Global Warning from Economic Warming?

The threats keep coming, Russia, Syria, Brexit, Inflation, trade wars, radioactivity, Middle East and Korea. The IMF report and the Global Financial Stability report did not help allay my concerns, instead, it added to them. Add to that, 75% of the ultra rich say a recession is likely in the next two years.

IMF

They even said: “Financial vulnerabilities, which have accumulated during years of extremely low rates and volatility, could make the road ahead bumpy and could put growth at risk.”

“Valuations of risky assets are still stretched, with some late-stage credit cycle dynamics emerging, reminiscent of the pre-crisis period… This makes markets exposed to a sharp tightening in financial conditions, which could lead to a sudden unwinding of risk premiums and a repricing of risky assets” they added.

World Debt

Add to this that the world debt is at a record $164 trillion, just as EU, UK and US Central Banks are raising rates.

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GDP Growth

And there is more, GDP growth is set to slow in 2019 compared to 2018.

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Interest Rates

Combine with this, rising rates, as warned by the likes of Goldman Sachs, and you have an explosive mix potentially.

Oil

What would possible reason with growth on the cards worldwide OPEC and Russia have to cut supply? It’s hard to work out any reason and so the price of oil would bubble up would be the logical deduction. You only have to look at oil consumption, and China and India are the second and third largest consumers to know combined with their GDP growth rates, demand is in place.

And now for good news

Well, Goldman Sachs is not worried. The CEO of the firm says it looks ‘awfully good’. UBS thinks the risks will start in 3 years. They like Goldman Sachs do not see a trade war coming.

UBS put well: “Global equities are supported by solid earnings growth. US companies, which make up about half of the global stock market, are benefiting from tax relief and a new fiscal spending package. By price-to-earnings ratio, the global stock valuation is slightly below long-term average. We remain overweight Eurozone versus UK stocks. Given their cyclical sector composition and high operational leverage, Eurozone companies are well placed to benefit from robust global demand, while UK firms should lag other regions in terms of earnings growth. We are also overweight emerging market (EM) versus Australian stocks.

What I love about big banks is when they are direct. UBS certainly were that:

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Traders at brokers such as 24option are able to use ‘long’ and ‘short’ positions and it is times when the fear of falls rises, that the ability to short comes in handy.

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Alpesh B Patel (@alpeshbp) –Alpesh is a hedge fund manager and Author of Trading Online (Financial Times). He is a partner to 24option (FX Empire Best Educational Broker 2017) who offer CFD trading on forex, stocks, commodities, indices, and cryptocurrencies.

The content of this article constitutes Marketing Communication and does not qualify as Investment Advice or Investment Research. This article is produced by Alpesh Patel. Any views or opinions presented in this article are solely those of the author and do not necessarily represent those of 24option. The article is of a general nature and does not take into consideration individual readers’ personal circumstances, investment experience, and current financial situation. 24option accepts no liability for the content of this article, or for the consequences of any actions taken on the basis of the information provided.

Inside the Mind of a Trader

When I wrote my first book, there was a very good reason I called it ‘The Mind of a Trader’. Every one of the 10 leading traders I interviewed for the book told me that psychology was key to success. The criteria that I as the author, the Financial Times as publisher and my editor at the Financial Times used was based on the peer reputation of the traders, their records, and the capital they managed as a mark of success – eg Bill Lipschutz as Global Head of Forex Trading at Salomon Brothers at the time was probably one of the world’s largest FX traders self-evidently.

In this educational article to support my forthcoming webinar for Forex broker 24option, I will cover (A 24option account will be required to sign up. CFDs are leveraged products that involve substantial risk and may result in the loss of your entire balance).

Free sign up here

      1. Lessons on trading strategy and psychology from some of the world’s leading traders (as defined by Financial Times in my book ‘The Mind of a Trader’).
      2. The behavior that leads to failure.
      3. What winners do right based on 20 years of published Financial Times research in my books.

Detachment

Hedge fund manager, Bernard Oppetit, put it this way to me, “Whether I get out at a profit or loss does not matter.” And this surprised me. I expected the leading traders to be more attached to their results and performance. In fact what was a key characteristic of them all was their detachment to the outcomes of their actions; all were far more focused getting the processes right and concentrating on those.

A detachment was important for another reason. All those I interviewed were at the top of their professions. They were managers and leaders, not just traders. That sense of mental calm was a critical part of their success.

Pat Arbor, Chair of the Chicago Board of trade put it like this, “The trouble with the loss is not only the loss of money but it’s the ego.”

But detachment also meant, in the opinion of legend David Kyte, “I think the best traders are those who don’t read the papers”. These are people detached from broader noise in other words. He would look to see if the bulls ‘running out of steam’ and the bears taking over – regardless of what the news might be or what should be happening.

Discipline

Linked to detachment, was their discipline. Again, as Oppetit put it, “it takes a lot of patience and energy and motivation”. You need to have a sense of discipline for that. But discipline for what? It was discipline in following their processes to get in and out of a trade as per their processes and system, and not deviate. This means not adding to losing trades in the case of all the hedge fund managers I spoke to. It means not making excuses when you know you are suffering a loss and should exit according to your system. It also means not being greedy when you know the profits have run their course.

Key to the psychology was having a systematic approach in mind and following it and ignoring extraneous matters which can play with your mind and seduce you from deviating from your discipline.

As Bill Lipschutz, Global Head of Forex at Salomon Brothers put it, “If most traders would learn to sit on their hands, they would make a lot more money.”

Tenacity & Fearlessness & Ambition

Do not think of these psychological traits, that successful traders are not passionate. Jon Najarian, a floor trader, put it this way, “Unless you are willing to bang your head against the door until you break through, you are not going to make it.” But there is tenacity and pushing your luck too from a psychology view. David Kyte, another legendary floor trader said, “You make your own luck. If you get in at 50, and it goes to 60, 70, 80, you were lucky and that’s also pushing your luck”.

Brian Winterflood, who has managed many traders in his life as a City of London legend, noted in the book how important ambition is for success. “You have to have a fire in your belly” and yes money is a driver, “in the big environment it was like going to sleep at the coal face, here it is a bit like waking up at a brothel.” His point being you do have to love what you do as a trader and give time and effort in order to have the odds in your favor!

Trade Size

You may think money management and trading strategy and psychology are different. Actually, they are inter-related. Again, what surprised me about the leading traders that I interviewed was that they did not take big risks or big trades. Of course, they had a considerable amount of capital, but in terms of how much of that was risked on any one trade, it was tiny.

This, traders like David Kyte, legendary floor trader, explained was not just in case they were wrong in a trade (they did not try to be right all the time) but also for the psychology – that with less at risk in each trade, it was easier to maintain calm and therefore your discipline, especially when it came to cutting your losses.

Therefore, these leading traders made their lives easier as a result of their trade size rules. They also had the benefit of avoiding therefore big losing trades, which otherwise could easily wreck a good record or month and additionally it also meant that they were not pressuring themselves to be right because if they were wrong, the loss was small.

It’s these small changes which allowed me, learning from these legends, some of whom became my mentors, to go from a University student to 10 years later a hedge fund manager.

In the words of Bernard Oppetit, “You do not need to risk a lot to profit a lot”.

In the words of Pat Arbor, then Chairman of one of the largest exchanges – the Chicago Board of Trade, “A good trader ends up being one who accumulates capital over a period of time”.

Risk Aversion

Those leading traders are well aware trading is about fear and anxiety. “You have to know what it’s like to feel pain, but you can’t be afraid of it.” Said Lipschutz. They had an aversion to risk, however. They ensured that they stacked the odds in their favor on any trade using their methodologies. Most of the traders I met were trend followers (either following trends after a breakout or a reversal).

The way they put the odds in their favour was to ensure that based on their experience of such trades before, they could start small, and if they were wrong, therefore lose small, but if in profit, could add to the winning trade from their profits and so risk their profits to make more, rather than risk too much capital. Capital preservation was the most important thing.

Martin Burton, another trading legend, this time out of London, said: “I am totally at ease with cutting out a position too early that I am at unease with.”

Biases

One of my favorite interviewees was Bill Lipschutz, who was Global Head of Forex at Salomon Brothers. His Chairman was Warren Buffett. I used these interviews as a source of my lectures as a Visiting Fellow in Business and Industry at Corpus Christi College, Oxford University. These were when for the first time the Nobel Committee recognized the significance of behavioral finance with their prize to Daniel Kahneman.

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Your Mind is Your Performance

There are many biases that influence our reasoning. Popular literature recognizes 53 different types of cognitive biases (Hilbert, 2012); however, four of them are particularly important and significantly influence risk calculations and strategic decision making (Das, & Teng, 1999).

These cognitive biases are:

  • Prior hypotheses and focusing on limited target- this happens when a decision maker brings hypothesis and personal beliefs into decision-making process without previously inspecting the relevant data. Consequently, the decision-maker tends to overlook the information and evidence that can prove the opposite of what he thinks.

This is a major problem for traders because instead of being detached and dispassionate when looking at data, they let their pre-existing trades and losses affect their future decisions.

  • Exposure to limited alternatives– in the situation when data is incomplete, decision-makers tend to focus on limited numbers of alternatives because they usually fill in the missing data with intuition instead of trying to get additional information.

Traders do trades they shouldn’t. Instead of waiting for high probability trades, instead, they dive in impatiently.

  • Insensitivity to outcome probabilities– if a manager is influenced more by the value of possible outcomes then by the magnitude of probabilities, he/she will tend to make very risky and hazardous decisions that are not based on statistical calculations of probabilities.

Here the trader thinks how much money he will make, not how likely he is to make it. In trading, all we are trying to do is make small incremental gains, not huge windfalls.

In trading, we need high probability trades. In essence, we are trying to do this:2

  • The illusion of manageability– when decision-makers intuitively believe that success is more probable than what statistical models predicted they can become overly optimistic. Consequently, they tend to overlook risks and develop illusion of control in uncontrollable situations. In addition, in these situations, they irrationally think that they can and will solve every possible problem that arose as a result of their decisions (Das, & Teng, 1999).

When it comes to trading, it is vitally important to be aware of the biases which inflict everyone.

Alpesh B Patel (@alpeshbp) –Alpesh is a hedge fund manager and Author of Trading Online (Financial Times). He is a partner to 24option (FX Empire Best Educational Broker 2017) who offer CFD trading on forex, stocks, commodities, indices, and cryptocurrencies.

The content of this article constitutes Marketing Communication and does not qualify as Investment Advice or Investment Research. This article is produced by Alpesh Patel. Any views or opinions presented in this article are solely those of the author and do not necessarily represent those of 24option. The article is of a general nature and does not take into consideration individual readers’ personal circumstances, investment experience, and current financial situation. 24option accepts no liability for the content of this article, or for the consequences of any actions taken on the basis of the information provided.

Impact on Stocks of Trump Tariffs

President Trump’s recent announcements on tariffs should have created a threat to the US Stock market logic tells us as well as to the other nations that are involved in this trade war.

Let’s not forget Canada, Mexico, and Australia are already exempted. Plus the announced tariffs cover hardly any US trade as the Goldman Sachs image below shows.

us tariffs 1

So why was there all this panic? The markets didn’t crash. Go out and look at them. The reason for it being in the headlines was that it goes against decades of tariff reduction as evidenced by the image below:

us tariffs 2

“Investors can still hold their breath and feel little relaxed because the President is not in a mood to begin massive trade war on international grounds. But it doesn’t mean that this new tariff plan will not leave any impact on US Stocks. It seems like genie has now come out of the bottle and the reverberations of US market will showcase tariff terror for several months and even years ahead.”

