Everything You Always Wanted To Know About Swaps* (*But Were Afraid To Ask)
Hello, dummies It's your old pal, Fuzzy. As I'm sure you've all noticed, a lot of the stuff that gets posted here is - to put it delicately - fucking ridiculous. More backwards-ass shit gets posted to wallstreetbets than you'd see on a Westboro Baptist community message board. I mean, I had a look at the daily thread yesterday and..... yeesh. I know, I know. We all make like the divine Laura Dern circa 1992 on the daily and stick our hands deep into this steaming heap of shit to find the nuggets of valuable and/or hilarious information within (thanks for reading, BTW). I agree. I love it just the way it is too. That's what makes WSB great. What I'm getting at is that a lot of the stuff that gets posted here - notwithstanding it being funny or interesting - is just... wrong. Like, fucking your cousin wrong. And to be clear, I mean the fucking your *first* cousin kinda wrong, before my Southerners in the back get all het up (simmer down, Billy Ray - I know Mabel's twice removed on your grand-sister's side). Truly, I try to let it slide. Idomybit to try and put you on the right path. Most of the time, I sleep easy no matter how badly I've seen someone explain what a bank liquidity crisis is. But out of all of those tens of thousands of misguided, autistic attempts at understanding the world of high finance, one thing gets so consistently - so *emphatically* - fucked up and misunderstood by you retards that last night I felt obligated at the end of a long work day to pull together this edition of Finance with Fuzzy just for you. It's so serious I'm not even going to make a u/pokimane gag. Have you guessed what it is yet? Here's a clue. It's in the title of the post. That's right, friends. Today in the neighborhood we're going to talk all about hedging in financial markets - spots, swaps, collars, forwards, CDS, synthetic CDOs, all that fun shit. Don't worry; I'm going to explain what all the scary words mean and how they impact your OTM RH positions along the way. We're going to break it down like this. (1) "What's a hedge, Fuzzy?" (2) Common Hedging Strategies and (3) All About ISDAs and Credit Default Swaps. Before we begin. For the nerds and JV traders in the back (and anyone else who needs to hear this up front) - I am simplifying these descriptions for the purposes of this post. I am also obviously not going to try and cover every exotic form of hedge under the sun or give a detailed summation of what caused the financial crisis. If you are interested in something specific ask a question, but don't try and impress me with your Investopedia skills or technical points I didn't cover; I will just be forced to flex my years of IRL experience on you in the comments and you'll look like a big dummy. TL;DR? Fuck you. There is no TL;DR. You've come this far already. What's a few more paragraphs? Put down the Cheetos and try to concentrate for the next 5-7 minutes. You'll learn something, and I promise I'll be gentle. Ready? Let's get started. 1.The Tao of Risk: Hedging as a Way of Life The simplest way to characterize what a hedge 'is' is to imagine every action having a binary outcome. One is bad, one is good. Red lines, green lines; uppie, downie. With me so far? Good. A 'hedge' is simply the employment of a strategy to mitigate the effect of your action having the wrong binary outcome. You wanted X, but you got Z! Frowny face. A hedge strategy introduces a third outcome. If you hedged against the possibility of Z happening, then you can wind up with Y instead. Not as good as X, but not as bad as Z. The technical definition I like to give my idiot juniors is as follows: Utilization of a defensive strategy to mitigate risk, at a fraction of the cost to capital of the risk itself. Congratulations. You just finished Hedging 101. "But Fuzzy, that's easy! I just sold a naked call against my 95% OTM put! I'm adequately hedged!". Spoiler alert: you're not (although good work on executing a collar, which I describe below). What I'm talking about here is what would be referred to as a 'perfect hedge'; a binary outcome where downside is totally mitigated by a risk management strategy. That's not how it works IRL. Pay attention; this is the tricky part. You can't take a single position and conclude that you're adequately hedged because risks are fluid, not static. So you need to constantly adjust your position in order to maximize the value of the hedge and insure your position. You also need to consider exposure to more than one category of risk. There are micro (specific exposure) risks, and macro (trend exposure) risks, and both need to factor into the hedge calculus. That's why, in the real world, the value of hedging depends entirely on the design of the hedging strategy itself. Here, when we say "value" of the hedge, we're not talking about cash money - we're talking about the intrinsic value of the hedge relative to the the risk profile of your underlying exposure. To achieve this, people hedge dynamically. In wallstreetbets terms, this means that as the value of your position changes, you need to change your hedges too. The idea is to efficiently and continuously distribute and rebalance risk across different states and periods, taking value from states in which the marginal cost of the hedge is low and putting it back into states where marginal cost of the hedge is high, until the shadow value of your underlying exposure is equalized across your positions. The punchline, I guess, is that one static position is a hedge in the same way that the finger paintings you make for your wife's boyfriend are art - it's technically correct, but you're only playing yourself by believing it. Anyway. Obviously doing this as a small potatoes trader is hard but it's worth taking into account. Enough basic shit. So how does this work in markets? 2. A Hedging Taxonomy The best place to start here is a practical question. What does a business need to hedge against? Think about the specific risk that an individual business faces. These are legion, so I'm just going to list a few of the key ones that apply to most corporates. (1) You have commodity risk for the shit you buy or the shit you use. (2) You have currency risk for the money you borrow. (3) You have rate risk on the debt you carry. (4) You have offtake risk for the shit you sell. Complicated, right? To help address the many and varied ways that shit can go wrong in a sophisticated market, smart operators like yours truly have devised a whole bundle of different instruments which can help you manage the risk. I might write about some of the more complicated ones in a later post if people are interested (CDO/CLOs, strip/stack hedges and bond swaps with option toggles come to mind) but let's stick to the basics for now. (i) Swaps A swap is one of the most common forms of hedge instrument, and they're used by pretty much everyone that can afford them. The language is complicated but the concept isn't, so pay attention and you'll be fine. This is the most important part of this section so it'll be the longest one. Swaps are derivative contracts with two counterparties (before you ask, you can't trade 'em on an exchange - they're OTC instruments only). They're used to exchange one cash flow for another cash flow of equal expected value; doing this allows you to take speculative positions on certain financial prices or to alter the cash flows of existing assets or liabilities within a business. "Wait, Fuzz; slow down! What do you mean sets of cash flows?". Fear not, little autist. Ol' Fuzz has you covered. The cash flows I'm talking about are referred to in swap-land as 'legs'. One leg is fixed - a set payment that's the same every time it gets paid - and the other is variable - it fluctuates (typically indexed off the price of the underlying risk that you are speculating on / protecting against). You set it up at the start so that they're notionally equal and the two legs net off; so at open, the swap is a zero NPV instrument. Here's where the fun starts. If the price that you based the variable leg of the swap on changes, the value of the swap will shift; the party on the wrong side of the move ponies up via the variable payment. It's a zero sum game. I'll give you an example using the most vanilla swap around; an interest rate trade. Here's how it works. You borrow money from a bank, and they charge you a rate of interest. You lock the rate up front, because you're smart like that. But then - quelle surprise! - the rate gets better after you borrow. Now you're bagholding to the tune of, I don't know, 5 bps. Doesn't sound like much but on a billion dollar loan that's a lot of money (a classic example of the kind of 'small, deep hole' that's terrible for profits). Now, if you had a swap contract on the rate before you entered the trade, you're set; if the rate goes down, you get a payment under the swap. If it goes up, whatever payment you're making to the bank is netted off by the fact that you're borrowing at a sub-market rate. Win-win! Or, at least, Lose Less / Lose Less. That's the name of the game in hedging. There are many different kinds of swaps, some of which are pretty exotic; but they're all different variations on the same theme. If your business has exposure to something which fluctuates in price, you trade swaps to hedge against the fluctuation. The valuation of swaps is also super interesting but I guarantee you that 99% of you won't understand it so I'm not going to try and