In finance, short selling or "shorting" is the practice of selling a financial instrument that the seller does not own at the time of the sale. Short selling is done with intent of later purchasing the financial instrument at a lower price. Short-sellers attempt to profit from an expected decline in the price of a financial instrument. Short selling or "going short" is contrasted with the more conventional practice of "going long", which typically occurs when a financial instrument is purchased with the expectation that its price will rise. Thus, being "long" is just way of saying that you own a positive number of the securities; being "short" is just a way of saying that you own a negative number of the securities.
Typically, the short-seller will "borrow" or "rent" the securities to be sold, and later repurchase identical securities for return to the lender. If the security price falls, the short-seller profits from having sold the borrowed securities for more than he later pays for them. However, if the security price rises, the short seller loses by having sold them for less than the price at which he later has to buy them. The practice is risky in that prices may rise without bound, even beyond the net worth of the short seller. The act of repurchasing a shorted security is known as "closing" a position.
Monday, December 29, 2008
Long position
In finance, a long position in a security, such as a stock or a bond, or equivalently to be long in a security, means the holder of the position owns the security and will profit if the price of the security goes up.
Similarly, a long position in a futures contract or similar derivative means the holder of the position will profit if the price of the underlying security goes up. Going long is the more conventional practice of investing and is contrasted with going short
Similarly, a long position in a futures contract or similar derivative means the holder of the position will profit if the price of the underlying security goes up. Going long is the more conventional practice of investing and is contrasted with going short
Futures contract
In finance, a futures contract is a standardized contract, traded on a futures exchange, to buy or sell a standardized quantity of a specified commodity of standardized quality (which, in many cases, may be such non-traditional "commodities" as foreign currencies, commercial or government paper [e.g., bonds], or "baskets" of corporate equity ["stock indices"] or other financial instruments) at a certain date in the future, at a price (the futures price) determined by the instantaneous equilibrium between the forces of supply and demand among competing buy and sell orders on the exchange at the time of the purchase or sale of the contract. The future date is called the delivery date or final settlement date. The official price of the futures contract at the end of a day's trading session on the exchange is called the settlement price for that day of business on the exchange.
A futures contract gives the holder the obligation to make or take delivery under the terms of the contract, whereas an option grants the buyer the right, but not the obligation, to establish a position previously held by the seller of the option. In other words, the owner of an options contract may exercise the contract, but both parties of a "futures contract" must fulfill the contract on the settlement date. The seller delivers the underlying asset to the buyer, or, if it is a cash-settled futures contract, then cash is transferred from the futures trader who sustained a loss to the one who made a profit. To exit the commitment prior to the settlement date, the holder of a futures position has to offset his/her position by either selling a long position or buying back (covering) a short position, effectively closing out the futures position and its contract obligations.
Futures contracts, or simply futures, (but not future or future contracts) are exchange traded derivatives. The exchange's clearinghouse acts as counterparty on all contracts, sets margin requirements, and crucially also provides a mechanism for settlement.
A futures contract gives the holder the obligation to make or take delivery under the terms of the contract, whereas an option grants the buyer the right, but not the obligation, to establish a position previously held by the seller of the option. In other words, the owner of an options contract may exercise the contract, but both parties of a "futures contract" must fulfill the contract on the settlement date. The seller delivers the underlying asset to the buyer, or, if it is a cash-settled futures contract, then cash is transferred from the futures trader who sustained a loss to the one who made a profit. To exit the commitment prior to the settlement date, the holder of a futures position has to offset his/her position by either selling a long position or buying back (covering) a short position, effectively closing out the futures position and its contract obligations.
Futures contracts, or simply futures, (but not future or future contracts) are exchange traded derivatives. The exchange's clearinghouse acts as counterparty on all contracts, sets margin requirements, and crucially also provides a mechanism for settlement.
Open interest
Open interest (also known as open contracts or open commitments) denotes the total number of derivative contracts, like futures and options that are currently active on a specific underlying security having specific terms.
Namely, the total contracts for a specific strike price and expiration date, that have been traded, but have not yet expired, have not yet been closed through a closing transaction, or have not yet been terminated via early exercise. A closing transaction occurs when a counter party that longs the contract sells, or, conversely, when a counter party that shorts the contract buys.
Open interest normally serves as an indicator about a security, but it can also be used with other instruments like a currency.
Namely, the total contracts for a specific strike price and expiration date, that have been traded, but have not yet expired, have not yet been closed through a closing transaction, or have not yet been terminated via early exercise. A closing transaction occurs when a counter party that longs the contract sells, or, conversely, when a counter party that shorts the contract buys.
Open interest normally serves as an indicator about a security, but it can also be used with other instruments like a currency.
Moving average
In statistics, a moving average, also called a rolling average and sometimes a running average, refers to a statistical technique used to analyze a set of data points by creating an average of one subset of the full data set at a time with each number in the subset given an equal statistical weight. So a moving average is not a single number, but it is a set of numbers, each of which is the average of the corresponding subset of a larger set of data points. A simple example is if you had a data set with 100 data points, the first value of the moving average might be the arithmetic mean (one simple type of average) of data points 1 through 25. The next value would be this simple average of data points 2 through 26, and so forth, until the final value, which would be the same simple average of data points 76 through 100.
The size of the subset being averaged is often constant, as in the previous example, but need not be. In particular, a cumulative average is a type of moving average where each value is the average of all previous data points in the full data set. So the size of the subset being averaged grows by one as each new value of the moving average is calculated. A moving average could also use a weighted average instead of a simple average, perhaps in order to place more emphasis on more recent data points than on other data points longer ago in time.
A moving average can be applied to any data set, but is perhaps most commonly used with time series data to smooth out short-term fluctuations and highlight longer-term trends or cycles. The threshold between short-term and long-term depends on the application, and the parameters of the moving average will be set accordingly. For example, it is often used in technical analysis of financial data, like stock prices, returns or trading volumes. It is also used in economics to examine gross domestic product, employment or other macroeconomic time series. Mathematically, a moving average is a type of convolution and so it is also similar to the low-pass filter used in signal processing. When used with non-time series data, a moving average simply acts as a generic smoothing operation without any specific connection to time, although typically some kind of ordering is implied.
The size of the subset being averaged is often constant, as in the previous example, but need not be. In particular, a cumulative average is a type of moving average where each value is the average of all previous data points in the full data set. So the size of the subset being averaged grows by one as each new value of the moving average is calculated. A moving average could also use a weighted average instead of a simple average, perhaps in order to place more emphasis on more recent data points than on other data points longer ago in time.
A moving average can be applied to any data set, but is perhaps most commonly used with time series data to smooth out short-term fluctuations and highlight longer-term trends or cycles. The threshold between short-term and long-term depends on the application, and the parameters of the moving average will be set accordingly. For example, it is often used in technical analysis of financial data, like stock prices, returns or trading volumes. It is also used in economics to examine gross domestic product, employment or other macroeconomic time series. Mathematically, a moving average is a type of convolution and so it is also similar to the low-pass filter used in signal processing. When used with non-time series data, a moving average simply acts as a generic smoothing operation without any specific connection to time, although typically some kind of ordering is implied.
Technical analysts
Technical analysts (or technicians) seek to identify price patterns and trends in financial markets and attempt to exploit those patterns. While technicians use various methods and tools, the study of price charts is primary.
Technicians especially search for archetypal patterns, such as the well-known head and shoulders or double top reversal patterns, study indicators such as moving averages, and look for forms such as lines of support, resistance, channels, and more obscure formations such as flags, pennants or balance days.
Critics argue that these 'patterns' are simply random effects on which humans impose causation. Critics state that humans see patterns that aren't there and then ascribe value to them.
Technical analysts also extensively use indicators, which are typically mathematical transformations of price or volume. These indicators are used to help determine whether an asset is trending, and if it is, its price direction. Technicians also look for relationships between prices, volume and, in the case of futures, open interest. Examples include the relative strength index, and MACD. Other avenues of study include correlations between changes in options (implied volatility) and put/call ratios with price. Other technicians include sentiment indicators, such as Put/Call ratios and Implied Volatility in their analysis.
Technicians seek to forecast price movements such that large gains from successful trades exceed more numerous but smaller losing trades, producing positive returns in the long run through proper risk control and money management.
There are several schools of technical analysis. Adherents of different schools (for example, candlestick charting, Dow Theory, and Elliott wave theory) may ignore the other approaches, yet many traders combine elements from more than one school. Technical analysts use judgment gained from experience to decide which pattern a particular instrument reflects at a given time, and what the interpretation of that pattern should be.
Technical analysis is frequently contrasted with fundamental analysis; the study of economic factors that some analysts say can influence prices in financial markets. Technical analysis holds that prices already reflect all such influences before investors are aware of them, hence the study of price action alone. Some traders use technical or fundamental analysis exclusively, while others use both types to make trading decisions.
Technicians especially search for archetypal patterns, such as the well-known head and shoulders or double top reversal patterns, study indicators such as moving averages, and look for forms such as lines of support, resistance, channels, and more obscure formations such as flags, pennants or balance days.
Critics argue that these 'patterns' are simply random effects on which humans impose causation. Critics state that humans see patterns that aren't there and then ascribe value to them.
Technical analysts also extensively use indicators, which are typically mathematical transformations of price or volume. These indicators are used to help determine whether an asset is trending, and if it is, its price direction. Technicians also look for relationships between prices, volume and, in the case of futures, open interest. Examples include the relative strength index, and MACD. Other avenues of study include correlations between changes in options (implied volatility) and put/call ratios with price. Other technicians include sentiment indicators, such as Put/Call ratios and Implied Volatility in their analysis.
Technicians seek to forecast price movements such that large gains from successful trades exceed more numerous but smaller losing trades, producing positive returns in the long run through proper risk control and money management.
There are several schools of technical analysis. Adherents of different schools (for example, candlestick charting, Dow Theory, and Elliott wave theory) may ignore the other approaches, yet many traders combine elements from more than one school. Technical analysts use judgment gained from experience to decide which pattern a particular instrument reflects at a given time, and what the interpretation of that pattern should be.
Technical analysis is frequently contrasted with fundamental analysis; the study of economic factors that some analysts say can influence prices in financial markets. Technical analysis holds that prices already reflect all such influences before investors are aware of them, hence the study of price action alone. Some traders use technical or fundamental analysis exclusively, while others use both types to make trading decisions.
Trade Frequency/Profit and Risks
Trade Frequency
Although collectively called day trading, there are many styles within day trading. A day trader is actively searching for potential trading setups (that is, any stock or other financial instruments that, in the judgment of the day trader, is in a tension state, ready to accelerate in price in either direction, that when traded well has a potential for a substantial profit). Depending on whether one is trading with or without a consultant / coach, the trading system (game - old or new school), strategy, tactics, lot size traded, the number of trades you can make per day are unlimited, as well the profits, as well the losses.
Some day traders focus on very short-term trading within the trading day, in which a trade may last just a few minutes. Day traders may buy and sell many times in a trading day and may receive trading fee discounts from their broker for this trading volume.
Some day trader’s focus only on price momentum, others on technical patterns, and still others on an unlimited number of strategies they feel can be profitable.
Day traders exit positions before the market closes to avoid any and all unmanageable risks --- negative price gaps (differences between the previous day's close and the next day's open bull price) at the open --- overnight price movements against the position held. Day traders, like all traders, have their rules.
Other traders believe they should let the profits run, so it is acceptable to stay with a position after the market closes.
Day traders sometimes borrow money to trade. This is called margin trading. Since margin interests are typically only charged on overnight balances, there is no cost to the day trader for the margin benefit.
Profit and Risks
Because of the nature of financial leverage and the rapid returns that are possible, day trading can be either extremely profitable or extremely unprofitable, and high-risk profile traders can generate either huge percentage returns or huge percentage losses. Some day traders manage to earn millions per year solely by day trading.
Because of the high profits (and losses) that day trading makes possible, these traders are sometimes portrayed as "bandits" or "gamblers" by other investors. Some individuals, however, make a consistent living from day trading.
Nevertheless day trading can be very risky, especially if any of the following is present while trading:
• trading a loser's game/system rather than a game that's at least winnable,
• trading with poor discipline (ignoring your own day trading strategy, tactics, rules),
• inadequate risk capital with the accompanying excess stress of having to "survive",
• Incompetent money management (i.e. executing trades poorly).
The common use of buying on margin (using borrowed funds) amplifies gains and losses, such that substantial losses or gains can occur in a very short period of time. In addition, brokers usually allow bigger margins for day traders. Where overnight margins required to hold a stock position are normally 50% of the stock's value, many brokers allow pattern day trader accounts to use levels as low as 25% for intraday purchases. This means a day trader with the legal minimum Rs25,000 in his or her account can buy Rs100,000 worth of stock during the day, as long as half of those positions are exited before the market close. Because of the high risk of margin use, and of other day trading practices, a day trader will often have to exit a losing position very quickly, in order to prevent a greater, unacceptable loss, or even a disastrous loss, much larger than his or her original investment, or even larger than his or her total assets.
Although collectively called day trading, there are many styles within day trading. A day trader is actively searching for potential trading setups (that is, any stock or other financial instruments that, in the judgment of the day trader, is in a tension state, ready to accelerate in price in either direction, that when traded well has a potential for a substantial profit). Depending on whether one is trading with or without a consultant / coach, the trading system (game - old or new school), strategy, tactics, lot size traded, the number of trades you can make per day are unlimited, as well the profits, as well the losses.
