Rounding Top patternHey everyone! 👋
Last week, we wrote about the "Rounding bottom" pattern. If you missed last week’s post, you can catch up here:
Today we are going to cover the "Rounding top" pattern along with a few examples.
Please remember this is an educational post to help all of our members better understand concepts used in trading or investing. This in no way promotes a particular style of trading!
The post will shed some light on the following topics:
➡ Basics and identification of the pattern
➡ Components
➡ Important aspects
What is a Rounding top pattern?
• A rounding bottom is a bearish reversal pattern that resembles the shape of the inverted "U".
• Rounding top pattern occur at the end of long uptrends and indicate a potential reversal.
• The pattern is also referred to as an inverted saucer due to its resemblance to an inverted saucer.
• Although, the volume and price move in sync but in practice, this can vary widely.
• When the price moves down from the neckline, it indicates weakness and suggests that the stock may begin a new downtrend.
Components of a Cup and Handle pattern:
A rounding bottom pattern can be divided into three main parts.
• Advance
• Formation of the base
• Decline
Important aspects:
1. Prior Trend: Since it is a bearish reversal pattern, the prior trend must be an uptrend. The top of a rounding bottom should ideally mark a new high or reaction high. The stock may trade sideways or flat for a long duration before the formation of the pattern.
2. Advance: The advance that leads to the formation of the high, can take a variety of forms. Sometimes, the up move has many whipsaws while other times, the stock may just trade flat.
3. High: In general, the pattern resembles an inverted "U" shaped top. However, it can also resemble an inverted "V" or an "M," but the high should not be too sharp. In addition to this, there is always a possibility of a new high due to a buying climax.
4. Decline: In general, the formation of the right half of the pattern should take about the same amount of time as the left half. This means that the down move of the highs should take about the same time as the up move. Moreover, the decline shouldn't be too sharp, or else there is a possibility of a bear trap.
5. Breakdown: The pattern is confirmed once the price breaks and sustains below the neckline. The price may return to the neckline to test for the supply before continuing downwards.
6. Volume: In general, the volume levels should be
- High during the up move
- Low during the formation of the base
- Rising during the down move
However, these are only guidelines and should not necessarily be taken at face value.
7. Target: Using the measurement objective, the target comes out to be equal to the depth of the base. It can be measured by calculating the distance between the bottom of the base and the neckline.
8. Stop-loss: Ideally, the stop loss is placed at the highest point of the base. But if the price oscillated up and down a number of times near the neckline, the stop-loss can also be placed above the most recent swing high.
Exhibit: Rounding top pattern with a failed breakout
Thanks for reading! As we mentioned before, this isn't trading advice, but rather information about a tool that many traders use. Hope this was helpful!
See you all next week. 🙂
– Team TradingView
Feel free to check us out on Instagram and YouTube for more awesome content! 💘
TradingView Tips
Rounding Bottom patternHey everyone! 👋
Today we are going to share a quick write-up about the “Rounding bottom” formation, along with a few examples that may help you solidify your understanding of this chart pattern.
Please remember this is an educational post to help all of our members better understand concepts used in trading or investing. This in no way promotes a particular style of trading!
The post will shed some light on the following topics:
➡ Basics and identification of the pattern
➡ Components
➡ Important aspects
What is a Rounding bottom pattern?
• A rounding bottom is a bullish reversal pattern that resembles the shape of the "U".
• Rounding bottom pattern occur at the end of long downtrends and indicate a potential reversal.
• The pattern is also referred to as a saucer bottom due to its resemblance to a saucer.
• Although, the volume and price move in sync but in practice, this can vary widely.
• When the price moves above the neckline, it indicates strength and suggests that the stock may begin a new uptrend.
Components of a Cup and Handle pattern:
A rounding bottom pattern can be divided into three main parts.
• Decline
• Formation of the base
• Advance
Important aspects:
1. Prior Trend: Since it is a bullish reversal pattern, the prior trend must be a downtrend. The low of a rounding bottom should ideally mark a new low or reaction low. The stock may trade sideways or flat for a long duration before the formation of the pattern.
2. Decline: The sell-off or decline that leads to the formation of the low, can take a variety of forms. Sometimes, the down move has many whipsaws while other times, the stock may just trade flat.
3. Low: In general, the pattern resembles a "U" shaped bottom. However, it can also resemble a "V" or a "W," but the low should not be too sharp. In addition to this, there is always a possibility of a new low due to a selling climax.
4. Advance: In general, the formation of the right half of the pattern should take about the same amount of time as the left half. This means that the up move off the lows should take about the same time as the down move. Moreover, the advance shouldn't be too sharp, or else there is a possibility of breakout failure.
5. Breakout: The pattern is confirmed once the price breaks and sustains above the neckline. The price may return to the neckline to test for the demand before continuing upwards.
6. Volume: In general, the volume levels should be
➡ High during the down move
➡ Low during the formation of the base
➡ Rising during the up move
However, these are only guidelines and should not necessarily be taken at face value.
7. Target: Using the measurement objective, the target comes out to be equal to the depth of the base. It can be measured by calculating the distance between the bottom of the base and the neckline.
8. Stop-loss: Ideally, the stop loss is placed at the lowest point of the base. But if the price oscillated up and down a number of times near the neckline, the stop-loss can also be placed below the most recent swing low.
Exhibit: Rounding bottom pattern with a failed breakout
Thanks for reading! As we mentioned before, this isn't trading advice, but rather information about a tool that many traders use. Hope this was helpful!
See you all next week. 🙂
– Team TradingView
Feel free to check us out on Instagram and YouTube for more awesome content! 💘
The Top 3 Elements found in all good trading plansHey everyone! 👋
This month, we have been theming our posts around the concept of building a solid trading plan. Our first post asked you to think about the kinds of factors that can predict long-term success. Our second post looked at why trading plans are so important. Both of these posts you can find linked at the end 👇
Having talked about the *what* and the *why*, it’s time to talk about the *how*.
Today we will be taking a look at the top 3 elements found in all good trading plans!
1️⃣ Element 1: Every good trading plan knows why it wins.
In trading, there are two variables that matter: Bat Rate, and Win / Loss.
► Bat Rate describes what percentage of the time a trade ends up as a win. A trader with a 90% bat rate wins 9 out of every 10 trades.
► Win / Loss describes how big the average win is, relative to the average loss. A trader with a 0.5 Win / Loss takes losses twice the size of his wins.
If you multiply these numbers together, you will get an “Expected Value”.
For example, a trader with a Bat Rate of 50% (wins half of the time) and a Win / Loss of 1 (Losses the same size as wins) is a perfectly “Breakeven” trader.
In order to make money in the long term, all you need to do is make the multiplication of these values be a positive value. The breakeven trader above only needs to win 51% of trades to begin making money, if his W/L remains constant.
