Long-Term Investment: Building Wealth for the FutureHave you ever thought about the astounding fact that the S&P 500 has achieved approximately a 10% average annual return over the last ninety years? This statistic serves as a powerful reminder of the effectiveness of long-term investment strategies for accumulating wealth. In contrast to short-term trading, long-term investing emphasizes the gradual growth of your financial assets through the benefits of compounding returns and the overall growth of the market.
Yearly Chart of the S&P 500
For individuals seeking financial security and stability, embracing a long-term investment approach is essential. This strategy involves holding onto investments—such as stocks, bonds, or real estate—over extended periods, enabling them to endure market volatility and benefit from economic growth. By concentrating on long-term objectives, you establish a strong foundation for sustainable wealth, making it suitable for those in pursuit of financial independence and a prosperous future.
Grasping the fundamentals of long-term investing and applying effective strategies can help you sidestep impulsive decisions and distractions associated with short-term market movements, keeping your attention focused on achieving lasting wealth.
- The Importance of Long-Term Investments for Wealth Creation -
Long-term investments are crucial for wealth creation, primarily because of the advantages of compound returns. Compounding allows your initial returns to generate further earnings, leading to exponential growth over time. The longer you stay invested, the more substantial the effects of compound interest become, facilitating significant wealth accumulation.
Consider this example: if you invest $10,000 at an 8% annual interest rate, at the end of the first year, your investment will grow to $10,800. In the following year, interest is calculated on $10,800 rather than the original $10,000, boosting the total to $11,664. Over decades, this compounding phenomenon can lead to remarkable increases in wealth, underscoring the effectiveness of long-term investments.
In addition to the benefits of compounding, long-term investments help mitigate risk. While short-term market fluctuations can be erratic, historical evidence shows that markets generally trend upward over time. Holding investments over more extended periods allows you to ride out volatility and avoid rash decisions during downturns. This approach encourages a mindset of patience and commitment, reducing the likelihood of common errors, like panic selling during market declines.
Achieving success in long-term wealth accumulation requires a disciplined approach—sticking to your investment plan despite market fluctuations. Coupled with the advantages of compound interest, long-term investing becomes a dependable pathway toward financial growth and the fulfillment of your aspirations.
- Key Long-Term Investment Options -
When considering your options for long-term investments, it's imperative to assess choices based on your risk tolerance, growth prospects, and their alignment with your broader financial strategy. Here are several proven avenues for long-term investors to explore:
1 - Stock Market
The stock market is a favorite among long-term investors, offering multiple avenues for wealth-building. Index funds and Exchange-Traded Funds (ETFs) are particularly appealing due to their broad market exposure. Index funds are designed to track major indices such as the S&P 500, which has historically provided an average annual return of around 10% over the past nine decades. These funds are not only cost-effective but also inherently diversified, making them an excellent choice for novice investors and experienced portfolios alike.
ETFs share many similarities with index funds but offer more flexibility as they can be traded like individual stocks. For those inclined to take a more active role, investing in individual stocks can be rewarding, provided thorough research is conducted and a focus is maintained on companies with strong growth potential. However, it's essential to balance investments in individual stocks with safer alternatives, especially within a long-term strategy.
2 - Real Estate
Real estate represents another robust option for long-term investing, known for generating consistent returns through property appreciation and rental income. It provides a tangible asset, generating ongoing cash flow and serving as a hedge against inflation. Historically, property values have shown a tendency to increase over time, making real estate a fundamental piece of many long-term wealth-building strategies.
Investing in real estate can take various forms, such as acquiring residential or commercial properties, or investing in Real Estate Investment Trusts (REITs), which allow for real estate investment without the need for direct management. Leveraging real estate through mortgages can maximize its potential as a long-term wealth generator, although it’s crucial to consider associated costs like property maintenance and taxes.
Key factors to consider when investing in real estate include location, property condition, and prevailing market trends. Properties situated in high-demand or growing areas usually appreciate at a faster rate and tend to attract more reliable tenants. Understanding local market dynamics and regulations can enhance your investment decisions and outcomes.
3 - Bonds
Bonds are often regarded as the safety net within an investment portfolio, providing stable and fixed income, along with lower volatility compared to stocks. They are well-suited for investors who prioritize security or are approaching retirement. Government bonds, such as U.S. Treasury bonds, are typically the safest option but come with lower yields, while corporate bonds offer higher returns but carry additional risks.
Incorporating bonds into your investment portfolio can help cushion against stock market fluctuations, ensuring steady returns and protection from extreme volatility. For beginners, bonds can particularly aid in maintaining portfolio stability over time.
When considering bonds, it’s essential to evaluate the issuer's credit rating, as this significantly influences the bond's risk profile. Higher-rated bonds (e.g., AAA) tend to be less risky but offer lower returns, while lower-rated bonds (e.g., junk bonds) may yield higher returns at an elevated risk. Diversifying your bond holdings across different issuers and maturities can also aid in risk management.
4- Retirement Accounts (401(k), IRAs)
Retirement accounts such as 401(k)s and IRAs are vital for accumulating wealth in a tax-efficient manner. These accounts afford substantial tax benefits: contributions to traditional IRAs and 401(k)s are tax-deductible, with earnings growing tax-deferred until retirement. Roth IRAs necessitate after-tax contributions, enabling tax-free withdrawals in retirement.
Retirement accounts facilitate consistent investing over decades, capitalizing on employer matching programs available with 401(k)s. This type of compounding can transform modest contributions into significant sums, making retirement accounts a crucial vehicle for long-term financial success.
When utilizing retirement accounts, it’s important to contemplate your retirement timeline and the investment options within these accounts. Traditional accounts may be advantageous for those expecting to be in a lower tax bracket during retirement, while Roth accounts could benefit individuals anticipating higher tax burdens in the future. Regular reviews and adjustments based on your investment goals and risk tolerance are also essential.
- Crafting a Long-Term Investment Strategy -
Creating a long-term investment strategy entails careful planning and steadfast execution. Whether you are embarking on your investment journey or refining an existing plan, these steps will guide you towards sustainable financial growth:
1- Define Your Financial Goals and Assess Risk Tolerance
Before diving into investments, outlining your financial objectives and understanding your risk tolerance are critical. Clarify what you aim to achieve—be it retirement preparation, purchasing a home, or funding education. Clearly defined goals will steer your investment choices and help you remain focused during market fluctuations.
Equally important is gauging your risk appetite. Younger investors typically have the flexibility to take on more risk, while those nearing retirement may gravitate towards conservative strategies that emphasize capital preservation through bonds and lower-risk assets.
For instance, if you aim to retire in 30 years, a portfolio with a heavier allocation to stocks may be appropriate, given their potential for higher returns despite short-term volatility. Conversely, those closer to retirement may want to shift towards bonds and dividend-paying stocks to reduce risk while ensuring a consistent income.
2- Diversify Your Portfolio
Diversification is an integral aspect of any long-term investment strategy. It involves allocating your investments across different asset classes—stocks, bonds, and real estate—to mitigate risk. By diversifying, you shield your portfolio from the detrimental effects of poor performance in any one area.
For example, if equities suffer during an economic downturn, your bond or real estate investments may yield positive returns, buffering against significant losses. This balanced approach is key to navigating market volatility and enhancing overall performance.
Additionally, consider diversifying within asset classes. In the stock segment, this may involve investing in various sectors and industries. For bonds, diversification means holding an array of types with varied maturities and credit ratings. A well-structured portfolio could include a mix of domestic and international stocks, government and corporate bonds, in addition to real estate investments. By broadening your investments across asset classes and geographical areas, you effectively mitigate risks tied to any single investment or market.
3- Implement Dollar-Cost Averaging
Dollar-cost averaging is a strategy that entails investing a fixed amount at regular intervals, independent of market conditions. This approach allows you to buy more shares when prices are low and fewer when they are high, gradually reducing your average cost per share over time.
This method helps mitigate the emotional impact of market volatility, proving particularly beneficial for novice investors. By focusing on the long-term while minimizing the effects of short-term fluctuations, dollar-cost averaging can promote the growth of your wealth.
To optimize dollar-cost averaging, consider setting up automatic contributions to your investment accounts. This ensures consistent investment practices and makes it easier to resist impulsive decisions based on market activity.
4-Regularly Rebalance Your Investments
Over time, some of your investments may outperform others, resulting in your portfolio shifting away from its intended allocation. For example, if stocks exceed bonds in performance, your portfolio may become skewed toward equities. To maintain your desired risk profile, it is crucial to periodically rebalance your investments.
Rebalancing involves selling portions of assets that have performed well and reinvesting the proceeds into underperforming assets, thus maintaining your risk tolerance and capturing growth opportunities in undervalued investments. Keeping your portfolio aligned with your long-term strategy fosters steady financial growth.
Establish a rebalancing schedule that corresponds with your investment style and market conditions. Some investors may opt to rebalance annually, while others might prefer quarterly or semi-annual adjustments. Additionally, consider rebalancing in response to significant market changes or personal circumstances that impact your financial goals or risk appetite.
5- Review and Refine Your Strategy
Long-term investing necessitates ongoing attention. Regularly reviewing your portfolio, monitoring performance, and adjusting your strategy according to shifts in your goals or market conditions can help keep your investments aligned with your objectives. Conducting yearly reviews or quarterly assessments enables you to stay on track and make informed decisions.
Monitoring entails evaluating how your investments stack up against your goals and making adjustments when necessary. For instance, if there’s a substantial change in your risk tolerance due to major life events such as marriage or retirement, you may need to alter your asset allocation accordingly.
Stay updated on market trends and economic indicators that may influence your investments. While it’s important to avoid overreacting to short-term market changes, being informed allows you to make educated decisions and adapt your strategy when the situation demands it.
By adhering to these principles and embracing a long-term perspective, you can lay the groundwork for substantial wealth accumulation and financial independence in the future.
✅ Please share your thoughts about this article in the comments section below and HIT LIKE if you appreciate my post. Don't forget to FOLLOW ME; you will help us a lot with this small contribution.
Community ideas
BTCUSD - Using Fibonacci To ScalpGood morning everyone!
A bit of a different video today - more of an educational video. This is how I use fibonacci when I do trading. Over the last couple days, Bitcoin has been a great asset to scalp. I don't leverage trade often, but when I do, I try and look for the high probability setups.
Using the 61.8% internal retracement fibonacci (fib) level, you can find a great place to make a trade, both long or short. After dropping from 93k to 88k, we can measure that move and find where the price action would move 61.8% within it. That's where you attack.