explain it here although I encourage you to google it if you're interested. Because they're OTC, none of them are filed publicly. Someeeeeetimes you see an ISDA (dsicussed below) but the confirms themselves (the individual swaps) are not filed. You can usually read about the hedging strategy in a 10-K, though. For what it's worth, most modern credit agreements ban speculative hedging. Top tip: This is occasionally something worth checking in credit agreements when you invest in businesses that are debt issuers - being able to do this increases the risk profile significantly and is particularly important in times of economic volatility (ctrl+f "non-speculative" in the credit agreement to be sure). (ii) Forwards A forward is a contract made today for the future delivery of an asset at a pre-agreed price. That's it. "But Fuzzy! That sounds just like a futures contract!". I know. Confusing, right? Just like a futures trade, forwards are generally used in commodity or forex land to protect against price fluctuations. The differences between forwards and futures are small but significant. I'm not going to go into super boring detail because I don't think many of you are commodities traders but it is still an important thing to understand even if you're just an RH jockey, so stick with me. Just like swaps, forwards are OTC contracts - they're not publicly traded. This is distinct from futures, which are traded on exchanges (see The Ballad Of Big Dick Vick for some more color on this). In a forward, no money changes hands until the maturity date of the contract when delivery and receipt are carried out; price and quantity are locked in from day 1. As you now know having read about BDV, futures are marked to market daily, and normally people close them out with synthetic settlement using an inverse position. They're also liquid, and that makes them easier to unwind or close out in case shit goes sideways. People use forwards when they absolutely have to get rid of the thing they made (or take delivery of the thing they need). If you're a miner, or a farmer, you use this shit to make sure that at the end of the production cycle, you can get rid of the shit you made (and you won't get fucked by someone taking cash settlement over delivery). If you're a buyer, you use them to guarantee that you'll get whatever the shit is that you'll need at a price agreed in advance. Because they're OTC, you can also exactly tailor them to the requirements of your particular circumstances. These contracts are incredibly byzantine (and there are even crazier synthetic forwards you can see in money markets for the true degenerate fund managers). In my experience, only Texan oilfield magnates, commodities traders, and the weirdo forex crowd fuck with them. I (i) do not own a 10 gallon hat or a novelty size belt buckle (ii) do not wake up in the middle of the night freaking out about the price of pork fat and (iii) love greenbacks too much to care about other countries' monopoly money, so I don't fuck with them. (iii) Collars No, not the kind your wife is encouraging you to wear try out to 'spice things up' in the bedroom during quarantine. Collars are actually the hedging strategy most applicable to WSB. Collars deal with options! Hooray! To execute a basic collar (also called a wrapper by tea-drinking Brits and people from the Antipodes), you buy an out of the money put while simultaneously writing a covered call on the same equity. The put protects your position against price drops and writing the call produces income that offsets the put premium. Doing this limits your tendies (you can only profit up to the strike price of the call) but also writes down your risk. If you screen large volume trades with a VOL/OI of more than 3 or 4x (and they're not bullshit biotech stocks), you can sometimes see these being constructed in real time as hedge funds protect themselves on their shorts. (3) All About ISDAs, CDS and Synthetic CDOs You may have heard about the mythical ISDA. Much like an indenture (discussed in my post on $F), it's a magic legal machine that lets you build swaps via trade confirms with a willing counterparty. They are very complicated legal documents and you need to be a true expert to fuck with them. Fortunately, I am, so I do. They're made of two parts; a Master (which is a form agreement that's always the same) and a Schedule (which amends the Master to include your specific terms). They are also the engine behind just about every major credit crunch of the last 10+ years. First - a brief explainer. An ISDA is a not in and of itself a hedge - it's an umbrella contract that governs the terms of your swaps, which you use to construct your hedge position. You can trade commodities, forex, rates, whatever, all under the same ISDA. Let me explain. Remember when we talked about swaps? Right. So. You can trade swaps on just about anything. In the late 90s and early 2000s, people had the smart idea of using other people's debt and or credit ratings as the variable leg of swap documentation. These are called credit default swaps. I was actually starting out at a bank during this time and, I gotta tell you, the only thing I can compare people's enthusiasm for this shit to was that moment in your early teens when you discover jerking off. Except, unlike your bathroom bound shame sessions to Mom's Sears catalogue, every single person you know felt that way too; and they're all doing it at once. It was a fiscal circlejerk of epic proportions, and the financial crisis was the inevitable bukkake finish. WSB autism is absolutely no comparison for the enthusiasm people had during this time for lighting each other's money on fire. Here's how it works. You pick a company. Any company. Maybe even your own! And then you write a swap. In the swap, you define "Credit Event" with respect to that company's debt as the variable leg . And you write in... whatever you want. A ratings downgrade, default under the docs, failure to meet a leverage ratio or FCCR for a certain testing period... whatever. Now, this started out as a hedge position, just like we discussed above. The purest of intentions, of course. But then people realized - if bad shit happens, you make money. And banks... don't like calling in loans or forcing bankruptcies. Can you smell what the moral hazard is cooking? Enter synthetic CDOs. CDOs are basically pools of asset backed securities that invest in debt (loans or bonds). They've been around for a minute but they got famous in the 2000s because a shitload of them containing subprime mortgage debt went belly up in 2008. This got a lot of publicity because a lot of sad looking rednecks got foreclosed on and were interviewed on CNBC. "OH!", the people cried. "Look at those big bad bankers buying up subprime loans! They caused this!". Wrong answer, America. The debt wasn't the problem. What a lot of people don't realize is that the real meat of the problem was not in regular way CDOs investing in bundles of shit mortgage debts in synthetic CDOs investing in CDS predicated on that debt. They're synthetic because they don't have a stake in the actual underlying debt; just the instruments riding on the coattails. The reason these are so popular (and remain so) is that smart structured attorneys and bankers like your faithful correspondent realized that an even more profitable and efficient way of building high yield products with limited downside was investing in instruments that profit from failure of debt and in instruments that rely on that debt and then hedging that exposure with other CDS instruments in paired trades, and on and on up the chain. The problem with doing this was that everyone wound up exposed to everybody else's books as a result, and when one went tits up, everybody did. Hence, recession, Basel III, etc. Thanks, Obama. Heavy investment in CDS can also have a warping effect on the price of debt (something else that happened during the pre-financial crisis years and is starting to happen again now). This happens in three different ways. (1) Investors who previously were long on the debt hedge their position by selling CDS protection on the underlying, putting downward pressure on the debt price. (2) Investors who previously shorted the debt switch to buying CDS protection because the relatively illiquid debt (partic. when its a bond) trades at a discount below par compared to the CDS. The resulting reduction in short selling puts upward pressure on the bond price. (3) The delta in price and actual value of the debt tempts some investors to become NBTs (neg basis traders) who long the debt and purchase CDS protection. If traders can't take leverage, nothing happens to the price of the debt. If basis traders can take leverage (which is nearly always the case because they're holding a hedged position), they can push up or depress the debt price, goosing swap premiums etc. Anyway. Enough technical details. I could keep going. This is a fascinating topic that is very poorly understood and explained, mainly because the people that caused it all still work on the street and use the same tactics today (it's also terribly taught at business schools because none of the teachers were actually around to see how this played out live). But it relates to the topic of today's lesson, so I thought I'd include it here. Work depending, I'll be back next week with a covenant breakdown. Most upvoted ticker gets the post. *EDIT 1\* In a total blowout, $PLAY won. So it's D&B time next week. Post will drop Monday at market open.
