If you have a look at stock charts, you can see the range bound trading that is happening in the counter. Range seems to be from RS.30-32 to RS.37-40
You may buy stocks around Rs.34-35 for short term gains for target of Rs.40
Showing posts with label Stock Trading. Show all posts
Showing posts with label Stock Trading. Show all posts
Stock Trading Idea - Buy Pritish Nandy Communications
NSEMumbaibull equity research group has recommended to buy stocks of Pritish Nandy Communications (BSE Stock code:532387) as short term stock trading idea.
If you have a look at stock charts, you can see the range bound trading that is happening in the counter. Range seems to be from RS.30-32 to RS.37-40
You may buy stocks around Rs.34-35 for short term gains for target of Rs.40
If you have a look at stock charts, you can see the range bound trading that is happening in the counter. Range seems to be from RS.30-32 to RS.37-40
You may buy stocks around Rs.34-35 for short term gains for target of Rs.40
Stock Trading - Which Stage Are You At?
New Stock Traders Journey to Success
In this thread I am going to take you through the different development stages of stock traders. Most of this comes from my own experience. Like any other profession, mastering stock trades takes years of practice to reach the ultimate level. While doctors and lawyers have gone through higher education to obtain their license to practice, stock traders are required to obtain knowledge on their own. If you are in it for the quick buck, think again. The challenge is tough but the achievements are rewarding.
Stage One: Clueless Stock Traders
This is the first stage when you enter stock trading. You may have picked up a book on technical analysis somewhere, heard of a day some lucky stock trader making millions, or got lucky in an earlier stock investment. After all, how hard can it be? The money sounds appealing and the freedom to be independent sounds attractive.
I don't mean to shatter anybody's dream but those who succeed in stock trading are the minority! Approximately 90-95% stock market traders lose money. This is a cold hard fact. In the first stage, every stock market trader is optimistic. You open a direct access brokerage account and the sound of Level II, ask/bid, and market makers make trading sound like hi-tech video game. In reality you have no clue. You will buy just to see the market reverse and you will short just as the market starts to rally. Most of your stock trades are done emotionally. You buy just because the markets feel strong without any logical reason. You are in the unconscious incompetence stage. You have no clue how the mechanics and psychology of trading works. What's worse? You are not aware that you don't know. Most share market traders will blow their entire account at this stage.
Stage Two: The Rookie Stock Traders
In this stage you have lost enough money to realize what you are doing is completely wrong. In other words, you start to realize that you don't know. You will then devour every stock market trading book available. You will study and purchase Technical Analysis of Stock Trends by Edwards and Magee believing price patterns are the Holy Grail. You will memorize every technical pattern known to man. You will read about the ADX, moving averages, Fibonacci lines, pivot points, MACD, Bollinger Bands, channels, etc... You will go through the "help" tab on your data vendor to read about every single technical indicator available. You will plot them on your charts and spend hours looking for an indicator that works. You will be extra confident now because think you have found the magical technical indicator.
Yet, you still continue to lose money everyday. You realize that your indicators are lagging and that every other new trader is probably looking at the same thing. You realize that you are the sucker.
Stage Three: The Developing Stock Traders
You start to realize the amount of work required and the immense learning curve that you must overcome to understand the markets. At this point, traders may find it overwhelming and quit. Stronger minded traders will push their motivation harder to start their second spurt for knowledge. Hunger and passion is needed to clear this stage. You will look for reference online, join mentor programs, chat rooms, and seminars. You realize the necessary elements needed to develop as a trader. You will ask a thousand questions and bug every professional trader you meet. You will read a thousand day trading articles. You will start paper trading, develop strategies and setups, and define risk parameters for every trade. You will go on a hunt for self-understanding to master your psychological game. You will visualize every possibility on a trade before you take it. This is the true learning phase. You are trying hard to develop your edge in trading.
Stage Four: The Determined Stock Traders
This is the stage in which you learn to specialize in certain markets and trading methods. Without realizing it, you have finally found your style of trading after hours of hard work and research. You stick to your method and you improve it. You realize that you need an edge whether its tape reading or being a Fibonacci expert. The important thing is you are slowly transforming yourself into a specialized trader. You test your methods and they seem to work. You gain tremendous market knowledge. You reflect back on yourself and you can't help but laugh at your foolishness. Although you have not made enough money to call yourself successful you are proud of your journey and accomplishments. You realize that the Holy Grail is not about technical indicators or price patterns. You calculate risk before profits and place strict money management on all your trades. You cut losses short and learn to scale out on your winners. You start accept losing as a natural part of the game. You take high probability trades that you have tested and feel confident about your setups because you understand that trading is a game of probabilities. Your psychological makeup has changed from an amateur mindset to a professional one.
Stage Five: The Consistent Stock Traders
You rely on your trading method and start taking trades systematically. You try to aim for consistency and are meeting your daily goals often. You have reached the conscious competence stage. You are fully aware of your strengths and weaknesses as a trader. At times you feel euphoric and at times you feel pain. But you are able to understand your own psychological makeup to control your emotional swings. You are now able to trade for a living.
Stage Six: The Expert Stock Traders
In this final stage, you completely understand the markets you are trading. Being involved in it everyday you are aware of every key price level. You understand stock market concepts and you are able to predict the direction of the markets a fairly good amount of time. You pat yourself on your back and take profits as soon as you feel euphoric. You do this because you understand euphoria is the same as emotional trading. You talk to other traders and realize the development stage they are in. People start asking you for stock trading advice, you publish a book, and you have a specific trading methodology that represents you!
Taking trades come naturally and you are able to get in and out at the precise price levels based on tape. Instead of having the markets take your stop out, you exit when you know you are wrong. You keep your head high but remain humble on the inside. You have now officially graduated the school of the hard knocks.
Entering the stock trading profession can be a tough journey for many people. Trading is one of the toughest careers that you can choose. If you enjoy the challenge, you will definitely enjoy the feeling of accomplishment. Trading is 30% mechanical and 170% psychological. 200% is required to become a successful trader.
Good luck and best of trading.
(This article was compiled and written by my friend R. Lakshman Prasad exclusively for Indian Stocks News.)
In this thread I am going to take you through the different development stages of stock traders. Most of this comes from my own experience. Like any other profession, mastering stock trades takes years of practice to reach the ultimate level. While doctors and lawyers have gone through higher education to obtain their license to practice, stock traders are required to obtain knowledge on their own. If you are in it for the quick buck, think again. The challenge is tough but the achievements are rewarding.
Stage One: Clueless Stock TradersThis is the first stage when you enter stock trading. You may have picked up a book on technical analysis somewhere, heard of a day some lucky stock trader making millions, or got lucky in an earlier stock investment. After all, how hard can it be? The money sounds appealing and the freedom to be independent sounds attractive.
I don't mean to shatter anybody's dream but those who succeed in stock trading are the minority! Approximately 90-95% stock market traders lose money. This is a cold hard fact. In the first stage, every stock market trader is optimistic. You open a direct access brokerage account and the sound of Level II, ask/bid, and market makers make trading sound like hi-tech video game. In reality you have no clue. You will buy just to see the market reverse and you will short just as the market starts to rally. Most of your stock trades are done emotionally. You buy just because the markets feel strong without any logical reason. You are in the unconscious incompetence stage. You have no clue how the mechanics and psychology of trading works. What's worse? You are not aware that you don't know. Most share market traders will blow their entire account at this stage.
Stage Two: The Rookie Stock Traders
In this stage you have lost enough money to realize what you are doing is completely wrong. In other words, you start to realize that you don't know. You will then devour every stock market trading book available. You will study and purchase Technical Analysis of Stock Trends by Edwards and Magee believing price patterns are the Holy Grail. You will memorize every technical pattern known to man. You will read about the ADX, moving averages, Fibonacci lines, pivot points, MACD, Bollinger Bands, channels, etc... You will go through the "help" tab on your data vendor to read about every single technical indicator available. You will plot them on your charts and spend hours looking for an indicator that works. You will be extra confident now because think you have found the magical technical indicator.
Yet, you still continue to lose money everyday. You realize that your indicators are lagging and that every other new trader is probably looking at the same thing. You realize that you are the sucker.
Stage Three: The Developing Stock Traders
You start to realize the amount of work required and the immense learning curve that you must overcome to understand the markets. At this point, traders may find it overwhelming and quit. Stronger minded traders will push their motivation harder to start their second spurt for knowledge. Hunger and passion is needed to clear this stage. You will look for reference online, join mentor programs, chat rooms, and seminars. You realize the necessary elements needed to develop as a trader. You will ask a thousand questions and bug every professional trader you meet. You will read a thousand day trading articles. You will start paper trading, develop strategies and setups, and define risk parameters for every trade. You will go on a hunt for self-understanding to master your psychological game. You will visualize every possibility on a trade before you take it. This is the true learning phase. You are trying hard to develop your edge in trading.