☝🏽To get these numbers into positive “expected value” territory, every good trading plan needs to devise a way to systematically find trading opportunities that it thinks have an edge. The inputs of this system are completely up to the trader, but they are typically rooted in repeating price patterns, fundamental observations, macro trends, or other patterns and cycles. Backtesting can be useful here for getting a general idea of whether or not an idea for a trading strategy has borne out to be true over time.
In short, no matter what it looks like, good trading plans identify their edge before risking capital. Why start a business without a business plan?
2️⃣ Element 2: Every good trading plan takes into account the emotional character of the trader.
This is the hardest element to quantify, but also arguably one of the most important pieces of a good written trading plan - the ability to work around a trader’s individual strengths and weaknesses. This is less important for banks and hedge funds, as decisions are typically made with oversight, but for retail traders, there is no-one around to temper your personal flaws.
You can do whatever you want! - but it’s a double edged sword of responsibility that your trading plan needs to prepare you for.
In short, you can best get an idea of where you are emotionally weakest by looking at your trading history. Nobody can do this for you, so it requires quite a bit of self-awareness. However, the rewards of removing emotional risk from a trading plan make it worth the effort.
😱 All trading is based on fear. You need to understand which fear is stronger - the fear of missing out, or the fear of losing capital. Figure out which is stronger, and plan accordingly.
Just because you understand a certain strategy and other people make money trading it, doesn’t mean that you will be able to. Executing with 100% consistency at 30% efficiency is more important than finding a strategy with 100% efficiency that you can only trade with 10% consistency. Make life easy on yourself!
3️⃣ Element 3: Every good trading plan outlines risk.
Whether you have one thousand dollars or one billion dollars, ignoring risk is a sure way to experience massively increased monetary and emotional volatility , which can have a huge negative impact on long term profitability. Here are a few simple-to-implement mechanisms that Banks, Hedge Funds, and Prop Firms use to reduce risk significantly - good trading plans don’t skip these.
💵 Total Account Stop
Exactly what it sounds like: once you lose a certain percentage of your capital, you stop trading, liquidate your positions, and assess what went wrong. Only once you’re satisfied that you have fixed the issue are you allowed to re-enter the market. In the industry, this number is commonly 10%.
💵 Per Theme Risk
This ensures that you aren’t too concentrated on a single “bet”, even if the bet is spread across multiple instruments. For example, if you own multiple companies in the same sector, their performance will likely be correlated to some degree even if they have different products or services. Adding a hard cap to this type of risk can massively reduce risky or over concentrated allocations.
💵 Per Position Risk
Many successful Professional Traders and Hedge Funds use the concept of “Free Capital” in order to manage risk. “Free Capital” is the amount of money in hard dollars that makes up the buffer between an account’s current equity, and the total account stop number.
For example, If a currency trader at a bank has a 10% total account stop out, and runs a $10,000,000 currency book, then he can really only “lose” $1,000,000 before his bosses pull him aside to have a talk. His “Free Capital” is $1,000,000. He will then size his positions to where he only risks 1-5% of his Free Capital per trade. This way, he has room to be wrong a minimum of 20 times in a row before any negative consequences come his way. Implementing a “free capital” risk limit per position ensures that you have a TON of room for error.
Yes, this typically prevents you from doubling your account overnight, but again, that isn’t the goal. Long term profitability is.
Some people call this per position risk “one R” (one risk unit).
☝🏽Whatever it looks like, including a plan for managing your risk is essential for *actually* managing your risk. If these plans aren’t written out and acted upon, they’re also a lot easier to ignore.
🙏🏽 Thanks for reading! Hope this was helpful!
- TradingView Team ❤️❤️
Make sure you follow us on Instagram and YouTube for more awesome content! 💘
Would You Stake Yourself?Hey everyone! 👋
Last week, we took a look at a hypothetical scenario, where a rich acquaintance of yours needed help deciding between two traders he's thinking about staking. This led to the question: "Who would you stake?".
This post will continue right where that one left off.
-
After getting the contact info, you reach out to interview the two traders.
You speak with Trader #1 , and he appears to be quite intelligent, with wide and deep market knowledge. He’s shown you a few market predictions that he’s already gotten correct, and walks you through how he finds opportunities. You’re impressed.
You speak with Trader #2 , and he also appears to be quite intelligent, with broad market knowledge, in addition to a history of profitable investment/trade ideas. He walks you through how he finds opportunities, and, similar to Trader #1, you’re quite impressed. In addition, he also presents you with written details about how he plans to manage risk, his maximum drawdown, and a whole litany of other clearly defined rules that keep risk under control and quality trade ideas coming.
Assuming we are still in the position of choosing which trader to stake, most, if not all, individuals in this situation would pick Trader #2 because of his attention to preparation and risk control, in addition to having a ‘business plan’. Trader #1 may be smart and highly capable, but he’s shown no evidence that he has a process to continually generate good trade ideas while ensuring that he doesn’t lose everything. Trader #2 has “done the work”, and proven that he’s worthy of the capital.
-
Whether they know it or not, anyone who manages their own money is constantly faced with the same decision. If you step outside of yourself, are you more like trader #1 or #2? Is your trading plan worthy of investment? Would you invest in someone else who’s taken the same trades that you have? Does that person have a plan? Have they “done the work”?
Keeping yourself honest about what is working and what isn't is a superpower!
Hopefully, this emphasizes the importance of building a trading plan. Next week we will take a look at what factors are typically needed in order to build an effective one.
If you’re not like Trader #2, comment below about the steps you’re taking to become better prepared for what the market throws at you!
-Team TradingView
If you missed last week’s post, you can catch up here:
Who would you Stake?Hey everyone! 👋
In the next few posts, we'll be looking at the key elements involved in building a solid trading plan, but today, to introduce the concepts in a fun way, we will be looking at a completely hypothetical situation.
-
Let’s say that you’re walking down the street, and a stranger approaches you with a business proposal; he’s recently sold his business, and come into a significant amount of capital - 1,00,00,000 INR. Additionally, word of the sale has gotten to two separate aspiring traders, who have approached him asking him if they can manage his money in return for a fee.
The stranger has heard from a family friend that you’re interested in trading, and he wants your help in picking out which trader to invest the money in. In return for your help, He’s going to split the profits he makes 50-50 with you.
Obviously, it’s in your best interest to help him make a decision that will make the most money for the longest period of time, with the least amount of risk.
The stranger then pulls out contact information for both traders and asks you to interview them separately.
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Here's our question to you: if you only get to ask the traders three questions to gauge their likely future performance, what would you ask them? What questions dive to the heart of risk, reward, and sustainability?
We look forward to your replies, and in next week's post, we will begin looking at how some of the likely responses can go towards building out a consistent, profitable process!
- Team TradingView
Feel free to check us out on Instagram , Telegram , and YouTube for more awesome content! 💘
One candlestick pattern - The MarubozuHey everyone!
