How do you trade Inside Bars?

I asked if anyone wanted to guest post for me and Miad (@ZFXtrading) responded with a great post on how he trades inside bars.

Take a look at his other content at www.this-is-forex.com. Some cracking stuff on volume spread analysis, a particular method that I incorporate in my trading.



Insidebar swing trading is a lot about doing nothing and sitting on your hands. Then when the setup comes it’s everything about execution and continued sitting on your hands again until markets treats you to a TP or slap you with your SL. Insidebars are born out of lacklustre and failure of market participants to break the previous seasons price range. Statistically insidebars and the inevitable breakout give a 50/50 chance of success. Where success is measured by yielding more or at least equally as much as you risked losing. But there are rare moments and in particular Certain environments where IBs are the calm before the storm, the build up before the momentum stretch and that’s where IBs get their reputation from. Catching that explosive move with a tight stop is everyone’s desire big or small players and IBs open up such provocative opportunities. 

Wicks are arrows

Now in order to separate poor setups from roulette once you want to understand the power of wicks. Every candle wick tells a story, mostly a boring one without any substance just like my old uncle. Nevertheless it has direction, and in a cluster of unbiased spikes these wicks become your beacon of light. If there are dozens of candles arrayed like sardines in a tin with obvious wicks pointing up the way then that’s because market participants are interested in higher prices. While everyone else is busy trying to figure out what’s going on, you can shape a bias based on price strength at the wicks. 


Collectively wicks are pointing lower and a sense of sentiment only from observing the wicks becomes clear while downside pressure persists.


It is incredible how in this chart example the lows got defended. Every dip got pushed back up leaving wicks pointing higher. In tight ranges like that it is impossible to figure out a breakout direction unless you look for your clues.

Realising that candle wicks are actually arrows and the bigger they are the more meaning they have opens up totally new horizons.

Swing high and low

Breaking down price behaviour into pivots gives us a better perspective. Now pivots with less noise and clusters around them have much more ease and room to flex. Hence when we observe a turnaround point in the middle of nowhere it tends to be a smoother sail as opposed to noisy conditions. So whenever you see price has broken free and leaves generous room to move be advised that it has an equal chance of returning to where it came from. All it needs is a spark, that spark could be an IB.

Bringing it together

When a mother bar and the subsequent insidebar both have wicks pointing lower then a breakout to the downside is likely to advance further. And when all of that happens at a swing high , well you got yourself a golden goose.


A recent example on CADJPY 4h IB setup at a swing high, upon breaching the lows price opened up. With open space to move into, price encountered little resistance to drop lower.


After a massive swing lower price consolidated briefly and broke out with the same momentum to the upside right after this lucrative IB setup that offered tight risk management.

IB trade management

Dropping a Fibonacci line from the bottom to the top of an IB range will plot 161,261 and 423 extension levels.


And here is the drool, I have forward tested IB setups as outlined above and 7/10 times 161 gets hit in the very first burst and 9/10 times 161 levels gets hit during the lifetime of a trade (mic drop). You’ll see 261 tested 7/10 times which accounts for a RR of 1.6 . Combined take profits will yield RR0.6+RR1.6= RR2.2 with an average strike rate of %70.

Red Credit or Black Credit Cards? – Part One

Great post on credit building

Hue By Design

Dear Present,

I’m just going to jump right in,

It is funny how the majority of the black community are against borrowing money, credit cards, financing cars or other items. It seems like the black community, in general, look down on people that lease or finance cars and look at credit cards as some type of VIP one-way ticket to hell. Not understanding, that financially (for people with a stable income), these things are more beneficial in our short and long term lives.

Personally, I think the problem is thelack of financial education or with the understanding of how the banking system works or how it makes its money.

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Why The Fall In GBP Was Inevitable… And Why It Is Good.

When Sunderland voted in June, we saw a 6% fall in the price of GBPUSD. The reasoning was that Sunderland surely wouldn’t have voted to leave since they were a Labour stronghold.

Why was this inevitable? Essentially it’s due to something called the Balassa-Samuelson Theorem.

Countries with high productivity growth also experience high wage growth, which leads to higher real exchange rates. The Balassa-Samuelson effect suggests that an increase in wages in the tradable goods sector of an emerging economy will also lead to higher wages in the non-tradable (service) sector of the economy. The accompanying increase in inflation makes inflation rates higher in faster growing economies than it is in slow growing, developed economies.

