Too selective on your trades, meaning you miss opportunities.
Trade a small size to reduce your risk & increase your comfort zone so that you are prepared to execute more trades.
Stops are too tight, so too many trades end in losses.
Trade size is too large, so losses are too big. This makes you hesitate with future trades. Trading too large usually means that your stop is too tight because you are trying to balance limiting losses with being too greedy.
By which I mean your stop is too close to your entry point because you don’t want to lose a lot of money but you do want to make a lot of money.
So you use a very tight stop in the hope that you can pick the exact bottom of the market.
Solution: Decrease your size, giving yourself some room for the trade to work, which is likely to increase the percentage of trades that work.
4. FOMO – Chasing trades – Jumping into a trade before the support or resistance entry level is hit.
Because you are lacking patience! You must be prepared to miss a trade by a couple of pips. Chasing trades ensures your stop loss order will be too wide or is in the wrong place.
For example if you have bought too far above the support level, your stop is going to be too close to that support level, so you risk being taken out of the position at the price point at which you should be entering.
Solution: It will happen. Accept that you will miss trades by a small margin. Move on to the next trading opportunity.
5. Exiting winning trades too soon because you fear losing the accumulated profits from the open trade.
Solution: Use trailing stops to protect profit & take partial profits as your anxiety increases as your profits increase.
Varying trade size which risks losing more on one trade then you will make on another.
Solution: Risk the same amount on every trade.
Getting out of trades too early – making less profit than you were prepared to risk losing.
Solution: Set sensible targets before you enter the trade & do not screen watch. Let the trade play out while you do something else.
Not taking profit and running the trade too long.
Solution: Set sensible targets before you enter the trade & make sure you stick to them. Profit taking allows you to move on to the next opportunity.
Successful traders keep collecting small amounts of profit, by executing low risk trade and overtime they build large profits.
They do not get rich on a few trades. They do not get rich in weeks or months. It takes years!
Jason Sen started trading in 1987 on the floor of the London international financial futures exchange.A trader for over 35 years, he has also trained 100’s of traders over the last 15 years.
Jason will show you how he overcomes trading anxiety & frustration, to control emotions and build consistent profits. Don’t give up!!
Technical analysis is a method of evaluating securities by analysing statistics generated by market activity, such as past prices and volume.
It is based on the idea that market trends, as shown by charts and other technical indicators, can predict future activity.
Technical analysis is often used to identify patterns that can suggest trade opportunities.
To use technical analysis to make a profit in financial markets, you will need to follow a few steps:
Choose a financial market: Technical analysis can be applied to any financial market, including stocks, currencies, and commodities.
Decide which market you want to trade in and gather as much information as possible about it.
Identify key technical indicators: There are many technical indicators that you can use to analyse a market, including moving averages, relative strength index, and Bollinger bands.
Identify the indicators that you feel most comfortable using and learn how to interpret them
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Create a trading plan: A trading plan outlines your strategy for buying and selling securities. It should include your risk management rules,
as well as the technical indicators that you will use to make trading decisions.
Use chart patterns to identify trade opportunities: Chart patterns can help you identify potential trade opportunities.
Some common chart patterns include head and shoulders, triangles, and flags.
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Use support and resistance levels: Support and resistance levels are areas on a chart where the price of a security has had difficulty breaking through.
These levels can act as barriers that prevent the price from moving higher or lower.
Use trend lines: Trend lines are lines drawn on a chart that connect highs or lows. They can help you identify the direction of a trend and potential trade opportunities.
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Use oscillators: Oscillators are technical indicators that oscillate between two extremes. They can help you identify overbought or oversold conditions and potential trade opportunities.
Use candlestick patterns: Candlestick patterns are graphical representations of price action that can provide insight into market sentiment.
Some common candlestick patterns include the doji, hammer, and shooting star.
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Monitor your trades: It is important to monitor your trades and adjust your strategy as needed. Use stop-loss orders to minimize potential losses,
and consider taking profits when a trade is in your favor.
Practice risk management: Risk management is crucial to success in financial markets. Be sure to follow your risk management rules
and never risk more than you can afford to lose.
By following these steps and staying up-to-date with market conditions, you can use technical analysis to make a profit in financial markets.
Jason Sen started trading in 1987 on the floor of the London international financial futures exchange. A trader for over 35 years, he has also trained 100’s of traders over the last 15 years.
Jason will show you how he overcomes trading anxiety & frustration, to control emotions and build consistent profits. Don’t give up!!
As a middle-aged day trader who started trading on the London International Financial Futures Exchange in 1987, I can attest that trading derivatives on the floor required a unique set of skills.
To be successful, one had to be alert at all times, always on the lookout for market-moving news and changes in trading patterns. You also had to be aggressive, ready to pounce on any opportunity that presented itself.
Finally, intense focus was crucial, as you had to keep track of multiple trades simultaneously and be able to make split-second decisions.
However, in the year 2000, I successfully made the transition to digital trading. This shift required a different set of skills, as I had to rely on technical analysis to identify low-risk trade opportunities.
My focus shifted from watching the floor to monitoring charts and graphs, looking for patterns that could indicate potential trades.
I also started using stop-loss orders and targets to minimize losses and maximize profits. This approach allowed me to set clear parameters for each trade, ensuring that I wasn’t caught off-guard by sudden market shifts.
Additionally, I had to develop a new level of discipline, as it was easy to become distracted by the constant stream of information available online.
Digital trading offers many advantages, including the ability to access vast amounts of information, execute trades in a fraction of a second, and set stop-loss orders and targets with ease.
However, it’s important to remember that the key to success is the same as with floor trading: discipline.
No matter the trading platform, it’s essential to remain focused and alert at all times, and to use technical analysis to identify low-risk trade opportunities.
Additionally, it’s important to set clear parameters for each trade and to stick to them. By staying disciplined, you can minimize losses and maximize profits, even in the face of sudden market shifts.
Overall, while the transition from floor trading to digital trading required a significant shift in my approach, I was able to adapt and develop the necessary skills to continue to be successful in the ever-evolving world of finance.
As a seasoned trader in forex, stock index, and commodity futures, I have discovered several key techniques to help me confirm trends and identify potential turning points. One of the most important techniques I use is candlestick analysis.
Candlestick analysis involves studying the shapes and patterns of individual candles on a chart to gain insight into the market’s behavior.
By looking at the body, wicks, and shadows of each candle, I can determine the strength or weakness of a trend and identify potential turning points.
One candle formation that I frequently use is the Doji.
A Doji formation occurs when the opening and closing price of a candle are nearly identical, creating a small body with long wicks or shadows.
This formation often indicates indecision in the market and can signal a potential reversal or change in trend.
Another candle pattern that I use is the Hammer.
The Hammer pattern occurs when a candle has a small body and a long lower wick, and appears after a downtrend.
This formation suggests that buyers are starting to enter the market and can indicate a potential reversal in trend.
In addition to candlestick analysis, I also use other technical indicators such as moving averages, trend lines, and support and resistance levels to confirm trends and identify potential turning points.
Overall, by combining these techniques, I am able to gain a better understanding of market behavior and make more informed trading decisions in forex, stock index, and commodity futures.
Candlestick analysis is a powerful tool for traders to identify potential reversals and confirm trends. Here are my favorite candle formations and what they indicate:
Engulfing candles: Engulfing candles occur when a larger candle completely engulfs the previous candle.
A bullish engulfing candle forms when the current candle’s body completely engulfs the previous candle’s body during a downtrend, indicating a potential reversal to an uptrend.
Conversely, a bearish engulfing candle forms when the current candle’s body completely engulfs the previous candle’s body during an uptrend, indicating a potential reversal to a downtrend.
Shooting star: A shooting star candle forms when the price opens higher than the previous day’s close, but then the price drops significantly during the day, with a small body and a long upper wick or shadow.
This formation suggests that sellers are taking control and can indicate a potential reversal to a downtrend.
Morning star: A morning star candle formation is a three-candle pattern that occurs during a downtrend.
The first candle is a long bearish candle, followed by a small-bodied candle that gaps lower, and then a long bullish candle.
This formation indicates that buyers are taking control and can signal a potential reversal to an uptrend.
Evening star: An evening star candle formation is the opposite of the morning star and occurs during an uptrend.
The first candle is a long bullish candle, followed by a small-bodied candle that gaps higher, and then a long bearish candle.
This formation suggests that sellers are taking control and can indicate a potential reversal to a downtrend.
Overall, these candle formations are just a few examples of the many patterns that traders can use to gain insight into market behavior.
By combining candlestick analysis with other technical indicators, traders can make more informed trading decisions and improve their chances of success.
Head and Shoulders: The head and shoulders pattern is a bearish reversal pattern that occurs after an uptrend.