Stage Four: The Determined Stock Traders
This is the stage in which you learn to specialize in certain markets and trading methods. Without realizing it, you have finally found your style of trading after hours of hard work and research. You stick to your method and you improve it. You realize that you need an edge whether its tape reading or being a Fibonacci expert. The important thing is you are slowly transforming yourself into a specialized trader. You test your methods and they seem to work. You gain tremendous market knowledge. You reflect back on yourself and you can't help but laugh at your foolishness. Although you have not made enough money to call yourself successful you are proud of your journey and accomplishments. You realize that the Holy Grail is not about technical indicators or price patterns. You calculate risk before profits and place strict money management on all your trades. You cut losses short and learn to scale out on your winners. You start accept losing as a natural part of the game. You take high probability trades that you have tested and feel confident about your setups because you understand that trading is a game of probabilities. Your psychological makeup has changed from an amateur mindset to a professional one.
Stage Five: The Consistent Stock Traders
You rely on your trading method and start taking trades systematically. You try to aim for consistency and are meeting your daily goals often. You have reached the conscious competence stage. You are fully aware of your strengths and weaknesses as a trader. At times you feel euphoric and at times you feel pain. But you are able to understand your own psychological makeup to control your emotional swings. You are now able to trade for a living.
Stage Six: The Expert Stock Traders
In this final stage, you completely understand the markets you are trading. Being involved in it everyday you are aware of every key price level. You understand stock market concepts and you are able to predict the direction of the markets a fairly good amount of time. You pat yourself on your back and take profits as soon as you feel euphoric. You do this because you understand euphoria is the same as emotional trading. You talk to other traders and realize the development stage they are in. People start asking you for stock trading advice, you publish a book, and you have a specific trading methodology that represents you!
Taking trades come naturally and you are able to get in and out at the precise price levels based on tape. Instead of having the markets take your stop out, you exit when you know you are wrong. You keep your head high but remain humble on the inside. You have now officially graduated the school of the hard knocks.
Entering the stock trading profession can be a tough journey for many people. Trading is one of the toughest careers that you can choose. If you enjoy the challenge, you will definitely enjoy the feeling of accomplishment. Trading is 30% mechanical and 170% psychological. 200% is required to become a successful trader.
Good luck and best of trading.
(This article was compiled and written by my friend R. Lakshman Prasad exclusively for Indian Stocks News.)
Stock Market Trading - Technical Analysis - CNBC TV18 Classroom
As part of my continuous endeavour on educating investors on stock market trading, here is a CNBC TV18 Classroom session from technical analyst on trading stocks. This session elaborates on stock technical analysis and it's use.
More articles on: Stock Market Trading
More articles on: Stock Market Trading
Where Are Indian Stock Markets Heading?
Where would Indian stock markets are heading from here? BSE SENSEX has been trading rangebound for past three months now. 14500 to 15500 and around has been the range of trading.
Have a look at the BSE SENSEX chart.
If you look at the peaks in the chart, they indicate the lacking streangth in breaching the range mentioned above on the upper side of it.
2 days back I heard Shankar Sharma, famous bear in Indian stock market, speaking on TV about correction in stock markets. He is confident that Indian stock markets are bound to see 10-15% correction in near term.
He mentioned that SENSEX could go to 13000 levels before reaching 17000.
Shankar Sharma's statement is based on performance of world stock markets. World stock markets are riding with demand from chinese markets. The problem is, demand in Chinese markets is depleting eroding the growth.
The current rally in Indian stock markets is more a technical rally and not the fundamental one.
So what does this mean for long term invetors? Should you stay away from stock markets?
It has always been said "every time the markets go down, that is a buying opportunity".
So if markets correct by 10-15% as Shankar Sharma says, be ready to buy stocks at lower prices for long term investment.
Have a look at the BSE SENSEX chart.
If you look at the peaks in the chart, they indicate the lacking streangth in breaching the range mentioned above on the upper side of it.
2 days back I heard Shankar Sharma, famous bear in Indian stock market, speaking on TV about correction in stock markets. He is confident that Indian stock markets are bound to see 10-15% correction in near term.
He mentioned that SENSEX could go to 13000 levels before reaching 17000.
Shankar Sharma's statement is based on performance of world stock markets. World stock markets are riding with demand from chinese markets. The problem is, demand in Chinese markets is depleting eroding the growth.
The current rally in Indian stock markets is more a technical rally and not the fundamental one.
So what does this mean for long term invetors? Should you stay away from stock markets?
It has always been said "every time the markets go down, that is a buying opportunity".
So if markets correct by 10-15% as Shankar Sharma says, be ready to buy stocks at lower prices for long term investment.
Stock Market Tips - Gujarat Alkalies & Chemicals - Mid Cap Stock
Gujarat Alkalies and Chemicals is a mid cap stock to buy available at good valuations. It is trading (CMP. Rs.113) way below it's book value(Rs. 173), at P/E of only 4.8 and even have a dividend yield of 3%.
Company Overview
Gujarat Alkalies and Chemicals Ltd was incorporated in March 1973. It was financed by Gujarat Industrial Investment Corporation Limited, a wholly owned corporation of the Government of Gujarat. The improvement in the working of the company strongly depends on the higher demand for chlor-alkali industry products and revival in both international and domestic caustic soda prices. The management of the company is optimistic that things will turn out in favour of the company.
Have a look at the 5 year chart of the stock below. It has been a constant dividend yielding stock being a state government establishment. The stock trades cyclically and does not shows growth over longer period of time. But this nature of stock trading can be used for short and medium term trading. We can buy it for a short term/medium term investment to fetch good returns.
Checkout the latest quarter results on company website: http://www.gujaratalkalies.com/new/q1_20092010.htm
Products & services
The main activities of Gujarat Alkalies and Chemicals are developing, manufacturing and distributing caustic soda lye, chloromethanes, caustic flakes, chlorine gas, sodium cyanide, liquid chlorine, hydrochloric acid, hydrogen gas, sodium ferrocyanide and related chemicals.
Gujarat Alkalies and Chemicals have two plant sites. One is situated at 15 km North of Vadodara and the other is located at Dahej, in Bharuch district. The company commissioned this 90MW captive combined cycle co-generation power plant to reduce its power costs and achieve self-reliance in its power requirements. It embarked upon a diversification plan in April 1981 to produce 2000 MTA of sodium cyanide. The company mainly exports to Australia, China, Japan, South Africa and Egypt.
Market Cap 830.20
* EPS (TTM) 23.93
* P/E 4.72
* P/C 2.91
* Book Value 173.03
* Price/Book 0.65
Div(%) 35.00
Div Yield(%) 3.10
Market Lot 1.00
Face Value 10.00
Industry P/E 8.57
Valuation
At current market price, stock is trading at an attractive valuation of 4.8 P/E multiple of its FY2010 estimated earnings. We Recommend investors to buy stocks of “GACL” for short and medium term investment perspectives. Short term target could be around Rs. 135.
Company Overview
Gujarat Alkalies and Chemicals Ltd was incorporated in March 1973. It was financed by Gujarat Industrial Investment Corporation Limited, a wholly owned corporation of the Government of Gujarat. The improvement in the working of the company strongly depends on the higher demand for chlor-alkali industry products and revival in both international and domestic caustic soda prices. The management of the company is optimistic that things will turn out in favour of the company.
Have a look at the 5 year chart of the stock below. It has been a constant dividend yielding stock being a state government establishment. The stock trades cyclically and does not shows growth over longer period of time. But this nature of stock trading can be used for short and medium term trading. We can buy it for a short term/medium term investment to fetch good returns.
Checkout the latest quarter results on company website: http://www.gujaratalkalies.com/new/q1_20092010.htm
Products & services
The main activities of Gujarat Alkalies and Chemicals are developing, manufacturing and distributing caustic soda lye, chloromethanes, caustic flakes, chlorine gas, sodium cyanide, liquid chlorine, hydrochloric acid, hydrogen gas, sodium ferrocyanide and related chemicals.
Gujarat Alkalies and Chemicals have two plant sites. One is situated at 15 km North of Vadodara and the other is located at Dahej, in Bharuch district. The company commissioned this 90MW captive combined cycle co-generation power plant to reduce its power costs and achieve self-reliance in its power requirements. It embarked upon a diversification plan in April 1981 to produce 2000 MTA of sodium cyanide. The company mainly exports to Australia, China, Japan, South Africa and Egypt.
Market Cap 830.20
* EPS (TTM) 23.93
* P/E 4.72
* P/C 2.91
* Book Value 173.03
* Price/Book 0.65
Div(%) 35.00
Div Yield(%) 3.10
Market Lot 1.00
Face Value 10.00
Industry P/E 8.57
Valuation
At current market price, stock is trading at an attractive valuation of 4.8 P/E multiple of its FY2010 estimated earnings. We Recommend investors to buy stocks of “GACL” for short and medium term investment perspectives. Short term target could be around Rs. 135.
Stock Market Trading - How To Trade Stocks? 5 Rules For Short-Term Trading
Want to be a full-time trader? Here are some principles to bear in mind before you take the plunge.
We are witnessing tremendous public interest in equity as investment and a tool for wealth creation. However, trading as a full-time profession is relatively rare. As interest in and knowledge about markets spreads, we will see the growth of a community that will want to trade for a living, as has happened in the West. What is the key to success as a trader? In trading, as in any other field, knowledge is essential to success. An important component of that knowledge is mental preparation. As an amateur investor climbs the learning curve, losses are inevitable, but even more than the initial accumulated capital loss, what the rookie trader’s undoing is the blow to his psyche. It prevents him from building up his confidence and in most cases, results in his quitting. At this point, he will tend to justify his defeatist behaviour by blaming the market itself. And once the damage is done, very rarely can an amateur find his feet again.
