Triangles Patterns

We have 3 different main types of triangle patterns. Symmetrical Ascending Descending

Head and Shoulder Pattern

 Please watch the video to understand how this pattern shapes.

• A Head and shoulders pattern is described by three peaks, the outside two called left and right shoulders which are close in height and the middle is the highest named Head.
• A Head and shoulders pattern describes a specific chart formation that predicts a trend reversal or a price consolidation in a very trendy market.
• The head and shoulders pattern is believed to be one of the most reliable patterns.

Top-down or a Bottom-up basis to choose the best stocks for your portfolio

 Top-Down Active Management

Asset allocation

At this stage of the top-down process, asset managers try to determine which areas and asset classes are most likely to produce the most attractive risk-reward returns.

As an example, they may decide that the US stock market is going to outperform, so they allocate say 50% of the portfolio to the US stocks. ( We will talk about choosing the right stocks on next steps )

Also, they may decide that the Crypto market will enter another bull market and they also allocate say 5% to Crypto. The same for commodities $OIL  FOREX, etc.

Sector selection 

Depending on what stage of the economic cycle we are we should choose different stocks.

For example at the start of a bull run, banks could be a good sector while at growth phase leisure or airlines are the best and at the end of the bull market, we may look at pharmaceutical shares, etc.

Stock selection

After choosing the sectors you should use your fundamental or technical analysis skills to find the best stocks for your portfolio.

Fundamental analysis: For example by looking at companies' balance sheets, earnings reports, etc. to find undervalued stocks.

Technical analysis: By looking at charts and trends to find the best entry points.

Bottom-Up Active Management

The main focus here will be solely on the individual stock's unique attractions. The stock selection is based on specific criteria that asset manager applies to their strategy. For example, different fundamental ratios to find out the companies based on their value, growth at a reasonable price, momentum, and contrarianism.

For example:

• By looking at company reports they may find that $NAS is undervalued and could be a good investment.
• By looking at steady growth they may decide $AAPL should be included in the portfolio.
• By looking at a large increase in $STMP price, it will be selected based on the momentum.
• Or they may choose $HMMJ as they believe going against the trend will bring high returns.

I am a fan of the top-down method as it suits my strategy better and I feel more organised by implementing it.

By Nina

Technical and Fundamental Analysis

 TA Vs FA

Both Technical and Fundamental analysis seeks to evaluate an asset.

In my opinion, these 2 major analysis methods are similar more than you think!

Fundamental analysis

The FA involves the financial analysis of an asset by focusing on the underlying factors that affect that asset.

The assumption behind fundamental analysis is that the market does not always value assets (shares commodities, crypto, etc) correctly in the short term. Fundamental analysers try to identify the intrinsic value of assets to buy at a discount or sell at a high.

They believe their investment will pay off over time once the market realises the fundamental value of an asset.

Technical analysis:

The technical analysis seeks to evaluate a company by:

• Using historical price, and
• Using Volume data

 to assess where the price of a security or market will move in the future.

This means technical analysers are looking at past patterns and trends to see if they are repeatable in the future.

one of the most important items in TA is the trend which shows a continuation of the current situation.

Why do I think these 2 are very alike?

As mentioned, Fundamental analysis tries to identify the true value of an asset. For example for a company share price, FA will look at the company's balance sheet, cash flow statement, earnings reports, etc. 

The technical analysis considers that there is no need to do this hard work as a company’s fundamentals are already accounted for in the price, and the information is reflected in the company’s charts. So we need to look at charts and use indicators to find the best entry prices and the market will follow the trend.

Many times if a financial report surprises traders we will see a spike in the price and depending on the nature of that news and other reports price may change direction or continue the previous trend.

Best Candlestick Patterns

 

Long Wick (Shadow) Candle: Buyers or sellers tried to push the price further but failed

The inside bar: After a long wick could mean price change

Also engulfing is a reversal signal.

Momentum candle: 

Multiple rejections: Good resistance and sign of price rejection and reversal

Shrinking candles: Loss of momentum

3 consecutive candles in the same colour: indicate the start of a new trend.

Big red candle: bearish

Doji: Open and close are similar and we have shadows on both sides. Can be a signal for reversal if the next candle shapes in a different colour from the previous one.

Hammer: bullish 

Inverted hammer: bearish

Basic Terms

 

Currency Pair

It is the quotation of one currency unit against another currency unit.

Forex trading is very exciting. The market is on the move, and the smallest movement in the currency can mean a lot of profits and losses!

Let me explain this further.

8 of the most traded currencies in the Forex market are as follow:

As you see, we use short forms for currencies: euro is EUR, US dollar is USD, and Japanese yen is JPY.

United States Dollar	USD
Euro	EUR
Pound Sterling	GBP
Japanis Yen	JPY
Canadian Dollar	CAD
Swiss Franc	CHF
New Zealand Dollar	NZD
Australian Dollar	AUD

For example, the euro and the US dollar together make up the currency pair EUR/USD. The first currency (in our case, the euro) is the base currency, and the second (the US dollar) is the quote currency.
Forex is trading in pairs, which means, each transaction involves selling a unit and buying another unit. The following pairs are the 18 most popular pairs in the Forex market.