So here it is, three more days and October begins, which marks one year of trading for me. I figured I would contribute to the forum and share some of my experience, a little about me, and what I've learned so far. Whoever wants to listen, that's great. This might get long so buckle up.. Three years ago, I was visiting Toronto. I don't get out much, but my roommate at the time travels there occasionally. He asked everyone at our place if we wanted to come along for a weekend. My roommate has an uncle that lives there and we didn't have to worry about a hotel because his uncle owns a small house that's unlived in which we could stay at. I was the only one to go with. Anyways, we walk around the city, seeing the sights and whatnot. My friend says to me "where next?" "I don't know, you're the tour guide" "We can go check out Bay Street" "what's 'Bay Street?'" "It's like the Canadian Wall street! If you haven't seen it you gotta see it!" Walking along Bay, I admire all the nice buildings and architecture, everything seems larger than life to me. I love things like that. The huge granite facades with intricate designs and towering pillars to make you think, How the fuck did they make that? My attention pivots to a man walking on the sidewalk opposite us. His gait stood out among everyone, he walked with such a purpose.. He laughed into the cell phone to his ear. In the elbow-shoving city environment, he moved with a stride that exuded a power which not only commanded respect, but assumed it. I bet HE can get a text back, hell he's probably got girls waiting on him. This dude was dressed to kill, a navy suit that you could just tell from across the street was way out of my budget, it was a nice fucking suit. I want that. His life, across the street, seemed a world a way from my own. I've worn a suit maybe twice in my life. For my first communion, it was too big for me, I was eleven or whatever so who gives a shit, right? I'm positive I looked ridiculous. The other time? I can't remember. I want that. I want the suit. I want the wealth, the independence.I want the respect and power, and I don't give a shit what anyone thinks about it. Cue self doubt. Well, He's probably some rich banker's son. That's a world you're born into. I don't know shit about it. \sigh* keep walking..* A year later, I'm visiting my parents at their house, they live an hour away from my place. My dad is back from Tennessee, his engineering job was laying people off and he got canned... Or he saw the end was near and just left... I don't know, hard to pay attention to the guy honestly because he kind of just drones on and on. ("Wait, so your mom lives in Michigan, but your dad moved to Tennessee... for a job?" Yea man, I don't fucking know, not going to touch on that one.) The whole project was a shit show that was doomed to never get done, the way he tells it. And he's obviously jaded from multiple similar experiences at other life-sucking engineer jobs. My mom is a retired nurse practitioner who no longer works because of her illness. I ask him what he's doing for work now and he tells me he trades stocks from home. I didn't even know you could do that. I didn't know "trading" was a thing. I thought you just invest and hope for the best. "Oh that's cool, how much money do you need to do that?" "Ehh, most say you need at least $25,000 as a minimum" "Oh... guess I can't do that..." Six months later, I get a call and it's my dad. We talk a little about whatever. Off topic, he starts asking if I'm happy doing what I'm doing (I was a painter, commercial and residential) I tell him yes but it's kind of a pain in the ass and I don't see it as a long term thing. Then he gets around to asking if I'd like to come work with him. He basically pitches it to me. I'm not one to be sold on something, I'm always skeptical. So I ask all the questions that any rational person would ask and he just swats them away with reassuring phrases. He was real confident about it. But basically he says for this to work, I have to quit my job and move back home so he can teach me how to trade and be by my side so I don't do anything stupid. "My Name, you can make so much money." I say that I can't raise the $25,000 because I'm not far above just living paycheck to paycheck. "I can help you out with that." Wow, okay, well... let me think about it. My "maybe" very soon turned into a "definitely." So over the next six months, I continue to work my day job painting, and I try to save up what I could for the transition (it wasn't a whole lot, I sucked at saving. I was great at spending though!). My dad gives me a book on day trading (which I will mention later) and I teach myself what I can about the stock market using Investopedia. Also in the meantime, my dad sends me encouraging emails. He tells me to think of an annual income I would like to make as a trader, and used "more than $100,000 but less than a million" as a guideline. He tells me about stocks that he traded that day or just ones that moved and describes the basic price action and the prices to buy and sell at. Basically saying "if you bought X amount of shares here and sold it at X price here, you could make a quick 500 bucks!" I then use a trading sim to trade those symbols and try to emulate what he says. Piece of cake. ;) Wow, that's way more than what I make in a day. He tells me not to tell anyone about my trading because most people just think it's gambling. "Don't tell your Mom either." He says most people who try this fail because they don't know how to stop out and take a loss. He talks about how every day he was in a popular chatroom, some noob would say something like, "Hey guys, I bought at X price (high of day or thereabout), my account is down 80% .. uhh I'm waiting for it to come back to my entry price.. what do I do??" Well shit, I'm not that fucking dumb. If that's all it takes to make it is to buy low, sell high, and always respect a stop then I'll be fantastic. By the end of September, I was very determined. I had been looking forward everyday to quitting my painting job because while it used to be something I loved, it was just sucking the life out of me at this point. Especially working commercial, you just get worked like a dog. I wasn't living up to my potential with that job and I felt awful for it every minute of every day. I knew that I needed a job where I could use my brain instead of slaving my body to fulfill someone else's dream. "Someone's gotta put gas in the boss's boat" That's a line my buddy once said that he probably doesn't know sticks with me to this day. It ain't me. So now it was October 2018, and I'm back living with Mom n' Pops. I was so determined that on my last day of work I gave away all of my painting tools to my buddy like, "here, I don't need this shit." Moving out of my rental was easy because I don't own much, 'can't take it with ya.' Excited for the future I now spend my days bundled up in winter wear in the cold air of our hoarder-like basement with a space heater at my feet. My laptop connected to a TV monitor, I'm looking at stocks next to my dad and his screens in his cluttered corner. Our Trading Dungeon. I don't trade any money, (I wasn't aware of any real-time sim programs) I just watch and learn from my dad. Now you've got to keep in mind, and look at a chart of the S&P, this is right at the beginning of Oct '18, I came in right at the market top. Right at the start of the shit-show. For the next three or four weeks, I watch my dad pretty much scratch on every trade, taking small loss after small loss, and cursing under his breath at the screen. Click. "dammit." Click. "shit." Click. Click. "you fuck." Click. This gets really fucking annoying as time goes on, for weeks, and I get this attitude like ugh, just let me do it. I'll make us some fucking money. So I convince him to let me start trading live. I didn't know anything about brokers so I set up an account using his broker, which was Fidelity. It was a pain and I had to jump through a lot of hoops to be able to day trade with this broker. I actually had to make a joint account with my dad as I couldn't get approved for margin because my credit score is shit (never owned a credit card) and my net worth, not much. Anyways, they straight up discourage day trading and I get all kinds of warning messages with big red letters that made me shit myself like oooaaahhh what the fuck did I do now. Did I forget to close a position?? Did I fat finger an order? Am I now in debt for thousands of dollars to Fidelity?? They're going to come after me like they came after Madoff. Even after you are approved for PDT you still get these warning messages in your account. Some would say if I didn't comply with "whatever rule" they'd even suspend my account for 60 days. It was ridiculous, hard to describe because it doesn't make sense, and it took the support guy on the phone a good 20 minutes to explain it to me. Basically I got the answer "yea it's all good, you did nothing wrong. As long as you have the cash in your account to cover whatever the trade balance was" So I just kept getting these warnings that I had to ignore everyday. I hate Fidelity. My fist day trading, I made a few so-so trades and then I got impatient. I saw YECO breaking out and I chased, soon realized I chased, so I got out. -$500. Shit, I have to make that back, I don't want my dad to see this. Got back in. Shit. -$400. So my first day trading, I lost $900. My dumbass was using market orders so that sure didn't help. I reeled the risk back and traded more proper position size for a while, but the commissions for a round trip are $10, so taking six trades per day, I'm losing $60 at a minimum on top of my losing trades. Quickly I realized I didn't know what the hell I was doing. What about my dad? Does HE know? One day, in the trading dungeon, I was frustrated with the experience I'd been having and just feeling lost overall. I asked him. "So, are you consistently profitable?" "mmm... I do alright." "Yea but like, are you consistently profitable over time?" ......................... "I do alright." Silence. "Do you know any consistently profitable traders?" "Well the one who wrote that book I gave you, Tina Turner.. umm and there's Ross Cameron" ...................... "So you don't know any consistently profitable traders, personally.. People who are not trying to sell you something?" "no." ................... Holy