People living on trading typically tend to be short-term traders. Short-term trading is essentially trading on price swings in a short time horizon, lasting anywhere between 2-10 days, sometimes a bit more.
It must be recognised at the outset that short-term trading is an altogether different game from general investment practices, and one that has to be played by an entirely different set of rules. Each of these principles is equally important and following one to the exclusion of another will not result in success. Money Management.
The first rule for making money through short-term trading is to avoid losing money.
One must calculate beforehand the amount of money one is willing to commit and lose in each trade. This helps to take some of the psychol-ogical pressure off, and keeps one from operating out of greed or fear. Losing too much means having to earn much more just to break even. Also, once the stop-loss level is reached, the trader must be willing to exit. Following this one rule itself will result in lesser depletion of capital over the long term. To sit back when the trade goes against one, in the hope that things will come back in one’s favour, is the road to ruin. This can be avoided by a mechanical system of stop loss.
What is the trading time-horizon?
This is the most important aspect of success in this game though it may seem like a basic question to answer. It is extremely difficult for any trader to answer this correctly because it requires a thorough and correct psycho-logical evaluation of oneself. Investment with longer term time horizons imparts a comfort level, which is absent in short-term trading. In longer- term trading one can sit back and wait for the stock to come back above one’s purchase price, should it have nosedived below it. Short-term trading gives traders no such margins for errors, and a small series of losses can result in substantial loss of capital. It will make sense for a trader to carry out a few short-term trades and see whether he is comfortable if the trade goes against him and how he reacts in that situation - most notably, whether he comforts himself by conveniently stretching his time-horizon.
Trading plan or a system.
Success depends on developing a plan - and following it ruthlessly. For this, the trader will need to have full confidence in the reasonable efficacy of his chosen method. He will have to repeatedly carry out back-tests on stock charts. He will also have to carry out the tests in all possible market conditions - rising, falling and range-bound, and he will have to continue doing so until he has the confidence that he can put his money on the line based on this system. Sometimes he will suffer a series of losses. He must be prepared to ride it out, confident that his system will ultimately show result. If he changes his mind frequently or in the middle of trades, he is setting himself up for certain defeat. The more mechanical he gets in his trading, the more his chances of success. It would be a good idea for the short-term trader to specialise in trading particular types of patterns. For example, suppose he is trading the market when it is essentially in a long-term uptrend. In this case, even though he is trading short-term, it is generally a good idea to trade in the direction of the larger trend. In doing this, he greatly increases his chances of success. For example, Cadila Healthcare has recently broken out of a symmetrical triangle, on the upside. It would have been most prudent to wait for Cadila to form the entire pattern and set itself up for an upside breakout, in the direction of the major trend, before pulling the trigger. One would have lost some of the initial move, but it would have been worth it.
Source: MoneyLife
We are witnessing tremendous public interest in equity as investment and a tool for wealth creation. However, trading as a full-time profession is relatively rare. As interest in and knowledge about markets spreads, we will see the growth of a community that will want to trade for a living, as has happened in the West. What is the key to success as a trader? In trading, as in any other field, knowledge is essential to success. An important component of that knowledge is mental preparation. As an amateur investor climbs the learning curve, losses are inevitable, but even more than the initial accumulated capital loss, what the rookie trader’s undoing is the blow to his psyche. It prevents him from building up his confidence and in most cases, results in his quitting. At this point, he will tend to justify his defeatist behaviour by blaming the market itself. And once the damage is done, very rarely can an amateur find his feet again.
People living on trading typically tend to be short-term traders. Short-term trading is essentially trading on price swings in a short time horizon, lasting anywhere between 2-10 days, sometimes a bit more.
It must be recognised at the outset that short-term trading is an altogether different game from general investment practices, and one that has to be played by an entirely different set of rules. Each of these principles is equally important and following one to the exclusion of another will not result in success. Money Management.
The first rule for making money through short-term trading is to avoid losing money.
One must calculate beforehand the amount of money one is willing to commit and lose in each trade. This helps to take some of the psychol-ogical pressure off, and keeps one from operating out of greed or fear. Losing too much means having to earn much more just to break even. Also, once the stop-loss level is reached, the trader must be willing to exit. Following this one rule itself will result in lesser depletion of capital over the long term. To sit back when the trade goes against one, in the hope that things will come back in one’s favour, is the road to ruin. This can be avoided by a mechanical system of stop loss.
What is the trading time-horizon?
This is the most important aspect of success in this game though it may seem like a basic question to answer. It is extremely difficult for any trader to answer this correctly because it requires a thorough and correct psycho-logical evaluation of oneself. Investment with longer term time horizons imparts a comfort level, which is absent in short-term trading. In longer- term trading one can sit back and wait for the stock to come back above one’s purchase price, should it have nosedived below it. Short-term trading gives traders no such margins for errors, and a small series of losses can result in substantial loss of capital. It will make sense for a trader to carry out a few short-term trades and see whether he is comfortable if the trade goes against him and how he reacts in that situation - most notably, whether he comforts himself by conveniently stretching his time-horizon.
Trading plan or a system.
Success depends on developing a plan - and following it ruthlessly. For this, the trader will need to have full confidence in the reasonable efficacy of his chosen method. He will have to repeatedly carry out back-tests on stock charts. He will also have to carry out the tests in all possible market conditions - rising, falling and range-bound, and he will have to continue doing so until he has the confidence that he can put his money on the line based on this system. Sometimes he will suffer a series of losses. He must be prepared to ride it out, confident that his system will ultimately show result. If he changes his mind frequently or in the middle of trades, he is setting himself up for certain defeat. The more mechanical he gets in his trading, the more his chances of success. It would be a good idea for the short-term trader to specialise in trading particular types of patterns. For example, suppose he is trading the market when it is essentially in a long-term uptrend. In this case, even though he is trading short-term, it is generally a good idea to trade in the direction of the larger trend. In doing this, he greatly increases his chances of success. For example, Cadila Healthcare has recently broken out of a symmetrical triangle, on the upside. It would have been most prudent to wait for Cadila to form the entire pattern and set itself up for an upside breakout, in the direction of the major trend, before pulling the trigger. One would have lost some of the initial move, but it would have been worth it.
Source: MoneyLife
Trading with Grudge
People trade for a variety of reasons. Some trade, because of the urge and excitement, while others do to make a living. There are many more who trade because they want to probably get a better return as opposed to their deposits with bank accounts. But there is a very dark side to Trading. Trading with a Grudge.
A small story of a individual whom i knew very closely would give you an idea of what overtrading is all about.
This gentleman, let us call him Jack, started his trading as any other novice trader by getting a tip from one of his friends who was an investment banker. Jack placed all his money into this One single trade. Since it was a Bull market, Jack made good profit out of his first investment. He then called upon another friend of his, who suggested a few more stocks to invest in. Jack followed the advise without even blinking his eyes. And again he made some more money. Jack was at an all time high. He now started to believe that he now has a knack of picking stocks and investing in them.
The bull run headed for a small correction, at least that's how it looked like initially. Jack placed all his bets getting a tip from a message board. Since market turned south, jack started to loose money. The first trade that he lost on is worth mentioning. This is what a typical trader goes through in his/her early days. Jack bought stock ABC at $20. He saw that immediately after he bought the stock, it went up. He was on an all time high again. Next day the market was weak, ABC ended the day at 19.20. Jack thought, ah, this is one of those days. Hopefully it will go back up the following day. To Jack's dismay, the next and the next days were nothing more than painful. The stock kept going down. Jack was already at a loss of over $3 now. He thought to himself, there is No point in selling it now since i am already at a loss. Let me wait and see if the market turns back up and i can at least recoup some of the losses.
Unfortunately, ABC ended the day a few days later at $14.50. Jack lost his patience and sold off all of his position at a whopping loss of over $5. He thought to himself, i will never trade again. He was so angry at himself, because he lost his money. To add to his already unfortunate story, ABC traded at around $17 in a couple of days after Jack sold his position. Jack was furious. He thought let me take Revenge on the market and he started to place bets recklessly. He kept loosing money and was unable to control his anger and wanted to a) Take revenge and get back all of his lost money b) Make money as he used to do earlier. Sadly, Jack, realized that you cannot beat the market and that your anger destroys none but only you.
Morale of this story that i got from it was that One should always remember that you can win Only if you participate in the market. If you place your bets with an attitude to beat the market or with a grudge/anger, the only person who looses is, you. If you are in such a situation, then it is Strongly advisable to "Stop trading" for a while. Take a break. And come back with a relaxed attitude. Do Not let your previous bad experiences haunt you.
Read more on Stock Market Trading
A small story of a individual whom i knew very closely would give you an idea of what overtrading is all about.