Some day traders focus on very short-term trading within the trading day, in which a trade may last just a few minutes. Day traders may buy and sell many times in a trading day and may receive trading fee discounts from their broker for this trading volume.
Some day trader’s focus only on price momentum, others on technical patterns, and still others on an unlimited number of strategies they feel can be profitable.
Day traders exit positions before the market closes to avoid any and all unmanageable risks --- negative price gaps (differences between the previous day's close and the next day's open bull price) at the open --- overnight price movements against the position held. Day traders, like all traders, have their rules.
Other traders believe they should let the profits run, so it is acceptable to stay with a position after the market closes.
Day traders sometimes borrow money to trade. This is called margin trading. Since margin interests are typically only charged on overnight balances, there is no cost to the day trader for the margin benefit.
Profit and Risks
Because of the nature of financial leverage and the rapid returns that are possible, day trading can be either extremely profitable or extremely unprofitable, and high-risk profile traders can generate either huge percentage returns or huge percentage losses. Some day traders manage to earn millions per year solely by day trading.
Because of the high profits (and losses) that day trading makes possible, these traders are sometimes portrayed as "bandits" or "gamblers" by other investors. Some individuals, however, make a consistent living from day trading.
Nevertheless day trading can be very risky, especially if any of the following is present while trading:
• trading a loser's game/system rather than a game that's at least winnable,
• trading with poor discipline (ignoring your own day trading strategy, tactics, rules),
• inadequate risk capital with the accompanying excess stress of having to "survive",
• Incompetent money management (i.e. executing trades poorly).
The common use of buying on margin (using borrowed funds) amplifies gains and losses, such that substantial losses or gains can occur in a very short period of time. In addition, brokers usually allow bigger margins for day traders. Where overnight margins required to hold a stock position are normally 50% of the stock's value, many brokers allow pattern day trader accounts to use levels as low as 25% for intraday purchases. This means a day trader with the legal minimum Rs25,000 in his or her account can buy Rs100,000 worth of stock during the day, as long as half of those positions are exited before the market close. Because of the high risk of margin use, and of other day trading practices, a day trader will often have to exit a losing position very quickly, in order to prevent a greater, unacceptable loss, or even a disastrous loss, much larger than his or her original investment, or even larger than his or her total assets.
Day Trading
Day trading refers to the practice of buying and selling financial instruments within the same trading day such that all positions are usually closed before the market close of the trading day. Traders that participate in day trading are called day traders.
Some of the more commonly day-traded financial instruments are stocks, stock options, currencies, and a host of futures contracts such as equity index futures, interest rate futures, and commodity futures.
Day trading used to be the preserve of financial firms and professional investors and speculators. Many day traders are bank or investment firm employees working as specialists in equity investment and fund management. However, with the advent of electronic trading and margin trading, day trading has become increasingly popular among casual, at home traders.
Some of the more commonly day-traded financial instruments are stocks, stock options, currencies, and a host of futures contracts such as equity index futures, interest rate futures, and commodity futures.
Day trading used to be the preserve of financial firms and professional investors and speculators. Many day traders are bank or investment firm employees working as specialists in equity investment and fund management. However, with the advent of electronic trading and margin trading, day trading has become increasingly popular among casual, at home traders.
Sunday, December 28, 2008
8 Reasons To Dump A Mutual Fund
Many financial advisors and academics do not recommend selling stocks and mutual funds when prices are tumbling during bear markets. If you can just hold on through thick and thin, they argue, you are likely to enjoy returns better than any other asset class over the long run: an average annual yield of 6.5-7% after inflation, according to Professor Jeremy Siegel's, "Stocks for the Long Run" (1994).
However, there are occasions when selling a mutual fund might be warranted. Buy and hold is not forever. Here we look at the top eight reasons for selling a mutual fund.
1. Portfolio Rebalancing
Over time, trends in financial markets might cause asset allocations to diverge from desired settings. In other words, some mutual funds can grow to a large proportion of the portfolio while others shrink to a smaller proportion, exposing you to a different level of risk.
To avoid this outcome, the portfolio can be rebalanced periodically by selling units in funds that have relatively large weights and transferring the proceeds to funds that have relatively small weights. Under this rule, the time to sell equity mutual funds is when they have enjoyed good gains over an extended bull market and the percentage allocated to them has drifted up too high.
2. Mutual Fund Changes or Mismanagement
Mutual funds might change in a number of ways that can be at odds with your original reasons for buying. For example, a star portfolio manager could jump ship and be replaced by someone lacking the same capabilities. Or there may be style drift, which arises when a manager gradually alters his or her investing approach over time. (For more insight,
Other signals to move on include an upward trend in annual management expense ratios (MERs) or a fund that has grown large relative to the market. If the fund has grown large compared to the market, managers could have difficulty differentiating their portfolios from the market in order to earn above-market returns.
3. Investor Growth
As you gain experience and acquire more wealth, you may outgrow mutual funds. With greater wealth comes the ability to buy enough individual stocks to achieve adequate diversification and avoid MERs. And with greater knowledge comes the confidence to do it yourself, whether it is actively picking stocks or buying and holding market indexes through exchange-traded funds (ETFs).
4. Life Cycle Changes
Although stocks historically have been the best investments to own over the long run, their volatility makes them unreliable vehicles in the short term. When retirement, children's post-secondary educations, or some other funding requirements approach, a good idea is to shift out of stock-market funds into assets that have more certain returns, such as bonds or term deposits, whose maturities coincide with the time that the funds will be needed.
5. Mistakes
Sometimes, investors' due diligence is incomplete and they end up owning funds they otherwise would have not purchased. For example, the investor might discover that the fund is too volatile for their tastes, a closet-index fund with a high MER, or invested in undesirable securities.
Portfolio errors might also have been committed by the investor. A common mistake is over-diversifying with too many funds, which can be difficult to keep tabs on and can tend to average out to market performance (less fund fees).
Another common misstep is to confuse owning a large number of funds with diversification. A large number of funds will not smooth out fluctuations if they tend to move in the same direction. What's needed is a collection of funds, of which some can be expected to be up when others are down.
6. Valuation
Shift out of mutual funds to rebalance your fixed portfolio allocations by using a flexible or opportunistic approach. A common valuation yardstick is the price-earnings ratio (P/E ratio); for U.S. stocks, it has averaged 14 to 15 over time, so if it rises to 24 to 26, valuations are overextended and the risk of a downturn is elevated.
7. Something better comes along
investing legend Sir John Templeton advised selling whenever something better came along. In the mutual fund realm, some funds can come onto the market with innovations that are better at doing what your fund is doing. Or, over time, it may become apparent other portfolio managers are performing better against the same benchmarks.
8. Tax Reduction
Mutual funds held in taxable accounts might be down substantially from their purchase price. They can be sold to realize capital losses that are used to offset taxable capital gains and thus lower taxes.
If the sale was solely to realize a capital loss for taxation purposes, the investor will want to re-establish the position after the 30-day period required to avoid the superficial-loss rule. The investor might take a chance that the price will be the same, lower or might choose to hold a proxy for the fund's price movement.
Tax-loss selling tends to occur during August to late December. That's also the period when many funds have estimated the capital gains and income they will be distributing to investors at year end. These amounts are taxable in the hands of the investor, so an additional reason to sell a losing fund from the tax point of view may be to avoid a large year-end distribution that would require paying additional taxes.
Conclusion
Although these eight reasons should compel you to consider getting rid of your fund, remember to keep the impact of deferred sales charges, short-term trading fees and taxes in mind whenever you sell. If these other factors don't fall in your favor, it may not be the best time to get out.
However, there are occasions when selling a mutual fund might be warranted. Buy and hold is not forever. Here we look at the top eight reasons for selling a mutual fund.
1. Portfolio Rebalancing
Over time, trends in financial markets might cause asset allocations to diverge from desired settings. In other words, some mutual funds can grow to a large proportion of the portfolio while others shrink to a smaller proportion, exposing you to a different level of risk.
To avoid this outcome, the portfolio can be rebalanced periodically by selling units in funds that have relatively large weights and transferring the proceeds to funds that have relatively small weights. Under this rule, the time to sell equity mutual funds is when they have enjoyed good gains over an extended bull market and the percentage allocated to them has drifted up too high.
2. Mutual Fund Changes or Mismanagement
Mutual funds might change in a number of ways that can be at odds with your original reasons for buying. For example, a star portfolio manager could jump ship and be replaced by someone lacking the same capabilities. Or there may be style drift, which arises when a manager gradually alters his or her investing approach over time. (For more insight,
Other signals to move on include an upward trend in annual management expense ratios (MERs) or a fund that has grown large relative to the market. If the fund has grown large compared to the market, managers could have difficulty differentiating their portfolios from the market in order to earn above-market returns.
3. Investor Growth
As you gain experience and acquire more wealth, you may outgrow mutual funds. With greater wealth comes the ability to buy enough individual stocks to achieve adequate diversification and avoid MERs. And with greater knowledge comes the confidence to do it yourself, whether it is actively picking stocks or buying and holding market indexes through exchange-traded funds (ETFs).
4. Life Cycle Changes
Although stocks historically have been the best investments to own over the long run, their volatility makes them unreliable vehicles in the short term. When retirement, children's post-secondary educations, or some other funding requirements approach, a good idea is to shift out of stock-market funds into assets that have more certain returns, such as bonds or term deposits, whose maturities coincide with the time that the funds will be needed.
5. Mistakes
Sometimes, investors' due diligence is incomplete and they end up owning funds they otherwise would have not purchased. For example, the investor might discover that the fund is too volatile for their tastes, a closet-index fund with a high MER, or invested in undesirable securities.
Portfolio errors might also have been committed by the investor. A common mistake is over-diversifying with too many funds, which can be difficult to keep tabs on and can tend to average out to market performance (less fund fees).
Another common misstep is to confuse owning a large number of funds with diversification. A large number of funds will not smooth out fluctuations if they tend to move in the same direction. What's needed is a collection of funds, of which some can be expected to be up when others are down.
6. Valuation
Shift out of mutual funds to rebalance your fixed portfolio allocations by using a flexible or opportunistic approach. A common valuation yardstick is the price-earnings ratio (P/E ratio); for U.S. stocks, it has averaged 14 to 15 over time, so if it rises to 24 to 26, valuations are overextended and the risk of a downturn is elevated.
7. Something better comes along
investing legend Sir John Templeton advised selling whenever something better came along. In the mutual fund realm, some funds can come onto the market with innovations that are better at doing what your fund is doing. Or, over time, it may become apparent other portfolio managers are performing better against the same benchmarks.
8. Tax Reduction
Mutual funds held in taxable accounts might be down substantially from their purchase price. They can be sold to realize capital losses that are used to offset taxable capital gains and thus lower taxes.
If the sale was solely to realize a capital loss for taxation purposes, the investor will want to re-establish the position after the 30-day period required to avoid the superficial-loss rule. The investor might take a chance that the price will be the same, lower or might choose to hold a proxy for the fund's price movement.
Tax-loss selling tends to occur during August to late December. That's also the period when many funds have estimated the capital gains and income they will be distributing to investors at year end. These amounts are taxable in the hands of the investor, so an additional reason to sell a losing fund from the tax point of view may be to avoid a large year-end distribution that would require paying additional taxes.
Conclusion
Although these eight reasons should compel you to consider getting rid of your fund, remember to keep the impact of deferred sales charges, short-term trading fees and taxes in mind whenever you sell. If these other factors don't fall in your favor, it may not be the best time to get out.
9 Tricks Of The Successful Trader
For all of its numbers, charts and ratios, trading is more art than science. And just as in artistic endeavors, there is talent involved, but talent will only take you so far. The best traders hone their skills through practice and discipline. They perform self analysis to see what drives their trades and learn how to keep fear and greed out of the equation. In this article we'll look at nine steps a novice trader can use to perfect his or her craft; for the experts out there, you might just find some tips that will help you make smarter, more profitable trades, too.
Step 1. Define your goals and then choose a style of trading that is compatible with those goals. Be sure your personality is a match for the style of trading you choose.
Before you set out on any journey, it is imperative that you have some idea of where your destination is and how you will get there. Consequently, it is imperative that you have clear goals in mind as to what you would like to achieve; you then have to be sure that your trading method is capable of achieving these goals. Each type of trading style requires a different approach and each style has a different risk profile, which requires a different attitude and approach to trade successfully. For example, if you cannot stomach going to sleep with an open position in the market then you might consider day trading. On the other hand, if you have funds that you think will benefit from the appreciation of a trade over a period of some months, then a position trader is what you want to consider becoming. But no matter what style of trading you choose, be sure that your personality fits the style of trading you undertake. A personality mismatch will lead to stress and certain losses.
Step 2. Choose a broker with whom you feel comfortable but also one who offers a trading platform that is appropriate for your style of trading.
It is important to choose a broker who offers a trading platform that will allow you to do the analysis you require. Choosing a reputable broker is of paramount importance and spending time researching the differences between brokers will be very helpful. You must know each broker's policies and how he or she goes about making a market. For example, trading in the over-the-counter market or spot market is different from trading the exchange-driven markets. In choosing a broker, it is important to read the broker documentation. Know your broker's policies. Also make sure that your broker's trading platform is suitable for the analysis you want to do. For example, if you like to trade off of Fibonacci numbers, be sure the broker's platform can draw Fibonacci lines. A good broker with a poor platform, or a good platform with a poor broker, can be a problem. Make sure you get the best of both.