fucking shit, what did this idiot get me into. He can't even say it to my face and admit it. This entire life decision, quitting my job, leaving my rental, moving from my city to back home, giving shit away, it all relied on that. I was supposed to be an apprentice to a consistently profitable day trader who trades for a living. It was so assumed, that I never even thought to ask! Why would you tell your son to quit his job for something that you yourself cannot do? Is this all a scam? Did my dad get sold a DREAM? Did I buy into some kind of ponzi scheme? How many of those winning trades he showed me did he actually take?Are there ANY consistently profitable DAY TRADERS who TRADE FOR A LIVING?Why do 90% fail? Is it because the other 10% are scamming the rest in some way? Completely lost, I just had no clue what was what. If I was going to succeed at this, if it was even possible to succeed at this, it was entirely up to me. I had to figure it out. I still remember the feeling like an overwhelming, crushing weight on me as it all sunk in. This is going to be a big deal.. I'm not the type to give up though. In that moment, I said to myself, I'm going to fucking win at this. I don't know if this is possible, but I'm going to find out. I cannot say with certainty that I will succeed, but no matter what, I will not give up. I'm going to give all of myself to this. I will find the truth. It was a deep moment for me. I don't like getting on my soapbox, but when I said those things, I meant it. I really, really meant it. I still do, and I still will. Now it might seem like I'm being hard on my dad. He has done a lot for me and I am very grateful for that. We're sarcastic as hell to each other, I love the bastard. Hell, I wouldn't have the opportunity to trade at all if not for him. But maybe you can also understand how overwhelmed I felt at that time. Not on purpose, of course he means well. But I am not a trusting person at all and I was willing to put trust into him after all the convincing and was very disappointed when I witnessed the reality of the situation. I would have structured this transition to trading differently, you don't just quit your job and start trading. Nobody was there to tell me that! I was told quite the opposite. I'm glad it happened anyway, so fuck it. I heard Kevin O'Leary once say, "If I knew in the beginning how difficult starting a business was, I don't know that I ever would've started." This applies very much to my experience. So what did I do? Well like everyone I read and read and Googled and Youtube'd my ass off. I sure as hell didn't pay for a course because I didn't have the money and I'm like 99% sure I would be disappointed by whatever they were teaching as pretty much everything can be found online or in books for cheap or free. Also I discovered Thinkorswim and I used that to sim trade in real-time for three months. This is way the hell different than going on a sim at 5x speed and just clicking a few buy and sell buttons. Lol, useless. When you sim trade in real-time you're forced to have a routine, and you're forced to experience missing trades with no chance to rewind or skip the boring parts. That's a step up because you're "in it". I also traded real money too, made some, lost more than I made. went back to sim. Traded live again, made some but lost more, fell back to PDT. Dad fronted me more cash. This has happened a few times. He's dug me out of some holes because he believes in me. I'm fortunate. Oh yeah, about that book my dad gave me. It's called A Beginner's Guide to Day Trading Online by Toni Turner. This book... is shit. This was supposed to be my framework for how to trade and I swear it's like literally nothing in this book fucking works lol. I could tell this pretty early on, intuitively, just by looking at charts. It's basically a buy-the-breakout type strategy, if you want to call it a strategy. No real methodology to anything just vague crap and showing you cherry-picked charts with entries that are way too late. With experience in the markets you will eventually come to find that MOST BREAKOUTS FAIL. It talks about support/resistance lines and describes them as, "picture throwing a ball down at the floor, it bounces up and then it bounces down off the ceiling, then back up." So many asinine assumptions. These ideas are a text book way of how to trade like dumb money. Don't get me wrong, these trades can work but you need to be able to identify the setups which are more probable and identify reasons not to take others. So I basically had to un-learn all that shit. Present day, I have a routine in place. I'm out of the dungeon and trade by myself in my room. I trade with a discount broker that is catered to day traders and doesn't rape me on commissions. My mornings have a framework for analyzing the news and economic events of the particular day, I journal so that I can recognize what I'm doing right and where I need to improve. I record my screens for later review to improve my tape reading skills. I am actually tracking my trades now and doing backtesting in equities as well as forex. I'm not a fast reader but I do read a lot, as much as I can. So far I have read about 17-18 books on trading and psychology. I've definitely got a lot more skilled at trading. As of yet I am not net profitable. Writing that sounds like selling myself short though, honestly. Because a lot of my trades are very good and are executed well. I have talent. However, lesser quality trades and trades which are inappropriately sized/ attempted too many times bring down that P/L. I'm not the type of trader to ignore a stop, I'm more the trader that just widdles their account down with small losses. I trade live because at this point, sim has lost its value, live trading is the ultimate teacher. So I do trade live but I just don't go big like I did before, I keep it small. I could show you trades that I did great on and make people think I'm killing it but I really just don't need the validation. I don't care, I'm real about it. I just want to get better. I don't need people to think I'm a genius, I'm just trying to make some money. Psychologically, to be honest with you, I currently feel beaten down and exhausted. I put a lot of energy into this, and sometimes I work myself physically sick, it's happened multiple times. About once a week, usually Saturday, I get a headache that lasts all day. My body's stress rebound mechanism you might call it. Getting over one of those sick periods now, which is why I barely even traded this week. I know I missed a lot of volatility this week and some A+ setups but I really just don't give a shit lol. I just currently don't have the mental capital, I think anyone who's been day trading every day for a year or more can understand what I mean by that. I'm still being productive though. Again, I'm not here to present an image of some badass trader, just keeping it real. To give something 100% day after day while receiving so much resistance, it takes a toll on you. So a break is necessary to avoid making bad trading decisions. That being said, I'm progressing more and more and eliminating those lesser quality trades and identifying my bad habits. I take steps to control those habits and strengthen my good habits such as having a solid routine, doing review and market research, taking profits at the right times, etc. So maybe I can give some advice to some that are new to day trading, those who are feeling lost, or just in general thinking "...What the fuck..." I thought that every night for the first 6 months lol. First of all, manage expectations. If you read my story of how I came to be a trader, you can see I had a false impression of trading in many aspects. Give yourself a realistic time horizon to how progress should be made. Do not set a monetary goal for yourself, or any time-based goal that is measured in your P/L. If you tell yourself, "I want to make X per day, X per week, or X per year" you're setting yourself up to feel like shit every single day when it's clear as the blue sky that you won't reach that goal anytime soon. As a matter of fact, it will appear you are moving further AWAY from that goal if you just focus on your P/L, which brings me to my next point. You will lose money. In the beginning, most likely, you will lose money. I did it, you'll do it, the greatest Paul Tudor Jones did it. Trading is a skill that needs to be developed, and it is a process. Just look at it as paying your tuition to the market. Sim is fine but don't assume you have acquired this skill until you are adept at trading real money. So when you do make that leap, just trade small. Just survive. Trade small. get the experience. Protect your capital. To reach break even on your bottom line is a huge accomplishment. In many ways, experience and screen time are the secret sauce. Have a routine. This is very important. I actually will probably make a more in-depth post in the future about this if people want it. When I first started, I was overwhelmed with the feeling "What the fuck am I supposed to DO?" I felt lost. There's no boss to tell you how to be productive or how to find the right stocks, which is mostly a blessing, but a curse for new traders. All that shit you see, don't believe all that bullshit. You know what I'm talking about. The bragposting, the clickbait Youtube videos, the ads preying on you. "I made X amount of money in a day and I'm fucking 19 lolz look at my Lamborghini" It's all a gimmick to sell you the dream. It's designed to poke right at your insecurities, that's marketing at it's finest. As for the bragposting on forums honestly, who cares. And I'm not pointing fingers on this forum, just any trading forum in general. They are never adding anything of value to the community in their posts. They never say this is how I did it. No, they just want you to think they're a genius. I can show you my $900 day trading the shit out of TSLA, but that doesn't tell the whole story. Gamblers never show you when they lose, you might never hear from those guys again because behind the scenes, they over-leveraged themselves and blew up. Some may actually be consistently profitable and the trades are 100% legit. That's fantastic. But again, I don't care, and you shouldn't either. You shouldn't compare yourself to others. "Everyone's a genius in a bull market" Here's the thing.. Markets