In this post, we are going to talk about a candlestick pattern known as Marubozu, along with a few exhibits that may help you solidify your understanding of this pattern.
Please remember this is an educational post to help all of our members better understand concepts used in trading or investing. This in no way promotes a particular style of trading!
The candlestick charts offer a quick picture into the psychology of buyers and sellers. Before proceeding further, a few things to keep in mind:
→ A bearish candlestick indicates the opening price of the session being higher than the closing price.
→ Similarly, a bullish candlestick indicates the opening price of the session being lower than the closing price.
→ The shadow at the top and bottom represent the high and low for the session.
→ The size of the real body is indicative of the strength of the trend.
What is a Marubozu pattern?
A Marubozu is a candlestick with a full real body and no shadows. This solid body indicates a strong trend, be it in any direction. The name Marubozu comes from the Japanese and means "close-cropped", indicating a candle with no shadow.
Marubozu can be divided into two types, depending on the bias.
∎ Bullish marubozu
∎ Bearish marubozu
A Marubozu can appear anywhere in the chart irrespective of the prior trend; the trading implication remains the same.
⚠️ Please notice the textbook definition of a Marubozu is a candle with no shadows. However, in practice, the ideal setups rarely occur. Hence, there is a little bit of wiggle room on either side.
🟩 Bullish Marubozu
→ In a bullish Marubozu, the lack of the upper and lower shadow indicates that the low and high are equal to the open and close, respectively. However, there may be some shadows in reality, therefore we must be versatile within limits.
→ A bullish Marubozu indicates that market participants are willing to buy the stock at any price point throughout the day. As a result, the stock closes near the session's high.
→ In general, the occurrence of a bullish Marubozu indicates that the sentiment has strongly shifted to the upside and we can see higher prices in the coming sessions. Hence a trader should look for buying opportunities whenever the price pulls back to lower levels.
Exhibit 1: Bullish Marubozu
Exhibit 2: Bullish Marubozu with subsequent uptrend
🟥 Bearish Marubozu
→ In a bearish marubozu, the open price is almost equal to the high whereas the session closes near the low price.
→ A bearish Marubozu indicates a strong bearish sentiment because the market participants are willing to sell the stock at any price point throughout the day.
→ In general, the occurrence of a bearish Marubozu indicates that the sentiment has strongly shifted to the downside and we can see lower prices in the subsequent sessions. Hence a trader should look for selling opportunities whenever the price pulls back to higher levels.
Exhibit 1: Bearish Marubozu
Exhibit 2: Bearish Marubozu with subsequent down trend
Thanks for reading! Hope this was helpful!
See you all next week. 🙂
– Team TradingView
Feel free to check us out on Instagram , Telegram , and YouTube for more awesome content! 💘
Important types of chartsHey everyone! In this post, we are going to talk about different types of charts that are used in technical analysis.
Please remember this is an educational post to help all of our members better understand concepts used in trading or investing. This in no way promotes a particular style of trading!
Charts are used to illustrate change in prices over different time frames. It’s a graphical method of showing the historical price information. Charts are two-dimensional and have an x-axis (horizontal) and a y-axis (vertical). The x-axis generally represents time whereas the y-axis indicates the price.
👉 Line chart
• “Line charts” are formed by connecting the closing prices of a specific stock over a given period of time.
• It is particularly useful for providing a clear visualisation of the underlying trend.
• It only considers the “closing value” of the stock and ignores the open, high, and low values.
• Since it only uses the closing prices, hence it less noisy as compared to candlestick or bar charts.
👉 Bar chart
• A bar shows the high price for the period at the top and the lowest price at the bottom of the bar.
• Each bar displays the open, high, low, and close prices (OHLC).
• Small lines on either side of the vertical bar serve to mark the opening and closing prices.
• The opening price is marked by a small tick to the left of the bar; the closing price is shown by a similar tick to the right of the bar.
👉 Candlestick chart
• A candlestick chart provide visual insight to current market psychology.
• It displays the open, high, low, and closing prices (OHLC).
• The rectangular section of the candles is called the real body, which is the range between the session’s open and close.
• Bearish candle- When the close of the session is lower than the open.
• Bullish candle- When the close of the session is higher than the open.
• The thin lines on each side of the candle are called the wicks/shadows and they represent the session’s price extremes.
👉 Heikin Ashi chart
• Heikin Ashi uses a modified formula of close-open-high-low (COHL).
• Normal candlesticks keep changing colour depending on the OHLC even if the price is moving heavily in one direction. But the Heikin Ashi candles stay predominantly mono-coloured during trends.
• Candles with no lower "shadows" indicate a strong uptrend.
• Candles with no upper "shadows" indicate a strong downtrend.
• Candles with a small body surrounded by upper and lower shadows indicate a trend change.
👉 Renko chart
• A new brick is created when the price moves a specified price amount. The brick only forms on the chart once the price has moved the set amount.
• A brick can be of any size (called the box size). Box size can be set manually or it can be calculated using the Average True Range (ATR).
• There is a time axis on Renko charts, however, the time scale is flexible. This means that the bricks are not formed at an equal pace.
• Renko charts typically only use closing prices and mitigate the noise to a higher extent, making trend identification easier.
👉 Kagi chart
• When the price of the asset rises above the previous high price, a thick line is formed, signalling an increase in the demand.
• When the price drops below the previous low, a thin line is formed to indicate an increased supply.
• When there is a price reversal of a certain threshold amount, the chart starts to reverse the direction.
• Swing highs are called shoulders and the swing lows are called waists.
• Rising shoulders = Bullish. Falling waists = Bearish
👉 Point and Figure chart
• A P&F chart is used to visualize price movements and trends without any dependence on time.
• It makes use of columns made up of stacked Xs or Os, where each one stands for a specific amount of price change.
• In general, X illustrates rising price, while O represents a falling price (Some people use the reverse too).
• Point and Figures also emphasize on the closing prices only.
Thanks for reading! Hope this was helpful!
See you all next week. 🙂
– Team TradingView
Feel free to check us out on Twitter , Instagram , and YouTube for more awesome content! 💘
Types of participants in the derivatives marketHey everyone!
Last week we talked about the basics of derivatives and what all different derivative instruments are available in the markets. In this post, we will talk about the types of people who use derivatives and why they exist.
There are broadly three types of participants in the derivatives market:
→ Hedgers
→ Traders (also called speculators)
→ Arbitrageurs.
An individual may play different roles at different times.
Hedgers
→ They employ derivatives to mitigate the risk they suffer from fluctuations in the pricing of the underlying assets.
→ Institutions such as investment banks, central banks, hedge funds, etc. all use derivatives to hedge or reduce their exposures to market variables such as currency exchange rates, interest rates, equity values, bond prices, and commodity prices.
Speculators/Traders
→ The speculators are primary participants in the futures market.
→ They try to predict the future movements in prices of underlying assets and position themselves accordingly.
→ Speculators can be individual traders, proprietary trading firms, hedge funds, or market makers.