This gentleman, let us call him Jack, started his trading as any other novice trader by getting a tip from one of his friends who was an investment banker. Jack placed all his money into this One single trade. Since it was a Bull market, Jack made good profit out of his first investment. He then called upon another friend of his, who suggested a few more stocks to invest in. Jack followed the advise without even blinking his eyes. And again he made some more money. Jack was at an all time high. He now started to believe that he now has a knack of picking stocks and investing in them.
The bull run headed for a small correction, at least that's how it looked like initially. Jack placed all his bets getting a tip from a message board. Since market turned south, jack started to loose money. The first trade that he lost on is worth mentioning. This is what a typical trader goes through in his/her early days. Jack bought stock ABC at $20. He saw that immediately after he bought the stock, it went up. He was on an all time high again. Next day the market was weak, ABC ended the day at 19.20. Jack thought, ah, this is one of those days. Hopefully it will go back up the following day. To Jack's dismay, the next and the next days were nothing more than painful. The stock kept going down. Jack was already at a loss of over $3 now. He thought to himself, there is No point in selling it now since i am already at a loss. Let me wait and see if the market turns back up and i can at least recoup some of the losses.
Unfortunately, ABC ended the day a few days later at $14.50. Jack lost his patience and sold off all of his position at a whopping loss of over $5. He thought to himself, i will never trade again. He was so angry at himself, because he lost his money. To add to his already unfortunate story, ABC traded at around $17 in a couple of days after Jack sold his position. Jack was furious. He thought let me take Revenge on the market and he started to place bets recklessly. He kept loosing money and was unable to control his anger and wanted to a) Take revenge and get back all of his lost money b) Make money as he used to do earlier. Sadly, Jack, realized that you cannot beat the market and that your anger destroys none but only you.
Morale of this story that i got from it was that One should always remember that you can win Only if you participate in the market. If you place your bets with an attitude to beat the market or with a grudge/anger, the only person who looses is, you. If you are in such a situation, then it is Strongly advisable to "Stop trading" for a while. Take a break. And come back with a relaxed attitude. Do Not let your previous bad experiences haunt you.
Read more on Stock Market Trading
Stock Market Trading - Volume and It's Importance
Volume is the number of Stocks/Shares traded for a given Company on a given day. Some Stocks could have 0 volume and some could have volume to the tune of Billions in a single day. Ok. So What's the big deal with Volume and why should you care about it for stock trades. Online stock trading and buying stocks online is so easy nowadays that common investor tends to trade stock in portfolio. Here are some of the reasons why you should look into volume of a stock very closely before considering investment in that stock.
More the Volume, the better it is for the stock. Yes. It's true. Stocks that are heavily traded are the ones that have a lot of interest in the investor/trader community and also within other financial circles such as the Mutual Funds. Incidentally, MF's are the biggest single investors for any given stock in the market.
Stocks that have high volumes, also bring in the Day-traders and short-sellers. Though many investors/traders feel, Both of them are BAD. In fact, they are a Key ingredient of the Market, without which it is hard to say how the market would have been. The way one should look at these Day-traders and short-sellers are as "Scalpers". Scalping means "top layer" and in trading terms, trading for a few pennies/rupees(small amounts) of profits. Since these people do NOT expect huge profits, they do NOT play/invest in stocks that are not heavily traded. Why? Because, those stocks that are heavily traded, generally trade within a very tight daily range. Giving way for Day-trading and Short-selling. Those stocks that are not heavily traded, are subject to manipulations and do NOT have a definitive pattern or trading range. Hence, both, short-sellers and day-traders keep themselves away from such stocks. Now you realize how important these two guys are, Day-Traders and Short-sellers.
Stocks that have good volume also attract the big players, Mutual funds and other big retail investors. Since it is a Safe Bet. For that matter, let us take a couple of examples. Have you ever seen INTC(Intel in US) and Reliance in India trade abnormally(leave aside those 1-2 trading days in an year) on any given day. No. Both of them have a very tight trading range and they follow it. Now, which way the trading happens, depends on various factors, which is not within the scope of this very discussion.
Volume also depends on the number of shares outstanding and hence it has to be adjusted accordingly.
A stock whose volume seems to be drying up indicates that there is something wrong fundamentally because of which good money is moving out and Day-traders/short-sellers are loosing interest in it. Of course, you have to consider at least 6 months(or More) Moving Average of Volume to see which way the Volume seems to be going. Conversely, if the Volume seems to be picking up, it is an indication that something is up with the stock. And it could fetch good returns in near future.
Volume is the one that gives a clear indication of a Stocks Breaksout and Breakdown. Without Huge volume, if the stock breakout or breaksdown, it would indicate manipulation rather than good strong interest.
So, to sum up. One must choose stocks with good volume. We believe a stock must at least have 400K or more in 6 months average volume if it is trading in US. And at least 200K or more in 6 months average volume if it is trading in India. Though we do include those stocks that are above 100K in our database.
More the Volume, the better it is for the stock. Yes. It's true. Stocks that are heavily traded are the ones that have a lot of interest in the investor/trader community and also within other financial circles such as the Mutual Funds. Incidentally, MF's are the biggest single investors for any given stock in the market.
Stocks that have high volumes, also bring in the Day-traders and short-sellers. Though many investors/traders feel, Both of them are BAD. In fact, they are a Key ingredient of the Market, without which it is hard to say how the market would have been. The way one should look at these Day-traders and short-sellers are as "Scalpers". Scalping means "top layer" and in trading terms, trading for a few pennies/rupees(small amounts) of profits. Since these people do NOT expect huge profits, they do NOT play/invest in stocks that are not heavily traded. Why? Because, those stocks that are heavily traded, generally trade within a very tight daily range. Giving way for Day-trading and Short-selling. Those stocks that are not heavily traded, are subject to manipulations and do NOT have a definitive pattern or trading range. Hence, both, short-sellers and day-traders keep themselves away from such stocks. Now you realize how important these two guys are, Day-Traders and Short-sellers.
Stocks that have good volume also attract the big players, Mutual funds and other big retail investors. Since it is a Safe Bet. For that matter, let us take a couple of examples. Have you ever seen INTC(Intel in US) and Reliance in India trade abnormally(leave aside those 1-2 trading days in an year) on any given day. No. Both of them have a very tight trading range and they follow it. Now, which way the trading happens, depends on various factors, which is not within the scope of this very discussion.
Volume also depends on the number of shares outstanding and hence it has to be adjusted accordingly.
A stock whose volume seems to be drying up indicates that there is something wrong fundamentally because of which good money is moving out and Day-traders/short-sellers are loosing interest in it. Of course, you have to consider at least 6 months(or More) Moving Average of Volume to see which way the Volume seems to be going. Conversely, if the Volume seems to be picking up, it is an indication that something is up with the stock. And it could fetch good returns in near future.
Volume is the one that gives a clear indication of a Stocks Breaksout and Breakdown. Without Huge volume, if the stock breakout or breaksdown, it would indicate manipulation rather than good strong interest.
So, to sum up. One must choose stocks with good volume. We believe a stock must at least have 400K or more in 6 months average volume if it is trading in US. And at least 200K or more in 6 months average volume if it is trading in India. Though we do include those stocks that are above 100K in our database.
Stock Market Trading - MACD Indicators
History of Moving Average Convergence-Divergence
(MACD) was originally constructed by Gerald Appel an analyst in New York. Originally designed for analysis of stock trends, it is now widely used in many markets.
MACD is constructed by making an average of the difference between two moving averages. The difference of the original two moving averages and the moving average of the difference can be plotted as two lines, one fast and one slow.
Uses
Most modern charting software now includes MACD as standard. Once selected to display in your charting software it normally shows up as two lines plotted on an open scale against the zero line. These two lines will normally be of different color or one line a solid line and the other a dotted line. Frequently used settings are 12 and 26 period exponential moving averages with 9 period exponential moving average as the signal line.
Although there are three moving averages mentioned you will only see two lines. The simplest method of use is when the two lines cross. If the faster signal line crosses above the slower line then a buy signal is generated and vice versa. It is also used as an overbought and oversold indicator. The higher above the zero both lines are the more overbought it becomes and the lower below the zero line both lines are the more oversold it becomes.
It may also lead to a stronger signal if the signal line crosses down when it is overbought and crosses up when it is oversold. The last common use of MACD is that of divergence.
If the MACD is making new lows and the price of the security is not making new lows that is one form of divergence (bullish divergence). Also, if the MACD has made a high and starts to head down but price continues up that is another type of divergence (bearish divergence) and may lead to an indication of a change in direction.
My Own Use Of MACD
I like to use the MACD as a trend indicator with parameters set at 8 and 18 period exponential moving averages with a 9 period exponential moving average as the signal line. All I am trying to do is establish a trend in a higher time period than the one I intend to trade.
If you were trading day charts you would be looking at the MACD on the weekly. If you were trading an hourly chart you might look at the MACD on the daily. As long as the signal line remains above or below the MACD line on the next higher time frame you know the trend is still in place.
As you can see from the chart examples of the 30 min Cash DJIA there was a sell signal on the 9th May 02. This was my higher time frame as I was trading intraday. I then went to the 5 min chart of the Cash DJIA and sold the rallies, confident to stay short as long as my higher time period MACD trend in the 30 min stayed intact. If the 30 min MACD signal line were to cross up I would have closed all short positions.
