they following the FED & Yellen guidelines? No one knows. They are in a sea of lies they don't even know themselves anymore.
All I can say is we will see. The USA still want to fight a stock market crash because Hitler and Germany wants to fight inflation because Hitler and the ECB continues to pull away from the post-war Bundesbank dogma. There are hints they are open to "easy money" and no surprise here German officials think so.
Hey, let me quote from Bloomberg: "Officials from Germany in particular easy money that undermined the postwar inflation-fighting on which the ECB was modeled as a condition for the country’s participation in the euro.""
After Brexit and before Frexit (cucks) Germanyxit? Diverging visions, goals, and interests.
I think the Brussels unelected globalist ideologists want to fire the money bazookas with the USA, but the Germans still don't want that.
And since the EU is (now) centered around France-Germany plus Germany is a huge net contributor.
Without the UK, Germany is responsible for HALF of the net contributions to Europe, with the UK 41%.
By 2011 France (nb 2) "only" contributed for 17% (104 billion), lol 104 billion, they did more than half that in 2020 alone.
The covid EU budget was one of the greatest "redistribution of wealth" in history, directly from german and french workers to EU unemployed.
By 2011 Italy contributed a significant 12% but I doubt this is the case anymore.
By allowing their country to get destroyed one may say they contributed 100%.
The UK cut their losses just in time, while France & Germany will be the suckers for the rest of eternity.
Meanwhile Romania and Slovenia have better or close to as good standards of living.
Hey, and these astonishing net contributions are GIFTS. Does not take into account the hundreds of billions in "loans" the 2 pigeons have made to countries like Greece that will NEVER pay back. I'm dying 🤣
www.aalep.eu
> Yay crypto adoption: China shuts down yet more digital currency competition
***********************
Man I told these Bitcoin donkeys countries would never adopt their risible ponzis and would just make their own digital currencies.
What do they have in the head seriously? Paté?
In a statement on July 6, the PBoC announced it ordered Beijing Qudao Cultural Development, a firm providing crypto trading software, to shut down its operations.
Ah but this is anecdotal, and surely these guys were doing something fishy right? Doesn't prove anything. Yup. They were doing something fishy.
Here is the reason given as to why they got shut down *clears throat* "suspicions of being involved in crypto-related trading" (he proudly said).
There is no interpretation possible, they could not be more clear. I wonder how crypto gamblers will weasel themselves out of that one.
The Art of Technical Analysis for Beginners part 2Hey Traders so In my last video we discussed what is technical analysis and how the markets move in 3 ways. Today I want to go over some more basics about price action and one of the most important concepts in all of trading support and resistance.
Enjoy!
Trade Well,
Clifford
Volatility, Probability & Options 😱-Options Education with Caldoon Part 2.
Here we tried to show you guys how the options work, what affects the price range and the probabilities of a given option expiring In the Money (ITM) or Out the Money (OTM).
Enjoy!
📚 Leveraged & Margin Trading Guide + Examples ⚖️
Leveraged trading allows even small retail traders to make money trading different financial markets.
With a borrowed capital from your broker, you can empower your trading positions.
The broker gives you a multiplier x10, x50, x100 (or other) referring to the number of times your trading positions are enhanced.
Brokers offer leverage at a cost based on the amount of borrowed funds you’re using and they charge you per each day that you maintain a leveraged position open.
For example, let's take EURUSD pair.
Let's buy Euro against the Dollar with the hope that the exchange rate will rise.
Buying that on spot with 1.195 ask price and selling that on 1.23 price we can make a profit by selling the same amount of EURUSD back to the broker.
With x50 leverage, our return will be 50 times scaled.
With the leverage, we can benefit even on small price fluctuations not having a huge margin.
❗️Remember that leverage will also multiply the potential downside risk in case if the trade does not play out.
In case of a bearish continuation on EURUSD, the leveraged loss will be paid from our margin to the broker.
For that reason, it is so important to set a stop loss and calculate the risks before the trading position is opened.