Definition taken from: http://www.investopedia.com/terms/b/balassasamuelson-effect.asp

Over the years, UK productivity has slowed a huge amount relative to wage growth. This means that workers consume more than they can produce and this causes a decrease in the current account surplus (and eventually changes to a deficit, as we have now).

Let’s look at the relationship between US living standards (which can be a proxy for productivity if you look at GDP per capita). At the end of the 19th century, UK living standards were 13% higher than that of the US, however by 2013, the living standards were 39% lower! US productivity has outpaced UK productivity, therefore, by 57% throughout the 20th Century:

Yet the real rate has stayed relatively stable, and in the last decade, GBPUSD has actually increased in real terms:

If the Balassa-Samuelson Theorem holds true (which it does when looking at the chart), then GBPUSD has been overvalued for a long time, based on the productivity discrepancy between the US and the UK.

Why does having a lower sterling benefit? Well, you have a re-distributive effect where UK exports become more attractive. We currently have a current account deficit of £5.22bn. It widened heavily in September due to firms still purchasing amid uncertainty at a higher exchange rate price. Economic effects have time lags – monetary policy for example has approximately 6-12 months before it has much effect to the everyday person. Greater exports lead to greater tax receipts for the UK and an increase in the price level when looking at the aggregate demand relationship (C+I+G+(Nx) = Aggregate Demand, where C is consumption, I is investment, G is government spending and Nx is net exports) and a shift upward in aggregate demand equates to economic growth. Obviously short term price shocks will affect the pocket of the everyday person as the market is out of equilibrium and because the time lags are still at play.

Adjusting for cyclical factors in the income balance, the IMF’s External Balance Assessment (EBA) models estimate that sterling is moderately overvalued in 2015. The 2015 CA balance is projected at -4.1 percent of GDP. If cyclical factors are removed, the EBA model estimates that the trade balance would improve by 0.3 percent of GDP. Based on the analysis above, staff estimates that the income balance will also improve by another 1 percent of GDP as cyclical conditions outside the UK improve. The underlying CA balance is therefore estimated at -2.8 percent of GDP. The EBA-estimated CA norm for the UK of -0.3 percent of GDP thus suggests a CA gap of 2.5 percent of GDP. Applying an elasticity of -0.23 (for the relationship between the current account and exchange rate) yields exchange rate overvaluation of 11 percent. The EBA REER index and levels regression estimate sterling overvaluation of 12 and 10 percent, respectively. Taking an average of these approaches and allowing for uncertainty suggests sterling overvaluation in 2015 of about 5–15 percent.

https://www.imf.org/external/pubs/ft/scr/2016/cr1658.pdf

In simpler terms, the IMF have examined exchange rates relative to sterling alongside UK international investment positions and have noted that due to external factors alongside reduced net income from foreign direct investment, the current account deficit had widened in 2015. When the deficit widens, the exchange rate depreciates as stated above. This is why it was inevitable that sterling fell. Now, look back at the chart and note the percentage decrease in GBPUSD and look at the prediction made by the IMF…

I think what we take from this is that it is not the fall that has shocked the everyday person, but the velocity of the fall and how sterling hasn’t been given time to re-balance endogenous variables and find equilibrium. I do think that we should now expect a lower pound for the foreseeable future, however I can see an anchoring bias occurring where we have experienced rate upward of GBPUSD $1.45 for so long that people will always consider a rate lower as ‘bad’ without understanding that a high pound relative to the current account deficit that we have is even worse.

Follow me on Twitter: @DavidBelleFX

Are You Part Of The Sandwich Generation ?

Really good post on childbearing demographics w/ an ageing population.

The Lighthouse Keeper

Good Morning,

Strange question eh.

What is the ‘Sandwich Generation’
The sandwich generation is the generation of middle-aged individuals who are pressured to support both aging parents and growing children. The sandwich generation is named so because they are effectively “sandwiched” between the obligation to care for their aging parents – who may be ill, unable to perform various tasks or in need of financial support – and children, who require financial, physical and emotional support. The trends of increasing lifespans and having children at an older age have contributed to the sandwich generation phenomenon.

