Category: Street’s Insights

Trading in financial markets includes purchasing and selling assets for profit, with the key component of opening short or long positions, which are frequently employed in the stock, commodity, cryptocurrency, and currency markets.

Opening a long position entails buying an asset with the expectation of future growth. In contrast, initiating a short position entails selling a borrowed asset with the purpose of repurchasing it later at a lower price. Using these two opposing tactics, traders and investors can profit from both rising and declining market values.

What are the long and short positions?

Long and short trading are two opposing techniques that traders and investors use to benefit in the markets. Long positions include purchasing an asset and holding it until the price stops growing. Short positions, on the other hand, entail selling a borrowed asset in the hope of seeing it fall to predefined levels.

Long Position

A long position entails purchasing an asset with the hope that the price will rise. This traditional method of trading is prevalent in a variety of markets, including Forex. When a trader takes a long position, they buy an asset, such as stock, cryptocurrency, commodity, or currency, with the expectation that the price would rise over time. The primary purpose is to purchase an asset at a low cost and lock in profits as the price rises.

A long position is profitable in a bullish market when the value of an asset is expected to rise over time. Holding long holdings in stocks can be quite beneficial.

The primary benefit of a long position is the theoretically limitless profit growth potential, as the asset price can climb eternally. However, if the price begins to fall, investors may suffer losses, particularly if borrowed funds are involved.

Short Position

A short position is when a trader sells an asset borrowed from a broker with the goal of buying it back later at a lower price. The approach is utilized when a trader believes the market value of an asset will fall.

Short positions are typically employed in a bear market, when the price of stocks, commodities, currencies, or cryptocurrencies is expected to fall. Opening a short position necessitates a margin account because traders do not own the asset directly but instead borrow it from a broker.

The primary risk of taking a short stock position is that if an asset’s price suddenly begins to rise, the potential losses are limitless. At the same time, investors bear the responsibility of covering any losses incurred by the broker. As a result, entering short positions requires extreme prudence.

How long positions work?

When traders or investors take a long position, they buy an asset with the expectation that the price will rise further. This can include buying stocks, cryptocurrencies, or currencies on the Forex market. Investors buy an asset at a low price with the expectation that it will increase in value over time. Long positions are often preferred in bullish markets with good growth prospects.

For example, if an investor buys a company’s stock at a closing price of $50 and expects its value to rise to $70, they will hold the stock until it hits that target price, at which point they can sell and profit. Similarly, this may entail purchasing a currency pair on the Forex market. For example, a trader could buy the EURUSD pair, expecting the euro to rise versus the US dollar.

A long position indicates that an investor is interested in the asset’s increasing value and wants to profit from its future expansion.

How Do Short Positions Work?

Going short entails borrowing assets from a broker with the intention of selling them at the present market price, expecting the price to fall. Following that, traders repurchase the assets at a lesser price and return them to the broker, pocketing the difference as profit. For example, if a trader anticipates a company’s stock will go from $100 to $70, they may borrow the stock, sell it at $100, and then repurchase it at $70, netting a $30 profit. Furthermore, having a short position can be utilized to hedge risk when investors want to safeguard their portfolios from price decreases.

This method is prevalent in the stock and cryptocurrency markets, where traders often use margin accounts to conduct such transactions because short selling can only involve borrowed assets. A margin deposit or collateral is placed in a designated margin account, with different terms and conditions depending on the broker. Investors should also evaluate the costs and interest rates associated with borrowing assets.

Basic Differences Between Long and Short Positions

The primary distinction between short and long positions in trading is traders’ or investors’ expectations for price movements. Long bets are opened when investors believe the value of an asset will rise. Thus, an asset is purchased with the intention of holding it and later selling it at a greater price. Long investments typically yield profits in a bullish market, where prices are continually rising.

A short position, also known as short selling, is initiated with the expectation that the price would fall. In this situation, traders borrow an asset and sell it at the present price with the intention of repurchasing it at a lower price later to repay the collateral. Short positions are employed in bearish markets and necessitate a margin account because the assets must be borrowed. You can short sell a variety of things, including stocks, commodities, currencies, and cryptocurrencies. However, this method includes enormous dangers, as potential losses can be limitless if prices unexpectedly soar.

As a result, the primary distinction between these techniques is that a long position seeks gains from an asset’s appreciation, whereas a short position seeks benefits from its decrease.

What Does It Mean: Going Long vs. Short?

Trading long or short includes forecasting the direction in which an asset’s price will go and then trading appropriately. Going short and long implies that an investor or trader is willing to incur risks in the search of profit.

When a trader purchases an asset, he or she enters into a long position. In other words, an investor anticipates that the asset’s value will rise and buys it at the current price with the intention of selling it later at a higher price. This strategy is frequently utilized in a positive market where the asset is expected to strengthen.

A short position is made when a short seller borrows stock from a broker and sells it at the current market price, with the expectation that the borrowed stock’s price will fall in the future. When the price falls, a trader intends to repurchase the item at a lower price, return it to the broker, and keep the difference as a profit. This approach is typically used in a descending market where the price is projected to fall further.

Thus, a long position is profitable if the stock price rises, but a short position is advantageous when the stock price falls. A margin account is required for a short position because the assets are borrowed.

Long and Short Trades

Short and long positions are important in financial trading. Essentially, any initial transaction is either long or short. However, closing transactions cannot be considered long or short because they can only be used to lock in profits or restrict losses.

Long trades are typically connected with optimistic emotion when investors expect the price to rise. In this scenario, investors purchase an asset with the expectation that it will improve in value, allowing them to sell it later at a higher price and lock in profits. Some investors, on the other hand, want to buy at the lowest possible price, hoping to enter a trade at what they believe is the lowest level, anticipating a reversal in price direction. This method is known as countertrend trading and frequently ends in losses.

In contrast, short trades or short holdings indicate a pessimistic market outlook. In this situation, investors anticipate an asset’s decline and take a short position by borrowing assets from a broker and selling them at the present price. When the price falls, traders repurchase the item at a lower price, return it to the broker, and keep the difference as profit. Furthermore, opening short positions during a rising market can result in losses when employing a counter trend strategy.

Long Trade Example: Buying Low, Selling High

Assume a trader feels that the value of a company’s stock will rise due to a positive market outlook. As a result, they buy assets at current market prices, such as $50 each.

If the stock price rises to $70 as expected, a trader will sell it for a higher price. In this example, their profit will be the difference between the $50 buying price and the $70 selling price, which is $20 per stock.

Short trade example: Sell high, repurchase low.

When traders anticipate a downturn in stock prices, they can borrow shares from their broker. In exchange, traders supply the broker with a margin deposit to cover any potential losses. Afterward, traders sell a stock at the current market price, which is deemed high. Assume the stock is now trading at $100. If the prediction proves correct and the price falls, short sellers repurchase the stock at a lower price, such as $70. Profit will be calculated as the difference of $30.

This method can be applied to a variety of assets, including equities, cryptocurrency, and commodities. The fundamental idea is to borrow assets when their prices are high, sell them, and buy.

Risks and Benefits of Long vs. Short

When opening a short position, a trader may incur huge losses if the asset’s price rises after being sold. Since the trader borrowed the asset to buy it back at a lower price, any price increases would raise the repurchase cost, resulting in losses greater than the initial collateral.

The margin deposit that a trader makes to the broker before starting a short position serves as insurance against potential losses. If the price begins to rise, the trader’s losses will mount, prompting the broker to issue a margin warning, also known as a margin call. Its development signifies that a trader must deposit more capital to maintain a minimum margin level. If a trader fails to meet the margin call criteria, a broker may force close the position to prevent further losses. Furthermore, a broker might settle a lost position at the current price rather than the market price. Shorting stocks and other assets requires extreme caution.

When taking a short position, rising prices increase the risk because possible losses are theoretically limitless. If a margin deposit is inadequate to cover losses, a broker may charge the trader for losses greater than the margin deposit, including legal action.

When an investor opens a long position, their losses are restricted by capital, as the asset price may fall to zero. This is particularly true for cryptocurrencies and non-liquid shares of failing corporations. However, if a trader opens long positions with leverage and margin collateral, they risk incurring limitless losses.

Conclusion: 

Long and short positions are the primary trading methods in financial markets. Long positions allow investors to profit from rising prices, and short positions offer the possibility to profit from falling prices. Long holdings are best suited for long-term growth and stable markets, whilst short positions are utilized to profit from declining markets or hedge risks.

There are advantages and disadvantages to both techniques in terms of risk and capital requirements. Traders and investors should use both tactics correctly to maximize the efficiency of their investment portfolios. Furthermore, do not try to acquire at the lowest price or sell an asset at its height without borrowing money. Investors who attempt to catch a falling knife by buying at the bottom frequently suffer additional losses. Similarly, individuals who sell prematurely in order to catch the peak risk missing out as the market reaches new highs.

FAQ’s

What is the primary difference between a long and a short position?

A long position involves purchasing an asset with the hope that its price will rise, whereas a short position entails selling a borrowed item with the intention of repurchasing it at a cheaper price later. Long positions profit in bullish markets, while short positions benefit in bearish markets.

What are the hazards of short positions?

Short positions have theoretically unlimited risk because there is no limit to how high an asset’s price might increase. This might result in losses that exceed the initial margin deposit, potentially leading to margin calls or forced liquidation by brokers.

Can I trade long and short positions in any financial market?

Yes, long and short positions are available in a variety of markets, including equities, commodities, forex, and cryptocurrencies. Short selling, on the other hand, may necessitate a margin account and is subject to special laws that vary by market and broker.

How does leverage affect long and short positions?

Leverage increases both potential rewards and hazards for long and short positions. While it enables traders to control greater positions with less capital, it also raises the possibility of substantial losses if the market goes against them.