❤️Please, support this idea with a like and comment!❤️
👶 Trading For Beginners | ORDER TYPES 👦👧
There are multiple ways of opening a trade in a trading terminal.
Here is the list of universal order types that you MUST know:
1. Market Order
A market order is a trade order to buy or sell a desired financial instrument on a current market price.
In such an order type, the price is determined by the market.
Constant price fluctuations and spreads make market order quite risky way of opening a trading position.
2. Limit Order
A limit order is a trade order to buy or sell a desired financial instrument at a specific price level. It allows the trader to enter the market on a strict price level ignoring the price fluctuations and spreads.
A limit order can be referred to as a buy limit order or a sell limit order.
3. Buy/Sell Stop Order
Buy stop order is used to buy at a price above the market price, and it is triggered when the market price touches or goes through the Buy Stop leve.
Sell stop order is used to sell when a specified price is reached.
The selection of order types is based on a trader's trading style.
Let me know in a comment section which order types do you apply in your trading!
Please, like this post and subscribe to our tradingview page!
👶 Trading For Beginners | ORDER TYPES 👦👧
There are multiple ways of opening a trade in a trading terminal.
Here is the list of universal order types that you MUST know:
1. Market Order
A market order is a trade order to buy or sell a desired financial instrument on a current market price.
In such an order type, the price is determined by the market.
Constant price fluctuations and spreads make market order quite risky way of opening a trading position.
2. Limit Order
A limit order is a trade order to buy or sell a desired financial instrument at a specific price level. It allows the trader to enter the market on a strict price level ignoring the price fluctuations and spreads.
A limit order can be referred to as a buy limit order or a sell limit order.
3. Buy/Sell Stop Order
Buy stop order is used to buy at a price above the market price, and it is triggered when the market price touches or goes through the Buy Stop leve.
Sell stop order is used to sell when a specified price is reached.
The selection of order types is based on a trader's trading style.
Let me know in a comment section which order types do you apply in your trading!
Please, like this post and subscribe to our tradingview page!
Predicting the Time-window for Turns, in all MarketsInexplicably, upon publishing this post, the Title Chart becomes distorted beyond recognition thus,
all references are to this Original Chart - below
Do markets trend on the medium term (months) and mean-revert on the long run (years)?
Does Black's intuition bear out that prices tend to be off approximately by a factor of 2? (Taking years to equilibrate.)
How does Technical Analysis , as a whole, act as a trend following system while Fundamental Analysis matters only once prices get way out of line?
Is mean-reversion a sufficient self-correcting mechanism to temper irrational exuberance in financial markets?
We examine these questions in the proceeding;
In his 1986 piece Fisher Black wrote:
"An efficient market is one in which price is within a factor 2 of value, i.e. the price is more than half of value and less than twice value. He went on saying: The factor of 2 is arbitrary, of course. Intuitively, though, it seems reasonable to me, in the light of sources of uncertainty about value and the strength of the forces tending to cause price to return to value. By this definition, I think almost all markets are efficient almost all of the time."
The myth that “informed traders" step in and arbitrage away any small discrepancies between value and prices never made much sense.
If for no other reason but the wisdom of crowds is too easily distracted by trends and panic.
Humans are pretty much clueless about the “fundamental value" of anything traded in markets, save perhaps a few instruments in terms of some relative value.
Prices regularly evolve pretty much unbridled in response to uninformed supply and demand flows, until the difference with value becomes so strong that some mean-reversion forces prices back to more reasonable levels.
Black imagined, Efficient Market Theory would only make sense on time scales longer than the mean-reversion time (TMR), the order of magnitude of which is set by S√TMR∼d.
For stock indices wit hS∼20%/year, makes TMR = ∼6 years.
The dynamics of prices within Black’s uncertainty band is in fact not random but exhibits trends: in the absence of strong fundamental anchoring forces, investors tend to under-react to news or take cues from past price changes themselves.