change. Edges disappear. Trading strategies were made by traders who traded during times when everything they did worked. Buy all the breakouts? Sure! It's the fucking tech bubble! Everything works! I'm sure all those typical setups used to work fantastically at some point in time. But the more people realize them, the less effective they are. SOMEONE has to be losing money on the opposite side of a winning trade, and who's willing to do that when the trade is so obvious? That being said, some things are obvious AND still work. Technical analysis works... sometimes. The caveat to that is, filters. You need to, in some way, filter out certain setups from others. For example, you could say, "I won't take a wedge pattern setup on an intraday chart unless it is in a higher time frame uptrend, without nearby resistance, and trading above average volume with news on that day." Have a plan. If you can't describe your plan, you don't have one. Think in probabilities. You should think entirely in "if, then" scenarios. If X has happens, then Y will probably happen. "If BABA breaks this premarket support level on the open I will look for a pop up to short into." Backtest. Most traders lose mainly because they think they have an edge but they don't. You read these books and all this stuff online telling you "this is a high probability setup" but do you know that for a fact? There's different ways to backtest, but I think the best way for a beginner is manual backtesting with a chart and an excel sheet. This builds up that screen time and pattern recognition faster. This video shows how to do that. Once I saw someone do it, it didn't seem so boring and awful as I thought it was. Intelligence is not enough. You're smarter than most people, that's great, but that alone is not enough to make you money in trading necessarily. Brilliant people try and fail at this all the time, lawyers, doctors, surgeons, engineers.. Why do they fail if they're so smart? It's all a fucking scam. No, a number of reasons, but the biggest is discipline and emotional intelligence. Journal every day.K no thanks, bro. That's fucking gay. That's how I felt when I heard this advice but really that is pride and laziness talking. This is the process you need to do to learn what works for you and what doesn't. Review the trades you took, what your plan was, what actually happened, how you executed. Identify what you did well and what you can work on. This is how you develop discipline and emotional intelligence, by monitoring yourself. How you feel physically and mentally, and how these states affect your decision-making. Always be learning. Read as much as you can. Good quality books. Here's the best I've read so far; Market Wizards -Jack Schwager One Good Trade -Mike Bellafiore The Daily Trading Coach -Bret Steenbarger Psycho-cybernetics -Maxwell Maltz Why You Win or Lose -Fred Kelly The Art and Science of Technical Analysis -Adam Grimes Dark Pools -Scott Patterson Be nimble. Everyday I do my research on the symbols I'm trading and the fundamental news that's driving them. I might be trading a large cap that's gapping up with a beat on EPS and revenue and positive guidance. But if I see that stock pop up and fail miserably on the open amidst huge selling pressure, and I look and see the broader market tanking, guess what, I'm getting short, and that's just day trading. The movement of the market, on an intraday timeframe, doesn't have to make logical sense. Adapt. In March I used to be able to buy a breakout on a symbol and swing it for the majority of the day. In the summer I was basically scalping on the open and being done for the day. Volatility changes, and so do my profit targets. Be accountable. Be humble. Be honest. I take 100% responsibility for every dime I've lost or made in the market. It's not the market makers fault, it wasn't the HFTs, I pressed the button. I know my bad habits and I know my good habits.. my strengths/ my weaknesses. Protect yourself from toxicity. Stay away from traders and people on forums who just have that negative mindset. That "can't be done" mentality. Day trading is a scam!! It can certainly be done. Prove it, you bastard. I'm posting to this particular forum because I don't see much of that here and apparently the mods to a good job of not tolerating it. As the mod wrote in the rules, they're most likely raging from a loss. Also, the Stocktwits mentality of "AAPL is going to TANK on the open! $180, here we come. $$$" , or the grandiose stories, "I just knew AMZN was going to go up on earnings. I could feel it. I went ALL IN. Options money, baby! ka-ching!$" Lol, that is so toxic to a new trader. Get away from that. How will you be able to remain nimble when this is your thought process? Be good to yourself. Stop beating yourself up. You're an entrepreneur. You're boldly going where no man has gone before. You've got balls. Acknowledge your mistakes, don't identify with them. You are not your mistakes and you are not your bad habits. These are only things that you do, and you can take action necessary to do them less. It doesn't matter what people think. Maybe they think you're a fool, a gambler. You don't need their approval. You don't need to talk to your co-workers and friends about it to satisfy some subconscious plea for guidance; is this a good idea? You don't need anyone's permission to become the person you want to be. They don't believe in you? Fuck 'em. I believe in you.
Foreign Exchange Trading Course: A Needs To for Foreign Exchange Beginners
Foreign Exchange Trading Course: A Needs To for Foreign Exchange Beginners On the planet's largest monetary market where exchanges rise to trillions of dollars every day, many individuals would truly intend to participate in this market. In addition to being the biggest financial market in the world, Forex blogs is likewise the most liquid market worldwide where professions are done 24 hours a day. A lot of investors have actually become really rich trading in the Forex market. As well as, lots of people who trade in the Foreign exchange market everyday have actually located an excellent means to change their day jobs. Some even came to be millionaires practically overnight by just selling this monetary market. Trading in the Foreign exchange market can be extremely eye-catching. Nevertheless, you must likewise recognize that there have actually been people who endured severe economic losses in the Forex market. It holds true that the Forex market supplies an excellent economic opportunity to a lot of individuals, however it additionally has its dangers. It is a reality that individuals that really did not have the ideal understanding and abilities trading in the Forex market suffered substantial financial losses and also some also went into financial obligation. So, prior to you enter the Foreign exchange market, it is important that you need to have the necessary knowledge as well as abilities as a Foreign exchange trader in order to decrease the danger of losing money and make the most of the capacity of generating income. Many people who were successful in the Foreign exchange market have went through a Foreign exchange trading training course to obtain the expertise and skills required to effectively sell this very fluid and huge monetary market. In a Forex trading course, you will learn about when it is the right time to acquire or sell, chart the movements, place market trends and likewise understand how to utilize the different trading systems readily available in the Foreign exchange market. https://preview.redd.it/vayvygfjrcr41.jpg?width=1920&format=pjpg&auto=webp&s=0ab6e21fa99273f65928b3de5a90228c57ccbbaf You will also be acquainted with the terms utilized in the Foreign exchange market. Even the basic understanding concerning trading in the Forex articles blog can be a terrific help with your lucrative endeavor worldwide's biggest market. There are different Forex trading training courses offered, all you need to do is choose one that suits your requirements as a trader. There are refresher courses where all the basic features of Foreign exchange will be shown to you in a short period of time, full time on the internet programs, where you will discover all about Forex through the web and there are also full time the real world classroom programs where you can discover the ropes regarding Forex in a genuine class with a real-time teacher. You can also become an apprentice. However, in order to find out a great deal about Foreign exchange as an apprentice, you need to ensure that you have an experienced Foreign exchange trader who can share a lot of points to you about the Foreign exchange market. Right here are a few of the basic things you must seek in a Foreign exchange trading course in order for you to get the enough expertise regarding Forex trading: - Margins. - Leveraging. - Kinds of orders. - Major currencies. An excellent Foreign exchange trading program will certainly additionally explain a whole lot about the essential as well as technological analysis of charts. As an investor, knowing exactly how to evaluate a graph is an essential skill that you ought to have. So, when you are seeking a Foreign exchange trading program, you should seek a course that provides essential and technical evaluation instruction. Tension plays an essential part in Forex traders. Understanding exactly how to handle anxiety is also a skill that you need to create. An excellent Forex trading program must instruct you just how to deal with anxiety and trade properly and also successfully. As high as possible, you must search for a Foreign exchange trading training course that use actual trading systems where pupils can trade genuine cash on the Forex market or at least trade on dummy accounts in a substitute Foreign exchange market. This hands-on experience will substantially benefit you. Besides, the best method to learn more about anything is by in fact experiencing it. Live trading and simulations must be supplied in a Forex trading training course. So, if you plan on getting associated with the Foreign exchange market, take into consideration discovering all these things in a Foreign exchange trading course. Creating the best expertise and skills in trading in the world's largest and most liquid market in the world will most definitely help you make it to the leading as well as attain your dreams as a Forex investor.