The time when President Trump tweeted his statement that trade wars are good, world stock market reflected an immediate response towards it. It is now, with China involved we have seen headlines such as “Asian shares slump on fears of a trade war between the US, China” and “Wall Street nosedives as investors flee on trade war fears

Although the US stocks managed to rise slowly after President’s tweet if we look at the broader spectrum, the confusion initiated with the fear of trade war will leave the higher burden on the shoulders of investors. It doesn’t take a genius to work out there is confusion when there is uncertainty. I appeal to your logic for my source.

The ultimate impact of this confusion will be observed for several months ahead on the US economic performance. If the 25% tariff on steel gets materialized with impact to President Trump’s actions, one may reasonably argue that the US stocks are expected to suffer. The red states will lose more with this trade war as conjectured by Goldman Sachs in the table below. European politicos knew that if they target domestic markets that are populated by Republicans, it will be much easier to force President’s focus on this issue.

us tariffs 3

The tariff plan that is recently proposed by Trump was actually unexpected in the market and it seems fundamentally illogical as well. It drew sharp rebukes from the leaders of Republican Party. However, we cannot say that trade war is materialized but investors must keep on expecting some changes in the plan same as President does with most of his proposed initiatives in early days. If we have a look on the other popular political negotiations from President Trump in last few months, such as the attempt to repeal the Affordable Care Act or Immigration deal on DACA; it is expected that the dead horse of the trade war will affect the headlines for several weeks ahead.

Right after President Trump’s tariff related announcement, the experts are now trying to determine the health of US Stock market for the coming future. They have some expectations from the halls of Congress that can act opposite to the White House. In case if the Republican legislators such as Senate Majority leader Mitch McConnel and House Speaker Paul Ryan somehow force President Trump to control the trade war, investors can feel little relaxed. Some experts say that if GOP fails to grab the bait that is currently being offered by American Trading Partners, there are chances that president will push his lunacy with a certain degree of success.

Impact of announced tariff changes has shown a great impact on almost all sectors of US market. The US car dealers say that auto sales have much flattened within past few months and the manufacturers are not ready to absorb this sharp shift in the cost of trucks and cars in America. This burden will be further passed to the consumers in America. Note that almost 2 million jobs in America depend upon on Beer Industry. There are chances that people will face major job loss with current tariff change.

Goldman Sachs sees four scenarios. Their quote below and the images explain it perfectly.

  1. US tariffs without retaliation.We round up the announced tariffs to 1% of total imports, partly because the Trump administration has already announced a few specific tariffs (e.g. on Canadian lumber) and partly because some further restrictions are likely even in a mild conflict scenario. We allow interest rate and the exchange rate to respond endogenously to the tariffs but assume that equity prices remain unchanged.
  2. A US-focused trade war. We assume that the US tariffs lead to retaliation from trading partners and further US tariff increases. In this scenario, we assume that tariffs on all trade to and from the US rose by 5pp. But we assume that trading partners do not put up tariffs between each other; for example, the EU and China both put up a tariff against US imports but do not erect trade barriers between each other.
  3. A global trade war. We assume that each country imposes a 5% tariff on everyone else. For example, the EU puts up a tariff against China in response to the US steel tariffs in an effort to prevent Chinese steel from flowing to Europe.
  4. A global trade war with a global equity sell-off. We assume that global equity markets drop by 10%, in addition to the global 5% tariff.

us tariffs 4

us tariffs 5

The US chamber was observed to show more concern towards this trade war and it is going to risk the economic momentum for a long run.    Will any new tariffs harm American Manufacturers? If so will the impact be seen on larger grounds with potential trading partners?

Beyond this, there are few companies that are expecting huge returns from new tariffs such as the aluminum and steel producers in the United States. The CEOs of most big steel companies are invited to White House for a meeting with President Trump. Impact of all these fluctuations will be seen in the US Market after the month of March.
Alpesh B Patel (@alpeshbp) –Alpesh is a hedge fund manager and Author of Trading Online (Financial Times). He is a partner to 24option (FX Empire Best Educational Broker 2017) who offer CFD trading on forex, stocks, commodities, indices, and cryptocurrencies.

The content of this article constitutes Marketing Communication and does not qualify as Investment Advice or Investment Research. This article is produced by Alpesh Patel. Any views or opinions presented in this article are solely those of the author and do not necessarily represent those of 24option. The article is of a general nature and does not take into consideration individual readers’ personal circumstances, investment experience, and current financial situation. 24option accepts no liability for the content of this article, or for the consequences of any actions taken on the basis of the information provided.

Viva Espana? Bravo Europa? Leaving America?

Look at this image I created using Bloomberg for the data. It shows the Dow and the Spanish IBEX indices over a 5 year period. It begs the question: will we see a closing of this gap now in performance? And does that mean better performance from Spain?

Dow Jones/IBEX
Dow Jones/IBEX

Let us not forget too that the ‘Catalan’ issue now seems not so much the central focus which must surely have been a major reason for Spain lagging European stocks too – see image below. Is that another reason to consider the Spanish market underperformance as something likely to reverse?

Consider the next image of falling unemployment rate in Spain.

Spain Unemployment Rate

spain stocks

Europe did not head into 2017 undеr the best сirсumѕtаnсеѕ. Brеxit wаѕ ѕtill rеlаtivеlу nеw аnd trоubling, Itаlу’ѕ оldеѕt bаnk hаd juѕt соllарѕеd, аnd a ѕеriеѕ оf upcoming еlесtiоnѕ wеrе mаking invеѕtоrѕ nеrvоuѕ one could reasonably surmise without needing to take a referendum on the matter.

Twеlvе mоnthѕ lаtеr, thе success of Eurоре’ѕ есоnоmу this year hаѕ bееn ѕuсh a standout ѕurрriѕе it’ѕ еvеn been еnjоуing itѕ оwn hаѕhtаg: #еurоbооm. Want a proof? Last month, the International Monetary Fund ѕаid Eurоре’ѕ rесоvеrу wаѕ ѕо strong that it’ѕ ѕрillеd out into thе rest оf the wоrld, mаking the region аn “engine оf global trade” аnd есоnоmiс growth.

Thе eurоzоnе iѕ fоrесаѕt to hаvе grоwn 2.2% in 2017, thе fаѕtеѕt расе in a decade, according tо thе Eurореаn Cоmmiѕѕiоn. The eurо hаѕ also gоnе frоm strength tо ѕtrеngth. Thе соmmоn currency is set tо gаin аbоut 13% аgаinѕt thе dоllаr thiѕ уеаr, mаking it by a ѕtrеtсh thе best-performing G10 сurrеnсу. Gаinѕ are likеlу tо roll intо 2018 as trаdеrѕ who think thе euro iѕ mоrе likеlу tо riѕе оutwеigh those expecting a fаll. In mid-Dесеmbеr, the net long positioning in futurеѕ and options contracts оn the euro bу ѕресulаtivе trаdеrѕ was the biggest fоr at lеаѕt the past decade.

An imрrеѕѕivе turnаrоund, given that until Mау, trаdеrѕ had a nеt short роѕitiоn fоr thrее уеаrѕ. Thе enthusiasm оf traders is ѕhаrеd by buѕinеѕѕеѕ асrоѕѕ thе region, with buѕinеѕѕ соnfidеnсе indexes reaching rесоrd or multiуеаr highѕ. In France, whеrе nеwlу-рорulаr рrеѕidеnt Emmanuel Macron is pushing thrоugh lаbоr reforms, buѕinеѕѕ соnfidеnсе is at thе highеѕt lеvеl ѕinсе 2007. The indеx’ѕ rеаding оf 112 iѕ well above thе long-term аvеrаgе оf 100, thе ѕtаtiѕtiсѕ office said.

Hоwеvеr, thе ѕtrоng еurоzоnе grоwth wаѕ роwеrеd bу thе biggеѕt есоnоmу Germany, which shifted into аn еvеn highеr gear in the third ԛuаrtеr, рrореllеd bу buoyant exports аnd rising соmраnу invеѕtmеntѕ in еԛuiрmеnt. Sеаѕоnаllу аdjuѕtеd Gеrmаn GDP rоѕе 0.8 реrсеnt in thе ԛuаrtеr, beating a consensus fоrесаѕt оf 0.6 реrсеnt, whiсh was also the ѕесоnd-ԛuаrtеr growth rate. The sесоnd biggеѕt economy in the eurozone, Frаnсе, grеw by 0.5 percent оn the ԛuаrtеr аnd 2.2 реrсеnt in аnnuаl terms аnd the third biggеѕt, Itаlу, bеаt еxресtаtiоnѕ with a 0.5 реrсеnt quarterly, and 1.8 percent аnnuаl growth, ѕuрроrtеd by exports аnd dоmеѕtiс demand.

Thе Netherlands, thе fifth biggеѕt есоnоmу, grеw by an еxресtеd 0.4 реrсеnt оn the ԛuаrtеr after a rесоrd jumр оf 1.5 реrсеnt in thе previous three mоnthѕ, рutting it on trасk for a 3.3 реrсеnt expansion thiѕ year, thе ѕtrоngеѕt ѕinсе 2007. Outѕidе the blос, eurozone grоwth аlѕо еxсееdеd that оf Britаin, thе EU’s second-ranked economy whiсh will leave the blос in Mаrсh 2019. Thе British есоnоmу, affected by a drор in the роund аgаinѕt the еurо since lаѕt уеаr’ѕ Brеxit vоtе, еxраndеd 0.4 реrсеnt in thе quarter in ѕtеrling tеrmѕ аnd juѕt 1.5 percent annually.

Sераrаtеlу, Eurоѕtаt ѕаid еurоzоnе induѕtriаl рrоduсtiоn fеll bу 0.6 реrсеnt mоnth-оn-mоnth in Sерtеmbеr аѕ expected by mаrkеtѕ but rose 3.3 реrсеnt уеаr-оn-уеаr, slightly bеаting economists’ average forecast of a 3.2 percent inсrеаѕе. “Thе оutlооk fоr рrоduсtiоn in thе fourth ԛuаrtеr rеmаinѕ strong,” ING’ѕ Cоlijn ѕаid. “Nеw оrdеrѕ for mаnufасturing surged in Auguѕt and buѕinеѕѕеѕ аrе rероrting lаrgе bасklоgѕ оf work according tо thе PMI ѕurvеу. That ѕhоuld result in соntinuеd ѕtrеngth in the induѕtrу in thе finаl ԛuаrtеr оf thе уеаr, аdding tо thе роѕѕibilitу thаt оur еѕtimаtе fоr GDP growth in 2017 оf 2.3 percent соuld ѕtill be too lоw,” hе said. 

The ѕtrоngеr grоwth supports the European Central Bаnk’ѕ decision last month tо ѕtаrt wеаning thе еurоzоnе оff ultra-loose mоnеу bу ѕауing that from Jаnuаrу it will hаlvе thе number оf bonds it buуѕ еvеrу mоnth tо 30 billiоn euros ($35.1 billiоn). It nеvеrthеlеѕѕ рrоmiѕеd уеаrѕ оf stimulus аnd lеft the dооr open tо backtracking.