In fact, the notorious and unbridled reliance and un-anchored, speculative extrapolation is the mainstay of most investors, as well as Wall Street's itself, as it is the regular course of everyday "investing" across most asset classes.
In the following a picture emerges (and we test it), whether market returns are positively correlated on time scales TMR and negatively correlated on long time scales ∼TMR, before eventually following the (very) long term fate of fundamental value - in what looks like a biased geometric random walk with a non-stationary drift.
We have looked at a very large set of financial instruments, drawing on data sets from 1800 - 2020 (i.e. 220 years).
We applied the same method to all available data in Stocks, Bonds, FX, Commodity Futures and Spot Prices, the shortest data set going back 1955.
As it turns out that, in particular, mean-reversion forces start cancelling trend following forces after a period of around 2 years, and mean-reversion seems to peak for channel widths on the order of 50-100%, which corresponds to Black’s “factor 2”.
Mean-reversion appears as a mitigating force against trend following that allows markets to become efficient on the very long run, as anticipated previously by many authors.
Regarding the data we used for this study;
Commodity Data sets - Starting date
Natural Gas 1986
Corn 1858
Wheat 1841
Sugar 1784
Live Cattle 1858
Copper 1800
Equity Price data sets - Starting date
USA 1791
Australia 1875
Canada 1914
Germany 1870
Switzerlan 1914
Japan 1914
United Kingdom 1693
From trends to mean-reversion
The relation between past de-trended returns on scale t'< and future de-trended returns on scale t'>. Defining p(t) as the price level of any asset (stock index, bond,commodity, etc.) at time t. The long term trend over some ti scale T is defined as:
mt:=1Tlog .
For each contract and time t, we associate a point(x,y) where x is the de-trended past return on scale t'< and y the de-trended future return on
scale t>:x:= logp(t)−logp(t−t'<)−mtt'<;y:= logp(t+t'>)−logp(t)−mtm't'.
Note that the future return is de-trended in a causal way, i.e. no future information is used here (otherwise mean-reversion would be trivial). For convenience, both x and y are normalized such that their variance is unity.
Remarkably, all data,including futures and spot data lead to the same overall conclusions. See in chart; As the function of the past (time) horizon t'< (log scale) for Red & White Bars, the futures daily data and spot monthly data.
To compare the behaviour of the regression slope shown in the chart with a simple model, assume that the de-trended log-price pi(t) evolves as a mean-reverting Ornstein-Uhlenbeck process driven by a positively correlated trending noise m.
It is immediately apparent from the dashed line in the chart that the prediction of such a model with g= 0.22, k−1= 16 years and y'−1= 33 days, chosen to fit the futures data and g= 0.33, k'−1= 8 years and gh'−1= 200 days, chosen to fit the spot data.
In the short term volatility of prices is simply given by S'2k's'.
Non-linear effects
A closer look at the plot(x,y )however reveals significant departure from a simple linear behaviour. One expects trend effects to weaken as the absolute value of past returns increases, as indeed reported previously. We have therefore attempted a cubic polynomial regression, devised to capture both potential asymmetries between positive and negative returns, and saturation or even inversion effects for large returns.
The conclusion on the change of sign of the slope around yt'<= 2 years is therefore robust. The quadratic term, on the other hand, is positive for short lags but becomes negative at longer lags, for both data sets. The cubic term appears to be negative for all time scales in the case of futures, but this conclusion is less clear-cut for spot data.
The behaviour of the quadratic term is interesting, as it indicates that positive trends are stronger than negative trends on short time scales, while negative trends are stronger than positive trends on long time scales.
A negative cubic term, on the other hand, suggests that large moves (in absolute value) tend to mean-revert, as expected, even on short time scales where trend is dominant for small moves. Taking these non-linearities into account however does not affect much the time scale for which the linear coefficient vanishes, i.e. roughly 2 years
Conclusion
Here we have provided some further evidence that markets trend on the medium term (months) and mean-revert on the long term (several years).