Supply and demand determine an asset’s price, and traders base their choices on this relationship. In order to determine resistance and support levels as well as the possible direction of a trend, traders can estimate the amount of pending orders by looking at the order book, which is a list of buy and sell orders for a certain securities or currency ordered according to a price level.

The principles of market depth and order book will be covered in this review. You will also learn how to use the latter tool to assess the liquidity level in MT4, MT5, and cTrader platforms, as well as how big traders affect asset quotes.

Depth of Market (DOM): What is it?

The market’s capacity to handle high trading volumes without experiencing a notable shift in rates is known as depth of market. This measure shows how many requests there are to open buy and sell orders for a particular asset at various prices. You may evaluate traders’ sentiment, supply and demand levels, and liquidity with DOM.

High liquidity and a market where a high volume has little effect on the price are characteristics of a deep market. However, if it is shallow, a big transaction might create an imbalance that results in a bigger spread, a spike in volatility (a widening price range), and a change in the rate towards the trade direction. A market maker determines the daily price range and completes the biggest trades under such circumstances.

Depth of market:

• uses the accumulation of orders and volumes within a given rate range to help identify possible levels of support and resistance.

• demonstrates the actions of market makers, who have the power to move the market and affect an asset’s price in significant quantities.

• aids in determining the degree of liquidity and a shift in the spread’s width. The liquidity increases with the number of purchase and sell requests. You see price ranges with lower and higher liquidity based on the quantity and number of orders to execute a trade placed. Its decline suggests that the spread may be getting wider and that even a slight change can have a big impact on the quotes.

• shows a shift in volatility and the likely path of the trend. An increase in volatility is indicated by a rise in the frequency of orders in both directions. The trend’s direction is indicated by the volume and order predominance in the same direction. An upward or downward trend may be forming if buy or sell orders are much more common but there are no counterparties for them.

• indicates the likelihood of a critical level breakout. Based on past extremes, the trader establishes critical levels and evaluates the likelihood of a breakthrough of the resistance or support level. 

• aids in figuring out the limit order volume that won’t significantly affect the rate. A high volume of pending orders will result in an imbalance if there is no liquidity.

The quantity of limit orders to buy and sell arranged by price levels and the separation between them determines the DOM. 

This idea is highly relative. A total turnover of $100 million is regarded as shallow for a trader with a buy/sell volume of $1 million, such as hedge funds or institutional investors. Since no vendor will be able to fill an order worth 1% of the total turnover, it cannot be absorbed without having a major impact on the rate. On the other hand, a trader with a volume of $1,000 would consider a market with a total turnover of $100 million to be deep.

Book of orders

Let’s examine what is meant by the word “order book.” How does it function in trading, what is it, and how can one locate it on the trading platform?

Analysis of the order book

The order book, which is updated online in a matter of milliseconds, is a list of limit pending orders of buyers and sellers at a particular price.

In trading, there are two kinds of orders:

• L1, or level 1 market data. These are directives to complete a transaction on the exchange at the opposite party’s suggested price. After accepting an offer to sell an asset for $100, a buyer submits a counterbid to buy the asset. A request like that is then promptly accommodated. Only in the event that there is not enough product available is the instruction canceled. For example, you wish to buy ten lots of an asset, but there are only eight lots available for $100. In this instance, the order is either fully or partially completed.

• L2, or level 2 market data. Requests to trade above or below the present price are what these are. For instance, you may see an offer to sell an item for $100, but you choose not to take it. You wait for the rate to drop and put in a pending order to buy at $95 instead. As a result, the order book shows that.

Please be aware that while market orders are processed instantaneously, the order book only shows limit orders. The price has reached its level and the request has been fulfilled if the pending order is no longer visible in the book. Buy limit and sell limit pending orders are examples of limit orders. Instead of being shown on the outside market, Buy Stop, Sell Stop, Buy Stop Limit, and Sell Stop Limit are handled within the platform. Consequently, they are typically not shown on the list.

The creation and usage of the order book

Over-the-counter trading and the exchange’s order books are not the same:

• Every request made on the exchange market is routed through the exchange system. Real prices and volumes are therefore included in the list.

• The order book on the over-the-counter market can show quotes that were created in the broker’s system. Real quantities that impact the price are not visible to the trader. Only the broker’s internal data is visible to them.

Each level’s costs and volumes are listed in the order book. It displays the minimum transaction volume required to alter the quotes at a specific price level. The number of counter orders required to alter the price increases with the number of buy or sell transactions and their volumes at a given price.

• A market is said to be “deep” if there are numerous orders for a broker to purchase or sell an asset and a large number of response orders. Large orders are placed one at a time without having a big effect on the pricing.

• A huge number of orders or a high-volume order that goes unanswered might cause a substantial price movement if there is no liquidity. This kind of condition is called shallow.

In the market depth, you may also monitor both aggressive and passive orders. Aggressive ones can lead to a level breakout and emerge abruptly during significant price spikes. Conversely, passive orders form resistance or support and are found close to specific levels. Including important levels and trend lines in the future strategy improves the market depth’s efficiency.

Factors Affecting Market Depth

There are benefits and drawbacks to both deep and shallow markets. Your strategy and aims will determine this. Because deep markets contain a lot of liquidity, trades are completed quickly and at the best price. A limited spread is also present. However, because it delivers smaller price changes, there are fewer chances to profit from and use trading tactics. A huge limit order has the power to drastically alter the price in a shallow market. This presents a chance to profit from a trend shift, but there is also a lot of slippage and a big spread.

It is preferable to concentrate on leverage, trading hours, asset liquidity, potential limits, and fundamental considerations while creating a future plan.

Make use of leverage

Market depth can be positively or negatively impacted by leverage:

• A trader can boost liquidity by using leverage to increase the volume of requests and trades at various prices. Market depth rises as a result. The broker also provides the trader’s contribution to trading and liquidity.

• If a trader utilizes leverage to increase the volume of a position at one price, they consequently create an imbalance in favor of demand or supply. As a result, the price changes and volatility rises. Market depth thus declines.

The market depth can be indirectly influenced by a broker by altering the maximum leverage limit.

Hours of Trading

Depending on the asset type, the market may be more or less active at different periods. For instance, during the US and European sessions, the EURUSD currency pair exhibits the highest trading activity. The market is at its deepest and liquidity is at its maximum right now. Volumes drop as the market loses depth throughout the Asian session. A decline in market depth prior to weekends and holidays serves as another illustration. While trading volumes and the number of buyers and sellers decline during this time, the majority of traders consolidate their holdings.

The liquidity of assets

The capacity to sell an asset rapidly at the current price is known as asset liquidity. Its depth increases with the amount of liquidity. Assets from underdeveloped nations, for instance, are categorized as low-liquidity instruments. Their financial markets are manually regulated, largely closed, and have scant information. Because of their large spreads and comparatively modest trade volumes, they can thus be regarded as shallow.

Restricting the movement of prices

For instance, futures trading uses this technology. By establishing price ranges for an item, stock exchanges like the NASDAQ and NYSE prevent abrupt, quick price swings. A set range of pending orders must be placed by traders. The market depth rises as the price spread on the list falls.

Basic elements, force majeure

Any news or significant underlying element that has the potential to drastically alter the balance of power falls under this category. Liquidity is high, for instance. There are counter purchase orders because there are a lot of initial buy orders. The market is deep, the spread is narrow, and the volatility is minimal.

Following the announcement of some news, buy or sell orders for stocks, currencies, and other assets immediately spike. The market becomes unbalanced and loses depth. This indicates that it is unable to handle high transaction volumes without seeing a notable shift in pricing. The commission rises, volatility rises, and liquidity falls. A short squeeze is one instance of a significant drop in depth accompanied by a price movement.

However, market depth can be increased by fundamental causes. The SEC’s approval of applications for spot ETFs on Bitcoin, for instance, boosted investor capital inflows into cryptocurrencies, enhancing their depth and liquidity.

Conclusion

An additional instrument for creating the best trading plan and assessing the state of the market is the exchange’s order book. Its information aids in:

• Evaluate the market’s liquidity and ascertain its depth and spread. Make sure there are a lot of counter orders if you wish to purchase or sell an asset.

• Determine the degrees of support and opposition that could be powerful.

• View the volumetric dominance of buyers or sellers in the order flow.

The instrument has advantages and disadvantages. Numerous trading systems on the exchange use the data as a filter and as a source for initial market situation analysis. For scalping, swing trading, and intraday methods, it makes sense to employ it on short periods. Other drawbacks of the technology include the publication of merely limit orders, market makers manipulating volumes, and concealed and fraudulent requests. Therefore, in order to forecast prices, the order book should be utilized in conjunction with other technologies. Specifically, using a vertical volume histogram and technical indications.

FAQ’s

What is DOM, or depth of market?

A list of limit pending buy and sell orders is called DOM. Prices, quantities, supply and demand, liquidity, possible supply and demand zones, and spread are all displayed.

How is DOM used by traders?

The order book contains a limit order to purchase below the current price or to sell above the current price with the volume. The transaction is carried out and the order is removed from the list if there is a counter volume.

Which platforms have strong DOM functionality?

Almost all platforms offer market depth and order books. The usefulness and the completeness of the information presented are where the distinctions lie. For instance, MT5 has incorporated volume values and allows you to place orders from the order book with a single click. One of the most useful is the order book on the cTrader platform.

Traders usually evaluate price movements that are routinely generated on the chart when performing technical analysis. With over 50 chart patterns—including uncommon ones and ones that appear on practically every time frame—analyzing patterns and price formations is the most popular indication utilized in technical analysis.