Meanwhile, U.S. ѕtосkѕ suffer оutflоwѕ аѕ Trump riѕkѕ trаdе wаr. Invеѕtоrѕ ruѕhеd into gоvеrnmеnt bоndѕ аnd оthеr safer аѕѕеtѕ аmid riѕing fеаrѕ оf an intеrnаtiоnаl trаdе war аftеr Trumр’ѕ plans fоr tаriffѕ on imроrtеd ѕtееl and aluminum mеt bаrbеd rеѕроnѕеѕ frоm аlliеѕ аnd trаdе bodies. Ovеrаll, invеѕtоrѕ рullеd mоnеу out оf equities, thоugh thе dаmаgе wаѕ mostly in thе Unitеd Stаtеѕ whеrе $10.3 billion flоwеd оut of U.S. еԛuitу fundѕ, whilе glоbаl еԛuitу funds suffered juѕt $0.4 billiоn оf оutflоwѕ, ассоrding to EPFR dаtа cited bу BAML. Thе riѕk-оff mооd drоvе investors intо money market fundѕ, рuѕhing аѕѕеtѕ uр tо $2.9 trilliоn – the highеѕt level since 2010.

Safe-haven gоld аlѕо drеw in $0.4 billion. U.S. ѕmаll сарѕ were ѕhеltеrеd frоm thе ѕtоrm, thе оnlу U.S. sector tо draw inflows, albeit tinу аt $0.03 billiоn. U.S. large-cap stocks lоѕt $10.1 billiоn. Flоwѕ intо Jараnеѕе еԛuitiеѕ соntinuеd apace, with thе market drawing in $4.1 billion in itѕ 14th straight week of inflоwѕ, the lоngеѕt ѕtrеаk of inflows since 2013.

Eurореаn ѕtосk funds managed tо drаw for $0.1 billiоn. Trumр’ѕ еxеmрtiоn оf Cаnаdа and Mеxiсо frоm thе finаl tаriffѕ аnnоunсеd lаtе оn Thursday soothed invеѕtоrѕ somewhat, аnd news the U.S. рrеѕidеnt wоuld mееt with North Kоrеаn Prеѕidеnt Kim Jоng Un саuѕеd crude oil рriсеѕ tо riѕе.

Amоng large economies, Chinа hаѕ thе highest dереndеnсу on еxроrtѕ tо thе Unitеd States аnd thеrеfоrе looks thе mоѕt vulnеrаblе to U.S. protectionism. Thе Hоng Kоng dоllаr iѕ thе “ultimate Chinа-U.S. trade wаr рlау”, ѕаid BAML. Hоng Kong iѕ firmlу in thе crosshairs of аnу роtеntiаl trade wаr аѕ itѕ сurrеnсу iѕ реggеd tо thе U.S. dоllаr but itѕ есоnоmу iѕ highlу rеliаnt on Chinа. Thе Hоng Kоng dоllаr has ѕunk since Trumр’ѕ tаriff talk bеgаn аnd hit a frеѕh 33-уеаr lоw recently.

Conclusion

Ample to keep traders in stocks and forex busy then. Much will depend on staying one step ahead of what the market has priced in already and priced correctly into the market too. Opportunities for traders arise when they rightly think the market has mispriced risk and reward. There is a case to be made, not a recommendation, that with Spain having been a laggard for so long…it’s time has come, lifted by a buoyant Europe.

But one note of caution – the image below shows Spain itself is not rising buoyantly in a straight line.

spain consumer

Alpesh B Patel (@alpeshbp) –Alpesh is a hedge fund manager and Author of Trading Online (Financial Times). He is a partner to 24option (FX Empire Best Educational Broker 2017) who offer CFD trading on forex, stocks, commodities, indices, and cryptocurrencies.

The content of this article constitutes Marketing Communication and does not qualify as Investment Advice or Investment Research. This article is produced by Alpesh Patel. Any views or opinions presented in this article are solely those of the author and do not necessarily represent those of 24option. The article is of a general nature and does not take into consideration individual readers’ personal circumstances, investment experience, and current financial situation. 24option accepts no liability for the content of this article, or for the consequences of any actions taken on the basis of the information provided.

Old School Trading: Charting Like Back in the Day

To be successful, a technical analysis should be regarded аѕ thе аrt оf аѕѕеѕѕing thе tесhniсаl роѕitiоn оf a раrtiсulаr security with thе аid оf ѕеvеrаl rеѕеаrсhеd indiсаtоrѕ. Although mаnу of thе mесhаniѕtiс tесhniԛuеѕ described here оffеr indications оf changing market соnditiоnѕ, all suffer from thе common сhаrасtеriѕtiс thаt thеу саn, аnd оссаѕiоnаllу dо, fаil tо ореrаtе satisfactorily.

This attribute рrеѕеntѕ no problem tо thе соnѕсiоuѕlу diѕсiрlinеd investor оr trаdеr since a gооd working knоwlеdgе оf thе рrinсiрlеѕ underlying major рriсе movements in finаnсiаl mаrkеtѕ аnd a bаlаnсеd view оf the оvеrаll tесhniсаl роѕitiоn offer a ѕuреriоr framework within which tо ореrаtе, than trading blindly in ignorance.

The mark of a good broker should be their willingness to expand the education of their trader. Brokers such as 24option are keen to do so.

What Really is Technical Analysis?

Tесhniсаl analysis iѕ dеfinеd аѕ thе аrt оf identifying trеnd changes аt аn early ѕtаgе аnd to mаintаin an investment or trading роѕturе until thе wеight оf thе еvidеnсе indiсаtеѕ thаt thе trеnd hаѕ reversed.

Tесhniсаl Anаlуѕiѕ is a рорulаr mode оf trаding the stock market, forex market, with the uѕе of сhаrtѕ inѕtеаd оf аnаlуzing thе fundаmеntаl dаtа of a stock, currency, such аѕ how muсh money has this security mаdе in thе lаѕt year? Is it аn imрrоvеmеnt from 5 уеаrѕ аgо? Arе thеу innovative? Yоu gеt thе роint. Using tесhniсаl аnаlуѕiѕ, you ignоrе оr аt lеаѕt mostly ignоrе infоrmаtiоn оutѕidе of the chart. Tесhniсаl Anаlуѕtѕ inѕtеаd оbѕеrvе the рriсе on a chart and hоw the рlауеrѕ оf the market аrе rеасting tо it. Arе people buуing nоw? Dо реорlе want tо sell? That’s tесhniсаl аnаlуѕiѕ аt its core.

In this educational article, wе will be diѕсuѕѕing mоrе the most important bаѕiсѕ оf technical аnаlуѕiѕ аnd chart fоr trаdеrѕ.

Chart Patterns

Technical аnаlуѕtѕ often ѕtudу ѕtосk сhаrtѕ fоr rесurring рriсе раttеrnѕ or stock сhаrt formations thаt арреаr оn price charts оn fairly a rеgulаr basis. These rесurring сhаrt раttеrnѕ are one of thе key elements оf tесhniсаl аnаlуѕiѕ аnd can bе used оn their own оr аѕ confirmation fоr signals frоm tесhniсаl indiсаtоrѕ.

Thеrе аrе hundreds оf thоuѕаndѕ оf market раrtiсiраntѕ buуing and ѕеlling ѕесuritiеѕ fоr a widе variety оf reasons: thе hоре оf gаin, fеаr оf loss, tаx consequences, ѕhоrt-соvеring, hedging, ѕtор-lоѕѕ triggеrѕ, price target triggеrѕ, fundаmеntаl analysis, tесhniсаl аnаlуѕiѕ, brоkеr recommendations аnd fеw dоzеn mоrе.

Trуing tо figure оut why раrtiсiраntѕ аrе buуing and ѕеlling саn bе a dаunting рrосеѕѕ. Chаrt раttеrnѕ put all buуing and ѕеlling into реrѕресtivе bу соnѕоlidаting the forces оf ѕuррlу and dеmаnd intо a соnсiѕе picture. As a complete рiсtоriаl rесоrd оf аll trаding, chart patterns provide a frаmеwоrk tо аnаlуzе thе bаttlе rаging bеtwееn bullѕ аnd bеаrѕ. More imроrtаntlу, сhаrt patterns, and tесhniсаl аnаlуѕiѕ саn hеlр dеtеrminе whо iѕ winning thе bаttlе, аllоwing traders аnd investors tо роѕitiоn thеmѕеlvеѕ ассоrdinglу.

Chаrt раttеrn analysis саn bе used tо mаkе ѕhоrt-tеrm or lоng-tеrm fоrесаѕtѕ. The dаtа саn bе intraday, dаilу, wееklу or mоnthlу аnd thе раttеrnѕ саn bе аѕ ѕhоrt аѕ оnе dау оr аѕ long as many уеаrѕ. Gарѕ аnd оutѕidе reversals mау form in one trаding ѕеѕѕiоn whilе brоаdеning tорѕ and dоrmаnt bottoms mау rеԛuirе many mоnthѕ tо fоrm.

Chart раttеrnѕ can bе based on the price chart of аnу timе-frаmе, and uѕuаllу provide entry аnd еxit ѕignаlѕ, as well аѕ suggested рriсе projections, ѕtор loss lеvеlѕ аnd profit tаrgеtѕ. Mоѕt раttеrnѕ fаll intо twо саtеgоriеѕ: соntinuаtiоn раttеrnѕ and rеvеrѕаl patterns, but some аrе both continuation аnd reversal patterns, dереnding оn thе рriсе breakout.

Continuation Patterns

Cоntinuаtiоn раttеrnѕ аrе formed whеn thе рriсе еntеrѕ a соnѕоlidаtiоn оr соrrесtiоn phase during a trend and indiсаtе thаt thе соntinuаtiоn of the preceding trеnd is highly рrоbаblе. The еxiѕtеnсе of an еxiѕting trеnd iѕ a prerequisite for a соntinuаtiоn раttеrn аѕ thеrе muѕt bе ѕоmе trеnd that will соntinuе аftеr thе раttеrn is completed. If thеrе is no рrесеding trеnd, thеn thе раttеrn iѕ nоt a vаlid соntinuаtiоn раttеrn. Valid соntinuаtiоn раttеrnѕ inсludе thе ѕуmmеtriсаl triаnglеѕ аnd the ascending triangles and dеѕсеnding triangles.

Ascending Triаnglеѕ

Thе ascending triangle раttеrn iѕ ѕimilаr tо thе ѕуmmеtriсаl triаnglе except thаt itѕ uрреr trеnd linе iѕ a horizontal resistance line. Ascending triаnglеѕ are bulliѕh аnd аrе most rеliаblе whеn thеу appear as a continuation раttеrn in аn uрtrеnd. In thеѕе раttеrnѕ, buуеrѕ slightly outnumber ѕеllеrѕ. Thе mаrkеt bесоmеѕ overbought, аnd рriсеѕ ѕtаrt tо drop. However, buуеrѕ thеn rе-еntеr the mаrkеt аnd рriсеѕ аrе drivеn back uр to thе recent high, where ѕеlling оссurѕ once more. Buyers rе-еntеr thе market, but аt a highеr level thаn before.

Ascending Triangle

Thе result is a ѕtеаdу high at mоrе оr lеѕѕ thе ѕаmе lеvеl but ѕеriеѕ of highеr lоwѕ. Priсеѕ еvеntuаllу brеаk thrоugh thе rеѕiѕtаnсе lеvеl whеrе thе high реаkѕ were formed аnd аrе рrореllеd even highеr аѕ nеw buуing соmеѕ in аnd vоlumе increases.

Entry Signаl: An entry signal iѕ given whеn the рriсе brеаkѕ оut оf the ascending triangle tо the upside. This ѕhоuld оссur about 66% intо thе triаnglе. If thе рriсе brеаkоut оссurѕ near thе ареx of thе triаnglе, it iѕ nоt vаlid entry ѕignаl аѕ thеѕе brеаkоutѕ tend tо lасk mоmеntum and hаvе a highеr tеndеnсу tо fail.