It consists of three peaks, with the middle peak being the highest, creating a “head” shape, and the two outer peaks forming the “shoulders”.
This formation indicates that buyers are losing momentum, and a potential reversal to a downtrend is likely.
Double Top: The double top pattern is a bearish reversal pattern that occurs after an uptrend.
It consists of two peaks at approximately the same level, separated by a trough. This formation indicates that buyers are struggling to push the price higher, and a potential reversal to a downtrend is likely.
Double Bottom: The double bottom pattern is a bullish reversal pattern that occurs after a downtrend.
It consists of two troughs at approximately the same level, separated by a peak. This formation indicates that sellers are losing momentum, and a potential reversal to an uptrend is likely.
Wedges: Wedges are continuation patterns that can be either bullish or bearish.
A rising wedge is a bearish pattern that occurs when the price consolidates between two converging trend lines, with the upper trend line having a steeper slope.
A falling wedge is a bullish pattern that occurs when the price consolidates between two converging trend lines, with the lower trend line having a steeper slope.
Flags: Flags are continuation patterns that can be either bullish or bearish.
A bullish flag is a consolidation pattern that occurs after a sharp price increase, with the flagpole being the preceding price move.
A bearish flag is a consolidation pattern that occurs after a sharp price decrease, with the flagpole being the preceding price move.
Triangle patterns.
Ascending Triangle: An ascending triangle is a bullish continuation pattern that occurs when the price consolidates between a horizontal resistance level and an upward-sloping trend line.
This formation indicates that buyers are gaining strength, and a potential continuation of the uptrend is likely.
Descending Triangle: A descending triangle is a bearish continuation pattern that occurs when the price consolidates between a horizontal support level and a downward-sloping trend line.
This formation indicates that sellers are gaining strength, and a potential continuation of the downtrend is likely.
Symmetrical Triangle: A symmetrical triangle is a neutral pattern that occurs when the price consolidates between two converging trend lines.
This formation indicates uncertainty in the market and can lead to either a bullish or bearish breakout.
Overall, these chart patterns are just a few examples of the many patterns that traders can use to gain insight into market behavior.
By combining chart pattern analysis with other technical indicators, traders can make more informed trading decisions and improve their chances of success.
Jason Sen started trading in 1987 on the floor of the London international financial futures exchange. A trader for over 35 years, he has also trained 100’s of traders over the last 15 years.
Jason will show you how he overcomes trading anxiety & frustration, to control emotions and build consistent profits. Don’t give up!!
In the fast-paced world of day trading, successfully navigating the markets requires a keen understanding of market trends.
Trading in the direction of the prevailing trend can significantly enhance your chances of profitability.
This blog post aims to emphasize the importance of trend trading and provide valuable insights into identifying trends, utilizing tools,
and identifying low-risk trading opportunities with appropriate stop-loss levels and targets.
Why Trade with the Trend?
Trends can be a trader’s best friend, offering a clear and reliable indication of the market’s overall sentiment.
Trading in the direction of the prevailing trend allows you to align your trades with the market’s momentum and increases the probability of catching profitable moves.
By trading with the trend, you swim with the current rather than against it, thereby reducing the likelihood of being caught in unfavourable market conditions.
Identifying Trends: To identify trends effectively, day traders can employ various technical analysis tools that provide valuable insights into market dynamics.
Here are a few commonly used tools:
Moving Averages: Moving averages smooth out price data and provide visual representations of the market’s trend direction. The 50-day and 200-day moving averages are popular choices for trend identification.
When the price is consistently above the moving average, it suggests an uptrend, while a price below the moving average indicates a downtrend.
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Trend Lines: Trend lines are drawn by connecting consecutive swing highs or lows in an uptrend or downtrend, respectively.
They serve as dynamic support or resistance levels, providing traders with valuable information on trend continuity and potential reversal points.
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Price Patterns: Chart patterns, such as ascending triangles, descending triangles, and head and shoulders patterns, can indicate the direction of the prevailing trend.
These patterns are formed by the interaction of buyers and sellers and provide insight into potential trend continuation or reversal.
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Once a trader has identified the prevailing trend, it’s crucial to identify low-risk trading opportunities that align with the overall market sentiment.
Here’s a step-by-step approach to finding such opportunities:
Confirm the Trend: Ensure that the trend is clearly established and validated using multiple technical indicators.
This reduces the chances of mistaking temporary price fluctuations for a true trend.
Entry Points: Look for entry points that align with the trend. For example, in an uptrend, consider entering a long position on a pullback to a
key support level or when a price pattern breaks out to the upside.
Set Stop Loss and Targets: Determine appropriate stop-loss levels and profit targets to manage risk and maximize potential gains.
A stop-loss order should be placed below a key support level (in an uptrend) or above a key resistance level (in a downtrend) to limit potential losses.
Profit targets can be set based on previous swing highs or lows, Fibonacci retracement levels, or other key technical levels.In the dynamic world of day trading, aligning your trades with the prevailing trend can significantly enhance your chances of success.
By employing various technical analysis tools to identify trends and low-risk trading opportunities, traders can make informed decisions that reduce
the impact of market noise and increase the probability of profitable trades.
My 5 simple steps to executing low-risk trades for maximum profits.
1. Identify the trend: The first step in identifying a low-risk trade opportunity is to determine the trend. You can use a simple moving average (SMA) or an exponential moving average (EMA) to help identify the trend.
If the price is above the moving average, the trend is considered bullish, while if the price is below the moving average, the trend is considered bearish.
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2. Draw trend lines: Once you have identified the trend, you can draw trend lines to help identify potential support and resistance levels.
A trend line is a line that connects two or more price points and can be used to identify potential areas where the price may bounce or reverse.
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3. Identify Fibonacci retracements: After drawing trend lines, you can use Fibonacci retracements to identify potential support and resistance levels.
Fibonacci retracements are a series of horizontal lines that represent potential areas of support or resistance based on the Fibonacci sequence. The key levels to watch are the 38.2%, 50%, and 61.8% retracement levels.
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4. Look for confluence: Look for confluence between the trend lines, moving averages, and Fibonacci retracement levels. (See above).
The more confluence there is between these levels, the stronger the support or resistance level is likely to be.
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5. Set up the trade: Once you have identified a low-risk trade opportunity, you can set up the trade by placing a stop-loss order just below the support level or just above the resistance level.
You can also set a take-profit order at a predetermined price level or use a trailing stop to lock in profits as the price moves in your favor.
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Remember that no trading strategy is foolproof and that there is always risk involved in trading. It is important to manage your risk and only trade with money you can afford to lose.
The diamond reversal pattern is characterized by the initial formation of two diverging trend lines in a broadening top pattern, as volatility increases.
New highs beat previous highs but new lows are established below previous lows to create the diverging trend lines.
The next development is when these conditions reverse & highs become lower, lows are higher to create converging trendlines.
This creates a shape that resembles a diamond.
To confirm: It is formed by a series of higher highs and lower lows, creating higher swing highs and lower swing lows within the pattern.
Here’s a step-by-step explanation of how the diamond reversal pattern forms:
Prior Trend: The diamond pattern typically forms after a prolonged uptrend or downtrend, representing a period of consolidation or indecision in the market.
Upper Trendline: The pattern begins with the formation of a series of higher highs and lower lows, creating an upward-sloping trendline. This trendline connects the higher swing highs within the pattern.
Lower Trendline: Simultaneously, a downward-sloping trendline is formed by connecting the lower swing lows within the pattern.
Convergence: As the price continues to fluctuate, the range between the two trendlines gradually narrows. The swing highs and swing lows start converging, forming the diamond shape.
Breakout: Eventually, the price will break out of the diamond pattern, typically in the opposite direction of the prior trend. This breakout is considered the signal for a potential trend reversal.
Volume: Volume analysis is also crucial when observing the diamond pattern. Generally, there is a decrease in volume as the pattern develops, indicating diminishing interest and indecision among traders.
However, when the breakout occurs, there may be a surge in volume, supporting the validity of the reversal signal.
When using the diamond reversal pattern, traders typically employ the following strategies to potentially profit from the pattern:
Confirmation of the Breakout: The diamond pattern provides a potential reversal signal, but it’s essential to wait for confirmation of the breakout before initiating a trade.
Traders often wait for the price to break out of the diamond pattern and close above/below the pattern’s trendlines. This breakout confirmation helps validate the reversal signal and reduces the risk of false signals.
Determine the Direction: Once the breakout occurs, traders should determine the direction of the new trend. If the breakout happens to the upside, it suggests a bullish reversal,
and if it occurs to the downside, it indicates a bearish reversal. Traders can use additional technical indicators, such as moving averages, oscillators, or trendline analysis, to assess the strength and sustainability of the new trend.