In trading, “Triple bottom” and “Triple top” are two common patterns. Despite the fact that these patterns are identical, a “Triple bottom” is more common on price charts because market downtrends generally conclude with this pattern.

A Triple Bottom: What Is It?

At the lows of a downward trend, a technical analysis pattern known as a “triple bottom” chart pattern emerges, signaling a shift in the power dynamics from sellers to buyers.

A “Triple bottom” is a fundamental pattern that can show up on any asset’s chart over any period of time. But like the majority of price patterns, it usually works best when seen on 4-hour and longer time frames.

After a lengthy downward trend, this chart pattern shows three consecutive price lows that emerge at the same level, creating a short-term channel with a strong support line. The direction of the channel can be sideways, upward, or downward. The three bottoms of this pattern must all have the same pip value in order to be recognized on the chart.

What Causes the Formation of a Triple Bottom Pattern?

Three primary steps are involved in the production of the “Triple bottom” pattern:

1. First, the price chart indicates a protracted downward trend in which bears are controlling the price movement. The price movement begins to produce a pullback at the lows during this bearish mood. After the first bottom or low is formed, the pattern starts to take shape. Over 10% of the prior decline is covered by the correction as it climbs after the bottom is formed.

2. Second, the upward corrective comes to an end when the pattern sets its initial peak. The pattern creates the first wave after the first low and high are established. Following that, the price drops to the initial low and makes an effort to sink further lower. The formation of a second bottom will confirm a “Double bottom” pattern if the price does not fall below this low and instead reverses. The price should reverse once more at the first high, setting the second high. The pattern moves into the third stage if each of these conditions is met.

3. The price falls after reaching the second high, indicating that a “Triple bottom” pattern is forming. The price creates a third low during the third stage, running parallel to the earlier ones. A subsequent upward reversal in quotes follows. A breakout wave, which usually signifies the start of the pattern’s expansion, is the price increase that forms following the third bottom.

After the price hits the first and second highs, the pattern can indicate a bullish reversal.

Finding the Triple Bottom Pattern: A Guide

It is required to wait until the first two stages of the pattern’s construction are complete in order to recognize it accurately on the price chart. A “Triple bottom” pattern can only be verified if the first and second lows and highs have been determined. Even if all three lows have fully formed, the pattern can still not function. The pattern can change into any direction of a normal channel.

Numerous designs resemble a “Triple bottom” in both appearance and operation. One notable instance is the conversion of a “Double bottom” into a “Triple bottom.” The “Inverse head and shoulders” chart pattern is another comparable pattern that may be identified by its central bottom being lower than the other two. You can differentiate a “Triple bottom” from other patterns on the chart by looking for the following indicators:

1. The three lows ought to be roughly equal.

2. The three highs and lows ought to be at parallel levels.

3. A sideways movement cannot result in the formation of the pattern; it always follows a strong decline.

How to Use the Triple Bottom Pattern in Trading

Following a few basic guidelines will help you automate trading with the “Triple bottom” pattern and ensure that you apply it appropriately.

1. Correctly identifying the pattern requires removing all identical patterns.

2. There is already a 50% likelihood that a potential pattern will be completed if it forms following a decline.

3. Await the formation of all three lows before preparing to submit a pending purchase order.

4. Put a pending purchase stop order in place if the price has risen by half from the previous low.

5. A buy stop order’s level is situated slightly above the second high. After the price has tested the resistance level, a long trade may occasionally be opened. It is not advised to do so, though, as you might not enter the transaction at all or miss more than half of it.

6. A purchase stop and H1, which stands for any pattern low in pip values, are added to define the take-profit level.

7. At the third low level, a stop-loss order is placed.

8. You can move the stop loss to the breakeven point once the price has surpassed 50% of the trade’s upside potential.

Conclusion

In conclusion, one of the most common trading strategies for people with moderate capital is pattern-based trading. Patterns feature straightforward entry and exit levels and are easy to identify.

One of the easiest to learn is the “Triple bottom” chart pattern, which, if mastered, can help you create a potent trading technique. Use the following advice to increase your financial market trading profits:Only patterns that show up on time frames from H1 and higher should be used. The H4 time frame has the best chance of starting a reversal pattern.Don’t wait to execute a take profit in its entirety. You can lock in the profit if the price has shifted more than 80% in the desired direction.

A “symmetrical triangle” is a technical analysis pattern that can help traders make better decisions. When trend lines converge, it indicates that buyers and sellers have reached an equilibrium. The price varies within a range, indicating the market’s momentary uncertainty. A break out of this range can indicate whether the present trend will continue or change. To trade a “Symmetrical triangle” pattern profitably, you must accurately identify the breakout point and alter your strategy based on the direction of price movement.

What is a Symmetrical Triangle Pattern?

A “symmetrical triangle” is one of the fundamental patterns in technical analysis that indicates market uncertainty. It occurs when the price begins to oscillate inside a shrinking range defined by two trend lines. One line connects the highs while the other connects the lows.

This narrow price channel demonstrates the balance of power between sellers and buyers. “Symmetrical triangle” chart patterns do not predict the future trend direction. However, a breakout can indicate the continuation of a current trend or a possible reversal. Traders typically check trading volume to ensure signal strength, as volume growth verifies the breakout’s trustworthiness.

What is the definition of a bullish symmetrical triangle?

A bullish “Symmetrical triangle” pattern appears during an uptrend and signals its possible continuance. The price is moving in a small range within the pattern, gradually converging to the point where a new impetus is expected. A break of the upper threshold indicates the willingness of bulls to maintain the trend and continue its upward pace.

Before entering a trade, traders should check the reliability of the breakout and consider trading volume. A confirmed bullish breakthrough is a strong signal that the upswing will continue, lowering the danger of opening a position prematurely.

A Bearish Symmetrical Triangle: What Is It?

In a decline, a bearish “symmetrical triangle” pattern appears, suggesting that the trend may continue. The price moves inside the pattern’s tightening range, with the ascending support line limiting further decrease and the descending resistance line capping upward movement.

The downtrend deepens after breaching the pattern’s lower line, reaffirming the market’s selling dominance. Traders should wait for a rise in trading volume to confirm the signal’s dependability in order to reduce risks.

What Is Shown by a Symmetric Triangle?

In trading, the “symmetrical triangle” pattern indicates the relative strength of buyers and sellers, causing momentary uncertainty in the price movement. The pattern itself indicates an impending breakout of one of the triangle’s boundaries, but it does not indicate the direction of possible price movement.

The price may signal a continuation of the upward trend when it crosses the upper line. On the other hand, breaking the lower line signifies more sellers’ dominance and drop. A spike in trading volume typically follows breakouts, indicating the signal’s dependability. This pattern is a useful tool for determining possible price direction because it can be applied to many time frames.

Example of a Symmetrical Triangle

A “symmetrical triangle” appears on the daily time scale from March to April 2023 in the XAUUSD chart below. A descending resistance line and an ascending support line were the two converging trend lines that the instrument was oscillating between during this time, creating the well-known “symmetrical triangle.”

A narrowing triangle is formed as the highs steadily fall and the lows climb with each swing. This suggests a time of market consolidation when the pressure from buyers and sellers is roughly equal. The price of the XAUUSD pair varied from $1,920 to $2,010.

The price surged sharply on a breakout above the upper line of the “Triangle,” indicating that the uptrend was still going strong. This type of price fluctuation is regarded as an indication to open long.

The Symmetrical Triangle Chart Pattern: How to Identify It

Converging trend lines are necessary to spot a “symmetrical triangle” on a chart. The descending highs should be connected by one line, and the rising lows should be touched by the other. A triangle should be formed by the narrowing of these lines.

While recognizing a “symmetrical triangle” is simple, accurately predicting the next price direction is crucial. Strong movement in the direction of the breakout point is frequently seen when a trend line breakout occurs, which aids traders in making more informed initial trade decisions.

Symmetrical Triangle Continuation Patterns: Bullish and Bearish

In both upward and downward trends, a “symmetrical triangle” can function as a continuation pattern. In the growth phase, the price forms a “Triangle” if the pattern is bullish. The price confirms a further increase if it crosses the upper line.

During a downward trend, a bearish “symmetrical triangle” pattern emerges. The price indicates the continuation of the downward trend when it crosses the lower trend line. In all cases, trading volume continues to be the most important signal. Volume growth during a breakout aids in confirming the direction of the trend. Traders can identify the best entry points based on the circumstances by being aware of these subtleties.

Triangle Reversal Pattern in Symmetry

A “symmetrical triangle” reversal pattern suggests that the direction of the trend may be shifting. When the price swings sideways within a shrinking range that is delineated by two convergent trend lines, the formation appears during market turmoil. After breaking over one of the “Triangle” borders, the price may indicate a shift in trend if it reverses and keeps moving in the other direction. A breakout of the upper line and additional price increases, for instance, in a downtrend, validate the change to an uptrend.

Using the Symmetric Triangle Pattern in Trading

The goal of trading a “symmetrical triangle” is to identify when one of its limits is crossed. Regardless of whether the price breaks through the upper or lower line, traders open positions as soon as the price crosses the “Triangle” borders. While a downward breakout generates selling chances, an upside breakout signals the start of a long trade.

A stop-loss order should be placed just below the lower trend line in a long trade and above the upper one in a short trade to protect against a false breakout. In the event of a significant shift in the price direction, this tactic helps to lower risks.

What Makes a Pennant Different from a Symmetrical Triangle

The technical analysis chart patterns known as a “symmetrical triangle” and a “pennant” are similar, although they have different formations and signals. A “Symmetrical Triangle” might indicate both trend continuation and reversal when it appears during a period of market uncertainty. When one of the boundaries breaks out, it signals the start of a new trend. It is formed based on convergent trend lines.