The intelligent investors guide to cryptocurrency: Part 3b - Pricing and liquidity
*Introductions: I'm joskye. A cryptocurrency investor and holder. * ...
Hi again. This is the third part in our ongoing series on how to trade better and determine intelligent investments in cryptocurrency for the future.
In part 1 I talked about the importance of selling enough to make back your principle investment i.e. if you buy something at $300 and it rises to $600 in value, sell $300 to eliminate all future risk of personal loss e.g. if that asset falls to $150 in value after (which can happen easily since suchvolatility is very common in cryptocurrency). In cryptocurrency trading/investments a 100% return of investment should always prompt you to consider selling 1/2 your stack.
In part 2 I talked about the psychology behind fear of missing out; i.e. the dangers of buying during a sudden rise in an asset's price and how to make the most of such rallies whilst minimising the risks involved in joining them.
In part 3a I discussed The importance of a value proposition and the absolute need for any cryptocurrency you invest in to already generate or have the potential to generate revenue in a manner completely independent of it's speculative value as dictated by daily market prices.
Part 3b continues where I left off with a discussion about price metrics specifically, what determines the price and the importance of liquidity: ...
The day traders:
As I mentioned in my previous article, as of writing almost every cryptocurrency is determined purely by speculative value.
Thus the absolute price of a given cryptocurrency is determined solely by the day traders and specifically the last price it was agreed that currency would be sold at with confirmation of that price by a buyer who bought it.
People say lots of things determine the price; marketcap, liquidity, value proposition, revenues generated by the coin, the number of said coin in circulation but ultimately it comes down to the number of buyers and number of sellers competing for that coin.
Perhaps the other thing is the size of said market relative to the money held by the players in it.
For instance in cryptocurrency Bitcoin is still the biggest player in the game. It carries a per unit price of $900 per coin. There are currently 16,090,137 (16 million) coins in circulation giving it a total marketcap value of [$900 x 16090137 =] $14481123300 or 14.48 billion USD.
This is 85% of the current cryptocurrency marketcap. (The total marketcap of all cryptocurrencies as of writing is 17.17 billion USD.)
Compare and contrast Shadowcash (SDC) which has a unit price of $1.27 with 6,616814 coins in circulation giving it a total marketcap value of [$1.27 x 6616814=] $8392766 or 8.39 million USD.
Thus Shadowcash in comparison to Bitcoin is a tiny cap of the cryptocurrency sphere. Shadowcash has a total value that is only 0.06% of Bitcoin when comparing marketcap's.
Shadowcash looks even more meagre compared to the total cryptocurrency marketcap with only 0.048% of the total cryptocurrency sphere. To any Shadowcash holders despairing at this point, relax. There are over 707 cryptocurrencies trading as of writing and SDC holds the 27th ranking in terms of market cap. In such a competitive field, filled with scams that's pretty good. Moreso when you consider that SDC is a legitimate technology and is currently probably very undervalued. ...
Lets look at the rich list for bitcoin:
The top holder has 124,956 Bitcoin valued at $1,12460400 or 1.24 billion USD.
The top SDC holder has 1027261 SDC valued at $1,304621 or 1.4 million USD.
Thus the wealth of the top SDC holder is 1.16% that of the wealth of the top Bitcoin holder.
Why did I just talk about this?
Well they say that a big fish can easily occupy, make a splash in and empty a small pond just by diving in.
In cryptocurrency I see this happening on the markets all the time. Indeed market manipulation effects every single cryptocurrency eventually. ...
Large holders of valuable, high marketcap coins will often make multiple small volume purchases of less valuable, low marketcap coins. Often this will follow announcements regarding developments in that low marketcap coin.
An example of low volume ordering is buying 1 SDC at $1.20, 0.5 SDC at $1.2001, 5 SDC at $1.2010, 3 SDC at $1.21, 10 SDC at $1.22 and 0.11 SDC at $1.24, but then leaving someone else to fill the order for 100 SDC priced at $1.242.
Thus by spending $23.77, in low volume purchases the buyer can raise the market cap of SDC from ($1.20 * 6,616814 coins) $7.94 million to (1.24 * 6,616814) $8.20 million! (4.2% increase).
Low volume buying in a market with low daily trading volume can gradually drive up the price attracting an influx of buyers into that coin; often they will make larger volume purchases of it which helps drive up the price much further. This will trigger a further chain of buyers experiencing FOMO (fear of missing out, detailed in Part 2) who will drive up the price even further. The price will pump. Often will smaller cap cryptocurrencies this may result in a sudden 20, 40, 60 or even +100% increase in value often over a very short time space (1-2 days, 1-2 weeks maximum).
Often the original purchaser who triggered these events will have accumulated a lot of said cryptocurrency cheaply prior to or during the early stages of the pump and will wind up selling the majority of his/her's purchases when the price reaches a peak; usually when the daily/hourly trading volume on that coin starts to decline but sufficient buyers are still available.
This results in a sudden or often more gradual dump in the coins value, usually by falling by 75% or more of the rise.
The only way to discern if the sudden rise in coin value is due to pre-rigged market manipulation is to look at:
the value proposition of that coin (discussed extensively in part 3a of this guide)
the order book
the depth chart
the pattern of change on daily trading volume (and liquidity)
You are looking for organic, gradual growth based on a solid value proposition. Sudden large spikes in value should make you pause and wonder if it's worth waiting for a gradual correction (organic drop) in price before entering your buy order.
Do not fall for a pump and dump. Stick to the lessons covered in previous parts of this guide (especially part 3a and 2) and you will be much less likely to lose money in the long run trading and investing in cryptocurrencies. ...
The pattern of change on daily trading volume, the order book and liquidity:
Lets look at SDC and Bitcoin again. This time we are going to compare the daily trading volume (last 24 hours) in USD.
In the last 24 hours (dated 8th Jan 2016), SDC traded a total volume of $26,033. This is 0.01% of all USD daily trading volume on exchanges and only 0.39% of the total marketcap of SDC.
In contrast Bitcoin traded $163,306,776 ($0.16 Billion) over the same 24 hour period. This is 76.15% of USD daily trading volume on exchanges and only 1.12% of it's total marketcap.
I'd just like to use this opportunity to point out and reinforce the idea that day traders not holders dictate the daily price of an asset. I'd also like to point out daily global trading volume on Forex is $4800 billion which makes Bitcoin a very small fish in the broader arena of global finance and trade i.e. Bitcoin is still very vulnerable to all the price manipulation tactics and liquidity issues I am going to be describing in this article by bigger players with richer pockets.