This coincides with Black’s intuition that prices tend to be off by a factor of 2.
It takes roughly 6 years for the price of an asset with 20 % annual volatility to vary by 50 %.
We further postulate the presence of two types of agents in financial markets:
Technical Analysts , who act as trend followers, and Fundamental Analysts , whose effects set in when the price is clearly out of whack. Mean-reversion is a self-correcting mechanism, tempering (albeit only weakly) the exuberance in financial markets.
From a practical point of view, these results suggest that universal trend following strategies should be supplemented by universal price-based “value strategies" that mean-revert on long term returns. As it's been observed before, trend-following strategies offer a hedge against market draw-downs while value strategies offer a hedge against over-exploited trends.
Stocks vs Options Welcome to Part 1 of understanding Stocks and Options. Here we tried to present briefly the major differences between Stocks and Options. Hope you will enjoy reading this brief presentation.
Best,
Caldoon Investment
What is it that's stopping you from becoming a better trader?In this video, I touch more on emotions and how an "average trader" approaches the markets.
I believe that we as traders get the wrong impression on how to read a chart. I feel that most traders have a strong tendency to make trading more complicated than it needs to be.
I've traded with so many strategies out there and I always tried to search for the next best thing. But the one thing that I made complicated was figuring out how to park my cash and let it work for me by following the right side of the trend.
The market is nothing more than buyers and sellers and our job is simple... Make sure to be on the winning team. One of the most common things told in the educational side of the markets is,
"The trend is your friend." - (THE MOST VALUABLE GOLDEN NUGGET")
I strongly believe that we focus on an exact price entry combined with so many other trading routines and in the long run, it just makes trading complicated for most.
You need to stay patient and let the trends play out. Filter out the noise, Take a break and let the bigger picture unfold. The confirmation will come when it is ready.
Don't put a price on it.
Don't put a time on it.
Just let the market breathe and take what it gives you.
Take care,
An easy yet super efficient trading strategy for any marketAn amazing combo strategy for trading.
Steps:
1. INTRUCTIONS
Plot the 7, 14, 33, 60 on the chart
Lets assume we use a 1h chart. For this we will plot on the support and resistance levels onto the chart using the 4hr or daily chart values.
For other timeframes, change the values with a 4-8x difference.
For this example I took BTCUSDT 1h, and you can see that the support and resistence on 4h is making the 30.5k - 41k channel more or less.
2. RULES
Once we have established and marked the territory zones , lets get down to business.
For the best results, it is best to enter the market when you find price hovering around a support or resistance level. Once price paints a confirmation candle you can enter the market, or you could wait until the 7 MA has crossed the
14 MA.
Entries at MAJOR support and resistance levels are key and will provide a greater return.
Always exit your trades once price returns to another support or resistance area. You can use the 33 and 60 MA as a stair stepper to get out of the market to protect your equity on your trades. However, re-entering the market once
you get confirmation of the market continuing in the original direction is a safe move.
Below you can find some examples for BTCUSDT 1H
3. RISK MANAGEMENT
For STOP LOSS you can use the value below the support zone, while for TP you can use either the resistence point or the support zone from the 33 or 60 SMA or a multiplier of the original distance below the support zone .
KEY metrics PART 1: Does your strategy has Positive Expectancy?Does your strategy has Positive Expectancy?
The main idea of this post is to show that despite your trading style, the instruments you use to trade, the assets you think are better, your timeframe, etc... Profitability is about a positive result after adding all your losses and winning setups after a certain period of time. That is positive expectancy.
So, it's important to visualize this and ask yourself, Does my strategy has positive expectancy?
Let's take this example as a template, and then you can use it to evaluate your system.
If we have an initial Capital of 5000USD and we are risking 50 USD per trade (you risk 1% of your capital per trade), let see what happens after a year of executing this strategy that we will call "The Stock Strategy."