Step 3. Choose a methodology and then be consistent in its application.
Before you enter any market as a trader, you need to have some idea of how you will make decisions to execute your trades. You must know what information you will need in order to make the appropriate decision about whether to enter or exit a trade. Some people choose to look at the underlying fundamentals of the company or economy, and then use a chart to determine the best time to execute the trade. Others use technical analysis; as a result they will only use charts to time a trade. Remember that fundamentals drive the trend in the long term, whereas chart patterns may offer trading opportunities in the short term. Whichever methodology you choose, remember to be consistent. And be sure your methodology is adaptive. Your system should keep up with the changing dynamics of a market.
Step 4. Choose a longer time frame for direction analysis and a shorter time frame to time entry or exit.
Many traders get confused because of conflicting information that occurs when looking at charts in different time frames. What shows up as a buying opportunity on a weekly chart could, in fact, show up as a sell signal on an intraday chart. Therefore, if you are taking your basic trading direction from a weekly chart and using a daily chart to time entry, be sure to synchronize the two. In other words, if the weekly chart is giving you a buy signal, wait until the daily chart also confirms a buy signal. Keep your timing in sync.
Step 5. Calculate your expectancy.
Expectancy is the formula you use to determine how reliable your system is. You should go back in time and measure all your trades that were winners, versus all your trades that were losers. Then determine how profitable your winning trades were versus how much your losing trades lost.
Take a look at your last 10 trades. If you haven't made actual trades yet, go back on your chart to where your system would have indicated that you should enter and exit a trade. Determine if you would have made a profit or a loss. Write these results down. Total all your winning trades and divide the answer by the number of winning trades you made. Here is the formula:
E= [1+ (W/L)] x P – 1
where:
W = Average Winning Trade
L = Average Losing Trade
P = Percentage Win Ratio
Example:
If you made 10 trades and six of them were winning trades and four were losing trades, your percentage win ratio would be 6/10 or 60%. If your six trades made Rs2, 400, then your average win would be Rs2, 400/6 = Rs400. If your losses were Rs1, 200, then your average loss would be Rs1, 200/4 = Rs300. Apply these results to the formula and you get; E= [1+ (400/300)] x 0.6 - 1 = 0.40 or 40%. A positive 40% expectancy
Step 6. Focus on your trades and learn to love small losses.
Once you have funded your account, the most important thing to remember is that your money is at risk. Therefore, your money should not be needed for living or to pay bills etc. Consider your trading money as if it were vacation money. Once the vacation is over your money is spent. Have the same attitude toward trading. This will psychologically prepare you to accept small losses, which is key to managing your risk. By focusing on your trades and accepting small losses rather than constantly counting your equity, you will be much more successful.
Secondly, only leverage your trades to a maximum risk of 2% of your total funds. In other words, if you have Rs10,000 in your trading account, never let any trade lose more than 2% of the account value, or Rs200. If your stops are farther away than 2% of your account, trade shorter time frames or decrease the leverage.
Step 7. Build positive feedback loops.
A positive feedback loop is created as a result of a well-executed trade in accordance with your plan. When you plan a trade and then execute it well, you form a positive feedback pattern. Success breeds success, which in turn breeds confidence - especially if the trade is profitable. Even if you take a small loss but do so in accordance with a planned trade, then you will be building a positive feedback loop.
Step 8. Perform weekend analysis.
It is always good to prepare in advance. On the weekend, when the markets are closed, study weekly charts to look for patterns or news that could affect your trade. Perhaps a pattern is making a double top and the pundits and the news is suggesting a market reversal. This is a kind of reflexivity where the pattern could be prompting the pundits while the pundits are reinforcing the pattern. Or the pundits may be telling you that the market is about to explode. Perhaps these are pundits hoping to lure you into the market so that they can sell their positions on increased liquidity. These are the kinds of actions to look for to help you formulate your upcoming trading week. In the cool light of objectivity, you will make your best plans. Wait for your setups and learn to be patient.
If the market does not reach your point of entry, learn to sit on your hands. You might have to wait for the opportunity longer than you anticipated. If you miss a trade, remember that there will always be another. If you have patience and discipline you can become a good trader.
Step 9. Keep a printed record.
Keeping a printed record is one of the best learning tools a trader can have. Print out a chart and list all the reasons for the trade, including the fundamentals that sway your decisions. Mark the chart with your entry and your exit points. Make any relevant comments on the chart. File this record so you can refer to it over and over again. Note the emotional reasons for taking action. Did you panic? Were you too greedy? Were you full of anxiety? Note all these feelings on your record. It is only when you can objectify your trades that you will develop the mental control and discipline to execute according to your system instead of your habits.
Bottom Line
The steps above will lead you to a structured approach to trading and in return should help you become a more refined trader. Trading is an art and the only way to become increasingly proficient is through consistent and disciplined practice. Remember the expression: the harder you practice the luckier you'll get.
Step 1. Define your goals and then choose a style of trading that is compatible with those goals. Be sure your personality is a match for the style of trading you choose.
Before you set out on any journey, it is imperative that you have some idea of where your destination is and how you will get there. Consequently, it is imperative that you have clear goals in mind as to what you would like to achieve; you then have to be sure that your trading method is capable of achieving these goals. Each type of trading style requires a different approach and each style has a different risk profile, which requires a different attitude and approach to trade successfully. For example, if you cannot stomach going to sleep with an open position in the market then you might consider day trading. On the other hand, if you have funds that you think will benefit from the appreciation of a trade over a period of some months, then a position trader is what you want to consider becoming. But no matter what style of trading you choose, be sure that your personality fits the style of trading you undertake. A personality mismatch will lead to stress and certain losses.
Step 2. Choose a broker with whom you feel comfortable but also one who offers a trading platform that is appropriate for your style of trading.
It is important to choose a broker who offers a trading platform that will allow you to do the analysis you require. Choosing a reputable broker is of paramount importance and spending time researching the differences between brokers will be very helpful. You must know each broker's policies and how he or she goes about making a market. For example, trading in the over-the-counter market or spot market is different from trading the exchange-driven markets. In choosing a broker, it is important to read the broker documentation. Know your broker's policies. Also make sure that your broker's trading platform is suitable for the analysis you want to do. For example, if you like to trade off of Fibonacci numbers, be sure the broker's platform can draw Fibonacci lines. A good broker with a poor platform, or a good platform with a poor broker, can be a problem. Make sure you get the best of both.
Step 3. Choose a methodology and then be consistent in its application.
Before you enter any market as a trader, you need to have some idea of how you will make decisions to execute your trades. You must know what information you will need in order to make the appropriate decision about whether to enter or exit a trade. Some people choose to look at the underlying fundamentals of the company or economy, and then use a chart to determine the best time to execute the trade. Others use technical analysis; as a result they will only use charts to time a trade. Remember that fundamentals drive the trend in the long term, whereas chart patterns may offer trading opportunities in the short term. Whichever methodology you choose, remember to be consistent. And be sure your methodology is adaptive. Your system should keep up with the changing dynamics of a market.
Step 4. Choose a longer time frame for direction analysis and a shorter time frame to time entry or exit.
Many traders get confused because of conflicting information that occurs when looking at charts in different time frames. What shows up as a buying opportunity on a weekly chart could, in fact, show up as a sell signal on an intraday chart. Therefore, if you are taking your basic trading direction from a weekly chart and using a daily chart to time entry, be sure to synchronize the two. In other words, if the weekly chart is giving you a buy signal, wait until the daily chart also confirms a buy signal. Keep your timing in sync.
Step 5. Calculate your expectancy.
Expectancy is the formula you use to determine how reliable your system is. You should go back in time and measure all your trades that were winners, versus all your trades that were losers. Then determine how profitable your winning trades were versus how much your losing trades lost.
Take a look at your last 10 trades. If you haven't made actual trades yet, go back on your chart to where your system would have indicated that you should enter and exit a trade. Determine if you would have made a profit or a loss. Write these results down. Total all your winning trades and divide the answer by the number of winning trades you made. Here is the formula:
E= [1+ (W/L)] x P – 1
where:
W = Average Winning Trade
L = Average Losing Trade
P = Percentage Win Ratio
Example:
If you made 10 trades and six of them were winning trades and four were losing trades, your percentage win ratio would be 6/10 or 60%. If your six trades made Rs2, 400, then your average win would be Rs2, 400/6 = Rs400. If your losses were Rs1, 200, then your average loss would be Rs1, 200/4 = Rs300. Apply these results to the formula and you get; E= [1+ (400/300)] x 0.6 - 1 = 0.40 or 40%. A positive 40% expectancy
Step 6. Focus on your trades and learn to love small losses.
Once you have funded your account, the most important thing to remember is that your money is at risk. Therefore, your money should not be needed for living or to pay bills etc. Consider your trading money as if it were vacation money. Once the vacation is over your money is spent. Have the same attitude toward trading. This will psychologically prepare you to accept small losses, which is key to managing your risk. By focusing on your trades and accepting small losses rather than constantly counting your equity, you will be much more successful.
Secondly, only leverage your trades to a maximum risk of 2% of your total funds. In other words, if you have Rs10,000 in your trading account, never let any trade lose more than 2% of the account value, or Rs200. If your stops are farther away than 2% of your account, trade shorter time frames or decrease the leverage.
Step 7. Build positive feedback loops.
A positive feedback loop is created as a result of a well-executed trade in accordance with your plan. When you plan a trade and then execute it well, you form a positive feedback pattern. Success breeds success, which in turn breeds confidence - especially if the trade is profitable. Even if you take a small loss but do so in accordance with a planned trade, then you will be building a positive feedback loop.
Step 8. Perform weekend analysis.
It is always good to prepare in advance. On the weekend, when the markets are closed, study weekly charts to look for patterns or news that could affect your trade. Perhaps a pattern is making a double top and the pundits and the news is suggesting a market reversal. This is a kind of reflexivity where the pattern could be prompting the pundits while the pundits are reinforcing the pattern. Or the pundits may be telling you that the market is about to explode. Perhaps these are pundits hoping to lure you into the market so that they can sell their positions on increased liquidity. These are the kinds of actions to look for to help you formulate your upcoming trading week. In the cool light of objectivity, you will make your best plans. Wait for your setups and learn to be patient.
If the market does not reach your point of entry, learn to sit on your hands. You might have to wait for the opportunity longer than you anticipated. If you miss a trade, remember that there will always be another. If you have patience and discipline you can become a good trader.
Step 9. Keep a printed record.
Keeping a printed record is one of the best learning tools a trader can have. Print out a chart and list all the reasons for the trade, including the fundamentals that sway your decisions. Mark the chart with your entry and your exit points. Make any relevant comments on the chart. File this record so you can refer to it over and over again. Note the emotional reasons for taking action. Did you panic? Were you too greedy? Were you full of anxiety? Note all these feelings on your record. It is only when you can objectify your trades that you will develop the mental control and discipline to execute according to your system instead of your habits.
Bottom Line
The steps above will lead you to a structured approach to trading and in return should help you become a more refined trader. Trading is an art and the only way to become increasingly proficient is through consistent and disciplined practice. Remember the expression: the harder you practice the luckier you'll get.
Stocks Basics
Wouldn't you love to be a business owner without ever having to show up at work? Imagine if you could sit back, watch your company grow, and collect the dividend checks as the money rolls in! This situation might sound like a pipe dream, but it's closer to reality than you might think.
As you've probably guessed, we're talking about owning stocks. This fabulous category of financial instruments is, without a doubt, one of the greatest tools ever invented for building wealth. Stocks are a part, if not the cornerstone, of nearly any investment portfolio. When you start on your road to financial freedom, you need to have a solid understanding of stocks and how they trade on the stock market.
Over the last few decades, the average person's interest in the stock market has grown exponentially. What was once a toy of the rich has now turned into the vehicle of choice for growing wealth. This demand coupled with advances in trading technology has opened up the markets so that nowadays nearly anybody can own stocks.
Despite their popularity, however, most people don't fully understand stocks. Much is learned from conversations around the water cooler with others who also don't know what they're talking about. Chances are you've already heard people say things like, "Bob's cousin made a killing in XYZ company, and now he's got another hot tip..." or "Watch out with stocks--you can lose your shirt in a matter of days!" So much of this misinformation is based on a get-rich-quick mentality, which was especially prevalent during the amazing dot com market in the late '90s. People thought that stocks were the magic answer to instant wealth with no risk. The ensuing dotcom crash proved that this is not the case. Stocks can (and do) create massive amounts of wealth, but they aren't without risks. The only solution to this is education. The key to protecting yourself in the stock market is to understand where you are putting your money.
It is for this reason that we've created this tutorial: to provide the foundation you need to make investment decisions yourself. We'll start by explaining what a stock is and the different types of stock, and then we'll talk about how they are traded, what causes prices to change, how you buy stocks and much more.
As you've probably guessed, we're talking about owning stocks. This fabulous category of financial instruments is, without a doubt, one of the greatest tools ever invented for building wealth. Stocks are a part, if not the cornerstone, of nearly any investment portfolio. When you start on your road to financial freedom, you need to have a solid understanding of stocks and how they trade on the stock market.