As a trend continuation pattern, a “Pennant,” on the other hand, appears following a significant price movement. Following this brief period of consolidation, the price typically keeps moving in the same direction as the prior trend. In contrast to a tiny “Triangle,” a “Pennant” happens during a powerful price impulse.

Conclusion

A technical analysis chart pattern called a “symmetrical triangle” is frequently used to inform trading choices. Following the breaking of one of the trend lines, it indicates a potential large price movement and represents market uncertainty.

Notwithstanding its adaptability, a “symmetrical triangle” pattern by itself is not a reliable indicator of a reversal or the continuation of an existing trend. Trading volumes and other confirming signs should therefore constantly be taken into consideration by buyers and sellers.

Both trend continuation and reversal can be indicated by this pattern, which is employed in both bullish and negative markets. The pattern’s adaptability makes it a useful tool for examining charts of any financial asset and time period.

The inherent worth of a firm, organization, or investment project is an important indicator in today’s global financial landscape. Determining intrinsic worth is a typical commercial activity, just as negotiating purchase and sale agreements.

It is no longer conceivable to consider or engage in a large corporate deal without first establishing the transaction’s intrinsic worth. Market players purchase and sell stocks, currencies, and commodities on the stock exchange based on their estimated value. An accurate calculation of intrinsic value enables an investor to determine how much they should pay for an asset, or whether they are paying less than the market value.

Intrinsic Value Definition:

Intrinsic value is the true value of the assets that support the value of a firm or asset, as estimated using their financial performance.

The definition of intrinsic value differs according to the field in which it is utilized. A company’s intrinsic value represents the worth of its underlying assets, which is usually not the same as its market value.

An exchange-traded asset’s intrinsic value is the difference between the market price at which it can be sold and the asset’s true value. This term is especially significant to options trading, as an option’s intrinsic value can be either positive or negative.

The intrinsic worth of a product is its net value, which fluctuates as the economic cycle proceeds, peaking when the product is realized.

Why is intrinsic value important?

Worth investors assess the return on investment in a company based on its intrinsic worth. In essence, intrinsic value shows an investor how well a stock or company’s worth matches its present value.

This value is derived using a number of critical metrics to help the investor make informed selections.

• Intrinsic value is an assessment of the company’s future cash flows.

• Intrinsic value accounts for the discounting process;

• By comparing intrinsic value to current pricing, investors can determine if a stock or company is cheap or overvalued.

How Do I Calculate Intrinsic Value?

There are four primary ways for assessing an asset’s intrinsic value, which integrate all of the major characteristics of revenue generation by the asset:

• Discounted Cash Flow (DCF) Analysis

• Asset-based valuation.

• Analysis using a financial metric

• Dividend Discount Model(DDM)

We will thoroughly study these strategies and compare their results. To accomplish this, we’ll need an asset on which to base our computations. Shares in companies developing artificial intelligence have recently become more valuable. As a result, Apple Inc. would be an excellent candidate for this reason.

To carry out the computations, we will need the fundamental data from the company’s financial accounts.

• Market Capitalization: $2.639 trillion.

• Free cash flow is $99.58 billion.

• Free cash flow per share is $7.37.

• Cash flow growth rate in the last five years: +9.2%.

• Current share price: $213.

• Valuation period: five years

• P/FCF ratio is $26.5.

Discounted cash flow analysis.

This discounted cash flow analysis is the most time-consuming and accurate method. The basic premise is to deduct future cash flows using the discount rate.

The entire computation process can be broken down into three steps. We first calculate future cash flows, then estimate the cost of capital in the final period, and then discount the result to get the final intrinsic value.

• Future cash flows are calculated as free cash flow per one share multiplied by the growth rate, which in our instance is 99.58*(1+9.2%) = 99.58*1.092 = 108.74 for the second period. For the third period, the formula will be 108.74*1.092 = 118.74, and so on. We will obtain values of 99.58, 108.74, 118.74, 129.67, and 141.59.

• At the end of period 5, the stock’s estimated value equals period 5 cash flow (per share) multiplied by P/FCF. The estimated value per share is $10.46 multiplied by 26.5, which equals $277.19.

• Finally, we must discount future cash flows by the value of the discount rate. The discount rate is typically defined as the 10-year US Treasury bond yield, which represents a risk-free rate of return. In this situation, it will amount to 4% every year.

• Thus, the discounted cash flow will be equal to the sum of cash flows for all periods divided by 1 plus the discount rate. In our example, 99.58/1.05 + 108.74/1.10 + 118.74/1.15 + 129.67/1.21 + 141.59/1.27 = 94.83 + 98.85 + 103.25 + 107.16 + 111.48 = 515.57.

• As a result, the stock’s discounted intrinsic value after 5 years is (total cash flow + terminal value) divided by the number of shares. In our situation, (515.57 + 115.68)/15.288 equals 41.29. This suggests that the stock price’s intrinsic value might be around $41 in five years, $172 less than its current value.

Dividend Discount Model

The dividend discount method is another way to calculate share intrinsic value. This method is based on the notion of discounting free cash flows, but rather than using the free cash flow value, it uses the value of the company’s dividends.

There are various ways for discounting dividends, but the Gordon Growth Model, or GGM, is the most prevalent. This strategy is the simplest because future predicted payouts increase at the same pace. The intrinsic value formula for dividend discounting using GGM is shown below:

where:

P denotes intrinsic value.

g represents the predicted dividend growth rate.

R is the desired rate of return.

D1 represents the estimated dividend.

Using this model to calculate the intrinsic value of Apple’s shares yields the following results:

Р = 1.05/(0.08 – 0.04) = 26

The stock’s intrinsic value, including both present and future dividends, is $26. In the market, the stock price is $213. If we dismiss all information about the company, we might conclude that it is either enormously overvalued or pays very low dividends. In this circumstance, the latter is most likely to be true. Notably, this strategy is heavily reliant on the size of dividend payments, which may be a big disadvantage in practice.

Asset-based valuation

When calculating the intrinsic worth of a firm or organization, investors employ an asset-based valuation method. This is the simplest technique, with the following formula:

Intrinsic value = the sum of assets minus the sum of liabilities.

A company’s assets should contain both tangible and intangible assets, which can be difficult to determine because investment flows are rarely visible. Liabilities are a company’s debts.

If we compute the intrinsic value of Apple shares using this method, we get the following results:

$352.5 billion minus $62.37 billion equals $290.13 billion.

The estimated value is divided by the number of outstanding shares. We receive the following: $290.13 / 15.28 equals $18.98 per share.

This valuation approach has one fundamental flaw: it ignores future prospects. 

Analysis using a financial metric

Financial metrics are another method for determining the intrinsic worth of a company’s stock. The simplest indicator is the P/E ratio, which compares a company’s price to its earnings. The formula for such a calculation is given below:

P/E = EPS x (1 + r) * P/E

Apple’s P/E ratio will be equivalent to:

P/E = 6.16 * (1+ 0.092) * 27.8 = 187

Based on the aforementioned earnings data and company value, Apple stock has an intrinsic value of $187. The result is the most accurate approximation to the current stock price of $213. However, this strategy does not account for future cash flows and may not be appropriate for organizations with a less steady profits growth curve.

Risk Adjusting the Intrinsic Value.

When determining intrinsic value, it is vital to consider hazards. The volatility of future cash flows is a common risk assessment measure that is influenced by a variety of perceptual elements that should be evaluated independently. As a result, when compensating for risk, two primary strategies are used:

• Risk-adjusting the discount rate. This strategy can result in a substantially greater time value than without risk adjustment. This is because higher risk always means higher potential returns. With this strategy, the risk is simply added to the discount rate, while the remainder of the calculation formula stays same.

• Use a probability factor to adjust for future cash flows. This strategy varies from the preceding one in that it does not modify the discount rate, but instead alters the value of the predicted cash flow using a unique reduction coefficient. The coefficient is derived as the ratio between the period’s net proceeds and the predicted net proceeds. In practice, the value of the coefficient ranges from 0.99

Intrinsic value of option contracts

The intrinsic value of an options contract is an important aspect in evaluating the profitability of the option.

The premise of an option contract, which lets market players to purchase or sell the underlying securities at a fixed price known as the strike price, is that it incorporates a model of two prices or values. The initial value is transient and will exist until the option expires. The second value is equally temporary; it becomes active when the price reaches the option’s strike price. In truth, intrinsic value is a measure of an option’s profitability; if it is positive, the option is lucrative; if it is negative, the option is unprofitable. 

• The intrinsic value of an option varies depending on the type of option, but in general, it is the difference between the option’s strike price and its market price.

• If we’re dealing with a European or US option, we may apply the following formula to calculate the intrinsic value of stock options:

• CALL Value = (Current Market Price – Strike Price) * Number of Contracts

• PUT Value = Strike Price – Current Market Price * Number of Contracts

• However, this formula only applies to an option at the moment of expiration. If it is necessary to compute the intrinsic value of an option before expiration, the time value of the option must be added to the calculation, as it will still be present.

An example of an option’s intrinsic value.

Let’s see how a stock options contract works. For our example, let’s take the well-known Apple stock.

Suppose we believe that a company’s stock will rise in the future and decide to purchase a growth option. To accomplish this, we require a CALL option. The strike price is a crucial characteristic for the option. This is the point at which our option becomes profitable. Intrinsic value is also utilized in options pricing to assess how much money an option is worth.

For example, the current value of one Apple share is $200. We wish to purchase one lot of the CALL option and set the strike price to $214. Unlike futures, options have an initial price that we pay when we purchase them. 