Risk management? Well, from there, you need to give yourself some wiggle room. As you can see from the video, price action navigated within my stop territory, but you can use the 78.6% fib level (beyond the 61.8 level) as a stop. Typically, if price action gets to that 78.6% level, it's not going to stop.
Target? I outlined two ways to get a target, but typically when you do get a rejection off that 61.8, you should be targeting the -23.6% fib extension target. That's basically exactly where bitcoin landed - around 87k.
That is the general rule of thumb when trading with fibonacci - which as I mentioned in my video update - is one of the ONLY leading indicators - meaning it can give you insights into the future vs just explaining in many ways what has already happened.
Have a great day everyone!
Grasping Forex Volatility: How to Trade in Choppy & Calm WatersWhen it comes to the forex market , volatility isn’t just a side effect—it’s the main event. The constant ebb and flow of currency prices can be exhilarating or exasperating, depending on how good you are.
Volatility can shift from a calm sea to a rogue wave, often without warning, leaving traders either riding high or clutching their lifebuoys. To help you navigate the forex waters like a pro, especially if you’re a newcomer, we’ve whipped up this Idea with some key insights and revelations.
The Art of Trading During High Volatility
High volatility tends to be thrilling—big price swings, rapid moves, and plenty of adrenaline. For the well-prepared trader, these market conditions are like surfacing a giant wave; the payoff can be huge, but it demands skill, timing, and control.
Why High Volatility Happens
Interest rate announcements, economic releases, geopolitical turmoil—high-impact events send volatility soaring. During these times, spreads can widen, price slippage creeps in, and liquidity often gets tighter, making precision essential. While the reward potential is high, the risks are right there with it. Think of high-volatility periods as power tools; they’re incredibly effective in the right hands but can quickly cause damage if used recklessly.
Strategizing in the Fast Lane
When volatility spikes, flexibility is key. One popular approach is to shorten your trading timeframe. Rather than holding out for the moon, focus on capturing smaller, rapid gains and set tighter stop-loss levels to limit downside. Pay attention to the economic calendar —if the Federal Reserve is set to speak, or if non-farm payrolls data is due, get ready to adapt fast. And if you’re following price trends, make sure to use a healthy dose of confirmation bias: watch those moving averages , MACD signals , and RSI readings , and let them do their job before you jump in.
Finding Opportunity in Low Volatility Markets
At the opposite end of the spectrum, low volatility often gets a bad rap. Price moves seem sluggish, the market consolidates, and excitement seems as far away as Friday on a Monday. But low volatility doesn’t mean no opportunity. It simply requires a shift in tactics.
Why Markets Go Quiet
Periods of low volatility often occur in the absence of major news or when traders are holding back, waiting for an upcoming event. These consolidating markets are common around holidays, just before important announcements, or in times of economic stability.
Reading Between the Lines
Trading in a low-volatility environment means you’re often dealing with range-bound markets. Here, the game is all about patience and precision. Use support and resistance levels as guardrails—when prices reach the top of a range, it’s often time to sell; when they reach the bottom, consider buying.
But a word to the wise: low volatility doesn’t stay that way forever. A period of consolidation can quickly give way to breakout action. Keep an eye on breakout indicators like Bollinger Bands ; when they start expanding, it might signal the market’s about to wake up from its nap.
Choosing the Right Pair
Certain currency pairs are naturally more volatile than others. Major pairs like EUR/USD , GBP/USD , and USD/JPY see consistent action due to their high trading volume, but if you’re hunting high-pitch volatility, take a look at pairs like GBP/JPY , EUR/JPY , or any pair involving emerging market currencies like the Mexican Peso or South African Rand. Keep in mind, though, that with higher volatility comes a need for tighter risk control.
On the other hand, when markets are in a lull, the majors are often your best bet. During low-volatility periods, the big, liquid pairs are less prone to the kind of wild fluctuations that can eat away at gains. Trading low-volatility pairs in a low-volatility market can keep you out of whipsaw territory and add some consistency to your returns.
Leverage: Powerful yet Dangerous, and Not Always Your Friend
Let’s get something straight: leverage in a high-volatility market can be like playing with fireworks. It’s all great until you get burned. When markets are moving fast, a little leverage goes a long way, but too much can quickly wipe out gains (and accounts). Dialing down leverage during volatile times can keep your trade within control without losing out on potential returns.
In low-volatility markets, leverage might seem tempting as a way to amplify those smaller moves. But here’s the catch—just because volatility is low doesn’t mean you’re free from risk. Markets can turn on a dime, and it’s always better to live to trade another day. Use leverage sparingly, no matter what the market mood may be.
Liquidity: The Grease That Keeps the Forex Machine Running Smoothly
If volatility is the main character, then liquidity is the supporting cast, keeping everything steady when the markets get choppy. High liquidity—think major pairs like euro-dollar and dollar-yen—means your orders are filled fast and spreads stay tight, giving you a bit of breathing room. But liquidity can shrink fast in low-volume sessions, during major events, or with exotic pairs. That’s when spreads can widen unexpectedly, slippage sneaks in, and you might get more excitement than you bargained for.
When volatility is high, liquidity can drop as big players step back, causing prices to jump erratically between buy and sell points. If you’re trading into the storm, consider the liquidity squeeze a warning: stick with high-liquidity pairs, watch those spreads, and avoid getting caught in thin markets. In fast-moving conditions, liquidity is your safety net, so stick with the pairs that offer deeper pools of it.
In low-volatility markets, liquidity is usually stable. With tighter spreads and less risk of slippage, low-volatility conditions let you plan range-bound trades with more confidence. It’s one of the perks of low volatility: while big moves may be rare, the market structure tends to hold, keeping your trades smoother and more predictable.
The Bottom Line: Volatility is a Double-Edged Sword
High or low, volatility is something every trader has to contend with. The key is to approach it with strategy, patience, and adaptability. Anyway, here’s the advice you didn’t ask for: in high-volatility times, trade quickly, tighten your stops, and keep your leverage modest. In low-volatility environments, embrace the calm, focus on range trading, and don’t fall asleep on potential breakout signals.
The forex market rewards those who play by its rules, adapt to its moods, and respect its risks. So, what kind of trader are you? Do you chase the thrill of big moves, or find comfort in the steadiness of a quiet market? Share your thoughts below!
Swing Trading vs. Day Trading in Forex: Which Style Suits You?So, you’ve got a burning desire to trade forex and take over the world—or at least the markets—but there’s one major question still nagging you: How to get there? If you choose to do it with forex trading you’ve got two main ways — swing trading and day trading. Let’s break down what these two mean and which one is right for you. Spoiler alert: neither option involves overnight millionaire status, so let’s keep it real.
Swing Trading: The Art of Patience (But Not Too Much)
Swing trading — you’re not glued to your computer but you’re still in the game. Swing traders look to capture “swings” in the market. These are short- to medium-term price moves that typically last a few days to a few weeks. You’re riding the wave 🏄♂️ but getting off before it crashes on the shore. 🌴
➕ Pros of Swing Trading:
Less screen time : You don’t need to babysit your trades 24/7. Set it, slap a stop loss and chill.
Fewer trades, more quality : You’re focusing on larger, more meaningful moves, meaning fewer opportunities for revenge trading or panic closing.
Flexibility : You can have a life outside of trading. (Pro tip: Don’t quit that job yet!)
Catch bigger price moves : Swing traders benefit from multi-day to multi-week trends, potentially leading to larger gains (or losses, if you’re not careful).
➖ Cons of Swing Trading:
Overnight risk : The market doesn’t sleep, and neither do geopolitical events. Price gaps overnight can wreck your carefully laid plans.
Patience required : If you’re someone who wants immediate action, waiting a few days for your trade to play out might feel like watching paint dry.
FOMO : The market might move without you while you’re waiting for the “perfect” setup. Swing traders often miss smaller, quick gains.
Day Trading: The All-In, High-Adrenaline Life
Day trading — you’re jet skiing with a huge wave behind your back. And there’s a hurricane. It’s on fire. Well, not quite but kind of. You’re in and out of trades within minutes or hours, locking in gains (or losses) multiple times a day. It’s fast, furious, and not for the faint of heart.
➕ Pros of Day Trading:
No overnight risk : You close all your positions by the end of the day, so nothing can blindside you while you sleep.
Action-packed : If you love adrenaline, this is your jam. Every day offers multiple opportunities thanks to so many events happening.
Tighter risk control : You’re constantly monitoring the markets, which means you can (most likely) react quickly to minimize losses.
Quick profits (potentially) : You’re aiming for small, consistent wins. Compound them enough, and you could see some real returns.
➖ Cons of Day Trading:
It’s stressful : Constant focus is draining. If you’re not sharp, it’s easy to make emotionally driven mistakes.
More trades, more fees : Commissions and spreads can eat into your profits since you’re making multiple trades per day.
Time-consuming : You’re glued to your screen for hours. Day traders don’t have the luxury of doing much else while waiting for trades to play out.
Learning curve : It’s a steeper climb to become consistently profitable. Day trading requires mastering short-term price movements, and the odds are stacked against newbies.
❔ Which One Is for You?
So, which trading style matches your life and personality? Let’s break it down:
If you’ve got a day job or prefer some balance in your life, swing trading is your best bet. You can scan the charts in the evening, set your orders, and go about your business while Mr. Market does its thing.
If you thrive in fast-paced environments and can dedicate full days to trading, then day trading could be your playground. But be warned: it’s not just about speed; it’s about being sharp, disciplined, and, well, not losing your focus after a bad day.
If patience is your virtue , swing trading will test it, but the reward is potentially big, long-term moves with less stress.
If you live for the rush , day trading might feed your need for action, but be prepared for the pressure cooker environment and razor-thin margins.
Final Verdict
There’s no one-size-fits-all in forex trading. The key is to match the trading style to your personality, goals, and lifestyle. Are you cool with being patient and letting trades develop, or do you want to be locking in profits on the daily? Whatever you choose, stick to your plan, manage your risk, and remember: the market doesn’t care about your feelings—only your strategy.
If you’ve already tried one style and it didn’t work, don’t sweat it—there’s always another way to play the game. Share your experiences in the comments, and let’s keep the conversation going.
How to Analyze a Cryptocurrency: Fundamental & Technical StyleCrypto is fashionable again (was it ever out of fashion?), with Bitcoin BTCUSD pumping to a new all-time high above $82,000 . But with all that buzz and excitement, it’s easier than ever to get swept away in the tide of social media hype, viral memes, and “expert” Telegram signals chats.
Is that real success in crypto trading? Not exactly. Real success requires more than just blindly following the noise. The savvy investor knows how to analyze a coin, piecing together a mosaic of factors to make some trading choice. Let’s break down 🤸♂️ how to do this effectively.