Entry and Exit Points: After confirming the breakout and determining the new trend’s direction, traders can establish entry and exit points for their trades.
Some traders prefer to enter the trade as soon as the breakout occurs, while others may wait for a pullback or a retest of the breakout level before entering.
The choice of entry strategy depends on individual trading preferences and risk tolerance.
Set Stop Loss and Take Profit Levels: To manage risk, traders should set appropriate stop-loss orders to limit potential losses if the trade goes against them.
The stop-loss level can be placed below the breakout level for bullish trades or above the breakout level for bearish trades.
Take profit levels can be determined based on key support/resistance levels, Fibonacci retracement levels, or other technical analysis tools.
Risk Management: Implementing proper risk management techniques is crucial when trading the diamond reversal pattern or any other trading strategy.
Traders should determine their risk tolerance, allocate appropriate position sizes, and use stop-loss orders effectively to protect their capital.
Combine with Other Analysis: To enhance the accuracy of trading decisions, it is advisable to combine the diamond reversal pattern with other technical analysis tools or indicators.
Traders often use indicators like moving averages, volume analysis, or oscillators to gain additional insights and confirmation.
The US Bureau of Labor Statistics measures 80,000 prices every single month from thousands of retail shops & they include housing & rent prices to create the consumer price index number (CPI).
The consumer price index measures the change in prices of goods and services contained in a basket of consumer items. The central bank pays very close attention to this figure in its role, maintaining price stability.
So of course, if inflation starts to pick up again, there will be speculation that the Federal Reserve will need to hike interest rates even further to contain inflation.
Why does hiking interest rates contain inflation?
It takes money out of the pocket of consumers and companies, businesses, because they spend more on their interest payments,
whether that be companies borrowing for machines or households borrowing on their credit cards or a mortgage, the cost of loans goes up, which means we’ve all got less money in our pocket.
So it’s a drain on the economy. It removes upward pressure on inflation because there’s less demand for goods and services.
Now, whilst that could lead to recession, because spending goes down, perversely stock markets, will see it as a great thing if the inflation starts to slow, if the economy starts to slow, it will mean the Federal Reserve will not put interest rates up further.
The interest rate cut cycle will begin sooner rather than later, so financial markets will take that as encouraging.
Stock markets, will probably go up a little bit if inflation is lower than the forecast of 5.2%.
If the forecast is higher than expected, let’s say it jumps to 5.4%, then that would increase speculation that the Federal Reserve have not finished raising interest rates. That would be negative for the stock market.
It would be bullish, probably for the US dollar, because higher interest rates attract speculators into the dollar because they want to get a good return on their money.
If the C P I number is higher than expected, it could also be quite negative for gold, because gold does not produce a yield.
There is no return on gold. You just hold it in the hope that price goes up in the future.
If inflation creeps up and interest rates could be seen as rising again, then the investors would rather have their money in bonds, savings accounts to take advantage of the interest rate.
Also out this week is the United States Producer Price Index.
Very similar to the consumer price index, but it measures a change in the input of prices of raw, semi-finished or finished goods and services.
Manufacturers and producers may try to absorb some of the cost. If prices increase, they may not want to pass all of that cost onto consumers because they may want to retain market share.
But if the producer price index rises, it could feed through eventually to the consumer price index.
So it is certainly a very important number and therefore, if the PPI number comes in above the forecast, it would have the same sort of effect as the CPI number.
We’ve also got the UPS import price index and export price index.
The import price index obviously measures the price of imported goods and services. The export Price index measures the price of exported goods and services.
Import price index is probably more important because if the price of imported goods is going up, that would lead to a higher P P I and eventually a higher C P I.
If the dollar sinks, then immediately the cost of imported goods and services goes up, so that would be more inflationary. If the value of the dollar goes up, it means that the cost of buying goods abroad is cheaper, so that can have a deflationary effect.
US Michigan consumer sentiment is a survey of consumers.
The reading is compiled from a survey of around 500 consumers that take a cross section of society and they ask them how they feel about the economy.
Is the economy gonna do better? How confident do you feel about the future of the economy? That kind of thing. And it just gives us an idea of how the consumer feels.
If the consumer feels confident, the markets will feel that they could spend more, so it could be slightly inflationary.
If consumers are nervous, it means they might save more, spend less, which would be a negative for the economy, but it also might be slightly deflationary, which would be a good thing.
On Thursday, the Bank of England will decide the level of interest rates.
Currently at 4.25%, Bank of England is expected to leave interest rates unchanged.
If the Bank of England was to unexpectedly raise interest rates that would have quite a significant effect, probably hit the stock market, the FTSE at least,
and it would probably lead to a significant increase in the pound against other currencies because it would’ve been unexpected and it would attract investors looking to get a better return on their investments.
One thing that could affect the Bank of England decision on interest rates, maybe not as soon as Thursday, but going forward, would be the UK Gross Domestic product number.
So this is a measure of productivity in the economy. It gauges the inflation adjusted value of all goods and services produced within the economy.
It’s the most comprehensive measure of economic activity and an important indicator of economic health.
Currently this number is positive so the UK economy is still growing. The forecast is for the economy to grow by 0.4%. The actual number last month was 0.6%.
So despite the interest rate rises and worries about inflation, the UK economy remains in a growth phase.
Obviously, if the economy keeps growing, it may put upward pressure on inflation because consumers will be doing well. They’ll be getting the jobs they want.
They may even be getting pay rises, which of course puts more money in their pocket and it may lead to further inflation. So it is a very important number.
Marty Schwartz, also known as “Pit Bull,” is a renowned trader who gained fame for his success in the futures market during the 1980s.
While his career has spanned several decades, his notable achievements and trading prowess primarily occurred during that era.
Schwartz began his trading career in the late 1970s, initially working as an analyst for E.F. Hutton. However, he soon transitioned to become a trader himself and joined Commodities Corporation (now part of Goldman Sachs),
a prestigious firm known for its success in trading futures contracts.
During his time at Commodities Corporation, Schwartz honed his trading skills and developed his unique approach to the markets. He became known for his aggressive trading style and his ability to generate significant profits.
Schwartz primarily traded in the futures market, particularly focusing on currency and commodity futures.
One of his notable achievements came in 1984 when he won the U.S. Investing Championships, turning an initial $250,000 trading account into over $1 million in profits within a year.
This impressive performance gained him widespread recognition as a skilled trader.
Schwartz’s trading style was characterized by his use of technical analysis and his ability to identify short-term trading opportunities. He employed various indicators, chart patterns, and trend analysis to make informed trading decisions.
Moreover, he emphasized the importance of risk management and discipline in his trading approach.
After leaving Commodities Corporation, Schwartz established his own trading firm called Stellarton Trading, where he continued to trade and manage funds. While his career has had its ups and downs,
he has consistently maintained a reputation as a highly successful trader.
Schwartz’s experiences and insights were featured in Jack D. Schwager’s book “Market Wizards,” which interviewed a selection of top traders. His contributions to the book provided valuable lessons and perspectives for aspiring traders.
Overall, Marty Schwartz is known for his exceptional trading skills, his ability to adapt to changing market conditions, and his disciplined approach to risk management. His career serves as an inspiration for traders seeking to achieve consistent profitability in the financial markets.
This is a summary of key insights and lessons that can be gleaned from his experiences and strategies as discussed in the book.
Develop a strong trading methodology: Schwartz emphasizes the importance of having a well-defined and tested trading approach. He recommends developing a systematic method that aligns with your personality, risk tolerance, and trading goals.
Master risk management: Schwartz places great emphasis on managing risk effectively. He suggests using stop-loss orders and not risking more than a predetermined percentage of your trading capital on any single trade.
Be patient and wait for the right opportunity: According to Schwartz, successful trading requires patience. It’s crucial to wait for high-probability trading setups and avoid trading out of boredom or impatience.
Adapt to changing market conditions: Markets are dynamic, and Schwartz emphasizes the need to adapt to changing conditions. He suggests being flexible in your approach and adjusting your trading strategies to suit different market environments.
Maintain discipline and control emotions: Emotional discipline is crucial for successful trading. Schwartz advises traders to stay focused, stick to their trading plans, and avoid making impulsive decisions driven by fear or greed.
Learn from mistakes and analyze performance: Schwartz advocates for learning from your trading mistakes. Analyzing your performance, identifying areas of improvement, and making necessary adjustments can lead to long-term success.
Use technical analysis effectively: Schwartz employs technical analysis to identify entry and exit points. He stresses the importance of understanding chart patterns, indicators, and trends to make informed trading decisions.
Practice proper position sizing: Position sizing refers to determining the appropriate amount of capital to allocate to each trade based on risk. Schwartz suggests using position sizing techniques to manage risk effectively and prevent excessive losses.