(MACD) was originally constructed by Gerald Appel an analyst in New York. Originally designed for analysis of stock trends, it is now widely used in many markets.
MACD is constructed by making an average of the difference between two moving averages. The difference of the original two moving averages and the moving average of the difference can be plotted as two lines, one fast and one slow.
Uses
Most modern charting software now includes MACD as standard. Once selected to display in your charting software it normally shows up as two lines plotted on an open scale against the zero line. These two lines will normally be of different color or one line a solid line and the other a dotted line. Frequently used settings are 12 and 26 period exponential moving averages with 9 period exponential moving average as the signal line.
Although there are three moving averages mentioned you will only see two lines. The simplest method of use is when the two lines cross. If the faster signal line crosses above the slower line then a buy signal is generated and vice versa. It is also used as an overbought and oversold indicator. The higher above the zero both lines are the more overbought it becomes and the lower below the zero line both lines are the more oversold it becomes.
It may also lead to a stronger signal if the signal line crosses down when it is overbought and crosses up when it is oversold. The last common use of MACD is that of divergence.
If the MACD is making new lows and the price of the security is not making new lows that is one form of divergence (bullish divergence). Also, if the MACD has made a high and starts to head down but price continues up that is another type of divergence (bearish divergence) and may lead to an indication of a change in direction.
My Own Use Of MACD
I like to use the MACD as a trend indicator with parameters set at 8 and 18 period exponential moving averages with a 9 period exponential moving average as the signal line. All I am trying to do is establish a trend in a higher time period than the one I intend to trade.
If you were trading day charts you would be looking at the MACD on the weekly. If you were trading an hourly chart you might look at the MACD on the daily. As long as the signal line remains above or below the MACD line on the next higher time frame you know the trend is still in place.
As you can see from the chart examples of the 30 min Cash DJIA there was a sell signal on the 9th May 02. This was my higher time frame as I was trading intraday. I then went to the 5 min chart of the Cash DJIA and sold the rallies, confident to stay short as long as my higher time period MACD trend in the 30 min stayed intact. If the 30 min MACD signal line were to cross up I would have closed all short positions.
30 Min Chart
5 MIN Chart
Stock Market Trading - 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 and 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 (some markets like forex are 24 hours but generally use 5pm EST as the open and close). This information basically contains all the data you need to calculate the pivot levels.
The reason pivot point trading is so popular is that pivot points 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 give 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 for long trades as long as price remains above the pivot point. If the market opens below the pivot point then the bias for the day is for short trades as long as the market remains below the pivot point.
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 up 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.
This all looks pretty straight forward.
Unfortunately life is not that simple and we have to deal with each trading day the best way we can. I have picked a day at random from last week and what follows are some ideas on how you could have traded that day using pivot points.
On the 12th August 04 the Euro/Dollar (EUR/USD) had the following:
High - 1.2297
Low - 1.2213
Close - 1.2249
This gave us:
Resistance 3 = 1.2377
Resistance 2 = 1.2337
Resistance 1 = 1.2293
Pivot Point = 1.2253
Support 1 = 1.2209
Support 2 = 1.2169
Support 3 = 1.2125
Have a look at the 5 minute chart below
The green line is the pivot point. The blue lines are resistance levels R1,R2 and R3. The red lines are support levels S1,S2 and S3.
There are loads of ways to trade this day using pivot points but I shall walk you through a few of them and discuss why some are good in certain situations and why some are bad.
The Breakout Trade
At the beginning of the day we were b
elow the pivot point, so our bias is for short trades. A channel formed so you would be looking for a break out of the channel, preferably to the downside. In this type of trade you would have your sell entry order just below the lower channel line with a stop order just above the upper channel line and a target of S1. The problem on this day was that, S1 was very close to the breakout level and there was just not enough meat in the trade (13 pips). This cab be a good entry technique for you. Just because it was not suitable this day, does not mean it will not be suitable the next day.
The Pullback Trade
This is one of my favorite set ups. The market passes through S1 and then pulls back. An entry
order is placed below support, which in this case was the most recent low before the pullback. A stop is then placed above the pullback (the most recent high - peak) and a target set for S2. The problem again, on this day was that the target of S2 was to close, and the market never took out the previous support, which tells us that the market sentiment is beginning to change.
Advanced
As I mentioned earlier, there are lots of ways to trade with pivot points. A more advanced method is to use the cross of two moving averages as a confirmation of a breakout. You can even use combinations of indicators to help you make a decision. It might be the cross of two averages and also MACD must be in buy mode.
In the example below the market passed through S1 and then retraced to the S1 line again. It then formed a channel. At around this time we had a cross of the averages, MACD signaled buy and there was a breakout of the channel line. This gave a great signal to go long with a target of the original pivot line.
Mess around with a few of your favorite indicators to help determine an entry around a pivot level but remember the signal is a break of a level and the indicators are just confirmation.
We haven't even got into patterns around pivot levels or failures but that is not the point of this lesson. I just want to introduce another possible way for you to trade.
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 and 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 (some markets like forex are 24 hours but generally use 5pm EST as the open and close). This information basically contains all the data you need to calculate the pivot levels.
The reason pivot point trading is so popular is that pivot points 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 give 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 for long trades as long as price remains above the pivot point. If the market opens below the pivot point then the bias for the day is for short trades as long as the market remains below the pivot point.
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 up 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.
This all looks pretty straight forward.
Unfortunately life is not that simple and we have to deal with each trading day the best way we can. I have picked a day at random from last week and what follows are some ideas on how you could have traded that day using pivot points.
On the 12th August 04 the Euro/Dollar (EUR/USD) had the following:
High - 1.2297
Low - 1.2213
Close - 1.2249
This gave us:
Resistance 3 = 1.2377
Resistance 2 = 1.2337
Resistance 1 = 1.2293
Pivot Point = 1.2253
Support 1 = 1.2209
Support 2 = 1.2169
Support 3 = 1.2125
Have a look at the 5 minute chart below
The green line is the pivot point. The blue lines are resistance levels R1,R2 and R3. The red lines are support levels S1,S2 and S3.There are loads of ways to trade this day using pivot points but I shall walk you through a few of them and discuss why some are good in certain situations and why some are bad.
The Breakout Trade
At the beginning of the day we were b
elow the pivot point, so our bias is for short trades. A channel formed so you would be looking for a break out of the channel, preferably to the downside. In this type of trade you would have your sell entry order just below the lower channel line with a stop order just above the upper channel line and a target of S1. The problem on this day was that, S1 was very close to the breakout level and there was just not enough meat in the trade (13 pips). This cab be a good entry technique for you. Just because it was not suitable this day, does not mean it will not be suitable the next day.The Pullback Trade
This is one of my favorite set ups. The market passes through S1 and then pulls back. An entry
order is placed below support, which in this case was the most recent low before the pullback. A stop is then placed above the pullback (the most recent high - peak) and a target set for S2. The problem again, on this day was that the target of S2 was to close, and the market never took out the previous support, which tells us that the market sentiment is beginning to change.Advanced
As I mentioned earlier, there are lots of ways to trade with pivot points. A more advanced method is to use the cross of two moving averages as a confirmation of a breakout. You can even use combinations of indicators to help you make a decision. It might be the cross of two averages and also MACD must be in buy mode.
In the example below the market passed through S1 and then retraced to the S1 line again. It then formed a channel. At around this time we had a cross of the averages, MACD signaled buy and there was a breakout of the channel line. This gave a great signal to go long with a target of the original pivot line.
Mess around with a few of your favorite indicators to help determine an entry around a pivot level but remember the signal is a break of a level and the indicators are just confirmation.
We haven't even got into patterns around pivot levels or failures but that is not the point of this lesson. I just want to introduce another possible way for you to trade.
Stock Market Trading - Double/Triple Tops n Bottoms
Tops and bottoms are one of the favorite benchmarks for short-term aka. Swing trading. In particular Double and Triple Top and Bottom formations are the most common and widely used techniques to predict the potential stock movement.
Tops and bottoms are formed when a stock Peaks out in either direction. Tops and bottoms take quite some time to form. One of the main reason being, nobody really knows when to call it quits. Many people just keep chasing a stock, again, in either direction.
Double and Triple tops/bottoms are formed as a result of stock trying to touch and retest previous highs and lows respectively. These highs/lows are always considered a mental roadblock. And hence, every move near these levels is considered a bearish sign and investors/traders get nervous and one notices either buying or selling as the case may be.
Let us consider SBI(State bank of India) from the Indian markets to show what these Tops and Bottoms are. This is a "Picture Perfect" example on all fronts. And it not only shows double, but also Triple Tops and Bottoms. Let us dissect the chart.
Late Nov 2005 : SBI tried to break past the upper 940's, but failed. It corrected for a few sessions, until early December. Which is when it started to climb up again. Mid December 2005 : A perfect example of a double top. Once again SBI tried to pass the 940+ and failed. Traders got nervous and this prompted heavy selling. If you closely look at the volume, it was definitely heavier than normal around this time which confirms the selling and nervousness.
Early Jan 2006 : This completes the trio, a Triple top. This was the third time that SBI tried to move past the upper 940's and failed. This is where you should have sold your Long positions. Stock corrected nearly 9% from this point on.