Arbitrageurs
→ Arbitrage is a deal that produces profit by exploiting a price difference in a product in two different markets.
→ Arbitrage occurs when a trader executes a simultaneous purchase and sale of the same asset in different markets in order to gain from tiny price differences between them.
→ The arbitrage trade is often short lives because the arbitrageurs would rush in executing these transactions, thereby closing the price gap at different locations.
Thanks for reading! Hope this was helpful.
See you all next week. 🙂
– Team TradingView
Feel free to check us out on Twitter , Instagram , and YouTube for more awesome content! 💘
Basics of DerivativesEver wonder what derivatives are? Check out this handy guide! 😉
A derivative is a contract or a product whose value is derived from the value of some other asset known as underlying. A variety of underlying assets serve as the foundation for derivatives.
These include:
→ Financial assets such as Shares, Bonds, and Foreign Exchange.
→ Metals such as Copper, Zinc, Gold, Silver, etc.
→ Energy resources such as Crude oil, Natural Gas, etc.
→ Agricultural products such as Wheat, Cotton, Sugar, Coffee, etc.
Cotton Futures
Gold Futures
Derivative Instruments
Forwards
It is a contractual agreement between two parties to buy/sell an underlying asset at a certain future date for a particular price that is pre-decided on the date of the contract.
Both the contracting parties are committed and are obliged to honor the transaction irrespective of the price of the underlying asset at the time of delivery. The terms and conditions of the contract are customized to cater to the needs of both parties. These are Over-the-counter (OTC) contracts, meaning they are a deal you make directly with a bank or a dealer. As a result, there is always counterparty risk involved.
Futures
Futures are standardized contracts similar to a forward contract, except that the deal is made through an organized and regulated exchange rather than being negotiated directly between two parties. The arrangements come with a fixed maturity date along with uniform terms for all the parties involved.
In simple language, futures are exchange traded forward contracts. The futures contract has little to no counterparty risk since the exchange is acting as a mediatory.
Options
An Option is a contract that gives the right, but not an obligation, to buy or sell the underlying on or before a fixed date and at a stated price. While the buyer of the option pays the premium and buys the right, the writer/seller of the option receives the premium with the obligation to sell/ buy the underlying asset if the buyer exercises his right.
There are two types of options:
→ American
→ European
American options can be exercised at any time prior to their expiration while the European options can only be exercised on the expiration date. In India, European options are used.
Swaps
A swap is an agreement made between two parties to exchange cash flows in the future according to a prearranged formula. A random variable (such as an interest rate, foreign exchange rate, commodity price, etc.) is used to determine at least one of these series of cash flows at the moment the contract is initiated.
Swaps are, broadly speaking, a series of forward contracts. They help the participants manage risk associated with volatile interest rates, currency exchange rates, and commodity prices.
Thanks for reading! Next week we’ll talk about the types of people who use derivatives and why they exist. Stay tuned!
See you all next week. 🙂
– Team TradingView
Feel free to check us out on Instagram , YouTube , and Telegram for more awesome content! 💘
The Cup & Handle patternHey everyone! 👋
Today we are going to share an informative write-up about the “Cup and Handle” pattern along with a few exhibits that may help you solidify your understanding of this chart pattern.
Please remember this is an educational post to help all of our members better understand concepts used in trading or investing. This in no way promotes a particular style of trading!
The post will shed some light on the following topics:
→ Basics and identification of the pattern
→ Components
→ Important aspects
What is a Cup and Handle pattern?
• The Cup and Handle is a bullish continuation pattern that resembles a cup with a handle.
• The cup is visualized as the alphabet "u" and looks like a rounding bottom pattern.
• The handle is formed as a range or a smaller “u”.
• The cup marks a consolidation phase whereas the handle has a slight downward move, which marks a retest phase.
• The handle is meant to signal a buying opportunity. When this part of the price formation is over, the stock may reverse the course and resume the prior uptrend.
Components of a Cup and Handle pattern:
The cup and handle chart has 3 main components:
• Cup
• Handle
• Neckline
Important aspects:
1. Prior Trend: The cup and handle pattern is a bullish continuation pattern, hence the prior trend should be an uptrend.
2. Cup length : In general, the cups with longer and more "U" shaped bottoms that resemble a rounding bottom, provide a stronger signal. This ensures that the cup is a consolidation pattern with valid support at the bottom of the “U”. The perfect pattern would have equal highs on both sides of the cup, but this is not always the case. In general, cups with sharp "V" bottoms should be avoided because there is almost no consolidation in this case.
3. Cup depth: Normally, the cup should not be overly deep. In practice, the cup depth can be up to 60-70% of the last swing move. (This can vary widely, though.)
4. Handle: The handle can occur in the form of a flag, a pennant, or a rectangular consolidation. This is the final retracement phase before the impulsive move higher. By and large, the handle can retrace anywhere between 40-60% of the depth of the cup.
5. Breakout: Bullish confirmation comes when the pattern breaks above the neckline (made using the prior highs) with a good volume.
6. Volume: In general, the volumes should decrease during the formation of the base of the cup as well as during the formation of the handle. Conversely, the volumes should pick up when the stock begins to make its move higher, back up to test the previous high.
7. Target: Using the measurement objective, the target comes out to be equal to the depth of the cup. It can be measured by calculating the distance between the bottom of the base and the neckline.
8. Stop-loss: Ideally, the stop loss is placed at the lowest point of the handle. But if the price oscillated up and down a number of times within the handle, the stop-loss can also be placed below the most recent swing low.
Exhibit: Cup and Handle pattern with a failed breakout
Thanks for reading! As we mentioned before, this isn't trading advice, but rather information about a tool that many traders use. Hope this was helpful!
See you all next week. 🙂
– Team TradingView
Feel free to check us out on Twitter , Instagram , YouTube , and Telegram . 💘
What is moving average?If you have been in the market for some time, you may have heard of an indicator called the “moving average”. Today we are going to take a deeper look at the indicator, along with a few examples of how pros use it. This post will also lay the groundwork for future posts about more advanced moving average topics.
Please remember this is an educational post to help all of our members better understand concepts used in trading or investing. This in no way promotes a particular style of trading!
The post will shed some light on the following topics:
- What is a moving average?
- How does moving average work?
- Correct usage along with exhibits
Introduction
A moving average (MA) is a technical indicator that is commonly used to determine the direction of the trend. By continuously recalculating the average based on the most recent price data, a moving average assists in smoothing out the price data. This helps in reducing the impacts of random short-term variations of the price over a given period of time.
Working with moving averages
- Moving averages are typically calculated to determine the direction of the trend and are sometimes used as dynamic support and resistance levels for a given time period.
Exhibit: Moving averages acting as a dynamic support
Exhibit: Moving averages acting as a dynamic resistance
- Since a moving average is derived using historical prices, it is a lagging indicator.