The numbers means that just because the marketcap of Bitcoin is $14 billion, that does not mean that there is truly $14 billion worth of fiat currencies (USD, Yuan, Euro etc) in Bitcoin; the total fiat volume is merely an estimate based on current price and number of Bitcoin in circulation.
The daily trading volume also gives you an idea of how much fiat currency you can invest into a given cryptocurrency before you suddenly shift the price.
For example based on the 24 hour daily trading volume for SDC I know that if I blindly spent $15,000 (57% of the daily trading volume) buying SDC without any regard to the price, I can be confident that I will likely cause the price of SDC to go up significantly.
In contrast spending $15,000 to buy Bitcoin (0.0092% of the daily trading volume) without regards to it's price, I can be confident that it will not likely cause a significant rise in the daily spot price of Bitcoin.
A sudden rise in coin price heavily out of proportion to the rise in daily trading volume should be the first sign to alert you to a pump & dump scam.
It implies a low volume trading at low prices to trick the unseasoned trader to perpetuate higher volume, high price buys.
If daily trading volume cannot organically increase to sustain the price, it will eventually fall when the original pumper (or group of pumpers) sell to take their profits.
Daily trading volume should show a steady increase over time with sustained buy support at new price levels; this is a good marker of organic, sustainable growth.
This does not always have to be the case! Sufficiently large price movements (several 1000%) can significantly raise the next absolute low in price for the mid-term (months) even if that is several 100% lower than the peak!
Conversely declining trading volumes indicate loss of interest in the coin and a price that is potentially more prone to and at risk of price manipulation with smaller amounts of fiat/bitcoin (than if higher daily trading volumes existed).
Finally the fact that daily fiat trading volume for Bitcoin and Shadowcash is such a small percentage of it's total marketcap reinforces the idea that price is set by day traders not by holders!
For more detail you can now look at the depth chart:
The depth chart is very useful to know how much fiat currency is required to cause the spot price of a given cryptocurrency to rise or fall by a given amount.
The depth chart groups different bids (buy orders) and asks (sell orders) by price and volume e.g. 17.739 bitcoin worth of SDC are currently on sale at poloniex for 0.00117500 bitcoin each ($1.07 per coin) and 0.149 Bitcoin are on sale at the current spot price of 0.00135750 Bitcoin ($1.24)
So as of writing, I can see (from the charts) to raise the price of SDC from 0.00135750 Bitcoin ($1.24) to 0.00181381 Bitcoin ($1.66) I would need to spend 26 Bitcoin ($23783).
NB the price of most cryptocurrencies is expressed in Bitcoin because it has the largest market cap and daily trading volume of all cryptocurrencies by a very large margin and because with a few exceptions (Ethereum, Monero) most cryptocurrencies do not have routes to directly purchase via fiat currency without first purchasing Bitcoin.
The depth chart shows me how many coins I can buy without significantly increasing the price and how many coins I can sell within a given price range.It gives me an idea of the liquidity and volatility of the market i.e. if I buy SDC right now and need to sell it later today or tomorrow for fiat, what is the realistic probability I can get my entire amount in fiat returned to me in the amount originally spent.
Liquidity is super important. People often complain about a market lacking liquidity but that is often because they are trading in fiat volumes which far exceed the daily trading fiat volumes of the cryptocurrency they are referring to. If you are investing or trading in a cryptocurrency, always factor in the your personal liquidity and need for liquidity relative to that of the cryptocurrency you are investing in. In other words don't expect to make a profit next day selling 'cryptocurrency x' if the size your single buy order composes >90% of the buy orders on the market for 'cryptocurrency x' that day (indeed in such a scenario be very prepared to sell at a loss next day if you absolutely have to)!
The depth chart also gives me an idea of where significant supports exists (price zones with large buy orders relative to the depth chart) to determine the true base price (in conjunction with daily trading volume) and where significant resistances exist (price zones with large sell orders relative to the rest of the depth chart) to determine what the majority of sellers think the coin is truly worth. Be wary though as buy walls (large supports) and sell walls (large resistances) can be moved at any time.
There are certain patterns on a depth chart that make me believe a significant, sustained price rise is imminent: One example occurs when there is a very large volume of buy orders (>25% of total buy volume within 5% of current price) very close to the current (spot) price, and a very large number of sell orders close to but significantly above the spot price (approx 25% total sell volume within 10% of current price) and especially if the total buy order volume is a significantly higher percentage than it has previously been. This simply indicates high demand at current price which may soon outstrip supply. Again I stress that these patterns can be manipulated easily by wealthy traders.
It is up to you to study the depth charts and discern the patterns. You will learn more about day trading this way.
The order book is another way of looking at the depth chart and allows you to see the specific transactions occurring that compose daily trading volume by the second!
I find it useful because it allows me to identify:
If there is a string of low volume orders that can be filled to pump the price (or conversely a string of low volume sell orders to dump it). This can play on the psychology of the entire market as many people aren't simply aware of how the manipulations occur; most people simply look at the price!
Where resistances to price change occur and how much money it will take to break them (i.e. if I am day trading to make a profit via pumping, is it worth me spending X to clear a sell wall to encourage others to buy and push up the price further or do I need to spend so much of my capital that should I fail to stimulate buy orders, I become vulnerable to a dump in coin price with effective subsequent loss of fiat money).
The presence of automated trading bots rapidly cycling a buy or sell order of fixed volume between a series of prices that dynamically adjust with the overall trend in price movements. Bots can be your best friend (to pumping or dumping price) if you know how to manipulate them!
The price charts:
Discussions about price charts could be endless. I'm not going to go into too much detail, mostly because I'm an investor who believes the value proposition, good consistent development, decent marketing and communications will ultimately trump spot prices and adverse (or positive) short term price trends in the future.
I'm also going to skim this because I'm not as versed in this subject as I'd like to be.
I personally use the candle bar charts on Poloniex to look at 15 minute and daily candles on the hourly, daily, weekly and monthly charts.
I combine this with charts on Bittrex which can calculate the RSI (to estimate if a coin is overbought or oversold) and Bollinger Bands (again to help estimate if a coin is overbought or oversold).
I usually look at the overall direction of trading over a period of several days, compare it to the direction and trends over the last month. I then try to interpret it in the context of the daily trading volume and depth charts.
I often get my predictions on short term price movement wrong if I only look at candle charts without factoring in depth charts, order book and daily trading volume patterns! I have a lot more learning to do on technical analysis.
The charts do often reveal mid/long term supports and resistances in price!
Investopedia is a good place to start learning about different mathematical techniques to analyse charts (including any terms used in these articles).
I'm a big fan of u/kustonoy who inhabits the Ethtrader sub. I personally feel his analysis of the short term markets are generally pretty good. You should never be too lazy to not do your own regular market analysisespecially if trading short term, but if you want a good reference point, I suggest following him.
The news cycle:
I've mentioned this lower down the list because for intra-day and day traders and even to some extent investors, the news cycle matters very little unless it directly affects the value proposition in some way.
If a news event does result in real maturation of the proposed value proposition (such that the technology has confirmed a new sustained user base or revenue stream) then it might justify a sustained rise in price regardless of the volatility achieved reaching and following the peak.
Some assets may have nothing but an endless stream of good news which meets the above criteria yet it's valuation fails to increase. This is likely a sign that a larger player is deliberately manipulating the market to accumulate more of that asset to sell very high later (I believe Ethereum has fallen victim to this recently) or that it is occuring during long period of consolidation is where diversification of asset ownership is happening which means a new price floor is being set for much larger increases later on. The lowest most frequently occurring point which the price repeatedly bounces off of (stops falling below) is the new floor.