As a result, we bought a call option with a strike price of $214 for $10. The resulting income curve will look like the one shown in the graphic above. Until the market price reaches the strike price, our options contract will incur a $10 loss. When the market price exceeds the strike price by $10, the option reaches its break-even point and has intrinsic value. Next, each dollar of price movement generates one dollar of revenue. When the option reaches a price of $300, its intrinsic value is $76 (300 minus $224).

The intrinsic value of a PUT option is determined in the same way, but it profits from a price drop.

In essence, it is similar to a typical Forex exchange. However, there are two significant variances.

The loss is always restricted to the option’s initial value, therefore even if the stock price drops to $100, you can only lose $10.

Profit depends on volume. If you buy ten items for $100, you will make a net profit of 76*10 = $760. As you can see, it is far more than the income potential of a typical futures contract.

What are the advantages and disadvantages of intrinsic value?

While the intrinsic value measure is widely used in finance, it has serious drawbacks. The primary disadvantage of intrinsic value approaches is their reliance on input data, which fails to account for the speculative components of financial research.

For example, five years ago, such valuations were far more exact and rational. However, in today’s market, where corporations have large free-floating shares, any fundamental movement might cause price swings that cannot be predicted by objective calculations alone.

What Are the Other Types of Valuation?

In addition to classic intrinsic value calculation methods, there are various ways that are more specific to an investor’s risk tolerance and input data. If the investor is well-versed in examining price charts, a technical analysis method is preferable; however, if the investor is familiar with the market and similar projects, the cost approach or relative valuation method may be used.

Technical Analysis

Nowadays, the technical analysis method is commonly used to determine intrinsic value. The primary goal is to examine the chart of the company’s price over the selected period. This method can employ chart pattern formations or long-term forecasting methodologies such as Elliott Wave Theory. The key difference between this method and traditional valuation techniques is that it includes an element of guesswork while omitting financial metrics.

Relative valuation.

The comparison approach is the most often used term for the relative valuation technique. It involves comparing the value of a certain asset to that of other investments. In essence, it is similar to purchasing a commodity on the market. If other investors have purchased the item at the price you are interested in, it may be undervalued, and you might consider purchasing it. In contrast, if there is no demand from other investors at the price you are interested in, it may be regarded as overvalued, and you should either wait for the price to fall or avoid from purchasing the item.

Cost Approach

The cost technique is most similar to the classic intrinsic value assessment, and it is based on the project’s potential costs. If it is a company, the expected amount of investment in its development is provided. If it is a project, all costs, from hired worker pay to subsequent audits, are measured. Finally, the resulting costs are compared to those of similar projects, accounting for time considerations such as depreciation, inflation, and so on.

Conclusion

The computation of intrinsic value is regarded as an essential component of corporate operations, and no modern transaction in the M&A market could exist without it. Traditional valuation methods, on the other hand, are becoming increasingly obsolete with each passing year, and it is now far more frequent to see intrinsic value estimates based on technical analysis of the share price chart and fundamental analysis rather than the discounted cash flow method. As a result, whereas stock exchange experts frequently used the idea of intrinsic value a decade ago, it is now far more usual to find simpler ways of comparison that are sometimes more accurate.

FAQ’s

What is the definition of intrinsic value?

Intrinsic value is a measure of a stock’s worth that is independent of its present market price and ignores temporary market considerations. In essence, intrinsic value indicates the underlying value of a project, which may not always match the price a sensible investor is ready to pay.

What is an option’s intrinsic value?

The intrinsic value of an option is the difference between the current market price and the option’s strike price. The intrinsic value of a call option is the value over the strike price, whereas that of a put option is the value below the strike price.

What are some examples of intrinsic values?

The acquisition price paid by one corporation for another is an example of intrinsic value. If a firm is worth $100 million, it is sometimes sold for twice or even three times less since its intrinsic value is lower than its nominal value.

When does an asset’s inherent value exceed its market price?

When a stock’s intrinsic worth exceeds its market value, it is considered undervalued by the market and represents a good buying opportunity. If the inherent worth is less than the market price, the asset is overrated, and you should avoid buying it.

Chart patterns are crucial in the field of technical analysis because they help traders make educated decisions. All markets, including equities, commodities, cryptocurrencies, and foreign exchange, exhibit patterns.

Potential price movement is indicated by patterns. A “Falling wedge” formation, a highly useful tool in trend forecasting, is one of these formations. You can increase trade efficiency and forecast accuracy with this reversal pattern. The features of a “Falling wedge” pattern, trading tactics, and guidelines for risk management are the main topics of this article.

What is a pattern of falling wedges?

A technical analysis chart pattern known as a “falling wedge” signifies a possible upward price reversal and shows up during a decline.

When the market is trapped between two converging, progressively narrowing support and resistance lines during a bearish trend, a “falling wedge” forms. A resistance breakout is especially important since it usually signals the beginning of a fresh uptrend.

How to Spot a Wedge That Is Falling

Prior to identifying a “Falling wedge” pattern on the chart, one must first recognize a negative trend that is progressively waning and becoming flat as the price declines. Next, create a lower trend line by joining the lower lows and an upper trend line by joining the lower highs. In order to connect the corresponding highs and lows, two trend lines are drawn. A falling wedge is created when two downward-sloping lines converge.

Pay attention to how the pricing range gets closer together; it should get smaller with time. Price breaking through the resistance line, an important part of the pattern’s creation, completes the pattern. In the meantime, increasing trading volumes point to a reversal of the upward trend.

Falling Wedge Pattern Characteristics:

• Converging trend lines. An upper resistance line connects successive swing highs, whilst a lower support line connects consecutive swing lows, indicating the emergence of lower highs and lower lows.

• Price range is narrowing. As the pattern develops, the amplitude of price movements eventually reduces, indicating a drop in volatility and possible consolidation before further movement. Buyers and dealers are taking a cautious approach, waiting to see how events evolve.

• Trade volume. Volume is vital to examine when studying since it often falls while a pattern emerges and then spikes quickly when the top resistance line is breached, signalling a trend reversal and bullish breakout.

• Breakout. The last pattern creation phase happens when price action breaks through the top resistance line, indicating the start of a new uptrend.

Falling wedge pattern on the Pfizer (#PFE) stock price chart.

Let’s look at a “falling wedge” pattern on the daily Pfizer stock chart from November 2023 to May 2024.

Initial Phase: Upper and Lower Trend Line Formation, November 2023–March 2024

During this time, Pfizer’s stock price was in decline. The lower highs of November 28, January 2, and March 13 established an upper trend line, while the lower lows of December 15 and March 4 produced a lower trendline.

Middle Phase: Range Narrowing (December 2023–April 2024)

Throughout this time, the #PFE price traded between the converging trend lines in the consolidation zone. The fluctuation’s amplitude is steadily reducing.

Final Phase: Resistance Breakout (May 2024)

In early May, the asset broke through the top resistance line, completing the “Falling wedge” pattern. The breakout was followed by an increase in trading volume. Following the positive reversal, Pfizer’s price began to slowly rise, demonstrating the pattern’s efficiency.

Confirmation of Pattern Performance for June 2024

Once the upper resistance line was breached, the price continued to rise to new highs in the next weeks. In June 2024, the rate fell to the breakout level of $27.50 before rebounding and surpassing previous swing highs. This price fluctuation validates the signal provided by the “Falling wedge” pattern.

The significance of volumes while analyzing a falling wedge pattern

When analyzing a “falling wedge” pattern, trade volumes are taken into account, which validates the signal and suggests a likely reversal. Trading volumes typically fall while patterns form. As a result, the downtrend diminishes, and the price of an asset or security consolidates before continuing movement. When the upper resistance line is breached, volumes grow, confirming the strength of the reversal.

Significant volume growth during a breakout indicates market participants’ confidence and a strong likelihood of the upswing continuing. As a result, analyzing volume fluctuations helps to confirm a shift in trend direction. However, this is not always true, as price movements are more important than volume data. Furthermore, volume growth does not always signal a trend reversal.

Let’s look at the Pfizer stock trading volume indicators. When the asset reached its December 2023 low, trade volumes increased as the price dropped. As the swing highs gradually diminished, so did trading activity. Another volume increase happened in May 2024, when the asset broke past the resistance line, which then turned into support.

Notably, trade volume helps to validate the pattern. False breakouts are possible in live markets, such as in March and May 2024. The increased trading volume may lead traders to misread market performance and make mistakes. To avoid blunders, take a break for multiple trading periods before making any judgments.

How to Trade the Falling Wedge Pattern

The basic method for trading the “falling wedge” pattern is to wait for the upper resistance line to break. When this happens, you should wait a few trading periods before establishing long positions, because a correction to test the newfound support level can sometimes occur. Increased trading volumes corroborate the wedge’s breakout to the upside.

When trading this pattern, employ take-profit levels to close a position. Profit targets should be established by adding the width of the wedge to the breakout point, as illustrated in the chart above. At the same time, set many bullish targets. Once the first target is met, it is required to lock in half of the position’s gains. This move assures that the trade is breakeven and protects the investor’s deposit if market conditions change.

A stop-loss order should be placed just below the wedge’s previous bottom to limit losses if a false breakout occurs. This helps to preserve your wealth and lessen the dangers involved. It is also possible to manually close a position.

For example, a trader enters a position on Pfizer stock at the “Falling wedge’s” resistance line breakout, with an initial objective of $31.5. When the price reaches this level, a trader locks in half of his profits. A trader sets the second objective of $34 and secures a portion of the gains. The remaining profits can be secured later, as they will have already been received. A stop-loss order is placed below the $25 threshold. 

You may also employ other technical indicators. For example, the MACD indicator can help identify false breakouts. If the MACD line, histogram, and moving average are all above zero (as indicated by the blue arrow on the chart above), and the price breaks through the upper line of the wedge, it signals continued growth.