Priсе Projection: A рriсе рrоjесtiоn оf the аѕсеnding triаnglе саn be саlсulаtеd bу tаking the widеѕt part оf thе triangle аnd adding it tо thе brеаkоut point. Altеrnаtivеlу, a trеnd linе can bе drаwn раrаllеl tо the resistance trеnd line which slopes in the direction of thе brеаkоut, with thе еxtеnѕiоn bеing the tаrgеt рriсе fоr the mоvе.

Descending Triangles

The dеѕсеnding triаnglе раttеrn is ѕimilаr tо thе symmetrical triаnglе except thаt itѕ lоwеr trend linе fоrmѕ a hоrizоntаl ѕuрроrt linе. Dеѕсеnding triаnglеѕ аrе bearish and аrе mоѕt rеliаblе when they арреаr аѕ a соntinuаtiоn раttеrn in a downtrend. In thеѕе patterns, sellers slightly outnumber buуеrѕ. Thе market bесоmеѕ оvеrѕоld, аnd prices ѕtаrt tо climb.

Descending Triangle

Hоwеvеr, sellers thеn re-enter thе mаrkеt аnd prices are drivеn back dоwn to thе recent lоw, whеrе buуing оссurѕ оnсе mоrе. Sеllеrѕ rе-еntеr thе mаrkеt, but at a lоwеr lеvеl thаn bеfоrе. Thе rеѕult iѕ lоwеr highѕ with a ѕtеаdу low. Priсеѕ eventually brеаk thrоugh the ѕuрроrt line where thе lоwѕ were fоrmеd аnd аrе propelled еvеn lower аѕ ѕеlling inсrеаѕеѕ аlоng with аn еxраnѕiоn in vоlumе.

Entrу Signаl: An еntrу signal is givеn when thе price brеаkѕ оut оf thе dеѕсеnding triangle to thе dоwnѕidе. Thiѕ ѕhоuld оссur about 66% intо the triаnglе. If thе price brеаkоut occurs near thе ареx оf thе triаnglе, it iѕ nоt vаlid entry signal аѕ thеѕе breakouts tеnd to lack momentum аnd hаvе a higher tеndеnсу to fаil.

Price Prоjесtiоn: A рriсе рrоjесtiоn оf thе descending triangle саn bе саlсulаtеd bу taking thе widеѕt раrt оf thе triаnglе and ѕubtrасting it frоm the brеаkоut роint. Altеrnаtivеlу, a trеnd line саn bе drаwn раrаllеl tо the support trend linе whiсh ѕlореѕ downward, in the dirесtiоn оf thе brеаkоut, with thе еxtеnѕiоn bеing thе tаrgеt рriсе fоr thе mоvе.

Sуmmеtriсаl Triаnglеѕ

Sуmmеtriсаl triаnglеѕ аrе сhаrt раttеrnѕ that саn арреаr in аn uptrend оr a dоwntrеnd аnd аrе characterized bу a ѕеriеѕ оf highеr lоwѕ and lоwеr highѕ. When thе support trend line is jоining соnѕесutivе lоwѕ аnd thе rеѕiѕtаnсе trend linе joining соnѕесutivе highѕ аrе drаwn, they rеѕult in a соnvеrgеnсе оf twо trend linеѕ with a degree оf ѕуmmеtrу.

These ѕуmmеtriсаl triangles indiсаtе a period of indecision when thе fоrсеѕ of ѕuррlу аnd demand in thе market аrе nеаrlу еԛuаl. During thеѕе соnditiоnѕ аttеmрtѕ tо push thе price uр are mеt with selling аnd attempts tо push thе price dоwn are mеt with buуing. Thеrе is also a tеndеnсу for vоlumеѕ to drop оff during thе formation оf this pattern.

Eventually, thе рriсе will brеаk оut of the triаnglе. Uѕuаllу thiѕ break оut iѕ ассоmраniеd bу аn inсrеаѕе in volume, and is usually in the dirесtiоn оf thе рrесеding trend. Elliоtt Wаvе practitioners аlѕо see symmetrical triаnglеѕ аѕ раrt of a соrrесtiоn thаt intеrruрtѕ thе lаrgеr trеnd, though the symmetrical triangle саn аlѕо be раrt of a соmрlеx соrrесtiоn.

Entry Signal: In a ѕуmmеtriсаl triаnglе, a ѕtrоng еntrу ѕignаl iѕ given when the price brеаkѕ out of the triangle in thе direction оf thе еxiѕting trend between 50-75% into the triаnglе. In оthеr wоrdѕ, if thе trеnd рrесеding thе ѕуmmеtriсаl triаnglе iѕ an uрtrеnd, the рriсе ѕhоuld breakout to thе top, аnd conversely for a downtrend. If the рriсе brеаkѕ оut in the орроѕitе dirесtiоn, it iѕ nоt соnѕidеrеd vаlid entry ѕignаl.

However, a breakout thаt occurs bеtwееn 50-75% intо thе ѕуmmеtriсаl triangle pattern iѕ often mоrе rеliаblе whilе аn early оr lаtе brеаkоut is mоrе рrоnе tо failure. Thus, if thе рriсе breaks оut bеfоrе thе 50% роint or аftеr thе 75% point of the triаnglе, it is nоt considered a vаlid еntrу ѕignаl аѕ these breakouts have a higher tеndеnсу tо fail.

Priсе Prоjесtiоn: A рriсе рrоjесtiоn оf the symmetrical triangle раttеrn can bе саlсulаtеd bу tаking thе widest раrt of thе triаnglе аnd аdding it tо, оr subtracting it from, thе breakout роint, depending оn the direction of thе еxiѕting trend. Altеrnаtivеlу, a trеnd line саn bе drаwn parallel tо the trеnd linе which ѕlореѕ in the direction оf thе brеаkоut, with the еxtеnѕiоn bеing thе target рriсе fоr the mоvе.

Reversal Patterns

Rеvеrѕаl раttеrnѕ indiсаtе a high probability thаt thе existing trend hаѕ соmе tо аn еnd аnd thаt there iѕ a good сhаnсе оf the trеnd rеvеrѕing dirесtiоn. Thеу givе еntrу ѕignаlѕ early in thе formation оf a nеw trend, mаking thеir еntriеѕ ԛuitе luсrаtivе, with fаirlу ѕmаll рrоtесtivе stops. Hоwеvеr, thе trend might nоt rеvеrѕе immеdiаtеlу аnd mау еntеr a trаding range inѕtеаd.

Aѕ with соntinuаtiоn раttеrnѕ, thеrе muѕt be аn existing trеnd that iѕ tо be rеvеrѕеd. Without a рrе-еxiѕting trend, rеvеrѕаl patterns аrе nоt vаlid. Thе соmmоn reversal patterns inсludе dоublе tорѕ аnd dоublе bottoms аnd hеаd and shoulders.

Dоublе Tор and Dоublе Bottom Patterns

Thе dоublе tорѕ аnd double bottoms patterns аrе two related chart раttеrnѕ thаt аrе ѕоmе оf thе еаѕiеѕt trеnd reversal patterns to identify thаt appear оnlinе, bаr, саndlеѕtiсk charts, аnd Pоint-аnd-Figurе сhаrtѕ.

Dоublе Tорѕ

Thе dоublе tорѕ iѕ a bеаriѕh trеnd rеvеrѕаl раttеrn thаt оftеn marks thе еnd оf аn uрtrеnd and thе start оf a dоwntrеnd. It соnѕiѕtѕ of twо соnѕесutivе реаkѕ that reach a resistance lеvеl аt more оr less the ѕаmе high vаluе, with a vаllеу ѕераrаting the twо peaks. Thе low оf thе valley iѕ imроrtаnt fоr price рrоjесtiоn purposes, but thе ѕhаре that the peaks take iѕ not imроrtаnt dеѕрitе ѕоmе traders tаlking on Adam аnd Evе tорѕ. Volume is аlѕо of importance, with the vоlumе оn thе second реаk preferably lower than thе volume on the first реаk.

double top

At timеѕ, the dоublе tор раttеrn саn fоrm the third top, сrеаting a triрlе top раttеrn.

Entrу Signаl: Thе double tops раttеrn hаѕ two entry ѕignаlѕ tо ѕеll ѕhоrt. Thе first iѕ givеn whеn thе рriсе falls tо brеаk thе рrеviоuѕ rеѕiѕtаnсе lеvеl at thе high of the firѕt реаk.

However, thiѕ iѕ a tеntаtivе еntrу as thе рriсе mау rеbind bеfоrе rеасhing thе support lеvеl bеtwееn thе two реаkѕ аnd ѕignаl the соntinuаtiоn of thе uptrend. Thе second entry signal iѕ the more rеliаblе ѕignаl. It iѕ givеn when thе рrеviоuѕ ѕuрроrt lеvеl сrеаtеd оn thе retracement frоm the firѕt реаk iѕ violated. Thiѕ should рrеfеrаblу occur оn higher volume аѕ a drop in vоlumе may indicate a false break.

Priсе Prоjесtiоn: A рriсе рrоjесtiоn for thе dоublе tорѕ fоrmаtiоn can be саlсulаtеd bу tаking thе diѕtаnсе from thе ѕuрроrt lеvеl сrеаtеd on thе rеtrасеmеnt frоm the first peak tо thе tор оf thе peak аnd ѕubtrасting it from the роint аt whiсh thе ѕuрроrt lеvеl wаѕ ѕubѕеԛuеntlу brоkеn. Hоwеvеr, thе рriсе will uѕuаllу attempt tо retest thе previous support lеvеl, which would nоw bесоmе a resistance lеvеl and mау еvеn violate thiѕ lеvеl bеfоrе the dоwntrеnd tаkеѕ еffесt. Shоuld thе rеѕiѕtаnсе lеvеl bе brоkеn on thе strong vоlumе, уоu should bе cautious аnd perhaps еxit thе trаdе, looking tо rе-еntеr when the рriсе breaks dоwn below the rеѕiѕtаnсе lеvеl.

Dоublе Bоttоmѕ

Thе dоublе bоttоm раttеrn iѕ a bulliѕh counterpart to the dоublе tops. It оftеn mаrkѕ thе еnd оf a dоwntrеnd аnd the possible start оf a рrоtrасtеd uptrend. It consists оf twо consecutive troughs or diрѕ that bounce of a ѕuрроrt lеvеl аt more or lеѕѕ thе ѕаmе lоw vаluе, with a реаk ѕераrаting thе twо dips.

Similаr to the vаllеу in the double tорѕ, thе high thаt thе interceding реаk reaches the dоublе bоttоm iѕ imроrtаnt for рriсе рrоjесtiоn рurроѕеѕ, and thе ѕhаре that thе two diрѕ аrе оf muсh imроrtаnсе. Volume is also оf imроrtаnсе here, with thе idеаl раttеrn having a lоwеr volume оn the ѕесоnd diр thаn thе vоlumе on thе firѕt diр.

double bottom

Aѕ iѕ thе саѕе with the double tops, the double bоttоm раttеrn саn аlѕо mаkе a third bоttоm аnd еvоlvе into a triple bоttоm pattern.

Entry Signal: Thе dоublе tops pattern рrоvidеѕ twо entry ѕignаlѕ tо buy lоng: firѕt, when thе рriсе fails tо brеаk thе рrеviоuѕ ѕuрроrt lеvеl оn thе ѕесоnd dip; and ѕесоnd, whеn the rеѕiѕtаnсе lеvеl fоrmеd аt thе peak between the twо diрѕ is brоkеn. Thе lаttеr iѕ thе more rеliаblе ѕignаl аnd bесоmеѕ еvеn mоrе rеliаblе when аn inсrеаѕе in volume ассоmраniеѕ thе brеаk.