BREAKING DOWN ‘Sandwich Generation’
A 2005 Pew Center study estimated that one in eight Americans between the ages of 40 and 60 are simultaneously providing some financial assistance to both a child and a parent. The obligations placed on the sandwich generation demand considerable time and money. With the added pressures of managing one’s own…

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The 8 Best Investing Websites and Apps For Young People (and old I guess)

Investing is a pretty unknown topic among the majority of young people. Not only is the knowledge about investing not widely directed towards the youth demographic, but we also face the problem of less disposable income, lower wages and a lack of confidence in the financial system (maybe). However, there is so much information out there these days, and passive investing can be done from an app on your phone a lot of the time (although I would advise actually sitting down and researching investments for a while, rather than randomly clicking buy on a Junk Bond ETF and not knowing what you’re doing).

This is a list of websites and investing vehicles to get you off to a good start. Click each logo to be directed to the website.


This is literally a Bible of financial information. You have everything here from who Jesse Livermore is, to what options arbitrage is, to how diversification of a portfolio works. I use this daily and the articles in the trending section are extremely useful. In the search bar, I input ‘investing for young people’ and the first link was ‘The Best Investments for Young People’. You don’t really need me now…


Nutmeg is a wealth management firm who have really made investing easy. The initial investment amount is £500. From there, you simply apply variables such as how much you want to have in X years, how much you can add per month, and what type of risk appetite you have (whether you are risk averse or you are willing to take a lot of risk).


What a great idea this is. Moneybox is a savings and investing app that works by causing you to say ‘it’s only 30p’ or ‘it’s only 54p’ by rounding up your purchase to the nearest £1 and saving the difference. You are then able to invest it into 3 different categories of investments:

This really takes the chore out of investing, however you are slightly limited in terms of diversification, but it is a perfect, no excuses way of getting into investing right now. What’s more is that it only charges £1 per month in fees and a 0.45% charge of the total portfolio at the end of the year… some brokers charge upwards of £8 in commission for each ETF trade…


Image result for khan academy logo

Khan Academy probably taught me more about economics than my economics lectures. I’ve linked the macroeconomics section because I feel that the more knowledge you have about the economy as a whole, the more careful and knowledgeable you will be about choosing your investments. You have sections on everything from bonds to Keynesianism and the monetary system, all in video format, and all exceptionally well explained.


Image result for tradingview logo

TradingView is for investors who want to combine charting analysis with fundamental analysis (balance sheets, product releases, earnings expectations etc). This is more advanced and requires quite a lot of time and study, and is venturing more on speculation rather than passive investing, however the more strings to your bow you have the better. You can learn more about simple charting methods here.


Image result for robinhood stock logo

This isn’t out in the UK yet however there has been a job posting for London, which normally indicates they’ll be opening a London office. Robin Hood allows US equities trading for free. It’s too early to say whether they’ll allow UK stocks but we shall see. I presume they markup the spread (the difference between the buy and sell price of an asset)  in order to make revenue, so technically it’s not free but if you’re investing on a longer time frame, this shouldn’t matter.


Reuters is my favourite news service. It provides, in my opinion, the best financial news out of all providers. Click the link to download to mobile.




Those who are already more than beginner investors can look at IG Index for their ETF brokerage department. IG are probably the best retail platform to offer ETFs. They have a full free education section where ETF investing is explained in video media. Be warned that you do need to have slightly more than basic knowledge but still it’s not that difficult to learn about diversification of assets and other terminology.


 

For you degenerate nutters who want to trade FX & CFDs, my list of good brokers is here. I hope this was useful. Like, comment & share..

Sterling Update

The Lighthouse Keeper

Good Morning,

FOREX.

For sterling at least, the main focus today will be with the Autumn Statement. Traditionally this was an opportunity to announce revised growth and borrowing forecasts for the years ahead, but more recently has turned into something of a mini-budget in itself. The economy has held up well since the Brexit vote in June, but remember that the UK has not yet started the process, so both the government and BoE recognise that there is a considerable period of uncertainty ahead. There have been some mixed messages from the government so far. The new Chancellor, Phillip Hammond, has relaxed the previous commitment to balance the budget by 2020, but has also acknowledged that the low rate environment provides an opportunity for expanding infrastructure investment. The reaction to Trump’s victory in the US also provides some food for thought for the UK government. Seemingly, markets have reacted well…

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