Over the last few decades, the average person's interest in the stock market has grown exponentially. What was once a toy of the rich has now turned into the vehicle of choice for growing wealth. This demand coupled with advances in trading technology has opened up the markets so that nowadays nearly anybody can own stocks.
Despite their popularity, however, most people don't fully understand stocks. Much is learned from conversations around the water cooler with others who also don't know what they're talking about. Chances are you've already heard people say things like, "Bob's cousin made a killing in XYZ company, and now he's got another hot tip..." or "Watch out with stocks--you can lose your shirt in a matter of days!" So much of this misinformation is based on a get-rich-quick mentality, which was especially prevalent during the amazing dot com market in the late '90s. People thought that stocks were the magic answer to instant wealth with no risk. The ensuing dotcom crash proved that this is not the case. Stocks can (and do) create massive amounts of wealth, but they aren't without risks. The only solution to this is education. The key to protecting yourself in the stock market is to understand where you are putting your money.
It is for this reason that we've created this tutorial: to provide the foundation you need to make investment decisions yourself. We'll start by explaining what a stock is and the different types of stock, and then we'll talk about how they are traded, what causes prices to change, how you buy stocks and much more.
Tuesday, December 23, 2008
QUOTE
When we dream alone it is only a dream, but when many dream together it is the beginning of a new reality.
The world of reality has its limits; the world of imagination is boundless.
The world of reality has its limits; the world of imagination is boundless.
Thursday, December 18, 2008
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Technical analysis
Technical analysis is as the name suggests the observation of stocks using chart data in
order to predict ups or downs of any given stock. Those who practice this are generally not concerned about the overall value of a company. They normally engage in short term trading with the idea of making a quick profit.
The idea behind any chart data is the recognition of pattern movements. The goal is to spot these patters and make money on them when you can. As a result of efficient data collection by the stock market on events such as natural disasters, terrorist attaches, and company performance the theory is that you will be able to make good calls on any given stock.
The thing to note with this type of investing is that this is not for longer term. The goal of such investors is to watch stock patterns. The fundamentals of company growth are not taken into consideration. Therefore long term performance of a given company is not the key component. The fundamental of technical analysis is the execution of profitable investments over the short term.
Investors using this data can take advantage of stocks that are either rising or falling. They can then implement a stop loss order to reduce losses on either end. This like any other technique with an objective in mind sets out to achieve a given result through the use of data collection over time and then predict outcomes based on that same data. These investors rely on charts and analysis of such charts to make profitable trades. That is the essence of technical analysis.
In the world of trading and investing, there are literally hundreds of technical indicators that have been developed over the years by a variety of people, fascinated by the markets. All the indicators have three things in common. Firstly they were developed as a silver bullet to tell you exactly when to open or close a position, secondly, they are all based on lagging information, and thirdly they all work some of the time!
The only indicator that I use in my daily trading is the simple moving average or SMA. They are the most basic and simple indicator of all, and whilst they are a fairly blunt tool in our tool kit, they do offer a very basic overview of what is happening on the chart, and provide simple guidance as to the possible future direction of prices.
As the name suggest a simple moving average is simply that - so a 20 day SMA is the last 20 days prices added together and divided by 20 to arrive at an average. I did say it was simple. That is all there is to it! - I only use 2 to keep the screen uncluttered and these are a 50 day and a 200 day. When you listen to commentary on the markets on the financial news stations, or on TV you will hear them refer to these figures - i.e.:commodities price has crossed below its 200 day moving average - so even the professionals use them! The reason that I only use two is that they give me a slightly different view of prices over different timescales, and the screen remains clutter free.
Back
Introduction to Charts for the Beginning Technical Analyst
This is an introduction to charts and how to read them for beginning technical analysts. Technical analysts are investors who utilize technical analysis when conducting investment, focusing on price movements rather than on a company's fundamentals. Fundamental analysts use fundamental analysis as an investment approach, which focuses on a company's income, price-earnings ratios, assets and other indicators, unlike technical analysts. Technical analysts use charts to examine securities and forecast price movements. For the total beginner,securities refers to any tradable financial instrument such as stocks, bonds, futures or market indices, and other financial devices. Any security with data over time can be used to form price charts. Because charts provide a graphical representation of a security's price movement over time, they are also of use to fundamental analysts as well. A historical graphical record makes it simple to study the effects of events on price, performance over a period and a security's actual trading near highs, lows, or in between. The time frame used for the chart varies according to the compression of the data: intraday, daily, weekly, monthly, quarterly or even annual data are the major time frames commonly utilized.
What are the different kinds of data? Daily data is made up of intraday data that is compressed to show each day as a single data point, and weekly data is made up of daily data that is compressed to show each week as a single point. The shorter the timeframe and the less compressed the data, the more detail available. However, short-term charts can thus be volatile and contain a lot of noise, where noise is basically a distortion of the actual patterns or trends by events that are not important to the analysis. Large
sudden price movements, wide high-low ranges and price gaps can affect volatility, which distorts the big picture. Investors usually focus on weekly and monthly
charts to spot long-term trends, and because long-term charts cover a longer time frame, price movements do not appear as extreme and there is less noise. Some technical analysts use a combination of long-term and short-term charts, where long-term charts are good for technical analysts analyzing the big picture to get perspective of historical price action. Once the picture is examined, then a daily chart can be utilized next to focus closely on the last few months.
There are many charting methods, such as bar charts, line charts, candlestick charts, among other charting methods. The most popular charting method is the bar chart, in which the high, low and close are needed to form the price plot for each period. Bar charts can be effective for displaying a large amount of data. For example, line charts show less clutter, but do not offer as much detail. There are also candlestick charts. Candlestick charts are also rather popular nowadays. For a candlestick chart, the open, high, low and close are all presented. Many traders and investors believe that candlestick charts are easy to read, especially the relationship between the open and close.
Now for yet more technical words and technical aspects of technical analysis: There are two methods for showing the price scale along the y-axis: arithmetic and logarithmic methods. An arithmetic scale displays 10 points as the same vertical distance regardless of the price level. Each unit of measure is the same throughout the entire scale. A logarithmic scale measures price movements in percentage terms. However, arithmetic scales on the other hand are useful when the price range is confined within a relatively tight range. Arithmetic scales are useful for short-term trading. Price movements are shown in absolute dollar terms and reflect movements dollar for dollar.
In the final analysis, even though many different charting methods are available to the analyst, one charting method is not necessarily better than another technique. Why? The data is the same but you can see that each technique does provide its particular interpretation, with its benefits and disadvantages. The data is the same, hence, price action is what counts. Therefore, it is the examination of the price action that separates successful technical analysts from unsuccessful ones, and after all, that is the key to technical analysis. The choice of which charting technique to use will depend again on
individual preferences and either personal trading or investing styles. Once you have chosen a particular methodology it is best to stay with it, and develop how best to read the signals using that method. Switching to other methods may cause confusion and destroy the clarity of your analysis, leading to bad evaluations. More investment research and education will definitely help you. Good luck with your technical analysis education and investment future.
The Hidden Secret of Technical Analysis
Did you know that there is a whole 'other world' of technical analysis that most novice
traders are either totally ignorant of, or fear to go due to the fact that it might actually require some work?
Well, there is! And I'd suggest that if most novices fear to go there, then perhaps it might be worth some investigation.
What is technical analysis? For most novice traders it seems to be one of, or a combination of, the two following approaches:
a.The art of defining recent price action through classical charting techniques such as the Dow Theory definitions of an uptrend and downtrend, and recognition of patterns such as channels, triangles, head and shoulders, cup and handles, and on and on, or
b.The art of representing price action through the numerous indicators available on your charting platform, such as moving averages, stochastics, MACD, and on and on.
This is great. It's a good start. But the fact is that no matter how we define the structure of the market, whether based on Dow Theory, or Elliot Wave Theory, or through an indicator based approach, it is important to remember that this structure defines PAST market movement. It's a simplification that allows us to quickly identify what happened in the past.
Profits come from future price action though, not past price action. So having defined past price movement, these traders then use general rules associated with that past price action to justify an entry into the market.
For example:
"The break below the neckline in a head and shoulders pattern is a great entry short, with a target equal to the distance from the neckline to the peak of the head." - so having identified a breakout down, they enter short.
"A moving average crossover is an indication of a change of trend" so identifying the EMA 10 crossing above the EMA 20, the novice trader enters long.
Once again, this is great - hopefully at least better than random entry. These general rules for entry are fine if you're satisfied they provide a slight edge, and you have a complete understanding of the probabilistic nature of price movement, and an appreciation for the necessity of position sizing and risk management. You may well make some profits.
However I'd suggest that there's a whole other world of technical analysis that you're not seeing. That still won't guarantee success (the elusive Holy Grail doesn't exist, so stop looking), but it will provide further opportunity to increase your edge. Use of this hidden world of technical analysis will allow you opportunities to enter lower risk and higher probability trades. Lower risk trades through getting earlier entries closer to support and resistance areas, so you can safely place tighter stops. Higher probability entries, through
analysis based more closely on the truth behind price movement rather than a general rule for pattern or indicator based entry.
So where do we find this 'other world' of technical analysis?
Look behind your indicators, or behind the classic charting patterns, and what do you find?
Price action!
It doesn't matter how we define past price action - an uptrend, a downtrend, a range-bound sideways trend, a head and shoulders pattern, an ascending triangle, wave 4 of a five wave pattern. It's just a label that describes an approximation of past market movement.
The label is not important. What is important is the nature of price movement behind the pattern or indicator overlay.
Too many people will say that, because the price is above the 50 period moving average, or because the 10 EMA is above the 20 EMA, or because they have identified a structure of higher highs and higher lows, the market is in an uptrend. They apply a label - uptrend. And that's it, end of story. No correspondence will be entered into. The market is in an uptrend, and they're looking for trades in the long direction.
Looking beyond the "uptrend" to see how price is really moving can allow us to see the internal strength or weakness of the trend. It can provide you with an insight into the fear, doubt or greed of the market participants that create the price action, which then creates the price trend or pattern, or moves the indicators.
I'm not saying you necessarily have to get rid of your indicators - just recognize them for what they are - a useful approximation of the market.
And recognize that if you want to improve your edge, you may need to look behind the pattern, look behind the indicators, look beyond the label, and see what price is really doing.
Is the volatility of price movement changing, and what does that mean?
Is the momentum increasing or decreasing? What does that mean?
Is the momentum of this price move greater or less than the preceding swing, and what does that mean?
Is the momentum of this price move greater or less than the previous swing in the same direction, and what does that mean?
Let's go even deeper, and consider the thought processes and psychology of the people who are long (or short) in this trade, and currently sitting on a profit. Where are they looking to exit? Where are they going to take profits? Where are they going to place their stops? What does this mean for future price action?
Let's consider the psychology of the traders who are currently fighting this move, sitting in drawdown, sweating on every tick and praying to the market Gods - "If you can just this once turn price around so I can get out at breakeven, I promise I'll never again take such a stupid trade". Where are these people trying to get out? At what point will the fear become so great that they'll just have to get out?
Let's consider the psychology of the people sitting on the sidelines, having missed the start of the move. Some of these will be professional traders - where will they be identifying a low risk and/or high probability entry into this trend? Some of these will be novices - where is the absolute worst place to enter, having chased the market and entered simply out of fear of missing out on the move? Yes, some people do enter right at the very worst tick possible. Where potentially is that, and what does that mean for future market movement?
The answer to all these questions will make a great subject for future articles. For now I'd just like you to start looking beyond the indicators and patterns, and discover a whole other world of technical analysis - price action.
Examine the current internal nature of price movement - the speed, the momentum and the volatility. And consider how this is likely to influence the decision making of the novice traders who will be entering and exiting the market based on their own fear or greed.
And try to discover how you can use this information within your current strategy to lower the risk of entry, improve the probability of your entry being in the right place, and improve the management and exit of your position.
If you are interested in improving your current edge in the market, analysis of price action may be just what you're missing. Check it out now
Murud Janjira near Alibag
Murud-Janjira is the local name for a fort situated at the coastal village of Murud, in the Raigad district of Maharashtra, India. It is famous for being the only fort along India's western coast that remained undefeated despite Maratha, Dutch and English East India Company attacks.
The word Janjira is not native to India, and may have originated after the Arabic word Jazeera, which means an island. Similarly, the Marathi word Habshi is thought to be a corruption of Abyssinian. Murud was once known in Marathi as Habsan, or Abyssinian's land.
The term Siddi is an ex-pression of respectful address commonly used in North
Africa. The ruler of the Habshi state of Murud-Janjira was known as the Siddi. Others believe that Habshis that converted to Islam called themselves "Sayyadis" (descendants of Muhammad); from which came the term "Siddi".
At the time they seized the fort, the Siddis were employed by the Bahamani Sultan of Ahmednagar and a Habshi, Malik Ambar (1550-1626), held a prominent position in that government. Before the rise of the Maratha sardars, the courts of the Bahamani sultanates were rent by rivalry between the Indian Muslims and the foreign Muslims, as a result of which, the Sultans began to patronize the Marathas as a third force, leading to the rise of Shivaji and the Maratha Empire.
Malik Amber initially rose to great prominence as the Prime Minister of Ahmednagar. He is credited with having carried out a systematic revenue settlement of major portions of the Deccan, which formed the basis for many subsequent settlements.
