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Buy Now Accolades. Comments Showing latest 10 of 10 View All Comments. The Rounding Bottom The Rounding Bottom is a long-term reversal pattern that is best suited for weekly charts. It is also referred to as a saucer bottom, and represents a long consolidation period that turns from a bearish bias to a bullish bias.
Prior Trend: In order to be a reversal pattern, there must be a prior trend to reverse. Ideally, the low of a rounding bottom will mark a new low or reaction low. In practice, there are occasions when the low is recorded many months earlier and the security trades flat before forming the pattern.
When the rounding bottom does finally form, its low may not be the lowest low of the last few months. Decline: The first portion of the rounding bottom is the decline that leads to the low of the pattern.
This decline can take on different forms: some are quite jagged with a number of reaction highs and lows, while others trade lower in a more linear fashion. Because prices are in a long-term decline, the possibility of a selling climax exists that could create a lower spike. Advance: The advance off of the lows forms the right half of the pattern and should take about the same amount of time as the prior decline.
If the advance is too sharp, then the validity of a rounding bottom may be in question. Breakout: Bullish confirmation comes when the pattern breaks above the reaction high that marked the beginning of the decline at the start of the pattern.
As with most resistance breakouts, this level can become support. However, rounding bottoms represent long-term reversal and this new support level may not be that significant. Volume: In an ideal pattern, volume levels will track the shape of the rounding bottom: high at the beginning of the decline, low at the end of the decline and rising during the advance. Volume levels are not too important on the decline, but there should be an increase in volume on the advance and preferably on the breakout.
A rounding bottom could be thought of as a head and shoulders bottom without readily identifiable shoulders. The head represents the low and is fairly central to the pattern. The volume levels throughout the pattern mimic those of the head and shoulders bottom; confirmation comes with a resistance breakout.
While symmetry is preferable on the rounding bottom, the left and right side do not have to be equal in time or slope. The important thing is to capture the essence of the pattern. Bittrex is one of the best exchanges present all over the world currently. And if you're not trading on bittrex then you're losing the opportunity to make profits. Bittrex exchange also provides bittrex support through phone.
Customers of bittrex who are facing issues with bittrex can call Bittrex Support Number and get their issues fixed. Head and Shoulders Top A Head and Shoulders reversal pattern forms after an uptrend, and its completion marks a trend reversal. The pattern contains three successive peaks, with the middle peak head being the highest and the two outside peaks shoulders being low and roughly equal.
The reaction lows of each peak can be connected to form support, or a neckline. As its name implies, the Head and Shoulders reversal pattern is made up of a left shoulder, a head, a right shoulder, and a neckline. Other parts playing a role in the pattern are volume, the breakout, price target and support turned resistance. We will look at each part individually, and then put them together with some examples.
Prior Trend: It is important to establish the existence of a prior uptrend for this to be a reversal pattern. Without a prior uptrend to reverse, there cannot be a Head and Shoulders reversal pattern or any reversal pattern for that matter.
Left Shoulder: While in an uptrend, the left shoulder forms a peak that marks the high point of the current trend. After making this peak, a decline ensues to complete the formation of the shoulder 1. The low of the decline usually remains above the trend line, keeping the uptrend intact. Head: From the low of the left shoulder, an advance begins that exceeds the previous high and marks the top of the head. After peaking, the low of the subsequent decline marks the second point of the neckline 2.
The low of the decline usually breaks the uptrend line, putting the uptrend in jeopardy. Right Shoulder: The advance from the low of the head forms the right shoulder. This peak is lower than the head a lower high and usually in line with the high of the left shoulder. While symmetry is preferred, sometimes the shoulders can be out of whack. The decline from the peak of the right shoulder should break the neckline. Neckline: The neckline forms by connecting low points 1 and 2. Low point 1 marks the end of the left shoulder and the beginning of the head.
Low point 2 marks the end of the head and the beginning of the right shoulder. Depending on the relationship between the two low points, the neckline can slope up, slope down or be horizontal. The slope of the neckline will affect the pattern's degree of bearishness—a downward slope is more bearish than an upward slope.
In some cases, multiple low points can be used to form the neckline. Volume: As the Head and Shoulders pattern unfolds, volume plays an important role in confirmation.
Ideally, but not always, volume during the advance of the left shoulder should be higher than during the advance of the head. Together, the decrease in volume and the new high of the head serve as a warning sign. The next warning sign comes when volume increases on the decline from the peak of the head, then decreases during the advance of the right shoulder.
Final confirmation comes when volume further increases during the decline of the right shoulder. Neckline Break: The head and shoulders pattern is not complete and the uptrend is not reversed until neckline support is broken.
Ideally, this should also occur in a convincing manner, with an expansion in volume. Support Turned Resistance: Once support is broken, it is common for this same support level to turn into resistance.
Sometimes, but certainly not always, the price will return to the support break, and offer a second chance to sell. Price Target: After breaking neckline support, the projected price decline is found by measuring the distance from the neckline to the top of the head.
This distance is then subtracted from the neckline to reach a price target. Any price target should serve as a rough guide, and other factors should be considered as well. These factors might include previous support levels, Fibonacci retracements, or long-term moving averages. Develop your Trading Plan Sometimes there is a misconception that you need highly evolved market knowledge and years of trading experience to be successful.
However, we often see that the more information we have the more difficult it is to create a clear plan. More information tends to create hesitation and doubt, which in turn allows emotions to creep in.
This can prevent you from taking a step back and looking at a situation subjectively. Trading with a plan is comparable to building a business.
We are never going to be able to beat the market. The most successful traders trade to a plan, and may even have several plans that work together. Always write things down. Because it will help you stay focused on your trading objectives, and the less judgment we have to use the better.
A plan helps you maintain discipline as a trader. It should help you trade consistently, manage your emotions, and even help to improve your trading strategy. It is also important to use your plan. Many people make the mistake of spending all their time creating a plan, then never implementing it. Key components to develop a trading plan Trading plan structure and monetary goals Research and education Strategy using fundamental and technical tools Money and risk management Timing Trade mechanics, documentation, and testing How to build a trading plan Make sure you do your own research and build a plan according to your needs.
Find confidence in what you know. The tools you have selected for your strategy are key, from the type of chart to the specific drawing tools to even the most elaborate of strategies. Test your plan in the beginning to make sure you are on the right track. After you have begun trading, continue testing it regularly.
This allows you to measure your success by clearly seeing what works and what does not work. From there you can tweak elements that might be weaker and not contributing to your overall goal. Ask yourself the following questions The answers to these will assist you in the foundation for your trading plan and should be referred back to regularly to insure that you are on track with your plan. Why am I trading?
If the only goal is to make as much money as fast as we can, we are ultimately doomed, because it will never be enough.
Managing your losses should be your primary goal. This will create an environment in which profits can be generated. What is your motivation? Solid retirement? New career? Spend more time with family and friends? Is your laptop on the pillow, waking you up in the middle of the night to monitor trades? Is the amount of money I have to trade with sensible to achieve my goals?
Look at things in percentages; remember leverage is a double-edged sword. That is why risk and money management are key. Deciding what type of trader you are can be tough; especially since the trader you want to be can be very different from the type of trader you should be based on your behaviors and characteristics. Once you have laid out your goals, risk appetite, strengths, and weaknesses it should become apparent which type of trading fits you best.
Books by Ashraf Laidi
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Ashraf's Book: Currency Trading and Intermarket Analysis