When looking to analyze a cryptocurrency, there are two distinct approaches you’d want to consider — fundamental and technical analysis. This pair of viewpoints cuts through the noise and gets to the real story behind a coin. Coupling them together can be a powerful recipe for success.
The Basics: Why You Need Both Fundamentals and Technicals
Crypto analysis is all about the combination of fundamental and technical approaches.
Fundamental Analysis (FA) helps you determine whether a cryptocurrency holds long-term potential based on its real-world application, team, and project structure.
Technical Analysis (TA) lets you gauge market sentiment and potential price moves by analyzing past price actions and trends.
Master both, and you’ve got yourself a complete toolkit. FA tells you if a coin is worth your time, and TA lets you fine-tune your entries and exits.
Fundamental Analysis: Reading Between the Blockchains
Fundamentals give you the long-term view—what a project stands for, what problems it’s solving, and whether it has staying power. A coin with solid fundamentals usually has a strong foundation, dedicated team, and clear purpose. Here are a few key aspects to evaluate:
Use Case: Does This Coin Do Anything Useful?
Not all coins are created equal, and some are, well… kind of a pointless joke, or created to be a pointless joke but turned out to be a big deal (did anyone say Doge DOGE/USE ?) If you want a real-world use case, look at Ethereum ETH/USD — it opened up the entire decentralized finance (DeFi) and smart contract universe. Now compare that to yet another dog-themed token.
The key is to ask yourself: does this coin solve a real-world problem, or is it banking on social media likes? A strong use case equals a stronger shot at lasting value.
Team and Leadership: Who’s Running the Show?
The team behind a coin is often the make-or-break factor. You want to see solid, experienced people who’ve been in the space and know their stuff. Look for LinkedIn profiles, past projects, and what industry insiders are saying.
Pro tip: if you can’t find the team anywhere online, or if their CEO goes by something like “CryptoKing” on Reddit or Telegram, proceed with caution (or dump it).
Investors and Backers: Who’s Got Skin in the Game?
In crypto, a solid roster of backers can be like a seal of approval — big-shot VCs, famous angel investors, or major blockchain funds often bring more than just cash. Big names like Andreessen Horowitz (a16z) or Pantera Capital backing a coin? That’s a good sign as they likely see something worth the investment.
But let’s keep it real: even the pros get it wrong. Sequoia’s high-stakes investment in FTX? That didn’t age well. It went from a headline win to a headline regret. The lesson? Big names can be a great vote of confidence, but they’re no substitute for doing your own homework.
Dig into how engaged these investors are. Are they making decisions or are they just a logo on the website? If they’re actually involved, it adds weight. Just remember: your best edge comes from putting in the research, not just riding on who’s along for the ride.
Partnerships and Network: Are They Walking the Talk?
A strong project is often backed by legitimate partnerships. Real collaborations with reputable companies from the industry show a coin has a foothold in the market, a strong network. But watch out for overblown claims—a name drop isn’t the same as a partnership. The best projects are the ones where you can verify the collaborations and see real interaction.
Technical Analysis: Getting the Pulse of the Market
If FA tells you what a coin is, TA tells you how it’s behaving in the market. TA is all about catching trends, spotting patterns, and getting the timing right. Here’s where to start:
Indicators to Watch: Moving Averages, RSI, and MACD
Moving Averages (MA): These smooth out price action to show you the market’s general direction. A 50-day MA crossing above a 200-day MA? That’s usually a bullish sign .
Relative Strength Index (RSI): The RSI tells you if a coin is overbought (above 70) or oversold (below 30), signaling potential reversals .
MACD (Moving Average Convergence Divergence): When the MACD line crosses above the signal line, it’s a buy signal; below, it’s a sell signal. This helps you ride momentum without getting whipsawed.
Chart Patterns: Know Your Shapes
Patterns like head and shoulders, double tops/bottoms, and trend lines are your map to market sentiment. Look for breakouts past resistance levels or breakdowns below support as entry and exit points. But stay flexible — that’s crypto and things can change on a dime.
Meme Coins and the Hype Machine: Beware the FOMO
If you’ve been in the crypto game for any time at all, you’ve seen the lure of meme coins. From Dogecoin to Shiba Inu, these coins have made some people rich — but they’ve also created some bagholders.
Don’t Chase Trends: Just because a coin is all over TikTok doesn’t mean it’s a wise investment. Meme coins often rely on community-driven hype rather than any real-world utility. FOMO is the quickest way to make a costly mistake.
Be Wary of Telegram and Discord “Tips”: While some groups are genuinely insightful, many operate more like echo chambers. If your trading strategy is “I saw it in a chat,” it might be time to rethink your approach. Look for projects with substance, not just the latest meme.
Bringing It All Together: Using FA and TA for Smarter Trades
Blending FA and TA lets you go beyond hype. Here’s a solid plan to put these tools to work:
Research the Fundamentals: Assess if a project has real value based on its use case, team, and partnerships.
Look for Technical Confirmation: Use technical analysis to decide the best time to enter and exit.
Set Goals and Limits: Establish your profit targets and stop-loss points before you buy.
Crypto trading is part science, part art. Fundamental analysis gives you the big picture, while technicals keep you tuned in to market conditions. Use them together, and you’ll be a lot less likely to end up with a token that’s only valuable for a while.
Final Take: Follow the Data, Not the Crowd
Crypto success isn’t about catching the latest Twitter trend — it’s about staying grounded in facts and making decisions based on data, research, and analysis. Use FA to pick projects that last and TA to catch price action at the right time.
So, Which Type of Analysis Do You Prefer?
Are you more of a fundamentals fan, focusing on the project’s long-term vision and team? Or do you live by the charts, riding trends and tracking indicators? Maybe you’re a mix of both? Whichever camp you fall into, we’d love to hear your thoughts.
Drop a comment and share your go-to analysis strategy—let’s get the conversation started!
Mastering the Anchored Volume Profile: Setup & Tutorial on TVMastering the Anchored Volume Profile: Setup & Tutorial on TradingView 📊
The Anchored Volume Profile is a powerful tool that traders use to visualize volume distribution over a specified price range, providing critical insights into market behavior. Here’s a detailed description of its setup and usage on TradingView:
In this video, we will be going in-depth into the following areas:
What is the Anchored Volume Profile?
The Anchored Volume Profile is a specialized indicator that helps traders understand the distribution of traded volume at different price levels. Unlike traditional volume profiles that analyze data over a fixed time period, the anchored version allows traders to anchor the volume analysis to specific bars, candles, or price points.
Why Use the Anchored Volume Profile?
Identifying Support and Resistance Levels: You can easily identify key support and resistance levels by analyzing where the most volume has been traded.
Spotting Trends and Reversals: High-volume nodes can indicate areas of strong interest, helping to predict potential trend continuations or reversals.
Improving Entry and Exit Points: Knowing where the market participants are most active can significantly enhance your decision-making process for entries and exits.
How to set up the Anchored Volume Profile on TradingView:
Add the Anchored Volume Profile Indicator:
Click on the “Indicators” button at the top of the chart.
Search for “Anchored Volume Profile” in the search bar.
Select it from the list and apply it to your chart.
Anchor the Indicator:
Click on the anchor icon that appears on the chart.
Drag it to the specific bar, candle, or price point where you want to start your volume analysis.
Customize Settings:
Adjust the settings to suit your trading style. You can modify the range, color, and other parameters to better visualize the data.
Using the Anchored Volume Profile:
Analyzing Volume Nodes: Identify high and low volume nodes. High volume nodes often act as support or resistance, while low volume nodes might indicate potential breakout areas.
Understanding Market Sentiment: See where the majority of trading activity has taken place to gauge market sentiment.
Making Informed Decisions: Use the insights from the volume profile to make better-informed trading decisions regarding entries, exits, and stop-loss levels.
Leap Competition: Top 3% in 5 Days! Here's HowLast competition, I hit the top 2% in the Leap Competition on TradingView. This time, though, something clicked. In just 5 days, I was already back in the top 3%.
I didn't change my strategy. Instead I focused on refining how I managed risk. I stopped obsessing over perfect entry points and focused on squeezing as much profit as possible from each trade. That meant shifting to a new management technique.
I prioritized a high risk-to-reward ratio, knowing that fewer trades could yield better returns. By using a trailing stop-loss, each trade had room to reach its potential without getting cut off too soon. This approach transformed each trade into a high-upside opportunity, letting winners ride and securing profits along the way.
Over the last few days, I made fewer than ten trades. Each one was carefully planned through a top-down approach, looking at the bigger picture on higher timeframes to catch the market’s broader trends. This view kept me aligned with the trend, setting up trades with stronger potential.
What really amplified my results, though, was the trailing stop. By locking in profits while riding the market’s momentum, this tool turned profitable trades into standout winners. It let me capture each market move fully without jumping out too soon.
Now, let’s get into the top trade that helped me to get into top 3% within less than a week:
And here’s the trailing stop-loss indicator I’m using—perfect for trades with room to run:
//@version=5
indicator("Swing Low Trailing Stop", overlay=true)
// User Inputs
initialStopPercentage = input.float(0.5, title="Initial Stop Loss Percentage", minval=0.01, step=0.01) * 0.01
Swing_Period = input.int(10, "Swing Period")
i_date = input.time(timestamp("05 Nov 2024 00:00 +0300"), "Start Date")
// Variables for tracking stop loss
var float stopLossPrice = na
var float lastSwingLow = na
// Calculate Swing Low
swingLow = ta.lowest(low, Swing_Period)
// Logic
if i_date == time
stopLossPrice := low * (1 - initialStopPercentage)
lastSwingLow := swingLow
// Update Stop Loss
if time > i_date
newSwingLow = swingLow
if (newSwingLow > lastSwingLow )
stopLossPrice := math.max(stopLossPrice, newSwingLow)
lastSwingLow := newSwingLow
// Plot the stop loss price for visualization
plot(time >= i_date ? stopLossPrice : na, title="Trailing Stop Loss", color=color.red, linewidth=2, style=plot.style_linebr)
With this refined approach, I can’t wait for next week and the fresh opportunities that lie ahead!
Big thanks to the TradingView community for creating opportunities like this competition—it’s a game-changer. Getting to test and refine strategies in a real, competitive environment pushes all o us to get better every day!
If you haven’t joined already, make sure to hop into the competition . It’s an incredible way to challenge yourself, sharpen your skills, and see how you stack up against other traders!
Keep focusing on becoming 1% better every day if you want to make this happen.