When the Ahmadnagar kingdom was conquered by Bijapur and the Mughals in alliance, the Siddis switched their allegiance to the Sultanate of Bijapur; when the Bijapur kingdom was conquered by the Mughal Empire, the Habshis switched their allegiance to the Mughal Empire.
As clients of these Muslim states, the Siddis were nominally part of their navies, and fulfilled the role of defending Muslim interests in the sea, and particularly, access by sea for the Hajj and Umrah, for which reason, the interior Muslim states felt compelled to aid and rescue the Siddis from their enemies.
Despite being feudatories, first of Bijapur and then of the Mughals, the Siddis acted as if they were independent, and lived mainly by piracy on coastal shipping
The piracy of the Siddis provoked the various local powers to attempt to suppress them, but despite efforts by the Portuguese, Dutch, English and the Marathas, the fort was never conquered. The fort thus earned a reputation for being impregnable.
The reputation may be false. Mass mobilizations by the English and Marathas were always forced off before they could complete the task by the intervention of another power, such as the Mughals, creating a diversion in order to prevent the fall of Murud-Janjira. It must be noted that the same happened with Goa, with the Mughals invading Maratha lands in order to divert Maratha attempts to conquer Goa.
The name of the fort is a concatenation of the Konkani and Arabic words for Island, "morod" and "jazeera". The word "morod" is peculiar to Konkani and is absent in Marathi. In Goa, the word is now more generally used for those parts of the village which were originally dry land as against the fields, which were swamps. Thus, during the rains, the fields get flooded, but the morods never flood.
The State of Murud-Janjira was known to the Maratha Empire as Habsan, the land of the Habshis.
The founder of what later developed into the Maratha Empire, Shivaji Bhosale, sent his Prime Minister or Peshwa, Moropant Pingle to conquer the Siddis and end their piracy during August, 1676, albeit unsuccessfully. Shivaji's inability to capture this fort led him to build the Vijaydurg fort down the coast, and also a fort named Sindhudurg on the island of Padmagad, near the town of Malvan. The Siddis remained a formidable foe to him until his death.
Several further attempts were made by the Marathas to conquer the Siddi principality, but in vain.
The English too strived in vain to suppress the Siddis, and the Siddis even succeeded in seizing Bombay for a day, overwhelming the English garrison, before being driven away by a militia organized by a Parsi from his fellow-immigrants from Surat.
As the Muslim powers of the interior waned in the face of rising English power, the Siddi state submitted to England under the system of Subsidiary Alliance, becoming a dependency under paramountcy of the Kings of England. HH Nawab Sidi Muhammed Khan II Sidi Ahmad Khan was the last Ruler of Murud-Janjira. A patron of arts and culture, he supported such musicians as Beenkar Abid Hussain Khan. The state continued in this condition until late 1947, when the last prince acceded his state to the Indian Union, and his state was merged into the Bombay Presidency which was later transformed into the State of Bombay and the State of Maharashtra.
The word Janjira is not native to India, and may have originated after the Arabic word Jazeera, which means an island. Similarly, the Marathi word Habshi is thought to be a corruption of Abyssinian. Murud was once known in Marathi as Habsan, or Abyssinian's land.
The term Siddi is an ex-pression of respectful address commonly used in North
Africa. The ruler of the Habshi state of Murud-Janjira was known as the Siddi. Others believe that Habshis that converted to Islam called themselves "Sayyadis" (descendants of Muhammad); from which came the term "Siddi".
At the time they seized the fort, the Siddis were employed by the Bahamani Sultan of Ahmednagar and a Habshi, Malik Ambar (1550-1626), held a prominent position in that government. Before the rise of the Maratha sardars, the courts of the Bahamani sultanates were rent by rivalry between the Indian Muslims and the foreign Muslims, as a result of which, the Sultans began to patronize the Marathas as a third force, leading to the rise of Shivaji and the Maratha Empire.
Malik Amber initially rose to great prominence as the Prime Minister of Ahmednagar. He is credited with having carried out a systematic revenue settlement of major portions of the Deccan, which formed the basis for many subsequent settlements.
When the Ahmadnagar kingdom was conquered by Bijapur and the Mughals in alliance, the Siddis switched their allegiance to the Sultanate of Bijapur; when the Bijapur kingdom was conquered by the Mughal Empire, the Habshis switched their allegiance to the Mughal Empire.
As clients of these Muslim states, the Siddis were nominally part of their navies, and fulfilled the role of defending Muslim interests in the sea, and particularly, access by sea for the Hajj and Umrah, for which reason, the interior Muslim states felt compelled to aid and rescue the Siddis from their enemies.
Despite being feudatories, first of Bijapur and then of the Mughals, the Siddis acted as if they were independent, and lived mainly by piracy on coastal shipping
The piracy of the Siddis provoked the various local powers to attempt to suppress them, but despite efforts by the Portuguese, Dutch, English and the Marathas, the fort was never conquered. The fort thus earned a reputation for being impregnable.
The reputation may be false. Mass mobilizations by the English and Marathas were always forced off before they could complete the task by the intervention of another power, such as the Mughals, creating a diversion in order to prevent the fall of Murud-Janjira. It must be noted that the same happened with Goa, with the Mughals invading Maratha lands in order to divert Maratha attempts to conquer Goa.
The name of the fort is a concatenation of the Konkani and Arabic words for Island, "morod" and "jazeera". The word "morod" is peculiar to Konkani and is absent in Marathi. In Goa, the word is now more generally used for those parts of the village which were originally dry land as against the fields, which were swamps. Thus, during the rains, the fields get flooded, but the morods never flood.
The State of Murud-Janjira was known to the Maratha Empire as Habsan, the land of the Habshis.
The founder of what later developed into the Maratha Empire, Shivaji Bhosale, sent his Prime Minister or Peshwa, Moropant Pingle to conquer the Siddis and end their piracy during August, 1676, albeit unsuccessfully. Shivaji's inability to capture this fort led him to build the Vijaydurg fort down the coast, and also a fort named Sindhudurg on the island of Padmagad, near the town of Malvan. The Siddis remained a formidable foe to him until his death.
Several further attempts were made by the Marathas to conquer the Siddi principality, but in vain.
The English too strived in vain to suppress the Siddis, and the Siddis even succeeded in seizing Bombay for a day, overwhelming the English garrison, before being driven away by a militia organized by a Parsi from his fellow-immigrants from Surat.
As the Muslim powers of the interior waned in the face of rising English power, the Siddi state submitted to England under the system of Subsidiary Alliance, becoming a dependency under paramountcy of the Kings of England. HH Nawab Sidi Muhammed Khan II Sidi Ahmad Khan was the last Ruler of Murud-Janjira. A patron of arts and culture, he supported such musicians as Beenkar Abid Hussain Khan. The state continued in this condition until late 1947, when the last prince acceded his state to the Indian Union, and his state was merged into the Bombay Presidency which was later transformed into the State of Bombay and the State of Maharashtra.
Kulaba Fort Alibag
Kolaba Fort (sometimes Kulaba Fort) is an old military fortification in India. It is situated in the sea at a distance of 1-2 km from the shores of Alibag, 35 km south of Mumbai, in the Konkan region of Maharashtra, India. The fort was built by Chatrapati Shivaji Maharaj in 1652 to keep a check on the activities of the foreign naval powers of English, Portuguese and the Siddhi of Janjira.
The average height of the fort walls is 25 feet. It has two main entrances, one on the sea side and the other towards Alibag. An interesting feature of this fort is that it has freshwater wells in its premises even though it is a seaside fort. In the monsoons, the fort can be reached by wading through waist-deep water at low tide. However, at high tide, boats must be used to reach it.
The Siddhivinayak temple inside the fort was built by Raghoji Angre in 1759.
The average height of the fort walls is 25 feet. It has two main entrances, one on the sea side and the other towards Alibag. An interesting feature of this fort is that it has freshwater wells in its premises even though it is a seaside fort. In the monsoons, the fort can be reached by wading through waist-deep water at low tide. However, at high tide, boats must be used to reach it.
The Siddhivinayak temple inside the fort was built by Raghoji Angre in 1759.
Other Informations about Alibag
Alibag was developed in the 17th century by Chhatrapati Shivaji's naval chief Kanhoji Angre
Being a tourist center, tourism is one of the main industries of the town. There are many hotels, resorts and lodges in the town. There has been development in Alibag since late 90's. Many industrial units are set up in and around Alibag. Rashtriya Chemicals and Fertilizers is the first industrial unit set up closer to Alibag. It has created employment for thousands of villagers in Alibag. Then came
companies like Ispat Industries (Mittal Group), Vikram Ispat (Birla Group), Gas
Authority Of India Limited (GAIL) and HP LPG. Alibag now enjoys a better standard of living.
Being a tourist center, tourism is one of the main industries of the town. There are many hotels, resorts and lodges in the town. There has been development in Alibag since late 90's. Many industrial units are set up in and around Alibag. Rashtriya Chemicals and Fertilizers is the first industrial unit set up closer to Alibag. It has created employment for thousands of villagers in Alibag. Then came
companies like Ispat Industries (Mittal Group), Vikram Ispat (Birla Group), Gas
Authority Of India Limited (GAIL) and HP LPG. Alibag now enjoys a better standard of living.
Other attractions near alibag
Kolaba (or Kulaba) fort (Not to be confused with Colaba in Mumbai): Is situated in the sea at a distance of 1-2 km from the Alibag shores. During low tide one can walk to the fort as the water recedes behind the fort. However, during high tide a boat is needed.
Kanakeshwar temple: Is situated on a hill near Mapgaon village, about 12 km away from Alibag and falls on the way to Mandawa.
Tower of St. Barbara.
Chaul: Is a historic town situated about 15 km away from Alibag. It is famous for its Portuguese ruins, an old church, a synagogue, Buddhist caves, the Hamam Khana and a temple.
Vikram Vinayak Temple or Birla Temple, Salav: Is situated about 20 km away from Alibag, on the way to Janjira.
Sagargarh
Kanhoji Angre Samadhi
Uma-Maheshwar temple
Balaji temple
Murud-Janjira: Janjira is the legendary fort situated not very far from Alibag.
Datta Mandir: situated at bhowale,2 km away from chaul.
Hingulja Mandir: Situated near datta mandir,historic temple built by pandwas.
Kanakeshwar temple: Is situated on a hill near Mapgaon village, about 12 km away from Alibag and falls on the way to Mandawa.
Tower of St. Barbara.
Chaul: Is a historic town situated about 15 km away from Alibag. It is famous for its Portuguese ruins, an old church, a synagogue, Buddhist caves, the Hamam Khana and a temple.
Vikram Vinayak Temple or Birla Temple, Salav: Is situated about 20 km away from Alibag, on the way to Janjira.
Sagargarh
Kanhoji Angre Samadhi
Uma-Maheshwar temple
Balaji temple
Murud-Janjira: Janjira is the legendary fort situated not very far from Alibag.
Datta Mandir: situated at bhowale,2 km away from chaul.
Hingulja Mandir: Situated near datta mandir,historic temple built by pandwas.
Alibag Beaches
There are many beaches in and around Alibag:
* Alibag beach: It is the main beach of the town. One can see the Kolaba fort from here (not to be confused with Colaba of Mumbai).
* Varsoli Beach: It is another beach about a mile from the main beach, home to a very large naval base.
* Akshi Beach: It is situated 5 km away from Alibag.
* Nagaon beach: It is situated about 7 km away from Alibag and is famous for coconuts and betel nuts.
* Kihim Beach: Kihim is a secluded place at a distance of 12 km from Alibag. The Kihim beach is famous for dense cover of Coconut trees. It is also famous for woods which are home to rare butterflies, birds and flowers.
* Awas: It is situated about 16 km away from Alibag.
* Saswane: It is situated about 18 km away from Alibag.
* Rewas: It is situated about 24 km away from Alibag.
* Chaul Revdanda: It is situated about 17 km away from Alibag.
* Mandawa: It is situated about 20 km north of Alibag. The catamaran/ferry
services are available from Mumbai to the Mandawa jetty. Many Bollywood
celebrities own bungalows here.
* Kashid Beach: It is situated about 30 km away from Alibag, on the Alibag-Murud highway, also this beach is possibly one of the cleanest and most beautiful beaches in the region with almost 'white' sand.
Alibag The Mini GOA
Alibag or Alibaug is a coastal town and a municipal council in Raigad District in the Konkan region of Maharashtra, India. It is headquarters of the Raigad district. It is situated at around 35 km south of Mumbai and is a popular weekend getaway for the citizens of Mumbai. It is also a popular center for business conferences during rest of the week. Alibag is very popular with Mumbai's affluent residents. Most of them own farms and bungalows here which are often a few hundred meters from the sea shore. The town and its surrounding villages are the historic hinterland of Bene Israeli Jews. There is a Jewish synagogue in the "Israel Ali" area of the town.
Stock trading plan
1. Establish a plan and define specific risk and profit objectives before trading. Maintain the necessary discipline to follow that plan through both good and bad times. Successful traders will agree that discipline contributed more to their success than their trading philosophy itself. Remember that the key to any plan is how well it holds over time
2. There is no "sure thing", and there is no trading system that is 100% accurate. Your goal, as a trader, is to use the tools available and try to develop an edge. Base your trades on sound fundamental and technical reasoning, rather than on hunches and long shots. If you can develop an edge, however small, over time you will be successful.