- The lag increases with the length of the moving average. As a result, a 200-period moving average (which includes prices for the previous 200 periods), will lag significantly behind a 100-period MA.
- Likewise, a moving average with a shorter period (faster MA) will be more sensitive to price changes as compared to a slower one.
Usage
- Faster moving averages are typically employed for short-term trading, while slower moving averages are more often utilized for understanding longer-term market dynamics.
- Moving averages are applicable to all time frames. Therefore, experimenting and testing several settings over a range of time frames is the best approach to determine which one works for you.
- A rising moving average indicates strength, while a falling moving average indicates weakness. Hence, in general, a stock is said to be in an uptrend if its moving average is increasing, whereas in a downtrend if MA is decreasing.
- In general, a stock may show bullish momentum if there is a bullish crossover, i.e. when a faster moving average crosses above a slower moving average.
- Conversely, bearish momentum may be expected on a bearish crossover, which occurs when a slower-moving average crosses below a faster-moving average.
Thanks for reading! As we mentioned before, this isn't trading advice, but rather information about a tool that many traders use. Hope this was helpful!
See you all next week. 🙂
– Team TradingView
Feel free to check us out on Twitter , Instagram , and YouTube for more awesome content! 💘
How to add alerts on TradingView?Hey everyone! 👋
Alerts are a key trading tool that every trader should know how to use. Check out this quick guide for more information and some secret tips!
What are alerts?
TradingView alerts are immediate notifications you can set for yourself when the market meets the custom criteria you create. For example, "Alert me if Nifty crosses above 16000". All users can get visual popups, audio signals, email alerts, email-to-SMS alerts, and also PUSH notifications that are sent to their phones. Pro, Pro+, and Premium users can also receive webhook notifications when an alert is triggered.
You can also create alerts on prices, indicators, strategies, and/or drawing tools.
There are 2 ways to create alerts:
1. Using the Right-click
2. Using the vertical scale
Method 1:
This is a pretty straightforward way. Go to the price level at which you want to add the alert, then right-click and select "Add alert". Voila! You are done.
Method 2:
The second way to add alerts is by using the vertical scale (Price scale). If you hover over the vertical scale, you will see a “+” sign.
On clicking this sign, you will be greeted with the “Add alert” option. Just click on it and the alert will be set at the selected price level.
You can also customise your alerts by using alert settings.
Indicator Alerts
You can also set indicator-based alerts with predefined conditions like "crossing up/down", "greater/lesser than", and "entering/exiting channel". You can also create your custom trigger settings by using the alertcondition and alert functions.
Tip : The alerts can be accessed using the “Alerts” tab which is the second option from the top, on the right toolbar.
Thanks for reading! Hope this was helpful!
See you all next week. 🙂
– Team TradingView
Feel free to check us out on Twitter and Instagram for more awesome content! 💘
How to add images to your charts?Hey everyone! 👋
Do you know that you can add images to your TradingView charts? That’s right!
We have prepared this visual guide to help our awesome users customize their charts by adding images!
Sounds good? Let’s get started. 🚀
There are 2 ways to add images to your charts:
1. The good old copy-paste method
2. Using the “Image” upload option
Method 1:
1. Open the image that you want to add to your chart.
2. Copy it and open the chart window where you want to add this image.
3. When you are at the chart window, right-click and you will see the “paste” option. You can also use the keyboard shortcuts as per your operating system. (Ctrl + V for Windows OR Cmd + V for Mac)
4. Once you are done pasting, the image will appear on your chart.
Method 2:
1. Go to the toolbar on the left side of the screen and select the 5th option from the top.
2. Once you click on it, you will see plenty of options. Just select the “image” option.
3. This option will provide you with an upload window. All you have to do is just click on “choose image”, select the file, and click open.
.
4. You can change the opacity of the image using the “transparency” option.
If you still need help, try watching this short video tutorial that we made out for you.
Thanks for reading! Hope this was helpful!
See you all next week. 🙂
– Team TradingView
Feel free to check us out on Twitter and Instagram for more awesome content! 💘
Trading Performance PsychologyThe greater the difficulty, the more glory in surmounting it. Skillful pilots gain their reputation from storms and tempests.
- Epictetus.
Hey everyone! 👋
This week, we thought it would be interesting to dive into a less-commonly discussed topic: performance psychology - and discuss how it relates to Trading. Specifically, we're going to look at the following question: What actually drives outperformance from one trader to the next?
From a process standpoint, there are lots of things that aspiring traders can take from other performance disciplines (like sports) in order to better understand the necessary steps to get where they would like to be. Let's jump in!
Time is the common element to expertise ⏰
Mastery is built over time. First through exploration, then knowledge building, then well-structured practice.
To invest the great amounts of time and effort required for mastery, an individual typically bonds emotionally with the field, creating a long-term relationship.
Present in almost all extremely high performing traders is an inherent, intrinsic love of trading itself. This means a love for analyzing charts, working on strategies, looking at markets, and trying to fit the pieces together in one's head. In this frame - Trading isn't a job, it's a CRAFT. If you just love the status, the lifestyle, or the income, then it's likely that you won't reach the true heights of the profession. The highest performing traders spend hours and hours working on their trading; not because they WANT to, but because they LOVE to.
Finding a niche ❤️
The greats do not become great by working hard; they work hard because they find a great niche: a field that captures their talents, interests, and imagination. The best pitcher in the world might make a terrible hitter.
If you're early on in your journey (or lost), something to consider is trying to find a niche that you truly resonate with. A great deal of importance is placed on niches in other professions and institutionally within finance, as hospitals and banks have rotational programs to expose newcomers to different types of experiences.
Why then, don't individual traders do this? A great way to center your thinking is by constructing a rotational program for yourself. Here's a list of the most popular asset classes & trading styles. Give each a google , or look for ideas here on TradingView, and see what you resonate with most strongly. Set yourself up for long term mastery by actually finding something you love doing day in and day out.
Liquid Asset Classes:
-Stocks
-Currencies
-Cryptocurrencies
-Futures
-Fixed Income
-Volatility
Styles (Timeframe):
-Intraday - holding time is seconds to hours
-Swing - holding time is days to weeks
-Position - holding time is weeks to months
Which holding style fits with your temperament? What topics do you like learning about?
The Learning Process ✅
In trading and in life, we often hear that "Practice makes perfect". A better saying may be "Perfect practice makes perfect". How practice time is structured makes the difference between a performer who has five years of experience and someone who has one year of experience repeated five times over. So; how should you structure your practice?
In performance psychology, there's a concept known as a "learning loop". It has three parts.
Performance -> Feedback -> Learning (repeated).
This is crucial because feedback is the key to improvement. Trading is a solo sport, which means that figuring out how to incorporate a feedback process that allows for reflection is absolutely critical.