Cultivate a positive mindset: Schwartz emphasizes the significance of maintaining a positive mindset and staying motivated during both winning and losing periods. He suggests surrounding yourself with supportive individuals and avoiding negative influences.
Continuous learning and self-improvement: According to Schwartz, trading is a constant learning process. He recommends continually expanding your knowledge, staying updated with market developments, and seeking out mentors or experienced traders who can provide guidance.
The best way to learn a new skill is to practise it consistently and to seek out feedback and guidance from more experienced individuals.
This approach, known as “deliberate practice,” has been shown to be highly effective in research on skill acquisition.
Additionally, setting specific, measurable goals and breaking the skill down into smaller, manageable tasks can help to make the learning process more manageable and less overwhelming. To apply the method of deliberate practice to day trading, you can take the following steps:
Set specific, measurable goals for yourself. For example, your goal might be to increase your profitability by a certain percentage within a certain time frame. indicators then develop a consistent trading strategy that you can use on a daily basis.
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Break the skill of day trading down into smaller, manageable tasks. For example, you might focus on learning how to read charts and identify key technical
Practice the tasks you’ve identified consistently.
This might involve simulating trades using a trading simulator, or practicing with a small amount of real money before committing more capital.
Seek out feedback and guidance from more experienced traders.
This might involve joining a trading community or mentorship program, or working with a trading coach.
Continuously evaluate your progress and make adjustments to your approach as needed.
Understand the risks involved with day trading and have a plan for managing them.
It’s important to note that day trading is a high-risk activity and it’s essential to have a strong understanding of the markets, the asset you’re trading, and the strategies you’re using.
It’s also important to have a plan for managing the inherent risk of trading, including using stop-loss orders and limiting the percentage of your account you’re willing to put at risk on any one trade.
What are my chances of success if I study and practice without a teacher or day trading mentor?
It is possible to study and practice day trading on your own and be successful, but it can be challenging and the chances of success may be lower compared to those who have a teacher or day trading mentor.
Having a teacher or day trading mentor can provide valuable guidance and feedback, which can help you to avoid common mistakes and improve your skills more quickly.
Additionally, a day trading mentor can provide valuable perspective and insight that can be difficult to gain on your own, especially if you are new to the field.
How many difficult skills have you mastered without a day trading mentor or tutor?
Would you try to drive a car, ride a motorbike, operate a machine, or start any business without learning from someone with experience?
NO!!! So why do people think they can start trading just because they open a trading account?
Owning a racing car does not make you a racing driver. Sitting in a cockpit does not make you a pilot!!
Opening a trading account does not make you a professional trader!!
How will a day trading mentor help me improve day trading?
A day trading mentor can help you improve your day trading skills in a number of ways:
A day trading mentor can provide you with personalised feedback and guidance, tailored to your individual needs and goals as a trader.
A day trading mentor can teach you new strategies and techniques for analysing the market and making trade decisions.
A day trading mentor can help you develop a solid trading plan and discipline, which are crucial for success in day trading.
A day trading mentor can help you identify and overcome any weaknesses or bad habits that may be holding you back as a trader.
A day trading mentor can provide you with support and motivation, helping you stay focused and motivated even during difficult times in the market.
Overall, a day trading mentor can provide you with the guidance and support you need to become a more confident and successful day trader.
Jason Sen has over 35 years of trading & technical analysis experience.
Some day traders only want a way to earn extra money, not spend lots of money to do so.
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Tom Basso, known as a “Market Wizard,” from the book by Jack D. Schwager, is a successful trader who has developed his own exit strategy for trading financial markets.
Basso is known for his trend-following approach to trading, where he aims to capitalize on sustained price trends in various financial markets.
His exit strategy focuses on managing risk and protecting profits, and it involves several key principles.
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Use of stop-loss orders: Basso emphasizes the use of stop-loss orders, which are predetermined price levels at which a trade will be automatically exited if the market moves against the trader’s position.
This helps to limit losses and protect capital, as it ensures that a trade is exited if it is not performing as expected.
Trailing stops: Basso also uses trailing stops, which are stop-loss orders that are adjusted as the market moves in the trader’s favour. This allows him to capture profits as the market moves in his favour,
while still protecting against potential reversals. Basso typically sets trailing stops based on technical indicators or price levels, and adjusts them periodically to lock in profits.
Risk management: Basso is known for his strict risk management rules. He typically risks a small percentage of his trading capital on each trade, often around 1% to 2% of his total portfolio.
This helps him to limit the impact of losing trades on his overall portfolio and ensures that he can continue trading even after a series of losses.
Adapting to changing market conditions: Basso believes in being flexible and adapting to changing market conditions. If the market starts to exhibit signs of unfavourable trends or volatility,
he may exit his trades or reduce his position sizes to protect his capital.
Discipline and patience: Basso emphasizes the importance of discipline and patience in trading. He sticks to his trading plan and does not let emotions drive his trading decisions.
He waits for favourable trade setups and follows his exit strategy diligently, regardless of short-term market fluctuations.
Overall, Basso’s exit strategy focuses on managing risk, protecting profits, and being adaptable to changing market conditions. It is a disciplined and systematic approach that aims to capture trends while minimizing losses,
which has contributed to his success as a Market Wizard.
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Tom Basso’s emphasis on the importance of trade exit strategy over trade entry strategy is based on the idea that managing risk
and protecting profits are critical factors for long-term trading success.
Here are some reasons why the exit strategy is often considered more important:
Risk management: The exit strategy plays a crucial role in managing risk. By setting stop-loss orders and using trailing stops, Basso aims to limit losses and protect his trading capital.
Proper risk management is essential for preserving capital and avoiding large drawdowns, which can significantly impact a trader’s ability to continue trading and achieve consistent profits.
Profit protection: The exit strategy helps in protecting profits. Basso uses trailing stops to lock in profits as the market moves in his favour. This allows him to capture gains and protect them from potential reversals.
Protecting profits is important for preserving trading gains and preventing profits from turning into losses.
Flexibility in changing market conditions: Markets are dynamic and can change rapidly. An effective exit strategy allows traders to adapt to changing market conditions.
Basso’s approach of being adaptable and flexible with his exit strategy enables him to respond to changing trends, volatility, and other market dynamics.
This helps him to avoid staying in losing trades for too long or exiting winning trades too early, based on the evolving market conditions.
Emotion management: Emotions can often cloud a trader’s judgment, leading to impulsive and irrational trading decisions. Having a well-defined exit strategy helps traders to avoid making emotional decisions.
Basso’s disciplined approach to following his exit strategy minimizes the impact of emotions on his trading decisions and helps him to stay focused on his trading plan.
Trade expectancy: Trade expectancy is a key metric used by traders to assess the profitability of their trading strategy. It is the average amount a trader can expect to make or lose on each trade over the long term.
A well-designed exit strategy that incorporates stop-loss orders, trailing stops, and profit targets can significantly impact trade expectancy, which ultimately determines the overall profitability of a trading strategy.
While trade entry is important, Basso’s emphasis on the exit strategy stems from the understanding that managing risk, protecting profits, adapting to changing market conditions,
and mitigating emotional biases are crucial elements for successful trading. A robust exit strategy helps traders to achieve these goals and can contribute to long-term trading success.
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The “Market Wizards” series of books, written by Jack D. Schwager, features interviews with successful traders and investors who have achieved remarkable success in financial markets.
While each trader has their own unique trading style and approach, there are some key points that can be summarized from the collective wisdom shared in these books:
Risk management: Successful traders prioritize risk management and use techniques such as stop-loss orders, trailing stops, and position sizing to manage risk and protect their capital from significant losses.
Discipline and patience: Discipline and patience are crucial traits among successful traders. They stick to their trading plans, avoid impulsive decisions,
and patiently wait for favourable trade setups based on their strategies.
Adaptability: Market conditions can change rapidly, and successful traders are adaptable. They adjust their trading strategies and approaches based on changing market dynamics, trends, and volatility.
Trading psychology: Understanding and managing trading psychology is important. Successful traders have a disciplined mindset, manage emotions, and do not let fear or greed drive their trading decisions.
Continuous learning: Successful traders have a thirst for knowledge and are constantly learning and improving their skills. They may experiment with different approaches, strategies,
and techniques to refine their trading methods.
Focus on probabilities, not certainties: Traders understand that trading is inherently uncertain and focus on probabilities rather than trying to predict certainty. They accept that losses are part of trading and aim to achieve a positive expectancy over a series of trades.
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Importance of trade exits: Many successful traders emphasize the significance of exit strategies, as they play a critical role in managing risk, protecting profits, and capturing gains.
A well-designed exit strategy is considered crucial for trading success.
Long-term perspective: Successful traders often have a long-term perspective and do not get swayed by short-term market fluctuations.