3. A trader must be able to admit they have made a mistake. Do not become emotionally or financially committed to a losing trade. Avoid the pitfall of becoming emotionally involved with any trade.
4. An investing edge is only part of the equation. A trader should diversify sufficiently so that the growth in equity can be consistent and the likelihood of a catastrophic loss can be diminished.
The lower the percentage of a trader's account dedicated to any one trade the greater the chance of the trader being successful. Even if the trader has a perceived investing edge, it is unwise to run the risk of ruin, and bet it alone one trade. The goal is not only to make money, but also to be able to continue to make money consistently for an extended period of time. A trader must learn the basic concepts and the importance of money management.
5. Lack of experience in the market causes many traders to make the mistake of taking small profits and letting losses run. Fundamental trading wisdom dictates the exact opposite. When in a winning trade, be patient and fully capitalize on the success. The trading axiom is, "cut your losses short and let your profits run".
6. A trading system does not have to be difficult, time consuming, complicated and stressful in order to be profitable. In trading systems, as in many other things in life, simple can be better
7. As a trader, be cautious, and never let greed take control of a winning position.
8. Be aware that declining volume usually indicates the market is not accepting higher or lower prices, and this could indicate
a market turn.
9. Learn from your trading mistakes. Never make a trading mistake without asking yourself why.
10. Do not make trading decision based solely on margin requirements, and always trade within your capabilities. Remain true to your trading plan and follow the trading style that works best for you.
11. Do not trade markets that you don't understand. Trade with confidence and conviction Trade only with risk capital, and be aware of the risk of losing. Divide your capital into 6 equal parts and never risk more than one-tenth of your capital on any one trade.
12. After a long period of success or a period of profitable trades, try to avoid the natural tendency toward increasing your trading activity. Conversely, use self-discipline when a trade goes against your position. Take your loss and wait for another opportunity. Never increase your trading after a loss.
13. Avoid getting into the market because you are anxious from waiting and/or out of the market because you have lost your patience. Never over trade and adhere to your risk management rules
14. Do not make a trading decision to buy just because the price of the stock is low or sell just because the price is high. Never change your position in the market without a good reason that is based on a fundamental or technical rule indicating a change in trend.
15. Trade the most active stocks and refrain from trading the slow moving markets. Trade "at the market" whenever possible and try to avoid a fixed buying and selling price.
16. When the market is moving with your position and you are using a stop loss order, and then raise your stop loss so as to lock in your profit. Protect yourself against the possibility of turning a profit into a loss.
17. The "trend is your friend," and never buy and sell if you are insecure of the trend according to your fundamentals and technical rules. If you are in doubt, then exit the market. Only trade when you feel confident with your trading strategies.
18. Trade in five or six different stocks at a time, so as to avoid tying up all of your capital in any single stock.
19. A trader should establish a "surplus account" after a series of successful or winning trades. The goal is to retain the "surplus account" for times of emergency or panic
20. It is difficult to try and guess where the top and bottom of the market is, instead let the market prove its top and bottom.
2. There is no "sure thing", and there is no trading system that is 100% accurate. Your goal, as a trader, is to use the tools available and try to develop an edge. Base your trades on sound fundamental and technical reasoning, rather than on hunches and long shots. If you can develop an edge, however small, over time you will be successful.
3. A trader must be able to admit they have made a mistake. Do not become emotionally or financially committed to a losing trade. Avoid the pitfall of becoming emotionally involved with any trade.
4. An investing edge is only part of the equation. A trader should diversify sufficiently so that the growth in equity can be consistent and the likelihood of a catastrophic loss can be diminished.
The lower the percentage of a trader's account dedicated to any one trade the greater the chance of the trader being successful. Even if the trader has a perceived investing edge, it is unwise to run the risk of ruin, and bet it alone one trade. The goal is not only to make money, but also to be able to continue to make money consistently for an extended period of time. A trader must learn the basic concepts and the importance of money management.
5. Lack of experience in the market causes many traders to make the mistake of taking small profits and letting losses run. Fundamental trading wisdom dictates the exact opposite. When in a winning trade, be patient and fully capitalize on the success. The trading axiom is, "cut your losses short and let your profits run".
6. A trading system does not have to be difficult, time consuming, complicated and stressful in order to be profitable. In trading systems, as in many other things in life, simple can be better
7. As a trader, be cautious, and never let greed take control of a winning position.
8. Be aware that declining volume usually indicates the market is not accepting higher or lower prices, and this could indicate
a market turn.
9. Learn from your trading mistakes. Never make a trading mistake without asking yourself why.
10. Do not make trading decision based solely on margin requirements, and always trade within your capabilities. Remain true to your trading plan and follow the trading style that works best for you.
11. Do not trade markets that you don't understand. Trade with confidence and conviction Trade only with risk capital, and be aware of the risk of losing. Divide your capital into 6 equal parts and never risk more than one-tenth of your capital on any one trade.
12. After a long period of success or a period of profitable trades, try to avoid the natural tendency toward increasing your trading activity. Conversely, use self-discipline when a trade goes against your position. Take your loss and wait for another opportunity. Never increase your trading after a loss.
13. Avoid getting into the market because you are anxious from waiting and/or out of the market because you have lost your patience. Never over trade and adhere to your risk management rules
14. Do not make a trading decision to buy just because the price of the stock is low or sell just because the price is high. Never change your position in the market without a good reason that is based on a fundamental or technical rule indicating a change in trend.
15. Trade the most active stocks and refrain from trading the slow moving markets. Trade "at the market" whenever possible and try to avoid a fixed buying and selling price.
16. When the market is moving with your position and you are using a stop loss order, and then raise your stop loss so as to lock in your profit. Protect yourself against the possibility of turning a profit into a loss.
17. The "trend is your friend," and never buy and sell if you are insecure of the trend according to your fundamentals and technical rules. If you are in doubt, then exit the market. Only trade when you feel confident with your trading strategies.
18. Trade in five or six different stocks at a time, so as to avoid tying up all of your capital in any single stock.
19. A trader should establish a "surplus account" after a series of successful or winning trades. The goal is to retain the "surplus account" for times of emergency or panic
20. It is difficult to try and guess where the top and bottom of the market is, instead let the market prove its top and bottom.
Pivot Point Trading
You are going to love this lesson. Using pivot points as a trading strategy has been around for a long time and was originally used by floor traders. This was a nice simple way for floor traders to have some idea of where the market was heading during the course of the day with only a few simple calculations.
The pivot point is the level at which the market direction changes for the day. Using some simple arithmetic and the previous days high, low and close, a series of points are derived. These points can be critical support and resistance levels.
The pivot level, support and resistance levels calculated from that are collectively known as pivot levels.
Every day the market you are following has an open, high, low and a close for the day as this information basically contains all the data you need to use pivot points.
The reason pivot points are so popular is that they are predictive as opposed to lagging. You use the information of the previous day to calculate potential turning
points for the day you are about to trade (present day).
Because so many traders follow pivot points you will often find that the market reacts at these levels. This gives you an opportunity to trade.
If you would rather work the pivot points out by yourself, the formula I use is below:
Resistance 3 = High + 2*(Pivot - Low)
Resistance 2 = Pivot + (R1 - S1)
Resistance 1 = 2 * Pivot - Low
Pivot Point = ( High + Close + Low )/3
Support 1 = 2 * Pivot - High
Support 2 = Pivot - (R1 - S1)
Support 3 = Low - 2*(High - Pivot)
As you can see
from the above formula, just by having the previous days high, low and close
you eventually finish up with 7 points, 3 resistance levels, 3 support levels
and the actual pivot point.
If the market opens above the pivot point then the bias for the day is long trades. If the market opens below the pivot point then the bias for the day is for short trades.
The three most important pivot points are R1, S1 and the actual pivot point.
The general idea behind trading pivot points is to look for a reversal or break of R1 or S1. By the time the market reaches R2, R3 or S2, S3 the market will already be overbought or oversold and these levels should be used for exits rather than entries.
A perfect set would be for the market to open above the pivot level and then stall slightly at R1 then go on to R2. You would enter on a break of R1 with a target of R2 and if the market was really strong close half at R2 and target R3 with the remainder of your position.
Unfortunately life is not that simple and we have to deal with each trading day the best way we can.
Download Pivot Point Calculator Here
The pivot point is the level at which the market direction changes for the day. Using some simple arithmetic and the previous days high, low and close, a series of points are derived. These points can be critical support and resistance levels.
The pivot level, support and resistance levels calculated from that are collectively known as pivot levels.
Every day the market you are following has an open, high, low and a close for the day as this information basically contains all the data you need to use pivot points.
The reason pivot points are so popular is that they are predictive as opposed to lagging. You use the information of the previous day to calculate potential turning
points for the day you are about to trade (present day).
Because so many traders follow pivot points you will often find that the market reacts at these levels. This gives you an opportunity to trade.
If you would rather work the pivot points out by yourself, the formula I use is below:
Resistance 3 = High + 2*(Pivot - Low)
Resistance 2 = Pivot + (R1 - S1)
Resistance 1 = 2 * Pivot - Low
Pivot Point = ( High + Close + Low )/3
Support 1 = 2 * Pivot - High
Support 2 = Pivot - (R1 - S1)
Support 3 = Low - 2*(High - Pivot)
As you can see
from the above formula, just by having the previous days high, low and close
you eventually finish up with 7 points, 3 resistance levels, 3 support levels
and the actual pivot point.
If the market opens above the pivot point then the bias for the day is long trades. If the market opens below the pivot point then the bias for the day is for short trades.
The three most important pivot points are R1, S1 and the actual pivot point.
The general idea behind trading pivot points is to look for a reversal or break of R1 or S1. By the time the market reaches R2, R3 or S2, S3 the market will already be overbought or oversold and these levels should be used for exits rather than entries.
A perfect set would be for the market to open above the pivot level and then stall slightly at R1 then go on to R2. You would enter on a break of R1 with a target of R2 and if the market was really strong close half at R2 and target R3 with the remainder of your position.
Unfortunately life is not that simple and we have to deal with each trading day the best way we can.
Download Pivot Point Calculator Here
Using Simple Moving Average to Improve your Trading
Using Simple Moving
Average to Improve your Trading
The significant points are where the averages cross one another, and it is at these points
which we must pay attention, and try to draw some conclusions from the price action. The crossover point can represent the change in sentiment from rising prices to falling prices (or the other way round) but be careful - when you watch these averages they will often cross over and return on their original path, so they are not a reliable indicator and remember also they are lagging. So treat them purely as a rough guide to what is happening - not a hard and fast rule. They are there to give an early warning to pay attention - nothing else!!
In summary, a simple moving average is an early warning systems of POSSIBLE future changes in direction. Read them in conjunction with your candlesticks and volume interpretation to see if the alarm can be validated by your analysis from the chart readings. Do not use them in isolation, or try to use them as some sort of indicator - you will fail! They are a rough guide ONLY - no more no less
Average to Improve your Trading
The significant points are where the averages cross one another, and it is at these points
which we must pay attention, and try to draw some conclusions from the price action. The crossover point can represent the change in sentiment from rising prices to falling prices (or the other way round) but be careful - when you watch these averages they will often cross over and return on their original path, so they are not a reliable indicator and remember also they are lagging. So treat them purely as a rough guide to what is happening - not a hard and fast rule. They are there to give an early warning to pay attention - nothing else!!
In summary, a simple moving average is an early warning systems of POSSIBLE future changes in direction. Read them in conjunction with your candlesticks and volume interpretation to see if the alarm can be validated by your analysis from the chart readings. Do not use them in isolation, or try to use them as some sort of indicator - you will fail! They are a rough guide ONLY - no more no less
Greed and Fear: What Does It Take to Get Rid of It?
We have heard it: the market is not driven by money but by greed and fear. The two biggest emotions that move markets up and down at random; they seem to fluctuate without any logic behind them.
Why do we get these emotions when we trade? After all, it's stocks we're trading, not playing sports where our bodies are physically working to exert energy and sweat. So why then does it take to so much emotion just to click a buy button and a sell button and watch the screen with numbers moving back and forth?
When it comes to money, it's the master of us all. It doesn't matter what walk
of life we hold, we are taught that money is the only way to reflect us as successful and accomplished people. But in the end, does it come down to money to become successful in trading?
The answer is no. Why? Success comes from loving what you do, not from doing what you're doing for the sake of money. There are people who work at jobs they don't like. Many do it just to get by but do not have the drive to excel. People who love their jobs have higher probability to excel in their work because they don't see it as work but something they love to do. Many of us enter the market to make money, not lured by the challenge of figuring out how the market works. It is the reason why new investors and traders start by placing a large position thinking the trade in monetary value, profit or loss. They think will be quick and easy, not really giving thought on how to figure out this complex but interesting market first before committing money in there. By committing money, it's about the money, not the pleasure of learning about the markets.
This is where fear and greed comes in. This very first thought people make when entering is 'how much can I make?' and not 'I wonder how this market works?' There is a big difference in this mindset. When we don't worry about the money, we can view things in a more objective way. Believe it or not, there is a fine line from being in a trade and out of a trade, especially holding a big position. The emotions overtake judgment very quickly when a major loss is on the line with the prices fluctuating rapidly.
So how do deal with this? There are several things we can do keep greed and fear out of the trading plan:
1. Start trading smallest positions possible -The idea is to learn, improve and perfect trading while not thinking about the importance of gains or losses. This should subdue if not remove the fear and the greed.