Moein
EDUCATION: The “Fake” Engulfing Candle: A SNEAKY TRAPAs traders, we’re often taught to look for classic price action patterns, and one of the most well-known is the Engulfing Candle. It's that strong reversal pattern where the body of the second candle completely engulfs the body of the first, signaling potential trend reversals or continuations. But what happens when that engulfing candle shows up in the "wrong" place? That’s what I like to call a "Fake" Engulfing Candle.
A "Fake" Engulfing Candle is one that paints on the chart but in a location that doesn’t align with the market context or trend. For example, if you’re in a strong, established trend, an engulfing candle that appears in the middle of the trend (without any supporting structure or context) could be a false signal. This kind of engulfing candle might look great on the chart, but it's not telling you the full story—it’s a signal with poor timing.
Understanding the Importance of Location
The location of an engulfing candle is key. A "real" engulfing candle typically forms after a clear trend exhaustion or at a key support or resistance level. These are areas where price is likely to reverse, and that’s where an engulfing pattern becomes meaningful. However, when the engulfing candle appears in random locations—without any clear structure around it—it’s often just noise in the market.
Fake signals, like this, can lead traders to make impulsive decisions, chasing trades that aren’t supported by solid market structure or context. Think of it like walking into a room full of noise—you may hear words, but they’re not telling you anything meaningful.
How to Spot a Fake Engulfing Candle
Context is King: Look for the engulfing candle to form after a trend exhaustion or near a key support or resistance level. If it pops up in the middle of a strong trend with no visible reason for reversal, chances are it’s a fake.
Volume Confirmation: Is the engulfing candle supported by volume? A strong engulfing candle should have an increase in volume, confirming the strength of the move. If volume is absent or weak, the signal may be unreliable.
Previous Market Structure: The best signals often come from patterns that align with previous market structure, such as previous highs or lows. If the engulfing candle doesn’t respect any major levels or swing points, it might not be worth trading.
Practical Takeaway: Don't Fall for the Fake
The takeaway here is simple: don’t let the appearance of a "perfect" engulfing candle fool you. Just because it looks good on the chart doesn’t mean it’s the right signal for the current market conditions. Always pay attention to the context around the pattern and confirm it with volume and other technical indicators. Remember, location matters when it comes to identifying valid trade setups.
Have you ever been caught by a "Fake" Engulfing Candle? What’s your process for distinguishing real signals from fake ones? Drop your thoughts in the comments—I'd love to hear how you handle these tricky setups!
Why Trading Sessions Matter in Forex: Key OverlapsThe Forex market is open 24 hours a day during the weekdays, allowing traders flexibility to trade at any time. However, understanding the best times to trade is essential for effective trading. The market is divided into four main sessions: Sydney, Tokyo, London, and New York, each corresponding to peak activity in key financial centers. Using a Forex Market Time Zone Converter can help traders determine which sessions are active in their local time, making it easier to plan around high-liquidity periods.
Although the market is technically always open, not all trading times are equally profitable. Higher trading volume, which generally occurs during session overlaps, creates ideal conditions for traders. For example, the overlap of the London and New York sessions sees the highest volume, with more than 50% of daily trades occurring in these two centers. Trading at this time, especially with currency pairs like GBP/USD, can lead to tighter spreads and quicker order execution, reducing slippage and increasing the likelihood of profitable trades. Similarly, trading AUD/JPY during the Asian session, when the Tokyo market is active, is advantageous due to higher trading activity for these currencies.
Conversely, trading during times when only one session is active, such as during the Sydney session alone, can result in wider spreads and less market movement, making it harder to achieve profitable trades. Planning trades around high-activity sessions and overlaps is key to effective forex trading.
Increase the difficulty level on yourself. Often, traders like to make things a lot harder for themselves than they need to. Everyone is seeking a silver bullet, truth is "less is actually more".
Dow Theory is actually the Grandfather of technical analysis.
If you have never heard of this, or even if you have and brushed over it, you are missing out.
Some people will say things like "it's over 100 years old it can't work in today's market"
Yet, humans have changed very little in those last 100+ years. Sentiment driven by fear and greed is where the secret is hidden.
Let me explain by saying Dow theory has 6 "rules" (tenets).
1) Market Moves in Trends Markets have three types of movements: primary trends (long-term trends that last for years), secondary trends (medium-term trends that retrace parts of the primary trend), and minor trends (short-term trends that are typically noise).
You will notice I used the weekly for the larger and the daily for the second.
When I journal my trade setups; I simply use a traffic light system red lines size 4 for primary, then orange line 3 for secondary and green size 2 for the trigger phase. In addition to that, I mark the trends with 3 boxes and arrows pointing up down or sideways.
The second rule;
Each trend has three phases:
Accumulation Phase. In this phase, informed investors start buying or selling, counter to the general market opinion.
Public Participation Phase, more investors notice the trend after it is already underway, and media coverage expands, driving the trend further. (Wyckoff called this a mark-up or mark-down phase)
Excess Phase (or Distribution): At this point, speculation is rampant and detached from actual value, leading informed investors to prepare an exit.
This is where a lot of Wyckoff, Elliott and other tools such as Smart money concepts all overlap.
Then, the 3rd rule.
The market reflects all available information, such as economic conditions and sentiment. Therefore, movement in the market averages considers and reflects this information. (in simple terms, discount the news).
4) For a trend to be validated, different market averages must confirm each other. For example, the trend in the Dow Jones Industrial Average should be confirmed by the Dow Jones Transportation Average. If one index moves to a new high or low, the other should follow suit to confirm the trend.
(I like this one less, but in some instances it can make the next move very obvious.)
Rule 5) The trend is your friend, until the end. Until you see a clear change in the direction, a market shift. The trend is still in play. This one, I feel most just can't comprehend.
As you can see below, I have marked up the extreme high and low, I know both my primary and secondary trends are down. So now, I can use my EW bias or start looking for a Wyckoff schematic. (if I believe we are about to see a shift in the trend.)
You can start to look for information for areas of interest, look into volume and volume profiles.
The last rule. Confirming the trend volume expanding in the direction of the primary trend. For an uptrend, volume should increase as prices rise and decrease during corrections. In a downtrend, volume should increase as prices fall.
In this example, the Fibonacci levels line up, the volume is slowing, the EW count makes some sense and zoomed out you can see a shift.
Now, with all of this info - we could look at "areas of interest"
We are in a demand zone on the higher time frame.
At this stage, there is no trade entry, but if we were to view a change in the character we could simply take a trade as a pullback on the primary trend down.
Something like this;
You see, all you are doing is following the trend and taking a look at other tools, auction areas, fib extensions, an EW bias, and hints of a Wyckoff schematic. But under the hood, the 3 trend principle is a simple-to-follow process.
Disclaimer
This idea does not constitute as financial advice. It is for educational purposes only, our principle trader has over 20 years' experience in stocks, ETF's, and Forex. Hence each trade setup might have different hold times, entry or exit conditions, and will vary from the post/idea shared here. You can use the information from this post to make your own trading plan for the instrument discussed. Trading carries a risk; a high percentage of retail traders lose money. Please keep this in mind when entering any trade. Stay safe.
Moving average crossover strategy by Cripto SolutionsI have been working with the crossover strategy for some time, I have been doing backtesting and I have been surprised by the level of success that they leave me with when it comes to putting it into practice. It is simply based on looking for where we have moving average crossovers, which are areas where The price ALWAYS has a reaction no matter how the movement comes. If it is going up it reacts downwards, if it is falling it reacts downwards. I have an operation precision level of more than 97% and with SL that does not exceed 1%, reducing unnecessary risks. The ideal is to identify the crossings from highest to lowest temporality, (Weekly, daily and 4H) smaller temporalities to polish the entries well. Put it into practice, you will never use an indicator other than the EMAs (5,20,200)
MATH - This is how you REALLY use Elliott WaveThis is a great example of a beautiful setup and how to lay out a low risk, high reward trade, especially for those that are still learning and wondering how to apply Elliott Wave. Or maybe you are unfamiliar with Elliott Wave or someone who thinks it's nonsense. Well let me show you how I do it and hopefully help you learn the best technical strategy. These are the setups I salivate on. And I don't care if I lose 8 out of 10, because the 2 that hit will more than pay off the losers.
Support box is clear. Below the September low and I'd be out as we'd be below the reliable 61.8% retracement. Breaking that fib retracement level means that it can do anything from bullish, to diagonal, to sideways, to bearish moves. And we don't want to waste our time with stocks that aren't trending. Nothing is reliable anymore - therefore, we don't want to trade it below that. Toss it away. Move on to the next one.
For this play, you could accumulate shares under $2.25 which is the previous high. I have it labeled as a Wave (1) but it could easily just be an (A) wave. As a quick refresher, trending impulsive moves happen in 5-wave moves. Since we don't know for 100% certainty that this will become that, we have to prepare for the other likely scenarios. We are already protected from significant downside with our stop below the 61.8% retracement, so I just don't care what might happen in a bearish count. So for bullish, I want to accumulate under the last high and catch the breakout. Once broken out, minimum target is $4.25. That's the 100% extension of (1) from the bottom of (2), the first resistance. If this ends up being a 3-wave (A)(B)(C), it would top out there at the 100%, so we want to make sure we have all of our money back by then. A full bullish follow through could take it anywhere between $12 (161.8% fib) and $22.50 (200% fib, which is where a standard impulsive 5-wave rally is expected to end with no extensions).
If you buy a stock like this with stop below the 61.8%, you can go net free (return of original equity) by selling however many shares are needed to get your original money back at the previous high around $2.25 which should reject at first try (as it is the most likely landing spot for Wave 1 inside of Wave (3). Once a higher low forms from there (Wave 2 of (3)) between $1.20 and $1.75, you could go in even harder, buying more shares, and moving your stop on all shares to that higher low, providing a very low risk scenario. By the time $4.25 is hit, you should be completely net free with plenty of shares left and maybe even take some good profits.
Remember, this is an outline NOT A PREDICTION. That's why we have a stop, a plan, and multiple targets. As it plays out, we gain more clarity and update our outline. Probably even find a trend channel. This is Elliott Wave. This is Fibonacci Pinball (the creation of Avi Gilburt at elliottwavetrader,net). It's not telling you what's going to happen. It's telling you what could happen, laying out the most probable path, limiting your risk, and telling you when it might be wrong and how to pivot. And don't go thinking this will happen all at once. Keep good notes of your entry and all sales. This likely takes 1-3 years.
Standard disclosures:
1. This is 100% my idea. It was not sourced from any other avenue.
2. I am not invested in this company, though I am likely buying shares soon.
3. I am not paid to post content nor do I receive any contributions of any kind.
4. While this is outlining a potential profitable setup, this article is not investment advice. You should do your own due diligence on any company you invest in and apply your own trading strategies.