They focus on their overall trading performance over time rather than getting overly concerned with individual trade outcomes.
Individuality in trading: Successful traders often develop their own unique trading styles, approaches, and techniques that suit their personality, risk tolerance, and market beliefs.
They do not blindly follow others but develop their own edge and stick to it.
Realistic expectations: Successful traders have realistic expectations about their trading results and do not chase get-rich-quick schemes.
They understand that trading is a challenging endeavour that requires time, effort, and experience to achieve consistent profits.
These are some of the key points that can be summarized from the “Market Wizards” books, highlighting the common traits and approaches of successful traders interviewed in the series.
It’s important to note that while these traders have achieved remarkable success, their strategies may not necessarily be suitable for everyone,
and it’s crucial to develop a trading approach that aligns with one’s own risk tolerance, goals, and beliefs.
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Here are 10 additional points to be aware of, based on the insights shared by successful traders in the “Market Wizards” books:
Trading plan: Successful traders emphasize the importance of having a well-defined trading plan that includes clear entry and exit rules, risk management guidelines, and a systematic approach to decision-making.
Position sizing: Determining appropriate position sizes based on risk tolerance and trade setups is crucial.
Successful traders emphasize the need to carefully manage position sizes to avoid excessive risk exposure and preserve capital.
Diversification: Diversifying trading strategies, timeframes, and markets can help spread risk and improve overall trading performance.
Successful traders often diversify their trading approaches to capture opportunities in different market conditions.
Focus on process, not outcome: Successful traders focus on executing their trading plan with discipline and consistency, rather than being solely fixated on short-term trade outcomes.
They understand that the process is more important than individual trade results.
Keep it simple: Successful traders often use simple and robust trading strategies that are easy to understand and implement.
They avoid unnecessary complexity and focus on strategies that have a proven track record of success.
Trading as a business: Many successful traders treat trading as a business and have a structured approach to their trading activities.
They maintain records, analyse performance, and continuously look for ways to improve their trading operations.
Patience in trading: Successful traders understand the importance of patience in trading.
They wait for high-probability trade setups and do not force trades in uncertain or unfavourable market conditions.
Risk-reward ratio: Assessing and maintaining a favourable risk-reward ratio is crucial.
Successful traders aim for trades with a positive risk-reward ratio, where potential profits outweigh potential losses.
Capital preservation: Preserving trading capital is a top priority for successful traders.
They are disciplined in cutting losses and protecting their capital, knowing that preserving capital is key to staying in the game for the long term.
Mental and physical well-being: Successful traders recognize the importance of maintaining mental and physical well-being.
They manage stress, maintain a healthy lifestyle, and take breaks as needed to stay focused and perform at their best.
Remember that trading involves risks, and it’s important to carefully consider your own risk tolerance, financial goals, and trading style before implementing any strategies. Successful traders develop their own unique approaches and continuously learn and adapt to changing market conditions.
It’s important to find an approach that works best for you and aligns with your individual circumstances and trading goals.
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Here are 10 more points worth mentioning based on the insights from successful traders in the “Market Wizards” books:
Keep emotions in check: Successful traders recognize the role of emotions in trading and develop strategies to manage them.
They avoid making impulsive decisions based on fear, greed, or other emotions, and instead rely on their trading plan and analysis.
Trade with a positive expectancy: Successful traders aim for a positive expectancy in their trading, which means that, on average,
their expected profits outweigh their expected losses over a series of trades. They focus on trades with a high probability of success.
Keep learning and adapting: Continuous learning is a hallmark of successful traders. They stay informed about market developments, learn from their mistakes,
and adapt their strategies to changing market conditions.
Keep emotions separate from trading decisions: Successful traders do not let their personal opinions, biases, or emotions interfere with their trading decisions. They base their trades on objective analysis and stick to their trading plan.
Trade with a plan, not impulsively: Successful traders have a well-defined trading plan and follow it rigorously.
They do not make impulsive or random trades but instead wait for their trade setups based on their plan and strategy.
Review and learn from trades: Successful traders review their trades regularly to learn from their successes and failures.
They analyse their trades to identify patterns, strengths, and weaknesses, and make adjustments to improve their performance.
Be adaptable to changing markets: Successful traders understand that markets are dynamic and constantly changing.
They are willing to adapt their trading strategies, techniques, and timeframes to stay relevant in evolving market conditions.
Develop a trading edge: Successful traders often develop a unique trading edge that gives them an advantage in the market.
This can be through specialized knowledge, proprietary indicators, or a unique perspective on market dynamics.
Manage trading costs: Successful traders are mindful of trading costs, including commissions, slippage, and other fees.
They aim to minimize trading costs to improve their overall profitability.
Maintain discipline during drawdowns: Drawdowns, or periods of losses, are inevitable in trading.
Successful traders maintain discipline and stick to their trading plan during drawdowns, avoiding emotional decisions or overtrading to recover losses quickly.
Remember that trading involves risks, and it’s important to carefully consider your own risk tolerance, financial goals, and trading style before implementing any strategies.
Successful traders develop their own unique approaches and continuously learn and adapt to changing market conditions.
It’s important to find an approach that works best for you and aligns with your individual circumstances and trading goals.
What could be the likely effect on asset prices, such as residential and
commercial property and also the effect on company profitability?
Rising interest rates can have significant impacts on asset prices, including residential and commercial property, as well as on company profitability. Here are some potential effects:
Residential and commercial property prices: Higher interest rates can lead to an increase in mortgage rates, which can reduce affordability and demand for properties.
This can lead to a decrease in property prices, especially in areas where prices have been high and affordability is already a concern.
Additionally, higher interest rates can impact the construction and development of new properties, as the cost of financing projects increases.
Company profitability: Higher interest rates can lead to increased borrowing costs for companies, especially those that rely heavily on debt financing.
This can reduce profitability, as companies may have to spend more on interest payments and have less money to invest in growth or pay dividends to shareholders.
Additionally, higher interest rates can lead to a decrease in consumer spending, which can reduce demand for goods and services and lead to lower revenues and profits for companies.
Overall, the impact of rising interest rates on asset prices and company profitability is complex and can vary depending on various factors such as the current state of the economy, inflation rates, and the policy decisions of central banks.
It is worth noting that rising interest rates can also have positive effects, such as curbing inflation and promoting price stability, which can benefit the overall health of the economy in the long run.
Historically what has been the effect on the banking system in terms of profitability,
how banks continue to lend money, hiring and attracting or losing depositors savings?
Historically, rising interest rates have had mixed impacts on the banking system in terms of profitability, lending, depositors, and hiring. Here are some potential effects:
Profitability: Higher interest rates can lead to increased profitability for banks, as they can charge higher interest rates on loans and earn higher returns on investments.
However, this can also lead to increased competition among banks, as customers may seek out higher-yielding accounts, which can limit the extent to which banks can increase their interest rates on deposits.
Lending: Higher interest rates can lead to decreased demand for loans, as borrowing becomes more expensive for consumers and businesses.
This can lead to a decrease in lending and a potential slowdown in economic growth. However, banks may still be able to lend to creditworthy borrowers and may focus on higher-margin loans to maintain profitability.
Depositors: Higher interest rates can make bank deposits more attractive to savers, as they can earn higher yields on their savings.
This can lead to increased competition among banks for deposits, as banks may need to offer higher interest rates to attract and retain depositors.
Hiring: Higher interest rates can lead to increased costs for banks, which can impact their ability to hire new employees.
However, this can also depend on the overall state of the economy and the demand for banking services.
Overall, the impact of rising interest rates on the banking system can vary depending on various factors, such as the current state of the economy, the competitive landscape among banks, and the policy decisions of central banks.
While higher interest rates can lead to increased profitability for banks, they can also have potential negative impacts on lending, depositors, and hiring.
How long is the typical time leg before rising interest rates begins to affect unemployment rates?
The typical time lag before rising interest rates begin to affect unemployment rates can vary, but it is generally thought to be several quarters to a year or more.
This is because changes in interest rates can take time to filter through the economy and impact the labor market.
When interest rates rise, borrowing becomes more expensive for both consumers and businesses, which can lead to a decrease in spending and investment.
This can result in slower economic growth and potentially lead to job losses, which can eventually impact the unemployment rate.
However, the timing and magnitude of these effects can depend on various factors such as the initial state of the economy, the level of inflation, the response of businesses and consumers to the interest rate changes, and the policy decisions of central banks.
Therefore, it is difficult to give a precise estimate of the time lag before rising interest rates affect unemployment rates.
However, it is generally expected that there will be a delay between the two due to the time required for interest rate changes to fully impact the broader economy and the labor market.
Warren Buffett is a legendary investor and one of the most successful businesspeople in the world.