The most important metrics you want to take a look at in your strategy are:
-How much money I lose on average on the losing setups?
-How much money I win on average with my winning setups?
If you divide these two results: Average Win / Average loss, you will have your Average Risk Reward Ratio. This is VERY RELEVANT! This metric is telling you that, on average, you make 2 times what you risk when you are winning.
However, this metric by itself is useless; you need to ask how many times you are right after X amount of setups "in this case, we have 24 setups," and we can see that we are right 50% of the time.
Now we can check if your strategy has a positive expectancy: (Amount of Winning Trades * Average Risk Reward Ratio) - (Amount of losing trades * 1( that's 1% of your capital you are risking = FINAL RETURN.
In this case, we have a final return of 12% after a year on the Stock Strategy where we can conclude that we have a positive expectancy and its worth of trading. Once you have more experience and confidence with your strategy, you can optimize the average risk to 2%; for example, you will have a final return of 24% at the end of the year.
It's important to know that professional traders don't have one strategy; they have multiple strategies that tend to be independent, so, if you can develop 3 strategies, each of them with a positive expectancy (50% win rate, and average risk-reward ratio of 2) risking 1% of your capital per strategy, you can aim to a solid 36% per year.
Another key Metric to better understand your strategy is DrawDowns, but we will develop this in PART 2 of Key Metrics.
Thanks for reading! of course, there is much more to speak about this, but the idea was to make a simple introductory post on these two metrics that we consider extremely relevant.
📚 Leveraged & Margin Trading Guide + Examples ⚖️
Leveraged trading allows even small retail traders to make money trading different financial markets.
With a borrowed capital from your broker, you can empower your trading positions.
The broker gives you a multiplier x10, x50, x100 (or other) referring to the number of times your trading positions are enhanced.
Brokers offer leverage at a cost based on the amount of borrowed funds you’re using and they charge you per each day that you maintain a leveraged position open.
For example, let's take EURUSD pair.
Let's buy Euro against the Dollar with the hope that the exchange rate will rise .
Buying that on spot with 1.195 ask price and selling that on 1.23 price we can make a profit by selling the same amount of EURUSD back to the broker.
With x50 leverage , our return will be 50 times scaled .
With the leverage, we can benefit even on small price fluctuations not having a huge margin.
❗️Remember that leverage will also multiply the potential downside risk in case if the trade does not play out.
In case of a bearish continuation on EURUSD, the leveraged loss will be paid from our margin to the broker.
For that reason, it is so important to set a stop loss and calculate the risks before the trading position is opened.
❤️Please, support this idea with a like and comment!❤️
The bread and butter of global macroBefore you trade stocks, bitcoin, FX, bonds or anything you have to try and understand how our monetary system works not to miss the big picture.
This video helps you by providing a 10.000 foot view of the global macro landscape. Don't miss the forest for the trees.
Tune in and enjoy!
IBM case study: Breakouts after 2500 days correctionToday, I observed the IBM chart, and I noticed this huge descending channel on the daily chart since 2013, and I saw that the price was breaking it. So, I decided to go to a higher timeframe to look for similar scenarios in the past, and yes!!!!!, having data since 1985 allowed us to see how this type of situation evolved in the past. Here are my conclusions
First Conclusion: Consolidations last between 2500 and 3000 days. That's a lot...
Second Conclusion : After we have a clear breakout (always using the most external trendlines of the consolidation), the price makes small corrective movements on the edge of the structure with a duration between 150 - 300 days. The key aspect here is that we can see an ABC pattern all the time.
Third Conclusion: Based on the two scenarios we have, we can see that in the second one, we had a failed setup on the first consolidation. However, the second one worked pretty well. "Be open to failed setups, and trade again if the 150 - 300 days corrections come again.