Other interesting points: The 'coin x' scenario and the ridiculousness of marketcap:
'Coin X' is an imaginary hypothetical coin. There are only 10 in circulation. It has no value proposition beyond it's speculative value i.e. it will never generate a revenue independent of it's speculative value.
If 'coin x' had only 10 in circulation, was indivisible and each coin had a value of $3 billion, the market cap of 'coin x' would surpass Bitcoin!
If all 10 coins were not on sale then 'coin x' would have a value of zero.
If 9 people had bought 'coin x' at $1 and the 10th person bought it at $3 billion, it's marketcap would still be $30 billion. This does not mean there is $30 billion of fiat stored in coin X.
If an 11th buyer came along and bought 'coin x' at $1.20 the price of coin X would fall to $1.20 and the marketcap of 'coin x' would be $12.0.
This still does not mean there is $12 of fiat stored in coin x.
This does not mean everyone can sell 'coin x' at $1.20.
A new buyer blind to the purely speculative nature of 'coin x' looking at the trend charts could try to argue it is now extremely undervalued and a great buy or possibly was a grand scam and untouchable.
Either way the next price at which 'coin x' is bought/sold is purely arbitrary and determined by the patience of the seller and the impatience of the buyer.
[Edit]: I could also issue 10 more of 'coin x' and if it's unit price remained $1.20 the market cap would instantly double from $12 to $24!
I'd like to point out the similarities between ZCash and 'coin x' (especially during it's launch). ...
Marketcap is derived from the price, not the other way around. Until a cryptocurrency generates significant revenue independent of it's speculative valuation this will remain the case.
Price is determined by the day traders, not by the holders.
The spot price of any given cryptocurrency is determined by the patience of the seller and the impatience of the buyer.
Price of most cryptocurrencies is derived from bitcoin unless they have a direct fiat gateway. Unless a significant amount of trading volume occurs via the fiat gateway, the price of that cryptocurrency is still heavily dependent on the price of bitcoin.
Bitcoin is (for now) is the gold standard of cryptocurrencies. Because it has the largest marketcap (by a very massive margin).
Market manipulation means that large holders in more valuable currencies (large marketcaps) can tamper with and set the value of much smaller currencies (i.e. smaller marketcaps).
Bitcoin's price itself can be manipulated by investment banks, governments or firms who trade in multi billions of USD daily. This is because the daily trading volume is almost 5 trillion trillion USD (which is several thousand times larger
There is nothing wrong with investing or trading in cryptocurrencies with low daily trading volumes and marketcaps, just be concious not to put more money into them than their long term buy support can handle and only invest what you can afford to lose.
The concept of liquidity in a market is important relative to the amount of fiat you are planning to invest or trade in it.
Whether day trading or investing, pick cryptocurrencies with good fundamentals i.e. excellent development teams, good marketing and strong value propositions that will provide the cryptocurrency in question use and value independent of speculative valuations.You are less likely to get manipulated or scammed in the long run that way especially if you are a holder.
Be very weary of trading or investing small amounts of money in larger markets that allow leveraged trading. Those markets will behave irrationally and not follow the fundamentals in the short term.
It is up to you to study the depth charts, order books, candle bar charts, daily trading volumes and news cycle to discern the patterns. The price is a composite of this and the psychology of people who don't understand this. You will learn more about day trading this way and more importantly learn to trade/invest independent of the price.
Coin market capitalisations and data including rich lists derived from:
Full disclosure/Disclaimer: At time of original writing I had long positions in Ethereum (ETH), Shadowcash (SDC), Iconomi (ICN), Augur (REP) and Digix (DGD). All the opinions expressed are my own. I cannot guarantee gains; losses are sustainable; do your own financial research and make your decisions responsibly. All prices and values given are as of time of first writing (Midday 8th-Jan-2017).
Second disclaimer: Please do not buy Shadowcash (SDC), the project has been abandoned by it's developers who have moved on to the Particl Project (PART). The PARTICL crowd fund and SDC 1:1 token swap completed April 15th. You can still exchange SDC for PART but only if it was acquired prior to 15th April 2017 see: https://particl.news/a-community-driven-initiative-e26724100c3a for more information.
Addendum: Article updated 23-11-2017 to edit references to SDC (changed to Particl where relevant to reflect updated status) and clean up formatting.
Technical & fundamental news on currencies.I would advise newer traders not to trade solely on external opinions because that won't cement your own methodology or reasons for trading.Excellent website for if you want an overview of the markets and daily reports. Also includes a trading journal and a lot of media attention.
This is absolutely amazing! I can't put a value on this! It's one of the best gems of the internet. Podcasts interviewing successful traders, some are notable such as 50pips, Walter Peters & Chris Kapre.
One of the best free online schools which tracks your progress and teaches you heaps on information. The forum is the gem, where many people keep trade journals and put up their strategies. Don't copy them but borrowing concepts and ideas is good.
SUPER IMPORTANT This website is paramount to your success, still in development but will provide users with an easy way to document trades. Success is determined by your willingness to follow through with the boring bits so keep this one in your bookmarks.
The common trait he sees in successful traders, how long it took him to become profitable, the most important trade that made him successful, his favourite books and why they both like Jessica Peletier.
A warehouse worker went through his trials and tribulations to be given the offer of managing an $80 million fund. How he started with $800 and no clue what to do, 2 biggest mistakes he sees traders making, how he continues to improve and what has happened to his lifestyle since becoming a full-time trader.
How Timothy Sykes inspired her, what minimalism is all about and how it's spread to every facet of her life, what her single pair to trade is, what the 2 best traits for successful traders are and plenty more!
What plastic bottles have to do with trading, how much money you need to have to be properly funded and go full-time, how much work you have to do and how long it'll take to get there, 2 best traits to have and loads loads more!
Can you actually trade from a beach? The use of hypnosis to make him a better trader, the method that works with his psychology, how much you need to get started, how long it took him to become profitable and what he would do differently if he had to start over! plus loads more!
Personal Favorite I love this guy because he's true and noble. He is philanthropic, offers trading courses that are cheap and really knows what he's talking about. He explains how a 3 second glance can stop you 2nd guessing yourself, how much he made with $3000 in 6 months and plenty more!
How he's turned some traders around in 30 minutes, why you never trade on a monday, the courses he bought, why he teaches outside the classroom and why he sent his kids to learn chinese.
Edit - I've spent about 2 hours making this now. I hope you guys find it useful! I'll continue to update it and may you all find trading success. If you want to help me out spread the link! put it on forums or share it with friends. Good luck to you all and happy trading! Edit 2 - My brain is fryed... time for a rest. Edit 3 Once I've categorized this post making it easier to navigate i'll be adding books to read, videos to watch & the traders that will help on your journey to self-sufficiency. Happy trading everybody!
Leverage in Forex Trading . In the foreign exchange markets, leverage is commonly as high as 100:1. This means that for every $1,000 in your account, you can trade up to $100,000 in value. Jun 14, 2018 - In the case of forex, that money is usually borrowed from a broker. The margin call level can vary depending on the volatility of the currency pair, but borrowed using the value of your positions and account balance and Margin is the amount of initial investment you need to open a position, find out everything you need to know about trading on leverage here. What is Leverage in Forex – Leverage Ratio Explained. Trading in margin bears enormous risks. But, it also has the potential for huge rewards. As a rule of thumb, the bigger the leverage is, the smaller the margin blocked for each trade. We explained earlier the inverted relationship that gives the leverage formula. When a trader decides to trade in the forex market, he or she must first open a margin account with a forex broker. Usually, the amount of leverage provided is either 50:1, 100:1 or 200:1 In the forex market, leverage can be as much as 250:1. Higher leverage can be extremely risky, but because of round-the-clock trading and deep liquidity, foreign exchange brokers Investopedia.com – the resource for investing and personal finance education.
What is Leverage ? Best Guide For Forex Beginner's
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