2. Use stop loss order - Believe it or not, stop loss orders bring comfort and peace of mind that would otherwise bring many traders sleepless nights. Why? Not knowing how much the loss is, which can be unlimited, carry a major concern. This method will get rid of the fear factor.
3. Create a trading plan - Having a plan of attack, where to get in and where to get out in a certain market condition relieves the trader from having to think on his feet; without a plan will cause the trader to freeze and be indecisive and in turn cause more emotional stress.
4. Set target price - This may help in deciding before the trade when to take profits, not leaving to decide when to exit. Target profits helps against greedy feelings on thinking that the profits will continue to rise. When it doesn't and profits turning into losses, the tendency is to freeze and not take action. Having profit targets also help prevent the taking profits too early. This is also a fear stemming from being afraid the profits will disappear and turn into a loss.
This is the worst aspect of the trading: lack of self-control. Trading gives total freedom on deciding when and where to buy and sell but this is also why freedom becomes a hindrance. Discipline is the only method to alleviate fear and greed. Without it, it will set the tone a fear of losing everything and greed will prevent from taking profits when it's right the time to do so.
Why do we get these emotions when we trade? After all, it's stocks we're trading, not playing sports where our bodies are physically working to exert energy and sweat. So why then does it take to so much emotion just to click a buy button and a sell button and watch the screen with numbers moving back and forth?
When it comes to money, it's the master of us all. It doesn't matter what walk
of life we hold, we are taught that money is the only way to reflect us as successful and accomplished people. But in the end, does it come down to money to become successful in trading?
The answer is no. Why? Success comes from loving what you do, not from doing what you're doing for the sake of money. There are people who work at jobs they don't like. Many do it just to get by but do not have the drive to excel. People who love their jobs have higher probability to excel in their work because they don't see it as work but something they love to do. Many of us enter the market to make money, not lured by the challenge of figuring out how the market works. It is the reason why new investors and traders start by placing a large position thinking the trade in monetary value, profit or loss. They think will be quick and easy, not really giving thought on how to figure out this complex but interesting market first before committing money in there. By committing money, it's about the money, not the pleasure of learning about the markets.
This is where fear and greed comes in. This very first thought people make when entering is 'how much can I make?' and not 'I wonder how this market works?' There is a big difference in this mindset. When we don't worry about the money, we can view things in a more objective way. Believe it or not, there is a fine line from being in a trade and out of a trade, especially holding a big position. The emotions overtake judgment very quickly when a major loss is on the line with the prices fluctuating rapidly.
So how do deal with this? There are several things we can do keep greed and fear out of the trading plan:
1. Start trading smallest positions possible -The idea is to learn, improve and perfect trading while not thinking about the importance of gains or losses. This should subdue if not remove the fear and the greed.
2. Use stop loss order - Believe it or not, stop loss orders bring comfort and peace of mind that would otherwise bring many traders sleepless nights. Why? Not knowing how much the loss is, which can be unlimited, carry a major concern. This method will get rid of the fear factor.
3. Create a trading plan - Having a plan of attack, where to get in and where to get out in a certain market condition relieves the trader from having to think on his feet; without a plan will cause the trader to freeze and be indecisive and in turn cause more emotional stress.
4. Set target price - This may help in deciding before the trade when to take profits, not leaving to decide when to exit. Target profits helps against greedy feelings on thinking that the profits will continue to rise. When it doesn't and profits turning into losses, the tendency is to freeze and not take action. Having profit targets also help prevent the taking profits too early. This is also a fear stemming from being afraid the profits will disappear and turn into a loss.
This is the worst aspect of the trading: lack of self-control. Trading gives total freedom on deciding when and where to buy and sell but this is also why freedom becomes a hindrance. Discipline is the only method to alleviate fear and greed. Without it, it will set the tone a fear of losing everything and greed will prevent from taking profits when it's right the time to do so.
Trading Risk Management - Tight Stop Losses
Here's an extract from a great email conversation with one of the YourTradingCoach
readers, in which he discusses the use of tight stops:
"I adopted this approach in the beginning, but got stopped out of the market so many times I started to widen them. I've had on too many occasions the market pull back on my stops only to find that it went on to do what I thought it would. Meaning, I lost out again on a good trade. However, I do admit the financial risk is higher. But expecting the market to move fast every time in your desired direction is a lot to ask."
This is a common observation. There's nothing more frustrating than being stopped out and then watching the trade move on to your target without you.
There's actually no right or wrong answer with regards stop placement, only what makes you money and what doesn't. So if wider stops provide a greater edge for your trading, then that's absolutely the right thing for you to do.
For me though, wider stops just don't fit with my trading style, risk tolerance or psychology.
In any case, I thought it might be beneficial for some traders to hear a little about what tight stops mean to me.
It is my belief that regardless of whether a trader uses a tight stop or a wide stop, it should be in exactly the same place.
Having tight stops doesn't mean finding an entry and then placing a stop loss a small fixed distance away and just hoping it isn't hit. Regardless of whether a trader's intention is to operate with a tight or wide stop, the stop loss should be placed in a position which invalidates the setup.
If my stop is hit then it means that either something has changed in the market, or my setup was invalid. Either way, I shouldn't be in the trade.
So for me, the stop should be in the same place, regardless of how large my risk. That place is where I have proof that my setup no longer provides an edge in the market.
The low risk (tight stop) comes NOT from positioning the stop close to the entry, but rather from positioning the entry close to the stop.
For example, if my intention is to enter LONG on a retracement to an area of support, my stop loss will be below the swing low which forms at support. Then, I'll aim to enter as close to that support as possible. This is how I get tight stops.
In some ways this is opposite to most traders. They'll find an entry and then work out the stop loss position. I'll be different in that I know where the stop is, and then work out the entry. And if I can't get an entry that allows sufficiently small risk, I'll just pass on that trade.
Oh, and one other important point- lower risk comes also from incorporating a time stop. If the trade doesn't go my way within a reasonable amount of time, then I'm outa there. I recommend reviewing your trades and gaining an understanding of how quickly your setups should be moving into profitability. Then if that time period passes and you're still stuck in the vicinity of the entry, or in a draw down, then maybe your setup has lost its edge. Maybe it's time to stand aside and look for the next opportunity in the markets.
readers, in which he discusses the use of tight stops:
"I adopted this approach in the beginning, but got stopped out of the market so many times I started to widen them. I've had on too many occasions the market pull back on my stops only to find that it went on to do what I thought it would. Meaning, I lost out again on a good trade. However, I do admit the financial risk is higher. But expecting the market to move fast every time in your desired direction is a lot to ask."
This is a common observation. There's nothing more frustrating than being stopped out and then watching the trade move on to your target without you.
There's actually no right or wrong answer with regards stop placement, only what makes you money and what doesn't. So if wider stops provide a greater edge for your trading, then that's absolutely the right thing for you to do.
For me though, wider stops just don't fit with my trading style, risk tolerance or psychology.
In any case, I thought it might be beneficial for some traders to hear a little about what tight stops mean to me.
It is my belief that regardless of whether a trader uses a tight stop or a wide stop, it should be in exactly the same place.
Having tight stops doesn't mean finding an entry and then placing a stop loss a small fixed distance away and just hoping it isn't hit. Regardless of whether a trader's intention is to operate with a tight or wide stop, the stop loss should be placed in a position which invalidates the setup.
If my stop is hit then it means that either something has changed in the market, or my setup was invalid. Either way, I shouldn't be in the trade.
So for me, the stop should be in the same place, regardless of how large my risk. That place is where I have proof that my setup no longer provides an edge in the market.
The low risk (tight stop) comes NOT from positioning the stop close to the entry, but rather from positioning the entry close to the stop.
For example, if my intention is to enter LONG on a retracement to an area of support, my stop loss will be below the swing low which forms at support. Then, I'll aim to enter as close to that support as possible. This is how I get tight stops.
In some ways this is opposite to most traders. They'll find an entry and then work out the stop loss position. I'll be different in that I know where the stop is, and then work out the entry. And if I can't get an entry that allows sufficiently small risk, I'll just pass on that trade.
Oh, and one other important point- lower risk comes also from incorporating a time stop. If the trade doesn't go my way within a reasonable amount of time, then I'm outa there. I recommend reviewing your trades and gaining an understanding of how quickly your setups should be moving into profitability. Then if that time period passes and you're still stuck in the vicinity of the entry, or in a draw down, then maybe your setup has lost its edge. Maybe it's time to stand aside and look for the next opportunity in the markets.
Successful Investors
Successful Investors, What they have in Common
obviously, the first thing that successful investors have in common is a good net profit. The question is, what common traits do they have that make them so successful?
First and foremost is method. Their methods may differ widely, but the presence of a methodical approach is true for all of them. All successful investors have their respective ways of organizing relevant investment information and take the right pragmatic decision at the right time, be it on investing or dis investing that is, withdrawing or selling off one's stock.
Everyone makes a profit on a few deals if they have been in the game for some time. The question is, how do some people make a profit so often? Simplistic advice like keep left or follow a witch or a pendulum does not really make sense. Nor is there any single fool-proof method regarding investment strategies. If you want to win you have to play, and make the right moves under the rules of the game. The first move is to get and keep track of stock and corporate information properly.
Focus and not emotionality is what successful people have when going into this business. Startups are normally small or moderate, and that is indeed a good thing because successful investors do not make large investments on anything they have not understood adequately. If you invest time to read and observe the market, your time will turn into money.
They analyze their own portfolios and also those of others results, at least in the beginning. They keep written track of the analysis results. Analyzing means figuring out causes and effects of the events intelligently They are open to mistakes in purchasing and selling of stocks, in speculations on options, on the timings of buying and selling. They initially compare the going rates with some standard mutual fund stock info track such as S&P 500 index fund.
If an investors finds him continuously on the wrong side he should be mature enough to reconsider his approach. He can't stick to any particular stock because of emotional investments. A successful investor knows that the market ruthlessly ignores any emotional attachment.
It is common to find successful investors who pay attention to the immediate trail of prices of the stocks purchased, but still do not get swayed by 10% ups or downs. They have set pragmatic tolerance ranges for themselves. They are confident but not overly so. They will never play a sitting duck in risky affairs; though they will surely absorb a certain amount of risk. They are quick to distinguish between the 'no-risk-no-gain' and 'too-risky' lots, and it is often this acumen that makes them successful investors.
They often will move upstream along their documented analysis to reach proper understanding of the stocks they are considering. It is wise to understand one particular stock in every detail, and to use that knowledge to learn the other stocks better.
Work using your head. Remember, Lady Luck does not smile for a lazy bum. And if there's anything that all successful investors have in common, it's not one of them is a lazy bum.
obviously, the first thing that successful investors have in common is a good net profit. The question is, what common traits do they have that make them so successful?
First and foremost is method. Their methods may differ widely, but the presence of a methodical approach is true for all of them. All successful investors have their respective ways of organizing relevant investment information and take the right pragmatic decision at the right time, be it on investing or dis investing that is, withdrawing or selling off one's stock.
Everyone makes a profit on a few deals if they have been in the game for some time. The question is, how do some people make a profit so often? Simplistic advice like keep left or follow a witch or a pendulum does not really make sense. Nor is there any single fool-proof method regarding investment strategies. If you want to win you have to play, and make the right moves under the rules of the game. The first move is to get and keep track of stock and corporate information properly.
Focus and not emotionality is what successful people have when going into this business. Startups are normally small or moderate, and that is indeed a good thing because successful investors do not make large investments on anything they have not understood adequately. If you invest time to read and observe the market, your time will turn into money.
They analyze their own portfolios and also those of others results, at least in the beginning. They keep written track of the analysis results. Analyzing means figuring out causes and effects of the events intelligently They are open to mistakes in purchasing and selling of stocks, in speculations on options, on the timings of buying and selling. They initially compare the going rates with some standard mutual fund stock info track such as S&P 500 index fund.
If an investors finds him continuously on the wrong side he should be mature enough to reconsider his approach. He can't stick to any particular stock because of emotional investments. A successful investor knows that the market ruthlessly ignores any emotional attachment.
It is common to find successful investors who pay attention to the immediate trail of prices of the stocks purchased, but still do not get swayed by 10% ups or downs. They have set pragmatic tolerance ranges for themselves. They are confident but not overly so. They will never play a sitting duck in risky affairs; though they will surely absorb a certain amount of risk. They are quick to distinguish between the 'no-risk-no-gain' and 'too-risky' lots, and it is often this acumen that makes them successful investors.
They often will move upstream along their documented analysis to reach proper understanding of the stocks they are considering. It is wise to understand one particular stock in every detail, and to use that knowledge to learn the other stocks better.
Work using your head. Remember, Lady Luck does not smile for a lazy bum. And if there's anything that all successful investors have in common, it's not one of them is a lazy bum.
Swing Trading
Swing Trading, How to Profit from Swing Trading?
Swing trading is a trading strategy where you hold stock positions for a short duration of time, but longer than a day trade. Swing trade positions can last anywhere from 2 to 30 days, and generally try to take advantage of short and mid-term movements in stock prices.
This is also quite risky though may seem to be less so than day trading. Since it is not even mid-term and you don't wait for long a time, it is possible that that stock falls as you wait and as you come to the pre-fixed end of your target holding period, you have to sell at a trough. It is also possible that the stock makes a turnaround immediately after you exit, and you either narrowly miss a huge profit or avoid a withering loss.