Fourth Conclusion: The bullish movements that come after these consolidations (the ones after the breakout) goes between 90% to 500%
So what is the idea with this? The idea is that we can create a scenario where we know what we are waiting for before trading. In this case, we want to see a breakout of this 3000 days consolidation followed by a small correction around 150 - 300 days. If that happens, we will trade the breakout of it, and we will aim to have an open setup for 1 to 2 years. We think that the risk-reward ratio we can have on these types of setups is above 7 to 1. Using 2% of the capital on a setup like this can provide a 14% return over a year or two (ONLY risking 2% of your capital). The post's main objective is to show that you can create trading maps on any asset with the correct amount of past data, study previous scenarios and get ready for a current situation.
Thanks for reading!
DeGRAM | Features of the MARKET STRUCTUREPrice action and market structure. Understand. Anticipate. Earn.
As advocates of technical analysis of price, we recognize that price and its traces on a chart are everything. Nothing else is needed.
Only one thing is important for us, we do not need to get away from everything and understand the price action and the structure of the market.
Price is a trace. What buyers and sellers leave behind on the battlefield, we have the right to use this advantage.
Thus, the price is the meeting point for decision-making by all market participants.
It does not matter what traders, speculators use technical analysis, inside information or fundamental analysis.
A careful analysis of price movements reveals areas of imbalance in market forces, which therefore offer interesting opportunities for profit - this is the main reason why we are fond of understanding price action and market structure.
The essence and important points when building a chart of price action and market structure.
The idea behind a chart is primarily to show where price has moved over time.
Supply and demand determine the price of something, and a chart is a graphical representation of historical changes in supply and demand, i.e., historical changes in the overall attitude of buyers and sellers towards the viewed product.
Clean charts:
is a powerful tool that can facilitate this integration and promote the development of intuition.
Focus on where it should be on price candles or bars and the evolving market structure.
Opening price. How important is it?
Annotate your charts with annual, monthly and weekly opening.
Price changes anytime, anywhere, and our charts become volatile because human emotions are influenced by the news.
You should always mark your schedules with annual, monthly, and weekly openings; and if you are an intraday trader, with a daily open.
due to backorders and order flow.
The price moves out of liquidity zones and returns to them.
When the year, month and week come to an end, large speculators seek to cover, change or open new positions.
Thus, there is a lot of "order changes", and at the same time, unfulfilled orders often remain: liquidity remains in the same place.
Thus, "smart money" gradually enters the market and, thus, does not always fully fill its position.
Hence, they have the choice to leave the order unfilled so that the price can raise it when / if the market returns.
This: triggers a reaction at these levels in terms of order flow, partially responsible for price memory.
Price. What is it?
Every player. From retail to institutional money.
But at the same time, who wins in the market: retail or institutions?
If you want to make money in the marketplace, you must stop thinking like a retail trader and start trading like institutions do.
Therefore, a good way to use these levels is to understand them in terms of accumulation / distribution.
The accumulation stage is followed by the expansion stage and the distribution stage.
You need to make sure that you are not a retail money, in other words, the “opposite side of smart money trading”.
Candles. Structure.
Each candlestick tells you a story about the structure of the market.
At this point, the main thing to understand is that candles are a graphical representation of price movement and therefore show the mindset and sentiment of the market, as well as any changes in that thinking and sentiment that may unfold.
This is why price tells you a story: because a candlestick can be broken down into its component parts to determine the direction of movement that it represents for price.
Basic Principles of Psychology Through Price Action
A green real body candlestick is created on the day the market closed higher than where it opened:
In other words, the price moved up during the day.
This means, if we use the basic principles of supply and demand, there were more buyers than sellers. In the market language I will use from now on, the bulls won.
The red real body candle is the result of the day when the market closed below the level at which it opened.
This means that sellers outweighed buyers or there was more supply than demand, causing the price to move lower.
In market conditions, it was a bearish day.
Output
Many people believe that price changes are random and unpredictable.
If this were true, the only logical course of action would be ... not to trade!
A correct reading of price action will enable you to understand and extract market structure from your chart.
Once you get this advantage, you can stay on the right side of the market.
Then you can sit quietly.
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