He has shared many valuable teachings throughout his career, here are some of his most famous teachings:
Value investing: Buffett is famous for his approach to investing based on value investing principles, which involves buying high-quality companies at a reasonable price.
Circle of competence: Buffett encourages investors to focus on industries and companies that they understand well and have expertise in, rather than trying to invest in areas they don’t understand.
Margin of safety: Buffett believes in always having a margin of safety when investing, by buying stocks that are undervalued or have a significant discount to their intrinsic value.
Long-term focus: Buffett emphasizes the importance of having a long-term focus when investing, rather than trying to time the market or make quick profits. He often holds investments for many years, even decades.
Conservative leverage: Buffett believes in using leverage conservatively and responsibly, and only when it can generate significant returns without taking on excessive risk.
Management quality: Buffett emphasizes the importance of investing in companies with high-quality management teams who are honest, competent, and have a long-term focus.
Avoiding speculation: Buffett advises against speculating in the market or trying to make quick profits by trading frequently. He believes in taking a long-term, value-based approach to investing.
Staying humble: Buffett is known for his humility and emphasizes the importance of remaining grounded and humble in the face of success. He has famously said, “Success is getting what you want, happiness is wanting what you get.”
Overall, Buffett’s teachings emphasize the importance of investing in high-quality companies with a long-term perspective, while avoiding speculation and taking on excessive risk. He believes in staying focused on what you know and understand well, and remaining humble and grounded in the face of success.
Charlie Munger is an investor, businessman, and philanthropist who is best known for his role as Vice Chairman of Berkshire Hathaway.
Munger’s teachings are wide-ranging, but here are some of the key principles he advocates:
Develop a “latticework” of mental models: Munger believes that the best investors are those who have a deep understanding of a wide variety of disciplines, and who can use this knowledge to make better investment decisions.
He encourages investors to develop a “latticework” of mental models, which can help them make sense of complex information and see the world in a more nuanced way.
Use a “circle of competence”: Munger advises investors to focus on areas where they have a deep understanding and expertise, and to avoid areas where they lack knowledge.
He suggests that investors should create a “circle of competence” and only invest in businesses or industries that fall within that circle.
Be rational and objective: Munger believes that emotions can often cloud our judgment and lead us to make irrational decisions.
He encourages investors to approach investment decisions in a rational and objective manner, and to avoid making decisions based on fear, greed, or other emotional factors.
Seek out and value different perspectives: Munger emphasizes the importance of seeking out diverse perspectives and challenging one’s own assumptions.
He believes that by considering a wide range of viewpoints, investors can make better decisions and avoid pitfalls.
Have a long-term perspective: Munger encourages investors to take a long-term perspective and avoid being swayed by short-term market fluctuations.
He suggests that investors should focus on the underlying fundamentals of a business and hold onto investments for the long haul.
Overall, Munger’s teachings emphasize the importance of developing a deep understanding of the world around us, using rational and objective thinking, seeking out diverse perspectives, and taking a long-term approach to investing.
The best way to learn a new skill is to practise it consistently and to seek out feedback and guidance from more experienced individuals.
This approach, known as “deliberate practice,” has been shown to be highly effective in research on skill acquisition.
Additionally, setting specific, measurable goals and breaking the skill down into smaller, manageable tasks can help to make the learning process more manageable and less overwhelming.
To apply the method of deliberate practice to day trading, you can take the following steps:
Set specific, measurable goals for yourself.
For example, your goal might be to increase your profitability by a certain percentage within a certain time frame. Or you could improve your discipline by setting goals such as these:
Practice on a demo account for a month.
Enter 5 trading orders in a week with an automatic stop-loss.
Set a target with a 1:2 risk vs reward ratio. (Risk $1 to make $2).
Decide on a daily profit target.
Quit trading when this target is reached each day.
Break the skill of day trading down into smaller, manageable tasks.
For example, you might focus on learning how to read charts and identify key technical indicators, or on developing a consistent trading strategy that you can use on a daily basis.
For example, first learn candlestick formations.
Then learn candlestick patterns.
Practice the tasks you’ve identified consistently.
This might involve simulating trades using a trading simulator, or practicing with a small amount of real money before committing more capital. Using a trading simulator is highly recommended while you build knowledge, experience & confidence.
Seek out feedback and guidance from more experienced traders.
This might involve joining a trading community or mentorship program, or working with a trading coach. Especially one with over 35 years experience!!
A trading coach will help you with the following:
Begin by focusing on your trading needs
Breakdown your trading performance
Assess your trading strategy.
Suggest improvements.
Monitor your trading journal.
Stop you from making big losses.
Improve low risk trade identification.
Discuss different entry techniques.
Improve your trade management.
Suggest strategies to help you run trades for longer.
Help you manage/trail stop loss effectively.
Teach correct risk & account management.
Continuously evaluate your progress and make adjustments to your approach as needed.
Keep a trading journal & review it regularly to help identify mistakes & also what you are doing well. So you can be aware of how to improve.
Understand the risks involved with day trading and have a plan for managing them.
You cannot fully learn any new skill on your own by reading books or watching videos. Yes, this is a great way to start, to build a very basic knowledge & to discover if trading is an activity which excites & interests you.
But if you want to be the best trader you can be, you need a teacher or a mentor, just as every person needs who wants to improve what ever it is they are learning.
It’s important to note that day trading is a high-risk activity and it’s essential to have a strong understanding of the markets, the asset you’re trading, and the strategies you’re using.
It’s also important to have a plan for managing the inherent risk of trading, including using stop-loss orders and limiting the percentage of your account you’re willing to put at risk on any one trade
What are my chances of success if I study and practice without a teacher or mentor?
It is possible to study and practice day trading on your own and be successful, but it can be challenging and the chances of success may be lower compared to those who have a teacher or mentor.
Having a teacher or mentor can provide valuable guidance and feedback, which can help you to avoid common mistakes and improve your skills more quickly.
Additionally, a mentor can provide valuable perspective and insight that can be difficult to gain on your own, especially if you are new to the field.
Day trading with Fibonacci numbers can be a great way to generate profits.
(Especially when combined with moving averages & trend lines).
Fibonacci numbers are a sequence of numbers that correspond to specific ratios found in nature, and many traders believe that these numbers may also correspond to specific levels of support and resistance in stocks.
Here is a step-by-step guide on how to day trade using Fibonacci numbers:
1. Familiarize yourself with the basics of Fibonacci numbers. Read up on their origins, purpose, and how they can be used when trading.
2. Identify a Forex pair or index that you want to trade. Use historical chart data to identify potential support and resistance levels.
3. Select Fibonacci drawing tools on your charting software. These tools will draw lines on the chart corresponding to Fibonacci numbers,
such as the 38.2%, 50%, and 61.8% retracement lines.
4. Monitor the market to observe if any of the Fibonacci levels are providing support or resistance. If so, consider entering a trade when price reaches one of these levels.
5. Place your order and determine your risk levels. Be sure to use proper position sizing and risk management techniques when trading with Fibonacci numbers.
6. Manage the trade. If the price does not move in the direction you anticipate, exit the trade and look for another opportunity.
By following these steps, you can day trade using Fibonacci numbers as a tool to predict potential support and resistance levels in stocks.
It takes time and practice to master this trading technique, so be sure to do your research and paper trade before you start investing real money into the markets.
Candlestick patterns are a type of chart pattern that can be used to predict the direction of price movements.
The reliability of a candlestick pattern can depend on various factors, such as the time frame it is used on and the context in which it occurs.
That being said, here are most commonly used and reliable candlestick patterns:
Bullish Engulfing:
This pattern consists of a small bearish candlestick followed by a large bullish candlestick that completely “engulfs” the previous candlestick.
It is often seen as a strong bullish reversal pattern.
Bearish Engulfing:
This pattern is the opposite of the Bullish Engulfing pattern, and consists of a small bullish candlestick followed by a large bearish candlestick that engulfs the previous candlestick. It is often seen as a strong bearish reversal pattern.
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Doji:
A Doji candlestick is formed when the open and close prices are almost equal.
It suggests indecision in the market and can be a sign of a potential trend reversal.
Hammer:
A Hammer candlestick is formed when the open, high, and close prices are all close together, with a long lower wick.
It is often seen as a bullish reversal pattern.
Hanging Man:
A Hanging Man candlestick is similar to a Hammer, but it occurs at the top of an uptrend and is often seen as a bearish reversal pattern.
Bullish Harami:
This pattern consists of a large bearish candlestick followed by a small bullish candlestick,
with the small candlestick’s body contained within the large candlestick’s body.
It is often seen as a bullish reversal pattern.
Bearish Harami:
This pattern is the opposite of the Bullish Harami, and consists of a large bullish candlestick followed by a small bearish candlestick,
with the small candlestick’s body contained within the large candlestick’s body.