5. I know nothing about the fundamentals of this company. I suggest doing your due diligence if fundamentals are important to you.
6. Readers should always remember that markets are their own creature made up of millions of individuals and institutions each following some combo of inherent bullishness, inherent bearishness, fundamentals, technicals, stupidity, and pure emotion. Elliott Wave, and specifically Fibonacci Pinball (developed by Avi Gilburt at elliottwavetrader.net and prominent Seeking Alpha author), merely provide a framework based on the observed price action to date. 7. I know that while my wave outline is based on years and years of data and application from not only me, but some of the best in the game, I also know that markets do not follow a set path and that sentiment can remain irrational far longer than I can remain rational. That is why you MUST consider the alternatives and manage risk appropriately. Know the pivot zones that could lead to the primary path failing.
I warrant that the information created and published by me on TradingView is not prohibited, doesn't constitute investment advice, and isn't created solely for qualified investors. My analysis is not a recommendation for a specific trade. My analysis outlines a potential scenario and provides risk assessments for multiple alternate scenarios. My analysis is purely educational.
What Is a Falling Knife in Trading? What Is a Falling Knife in Trading?
It’s often repeated that traders should ‘never catch a falling knife.’ This phrase highlights the risks of buying into a rapidly declining asset. Understanding what a falling knife is, its causes, and strategies for trading it may help traders navigate these sharp declines more effectively. This article delves into the intricacies of falling knives and offers insights on how to approach them with caution.
Understanding the Falling Knife Pattern
A falling knife consists of candlesticks that depict a significant rapid drop in an asset’s price, including stocks, commodities, forex pairs, indices, cryptocurrencies*, and more. This situation is often driven by negative news, poor earnings reports, or broader market sell-offs.
Identifying a falling knife involves recognising several key characteristics. Firstly, the decline is steep and sudden, typically marked by large red candlesticks on a price chart. The volume often increases as the price falls, indicating panic selling. Technical indicators such as the Relative Strength Index (RSI) might show oversold conditions, suggesting the asset is undervalued in the short term.
Common tools used to identify falling knives include:
- Moving Averages: When short-term moving averages cross below long-term moving averages, it signals bearish market sentiment.
- Bollinger Bands: Prices breaking below the lower band can indicate a falling knife.
- Volume Analysis: Spikes in trading volume often accompany these sharp declines, confirming the intensity of the sell-off.
In terms of candlesticks, a falling knife typically produces several bearish candles with long bodies and small wicks. They may appear as a large engulfing candle on a higher timeframe.
Recognising these patterns is crucial for traders. Misinterpreting a falling knife can lead to significant losses, as attempting to catch a falling knife—buying during the steep decline—without proper analysis can be risky. Instead, many traders wait for signs of stabilisation or reversal before considering an entry point.
Causes of Falling Knives
A falling knife generally occurs due to several specific catalysts, each capable of triggering a rapid and substantial decline in an asset's price. Understanding these causes, including technical factors, is essential for traders aiming to navigate such volatile situations effectively.
Economic Events and News Releases
One primary cause of falling knives is significant economic news. For instance, announcements of interest rate hikes by central banks can lead to widespread stock market sell-offs. Similarly, unexpected changes in economic indicators like unemployment rates, inflation, or GDP growth can trigger sharp declines. Traders react swiftly to such news, often leading to panic selling and steep price drops.
Earnings Reports and Company-Specific Issues
A falling knife stock pattern can be triggered by poor earnings reports or disappointing financial results from a company. When a company misses earnings expectations or issues negative guidance, investors may lose confidence, resulting in a rapidly falling stock. Additionally, company-specific problems such as legal issues, management scandals, or product recalls can lead to rapid price declines as investors reassess the company's prospects.
Broader Market Conditions and Trends
Broader market trends and conditions play a significant role in causing a falling knife in stocks and other assets. During periods of market volatility or bear markets, negative sentiment can spread quickly, leading to sharp declines in asset prices. For example, during the financial crisis of 2008, widespread fear and uncertainty led to massive sell-offs across various sectors. Similarly, market corrections or crashes can create environments where falling knife patterns are more likely to occur.
Geopolitical Events
Geopolitical events such as wars, political instability, or trade tensions can cause abrupt market reactions. For instance, escalating trade disputes between major economies can lead to uncertainty and fear, causing investors and traders to exit positions rapidly.
Technical Factors
Technical analysis also plays a crucial role in falling knife patterns. Key technical factors include:
- Breaking Support Levels: When an asset's price falls below critical support levels, it can trigger further selling as traders perceive a lack of price stability.
- Overbought/Oversold Conditions: Oscillators like the Relative Strength Index (RSI) showing overbought conditions can precede a falling knife as prices correct sharply. At the same time, the RSI may enter the oversold area during the falling knife pattern.
- Bearish Chart Patterns: Patterns such as head and shoulders, double tops, or descending triangles can signal potential sharp declines, leading to falling knife scenarios.
Risks Associated with Falling Knife
Trading falling knives carries significant risks, primarily due to the rapid nature of the price declines. Understanding these risks is crucial for traders aiming to navigate such volatile situations.
Potential for Significant Losses
The most apparent risk is the potential for substantial financial losses. When an asset's price plummets, catching the falling knife can result in buying at prices that continue to drop, leading to immediate and severe losses.
False Bottoms and Dead Cat Bounces
Traders may mistakenly interpret temporary price stabilisations or minor recoveries as the end of the decline, only to face further drops. These false bottoms and dead cat bounces can trap traders in losing positions.
Increased Volatility
Falling knives are often accompanied by heightened market volatility, making it challenging to analyse short-term price movements. This volatility can result in rapid and unexpected changes in asset prices, complicating risk management.
Psychological Challenges
The psychological impact of trading falling knives should not be underestimated. The stress and emotional strain of dealing with sharp losses can lead to irrational decision-making, such as holding onto losing positions for too long or making impulsive trades.
Technical Analysis Limitations
While technical indicators can help identify potential entry points, they are not foolproof. The rapid and severe nature of falling knives can render technical analysis less reliable, as price movements may not follow traditional patterns.
Liquidity Issues
During sharp declines, liquidity can dry up, leading to wider spreads and slippage. This makes it harder to execute trades at desired prices, potentially exacerbating losses.
Examples of Falling Knife Events
Now, let’s take a look at a couple of falling knife examples. To start identifying your own falling knives, head over to FXOpen’s free TickTrader platform to explore real-time charts across different asset classes.
Onset of the Coronavirus Pandemic and the Nasdaq 100
In early 2020, the onset of the coronavirus pandemic triggered a dramatic fall in global financial markets. The Nasdaq 100, heavily weighted with speculative tech stocks, experienced a sharp decline as investors reacted to the uncertainty and potential economic impact of the pandemic.
From mid-February to late March 2020, the Nasdaq 100 dropped by over 30%. This steep decline represented a classic falling knife pattern, characterised by rapid sell-offs and increased market volatility over the course of several weeks. Traders who attempted to buy into the market too early faced significant losses as the market continued to fall before eventually stabilising and recovering later in the year.
EUR/USD After Strong US Inflation Data
On April 10, 2024, the release of March US inflation data led to a falling knife event in the EUR/USD currency pair. Traders had been closely monitoring the Consumer Price Index (CPI) report, anticipating that a lower-than-forecast reading would prompt the Federal Reserve to lower interest rates later in the year.
The forecast was set at 3.4%, with a lower or at-forecast figure expected to weaken the dollar. Instead, the headline CPI YoY reading came in exactly at 3.5%, defying expectations. This unexpected data triggered a rally in the dollar and a sharp sell-off in EUR/USD. The pair plummeted rapidly, and the decline persisted until the end of the trading week, illustrating how sudden economic data releases can lead to sharp and sustained price drops.
Strategies for Trading Falling Knives
Understanding the catalyst behind a falling knife is crucial for determining whether it’s likely to rebound soon or persist as a trend. Events that cause fundamental repricing, such as poor earnings data, significant or unexpected news/economic releases, or unique risk events like currency intervention or financial crises, often lead to prolonged falling knives.
In contrast, temporary sharp corrections might be due to overreactions to already priced-in news or transient market fears. Recognising these catalysts helps traders decide whether to take a position or wait for volatility to subside.
Additionally, the timeframe of the falling knife provides valuable context. A falling knife on a 5-minute chart could indicate a sharp intraday decline, potentially recovering before the trading day ends. Conversely, on a 4-hour or daily chart, a sharp decline may suggest a continued downtrend over several days or weeks. Traders can use this information to look for short opportunities on lower timeframes or prepare for longer-term moves.
Common Strategies Traders Use
The insights gained from analysing market conditions can help traders to decide whether to short the falling knife or stay out of the market and wait for a bottom.
Shorting the Falling Knife
Traders looking to short a falling knife should exercise caution. Increased volatility during sharp declines can make it difficult to set appropriate stop-loss levels without a sub-par risk/reward ratio.
The best entry can potentially be found during a pullback. As some traders think the price is bottoming out, their stop losses being triggered as the price continues to decline can fuel another leg lower. Traders can look for breakouts from bearish chart patterns like rising wedges, bear flags, or bear pennants.
Alternatively, waiting for the bullish structure of the pullback (higher highs and higher lows) to break down into a lower low and lower high can indicate the next leg lower is underway. This approach offers traders confirmation that the knife is continuing to fall and an appropriate place to set a stop loss above the pullback’s high.
Buying After a Falling Knife
For those looking to catch the bottom, confirmation is essential. Using a pair of moving averages, such as 20-period and 50-period EMAs, can help. When the 20-period EMA crosses above the 50-period EMA, and the price closes above both, it suggests the downtrend might be over. However, momentum indicators like RSI and MACD can falsely signal market turns during steep declines, but they may have some value on higher timeframes.
Generally speaking, one of the potentially effective strategies for catching a falling knife is to wait for the price to break above the previous lower high of the downtrend. This would demonstrate that the market has been able to break above a point at which it previously found resistance, allowing traders to potentially switch their bias to bullish and seek entry points.
The Role of Patience and Discipline in Trading Falling Knives
Patience and discipline are paramount when trading falling knives. Impulsive trades driven by the fear of missing out can lead to significant losses. Traders are required to wait for clear signs of trend reversal or continuation before entering a trade. This involves adhering to predefined strategies and not deviating due to emotional reactions to volatile market movements.
Likewise, maintaining discipline in setting and following stop-loss levels, adhering to risk management principles, and avoiding premature entries can potentially enhance trading effectiveness.