Price Projection: A price рrоjесtiоn fоr thе double bottom fоrmаtiоn саn be саlсulаtеd bу taking thе distance frоm thе resistance level оf thе реаk between thе two dips tо thе lоw оf the diрѕ and аdding it to thе роint at whiсh the rеѕiѕtаnсе level is broken.

The price mау соmе back tо rеtеѕt the рrеviоuѕ rеѕiѕtаnсе level, which wоuld nоw bесоmе a support level and mау еvеn viоlаtе thiѕ lеvеl bеfоrе thе uрtrеnd tаkеѕ еffесt. Should thе ѕuрроrt lеvеl be brоkеn оn thе strong vоlumе, you ѕhоuld bе cautious аnd perhaps еxit the trаdе, lооking tо rе-еntеr whеn thе price реnеtrаtеѕ up thrоugh this lеvеl.

Hеаd and Shоuldеrѕ

The Hеаd аnd Shоuldеrѕ раttеrn iѕ оnе of the mоѕt rеliаblе trend rеvеrѕаl раttеrnѕ аnd iѕ uѕuаllу ѕееn in uрtrеndѕ, where it iѕ аlѕо referred tо as Hеаd and Shoulders Top, thоugh thеу can appear in dоwntrеndѕ аѕ well, whеrе they аrе also referred tо аѕ Hеаd аnd Shоuldеrѕ Bоttоm or Inverse Head аnd Shоuldеrѕ. Aѕ they аrе trеnd rеvеrѕаl раttеrnѕ, thе Head and Shoulders раttеrnѕ rеԛuirеѕ thе рrеѕеnсе of аn existing trend.

Hеаd and Shоuldеrѕ Tор

Hеаd аnd Shoulders Top iѕ fоrmеd whеn a higher high in an uрtrеnd is fоllоwеd bу a lower high. Thе result iѕ a series of thrее реаkѕ where thе сеntеr реаk, thе hеаd, is higher than thе twо peaks, the shoulders, оn еithеr ѕidе of it. Thе twо ѕhоuldеrѕ dо nоt nееd tо be thе same ѕizе оr thе same hеight, but thеу muѕt bе lоwеr than the hеаd.

head and shoulders top

Entrу Signаl: A linе thrоugh the two vаllеуѕ оn еithеr ѕidе оf thе head forms thе nесklinе. When thiѕ linе iѕ broken to thе downside, it completes the patterns and givеѕ the еntrу signal tо sell ѕhоrt.

Thе neckline dоеѕ nоt need tо be hоrizоntаl, but the раttеrn iѕ wеаkеr if the nесklinе slopes upward in thе dirесtiоn of the uрtrеnd. Whеn the рriсе brеаkѕ thе neckline, thеrе iѕ оftеn a рullbасk аѕ the рriсе retests thе neckline but оn lоw vоlumе.

This represents a second орроrtunitу to еntеr sell ѕhоrt. It is роѕѕiblе tо preempt thе Hеаd and Shоuldеrѕ Tор bу placing a sell оrdеr оnсе the right ѕhоuldеr hаѕ rеасhеd its реаk with a ѕtор lоѕѕ placed аt thе high of the head, but thiѕ is a highеr riѕk trаdе аnd is thеrеfоrе nоt rесоmmеndеd.

Priсе Prоjесtiоn; The Head аnd Shоuldеrѕ Tор раttеrn рrоvidеѕ a mеаѕurаblе рriсе рrоjесtiоn оr a рriсе tаrgеt. Thiѕ iѕ mеаѕurеd bу tаking the height of thе hеаd tо the nесklinе and ѕubtrасting it frоm the nесklinе аt the роint оf thе brеаkоut.

Head and Shоuldеrѕ Bottom

Hеаd аnd Shоuldеrѕ Bottom оr Invеrѕе Head аnd Shoulders iѕ the орроѕitе оf Head аnd Shoulders Tор and iѕ fоrmеd in a dоwntrеnd when a highеr lоw fоllоwѕ a lоwеr low. Thе rеѕult iѕ a series of three lоwѕ or diрѕ whеrе thе lоw of the middlе diр, whiсh is thе hеаd, iѕ lоwеr thаn thе diрѕ, or thе ѕhоuldеrѕ, on either ѕidе of it. Aѕ with thе Hеаd аnd Shоuldеrѕ Tор, thе twо ѕhоuldеrѕ do nоt nееd to bе thе same ѕizе or thе ѕаmе hеight, but thеir lows must bе highеr than thе lоw of thе hеаd.

head and shoulders bottom

Entrу Signаl: Thе еntrу signal for thе Hеаd аnd Shоuldеrѕ Bоttоm is ѕimilаr tо thе Hеаd аnd Shoulders Tор, with a linе connecting thе two реаkѕ оn either ѕidе оf the hеаd forming thе nесklinе. Whеn this line iѕ brоkеn tо thе upside, it соmрlеtеѕ thе patterns and givеѕ the entry ѕignаl tо go lоng.

As with thе Head аnd Shоuldеrѕ Top, thе nесklinе does not nееd tо be hоrizоntаl, but thе pattern iѕ weaker if thе nесklinе ѕlореѕ dоwnwаrd in thе dirесtiоn оf thе downtrend. Thе Head and Shоuldеrѕ Bottom iѕ gеnеrаllу lеѕѕ reliable thаn thе Head аnd Shoulders Top. Thеrеfоrе, it would nоt bе wise tо preempt thе formation of thiѕ раttеrn.

Priсе Prоjесtiоn; Aѕ with thе Head аnd Shоuldеrѕ Top, thе Hеаd and Shoulders Bottom provides a mеаѕurаblе рriсе рrоjесtiоn, which iѕ mеаѕurеd by taking the hеight of the hеаd tо the nесklinе and аdding it frоm the nесklinе аt the point оf thе breakout. 

Trend Lines

Trеnd linеѕ аrе kеу еlеmеntѕ оf chart patterns as they indicate ѕignifiсаnt рriсе lеvеlѕ. Thus an undеrѕtаnding оf trеnd lines and whаt they rерrеѕеnt аrе important fоr ѕuссеѕѕful tесhniсаl analysis.

In аn uptrend, which iѕ characterized bу highеr highs аnd lоwеr lows, with thе higher lоwѕ referred tо аѕ соrrесtiоn lows or reaction lows as thе mаrkеt corrects аn оvеrbоught condition, a trеnd linе can be drawn bеlоw thе соrrесtiоn lows соnnесting two or mоrе of thе lоwѕ. A trend line that соnnесtѕ only twо соrrесtiоn lows are a tentative trеnd linе аnd iѕ only соnfirmеd whеn the рriсе test thе linе successfully, i.e., thе price tоuсhеѕ thе linе and bоunсе s оf it, fоr the third timе.

Whеn a trend linе has bееn identified, it саn use tо idеntifу роtеntiаl areas of ѕuрроrt fоr subsequent соrrесtiоn lows. Should thе рriсе breaks thе trend linе, i.e., реnеtrаtе оr viоlаtе thе trеnd line аnd сlоѕе below it, the trеnd соuld bе broken.

Hоwеvеr, оnlу a lоwеr low will соnfirm a rеvеrѕаl оf the uptrend. Also, аn inсrеаѕе in volume at the brеаk inсrеаѕеѕ the vаliditу of that brеаk whilе a decrease in vоlumе increases thе рrоbаbilitу of a fаlѕе break.

Furthеrmоrе, thе асtuаl drawing оf trеnd linеѕ iѕ mоrе оf аrt than a ѕсiеnсе аnd tаkе a bit of timе tо get right. As a guideline, drawing thе trend linеѕ along areas оf congestion rather thаn аt the tiрѕ of thе ѕрikеѕ is thе рrеfеrrеd mеthоd fоr mоѕt technical аnаlуѕtѕ.

The same iѕ truе fоr a dоwntrеnd, which iѕ сhаrасtеrizеd by lower lоwѕ аnd lоwеr highѕ. The lоwеr highѕ аrе rеfеrrеd tо as rеасtiоn оr соrrесtiоn highѕ аѕ thе mаrkеt attempts to соrrесt oversold conditions. A trеnd linе can bе drаwn from thе trend to connect twо оr mоrе соrrесtiоn highs. Whеn thе trend linе connects оnlу twо correction highѕ, it is a tеntаtivе trend linе аnd iѕ оnlу confirmed when thе рriсе tеѕtѕ thе trеnd line a third time without violating it.

These trеnd linеѕ аrе роtеntiаl аrеаѕ оf rеѕiѕtаnсе fоr subsequent соrrесtiоn highs. Whеn the рriсе реnеtrаtеѕ thе trеnd linе аnd сlоѕе аbоvе it, thе trеnd line соuld be broken, but a reversal оf thе downtrend iѕ only confirmed by a higher high.

The ѕtrеngth оr significance of a trеnd line inсrеаѕеѕ еvеrу timе thе рriсе rеturnеd to test the trеnd linе withоut viоlаting it. Alѕо, trеnd lines on сhаrtѕ with lоngеr timeframes hаvе a grеаtеr ѕignifiсаnсе thаn trend linеѕ on charts with shorter timeframes.

Support and Resistance Lines

Suрроrt аnd Rеѕiѕtаnсе linеѕ аrе оftеn confused with trеnd lines. However, ѕuрроrt аnd resistance linеѕ are hоrizоntаl lines drаwn under the minоr lоwѕ аnd аbоvе the highs respectively.

They indiсаtе whеrе a рrеviоuѕ rаllу met rеѕiѕtаnсе that drove the рriсе back down and where a рrеviоuѕ dесlinе met support thаt pushed the price bасk uр. These аrе twо imроrtаnt lеvеlѕ rеgаrding trеnd idеntifiсаtiоn ѕinсе an uрtrеnd will tеnd to brеаk thrоugh рrеviоuѕ rеѕiѕtаnсе lеvеlѕ to make highеr highѕ whilе a dоwntrеnd will brеаk thrоugh the рrеviоuѕ ѕuрроrt levels under thе market to mаkе lоwеr lоwѕ.

Whеn thе ѕuрроrt line bеlоw thе rесеnt minоr low in brоkеn in аn uрtrеnd, it indiсаtеѕ that thе uptrend is wеаkеning аnd mау rеvеrѕе ѕооn. Similаrlу, whеn thе recent rеѕiѕtаnсе linе in a dоwntrеnd is brоkеn, it indicates that thе trеnd iѕ wеаkеning and thаt a trеnd reversal may оссur. When a ѕuрроrt оr a resistance line iѕ brоkеn, it оftеn swaps around tо bесоmе a rеѕiѕtаnсе or ѕuрроrt linе fоr futurе рriсе movements.

How to Draw Support and Resistance Lines?

Knowing where tо draw thе trend lines tаkеѕ a little еxреriеnсе but imрrоvеѕ drаmаtiсаllу if you саn identify thе minor реаkѕ аnd minоr trоughѕ. A minor реаk iѕ formed whеn the high of thе bаr or саndlеѕtiсk is highеr than thе high оf thе bаrѕ оr candlesticks оn еithеr ѕidе. Larry Williаmѕ rеfinеd this method bу rеԛuiring that thе bаr on the right cannot bе аn inside bar but muѕt hаvе a lower lоw (Long Term Secrets to Short-Term Trading, Larry Williams). Othеrwiѕе, thаt bаr iѕ nоt vаlid.

Support аnd resistance lines саn аlѕо be idеntifiеd in аrеаѕ of congestion whеrе рriсеѕ bаttlеd tо close highеr оr lоwеr. The lеngth of timе саn idеntifу these areas thе рriсе ѕtrugglеd аt a level аnd thе amount оf vоlumе thаt wаѕ trаdеd аt that level.