P/L is feedback, but there can be some problems with it singularly as your feedback mechanism. Even the best traders who execute the best looking trades can be on the opposite side of variance on given days. The process is king. Get feedback from your performance that doesn't have to do with P/L so you can track the inputs to your decision making. Some traders take copious notes, some record their screens, and some record data points that aren't P/L related (hours slept, hydration, mood, etc).
(We have a "notes" feature built into the charts you can use for this purpose.)
If you gather up all of these items together to create a long-term blueprint for building mastery, it should look something like this:
1.) Find out what you truly love about trading
2.) Explore it more deeply
3.) Stick with it through time and allow your intrinsic enjoyment to motivate you through the ups and downs
4.) Structure your performance through that time in such a way that you can generate feedback for yourself
5.) Incorporate that feedback to continually improve your process. Allow learning loops to be your engine of long-term performance.
Hope you enjoyed reading, and stay safe out there!
- Team TradingView
What is Fibonacci extension?Hey everyone! 👋
Last time we explained some of the basics to know when it comes to understanding the Fibonacci retracement tool. If you haven’t read that post, be sure to check it out here:
In this post, we are going to look at the Fibonacci extension along with a few exhibits that may help you solidify your understanding of this unique trading tool.
Please remember this is an educational post to help everyone better understand investing and trading tools. In no way are we trying to promote a particular style of trading!
Table of Contents:
1. What are Fibonacci extension levels?
2. What is the significance of extension levels?
3. How to find extension levels?
4. Difference between the Fibonacci retracement and Fibonacci extension
Without further ado, let’s jump in!
What are Fibonacci extension levels?
A Fibonacci extension is a tool that can be used to find price targets or estimate how far a price may move after the retracement/pullback is over.
Extension levels are also possible areas of interest where the price may stall or reverse.
It can be used to find projected areas of support or resistance when the price is moving into an area where other methods of finding support or resistance are not applicable or evident.
Fibonacci extension levels can be calculated to give the trader ideas on profit targets.
Significance of Fibonacci extension levels
Different traders use this tool differently but the most common usage is as follows:
Fibonacci extensions can be used for any timeframe and in any market- stocks, commodities, cryptocurrencies, etc.
Fibonacci extension levels indicate a price area that will be significant for the stock after the pullback/correction is over.
Extension levels can be drawn on different price waves over time. When levels from these different waves converge at one price, that could be a very important area.
For example , A stock may be in an uptrend. After a move up, it retraces to the 61.8% level. Then, it starts to go up again. In this case, the extension tool can be used to find the optimal targets after the price moves above the swing high level (100% level).
How to find Fibonacci extension levels?
In order to find the Fibonacci extension levels, you have to find the recent significant swing high and swing low and then plot the Fibonacci extension accordingly.
For uptrend: First, select the swing low and then the swing high. Then go to the Fibonacci settings and select reverse.
For downtrend: First, select the swing high and then the swing low. Then go to the Fibonacci settings and select reverse.
Exhibit: Fibonacci extension in an uptrend
Exhibit: Fibonacci extension in a downtrend
Difference Between Fibonacci Retracements and Fibonacci Extensions
Fibonacci retracements provide levels for a pullback whereas Fibonacci extensions provide levels in the direction of the existing trend.
For instance, a stock goes from 50 to 100 and then falls back to 75. The move from 100 to 75 is a retracement. If the price starts rallying again and goes to 150, that is an extension because the price moved past the previous swing high which is 100 in this case.
Conclusion:
Adding Fibonacci analysis with other common methods of technical analysis can be useful for adding confluence to a trade.
Thanks for reading! Hope this was helpful!
See you all next week. 🙂
– Team TradingView
Feel free to check us out on Twitter and Instagram for more awesome content! 💘
How to create high quality trade ideas?Hey everyone! 👋
This week, we will be taking a look at the ingredients that go into creating and posting high-quality trade ideas.
While many think that a good trade idea begins and ends with finding a high probability chart setup in a liquid, volatile asset, the *best* trade ideas often combine multiple disciplines - which could include macroeconomic analysis, fundamental analysis, technical analysis, or some combination therein - into one cohesive unit. Getting in the habit of incorporating all of these factors into your thought process can lead to much higher quality setups, whether or not you choose to share them with the community.
Let’s jump in!
There are a couple of questions that you should ask yourself when trying to come up with high-quality ideas, and they boil down to the familiar five:
Who, What, Where, When, and Why.
Let's start with Who.
WHO:
Who is this trade idea meant for? When posting a trade idea, don’t assume that the idea is one-size-fits-all. The most obvious way TradingView helps in this regard is by categorizing posts by asset class, so FX traders are looking mostly at FX ideas, and crypto investors aren’t constantly exposed to commodity futures spreads. However, there are more subtle ways this happens as well. Different traders and investors often have different styles of trading, and so even within a single asset class, a long-term investment idea may not be applicable to a short-term trader. When creating a trade idea, it may make sense to identify to readers (and yourself) who this idea is for, and within what strategy it might best fit.
WHAT:
Most ideas do a great job at answering this question! It’s very simple: at its core, what does this idea want to do? Whether that idea boils down to shorting the stock market or building a long/short cryptocurrency spread, make sure that your idea clearly identifies what the core thrust of the trade is.
WHY:
This is the crux of any good trade idea. Why should someone commit capital and risk money according to your vision? It is common for traders, especially new traders, to think that answering this question comes down to building up a confluence of price patterns, indicators, and chart drawings until they line up and it is all systems go. In some cases, this serves as a reasonable answer to the “why” question - especially when assets have strong momentum.
However, oftentimes this approach may not go deep enough. What if the long technical setup on your chart is in a stock where the company’s business outlook is worsening? What if the descending triangle you’re looking at trading occurs within a larger bull market? This is where incorporating multiple disciplines, whether it’s fundamental analysis or macroeconomic understanding, can improve the quality of your trade ideas. Understanding some of the context surrounding the asset you’re trading can serve to layer probability in your favor.
Here’s the bottom line: the current price in any market is a reflection of the consensus view of the future. It’s important to illustrate *why* that pricing might be materially incorrect.
WHERE / WHEN:
It’s important to illustrate why *right now* is the right time to act on the idea, and this is where technicals can come in very handy. Broadly speaking, fundamental data on most assets only comes out once every couple of weeks, if that. It’s even longer between fundamental data releases for stocks. Because of this, utilizing price patterns, indicators, candlestick charting, and other technical analysis can be extremely helpful in defining risk, pinpointing entries, and trading more efficiently overall.
This is also where clean charting comes in. It’s important to identify how trader positioning, supply and demand zones, and other factors (that technicals help illustrate) affect the timing and risk of the idea. In addition, when publishing an idea on TradingView, the chart is one of the most visible and prevalent ways of communicating this information. Making these items clearly defined can significantly improve the quality of a trading idea and ensure clear communication of the important information.
So there you have it - the key questions that are at the core of any good trading idea! We look forward to seeing how this framework is incorporated into future posts.