The Bottom Line
Navigating falling knives requires careful analysis and disciplined trading strategies. By understanding the causes and employing effective techniques, traders can potentially better manage these volatile situations. To explore these strategies further and enhance your trading skills, consider opening an FXOpen account. With the right tools and knowledge, you can approach falling knives with greater confidence and precision.
FAQ
What Is a Falling Knife in Trading?
A falling knife in trading refers to a rapid and significant decline in an asset's price, often triggered by negative news, poor earnings reports, or broader market sell-offs. This sharp drop can be volatile and difficult to analyse, making it challenging for traders to time their entries and exits.
Should You Ever Try to Catch a Falling Knife?
Catching a falling knife is highly risky. Therefore, the theory states it’s not recommended for most traders. The rapid decline in price can continue further than anticipated, leading to significant losses. To minimise risk, traders wait for signs of stabilisation or reversal before considering an entry.
How to Catch a Falling Knife?
Catching a falling knife involves identifying potential reversal points through technical analysis. Traders often wait for confirmation, such as a break above previous resistance levels or a moving average crossover. Patience and strict risk management, including setting tight stop-loss orders, are essential when attempting this strategy.
What Is a Falling Knife in Crypto*?
In the crypto* market, a falling knife refers to a sudden and steep decline in the price of a cryptocurrency*. This can be triggered by regulatory news, security breaches, or market sentiment shifts. Due to cryptocurrencies*' high volatility, falling knives can be particularly severe and difficult to analyse.
*At FXOpen UK, Cryptocurrency CFDs are only available for trading by those clients categorised as Professional clients under FCA Rule. They are not available for trading by Retail clients.
This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.
Options Blueprint Series [Basic]: H&S amid Surging Wheat Supply1. Introduction: Bearish Opportunity in Wheat amid Rising Supply
With the U.S. Grain Stocks Wheat (USGSW) report showing a notable rise in wheat stock levels, a bearish scenario is unfolding for wheat futures. This increase in supply, which could drive prices downward, aligns with a technical setup showing potential for a bearish breakout.
From a technical perspective, Wheat futures exhibit a Complex Head and Shoulders formation, signaling a possible breakdown as prices approach a critical support level. By combining the supply dynamics and technical formation, this article outlines a Bear Put Spread strategy, ideal for capitalizing on this bearish outlook with limited risk.
2. Fundamental Analysis: Rising Wheat Stock Levels
The most recent USGSW report has recorded wheat stock levels breaking upward to 1.98 billion bushels, up from the previous level of 1.779 billion bushels. This shift indicates a higher supply of wheat available in the market, which, in the absence of proportional demand, typically should result in price pressure to the downside.
Higher wheat stock levels often dampen demand sentiment, as markets anticipate reduced scarcity and increased availability. Such fundamentals offer a conducive backdrop for a bearish approach, supporting the downside breakout anticipated in the technical setup.
3. Technical Analysis: Complex Head and Shoulders Formation
The technical landscape for Wheat futures supports the bearish case, with a Complex Head and Shoulders pattern forming on the chart. This pattern is characterized by multiple peaks (heads) flanked by smaller peaks (shoulders), indicating a potential reversal from recent highs.
The critical neckline for this formation sits at 585'6. A break below this level would signal the likelihood of further downside movement. The target for this setup aligns with a UFO support zone at 552'4, which serves as an optimal price point to close the trade if the breakout confirms.
4. Trade Setup: Bear Put Spread on Wheat Futures (Ticker: ZWH2025)
To capitalize on the bearish setup, a Bear Put Spread is employed. This strategy allows for limited downside risk while still offering attractive profit potential. Here are the specifics:
o Contract Details for ZWH2025 (Wheat Futures):
Contract Size: 5,000 bushels
Tick Size: 1/4 of one cent (0.0025) per bushel (equivalent to $12.50 per tick)
Point value of 1 future unit: $50
Point value of 1 option unit: $50
Expiration: December 27, 2024
Margin Requirement: While the exact margin depends on the broker, the requirement typically ranges between $1,500 and $2,000 per futures contract. The margin for a Bear Put Spread in Wheat futures options is limited to the debit paid (15.2 points *$50 = $760).
o Options Strategy: Bear Put Spread
Buy the 585 put option at 25.84 and Sell the 550 put option at 10.64, both expiring on December 27, 2024.
The net debit paid is 25.84 – 10.64 = 15.2 points = $760
This spread provides a capped-risk opportunity for profiting from a downside move in Wheat futures.
o Risk Management:
While stop loss orders can be used, no stop loss is required given the limited-risk nature of the Bear Put Spread. The maximum potential loss is predefined by the cost of the spread.
5. Options Risk Profile Analysis
The Bear Put Spread strategy involves buying a put option at a higher strike price (585) and selling a put option at a lower strike price (550). This configuration:
Maximizes potential profit if Wheat futures drop to or below the 550 level by expiration.
Caps maximum loss at the initial cost of the spread, regardless of how the underlying Wheat futures move.
For this setup, the maximum potential profit is the difference between the strikes (585 - 550) minus the premium paid = 19.80 ($990). The maximum potential loss is the cost of the spread, making it a controlled-risk strategy suited to volatile or downward-trending markets.
6. Trade Execution Plan
Entry: Initiate the Bear Put Spread as Wheat futures break below the 585'6 neckline, confirming the downside breakout.
Target: Close the trade at 552'4, which aligns with a nearby UFO support zone, marking a logical exit point.
7. Risk Management Considerations
Effective risk management is essential in any options strategy, and the Bear Put Spread inherently offers several risk control advantages:
Limited Risk: By buying a put and selling a lower-strike put, the Bear Put Spread creates a defined risk position, capping potential losses at the initial premium paid for the spread.
No Stop Loss Required: With maximum risk predetermined by the cost of the spread, there's no need for a stop loss, which could otherwise be triggered prematurely in a volatile market.
Predefined Entry and Exit: This strategy's effectiveness hinges on precise entry (below the 585'6 neckline) and a clear target at 552'4. By maintaining these predefined parameters, the trade maximizes its alignment with both technical and fundamental setups.
This trade setup offers a balanced approach, allowing for downside exposure with risk under control, making it well-suited for periods of volatility or substantial downward moves.
When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com - This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies. Also, some of the calculations and analytics used in this article have been derived using the QuikStrike® tool available on the CME Group website.
General Disclaimer:
The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
trailblazing women who took Wall Street by storm these incredible women have paved a way for female investors and traders around the world showing great resilience and fearless mentality despite facing gender discrimination going on to achieve great things in the financial field, motivating the future generation of young women that they too can achieve the unthinkable.
1. HETTY GREEN
the witch of wall street
also referred to as "the woman who loved money" born November 21, 1834 and also believed to have been the richest woman in America before the time of her passing, Hetty Green started her financial/business journey from a young age through the influence of her father who was a successful agent, oil manufacturer, and Quaker, who encouraged her to read and study financial texts when she was a young girl, he believed that even women needed to understand the dealings of money, business and overall how the financial world operates.
She is best known for turning an inheritance of between 3 - 7 million to 100 million U.S dollars approximately $2.5 billion in today's money. She did this by investing in U.S government bonds, stocks, real estate and railroads and providing financial support during crises, most especially the Panic of 1907, making her a reputable investor and financier, using a buy low, sell high strategy and impeccable psychology facing markets militantly and unafraid even in times of panic.
2. VICTORIA WOODHALL
the first woman to run for presidency
born September 23, 1838, Victoria came from a very poor background, with the influence of their father she and her sister sold herbs and potions posing as spiritualists and healers they caused them to live a on the run from one place to another due to unsatisfied customers/patients.
Their nomadic lifestyle led them to Manhattan were they caught the attention of railroad magnate Cornelius Vanderbilt, who it was believed they helped him keep in contact with his dead wife he in return offered them financial advice and through this connection they were able to open the first female owned brokerage in wall street in 1870 called WOODHULL, CLAFLIN and CO with clients of high society women, rich widows and high value prostitutes, this become a success earning them over $700 000 about 2million today. She used this money to further her goals and fund her campaign to run for presidency.
3. ISABEL BENHAM
madam railroad
born 1909, in the 1920s Isabel enrolled at a women only college called Bryn Mawr in Pennsylvania, with a strong desire to study economics and work in wall street it has a great tragedy to find that the school offered no economics courses but Isabel insisted the college offer economics studies and made history by being 1 of 5 women to graduate from the college with a degree in economics.
after graduation, living in times of the great depression also facing daily gender discrimination this did not stop her from pursuing her dreams to work in wall street, she started a side hustle by selling magazine subscriptions and later landed a job as a bond strategist on wall street bond house R.W Pressprich and Co. and due to her resilience and hard work providing accurate reports of the railroad industry became their first female partner and first woman as a partner of a wall street bond house and first woman to be appointed Board of Directors for a railroad.
4. MURIEL SIEBERT
the first lady of finance
born 1928 without graduating from any college her finance career started by being a finance research trainee and grew her expertise by working in various brokerages.
through hard work and determination by year 1967, despite numerous failed attempts and rejection she became the first woman to have a seat on the BYSE being the only woman among 1,365 men which was a remarkable achievement.
she went on to co-found Siebert and Co a broker- dealer in 1969 and when the the NYSE jettisoned it's 183 year old tradition allowing it's members to negotiate broker commissions her company became America's first discount brokerage also being owned by a woman.
by year 1977 she hit another incredible career milestone by being appointed superintendent of Banks for New York state, overseeing all NEW YORK banks with no banks failing in her 5 year term.
5. GERALDINE WEISS
grand dame of dividents
considered one of the best female investors/ traders of the 20th century, learning about investing by reading investing texts like Security Analysis by BENJAMIN GRAHAM and studying business and finance earning a degree at the University Of California.
with her advanced knowledge about investing she was still unable to get any job position higher than secretary due to gender discrimination in the male dominated industry but this did not put out her fuel and and undying desire to become be involved in the investment community and by age 40 she started her investment newsletter called "Investment Quality Trends" under a pseudonym "G. Weiss" to hide her gender as at the time many believed no woman can make successful investments and did this for a decade with her subscribers thinking she is a male it was only in 1977 when she appeared on TV program "wall street with Louis Rukeyser" that she revealed her gender this now with her newsletter being a success with accurate analysis asserting that dividend yield is a key valuation measure that how she got her nickname.
hope this inspires more women to be more active in the trading world.
Whatever women do they must do twice as well as men to be thought half their inferior. Luckily, this is not difficult.
– Charlotte Whitton
put together by : Pako Phutietsile as currencynerd
how I find support and resistance of a trendTo understand Price Action, first thing we do is to look for (S) and (R) to help us read strength&weakness of price.