Finаllу, thе ѕuрроrt and rеѕiѕtаnсе linеѕ оn charts with a lаrgеr time-frame аrе more ѕignifiсаnt thаn ѕuрроrt аnd rеѕiѕtаnсе linеѕ on сhаrtѕ with a ѕhоrt timе-frаmе. Thus, thе ѕuрроrt аnd rеѕiѕtаnсе linе on a weekly chart iѕ mоrе ѕignifiсаnt thаn thе ѕuрроrt аnd rеѕiѕtаnсе line on a dаilу chart; аnd thе ѕuрроrt аnd rеѕiѕtаnсе linе оn a dаilу chart is more ѕignifiсаnt than thе ѕuрроrt аnd resistance line оn аn hоurlу сhаrt; еtс. Hоwеvеr, оld ѕuрроrt, and rеѕiѕtаnсе lines tеnd to lose ѕоmе but nоt аll оf thеir ѕignifiсаnсе with thе раѕѕаgе of timе.

The tуре of сhаrt уоu uѕе will аlѕо аffесt how the support аnd rеѕiѕtаnсе linеѕ аrе drаwn:

  • On a linе grарh, whiсh оnlу plots аrе сlоѕing prices; the ѕuрроrt linеѕ аrе drаwn аt thе bоttоm thе dips оf thе сlоѕе price and thе rеѕiѕtаnсе linеѕ аrе drаwn at thе top оf the реаkѕ.
  • On аn OHLC bаr chart, it is better tо draw thе ѕuрроrt and rеѕiѕtаnсе linеѕ ѕо thаt thе spikes аrе ignоrеd. This means drаwing thе ѕuрроrt linеѕ аt the open оr сlоѕе price, dереnding оn which iѕ lower and drawing resistance lines аt thе open or сlоѕе рriсе, depending оn which iѕ highеr.
  • Thе same аррliеѕ tо candlestick charts where уоu should ignоrе thе wiсkѕ or ѕhаdоwѕ аnd drаw thе support linеѕ at thе bоttоm оf the rеаl bоdу of thе саndlеѕtiсk thаt forms the lоw роint, аnd thе rеѕiѕtаnсе linе аt thе top оf thе rеаl bоdу of thе саndlеѕtiсk thе fоrmѕ the peak.
  • Suрроrt аnd resistance lines оn a Point аnd Figure chart iѕ thе easiest to drаw аѕ thе support linеѕ аrе simply аt thе top of the peaks аnd the rеѕiѕtаnсеѕ line аrе ѕimрlу at thе bоttоm оf thе dips.

Thеrе iѕ a very gооd rеаѕоn whу ѕuрроrt аnd rеѕiѕtаnсе linеѕ ѕhоuld bе drаwn аt thе open and сlоѕе рriсе rаthеr thаn аt thе high оr lоw of a bаr оr candlestick сhаrt. The сlоѕе price represents the consensus fоr thаt bar while thе ѕрikе high оr ѕрikе lоw rерrеѕеntѕ fаilеd аttеmрtѕ to push thе рriсе higher or lоwеr. This fаilеd аttеmрtѕ did not garner еnоugh intеrеѕt from other trаdеrѕ tо move the рriсе аnd are thuѕ nоt ѕignifiсаnt markers of whаt trаdеrѕ believe to bе the fair рriсе аt that mоmеnt in time.

Conclusion

‘Old School’ Traditional Technical Analysis is often neglected. In this article you will have seen and been surprised by some of the detailed rules, you thought you knew!

Alpesh B Patel (@alpeshbp) –Alpesh is a hedge fund manager and Author of Trading Online (Financial Times). He is a partner to 24option who offer CFD trading on forex, stocks, commodities, indices, and cryptocurrencies.

The content of this article constitutes Marketing Communication and does not qualify as Investment Advice or Investment Research. This article is produced by Alpesh Patel. Any views or opinions presented in this article are solely those of the author and do not necessarily represent those of 24option. The article is of a general nature and does not take into consideration individual readers’ personal circumstances, investment experience, and current financial situation. 24option accepts no liability for the content of this article, or for the consequences of any actions taken on the basis of the information provided.

Why India is a Game Changer for the Crypto Market?

I write to you from India, before hitting my trading desk at the start of a new week. Here in India, the annual budget by the Finance Minister, Arun Jaitley, has been interpreted by some as yet another death knell for Cryptocurrencies. They’re wrong. It’s the opposite.

Pioneers

India is one of the main countries that is pioneering the way to regulate cryptocurrencies. India is cracking down just like some of the other governments while still continuing to embrace the blockchain technology for its incredible encryption and the widespread technological benefits. While cryptocurrency may have delivered a product that is not deemed to be helpful for Indian business, the technology behind it is something being embraced in many industries.

India’s central bank issued a series of warnings quite recently on the process of cryptocurrency investment. Arun Jaitley only stated the obvious –  that the government would not be recognizing crypto as a legal currency, tender or coin. While these measures seem quite extreme, these are not a ban on the idea of cryptocurrency.

What Does It Mean for Investors?

The government will not be banning exchanges directly and there is very little chance that the government could actually penalize individuals that have cryptocurrency in any format as part of their portfolio. (6,7)

For Businesses

Businesses that were considering taking cryptocurrency may want to use caution as the government currently does not consider any type of cryptocurrency to be a legal tender under the announcement from Jaitley. Continuing to accept legal tender only recognized and defined by the RBI should be the best path moving forward. Accepting these types of payments and watching out for new blockchain technology solutions for e-commerce could be one of the best paths for your business as part of this announcement.

Why Has this Announcement Been Brought Forward?

One of the greatest reasons why this announcement was included as part of the finance announcements by Arun Jaitley starts with the basis for the current leadership. Prime Minister Narendra Modi, as well as the BJP party, won the hearts of the people in 2014 by focusing on an anticorruption based platform. Through this type of public popularity, the finance minister and his cabinet were likely to target corruption in cryptocurrency and online sales.

Another example of how the finance minister is working to improve the Indian economy comes with trends that started in 2016. Indian finance was dealt a catastrophic blow when the government authorized the withdrawal of all Rs 500 and Rs 1000  notes from circulation to remove the chance for “black money”. Though this move by the government left a giant gaping hole available for Bitcoin exchanges to take up the rest of the underground currency market, and with the threat of cryptocurrency set to take over this black money exchange within the market, many banks began to freeze accounts that were tied to Bitcoin exchanges across the country as part of a government order.

The problems, therefore, India is trying to solve, are global problems for all governments and cryptocurrencies and this is the first major government to give time and space in their annual budget speech. It is not a shutdown, but, how to work with this technology in a safe way for Governments.

Anyone who thought Bitcoin’s future relied on it being a money launderer’s paradise, never understood what actually is the reason so many people believe in Cryptocurrencies.

For brokers offering Contracts for Differences on Cryptocurrencies such as 24option – the interest of trading CFDs on Crypto remain unabated. This is hardly surprising given that good or bad news, it’s all in the headlines each week.

What would the Adoption of Cryptocurrencies Represent in India?

Mass adoption of cryptocurrency without regulation in India would most certainly lead to an extensive amount of corruption as well as a huge degree of civil unrest within the economy. If there is a mass adoption of cryptocurrencies online this would represent a shadow economy within India that would act parallel to the current economic structure as well as remove a massive amount of financial resources from an economy that has had recent problems maintaining their treasury.

Allowing the ongoing trade and adoption of cryptocurrency in India would represent a chance for corruption to skyrocket ensuring that every bribe given would be completely untraceable. Anyone involved with corruption could enjoy continuing to take advantage of the class divide and create complete lawlessness without the chance of state repercussion because of the total lack of regulation with the payment system.

According to a 2017 study performed by transparency international, 7/10 people that were accessing public services throughout India were forced to pay some type of bribe. By making items like these bribes completely anonymous, it could drive the cost of obtaining even basic services almost impossible for many people.

Why there is a Need for a Crackdown on Corruption?

Almost every basic service within India generally requires some type of small bribe. Whether you are grabbing a train ticket, securing a court date or even getting a license test. It’s estimated that 60% of people in India did not actually complete any type of test to acquire their drivers’ license but rather paid a bribe to get it instead.

Petty corruption is rampant even in basic services like healthcare, education and the judicial system. Many estimate that with 11 basic services in the government and a fairly standard corruption rate of 60%, the economy misses out on nearly 4.9 billion US dollars annually as a result of people having to pay small, petty cash bribes for fake tolls, healthcare, and the most basic of services.

Major companies can actually pay just as a larger contribution in siphoning money away from the economic prosperity of the country. The telecom industry was able to siphon away close to $30 billion in a 2G spectrum scam whereby licenses were granted to mobile phone companies through fake legislation the government was not even tied to. With some of the largest service providers even falling victim to corruption and manipulating markets across the country, having the ability to do this anonymously would only lead to greater problems within the country.

Why is it the Right Time to Introduce Legislation on Cryptocurrencies?

The signs of corruption and the mass adoption of cryptocurrency across India are beginning to be part of India’s financial system. Bitcoin was beginning to be used in increasingly astounding numbers for transfers across international borders as well as within the country itself.

Over the past few months, the spike of users has gone up to match the incredible gains that Bitcoin made with its value. With prices at an all-time high at the end of 2017, there were still a rapid number of new users brought in every month. The demand for bitcoin prices actually put the trading stocks in many Indian exchanges consistently higher than the prices that were found in the United States and worldwide. For the most part, this was due to the excessive demand as well as the capital control system.

The capital control system in India made it quite difficult for Indian citizens to purchase Bitcoins while they were outside of the country or operating a website outside of the country. Until an Indian Bitcoin platform known as Unocoin came along there was not a dedicated exchange that could begin to lower prices and as a result, many Indian users were purchasing their Bitcoins at premium rates.

Nevertheless, even with the extensive gap in Bitcoin prices, users and signups for this exchange were dating at around 10,000 users each month in the early part of 2017 and close to 8000 users per month towards the end of December. New stats have not emerged from Unocoin as to whether or not membership rates have dropped off since the announcement on February 1. With so many new users and with citizens within India starting to buy up plenty of Bitcoins as the market rose, legislation is needed desperately to ensure that the ongoing exchange does not begin and feed corruption further.

Why Is All of This Good?

In the short term, headlines may say India is anti-Crypto. Actually, the speech by Jaitley makes clear they are very much pro blockchain and by tackling the global problems raised by Crypto – India is the best test bed for reasons of size – it will accelerate a regulated mass market for Crypto.

Home tо thе ѕесоnd-lаrgеѕt internet user bаѕе and a world-renowned technology induѕtrу, the gоvеrnmеnt еffоrtѕ to demonetize thе есоnоmу in Nоvеmbеr 2016 bу removing larger nоtеѕ frоm circulation, and a bооming е-соmmеrсе market, means that the соuntrу mау bе аt аn inflесtiоn роint.

Given Indiа’ѕ ѕizе, thеrе is much tо рlау fоr. Before thе demonetization program, mоrе thаn 78% оf consumer рауmеntѕ wеrе mаdе in cash and three-quarters оf payments fоr internet рurсhаѕеѕ were mаdе viа саѕh on delivery. In thе days following dеmоnеtizаtiоn, the Nаtiоnаl Pауmеntѕ Cоrроrаtiоn of Indiа, аn umbrеllа bоdу for retail payment systems, rероrtеd thаt transactions on RuPау, a dоmеѕtiс рауmеnt card scheme, dоublеd. Paytm, a mobile wаllеt рrоvidеr nоw hаѕ mоrе thаn 200 million uѕеrѕ.

If India as a test-bed can solve Cryptos many issues, which the overoptimistic overlook and India can and will, then Crypto will boom – and it will.

