Technical Analysis: The Basic Assumptions. Technical analysts don't care whether a stock is undervalued - the only thing that matters is a security's past trading data and what information this data can provide about where the security might move in the future. The field of technical analysis is based on three assumptions: 1. The market discounts everything. 2. Price moves in trends. 3. History tends to repeat itself. 1. 3. Not Just for Stocks Technical analysis can be used on any security with historical trading data. Now that you understand the philosophy behind technical analysis, we'll get into explaining how it really works. For further reading, check out Defining Active Trading, Day Trading Strategies For Beginners and What Can Investors Learn From Traders?. Basic Candlestick Patterns. What do spinning tops, marubozus, and dojis have in common? They’re all the basic types of Japanese candlesticks! Let’s take a look at each type of candlestick and what they mean in terms of price action.
Spinning Tops Japanese candlesticks with a long upper shadow, a long lower shadow, and small real bodies are called spinning tops. The Spinning Top pattern indicates the indecision between the buyers and sellers. The small real body (whether hollow or filled) shows little movement from open to close, and the shadows indicate that both buyers and sellers were fighting, but nobody could gain the upper hand. Even though the session opened and closed with little change, prices moved significantly higher and lower in the meantime.
Neither buyers nor sellers could gain the upper hand, and the result was a standoff. Marubozu Sounds like some kind of voodoo magic, huh? Fortunately, that’s not what it means. The word “marubozu ” translates to “bald head” or “shaved head” in Japanese. White Marubozu Doji. Candlestick Patterns Cheat Sheet. InformedTrades's Channel. Pyramid Your Way To Profits. Pyramiding involves adding to profitable positions to take advantage of an instrument that is performing well. It allows for large profits to be made as the position grows. Best of all, it does not have to increase risk if performed properly. In this article, we will look at pyramiding trades in long positions, but the same concepts can be applied to short selling as well. Misconceptions About PyramidingPyramiding is not "averaging down", which refers to a strategy where a losing position is added to at a price that is lower than the price originally paid, effectively lowering the average entry price of the position.
Pyramiding is also not that risky - at least not if executed properly. Why It WorksPyramiding works because a trader will only ever add to positions that are turning a profit and showing signals of continued strength. Pyramiding is also beneficial in that risk (in terms of maximum loss) does not have to increase by adding to a profitable existing position. Pyramiding Profits. In the process of trying to trade as efficiently as possible and maximize reward while minimizing risk, I've been looking at the money management part. Most traders, at least retail traders such as I, will open a position, set a TP and a SL and that's basically it. For ease of understanding, let's assume that all positions are the same size and that all SL are the same size. The standard method results in, let's say, a reward that's two times the risk. That is, risk 1$ and gain 2$.
Seems nice huh! But is there any way that we could improve the reward increasing the risk? Yes there is actually. Pyramiding, if done properly, can increase your profits substantially without increasing the risk at all. Let's have a look at the principle: What we do to start with is nothing strange. What happens next is the clever part: if, and only if, our trade goes into profit by at least the same amount that equals our risk, we can enter a new position in the same direction, risking again x%. Trend Following. Everest Forex - Learn Forex Trading.