This video will explain how I find Support and Resistance of a trend.
I will provide example of what your chart will looks like throughout trading hours.
how to know which candle to draw (S)/(R).
How to Read a Forex Quote: Bid, Ask, and Spread ExplainedSo, you’ve decided to jump into the forex markets and stumbled upon your first quote. Now you're staring at numbers like EUR/USD 1.0987/1.0990, wondering what these flashing digits mean. Don’t worry—we’ve all been there. Let’s break it down, TradingView style, and get you up to speed on forex quotes, bid-ask spreads, and why these tiny decimal points matter more than you might think.
The Basics: What’s a Forex Quote?
At its core, a forex quote tells you the exchange rate between two currencies. Think of it like a price tag for the money you want to buy or sell. In any quote, you’ve got two currencies: the base currency and the quote currency. For example, in EUR/USD , the euro (EUR) is the base currency, and the US dollar (USD) is the quote currency. This quote tells you how many US dollars it costs to buy one euro.
Now the fun part: You’ll notice two prices next to that quote—the bid and the ask.
Bid vs. Ask: What’s the Difference?
When you see a forex quote like EUR/USD 1.0987/1.0990, you’re actually looking at two prices:
Bid Price (1.0987): This is the price a buyer (broker or trader) is willing to pay for the base currency. In simpler terms, this is the price you sell at.
Ask Price (1.0990): This is the price the seller (broker or trader) is willing to sell you the base currency for. In other words, this is the price you buy at.
So, if you’re buying EUR/USD , you’ll pay the ask price (1.0990), and if you’re selling, you’ll receive the bid price (1.0987). Notice how the ask is always higher than the bid? That’s where brokers make their money. Which brings us to…
The Spread: The Broker’s Cut
The spread is the difference between the bid and the ask. In this case, it’s 1.0990 - 1.0987 = 0.0003 or 3 pips (percentage in points). Think of the spread as the broker’s fee for facilitating the trade, essentially acting as the middleman. The tighter the spread, the less you’re paying to execute a trade.
For major currency pairs like EUR/USD , the spread is often pretty small (like 1-3 pips), but for exotic pairs (think USD/ZAR or USD/TRY ), spreads can get wider than your Uncle Bob’s waistband after Thanksgiving dinner.
Why the Spread Matters for Traders
Here’s the thing: spreads eat into your profits. Whether you’re a day trader or holding a longer-term position, the spread is something you need to bake into your strategy.
Scalpers and day traders need tight spreads. If you’re making a bunch of small, quick trades throughout the day, every pip counts. Wide spreads can kill your profit margins faster than a rogue tweet from Elon Musk.
Swing traders and position traders are less sensitive to spreads. If you’re in it for the long haul, a few pips won’t make or break your trade. But it’s still something to keep an eye on, especially when trading less liquid currency pairs.
Market Conditions and Spreads
Spreads aren’t fixed — ideally, they should be floating around in real-time dealmaking. They widen and tighten based on market conditions. During high volatility (like, say, a major economic announcement or a surprise central bank rate cut), spreads can widen. Conversely, during quiet market hours, spreads tend to tighten.
To avoid getting fleeced by wide spreads, keep an eye on liquidity. Major pairs like EUR/USD , GBP/USD , or USD/JPY have higher liquidity, meaning tighter spreads. Exotic pairs? Not so much. You’ll pay more to play in the less popular markets.
How to Use the Bid-Ask Spread to Your Advantage
Here’s a pro tip: If you’re in a tight spread market, like EUR/USD during peak trading hours, you can place tighter stop-loss and take-profit orders, maximizing your profits with minimal slippage. In volatile markets with wider spreads, give yourself more breathing room, or wait until liquidity returns.
How TradingView Does It
On TradingView, forex pairs are displayed with a single price quote rather than separate bid and ask prices. This single price quote represents the midpoint between the bid and the ask. TradingView uses this midpoint, also called the last trade price , to better display price flow and make it simpler to analyze price trends without the fluctuation that would come from constantly updating bid and ask prices.
For traders using TradingView to monitor forex prices, this single price quote allows them to focus more on price movements and technical analysis rather than factoring in the spread between bid and ask, which as we mentioned, is available with brokers since it's their bread and butter. So factor this in.
The Bottom Line
Going expert-level at bid, ask, and spread isn’t just forex surviving — it’s forex thriving. These tiny details can be the difference between making bank or watching your profits trickle away. Always factor in the spread when setting up trades, especially if you're trading lower-volume currency pairs or during off-hours.
Ready to flex your new bid-ask spread skills? And win some prizes at the same time? Join our paper trading competition "The Leap" , starting November 1, and show everyone what you've got. $25,000 are up for grabs.
Example of creating a trading strategy chart
Hello, traders.
If you "Follow", you can always get new information quickly.
Please click "Boost" as well.
Have a nice day today.
-------------------------------------
To interpret the chart from a trend perspective, you can use the MS-Signal indicator.
The MS-Signal indicator consists of the M-Signal indicator and the S-Signal indicator.
Therefore, you can analyze the chart by checking the arrangement of the M-Signal indicator and the movement around it.
The most important thing in chart analysis is support and resistance points.
Therefore, if you do not indicate support and resistance points, it can be said that the chart analysis cannot be used for trading.
-
So, Fibonacci retracement and trend-based Fibonacci extension are widely used in chart analysis.
I used the Trend-Based Fib Extension tool.
I selected and displayed the low and high points pointed by the fingers.
The selection of the candles pointed by the fingers corresponds to the inflection points of the StochRSI indicator.
-
If you connect these, you get a trend line.
The important thing when drawing a trend line is to connect the high points of the StochRSI indicator by connecting the opening prices of the falling candles.
When connecting the low points, you can connect the low points regardless of whether it is a falling candle or an rising candle.
This is because I think it best expresses the trend and volatility period based on my experience using it.
When drawing the Fibonacci ratio and when drawing the trend line, the selection points are different, so you should draw it with this in mind.
-
If it is drawn as above, you can see that the chart is ready to be analyzed.
Since the channeling most commonly used in chart analysis has been formed, I think chart analysis will not be difficult.
However, the above method is a drawing for chart analysis, so it is not suitable for trading.
This is an important point.
If you are good at chart analysis, but wonder why you lose money when trading, you should change the drawing of support and resistance points.
Do not trade with Fibonacci ratios, but mark support and resistance points according to the candle arrangement on the 1M, 1W, and 1D charts and create a trading strategy according to their importance.
-
The chart above shows the support and resistance points drawn on the 1M, 1W, and 1D charts.
To display this, we used the HA-High, HA-Low, OBV 0, OBV Up, OBV Down, BW (100), Mid (50), BW (0) indicators.
To display the exact volatility period, we also need to draw a trend line on the 1M, 1W chart.
The indicators that are important for support and resistance points are HA-Low, HA-High, BW (100), BW (0).
Therefore, the point where the trend line intersects this point is likely to correspond to the volatility period.
It is not accurate because it is displayed only with the trend line that was created right away, but I think it explains well how to display the volatility period.
-
If you display the volatility period like this and hide all indicators, you will have a complete chart that can be used for trading.
-
Have a good time.
Thank you.
--------------------------------------------------
HOW And WHY The Markets MoveIn this video I explain HOW and WHY the markets move.
At it's core, trading is a zero-sum game, meaning that nothing is created. There must always be a counter-party to any trade, after all it is called "trading". Because of this, liquidity is the lifeblood of the market and it is what is required by all participants, albeit more for the larger entities out there. In order for these larger entities to trade, they must do so in stages of buying and selling, and not all in one single position like we do as retail traders. They buy on the way down, and sell on the way up, throughout many different time horizons. Therefore, they require price to be delivered efficiently in order to sustain this working machine.
I hope you find the video somewhat insightful. Regardless of your beliefs, I think it can be agreed that these two principles are what drives the marketplace and it's movements.
- R2F
HFTs gaps: Learn how to enter a stock before a huge gap up.High Frequency Trading companies are market makers/takers that provide liquidity for the public exchanges, and they now use AI. HFTs have a huge impact on your profitability. You can make higher profits from trading ahead of the HFT gaps and riding the momentum upward or downward.
In this short video, you'll learn some basics on how to identify the patterns that precede HFT gaps, which I call Pro Trader Nudges . Learn what to look for in Volume patterns and pre-gap price action.
Make sure you are not chasing HFTs but riding the wave of momentum they create, just like professional traders do.
Stock Selection: How to Tip the Tailwinds in Your Favour Stock selection is a game of fine margins but understanding a few key factors can tilt the probability of success in your favour. By focusing on these crucial elements, you can ensure that when it comes to buying stocks, you’re sailing with the prevailing tailwinds rather than fighting against them.
1. Don’t Fight the Market
Ever heard the saying, “a rising tide lifts all ships”? This holds true in the stock market. Favourable market conditions can make an average investor look like Warren Buffett. When the market is stable, it allows other factors to shine, while a risk-averse environment can dampen even the best stock’s performance.
Don’t overthink this concept—use simple moving averages, such as the 50-day and 200-day, when analysing the index. Pair this with basic structure analysis to assess overall market conditions. Ask yourself: What is the long-term trend in the index? What is the current momentum? What does the price structure look like? The better the market conditions, the more aggressive you can be in your stock selection, as the broad tailwinds are stronger.
Example: FTSE 100
The FTSE 100 index has been navigating a choppy sideways range since May, but there are still signs of optimism beneath the surface. While we’re not in a full-blown bull market, the 50-day moving average (50MA) remains comfortably above the 200-day moving average (200MA), and both are sloping upwards—indicating a long-term uptrend. Prices are currently hovering near the 50MA, suggesting the market’s tailwinds remain mildly favorable, even amidst some volatility.
FTSE 100 Daily Candle Chart
Past performance is not a reliable indicator of future results
2. Earnings Catalysts: The Power of Post-Earnings Drift
Positive earnings surprises can work wonders for any stock. They often create price gaps that signal strong short-term momentum. Moreover, positive earnings surprises can take time to be fully ‘priced in’ because large institutional investors typically stagger their investments over time. This phenomenon, known as post-earnings announcement drift, can lead to continued price appreciation following an earnings beat.
Look for stocks that have recent positive fundamental catalysts in their price history. This focus can give you a clearer path toward potential gains.
Example: Barclays (BARC)
In February, Barclays revealed a strategic plan that reignited investor confidence and sparked a sharp breakout in its share price. The bank announced a £10 billion buyback program, coupled with £2 billion in cost cuts, aiming to boost profitability and efficiency. Barclays also set its sights on delivering returns in excess of 12% by 2026, with a renewed focus on its higher-margin UK consumer and business lending divisions. This announcement acted as a major earnings catalyst, forming the foundation for a strong uptrend that followed.