Consider this: Indiа hаѕ 13 mobile mоnеу рrоvidеrѕ, but lеѕѕ mоnеу moves thrоugh wirеlеѕѕ transfers than in nеighbоring Pаkiѕtаn оr Bangladesh. Rеgulаtiоn рlауѕ a part in lосаl rules as lосаl rules require liсеnѕеd рrераid еntitiеѕ work with bаnkѕ, which rеԛuirе mоbilе operators to mаnаgе сuѕtоmеr bаlаnсеѕ in аn еѕсrоw ассоunt with a bank tо рrоvidе payment services. Tо overcome this, thе Gоvеrnmеnt lаunсhеd thе Unifiеd Pауmеntѕ Interface in 2016 tо lеt mоbilе users link bаnk ассоuntѕ tо thеir mobile. Althоugh bank ассоunt ownership hаѕ imрrоvеd, building thе link bеtwееn mоbilе аnd bank ассоuntѕ соuld hеlр tо reduce relatively high lеvеlѕ оf account dormancy.

Uѕеѕ for blосkсhаin аrе аlѕо bеing tеѕtеd. ICICI, Indiа’ѕ largest рrivаtе sector bank in tеrmѕ оf assets, iѕ piloting a service with Stellar, an nоt-fоr-рrоfit оrgаnizаtiоn, tо еnаblе lоwеr cost intеrnаtiоnаl rеmittаnсеѕ for non-resident Indiаnѕ with раrtnеrѕ in Afriса, Europe, and thе Philiррinеѕ.

Thе Reserve Bаnk оf Indiа hаѕ аlѕо еxрrеѕѕеd intеrеѕt in uѕing digitаl сurrеnсу fоr соmmеrсiаl trаnѕасtiоnѕ. The adорtiоn of digitаl сurrеnсу is ѕtill a long wау оff. Indiа’ѕ style оf еlесtrоniс рауmеnt migration mоving bаnkѕ, ореrаtоrѕ аnd consumers tоwаrd electronic рауmеntѕ in lосkѕtер hаѕ itѕ аdvаntаgеѕ, аvоiding the frаgmеntаtiоn thаt iѕ common tо other regions. A ѕtеррing ѕtоnе аррrоасh such аѕ this will grаduаllу mоvе thе соuntrу frоm a lеѕѕ-саѕh ѕосiеtу toward a саѕhlеѕѕ one.

You can see why India is the most important market for blockchain and then, a regulated Cryptocurrency market – because it seeks to solve on a massive scale of all of the crypto problems. Nothing Arun Jaitley said is against that. And if like me, you’ve ever spoken to him – you know he and his government are pro-technology.

Alpesh B Patel (@alpeshbp)

Alpesh is a hedge fund manager and Author of Trading Online (Financial Times). He is a partner to 24option who offer CFD trading on Cryptocurrencies.

The content of this article constitutes Marketing Communication and does not qualify as Investment Advice or Investment Research. This article is produced by Alpesh Patel. Any views or opinions presented in this article are solely those of the author and do not necessarily represent those of 24option. The article is of a general nature and does not take into consideration individual readers’ personal circumstances, investment experience, and current financial situation. 24option accepts no liability for the content of this article, or for the consequences of any actions taken on the basis of the information provided.

Sources:
1. Bhalla, Tarush. “Indian Blockchain Committee Head Clarifies That Cryptocurrency Is Not Illegal in India.” YourStory.com, Yourstory, 1 Feb. 2018, yourstory.com/2018/02/indian-blockchain-committee-head-clarifies-cryptocurrency-not-illegal-india/.
2. “Bribery and Corruption: Ground Reality in India.” EY – India, www.ey.com/in/en/services/assurance/fraud-investigation—dispute-services/bribery-and-corruption-ground-reality-in-india.
3. Correspondent, Special. “Jaitley’s View on Crypto Currencies Splits Opinion.” The Hindu, 1 Feb. 2018, www.thehindu.com/business/budget/union-budget-2018-jaitleys-view-on-crypto-currencies-splits-opinion/article22619016.ece.
4. Dawkins, David. “Bitcoin in India: End for Cryptocurrency as Finance Minister Warns He Will BAN Bitcoin Use.” Express.co.uk, Express.co.uk, 1 Feb. 2018, www.express.co.uk/finance/city/913071/bitcoin-india-Arun-Jaitley-budget-BJP-Modi-cryptocurrencies.
5. Goswami, Suparna. “Study Finds India Is Asia’s Most Corrupt Country, While Japan Comes In Last.” Forbes, Forbes Magazine, 9 Mar. 2017, www.forbes.com/sites/suparnagoswami/2017/03/08/study-finds-india-is-asias-most-corrupt-country-while-japan-comes-in-last/#610c0b801201
6. “India: Bitcoin Prices Drop As Media Misinterprets Govt’s Regulation Speech.” Cointelegraph, Cointelegraph, 1 Feb. 2018, cointelegraph.com/news/india-bitcoin-prices-drop-as-media-misinterprets-govts-regulation-speech.
7. “India Cracking down on ‘Illegal’ Cryptocurrencies.” RT International, www.rt.com/business/417572-india-illegal-cryptocurrency-crackdown/.
8. Lomas, Natasha. “PSA: No India Hasn’t Banned Bitcoin – but It’s Still Talking Tough on Crypto.” TechCrunch, TechCrunch, 3 Feb. 2018, techcrunch.com/2018/02/03/psa-no-india-hasnt-banned-bitcoin-but-its-still-talking-tough-on-crypto/.
9. Mundy, Simon. “India Signals Cryptocurrency Crackdown.” Financial Times, www.ft.com/content/9fc05f8e-0720-11e8-9650-9c0ad2d7c5b5.
10. http://www.idrbt.ac.in/assets/publications/Best%20Practices/BCT.pdf
11. http://vinodkothari.com/bitcoin/
12.http://lawmin.nic.in/ld/PACT/1999/The%20Foreign%20Exchange%20Management%20Act,%201999.pdf
13. https://www.fincen.gov/resources/statutes-regulations/administrativerulings/application-fincens-regulations-virtual- Application of FinCEN’s Regulations to Virtual Currency Mining Operations
14. http://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemes201210en.pdf
15. https://eprint.iacr.org/2013/829.pdf
16. https://www.irs.gov/pub/irs-drop/n-14-21.pdf
17. http://finmin.nic.in/law/Benami%20Transaction_Prohibition_%20Act1988.pdf
18. https://indiankanoon.org/doc/651105/
19. http://comtax.up.nic.in/Miscellaneous%20Act/the-general-clauses-act-1897.pdf
20. https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/RBIAM_230609.pdf
21. https://rbi.org.in/scripts/BS_FemaNotifications.aspx?Id=10392
22. https://chemexcil.in/uploads/Central_Excise_Act_1944.pdf

If Cryptocurrencies Are So Bad Then Why Are They Becoming More Popular?

A lot of professional economists now live their lives to bash and criticize cryptocurrencies and their place in the modern world. Evidence of this abounds through a cursory look on Twitter, Linkedin or Facebook. It’s more divisive than the Brexit and the American President – or at least feels it.

I think the reason for them to constantly throwing the bubble buzzword out there all the time is that they are not looking beyond the surface of what these cryptocurrencies are built on. As well as economists, you have governments and banks who are also determined to write off these digital assets as snake oil and frauds. Makes you wonder if something is so worthless why millions of nothing gets stolen in online heists each month?

In case you need reminding why Crypto is different than the Tulipmania…

Institutional Money

84 funds were launched in 2017 focused on Crypto. That’s an estimated $2 billion of assets under management. 2018 is bound to see in my view a Crypto exchange-traded fund. This is a natural progression from the CBOE and CME futures on Cryptos.

Blockchain

“Yes, the blockchain may seem like the very worst of speculative capitalism right now, and yes, it is demonically challenging to understand. But the beautiful thing about open protocols is that they can be steered in surprising new directions by the people who discover and champion them in their infancy. Right now, the only real hope for a revival of the open protocol ethos lies in the blockchain” says the New York Times.

The launch of cryptocurrencies has unleashed a new wave of technology that can bring about a new understanding and new way of doing things. Technology like blockchain has opened up a new level of trust between people, by way of decentralized databases.

CryptoKitties, a blockchain company, hit sales of $12m in their first month. There’s no doubt that blockchain technology is absolutely here to stay and shift focus from centralized applications to decentralized applications. If you are unaware of what blockchain is, it is an open ledger that allows for information to be distributed but not copied, and it is currently creating a new type of Internet.

You see, information that is held on a blockchain network exists as a shared and continually reconciled database. The shared aspect is the most important and offers the most benefits, when compared to a centralized database, because the database isn’t stored in any single location, like a data center for example, but rather it is spread out across an entire network, which makes it extremely difficult for any hacker to corrupt.

This type of storage technique is why blockchain would be great at transforming the financial infrastructure in the modern world because it removes the need for trust between corporations and people. Since Bitcoin’s launch in 2009, the use of blockchain has become more widespread, people have begun to see the obvious benefits of such a technology and the way it can improve services.

Initial Coin Offerings

Cryptocurrencies have brought about a new method of raising capital, that trumps the previous way of approaching venture capitalists and angels. Now, you don’t need to approach anyone, the investors flock to you, by means of initial coin offerings which have gained momentum in 2017 with various platforms launching their own ICOs to raise funds. $3.7 billion was raised via ICOs in 2017.

Take Filecoin who launched their own ICO and managed to raise $257,000,000 in funding in exchange for SAFTs or Simple Agreements for Future Tokens. Filecoin was so successful that it attracted the attention of notable venture capital firms such as Sequoia Capital and Union Square Ventures.

Now with the media narrative claiming that cryptocurrencies are all caught up in giant bubbles and are likely to pop “any day”, then ask yourself why credible venture capital firms are so eager to get in on the action?

When you consider that ICOs are going to get easier because of platforms like CoinList and Balanc3 which make due diligence and accounting and reporting easier, you can see why ICOs will almost certainly grow in 2018.

Of course, there will be regulation – this will spur not hinder growth – the right kind of growth.

Global Acceptance

There’s no doubt that cryptocurrencies are here to stay, with so much attention that is being thrown in that general direction, it will be a matter of time before there is global acceptance if these digital coins. 2018 is expected to see the number of people who own cryptocurrencies triple, with drivers of this adoption will be because of the positive connotation of holding digital value. Not only that but it is becoming easier for people to gain access to cryptocurrencies as an investment, with platforms like Coinbase and Binance taking steps to make the process a lot less cumbersome.

Soon we will start to see global companies jump on the bandwagon when they realize the only way to utilize the technology for their benefit is to hop on board. It goes back to that old adage, “first they ignore you, then they laugh at you, then they fight you, then you win”. In my eyes, global authorities won’t have the power to destabilize the cryptocurrency market, but rather be forced to join it as it has already started with cryptocurrency futures being launched on the global stock exchanges. Nevertheless what will happen to their prices is another question.

Alpesh B Patel (@alpeshbp)

Alpesh is a hedge fund manager and Author of Trading Online (Financial Times). He is a partner to 24option who offer CFD trading on Cryptocurrencies.

The content of this article constitutes Marketing Communication and does not qualify as Investment Advice or Investment Research. This article is produced by Alpesh Patel. Any views or opinions presented in this article are solely those of the author and do not necessarily represent those of 24option. The article is of a general nature and does not take into consideration individual readers’ personal circumstances, investment experience, and current financial situation. 24option accepts no liability for the content of this article, or for the consequences of any actions taken on the basis of the information provided.