Early Feb 2006 : Another perfect example of a double bottom, this time. As you can clearly see, once SBI started to correct since early Jan, it ended the downtrend at "exactly" the same level/point where it did earlier, around the 860's. Why did it stop here? Because, this is where it started to bounce back the first time(around late Dec 2005) and investors/traders thought this as a good buying opportunity, which it was.
Late Feb 2006 : Again, an excellent example of a Triple bottom. SBI came back to the levels where it found support the previous two times. This completed the third leg of downtrend. In fact, this would have been a definite buying opportunity.
Mid March 2006 : As you can see, this time SBI broke the 940 level with a bang. Guess what? Volume. Volume was more than 3 times the normal volume as SBI took away the 940's and marched ahead. A clear 13%+ profit in just 2+ weeks from the day it formed the triple bottom.
Tops and bottoms are formed when a stock Peaks out in either direction. Tops and bottoms take quite some time to form. One of the main reason being, nobody really knows when to call it quits. Many people just keep chasing a stock, again, in either direction.
Double and Triple tops/bottoms are formed as a result of stock trying to touch and retest previous highs and lows respectively. These highs/lows are always considered a mental roadblock. And hence, every move near these levels is considered a bearish sign and investors/traders get nervous and one notices either buying or selling as the case may be.
Let us consider SBI(State bank of India) from the Indian markets to show what these Tops and Bottoms are. This is a "Picture Perfect" example on all fronts. And it not only shows double, but also Triple Tops and Bottoms. Let us dissect the chart.
Late Nov 2005 : SBI tried to break past the upper 940's, but failed. It corrected for a few sessions, until early December. Which is when it started to climb up again. Mid December 2005 : A perfect example of a double top. Once again SBI tried to pass the 940+ and failed. Traders got nervous and this prompted heavy selling. If you closely look at the volume, it was definitely heavier than normal around this time which confirms the selling and nervousness.
Early Jan 2006 : This completes the trio, a Triple top. This was the third time that SBI tried to move past the upper 940's and failed. This is where you should have sold your Long positions. Stock corrected nearly 9% from this point on.
Early Feb 2006 : Another perfect example of a double bottom, this time. As you can clearly see, once SBI started to correct since early Jan, it ended the downtrend at "exactly" the same level/point where it did earlier, around the 860's. Why did it stop here? Because, this is where it started to bounce back the first time(around late Dec 2005) and investors/traders thought this as a good buying opportunity, which it was.
Late Feb 2006 : Again, an excellent example of a Triple bottom. SBI came back to the levels where it found support the previous two times. This completed the third leg of downtrend. In fact, this would have been a definite buying opportunity.
Mid March 2006 : As you can see, this time SBI broke the 940 level with a bang. Guess what? Volume. Volume was more than 3 times the normal volume as SBI took away the 940's and marched ahead. A clear 13%+ profit in just 2+ weeks from the day it formed the triple bottom.
So, to sum up. Double and Triple tops/bottoms, if identified early enough and correctly can give great returns in a very short time.
Earlier Articles:
Technical Analysis & Decision Making . . . . Support/Resistance Level and It's importance . . . . Trading System . . . . Fibonacci Retracements And How to Benefit From It . . . . BreaOuts & BreakDowns of Stocks . . . . MACD Indicators . . . . Volume & It's Importance . . . . Crossovers-Bullish & Bearish . . . . Stoploss-What to do . . . . Trading With Grudge
Source: stocks.dlngroup.com
Stock Market Trading - Stop Loss, what to do
A "Stop" is termed as an instruction to stop out of a stock when it reaches the stop price. In case you are long, then a stop price would be the one that you would want to sell your stock for and would not want to hold it, if it goes below that price. Let us consider an example.
Stock "ABC" is currently trading at Rs.125. You bought it at Rs.120. After lot of analysis and/or your own gut feelings/thoughts you decided that you wouldn't want to hold this stock if it goes below Rs.123. This is where you instruct your broker to sell the stock. This is known to as a "stop loss at Rs.123".
How do you determine what stop loss to use. There are many ways to do this, but there are the two most common ways.
Place a stop at the low of previous day or just around that price.
Place a stop at the low of current wave. If the stock is too far from the low, then this is not applicable. But if the stock is relatively near the low, you can use this method. For example.
Stock "DEF" has had a rough down week and it started recovering on say Thursday. This day, the low was Rs.95. You got in around Rs.102 on Monday. You have an option of choosing the previous day's low, which is Fridays low, or the lowest low before the stock started to climb up, which is Rs.95.
Who should use a Stop Loss. Generally speaking a person who has a long term horizon, anywhere from 3 months to years, should not use this. Because if you have such a long term horizon, you must have done some sort of a research and only then you must have invested. And small fluctuations should not deter you from pulling the plug. Stop loss is primarily for Short term and especially Day-traders.
Is there a fool proof way to get to stop loss price. The answer, unfortunately is NO. Some ways work on one day and the other they don't. One must take into account a lot of factors before they place a stop loss or even when they decide to sell a stock.
The current trend.
Moving averages. Especially 50 and 200 DMA/EMA.
Major Support and Resistance levels.
The average price range of a stock. Price range is the difference of high and low of a stock on a given day. If a stock is predictable then it should generally honor the price range, unless there is some good or bad news.
Volume is another key factor. Never get sucked into the false rallies or false breakdowns.
At times Fibonacci numbers also assist a lot.
Whole numbers. Rs.100, 200, 150 etc. These also have a lot of impact on a stock. Having said so, it doesn't mean or convey that you Must look at all of the above factors before selling. But what we are trying to say here is, you must have a close eye on all of these numbers. Because all of these are very Key and important numbers.
Should i be using a Stop Loss. One of the key things to remember when using stop loss is that if you "place" your stop loss order then it is visible to the Market makers and they do play good games. From our experiences we can tell that most of the times Market makers move the stock price just to pick up your shares only to move the stock back up. This is a very old and still prominently used method. Thus, we would advise using Stop loss with a lot of caution. Better yet, if you can place a "Mental stop loss". Mental stop loss is the one where in you do not actually place a call to your broker(or online) to use a price as stop loss, but instead just keep a close eye on the stock movement and decide to sell it if the stock falls below your mental stop loss price.
Benefits. One of the main benefits that you get out of a stop loss is, stopping the loss. If you do not have a stop loss and a stock is falling like a rock, then you may never get a chance to sell it for a better price. But with a proper money money management and stop loss mechanism, you can avoid huge losses. Which otherwise wouldn't be easy.
So to conclude, Stop loss is a useful handy tool to control your losses. But at the same time there are some disadvantages associated with it and you must take them into account as well.
Stock "ABC" is currently trading at Rs.125. You bought it at Rs.120. After lot of analysis and/or your own gut feelings/thoughts you decided that you wouldn't want to hold this stock if it goes below Rs.123. This is where you instruct your broker to sell the stock. This is known to as a "stop loss at Rs.123".
How do you determine what stop loss to use. There are many ways to do this, but there are the two most common ways.
Place a stop at the low of previous day or just around that price.
Place a stop at the low of current wave. If the stock is too far from the low, then this is not applicable. But if the stock is relatively near the low, you can use this method. For example.
Stock "DEF" has had a rough down week and it started recovering on say Thursday. This day, the low was Rs.95. You got in around Rs.102 on Monday. You have an option of choosing the previous day's low, which is Fridays low, or the lowest low before the stock started to climb up, which is Rs.95.
Who should use a Stop Loss. Generally speaking a person who has a long term horizon, anywhere from 3 months to years, should not use this. Because if you have such a long term horizon, you must have done some sort of a research and only then you must have invested. And small fluctuations should not deter you from pulling the plug. Stop loss is primarily for Short term and especially Day-traders.
Is there a fool proof way to get to stop loss price. The answer, unfortunately is NO. Some ways work on one day and the other they don't. One must take into account a lot of factors before they place a stop loss or even when they decide to sell a stock.
The current trend.
Moving averages. Especially 50 and 200 DMA/EMA.
Major Support and Resistance levels.
The average price range of a stock. Price range is the difference of high and low of a stock on a given day. If a stock is predictable then it should generally honor the price range, unless there is some good or bad news.
Volume is another key factor. Never get sucked into the false rallies or false breakdowns.
At times Fibonacci numbers also assist a lot.
Whole numbers. Rs.100, 200, 150 etc. These also have a lot of impact on a stock. Having said so, it doesn't mean or convey that you Must look at all of the above factors before selling. But what we are trying to say here is, you must have a close eye on all of these numbers. Because all of these are very Key and important numbers.
Should i be using a Stop Loss. One of the key things to remember when using stop loss is that if you "place" your stop loss order then it is visible to the Market makers and they do play good games. From our experiences we can tell that most of the times Market makers move the stock price just to pick up your shares only to move the stock back up. This is a very old and still prominently used method. Thus, we would advise using Stop loss with a lot of caution. Better yet, if you can place a "Mental stop loss". Mental stop loss is the one where in you do not actually place a call to your broker(or online) to use a price as stop loss, but instead just keep a close eye on the stock movement and decide to sell it if the stock falls below your mental stop loss price.