As a result, combining a “Falling wedge” pattern with other technical tools and adequate risk management enables you to make and complete trades efficiently and with least risk.

Conclusion

A “Falling wedge” pattern is a valuable technical analysis technique for increasing forecast accuracy and trade efficiency. Understanding its characteristics and creation stages enables traders to make more educated judgments and minimise risks. The entry approach entails breaking through the top resistance line as trading volumes increase. Use orders to maximise profits. A take-profit order should be set at the same level as the wedge’s width. A stop loss might be set below the preceding swing low.

Traders can utilise the “Falling wedge” pattern in conjunction with other technical tools on a variety of financial markets. The idea is to follow risk management guidelines. Regardless of how dependable a trading signal may appear, it merely represents the likelihood of a profitable transaction.

FAQ’s

Is the collapsing wedge pattern bullish?

Yes, a “falling wedge” is a bullish pattern. It forms in a downtrend and predicts an upward price turnaround if the top resistance line is exceeded.

What is the logic behind the falling wedge pattern?

A “falling wedge” can indicate a decrease of negative pressure and an accumulation of bullish momentum, resulting in an upward trend reversal once the top resistance line is breached.

How trustworthy is a falling wedge?

A “falling wedge” pattern is thought to be trustworthy. However, false breakouts are possible, hence using technical tools is advised. Also, consider pausing before making a choice to improve forecast accuracy.

Why is volume critical for verifying a Falling Wedge breakout?

Growing trade volume indicates a strong positive momentum. As a result, long trades are opened, increasing the dependability of the signal and the likelihood of an upward trend reversal.

The globe is currently characterised by global uncertainty. Food and fuel prices continue to rise, and inflation is shattering records. Under these circumstances, we must all understand how to preserve our capital from depreciation. Today, we’ll tell you about your best solution: gold, specifically how to buy it and profit from it. So, let’s get started!

The article discusses the following topics:

• Why invest in gold in 2024?
• A brief history of gold investing,
• including its relationship to stocks and inflation.
• How to Invest in Gold?
• Gold Alternatives
• Is it a good or bad time to invest in gold now?
• FAQs

Why invest in gold in 2024?

It’s worth explaining why gold transactions are labeled investments rather than purchases or speculation. The fact is that gold is the worldwide commodity against which the worth of all the world’s currencies and assets is measured. In contrast to fiat currency, gold never depreciates. Furthermore, the less gold remains in the earth’s bowels, the higher its value. For this reason, major institutional investors hold gold in their portfolios for decades rather than years. Gold is frequently used as a safe-haven asset to shield funds from depreciation because its average movements are substantially lower than those of currencies or stocks.

A Brief History of Gold Investing

As previously stated, pure gold has long been recognized as a universal commodity that may be exchanged for anything else. Initially, simple chunks of gold were used, with the value determined by their weight. Later, gold was melted into gold bars and coins. At the same time, the troy ounce, a widely accepted and still used weight designation for 31.1035 grams of gold, was established.

When gold began to be exchanged on exchanges, its exchange price began to grow dramatically, as it was always regarded as the primary measure of wealth. Some states first attempted to refuse gold as an equal in the middle of the nineteenth century. It ended with the collapse of these countries’ economy, and the spot price of gold just slowed its gradual climb.

The most major and well-known attempt to forsake gold was made by developed countries’ central banks toward the end of the twentieth century. At the time, they deliberately sold off their gold stockpiles, putting the money into short-term financial initiatives. We all recall the 2008 crisis, when all projects were devalued, and gold’s legendary ascent, when spot prices soared from $300 to $1200 per ounce. In 2023, gold hit an all-time high of $2062.3. We suppose we don’t need to discuss how much folks who bought the precious metal earned back then.

including its relationship to stocks and inflation.

Gold has traditionally been one of the world’s three most liquid assets, alongside oil and the currency. It is also the best safe-haven asset for any amount of capital.

Globally, return on investment is known as the ROI ratio. We recommend that you compare the return on investment in gold with the ROI in Microsoft stock from 2018 to 2020.

As shown in the graphic, investing in Microsoft stock generated a larger return on investment than purchasing gold contracts during this time period. This is unsurprising given that company stocks are a riskier commodity with far greater price volatility than steady gold. However, unlike stocks, which can plummet in value suddenly, gold quotes are far more stable.

Another key attribute of gold is its capacity to keep money from depreciating. Higher inflation always results in an increase in interest rates, which hurts risky assets like equities. This is owing to the increased appeal of bonds and bank deposits, which are more conservative than corporate equities. In this case, investors always move their capital from stocks to gold.

How to Invest in Gold?

Modern economic development and investment services provide investors with a wide range of investment options, including the acquisition of gold products and gold exchange contracts. So let’s have a closer look at each of them.

Physical Gold

Despite the introduction of exchange-traded financial instruments, most people prefer to keep their money in something tangible. This is why gold bars, coins, and jewelry remain the most popular ways to invest in precious metals.

Gold bars

This sort of investment is better suited to major investment funds or banks because it involves various challenges. For example, the primary issue with such an investment is the metal’s storage and transportation. Gold is a fairly heavy gold metal, and if you buy a lot of it, you’ll need to plan for logistics and storage, which will cost more. Furthermore, while purchasing gold bullion, you pay a statutory value-added tax, which may be lowered if

Articles of gold

In certain nations, investing in gold has become nearly a national tradition. Gold jewellery, like gold bullion, has numerous downsides. First and foremost, it is highly improbable that you will be able to sell the piece for the sum you paid. When you buy it, the cost of the jeweller’s work is factored in, and when you sell it, only the weight of the piece is often appraised.

Gold coins

This method of investing has grown in popularity over the last few years. Since the beginning of 2023, the United States Mint’s monthly figures show a significant increase in sales of flagship gold coins. Investment coins, unlike bullion, are tax-free when sold, making them the most appealing method to invest in actual gold. However, there are certain drawbacks, the most notable of which is determining the condition of the coin when it is sold. Even the slightest damage can reduce the value of the coin, resulting in a decrease in resale revenues.

Gold CFDs/ETFs/Futures

Even while many still prefer to buy actual gold, current trading methods offer different ways to profit from it. Among such offerings, ETFs, futures contracts, and CFDs stand out.

Gold CFDs

CFDs are a popular approach to invest in gold that involves buying a particular contract in exchange for the price difference. Its biggest advantage is that you can profit from both purchasing and selling gold without owning much of it. Your money, valued at the time of the transaction, serves as collateral. The contract’s stock ticker will be Gold, or XAUUSD. Another advantage of using CFDs for gold is that you have complete control over the transactions. You select when to buy, wait, or sell the asset.

Gold ETFs

An ETF is an exchange-traded fund. Its essence is a portfolio of assets that are supported by an underlying asset. Gold-focused ETFs are backed by actual gold and traded on exchanges like normal stocks. ETF funds were established to allow investors to profit from the underlying asset without participating in the real asset, as well as to diversify the portfolio and, thus, the risk. The primary drawback to investing in gold ETF funds is the high taxes and often fixed investment terms.

Gold futures

The most common sort of exchange trading is gold futures contracts, which serve as a substitute for gold ownership. Gold futures, like CFDs, can be bought and traded. The main difference is that futures have an expiration date, after which the seller is required to deliver. This term determines the eventual price of futures contracts. That is, you agree to acquire a specified amount of items at a predetermined price at a future date. The advantage of a futures contract over a physical asset is the ability to employ leverage, which significantly increases the volume of the transaction.

Gold-related Stocks, Gold Mutual Funds

In addition to real gold or exchange-traded contracts, some investors prefer to invest in equities of gold-related businesses. Simply put, they buy shares in gold mining and processing companies. This is also a popular method of accomplishing things, but it has some important limitations.

Although these companies deal in gold, the value of their shares is not always directly related to it. For example, you can compare the share prices of the top gold miners to the price of gold itself.

Gold Alternatives

In addition to investing in yellow gold, there are other successful options available in today’s financial market.

Silver, Platinum, Palladium, Rare Earth Metals

In addition to gold, the world’s most valuable precious metals are silver, platinum, palladium, copper, rhodium, and others. Despite the fact that investing in these metals is uncommon, the return on investment can be enormous. For example, everyone is familiar with palladium, a rare metal that is widely employed in the automotive and microelectronic industries. However, few people are aware that its value increased from $700 to $2,800 per ounce over the four years from 2016 to 2020, generating a 300% return for investors.

Is it a good or bad time to invest in gold now?

Now that we’ve covered how to invest in gold, let’s speak about when to buy it.

We’ve included a global graph showing gold price fluctuation from 2000 to the present. A fundamental concept of technical analysis is that history is cyclical, and all events in history must repeat themselves. Gold is one of the most affected by this law, with cycles changing every ten years. If we look back ten years, we can see a cycle of sideways dynamics that is quite similar to the one we are experiencing now. After then, the cycle ended, and gold became less expensive. This is why buying gold today and selling it at a higher price in a few years is not a good idea. This applies to long-term investments.

FAQ’s

How do I buy gold on the exchange?

To buy gold on the exchange, open a brokerage account with one of the brokers. If your account is registered with a stock exchange, you can purchase gold futures, ETFs, and other derivatives. If you have a Forex broker account, you can buy gold through gold CFD contracts.

Where can I get gold coins?

Gold coins can be purchased from banks, special auctions, and numismatic businesses. There are two types of gold coins: collector coins and investment coins. If you buy collector coins, you must pay VAT.

How Do I Invest in Gold?

There are two major ways to invest in gold. We either acquire gold to resale later, or we buy gold to protect our investments. The techniques differ in terms of the investing horizon. If we are going to save, we need to plan for the long term. If we are interested in short-term price movements, we can simply buy CFD futures and trade them for a day or less.

Why is gold rising?