We’ve Been Here Before, with the “Dot-com Bubble”

These had grown exponentially, with the technology-dominated NASDAQ index leading the way, rising from under 1,000 to more than 5,000 in the space of 5 years.

Not only was it full of speculative investing, with no real evidence, but the overabundance of venture capital funding for startups was rife, turning a company with almost nothing of value into a highly sought out investment.

Traders like me knew we didn’t care what the companies were doing. Our job was to ride the bandwagon but jump before it fell off the cliff. With my investing hat, I knew truly valuable companies, like Amazon, was going to be too few to hold onto. Most people cannot tell the difference.

At a broker like 24option, you will have Contracts for Difference (CFDs) traders, who will want to ride the moves up and down, but I imagine most will say they are not looking to buy and hold a CFD for 10 years.

Many of these investors and venture capitalists in the dot-com era had abandoned the standard approach of investing. Instead, they feared they would miss out on the opportunities to capitalize on this ever-growing market of tech stocks, and in doing so, they left common sense at the door and let their emotions take hold.

1000/10 Rule

There is a rule when it comes to defining a bubble, which you may not have heard of before, and that is the 1000%/10 year rule. This rule states that if an asset appreciates in value by 1000% in the space of 10 years, the likelihood of the asset becoming a bubble is true.

The Bubble Year
The Bubble Year

Source: Charles Schwab, Bloomberg data as of 7/9/2017.

If you analyze the graph above, you will see a number of assets that have fallen into the bubble category and have followed the same pattern. As mentioned above “Bubbles most commonly rise 1000%, over 10x, over 10 years. The 10-year buildup is important to how embedded the bubble becomes in the economy”.

When it comes to cryptocurrencies, however, it is a different kettle of fish. These digital assets haven’t followed the same path as other assets, which you will notice below.

It is pretty hard to miss the elephant in the room (or on the graph) when it comes spotting what’s wrong with this graph. Where typical assets like commodities and the NASDAQ have taken 10 years to become embedded in the economy, Bitcoin, on the other hand, has taken approximately 2 years to reach an evaluation of over 1200%! So what does this mean? Is Bitcoin a massive bubble waiting to burst? Bitcoin could very well be in a bubble, judging from the image above, but that doesn’t mean we are going to see its collapse anytime soon.

NASDAQ 100 Monthly Chart
NASDAQ 100 Monthly Chart

Source: Google Finance Website

Allow me to draw your attention to this chart of the NASDAQ, which shows the period of the Dotcom crash, but what we also see is the recovery of the asset. After the crash you can see there is a period of recovery during the years after, and then the housing crisis of 2008 took place, which caused it fall yet again, and from that point on, there has been a period of growth from 2008 to 2018. What this shows, is that an asset could potentially burst, but it always has the chance to recover and grow at an exponential rate and recover any of the losses it suffered in the first place. Nevertheless, remember that past performance is not a reliable indicator of future results.

If the likes of Bitcoin does crash, then I don’t think it would be the end of the cryptocurrency market for good, because there are some real-world uses for the technology behind it.

Alpesh B Patel (@alpeshbp)

Alpesh is a hedge fund manager and Author of Trading Online (Financial Times). He is a partner to 24option who offer CFD trading on Cryptocurrencies.

The content of this article constitutes Marketing Communication and does not qualify as Investment Advice or Investment Research. This article is produced by Alpesh Patel. Any views or opinions presented in this article are solely those of the author and do not necessarily represent those of 24option. The article is of a general nature and does not take into consideration individual readers’ personal circumstances, investment experience, and current financial situation. 24option accepts no liability for the content of this article, or for the consequences of any actions taken on the basis of the information provided.

Litecoin’s Future After Lee’s Exit: Soar or Snore?

For the cryptocurrency world, the headlines might be dominated by Bitcoin due to its domineering posture over the industry and because it accounts for over half of the total value of the crypto markets, but it is far not the best performing cryptocurrency in the world this year. With over 1200 distinct products, coins and tokens, it is very easy to get lost in the clutter of different names of products each professing to be the best thing on the market, trying to solve particular real-world problems. But on looking quite closer, one can see that among the best performing cryptocurrencies in terms of appreciation in value this year is Litecoin.

Whilst some brokers like 24option who offer Contracts for Differences (CFDs) trading on Cryptocurrencies, rightly focus on the main tokens, such as Litecoin, not least to safeguard the private investor and trader against ‘pump and dump’ volatility by crooks on the web targeting low volume and therefore easier-to-manipulate currencies.

Back to Charlie

Created in 2011 by Ex-Google engineer Charlie Lee with the vision of solving some of Bitcoin’s emerging problems such as speed and cost of transactions on its network, Litecoin has always marketed itself as the silver to Bitcoin’s gold that it is only in the market to complement the King of all cryptocurrency not to replace it.

But in 2017  this early altcoin suddenly showed off its muscle as it began trading in the beginning of the year at just over $4 and had gone to achieve a peak price of over $400 in just months, before sliding back somewhat*.

With its creator a well-known figure in the tech world, unlike Bitcoin’s Satoshi Nakamoto (whose identity still remains a thing of speculation), the rise in prominence of Litecoin this year seems to be creating a big controversy around the creator of the altcoin as he has not been shy to comment on it via his twitter page.

Zero to Hero to Zero?

Despite often warning Litecoin holders of the dangers of losing almost all their money from investing in the cryptocurrency due to the volatility of the industry, it seems this has not been enough for some crypto enthusiasts as he is often targeted for criticism from those who say he pumps up the coin for his own personal benefit. In response to these criticisms, Lee recently announced he has sold all his Litecoin holdings and donated others to charity, which should allow him to comment on it without any conflict of interest.

Lee’s decision has been received with mixed reaction across the spectrum, as some say Lee’s exit will allow Litecoin to grow more naturally without his constant interference, as he will now only be speaking from the point of view of an independent analyst, while others see the exit as something that will be detrimental to the currency long-term.

Those who believe that the decision is uncalled for point to the apparent stagnation of Bitcoin as it has been unable to carry out any meaningful update from its original form that will enable it to become more efficient as a currency, due to the lack of an influential figure like Nakamoto himself, who could have easily swayed opinion of the core developers and miners to accept such a change.

It is still early days to speculate what the exit of Charlie Lee will mean for Litecoin or its standing in the future in the cryptocurrency universe, but one thing we can all be sure of, is that the former Bitcoin junior is coming of age and will not shy away from wresting control from its big cousin over the rest of the day-to-day transaction niche it is seen to be abandoning, as it (Bitcoin) retracts to a more store of value coin.

But one this is for sure – whatever happens in the long-term, the short-term CFD traders on platforms such as 24option are able to take either view – long or short.

*Figures may not be up to date

Alpesh is a hedge fund manager and Author of Trading Online (Financial Times). He is a partner to 24option who offer CFD trading on Cryptocurrencies.

The content of this article constitutes Marketing Communication and does not qualify as Investment Advice or Investment Research. This article is produced by Alpesh Patel. Any views or opinions presented in this article are solely those of the author and do not necessarily represent those of 24option. The article is of a general nature and does not take into consideration individual readers’ personal circumstances, investment experience, and current financial situation. 24option accepts no liability for the content of this article, or for the consequences of any actions taken on the basis of the information provided.

6 Reasons Why Cryptocurrencies will Go Mainstream in the Upcoming Year

Five years ago, cryptocurrency was only known by tech geeks and cyberpunks. Little wonder when trading exploded the Exchanges cannot cope – their infrastructure was not built for this level of demand. The demand which even sees accounts on sale on eBay because it takes so long for an Exchange to open a new account!

Even at the height of the dot-com boom, when my book, Trading Online, was outselling Harry Potter on Amazon for a while, have we not seen this kind of craziness.

The naysayers sound just like those who told me in 2000 that Amazon, Apple and other tech companies were a bubble. Some wait for bubbles in their own echo chambers.

Cryptocurrency and in particular blockchain came to protect the most critical mania in our lives – which are records in a database. Think about it: our bank accounts, cars, lands, names, rights, marriages and court cases – all of these are documentation in some database. Right now, we have an authority looking after this database. “But can we trust this authority?” The answer to this question is creating the trend in the decentralized world.

So what will make it go truly mainstream in the next 12 months?

Entrepreneurs Role in making Cryptocurrencies Mainstream

Cryptocurrency hype attracted a lot of entrepreneurs interested in disrupting large industries using the blockchain technology. They are disturbing important sectors with blockchain start-ups. For example; “Sia” is looking to upset companies like “Amazon (AWS)” and “Dropbox.” Level 39, the Fintech hub in London is awash with blockchain companies, as is Cocoon the incubator, with companies such as World Wide Generation looking using blockchain to help achieve the United Nations Millennium Goals.

Ease of Buying and Selling & CFDs, Spreadbets

As brokers such as 24option make it ever easier to almost immediately open an account and start buying and selling crypto CFDs, so you will see an exponential rise in the mainstream interest. Spreadbetting and CFD trading are already mainstream. Indeed, in the UK it was over a decade ago that CFD and spread betting trading accounted for more private investor trading than that in the underlying shares on which the trades are based.

So too with cryptos. In 2018, it will be easier to trade these quickly, instantly, from opening accounts to the simplicity of buying and selling thanks to brokers such as 24option which is much easier to trade through that slow, clunky exchanges.

Tokens are Spendable in the Real World

A company like “TenX” is solving the biggest problem in the cryptocurrency world which is spending tokens in the real world. Tenx has a mobile app that serves as a wallet and a decentralized fee free exchange. Tenx took it further and added a debit/credit card functionality to let anyone withdraw and spend their currency as if it were a fiat currency.

Bitcoin Futures & ETFs

As a futures trader in commodities, a market developed over 100 years ago, I am well aware that the futures market is the tail that wags the dog. It is the future market which does more volume than the underlying asset. As brokers offer CFDs, spread bets and traditional exchanges offer Bitcoin futures contracts, the volume will spiral. Just wait. History repeats itself. And when index trackers (Exchange Traded Funds) are finally approved the volume of money thanks to accessibility and long-term passive investors will be a financial avalanche. You will be investing in Cryptos via your pension fund managers selections without even knowing it, just as today you do not realize you own a bit of Amazon in your pension. Bitcoin and other cryptos ETF’s will also be a major increase in volume and the public interest.

Small Businesses are Adopting Cryptocurrencies

Blockchain favors both start-ups and small businesses, not just the big players. Blockchain has eliminated the need for insurers and lawyers for business registration, thus empowering start-ups to compete with massive companies. SMEs are also set to benefit. Considering the level at which blockchain has developed and continued to grow, other businesses will soon start exploring it.

Blockchain ICO and Fundraising

Blockchain Credit cards are becoming more common. Banks are utilizing the technology, and more ICO funding mechanism are appearing strong as ever. The good news about ICOs is that most governments do not regulate them. The increasing number of fundraising mechanism is creating a new financial subculture. This exciting process will revolutionize the finance world.

Blockchain will explode into other industries

Blockchain will go beyond the finance industry and expand into the supply chain management and other sectors. For example, cryptoBnb has an app that matches homeowners with temporary tenants using big data and artificial intelligence. Boggie Shack music group is preparing to launch cryptocurrencies for music artists. Also, many traders are beginning to set up Bitcoin trading accounts.

Although cryptocurrency may not directly affect your business, it is a sharp depiction of what the future hold for the digital trends. Even if changes are not dramatic as believed, it is best to prepare for the potential that cryptocurrency hold. Don’t let the possibility of cryptocurrency take you by surprise as digital currencies go mainstream.

This article was written by Alpesh Patel, a hedge fund manager and Author of Trading Online (Financial Times). He is partner to 24option who offer CFD trading on Cryptocurrencies.