Thanks for reading! Hope this was helpful!
See you all next week. 🙂
– Team TradingView
Feel free to check us out on Twitter and Instagram for more awesome content! 💘
What is Fibonacci retracement?If you have been in the market for some time, you may have heard of “Fibonacci retracements” . Today we are going to share an informative write-up along with a few exhibits that may help you solidify your understanding of this concept.
Table of Contents:
1. What are Fibonacci levels?
2. What is the significance of retracement levels?
3. How to find retracement levels?
4. How to use the retracement levels?
Without further ado, let’s jump in!
What are Fibonacci Retracement levels?
The retracement levels are horizontal lines that indicate areas where the price could stall or reverse.
These horizontal levels can act as potential support or resistance levels.
They are based on Fibonacci numbers. Each level is associated with a percentage which means how much of a prior move the price has retraced.
The retracement levels are 23.6%, 38.2%, 61.8%, and 78.6%.
While 50% is not a pure Fibonacci ratio, it is still used as a support and resistance. This is because people regard it as an important level.
The price won’t always bounce from these levels. They should be looked at as areas of interest. Hence, the Fibonacci retracement should be used as a confirmation tool.
Significance of Fibonacci Retracement levels
Different traders use this tool differently but the most common usage is as follows:
Place entry orders
Determine stop-loss levels
Set price targets
For example, A stock may be in an uptrend. After a move up, it retraces to the 61.8% level. Then, it starts to go up again. Since the bounce occurred at a retracement level during an uptrend, long positions can be initiated with an optimal stop loss.
Finding Fibonacci Retracement levels
In order to find the retracement levels, you have to identify the recent significant swing high and swing low and then plot the Fibonacci accordingly.
For uptrend: First, select the swing low and then the swing high.
For downtrend: First, select the swing high and then the swing low.
Exhibit: Fibonacci retracement in an uptrend
Exhibit: Fibonacci retracement in a downtrend
How to use the retracement levels?
If the price is approaching a Fibonacci level, you should look out for the following things at the point of interaction or in the vicinity of the level.
Reversal candlestick patterns
Rising volumes
Moving average
RSI divergence
Previous support/resistance level
Conclusion:
Adding Fibonacci analysis with other common methods of technical analysis can be useful for adding confluence to a trade.
Thanks for reading! Hope this was helpful!
See you all next week. 🙂
– Team TradingView
Feel free to check us out on Twitter and Instagram for more awesome content! 💘
How to add multiple charts in Tradingview ideas?Hey everyone! 👋
If you are new or have recently started posting ideas, you may have noticed that a lot of people put multiple charts in their posts. This makes their ideas more thorough and resourceful. So, the question arises, how do you put multiple charts in a single idea?
Don’t worry, we’ve got you covered. This short visual guide will help you in understanding the complete process of creating exhaustive ideas containing multiple charts.
1. When you are on the idea publishing interface, you will notice a chart-like icon. This option is used to insert ideas and chart snapshots in your post.
2. If you click on this icon, it will open up a blank field with an option labeled “insert”. All you have to do is, insert the links to your secondary charts in this field.
3. To get the link to your charts, click on the “camera icon” at the top right-hand of the screen, and then click on “copy link to the chart image”.
4. Then come back to the field mentioned in point 2. Paste your link and click insert.
5. Your chart will automatically get inserted into the post along with relevant syntax. You can repeat the process as many times as you need to insert the charts.
Thanks for reading! Hope this was helpful!
See you all next week. 🙂
– Team TradingView
Feel free to check us out on Twitter and Instagram for more awesome content! 💘
How to use the heatmap on TradingView? Hey everyone! 👋
You may have already seen plenty of cool TradingView heatmaps floating around social media. In case you haven’t, here is what a heatmap looks like:
This short visual guide will help you in accessing and customizing our awesome heatmap feature.
1. When you open TradingView, you will see a toolbar at the top with various options, including “Screeners”.
2. If you hover over it, you will see 5 options, namely:
- Stock screener
- Forex screener
- Crypto screener
- Stock heatmap
- Crypto heatmap
You can choose the heatmap as per your preference.
3. Let’s assume you want to check the “Stock heatmap”. So, you just click on it and it will display the heatmap of the US market by default. There is an option at the top-left corner to change the “source” of the heatmap.
4. When you click on the source option, it will open a list from which you can select your desired source.
5. As soon as you change the source, the heatmap will automatically get updated. You can customize the heatmap by change %, sectors, market capitalization, or performance.
6. Last but not least, you can also save and share your heatmap directly from the social sharing button.
7. If you need more help, you can check out this short video tutorial - How to use the heatmap on TradingView?
Thanks for reading! Hope this was helpful!
See you all next week. 🙂
– Team TradingView
Feel free to check us out on Twitter and Instagram for more awesome content! 💘
How to see idea statistics on TradingView?Hey everyone! 👋
Have you ever wondered how to check your post statistics such as views, comments, and likes, without going through each and every post? Today we wanted to drop this short visual guide to help you out in achieving this.
1. When you open TradingView, you will see a toolbar on the right side of the screen.
2. Click on the bulb-like icon (5th position from the bottom).
3. As soon as you click on the bulb icon, it will list all your ideas, along with all the statistics.
4. You can notice the likes, comments, and views listed on the side of your posts. You can use the “star” icon to set the post in the “favorite category”.
5. There is also an option to filter the posts based on favorite ideas or private ideas.
Thanks for reading! Hope this was helpful!
See you all next week. 🙂
– Team TradingView
Feel free to check us out on Twitter and Instagram for more awesome content! 💘
What is Bearish divergence?Hey everyone! 👋
Last week, we explained some of the basics to know when it comes to understanding bullish divergences in the markets. If you haven’t read that post, be sure to check it out here:
In this post, we are going to examine just the opposite: bearish divergences! Please remember this is an educational post to help everyone better understand investing and trading principles. In no way are we trying to promote a particular style of trading.
Table of contents:
1. What is bearish divergence?
2. Types of bearish divergence
3. Some examples
When the price of an asset is moving in the opposite direction of a technical indicator, such as an oscillator, it is called divergence. Divergence warns about potential underlying weakness in the current trend.
What is Bearish divergence?
A bearish divergence occurs when the price rises to a new high while the oscillator fails to reach a new high (exception being hidden bearish divergence). It indicates that the buying pressure is decreasing and the bears may soon take over the market. Generally, a bearish divergence occurs at the end of an uptrend. It has two sub-types:
- Classic bearish divergence
- Hidden bearish divergence
What is classic bearish divergence?
The classic bearish divergence occurs at the end of a bullish trend and indicates that a trend reversal may occur soon. In this, the price and the oscillator always either form a higher high or an equal high. It can be subdivided into 3 types, based on the strength.
1. Strong Bearish Divergence
In strong bearish divergence, the price forms higher highs but the oscillator forms lower highs. This means that the buyers are not buying at the same momentum i.e. the buying pressure is decreasing.