Gold typically increases in value during periods of global geopolitical turmoil. If the world’s main economies go into a recession, the price of gold as a safe-haven asset will soar. In addition, when major central banks raise interest rates, the price of gold may climb.

Richard D. Wyckoff, a stock market trader and analyst in the early 20th century, created the trading approach known as the Wyckoff Trading Cycle, or Wyckoff Method. The foundation of the Wyckoff Method is the idea that market prices follow discernible trends, which may be recognized and utilised to guide trading decisions.

As to the Wyckoff Method, the market undergoes four discrete stages:

• Phase of accumulation
• Phase of markup
• Phase of distribution
• Phase of markdown.

Phase of accumulation

Large institutional investors, including mutual funds and pension funds, are purchasing shares of a specific stock during the accumulation period. Given that it shows that these seasoned investors are optimistic about the stock’s future performance, this is usually a bullish indication.

Phase of markup

The stock price starts to grow during the markup phase as a result of the higher demand from the accumulation period. Given that the stock’s price is expected to climb further, this is an excellent moment for traders to consider purchasing it.

Phase of distribution

The big institutional investors start selling their stock shares during the distribution period. This usually signals that these expert investors are losing faith in the stock’s future performance, which is negative.

Phase of markdown.

Due to the increased supply from the distribution phase, the stock price starts to drop during the markdown phase. Given that the stock’s price is probably going to keep dropping, it is a good moment for traders to think about selling.

The Three Wyckoff Laws

The Law of Supply and Demand, the Law of Cause and Effect, and the Law of Effort vs. Result form the foundation of the Wyckoff Method.

• The Law of Supply and Demand: This law asserts that the price of a stock is determined by the balance between the supply of shares available for purchase and the demand for those shares. A stock’s price will increase in situations where demand is strong and decrease in situations where supply is abundant and demand is minimal.

• Every price change, regardless matter whether it results from market speculation or a fundamental development, has a reason, according to the Law of reason and Effect. Traders can have a better understanding of the probable direction of future price movements by determining the reason behind a price shift.

• The market moves in trends, and these trends are defined by intervals of accumulation, markup, distribution, and markdown, according to the Law of Effort vs. Result. To determine the trend’s stage and make wise trading selections, one can consider the effort, or the degree of buying or selling pressure, and the outcome, or the price movement.

Traders can utilize the Wyckoff Method to spot trends and base their trading decisions on market patterns and trends by adhering to these laws.

Conclusion:

By recognizing the cyclical nature of price changes, traders can successfully navigate the financial markets using the tried-and-true Wyckoff Method. Traders can determine the best periods to purchase or sell by examining the four phases: accumulation, markup, distribution, and markdown. They can also examine the three fundamental laws: supply and demand, cause and effect, and effort vs. result. This approach underscores the fact that institutional investors set market trends and emphasizes how crucial it is to comprehend the underlying dynamics of the market in order to make well-informed decisions.

FAQ’s

How does the Wyckoff Method benefit traders, and what is it?

Richard D. Wyckoff created the Wyckoff Method, a trading strategy, in the early 1900s. It focuses on using institutional investor behavior analysis to comprehend and forecast market movements. Trading professionals can make better decisions about whether to buy or sell assets by understanding the four main market phases: accumulation, markup, distribution, and markdown.

Which four market stages make up the Wyckoff Method?

Four essential stages of the market cycle are identified by the Wyckoff Method:

• Accumulation: Buying by major investors indicates a bullish move in the future.
• Markup: When demand grows, prices also do.
• Distribution: A possible market top is indicated by the start of sales by large investors.
• Markdown: A decline in price indicates a bearish trend since it is the result of higher supply and lower demand.

What effects does the Law of Supply and Demand have on pricing in the market?

According to the Law of Supply and Demand in the Wyckoff Method, the quantity of shares that are available for sale determines supply, and the desire to purchase shares determines demand. Prices increase when supply exceeds demand and decrease when demand is less than supply. Recognizing this equilibrium aids traders in projecting future price changes.

A variety of chart and candlestick patterns that represent the mood and actions of traders in financial markets are included in technical analysis. Technical indicators and these chart patterns assist traders in making better trading selections.

A “Rising wedge” bearish pattern is one of many price patterns that indicates a trend shift from upward to downward or the continuance of a bearish trend.

The usefulness of the trade pattern and the possibility that it will indicate an impending reversal on a chart are covered in this article.

What is a Rising Wedge?

Often referred to as a negative technical analysis chart pattern, the “Rising wedge” pattern appears at the peaks of an uptrend or in the midst of a decline and indicates a bearish price reversal.

Skilled traders are able to identify the pattern on the chart with ease. With rising lows and higher highs, it is an ascending channel with a shrinking price pattern.

The pattern’s diagonal support line is notably steeper than the resistance line. This indicates that bullish pressure is gradually wearing off and that sellers are putting increasing pressure on the price.

A bearish trend reversal is indicated by the wedge’s shortening at the peak, which suggests a further breach of the diagonal support line. Open trades for short positions once the price breaks through the above pattern.

The price may turn around to test the support level following a breakout to the negative. A “Rising wedge” pattern is typically verified by a bounce back from the support line.

But when trading volumes are large, a support breakout typically happens hastily and without confirmation. To prevent missing out on a position, it is therefore wise to search for an entry into a short trade on shorter time frames.

How Do Rising Wedges Appear?

A sizable price configuration that shows up on longer time frames is known as a “rising wedge” pattern.

This sequence is followed by the pattern development at the peak of an uptrend or during a downtrend:

• The price progressively climbs inside the converging diagonal lines of support and resistance when there are little volumes. The bottom trend line has a sharper slope.

• Support and resistance levels gradually converge to form a wedge-shaped structure.

• As the pattern develops, the price highs and lows increase. The trading range gradually narrows between these positions.

• Trading volumes frequently decrease during a “Rising wedge” formation and rise when the pattern is disrupted.

• The price breaks through the top trend line at the pattern’s peak, signalling a price reversal and creating an opportunity for selling.
  

A “Rising wedge” pattern indicates a possible trend reversal and highlights the increasing market stress.

What Leads to Wedges That Rise?

A “rising wedge” pattern, which is impacted by the following variables, depicts shifts in market supply and demand:

• expansion of supply. Sellers enter the market when the pattern develops. Bulls initiate short bets and lock in profits from long positions, which causes the supply to rise quickly. A “Rising wedge” suggests a progressive weakening of buyers’ power, even though they still control the majority of the market.

• Despite enthusiastic purchases, the asset’s demand progressively declines as the pattern takes shape, slowing the asset’s price growth.

• Resistance levels, both historical and swing. Typically, a “Rising wedge” pattern appears at historical or swing highs, which are the points at which many short trades were first made.

• Both basic and psychological elements. It’s critical to examine the underlying causes influencing the asset’s value when identifying a “Rising wedge” pattern on the price chart. Positive news can occasionally cause the price to start rising following the pattern development rather than decreasing. Furthermore, there will be a larger downward movement the more market players recognize the pattern on the chart.

Examine the following Altria Group Inc. chart for an illustration of how a “Rising wedge” pattern affected the trend change.

The rising wedge pattern frequently denotes a trend continuance during a downturn. The 4-hour chart of Starbucks Corporation shares below shows an example of this pattern.

What Do Rising Wedges Mean?

A “Rising wedge” indicates major changes in the state of the market, despite the fact that it may appear simple and comparable to other patterns.

• change in trend. The quotes have turned lower as a result of the diagonal support line breakout within the pattern, which indicates that bears have gained the upper hand.

• decline in the positive momentum. Bullish movement in the contracting price range indicates that the strength of purchasers is waning despite the lows’ strong expansion.

• shift in the mood of the market. Market attitude is more cautious when a “Rising wedge” pattern develops.

• Price movement within a constricted ascending channel. Two convergent trend lines show how the security’s price has been consolidating and indicate the impending impetus during the pattern’s breakout.

• Drop in the volume of trading. Lessening bullish momentum in the market is indicated by declining trading volume during the “Rising wedge” pattern creation. Increasing market volume validates the power of sellers and suggests a possible downward reversal or reinforcement of bearish momentum when the price breaks above the wedge.

• historical peaks for pattern formation. The price struggles to continue climbing when a “Rising wedge” typically appears at historical resistance levels.
  

Consequently, a “Rising wedge” pattern creates opportunities for selling by alerting market players to the imminent change from an uptrend to a downturn.

How To Recognize The Pattern Of Rising Wedges

Step-by-step, let’s examine how a “Rising wedge” pattern was created on the 4-hour XAUUSD chart

.

• To begin with, you should identify critical levels of support and resistance in order to determine potential patterns.

• Next, visually locate a pattern close to the resistance line on the chart. Sharp price swings in an ascending, narrowing channel with higher highs and higher lows define the pattern.

• In addition, this pattern’s ascending structure has a less steeply sloping resistance line and a steeper support line. The price is forming a wedge as it moves within a smaller trading range.

• Another crucial factor is the market volume. Volume should be modest as the pattern develops, indicating that bulls are unable to drive the price upward.

• You should wait until the price breaks through the pattern to confirm that the wedge is rising.

On the gold chart, a “Rising wedge” pattern has shown during a bullish trend. After it was finished, the cost started to drop quickly. In essence, the pattern has provided indications to open short positions and alerted traders to the impending trend change.

Trading Strategies for Rising Wedge

You should research the guidelines for entering and leaving the market in accordance with the “Rising wedge” pattern if you want to trade it successfully. Early warning signs of a trend reversal or the continuance of a downward movement are provided by the pattern. Therefore, it’s crucial to hold off on making trade decisions until after a pattern’s lower boundary breakout and confirmation.