It is often seen as a bearish reversal pattern.
Shooting Star:
This is a bearish candlestick pattern having a long upper shadow and no lower shadow at all.
It occurs at the end of uptrend and signals bearish reversal.
Morning Star:
This pattern consists of a large bearish candlestick, a small bullish or bearish candlestick, and a large bullish candlestick.
It is often seen as a bullish reversal pattern.
Evening Star:
This pattern is the opposite of the Morning Star, and consists of a large bullish candlestick, a small bullish or bearish candlestick,
and a large bearish candlestick. It is often seen as a bearish reversal pattern.
As with any technical analysis tool, it’s important to remember that candlestick patterns should not be used in isolation, but rather in conjunction with other technical and fundamental analysis techniques.
There are several ways you can use technical analysis to identify low risk trading opportunities.
Here are a few ideas:
Look for chart patterns that indicate a reversal or consolidation, such as a head and shoulders pattern or a triangle pattern.
These patterns can often signal a change in the trend, which can present a low risk opportunity to enter a trade.
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A head & shoulders pattern in Gold.
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.A triangle pattern in Emini Dow Jones.
Use support and resistance levels to identify potential entry and exit points.
When the price of an asset bounces off a key support or resistance level, it can indicate a good time to enter a trade.
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Look for chart patterns that indicate a trend is losing momentum, such as a double top or double bottom.
These patterns can indicate that the trend is reversing, which can present a low risk opportunity to enter a trade in the opposite direction.
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Potential double top pattern on the weekly chart in Gold.
Use indicators such as the relative strength index (RSI) or the moving average convergence divergence (MACD) to identify overbought or oversold conditions.
These conditions can often precede a trend reversal, presenting a low risk opportunity to enter a trade.
It’s important to note that technical analysis is just one tool that can be used to identify trading opportunities,
and it’s always a good idea to use a combination of different analysis techniques to make informed trading decisions.
Explain how to use 3 moving averages to generate signals in the Forex market.
Give methods to identify a stop loss level for each trade and also a target.
Explain how to use a risk Vs reward system to maximize profits and minimise losses in the strategy.
Explain how to use price crossing above and below the moving averages to generate more signals.
Using moving averages is a common technique in Forex trading to generate buy and sell signals. One popular method is to use three moving averages with different time frames to identify trends and potential entry points.
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Here’s an example of how this might work:
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A short-term moving average (e.g., 50-period) is used to identify short-term trends and potential entry points.
When the short-term moving average crosses above the medium-term moving average (e.g., 30-period), it generates a buy signal. When it crosses above the medium-term moving average, it generates a but signal.
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A medium-term moving average (e.g., 100-period) is used to confirm the short-term trend and provide a filter for potential signals.
This moving average helps to reduce false signals generated by the short-term moving average.
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A long-term moving average (e.g., 200-period) is used to identify the overall trend of the market.
When the medium-term moving average is above the long-term moving average, it suggests that the market is in an uptrend, and when it is below the long-term moving average, it suggests that the market is in a downtrend.
In terms of identifying a stop loss level and a target, one common method is to use technical analysis tools such as support and resistance levels, or key Fibonacci levels. For example, you might set your stop loss level a few pips below a key support level and your target a few pips above a key resistance level.
To maximize profits and minimize losses, it is important to have a risk vs reward system in place.
This means that for each trade, you should have a clear idea of how much potential profit you are targeting and how much potential loss you are willing to accept.
A common rule of thumb is to aim for a risk-reward ratio of at least 1:2, meaning that for every dollar you are risking, you are aiming to make two dollars in profit.
This will help ensure that even if you are wrong on many trades, you will still be able to make a profit in the long run.
It’s important to mention that this is a general explanation of how to use moving averages in forex trading, and that a profitable strategy requires a rigorous analysis,
multiple indicators, robust backtesting and a robust risk management system. Additionally, it’s important to have a good understanding of the market conditions, news and events that could influence the currency pairs that you are trading.
We can use price crossing above and below the moving averages to generate more signals.
Include a detailed explanation of why trend following is important to integrate in to the strategy
Using price crossing above and below the moving averages can generate additional signals in a trading strategy, in addition to the signals generated by the moving averages crossing above and below each other.
When the price crosses above a moving average, it can indicate that the market is in an uptrend, and that a buy signal is generated.
Conversely, when the price crosses below a moving average, it can indicate that the market is in a downtrend, and that a sell signal is generated.
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For example, if you are using a 10-period moving average and the price crosses above this moving average, it can be interpreted as a bullish signal, and you might enter a long position.
If the price then crosses back below the 10-period moving average, it could be interpreted as a bearish signal, and you might exit the long position.
Incorporating trend following into your strategy is important because it helps you to identify the direction of the market and make trades in line with the trend.
When the market is in an uptrend, it is more likely to continue in that direction, and when the market is in a downtrend, it is more likely to continue in that direction.
By identifying the trend and making trades in line with the trend, you can increase your chances of making profitable trades.
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One way to integrate trend-following into your strategy is to use multiple moving averages with different time frames.
By using a short-term moving average, such as a 10-period moving average, and a long-term moving average, such as a 200-period moving average, you can identify both short-term trends and long-term trends.
When the short-term moving average is above the long-term moving average, it indicates that the market is in an uptrend, and when the short-term moving average is below the long-term moving average,
it indicates that the market is in a downtrend.
It’s important to mention that using price crossing above and below moving averages is just one of the many ways to generate signals and it’s important to have a complete strategy that includes other indicators,
robust backtesting, robust risk management and an understanding of the market conditions.
Additionally, in order to have a profitable strategy, it’s important to use a robust backtesting process, and a robust risk management system.
Here we explain what a stop loss order is & how to place a stop loss order.
We explain the key reasons why a trader must place stop-loss orders with every trade & explain what outcome the trader could experience of he fails to use stop -loss orders in his strategy.
A stop-loss order is a type of order that is placed with a broker to buy or sell a currency pair (or any other financial instrument) when the market reaches a certain price.
The purpose of a stop-loss order is to limit the amount of loss that a trader can incur on a trade by automatically closing the trade when the market reaches a certain level.
The key point is that by setting an automatic stop-loss the trader removes the responsibility to close the trade from him or herself.
This is important because many traders cannot trust themselves to close the trade when it starts moving in to a loss. Too many traders hold on for too long in the hope that prices will reverse to reduce the loss or turn the losing trade in to a winning trade.
‘Trading-on-hope’ is never a good strategy!
To place a stop-loss order, a trader would specify the currency pair they are trading, the amount they are willing to risk, and the price at which they want the stop-loss order to trigger.
For example, a trader might place a stop-loss order to sell EUR/USD at 1.2000, if the trade goes against them.
There are several key reasons why a trader should use stop-loss orders with every trade:
Risk management: Stop-loss orders help to limit the amount of loss that a trader can incur on a trade, which is an important aspect of risk management.
Emotion control: Stop-loss orders can help to prevent a trader from letting emotions such as fear or greed influence their trading decisions.
Consistency: Using stop-loss orders can help a trader to maintain consistency in their trading by automatically closing a trade when the market reaches a certain level.
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If a trader fails to use stop-loss orders in their strategy, they could experience several negative outcomes:
Large losses: Without a stop-loss order, a trader could suffer large losses on a trade if the market moves against them.
Lack of consistency: Without stop-loss orders, a trader’s trades could be inconsistent, as they may not have a clear plan for when to close a trade.
Emotional trading: Without stop-loss orders, a trader may be more likely to let emotions such as fear or greed influence their trading decisions.If you are trading without using stop loss orders you are not trading, you are gambling because you have no idea what your downside risk is. Therefore you are not controlling your risk vs your potential reward.
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Understanding risk vs reward is a key aspect for successful traders.
Overall, stop-loss orders are an essential tool for risk management in forex trading. A trader should always use stop-loss orders with every trade to limit their potential losses and maintain consistency in their trading.
It’s important to note that stop-loss order does not guarantee profits and it’s just a way of managing the risk.
The first scalping strategy is to look for small price moves in highly volatile financial markets.
A good example would be a ‘major’ forex pair with high trading volume and small bid-ask spreads.
‘Major’ forex pairs are those pairs from the largest economies, such as the USA, Canada, Europe, UK, Japan & Australia.
Examples of those pairs are: EURUSD AUDUSD USDJPY USDCAD EURJPY AUDJPY CADJPY GBPJPY GBPUSD EURGBP etc
Certain commodities are also used by day traders & scalpers, especially the more volatile commodities such as Natural Gas, WTI Crude & Gold.
When the particular financial instrument is moving in a small range, the trader can buy at the bid price and sell at the ask price, pocketing the spread as profit.