Benefits. One of the main benefits that you get out of a stop loss is, stopping the loss. If you do not have a stop loss and a stock is falling like a rock, then you may never get a chance to sell it for a better price. But with a proper money money management and stop loss mechanism, you can avoid huge losses. Which otherwise wouldn't be easy.
So to conclude, Stop loss is a useful handy tool to control your losses. But at the same time there are some disadvantages associated with it and you must take them into account as well.
Stock Market Trading - Crossovers-Bullish,Bearish
Crossover, as the word suggests means something crossing something else. In this case it could be any of the following, but not limited to the same. But these are the most commonly used ones in this context.
Stock Price(Closing) crossing a Moving Average. Up or Down.
One Moving Average crossing another. Up or Down.
MACD slow line crossing fast line. Up or Down.
MACD slow or Fast line crossing 0 line. Up or Down.
Let us consider Arvind Mills LTD from the Indian Stock Market for today's discussion. Let us Also break it down into time-frames. This Chart is the latest(6 month) chart as of this writing(July 22nd 2005)
Late Jan 2005: MACD Bullish crossover. What does this mean. The Fast line(Green) crossed the Slow Line(Red) and moved up. Also Stock Price(Closing) Crossed both, 10 and 50 DMA. This means the stock is headed up in the immediate short term. Because there seems to be lot of buying interest. 15% profit in less than 10 days.
Early Feb 2005: DMA Bullish crossover. 10 day Simple Moving Average crossed the 50 day Simple Moving Average and was moving up. In this particular case, it was more of a false alarm as the stock did Not move a lot after this.
Late Feb 2005: MACD Bullish crossover. MACD Fast line crossed the slow line moving up. Stock price too crossed both, 10 and 50 DMA. About 12% profit in less than a weeks time.
Early March 2005: MACD Bearish Crossover. MACD Fast line crossed the slow line moving down. Stock price too crossed the 10 DMA. A neat 19% profit in just about 2 weeks time.
Late March 2005: MACD Bullish crossover. Price also crossed 10 DMA. 13% profit in just about a months time. If you closed the position.
Late April 2005: MACD Bullish crossover above 0 Line. This is an excellent Buying point. Of course, if you did Not sell your position from above, then this confirms your long position stance. MACD, both lines crossed 0. Very very Bullish. Stock Price Crossed both 10 and 50 DMA. 10 DMA crossed 50 DMA and moved up. Perfect example of an Extremely bullish situation getting so many confirmations. Neat 18% profit in just about a months time.
Late May 2005: MACD Bearish crossover. Confirmed with stock price crossing below the 10 DMA. Just over 13% profit again, in less than a months time.
Late June 2005: MACD Bullish Crossover. Confirmed with 10 dma crossing above 50 dma. Stock mostly flat with just over 10% profit in about a months time.
Crossovers, as with any other technical indicator works well only if you have confirmations from more than one technical indicator. As you can see in our last(Late April 2005) example, we got confirmations from so many places. An excellent buy point. Made an easy 18%+ profit in just a months time.
Again, please note. Though it may seem so simple, it may not be as simple while you are trading or getting into a trade. It takes patience and practice before you start utilizing all of these powerful tools to trade in the positive territory.
So to Conclude. Crossovers really give great buy/sell signals. More so when you combine them with other crossovers or price movements. If you get confirmations from additional technical indicators, other than crossovers, then it adds value to your decisions.
Earlier Articles:
Technical Analysis & Decision Making . . . . Support/Resistance Level and It's importance . . . . Trading System . . . . Fibonacci Retracements And How to Benefit From It . . . . BreaOuts & BreakDowns of Stocks . . . . MACD Indicators . . . . Volume & It's Importance
Source: stocks.dlngroup.com
Stock Market Trading - MACD Indicators
MACD, Moving Average Convergence Divergence
MACD, as it is widely known, is one of the most commonly used Technical indicators that gives a very good overview of the current Trend that is in place.
For the sake of this discussion, we shall consider a stock from Indian market, BHEL.
MACD, as it is widely known, is one of the most commonly used Technical indicators that gives a very good overview of the current Trend that is in place.
For the sake of this discussion, we shall consider a stock from Indian market, BHEL.
MACD is formed using another very commonly used indicator, EMA(Exponential Moving average). The Difference between 26 day EMA and 12 day EMA forms the Fast line. Slow line is usually a nine day average. When the two lines cross-over it signals a buy or a sell. This is the simplest form of MACD assessment. There is another popular tool within MACD, Convergence. Let us now assess the Price movement based on MACD.
1st BLUE Line: In Jan 2005, Fast line crossed the slow line, down-wards. Price of BHEL moved from around 780 to a low of around 630. 150 or nearly 20% Profit in a very short span.
2nd BLUE Line: In late Jan 2005, Fast line crossed again. But this time, it crossed from below the slow line to move up. This happened when the price was around 720. Again with a high of around 870. A 150 or nearly 21% Profit within a short span.
3rd BLUE Line: In the second half of Feb 2005, Fast line again crossed down. Price moved down from around 870 to a low of 740. Again a decent 130 profit.
4th BLUE Line: In late March 2005, Fast line crossed above. But this time the price has been relatively stable and did not offer a huge profit.
5th BLUE Line: In early May 2005, both lines(Fast and Slow) crossed above the 0 line. Zero line is the most decisive line that shows whether bulls or bears are in control. Anything above this zero line is always a good buy. In BHEL case, once both lines crossed the zero line, the price around 800 it touched a high of about 950+. Again a decent 150 profit in a very short span.
Though it looks easier on paper and when we look at charts. This may not be the case while you are trading. But again, as you can see MACD gives a pretty good idea of where the stock is headed to, in the short term. And you can definitely make some money out of it.
So, to sum up. MACD is a powerful indicator that shows you the underlying trend. And in most, if not all cases, MACD is correct in depicting the trend. But as with any other indicator, one should NEVER rely on only one indicator and must take decisions only after confirming from more than 3 or 4 indicators.
Earlier Articles:
Technical Analysis & Decision Making . . . . Support/Resistance Level and It's importance . . . . Trading System . . . . Fibonacci Retracements And How to Benefit From It . . . . BreaOuts & BreakDowns of Stocks . . . . Crossovers-Bullish & Bearish . . . . Volume & It's Importance
Source: stocks.dlngroup.com
Stock Market Trading - Breakouts and Breakdowns
This is one of the most widely used terms in the Investor community. But one must understand that there are many definitions and flavors to the two.
Let us analyze one by one. Breakout When a stock moves past a very strong resistance price, it is termed as a Breakout. Breakouts can be at least of two types.
Real Breakout. This happens when a stock breaks out off the last know major/minor Resistance.
Minor Bullish Breakout. This happens when a stock has been in a tight trading range and it breaks past this range. The difference between this and a real breakout is, in this case, we still have some/many minor/major resistances above. But we have broken past a tight trading range. Following are the Characteristics/features of a Breakout.
Breakouts generally happen on a huge volume. Usually 2-4 Times the average volume.
At a minimum, a breakout results in 10-15% gain. And it could go as much as 100%. Of course it takes its own time. But both cases are very much possible and happen almost every month.
80% of the time, after a breakout, price of the stock comes very near/close to the price where it originally broke out from. This is known as testing the breakout and flushing out weak hands. This also creates an impression that the breakout was NOT real and questions the same. But under almost all circumstances, the price picks back up after this test is over.
The More number of times a stock tests it's breakout resistance, the better it's chance of breaking out. For example. If a stock tests the upper resistance only once, the next time it tests this resistance price, the chances of breakout is less. But if a stock tests a breakout resistance price, say 3-4 times, the next time it tests this price the chances of a Real breakout are very very high. And in such cases, the yield too is at least 20-25%. Let us take a Stock from US markets to show a good Real Breakout. TALK, Talk America holdings. Let us review it.
Early January 2005, it tested the $6.55 very first time. Could Not break past it.
Early Feb 2005, it re-tested the $6.55 second time. Could not break out.
Early March and April 2005, it tested this price another 3 times. Could not break out.
In Mid April, TALK finally Talked. Price broke past $6.55 on more than 3 times the average volume. And a decent gain of nearly 50% within a span of 2 weeks. If you had waited longer, ie, until today, you would have been at a profit of nearly 55%. So, as you can see. Talk tested $6.55 5 times and it broke out the 6th time and never looked back. Though all stocks may not fall in this category, the underlying theory remains the same. Take a look at TALK Chart below.
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Trading Secrets - High Low Breakout Technique
MACD Indicators
Internet Stock Trading – The Reality
Pivot Point Trading
Take stock of EVA when choosing shares
Double/Triple Tops n Bottoms
Trading with Grudge
Stop Loss, what to do
Crossovers-Bullish,Bearish
Volume & It's Importance
MACD Indicators
Breakouts and Breakdowns
Fibonacci Retracements
Trading System
Support/Resistance level
Technical Analysis & Decision making
======================================
MANAGING INVESTMENTS
Benefits of Investing Through Mutual Funds
What is a Mutual Fund?
Why to Invest ?