Before going in for swing trading, one needs to understand the difference between swings and stock market cycles.
A cycle is longer than a swing. A cycle is made of many short swings, up and down. There are swing trading firms making lucrative promises and publishing tall advertisements. Watch out or you may get into some disastrous mistake.
The general principle for winning is the same for all stock market entrants: sell the losers and let the winners ride! Longer term investors make profits by selling their appreciated investments, but they hold on to stocks that have declined, hoping for a rebound. Swing traders often do not have that long a time to get into rebound. They have to infer accurately when it is time to give up a stock within their projected time range.
A personal policy to sell after a stock has increased by a certain pre-fixed multiple often pays off in swing trading. But that way it may never fully ride out a winner. Therefore it is wise to allow for some degree of flexibility within this swing trading period.
It is best not to underestimate a well performing stock by sticking to some rigid personal rule. If you don't have a good understanding of the potential of your investments, your personal rules may end up being arbitrary and too limiting. Hence before entering this type of trading, do extensive research on the behavior of your selected sample of good stocks.
On the other hand, it's equally important to be realistic about investments that are performing badly. That a stock will bounce back after a lingering decline can never be guaranteed. Hence the best time to sell has to be chosen wisely also, and the wisdom has to be carefully based on research. A standard strategy is to wait till the upswing goes on within the period you remain in the market, and then sell at the end of your chosen end time.
Being an active investor involves knowing the in-s and out-s of buying and selling stock. But for becoming a successful swing trader, there is no substitute to working hard watching and analyzing your personal portfolio. In order to obtain the gains and rewards from swing trading, you need to master the science of timing.
Swing trading is a trading strategy where you hold stock positions for a short duration of time, but longer than a day trade. Swing trade positions can last anywhere from 2 to 30 days, and generally try to take advantage of short and mid-term movements in stock prices.
This is also quite risky though may seem to be less so than day trading. Since it is not even mid-term and you don't wait for long a time, it is possible that that stock falls as you wait and as you come to the pre-fixed end of your target holding period, you have to sell at a trough. It is also possible that the stock makes a turnaround immediately after you exit, and you either narrowly miss a huge profit or avoid a withering loss.
Before going in for swing trading, one needs to understand the difference between swings and stock market cycles.
A cycle is longer than a swing. A cycle is made of many short swings, up and down. There are swing trading firms making lucrative promises and publishing tall advertisements. Watch out or you may get into some disastrous mistake.
The general principle for winning is the same for all stock market entrants: sell the losers and let the winners ride! Longer term investors make profits by selling their appreciated investments, but they hold on to stocks that have declined, hoping for a rebound. Swing traders often do not have that long a time to get into rebound. They have to infer accurately when it is time to give up a stock within their projected time range.
A personal policy to sell after a stock has increased by a certain pre-fixed multiple often pays off in swing trading. But that way it may never fully ride out a winner. Therefore it is wise to allow for some degree of flexibility within this swing trading period.
It is best not to underestimate a well performing stock by sticking to some rigid personal rule. If you don't have a good understanding of the potential of your investments, your personal rules may end up being arbitrary and too limiting. Hence before entering this type of trading, do extensive research on the behavior of your selected sample of good stocks.
On the other hand, it's equally important to be realistic about investments that are performing badly. That a stock will bounce back after a lingering decline can never be guaranteed. Hence the best time to sell has to be chosen wisely also, and the wisdom has to be carefully based on research. A standard strategy is to wait till the upswing goes on within the period you remain in the market, and then sell at the end of your chosen end time.
Being an active investor involves knowing the in-s and out-s of buying and selling stock. But for becoming a successful swing trader, there is no substitute to working hard watching and analyzing your personal portfolio. In order to obtain the gains and rewards from swing trading, you need to master the science of timing.
Do's and Don't in trading
Every trader loses initially.
We strongly believe that every investor who comes for trading initially giveslosses as he/she is unable to have control over his greed and fear. At timeswith all the information and luck in his favor, he makes profit, and thenbecause of his new over confidence, trades more which results in his profitgone and also sometimes a portion of his capital gone, This cycle of fear ofthe losses and greed to earn more makes him initially give losses
The trader begins to make no profit no loss
Out of the total investors who enter the first stage, 80% of them finish off atthe first stage only and after a year or two find that the stock market is nottheir cup of tea. So in the 2nd stage only the 20% investors try to break even intheir trading and quite a lot of them are able to have control over their fearand greed with a result that they stop giving losses. Now these traders areready for the 3rd stage
The trader starts to make profits
This stage where a trader makes consistent profit i.e. he does not give losscheque to the broker. In fact this is the stage which everyone wishes to havein the stock market. But we strongly believe that anybody who wishes to come to the 3 rd Stage has to pass through the above 2 stages.
Never risk more than 10% of your trading capital in a single trade.
Always use stop loss orders. (Here you should know your
loss you can give in a situation where the trade starts going against you.)
* Never do over trading.
* Never let a profit run into a loss.
* Don't enter a trade if you are unsure of the trend.
* When in doubt, get out, and don't get in when in doubt.
* Only trade active markets.
* Distribute your risks equally among different markets.
* Never limit your orders. Trade at the markets
* Extra monies from successful trades should be placed in a separate account.
* Never trade to scalp a profit.
* Never average a loss.
* Never get out of the market because you have lost patience, or get in because you are anxiously waiting.
* Avoid taking small profits and large losses.
* Never cancel a stop loss after you have placed it.
* Avoid getting in and out of the market too soon.
* Be willing to make money from both sides of the market.
* Never buy or sell just because the price is low or high.
* Never hedge a losing position.
* Never change your position without a good reason.
* Avoid trading after long periods of success or failure.
* Don't try to guess tops or bottoms.
* Don't follow a blind man's advice.
* Avoid getting in wrong and out wrong; or getting in right and out wrong. This is making a double mistake.
* When you lose don't blame it on luck.
Investors come to the stock market and buy and sell the stocks eying the future.
The future valuations they arrive at by either calculating the Fundamental factors on the basis of technical they take their positions.
In the short term it is always the technical factors that are demand and supply of the stock which gives us the directions of the movement of the stock.
Here for the reference of this side, we find that people who come here have a more short term view of the market.
They predict the short term movement of the market, technical analyst gives
better results hence, and we follow all the standard technical analysis tools.
There are two advantages in the following technical firstly; it tells us where the share/market is moving up or down.
Secondly, technical are not bothered about the fundamentals or the news (it overrides them).
In technical we are only concerned with price charts and volumes. We believe that at any given point of time, a stock price reflects everything.
We strongly believe that every investor who comes for trading initially giveslosses as he/she is unable to have control over his greed and fear. At timeswith all the information and luck in his favor, he makes profit, and thenbecause of his new over confidence, trades more which results in his profitgone and also sometimes a portion of his capital gone, This cycle of fear ofthe losses and greed to earn more makes him initially give losses
The trader begins to make no profit no loss
Out of the total investors who enter the first stage, 80% of them finish off atthe first stage only and after a year or two find that the stock market is nottheir cup of tea. So in the 2nd stage only the 20% investors try to break even intheir trading and quite a lot of them are able to have control over their fearand greed with a result that they stop giving losses. Now these traders areready for the 3rd stage
The trader starts to make profits
This stage where a trader makes consistent profit i.e. he does not give losscheque to the broker. In fact this is the stage which everyone wishes to havein the stock market. But we strongly believe that anybody who wishes to come to the 3 rd Stage has to pass through the above 2 stages.
Never risk more than 10% of your trading capital in a single trade.
Always use stop loss orders. (Here you should know your
loss you can give in a situation where the trade starts going against you.)
* Never do over trading.
* Never let a profit run into a loss.
* Don't enter a trade if you are unsure of the trend.
* When in doubt, get out, and don't get in when in doubt.
* Only trade active markets.
* Distribute your risks equally among different markets.
* Never limit your orders. Trade at the markets
* Extra monies from successful trades should be placed in a separate account.
* Never trade to scalp a profit.
* Never average a loss.
* Never get out of the market because you have lost patience, or get in because you are anxiously waiting.
* Avoid taking small profits and large losses.
* Never cancel a stop loss after you have placed it.
* Avoid getting in and out of the market too soon.
* Be willing to make money from both sides of the market.
* Never buy or sell just because the price is low or high.
* Never hedge a losing position.
* Never change your position without a good reason.
* Avoid trading after long periods of success or failure.
* Don't try to guess tops or bottoms.
* Don't follow a blind man's advice.
* Avoid getting in wrong and out wrong; or getting in right and out wrong. This is making a double mistake.
* When you lose don't blame it on luck.
Investors come to the stock market and buy and sell the stocks eying the future.
The future valuations they arrive at by either calculating the Fundamental factors on the basis of technical they take their positions.
In the short term it is always the technical factors that are demand and supply of the stock which gives us the directions of the movement of the stock.
Here for the reference of this side, we find that people who come here have a more short term view of the market.
They predict the short term movement of the market, technical analyst gives
better results hence, and we follow all the standard technical analysis tools.
There are two advantages in the following technical firstly; it tells us where the share/market is moving up or down.
Secondly, technical are not bothered about the fundamentals or the news (it overrides them).
In technical we are only concerned with price charts and volumes. We believe that at any given point of time, a stock price reflects everything.
Saturday, December 13, 2008
Stock Trading Plan
The Stock Trading Plan:
1. Establish a plan and define specific risk and profit objectives before trading. Maintain the necessary discipline to follow that plan through both good and bad times. Successful traders will agree that discipline contributed more to their success than their trading philosophy itself. Remember that the key to any plan is how well it holds over time.
2. There is no "sure thing", and there is no trading system that is 100% accurate. Your goal, as a trader, is to use the tools available and try to develop an edge. Base your trades on sound fundamental and technical reasoning, rather than on hunches and long shots. If you can develop an edge, however small, over time you will be successful.
3. A trader must be able to admit they have made a mistake. Do not become emotionally or financially committed to a losing trade. Avoid the pitfall of becoming emotionally involved with any trade.
4. An investing edge is only part of the equation. A trader should diversify sufficiently so that the growth in equity can be consistent and the likelihood of a catastrophic loss can be diminished.
The lower the percentage of a trader’s account dedicated to any one trade the greater the chance of the trader being successful. Even if the trader has a perceived investing edge, it is unwise to run the risk of ruin, and bet it alone one trade. The goal is not only to make money, but also to be able to continue to make money consistently for an extended period of time. A trader must learn the basic concepts and the importance of money management.
5. Lack of experience in the market causes many traders to make the mistake of taking small profits and letting losses run. Fundamental trading wisdom dictates the exact opposite. When in a winning trade, be patient and fully capitalize on the success. The trading axiom is, "cut your losses short and let your profits run".
6. A trading system does not have to be difficult, time consuming, complicated and stressful in order to be profitable. In trading systems, as in many other things in life, simple can be better
7. As a trader, be cautious, and never let greed take control of a winning position.
8. Be aware that declining volume usually indicates the market is not accepting higher or lower prices, and this could indicate a market turn.
9. Learn from your trading mistakes. Never make a trading mistake without asking yourself why.
10. Do not make trading decision based solely on margin requirements, and always trade within your capabilities. Remain true to your trading plan and follow the trading style that works best for you.
11. Do not trade markets that you don’t understand. Trade with confidence and conviction Trade only with risk capital, and be aware of the risk of losing. Divide your capital into 6 equal parts and never risk more than one-tenth of your capital on any one trade.
12. After a long period of success or a period of profitable trades, try to avoid the natural tendency toward increasing your trading activity. Conversely, use self-discipline when a trade goes against your position. Take your loss and wait for another opportunity. Never increase your trading after a loss.
13. Avoid getting into the market because you are anxious from waiting and/or out of the market because you have lost your patience. Never over trade and adhere to your risk management rules
14. Do not make a trading decision to buy just because the price of the stock is low or sell just because the price is high. Never change your position in the market without a good reason that is based on a fundamental or technical rule indicating a change in trend.
15. Trade the most active stocks and refrain from trading the slow moving markets. Trade "at the market" whenever possible and try to avoid a fixed buying and selling price.
16. When the market is moving with your position and you are using a stop loss order, and then raise your stop loss so as to lock in your profit. Protect yourself against the possibility of turning a profit into a loss.
17. The "trend is your friend," and never buy and sell if you are insecure of the trend according to your fundamentals and technical rules. If you are in doubt, then exit the market. Only trade when you feel confident with your trading strategies.
18. Trade in five or six different stocks at a time, so as to avoid tying up all of your capital in any single stock.
19. A trader should establish a "surplus account" after a series of successful or winning trades. The goal is to retain the "surplus account" for times of emergency or panic
20. It is difficult to try and guess where the top and bottom of the market is, instead let the market prove its top and bottom.
MY PAGE
In the world of money, which is a world shaped by human behavior; nobody has the foggiest notion of what will happen in the future. Mark that word - Nobody!
We are in a spectacular bear market from January 10, 2008 to till date, before that we enjoyed a secular bull market from August 2003. Now most investors are in deep red (more than the profits made in the last 3 to 5 years, including capital - wiped out)…. Bulls and bears make money, but pigs get slaughtered.
“Fear your losses and let your profits run.”
“It was never my thinking that made me money but my sitting tight.”
“Markets are never wrong, opinions are.”
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