Or the trader can draw trend lines on a short term chart, such as the 15 or 5 minute chart. The trader can then sell short at the upper end of the trading range & buy at the lower end of the trading range.
Another scalping strategy is to trade news releases.
This involves identifying key economic events, such as non-farm payrolls (unemployment), average earnings, CPI (consumer price index), retails sales, money supply, consumer confidence or interest rate announcements.
The trader will be ready for the release of the economic statistic, knowing that volatility is likely to increase in the minutes after the release. The trader then tries to trade the price movement that occurs after the news is released.
A third scalping strategy is to trade off technical analysis.
This involves using tools such as moving averages, Bollinger bands, and trend lines to identify a clear trading range. The trader then has potential entry and exit points at the upper & lower end of the trading bands.
Scalpers can then enter and exit trades quickly based on these technical signals. They will try to risk less then they think they can make & repeat the process over and over again, taking a profit on a small move each time. The trader can magnify the profit by taking bigger risks & trading in larger size. However this also increases the potential losses so the trader must be highly skilled & experienced.
Most importantly the trader must be able to trust him or herself to exit quickly when the trade turns in to a loss. The trader could execute dozens of trades each day so risk management is absolutely key.
If the trader does not adhere to important trading rules the losses can mount very quickly & even wipe out a trader’s account in a single day.
It’s important to note that scalping can be a high-stress and high-risk strategy, and it’s not suitable for everyone.
It’s crucial to have a solid understanding of the markets and a well-thought-out plan before attempting to scalp.
How can the release of economic statistics such as the unemployment rate, retail sales,
CPI (consumer price index), PPI (producer price index), average earnings & money supply
affect the stock market, bond market and currency market?
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The release of various economic indicators, such as the unemployment rate, retail sales, CPI, PPI, average earnings, and money supply, can have a significant impact on the stock market, bond market, and currency market.
The unemployment rate, for example, is a measure of the number of people who are unemployed and actively seeking employment as a percentage of the total labor force. If the unemployment rate is high, it can signal to investors that the economy is weak and that companies may be struggling.
This can lead to a decline in stock prices as investors become less optimistic about the future prospects of companies.
Retail sales, on the other hand, measure the total amount of sales made by retailers. Strong retail sales can indicate that consumers are spending money and that the economy is doing well.
This can boost investor confidence and lead to an increase in stock prices.
The Consumer Price Index (CPI) and Producer Price Index (PPI) are measures of inflation.
If inflation is high, it can signal to investors that the cost of goods and services is rising,
which can lead to a decrease in stock prices as companies may struggle to maintain profits.
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Average earnings measure the average amount of money that people are earning. A rise in average earnings can indicate that people have more disposable income to spend,
which can boost consumer spending and the economy. This can lead to an increase in stock prices.
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The money supply measures the total amount of money in circulation.
An increase in the money supply can lead to inflation, which can have a negative impact on stock prices.
In the bond market, a rise in interest rates can lead to a decrease in bond prices,
as the fixed return on a bond becomes less attractive when compared to other investments that may offer a higher return.
A decrease in interest rates, on the other hand, can lead to an increase in bond prices as the fixed return on a bond becomes more attractive.
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In the currency market, an increase in interest rates can lead to an appreciation of a currency as investors seek to invest in that currency to take advantage of the higher return.
A decrease in interest rates, on the other hand, can lead to a depreciation of a currency as investors seek to invest in other currencies with higher returns.
It is important to note that these indicators are not the only factors that can affect the stock market, bond market, and currency market.
Other factors such as geopolitical events, natural disasters, and company-specific news can also have an impact.
It is important to keep track of multiple indicators and events to get a more accurate picture of the overall economic situation.
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How can these numbers can affect the outlook for interest rates?
What is the knock on effect to stock markets, bond markets and currency markets?
The release of various economic indicators, such as the unemployment rate, retail sales, CPI, PPI, average earnings, and money supply,
can have a significant impact on the outlook for interest rates and the knock-on effect on stock markets, bond markets, and currency markets.
For example, if the unemployment rate is low and retail sales are strong, it may signal to the central bank that the economy is strong and that inflation is likely to increase.
In response, the central bank may raise interest rates to try to cool off the economy and keep inflation in check.
This can have a negative impact on stock markets as higher interest rates can make borrowing more expensive for companies, which can reduce their profits.
Bond markets will also be affected, as bond prices fall when interest rates rise.
On the other hand, if the unemployment rate is high and retail sales are weak,
it may signal to the central bank that the economy is weak and that inflation is unlikely to increase.
In response, the central bank may lower interest rates to try to stimulate the economy.
This can have a positive impact on stock markets as lower interest rates can make
borrowing cheaper for companies, which can increase their profits.
Bond markets will also be affected, as bond prices rise when interest rates fall.
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Inflation, measured by Consumer Price Index (CPI) and Producer Price Index (PPI) can also affect the outlook for interest rates.
If the inflation rate is above the central bank’s target, it may signal to the central bank to increase interest rates to curb inflation.
This can have a negative impact on stock markets, bond markets, and currency markets.
If the inflation rate is below the central bank’s target, it may signal to the central bank to decrease interest rates to increase inflation.
This can have a positive impact on stock markets, bond markets, and currency markets.
Money supply is another important factor that can affect the outlook for interest rates. An increase in the money supply can lead to inflation,
which can prompt the central bank to raise interest rates to curb inflation. On the other hand, a decrease in the money supply can lead to deflation,
which can prompt the central bank to lower interest rates to increase inflation.
How does a changing outlook for interest rates affect a domestic currency?
A changing outlook for interest rates can have a significant impact on a domestic currency.
When a central bank raises interest rates, it can make a country’s currency more attractive to foreign investors.
This is because higher interest rates generally mean that investors can earn a higher return on their investment.
As a result, foreign investors may buy more of the domestic currency to take advantage of the higher returns,
which can lead to an appreciation of the domestic currency.
On the other hand, when a central bank lowers interest rates,
it can make a country’s currency less attractive to foreign investors.
This is because lower interest rates generally mean that investors can earn a lower return on their investment.
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As a result, foreign investors may sell off the domestic currency and invest in currencies with higher returns, which can lead to a depreciation of the domestic currency.
It is important to note that the relationship between interest rates and currency value is not always linear,
and other factors such as global market trends, or speculation can also affect the currency value.
How can a strong economy help increase stock prices until inflation starts to increase
beyond a central bank’s self imposed limitations?
A strong economy can help increase stock prices in a number of ways. When the economy is strong, consumers are more likely to spend money, which can boost sales for companies. This can lead to increased profits for companies, which can in turn lead to higher stock prices.
Additionally, a strong economy can also lead to increased investment in companies as investors are more likely to be optimistic about the future prospects of companies.
This can also lead to higher stock prices.
However, as the economy continues to grow and inflation starts to increase beyond the central bank’s self-imposed limitations, the central bank may take action to curb inflation by raising interest rates. Higher interest rates can make borrowing more expensive for companies, which can reduce their profits and lead to a decrease in stock prices.
Additionally, higher interest rates can also make other investments more attractive,
which can lead to a decrease in investment in stocks and a decrease in stock prices.
It’s important to note that the central bank’s decision to raise interest rates is not always negative for the stock market.
It can be seen as a sign of a strong economy and investors may remain optimistic about the future prospects of companies.
However, if the interest rate hike is too aggressive, it can cause a recession and lead to a decrease in stock prices.
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In summary, a strong economy can help increase stock prices by boosting sales for companies and increasing investment in companies.
However, as inflation starts to increase beyond the central bank’s self-imposed limitations, the central bank may take action to curb inflation by raising interest rates,
which can lead to a decrease in stock prices.
What investments are more attractive in a rising interest rate economy?
In a rising interest rate economy, investments that tend to be more attractive include bonds, and dividend-paying stocks.
Bonds are debt securities issued by governments, municipalities, and corporations. They pay a fixed return to the bondholder,
known as the coupon. As interest rates rise, the fixed return on bonds becomes more attractive compared to other investments,
and therefore bond prices tend to rise. This makes bonds more attractive to investors seeking a predictable and stable return.
Dividend-paying stocks are stocks that pay a portion of their profits to shareholders in the form of dividends.
Dividend-paying stocks tend to be more attractive in a rising interest rate environment because they provide a steady stream of income to investors,
which can be more appealing as interest rates rise and other investments may become less attractive.
In addition to bonds and dividend-paying stocks, other investments that may be more attractive in a rising interest rate environment
include real estate investment trusts (REITs) and utility stocks.
REITs tend to perform well in a rising rate environment as they provide a steady stream of income and tend to have low volatility.
Utility stocks also tend to be more attractive as they provide a steady stream of income and are less sensitive to interest rate changes.
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