BARC Daily Candle Chart
Past performance is not a reliable indicator of future results
3. The Buyback Bounce: Share Buybacks
Companies that initiate share buybacks signal confidence in their stock and a commitment to returning value to shareholders. When a company buys back its shares, it reduces the total number of outstanding shares, often resulting in an increase in earnings per share (EPS) and potentially boosting the stock price.
While this isn’t an exact science, a stock undergoing a share buyback that meets the other criteria on this list can provide a solid tailwind for your investment.
Example: Mastercard Incorporated (MA.)
In the second quarter of 2024, Mastercard repurchased approximately 5.8 million shares for $2.6 billion. Through the first half of 2024, the company bought back 10.2 million shares at a total cost of $4.6 billion. As of July 26, 2024, MA had repurchased an additional 1.9 million shares for $820 million, leaving $8.7 billion remaining under its approved share repurchase programs. These strategic buybacks not only reflect Mastercard's strong cash generation capabilities but also underline its commitment to enhancing shareholder value, making it an attractive consideration for investors seeking growth.
MA. Daily Candle Chart
Past performance is not a reliable indicator of future results
4. Focus on Financial Quality
When hunting for stocks, there’s often a tendency to bargain hunt, looking for those poised for a bounce. However, we believe that, over the long term, high-quality companies are best positioned to outperform the market. You don’t have to be a Wall Street analyst to develop a robust quality filter. The following financial metrics can help ensure that the stock you’re buying is solid and less likely to face dilution:
• Return on Equity (ROE): Most companies will claim they are high-quality businesses that prioritize investors, but checking this metric helps verify their claims. A high ROE of 15% or more indicates efficient use of equity and a commitment to shareholder value.
• Free Cash Flow (FCF): Cash is king for a good reason. Strong free cash flow means the company generates ample cash after covering its operational expenses, allowing for reinvestment or returns to shareholders. A FCF yield of 5% or higher is typically desirable.
• Debt-to-Equity Ratio: While balance sheet strength may sound boring, it’s crucial. A low debt-to-equity ratio, ideally below 1.0, suggests a company is not overly reliant on debt to fuel growth, making it less vulnerable in downturns.
Example: Morgan Sindall (MGNS)
With a Return on Equity (ROE) of 22.7%, Morgan Sindall significantly exceeds the 15% benchmark, showcasing effective management and strong profitability. Its Free Cash Flow yield is an impressive 10.81%, well above the desirable 5%, reflecting robust cash generation capabilities. Furthermore, the company boasts a negative Debt-to-Equity ratio of -0.49, highlighting a strong balance sheet with no net debt and low financial risk. These qualities are also evident in its strong price chart (see below).
MGNS Daily Candle Chart
Past performance is not a reliable indicator of future results
5. Long-Term Trend Structure
Just as analysing the strength of the overall market can create headwinds and tailwinds, you should also be mindful of a stock's price history and calibrate your expectations accordingly. An old adage that has stood the test of time is, “trends take considerable time and effort to change.” This doesn’t mean you should buy stocks that have undergone prolonged underperformance, but it does mean you should be cautious and aware of a stock’s long-term trend when making decisions.
Example: Marathon (MARA Holdings)
A quick look at Marathon’s daily chart shows prices oscillating around the 200-day moving average, indicating a period of indecision. The trend lacks clear direction, with momentum appearing tepid at best. Given the uncertainty, investors should be cautious about taking trend continuation or momentum trades here until a clearer signal emerges.
MAR Daily Candle Chart
Past performance is not a reliable indicator of future results
Conclusion
When it comes to stock selection, leveraging favourable market conditions, earnings catalysts, share buybacks, financial quality, and trend structures can enhance your investment strategy. By aligning your selections with these key factors, you can tip the tailwinds in your favour and increase your chances of success in the ever-evolving stock market.
Disclaimer: This is for information and learning purposes only. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance. Social media channels are not relevant for UK residents.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.67% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
Avoiding the Pump and Dump: A Beginner's GuideAvoiding the Pump and Dump: A Beginner's Guide to Protecting Your Investments
In the dynamic world of stock trading, new traders are constantly seeking ways to maximize profits and minimize risks. Unfortunately, one of the most deceptive and harmful schemes that can easily trap beginners is the infamous pump and dump scheme. This fraudulent practice has been around for decades, targeting unsuspecting traders by artificially inflating a stock's price and then swiftly cashing out, leaving the victims with significant losses. For traders on platforms like TradingView, especially those just starting, it’s crucial to understand how to spot these schemes and avoid falling prey to them.
This guide will provide you with the knowledge you need to recognize pump and dump schemes by analyzing monthly, weekly, and daily charts, identifying repetitive patterns, and understanding market sentiment. By the end, you'll know exactly what to look for to safeguard your investments.
What is a Pump and Dump?
A pump and dump scheme occurs when a group of individuals, often coordinated through social media or private channels, artificially inflates the price of a stock. They "pump" up the stock by spreading misleading information or creating hype around the asset, leading to increased buying interest. Once the stock price has risen significantly, the perpetrators "dump" their shares at the elevated price, leaving uninformed buyers holding a stock that will soon plummet in value.
The key elements to watch out for are:
Unusual price spikes without any corresponding fundamental news.
High trading volume during these spikes, suggesting that a group of individuals is actively manipulating the price.
Aggressive promotion through emails, forums, or social media channels, often making exaggerated claims about a stock's potential.
Understanding Timeframes: Monthly, Weekly, and Daily Charts
One of the most effective ways to spot pump and dump schemes is by analyzing various timeframes—monthly, weekly, and daily charts. Each timeframe provides different insights into the stock's behavior, helping you detect irregular patterns and red flags.
Monthly Charts: The Big Picture
Monthly charts give you a broad overview of a stock's long-term trends. If you notice a stock that has been relatively inactive or stagnant for months, only to suddenly surge without any substantial news or developments, this could be a sign of manipulation .
What to look for in monthly charts:
Sudden spikes in price after a prolonged period of flat or declining movement.
Sharp volume increases during the price rise, especially when the stock has previously shown little to no trading activity.
Quick reversals following the price surge, indicating that the pump has occurred, and the dump is on its way.
For example, if a stock shows consistent low trading volume and then experiences a sudden burst in both volume and price, this is a classic sign of a pump. Compare these periods with any news releases or market updates. If there’s no justifiable reason for the spike, be cautious .
Weekly Charts: Spotting the Mid-Term Trend
Weekly charts help you see the mid-term trends and can reveal the progression of a pump and dump scheme. Often, the "pump" phase will be drawn out over several days or weeks as the schemers build momentum and attract more buyers.
What to look for in weekly charts:
Gradual upward trends followed by a sharp, unsustainable rise in price.
Repeated surges in volume that don’t correlate with any fundamental analysis or positive news.
Recurrent patterns where a stock has previously been pumped, experienced a sharp decline, and is now showing the same pattern again.
Stocks used in pump and dump schemes are often cycled through multiple rounds of pumping, so if you notice that a stock has undergone several similar spikes and drops over the weeks, it’s a strong indicator that the stock is being manipulated.
Daily Charts: Catching the Pump Before the Dump
Daily charts provide a more granular view of a stock's price movement, and they can help you detect the exact moments when a pump is taking place. Because pump and dump schemes can happen over just a few days, monitoring daily activity is critical.
What to look for in daily charts:
Intraday price spikes that happen suddenly and without any preceding buildup in momentum.
A huge increase in volume followed by rapid price drops within the same or subsequent days.
Exaggerated price gaps at market open or close, indicating manipulation during off-hours or lower-volume periods.
On a daily chart, if a stock opens significantly higher than the previous day's close without any news or earnings report to back it up, this could be the start of the dump phase. The manipulators are looking to sell their shares to anyone who has bought into the hype, leaving retail traders holding the bag.
Repeated Use of the Same Quote: A Telltale Sign of a Pump and Dump Scheme
Another red flag is when the same stock or "hot tip" keeps resurfacing in social media, forums, or emails. If you notice that the same quote or recommendation is being promoted repeatedly over time, often using the same language, this is a strong sign of manipulation. The scammers are likely trying to pump the stock multiple times by reusing the same tactics on new, unsuspecting traders.
Be cautious of stocks that:
Have been heavily promoted in the past.
Show a history of sudden spikes followed by rapid declines.
Are promoted with vague, overhyped language like "the next big thing" or "guaranteed gains."
If the same stock is mentioned multiple times in trading communities, check its historical chart. If the stock has undergone previous pumps, you will likely see sharp rises and falls that align with the promotional periods.
How to Avoid Pump and Dump Schemes
Now that you know how to spot the signs, here are actionable steps you can take to protect yourself from becoming a victim of a pump and dump scheme:
Do Your Research: Always verify the information you receive about a stock. Check if there’s legitimate news, earnings reports, or significant company developments that justify the price movement. Avoid relying solely on social media or forums for your stock tips.
Look at Fundamentals: Focus on stocks with solid fundamentals, such as earnings growth, revenue increases, and strong management. Stocks targeted for pump and dump schemes often have weak or non-existent fundamentals.
Use Multiple Timeframes: As we've discussed, examining stocks across different timeframes—monthly, weekly, and daily—can help you spot abnormal price behavior early on.
Monitor Volume and Price Movements: If you see large, unexplained surges in volume and price, be skeptical. Legitimate price increases are usually accompanied by news or fundamental changes in the company.
Avoid Low-Volume Stocks: Pump and dump schemes often target low-volume, illiquid stocks that are easier to manipulate. Stick to stocks with healthy trading volumes and liquidity.
Set Stop Losses: Always use stop losses to protect yourself from sudden price drops. Setting a stop loss at a reasonable level can help limit your losses if you accidentally invest in a stock being manipulated.
Be Wary of Promotions: If a stock is being aggressively promoted, ask yourself why. More often than not, aggressive promotions are a sign that the stock is part of a pump and dump scheme.
Conclusion
Pump and dump schemes prey on traders’ fear of missing out ( FOMO ) and the allure of quick profits . However, by using a disciplined approach to trading, analyzing charts across multiple timeframes, and paying close attention to volume and price movements, you can avoid falling victim to these schemes.
Remember: If something seems too good to be true, it probably is. Protect your investments by staying informed, doing thorough research, and trusting your analysis. By following these guidelines, you can navigate the markets with confidence and avoid the pitfalls of pump and dump schemes.
Happy trading, and stay safe!