Price : Higher highs
Oscillator : Lower highs
Exhibit: Strong bearish divergence
Exhibit: Strong bearish divergence followed by a reversal
2. Medium Bearish Divergence
The price makes double top (almost the same level as the previous high) and the oscillator makes lower highs. This indicates that at the same price levels, the momentum is decreasing.
Price : Equal highs
Oscillator : Lower highs
Exhibit: Medium bearish divergence
Exhibit: Medium bearish divergence followed by a reversal
3. Weak Bearish Divergence
In weak bearish divergence, the price makes higher highs but the oscillator has almost the same highs. This means that even though the price is increasing, the momentum is intact.
Price : Higher highs
Oscillator : Equal highs
Exhibit: Weak bearish divergence
Exhibit: Weak bearish divergence followed by a reversal
What is hidden bearish divergence
The hidden divergence occurs during the correction phase of a trend and is a possible sign of a trend continuation. In this, the price forms lower highs, but the oscillator forms higher highs. This indicates that even at an increased momentum, there is enough selling going on to push the price down. This type of divergence occurs with less frequency as compared to the other types.
Price : Lower highs
Oscillator : Higher highs
Exhibit: Hidden bearish divergence
Exhibit: Hidden bearish divergence followed by a reversal
Thanks for reading! As we mentioned before, this isn't trading advice, but rather information about a tool that many traders use. Hope this was helpful!
See you all next week. 🙂
– Team TradingView
Feel free to check us out on Twitter and Instagram for more awesome content! 💘
What is Bullish divergence?Hey everyone! 👋
Last week, we explained some of the basics to know when it comes to understanding divergences in the markets. If you haven’t read that post, be sure to check it out here: 👇
In this post, we are going to examine bullish divergence further, along with a few exhibits. Please remember this is an educational post to help everyone better understand investing and trading principles. In no way are we trying to promote a particular style of trading!
Table of contents:
1. What is bullish divergence?
2. Types of bullish divergence
3. Some examples
When the price of an asset is moving in the opposite direction of a technical indicator, such as an oscillator, it is called divergence. Divergence warns about potential underlying weakness in the current trend.
What is bullish divergence?
A bullish divergence occurs when prices fall to a new low while the oscillator fails to reach a new low (exception being hidden bullish divergence). Positive divergence signals that the price could start moving higher soon. Generally, a bullish divergence occurs at the end of a downtrend. It has two sub-types:
- Regular Bullish divergence
- Hidden Bullish divergence
What is classic bullish divergence?
The classic bullish divergence occurs at the end of a bearish trend and indicates that a trend reversal may occur soon. In this, the price and the oscillator always either form lower lows or equal lows. It can be subdivided into 3 types, based on the strength.
1. Strong Bullish Divergence
In strong bullish divergence, the price forms lower lows but the oscillator forms higher lows. This means that the sellers are not selling at the same momentum i.e. the selling momentum is decreasing.
Price : Lower lows
Oscillator : Higher lows
Exhibit: Strong Bullish Divergence
Exhibit: Strong bullish divergence followed by a reversal
2. Medium Bullish Divergence
The price makes double bottom (almost the same level as the previous low) and the oscillator makes higher lows. This indicates that at the same price levels, the momentum is increasing.
Price : Equal lows
Oscillator : Higher lows
Exhibit: Medium bullish divergence
Exhibit: Medium bullish divergence followed by a reversal
3. Weak Bullish Divergence
In this, the price makes lower lows but the oscillator has almost equal lows. This means, that even though the price is decreasing, the momentum is intact.
Price : Lower lows
Oscillator : Equal lows
Exhibit: Weak bullish divergence
Exhibit: Weak bullish divergence followed by a reversal
What is hidden bullish divergence?
The Hidden divergence occurs during the correction phase of a trend and is a possible sign of a trend continuation. In this, the price forms higher lows, but the oscillator forms lower lows. This indicates that even at a decreasing momentum, there is enough buying going on to push the price upwards. This type of divergence occurs with less frequency as compared to the other types.
Price : Higher lows
Oscillator : Lower lows
Exhibit: Hidden bullish divergence
Exhibit: Hidden bullish divergence followed by a reversal
Thanks for reading! As we mentioned before, this isn't trading advice, but rather information about a tool that many traders use. Hope this was helpful!
See you all next week. 🙂
– Team TradingView
Feel free to check us out on Twitter and Instagram ! 💘
What is divergence?If you have been in the market for some time, you may have heard of something called “divergence” . Today we are going to share an informative write-up along with a few exhibits that may help you solidify your understanding of this important trading concept. This post will also lay the groundwork for future posts about related topics.
Please remember this is an educational post to help all of our members better understand various concepts used in trading or investing. This in no way promotes a particular style of trading!
We are going to cover the following topics:
1. What is divergence?
2. What are the different types of divergence?
- Bullish divergence or Positive divergence
- Bearish divergence or Negative divergence
Introduction
When the price of a stock moves in a certain direction, the momentum oscillator should also move in the same direction.
Example : When the Price makes a higher high, the momentum oscillator should also make a higher high. This is called convergence since both the price and the momentum are converging in the same direction.
In a few circumstances, the momentum oscillator and the price do not move in tandem. This is called Divergence.
What is Divergence?
When the price of an asset is moving in the opposite direction of a technical indicator, such as an oscillator, it is called divergence. Divergence warns about potential underlying weakness in the current trend. The price may or may not reverse at the exact occurrence of the divergence.
Different types of Divergence
Broadly, divergence can be classified as positive or negative. Positive divergence is also known as “Bullish divergence”, while the negative divergence is typically called “Bearish divergence.”
1. Bullish divergence / Positive divergence
A bullish divergence occurs when prices fall to a new low while the oscillator fails to reach a new low (exception being hidden bullish divergence). Positive divergence signals that the price could start moving higher soon. It has two sub-types:
i) Regular Bullish divergence
ii) Hidden Bullish divergence
Some exhibits of Bullish divergence:
Exhibit 1: Regular bullish divergence
Exhibit 2: Hidden bullish divergence
Exhibit 3: Bullish divergence followed by a subsequent reversal
2. Bearish divergence/Negative divergence
A bearish divergence occurs when the price rises to a new high while the oscillator fails to reach a new high (exception being hidden bearish divergence). Negative divergence signals that the price may soon start falling to lower levels in the future. It also has two sub-types:
i) Regular Bearish divergence
ii) Hidden Bearish divergence
Some exhibits of Bearish divergence:
Exhibit 1: Regular bearish divergence
Exhibit 2: Hidden bearish divergence
Exhibit 3: Bearish divergence followed by a subsequent reversal
Thanks for reading! As we mentioned before, this isn't trading advice, but rather information about a tool that many traders use. Hope this was helpful!
See you all next week. :)
– Team TradingView