EUR/JPY	USD/CAD
EUR/CHF	EUR/USD
EUR/GBP	USD/CHF
AUD/CAD	GBP/USD
GBP/CHF	NZD/USD
GBP/JPY	AUD/USD
CHF/JPY	USD/JPY
AUD/JPY	EUR/CAD
AUD/NZD	EUR/AUD

Exchange Rate and Quote
When a pair of currency units are bought and sold, it has a bid-ask rate (for example):
Pair EUR / USD
Ask 1.5422
Bid  1.5420
This means that:

Buy pairs to bid rates or sell pairs to the asking rate ( Offer )

Buy Euro at $1.5422 Or Sell Euro at $ 1.5420

So what's your potential to gain profit?

The rate of pairs is constantly changing. One way to make money is to buy a pair at a rate and then close it at a higher rate. Another way is to sell a pair and then close the position at a lower rate.

Yes, in the FOREX market we can always make money by recognizing the trend. If we are in a bullish market we buy and if the trend is bearish we sell. Do not forget that trend is your friend! 

Spread

The bid is always lower than the ask. And the difference between the bid and ask is the spread.

• Fixed spread
• Variable spread

You may see different prices from different brokers. FOREX is a decentralized market. There is no central source. What you see as one price, is in fact the best price of hundreds of slightly different prices for different amounts of currency different market participants offer to buy from you or sell to you. 

Account Currency

It is the currency you choose when you open a trading account with your broker.

Pip

A pip is the smallest price change of a given exchange rate.

For example: if the currency pair EUR/USD moves from 1.2150 to 1.2151, that’s a 1 pip movement.

Most currency pairs have 4 decimal points.

The JPY has 2 decimal points.

Fractional Pip

Some brokers add one decimal point to the price. We call the last decimal place a pip fraction or tenth pip.

Lot

Lot is the unit of FOREX trading. Like kg when you buy potato! 

• One standard lot has 100,000 units of the base currency.
•  a micro lot has 1,000 units.

Pip Value

The pip value shows how much 1 pip is worth. 

An example:

Account currency: USD

Trade size 1 Standard lot

In the EUR/USD pair, 1 pip movement is .0001 USD.

0.0001x100,000=10USD with no leverage

Margin

Margin is the minimum amount of funds that you will need if you want to open a position and keep your positions open.

Leverage

Is the money your broker lends you so that you can trade bigger lots:

Equity

It is the total amount of money in your trading account, including your profit and losses. 

Margin Call

Margin calls are a major part of risk management: as soon as your Equity drops to a percentage of the margin used, your forex broker will notify you that you need to deposit more money if you want to maintain your position. Different brokers have different margin level requirements. 

Position

It is a trade that you have open.

Long Position

When you buy a base currency. for example, if you go long on EURUSD then you are buying EUR.

Short Position

When you sell a base currency. 

Order Types

Market Order / Entry Order

To buy or sell currency instantly at the current price.

Limit Order

It is an order placed away from the current market price. This will be executed if the price reaches your target or market opens etc

Take Profit Order (TP)

Will close your position if the price hits your target. 

Stop-Loss Order (SL)

Your position will be closed if the price goes against your analysis at a rate calculated by you.

Execution

It is the process of completing an order.

Known patterns in technical analysis.

 

1. Bat Pattern
2. Elliott Waves (EW) and how to combine them with the Fibonacci numbers.
3. Butterfly pattern Trading
4. Gartley Pattern Trading Strategy

Superstitions

 I have been talking to one of my friends today. He said he is going to close all of his shares before Friday the 13^th.

I have asked the reason.

I was expecting to hear things like the following items:

• ·         The factory data in the US is not as good as predicted. ( $GM stock? )
• ·         The China-US relationships. ( #BABA stock? )
• ·         Slower economy recovery. (#OIL price )
• ·         Cryptocurrencies regulations. ( #DOGE )

But he continued, I will reopen the next Monday.

I asked the reason and he said he saw a dream. Also, it is Friday the 13th!

How superstitious are you in trading?

This question is important because if too many people believe in the same thing, then this may cause an impulse wave or corrective wave. This is the main logic behind the Eliot wave and other harmonic trading analyses.

How superstitions can affect the stock markets?

1.      Friday the 13th

In the old days, the effect of superstitions was too high as on Friday 13^th we may have seen fewer trades and fewer returns/losses. But nowadays trading is automated, So, I say don’t worry about it.

2.      Witching hours!

Really! Between 2 and 3 PM is witching hours?

But we are trading globally how this even works? A witching hour here is not a witching hour in the US. So again, Not a chance we listen to this.

3.      Sell on the first day of Jewish New Year and buy on Yom Kippur

I am not sure about this one either. My Jewish friend says it works most of the time to sell on Rosh Hashanah!

My question is, what about Christmas? Oh, wait are the markets open on Christmas? At last, we can sell our Cryptocurrencies. #BTC

The list goes on depending on different cultures.

Some believe their lucky number or days is 7. Chinese say it is 8. Many people call 13 bad luck for trading.

The effect of Superstition in online trading is getting less and less due to the global village phenomenon. But for the individuals who are believing in it. These days will be days with a fewer turnaround.

So, what should we do?

Educate yourself, learn different types of trading styles e.g Technical, Fundamental.

By "Nina" eToro username: Trendchaser