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Core Trading Concepts

This document covers the fundamental analytical frameworks and concepts used by traders to interpret market behavior, identify opportunities, and make trading decisions.

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Core Market Wisdom

Before diving into technical concepts, traders must internalize foundational truths:

• Markets are probabilistic — No strategy wins every trade. Success comes from positive expected value over many trades.
• Risk management precedes strategy — Preserving capital is more important than maximizing returns.
• Simplicity outperforms complexity — The best strategies are often the simplest to explain and execute.
• Timeframe determines perspective — What looks like a trend on a 5-minute chart may be noise on a daily chart.

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Trend Analysis

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Definition

A trend is a sustained directional movement in price. Trends are the most reliable pattern in markets and the foundation of most profitable strategies.

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Types

• Uptrend: Higher highs and higher lows
• Downtrend: Lower highs and lower lows
• Sideways/Range: Price oscillates between support and resistance

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Trend Identification

Moving averages are the primary tool for trend identification in MangroveAI. The is_above_sma FILTER signal confirms an uptrend, while crossover TRIGGER signals detect trend changes.

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Support and Resistance

Price levels where buying (support) or selling (resistance) pressure historically emerges. These levels are not exact prices but zones where supply and demand shift.

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Volume Analysis

Volume confirms price movements:

• Rising price + rising volume = strong trend (continuation likely)
• Rising price + falling volume = weak trend (reversal possible)
• Volume spike = significant market event, potential reversal or breakout

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Market Regimes

Markets alternate between trending and ranging regimes. Strategy selection should match the current regime:

• Trending: Momentum and trend-following strategies
• Ranging: Mean-reversion strategies
• Volatile: Breakout strategies with tight risk management