Let’s explore two examples of trading a “Rising wedge” pattern below.

Trading a “Rising wedge” in a positive trend

Opening short positions when the pattern forms at the high, near the end of the uptrend, is the trading strategy for a “Rising wedge” pattern in a bullish trend. Let’s use the hourly chart of the EURUSD currency pair to examine this technique in more detail.

The EURUSD price is moving higher for a longer period of time on the chart. A “Rising wedge” then develops in the 1.2273–1.2350 area.

Following the bulls’ failed attempt to break through the historical resistance of 1.2350, the pattern’s lower boundary was breached, and this was accompanied by stronger volumes, which became an indication to initiate short trades.

In addition, the chart displays an impulse breakout of the bottom boundary of the uptrend. Following the breach, the price challenged the lower boundary once again, providing the last evidence of the uptrend’s reversal.

A stop-loss order in this case ought to be positioned above the “Rising wedge” pattern and the crucial resistance level of 1.2350. 1.2211 is the closest profit target. By putting the order at 1.2126 and 1.2057, you can also maximize the possible profit and partially secure earnings.

Using a “Rising wedge” trade during a negative trend

When trading a “Rising wedge” in a downtrend, short trades are opened as soon as the pattern starts to take shape. Let’s use the 4-hour ETH/USD chart to examine this approach.

The chart illustrates how a “Rising wedge” has formed inside the downtrend over a broad range of prices. A brief wedge-shaped upswing has alerted investors to the likelihood that the gloomy trend will persist.

Higher trading volumes and the pattern’s lower boundary breakout indicate when to start short trades.

In this instance, at the 1723.92 level, a stop-loss order ought to be positioned above the pattern’s lower line.

According to the accompanying chart, the distance between the lower and upper boundaries at the start of the pattern development equals the price potential drop trajectory following the breakout. That means that 1628.46, 1557.88, and 1431.86 are the goal levels. Most trades can be closed after these benchmarks are met.

Verification for the Rising Wedge Pattern

“Rising wedge” patterns and indications need to be confirmed, just like any other patterns or indicators in technical analysis.

Making money in the market is the aim of any trader or investor. As a result, the market’s many confirming signals point to more profit potential and lower risk.

• The pattern’s bottom boundary breakout is the most significant piece of pattern confirmation.

• An even stronger confirmation of a “Rising wedge” pattern is a discernible spike in trading volumes that happens after the price breaks through the pattern, indicating a change in sentiment and general market activity.

• Analyzing technical indicators and interpreting candlestick patterns to obtain signals is another method of verifying the pattern.

Let’s see a confirmation example of the “Rising wedge” pattern on the 4-hour Dow Jones Index chart.

A “Rising wedge” pattern appeared prior to the YM index entering a brief bearish trend. The RSI indicated that the price had spent a considerable amount of time in the overbought zone before the pattern’s lower boundary breakout. The values of the indicator then abruptly dropped.

The MACD indicator, meanwhile, has decreased in the negative zone after crossing the zero barrier. In addition, the MFI indicates that the asset’s liquidity is leaving along with a rise in tick volume. These signals mark the start of the sales process.

An additional indication of the strength of the bearish trend is the index market price’s decline below the SMA20 level and the VWAP point.

Consequently, the basis for opening is provided by five “Rising wedge” pattern confirmation signals.

Conclusion

In volatile markets, a “rising wedge” pattern aids traders in assessing the direction of the market and the relative strength of bulls and bears.”Rising wedge patterns suggest that an uptrend is about to transform into a downtrend, and they may also suggest that the downtrend will continue. In addition, trading this pattern is not too difficult, and the indications it produces are very trustworthy. But it’s critical to use candlestick patterns and technical indicators to support the confirmation of a “Rising wedge”. Getting a free LiteFinance demo account is the easiest method to learn how to spot and use a “Rising wedge” pattern. With a variety of trading instruments and a flexible web terminal, you may hone your trading abilities before

One of the biggest traps for traders is emotional trading, which frequently results in snap judgments and large losses. Fear, greed, or the excitement of following market trends are just a few examples of how emotions can skew judgement and obstruct objective analysis. Profitable traders know that long-term success depends on having a focused, disciplined mindset. We’ll look at seven tried-and-true methods in this article to help you stay focused, steer clear of emotional trading, and make wise choices in the market.

7  guidelines to avoid emotional trading

• Determine the characteristics of your personality.
• Create and adhere to a trading plan.
• Be adaptable and patient.
• After a defeat, take a rest.
• Take your winnings, please.
• Maintain a trade journal.

Determine the characteristics of your personality.

Early identification of personality features is crucial for establishing good trading psychology. You must be honest with yourself about whether you are impulsive or more likely to act out of irritation or rage.

If so, you should be mindful of these characteristics when you trade actively since they may induce you to make snap judgments with little support from analysis. But it’s also critical to capitalize on your unique advantages. For example, if you are a calm, calculated person by nature, you can benefit from these qualities while trading.

Acknowledging and understanding your prejudices is just as crucial as figuring out your personality traits and emotions. Although biases are a natural part of human nature, you should be conscious of your own prejudices before making any investments.

Create and adhere to a trading plan.

The key to making sure you reach your objectives is to have a trading plan. A trading plan serves as the framework for your trading and should include information on your time commitments, available trading capital, risk-reward profile, and preferred trading approach.

A trading plan might specify, for example, that you will trade for one hour each morning and evening and that you will never invest more than 2% of your portfolio’s entire worth in a single trade. By outlining the rules for initiating and closing a trade for you, this can assist minimize losses and reduce the impact of emotions on your trading.

Trading strategies should also consider personal aspects like emotions, biases, and personality qualities that may have an impact on your trading discipline. You may be less likely to act on your biases if you are upfront about them before you begin trading.

Be patient.

Discipline requires patience, and it’s critical that you have patience with your positions. Reacting to negative emotions such as fear may cause you to exit a trade too soon, costing you money. Have faith in your analysis, and practice patience and self-control. Likewise, it’s crucial to exercise patience and wait for the appropriate opportunity before making a deal rather than hopping into one right away.

For example, there tends to be more volatility right before a Reserve Bank announcement, so if you were hoping to speculate on specific GBP currency pairs like EUR/GBP or GBP/USD, you might want to wait.

Be Flexible.

Although having a trading plan is crucial, keep in mind that there are never two identical trading days and that there are no trading winning streaks. Keeping this in mind, you ought to get at ease evaluating the daily fluctuations in the markets and making appropriate adjustments.

If one day’s volatility is higher than the previous one and the markets are moving very erratically, you can choose to pause trading until you’re certain you understand what’s going on. Being adaptable can help you control your emotions and eliminate status quo and representational biases, allowing you to evaluate each issue on its own merits and ensuring that you act pragmatistically when necessary.

After a defeat, take a rest.

Sometimes, instead of jumping into another trade in an effort to make up some of your losses, the best course of action after a loss is to take a brief break from your trading account to collect your thoughts and organize yourself.

The most successful traders are those who accept their losses and turn them into teaching moments. Before returning to their platform, they usually take a few minutes to themselves. During this time, they analyze what went wrong with that specific trade in the hopes of avoiding the same error in the future.

By allowing oneself to cool off before approaching the next trade with a clear brain and solid judgment, they are able to control emotions such as pride or fear.

Take your winnings, please.

Remaining calm after a defeat is crucial, but so is quitting when you’re ahead and collecting your gains. A string of victories or one particularly significant victory can give you the impression that you are unbeatable, leading you to try to repeat the success in another position.

Since today is “your day” in the markets, you can even initiate a string of fresh positions with the hope that none of them will fail. This can lead you to diversify your portfolio too soon or take unwarranted risks without thoroughly researching each market.

When it comes to trading, happiness can be just as harmful as rage. As such, it’s critical to recognize when happiness may be influencing your decisions or negatively affecting your trading mentality.

Maintain a trade journal.

You can keep a trading journal in which you can document all of your wins and losses, along with your feelings at the time of the deal. You can utilize your trade record to determine if a particular action you took at a given moment was wise or not.

A trading log, for example, can be used to document the point at which you decided to stop losing money and the asset’s final price. You can determine whether or not you made the right choice by doing this. It can also be utilized to document when you decided to cancel that position due to emotions, as well as when you accepted your gains.

Conclusion 

Traders can prevent emotional trading and keep a disciplined attitude by using appropriate tactics. Emotional trading frequently results in rash decisions and probable losses. Traders can make more educated, logical judgments by comprehending their personality qualities, adhering to a well-thought-out trading plan, exercising patience and flexibility, and learning from both losses and gains. Keeping a trade notebook facilitates introspection and the ongoing development of trading tactics.

FAQs:

Why is it crucial to recognize one’s own traits when trading?

Knowing your personality type can help you identify possible emotional triggers, such as impatience or impulsivity, that could cause you to make bad trading judgments. You can lessen the impact of these characteristics on your transactions by being aware of them.

In what ways might a trading plan prevent emotional trading?

Having a trading plan helps you avoid making rash judgments by providing clear rules on when and how to trade. It makes sure that strategy, not feelings, drives your decisions.

What justifies traders taking pauses following a loss?

After a loss, taking a pause helps you focus and keeps you from making rash, retaliation-driven trades. It offers a chance to start over and gives time to consider what went wrong.

How can trading discipline be enhanced by maintaining a trade journal?

By keeping a trading log, traders may monitor their emotions and judgments, which can aid in their analysis of previous deals. It helps to pinpoint emotional trends and improve trading tactics for subsequent deals.

In trade, how can happiness be just as hazardous as anger? 

After a winning run, overconfidence can result in risky trades made more out of emotion than logic. Keeping a disciplined attitude requires knowing when happy feelings are impacting your choices.