HOW TO SELECT SHARES FOR YOUR PORTFOLIO AN INTERES...
TISCO (Tata Steel)- TARGET 1115+
Quotes from Warren Buffett
Benefits of Investing Early
Evaluate your life insurance needs
The Secret To Making Crores ! - Compounding
Great Investor theory
Who all are the biggest winners in the market?- In...
Read Before Investing
The Great Investor Theory
Good Twenty stocks for 2008
Should you invest in index funds?
Billionaires bet big on India's bio-fuel
Investing for early retirement
Sensex target for 2008 at 22k-24k
Watch out for the Street signs- Is This As Good As...
Let us analyze one by one. Breakout When a stock moves past a very strong resistance price, it is termed as a Breakout. Breakouts can be at least of two types.
Real Breakout. This happens when a stock breaks out off the last know major/minor Resistance.
Minor Bullish Breakout. This happens when a stock has been in a tight trading range and it breaks past this range. The difference between this and a real breakout is, in this case, we still have some/many minor/major resistances above. But we have broken past a tight trading range. Following are the Characteristics/features of a Breakout.
Breakouts generally happen on a huge volume. Usually 2-4 Times the average volume.
At a minimum, a breakout results in 10-15% gain. And it could go as much as 100%. Of course it takes its own time. But both cases are very much possible and happen almost every month.
80% of the time, after a breakout, price of the stock comes very near/close to the price where it originally broke out from. This is known as testing the breakout and flushing out weak hands. This also creates an impression that the breakout was NOT real and questions the same. But under almost all circumstances, the price picks back up after this test is over.
The More number of times a stock tests it's breakout resistance, the better it's chance of breaking out. For example. If a stock tests the upper resistance only once, the next time it tests this resistance price, the chances of breakout is less. But if a stock tests a breakout resistance price, say 3-4 times, the next time it tests this price the chances of a Real breakout are very very high. And in such cases, the yield too is at least 20-25%. Let us take a Stock from US markets to show a good Real Breakout. TALK, Talk America holdings. Let us review it.
Early January 2005, it tested the $6.55 very first time. Could Not break past it.
Early Feb 2005, it re-tested the $6.55 second time. Could not break out.
Early March and April 2005, it tested this price another 3 times. Could not break out.
In Mid April, TALK finally Talked. Price broke past $6.55 on more than 3 times the average volume. And a decent gain of nearly 50% within a span of 2 weeks. If you had waited longer, ie, until today, you would have been at a profit of nearly 55%. So, as you can see. Talk tested $6.55 5 times and it broke out the 6th time and never looked back. Though all stocks may not fall in this category, the underlying theory remains the same. Take a look at TALK Chart below.
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Similar to Breakouts, breakdown is just in the opposite direction. A Breakdown happens when a stock price moves past the last know Support price. The features of a Breakdown are very similar to that of a breakout and hence we do not wish to elaborate the same again. We shall consider "Sri Adhikari Brothers" from Indian market for this example. Take a look at the chart below.
In Mid of Jan, the stock tested the then major support price of about 98 a couple of times. Could not breakdown.
In late Feb 2005, the stock again tested this price and did Not breakdown.
In mid of March 2005, though, the stock tested this price and broke down. Within the next 2 weeks it dropped down nearly 20%. And to nearly 27% in a few more days.
The only other feature about a breakdown is that you may or may not have a huge volume. Breakdowns generally do happen without volumes as well.
So, to sum up. Breakouts and breakdowns are a good play for short term. But you must use caution and play only with appropriate stops.
Earlier Articles:
Technical Analysis & Decision Making . . . . Support/Resistance Level and It's importance . . . . Trading System . . . . Fibonacci Retracements And How to Benefit From It . . . . MACD Indicators . . . . Crossovers-Bullish & Bearish . . . . Stock volume & It's Importance
Source: stocks.dlngroup.com
Trading Secrets - High Low Breakout Technique
MACD Indicators
Internet Stock Trading – The Reality
Pivot Point Trading
Take stock of EVA when choosing shares
Double/Triple Tops n Bottoms
Trading with Grudge
Stop Loss, what to do
Crossovers-Bullish,Bearish
Volume & It's Importance
MACD Indicators
Breakouts and Breakdowns
Fibonacci Retracements
Trading System
Support/Resistance level
Technical Analysis & Decision making
======================================
MANAGING INVESTMENTS
Benefits of Investing Through Mutual Funds
What is a Mutual Fund?
Why to Invest ?
HOW TO SELECT SHARES FOR YOUR PORTFOLIO AN INTERES...
TISCO (Tata Steel)- TARGET 1115+
Quotes from Warren Buffett
Benefits of Investing Early
Evaluate your life insurance needs
The Secret To Making Crores ! - Compounding
Great Investor theory
Who all are the biggest winners in the market?- In...
Read Before Investing
The Great Investor Theory
Good Twenty stocks for 2008
Should you invest in index funds?
Billionaires bet big on India's bio-fuel
Investing for early retirement
Sensex target for 2008 at 22k-24k
Watch out for the Street signs- Is This As Good As...
Stock Market Trading - Fibonacci Retracements
A little history, before we go deep into this topic.
Leonardo of Pisa, nicknamed, Fibonacci was one of the best known mathematicians of his time. His greatest find was Fibonacci series.
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, 1597, ...
This sequence is constructed by choosing the first two numbers (the "seeds" of the sequence) then assigning the rest by the rule that each number be the sum of the two preceding numbers. This simple rule generates a sequence of numbers having many surprising properties, of which we list but a few.
Leonardo of Pisa, nicknamed, Fibonacci was one of the best known mathematicians of his time. His greatest find was Fibonacci series.
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, 1597, ...
This sequence is constructed by choosing the first two numbers (the "seeds" of the sequence) then assigning the rest by the rule that each number be the sum of the two preceding numbers. This simple rule generates a sequence of numbers having many surprising properties, of which we list but a few.
Take any three adjacent numbers in the sequence, square the middle number, multiply the first and third numbers. The difference between these two results is always 1.
Take any four adjacent numbers in the sequence. Multiply the outside ones. Multiply the inside ones. The first product will be either one more or one less than the second.
The sum of any ten adjacent numbers equals 11 times the seventh one of the ten. Mesoamericans thought the numbers 7 and 11 were special.
What can we get out of these numbers. Try picking any number and divide it by the next number in the series and see what you get.
For example: 21/34 = 0.6176 or 34/55 = 0.6182 or 144/233 = 0.6180
Or the 62% retracement level. Similarly, if you take the previous number and divide it by the next number you get another important retracement level 38%.
For example: 21/55 = 0.382 or 34/89 = 0.382
And you can go on like this. But the most important retracement levels are 38% and 62%. On our site we have Fibonacci numbers calculated for every stock, but it is more than just these two %ages. And includes other key levels such as 50% and others.
Let us take Toll, Toll Brothers, a very HOT stock these days from the Real estate Industry. Let us dissect the chart.
We consider the Low in January, around $32 and a high of $45(approx) around early March. The Difference here is $13. Let us do the calculations using the above numbers.
38% retracement level would be, $13*0.38 = $5(approx).
50% retracement level would be, $13*0.5 = $6.5.
62% retracement level would be, $13*0.62 = $8(approx).
Now let us use these retracement levels to see how the stock behaved after 1st March.
When it was going down, it stopped nearly around $37-$38 mark, which is about 62% retracement level. Note, how the stock held this level and recovered nicely after this.
On its course to recovery, it faced slight resistance around the 50% retracement level, around $40($45-$5).
Once it blew past this level, the next level was the 0% or the last known upper resistance price. In this case, $45.
Now, this is a very good example of 62% level, once again. See how the stock stopped its upward run just around $53. Guess what. $53 is nothing but the 62% retracement level(on the upside). $45+$8.
Finally, the stock faced resistance at the 100% level. $45+$13 = $58. And it held support at the 62% retracement level.
62% retracement level would be, $13*0.62 = $8(approx).
So to conclude, Fibonacci numbers are a real find that if used properly can guide you to better targets. These numbers prove really helpful to judge the upside and downside targets.
Earlier Articles:
Technical Analysis & Decision Making . . . . Support/Resistance Level and It's importance . . . . Trading System . . . . BreaOuts & BreakDowns of Stocks . . . . MACD Indicators . . . . Crossovers-Bullish & Bearish . . . . Stock volume & It's Importance
Source: stocks.dlngroup.com
Stock Market Trading - Trading System
The current article spins-off from our previous article Technical Analysis and Decision Making. Please go through this article before proceeding further with the current article to get a better overview of what is being explained here.
Trading and investing in Stocks for short-term is an art and the more you practice and use it, the more accuracy you would have. The immediate next question one would have in mind is, "How to find the best stocks that would definitely go up". Now this is a $Million dollar question nobody has answer for. If someone did, he would have been a Billionaire already. If there is no answer to this question, then what is this article for.
Pattern recognition has been used by people across the globe for various purposes, from meteorologists to detectives. What do they do. They establish a pattern and predict what might happen next. This scientific approach minimizes the probable options that you have to look for. Without which you are more or less playing a lottery game, which has odds of 1 in many millions. This article is the first in our Series of Articles that would show how to create your own "pattern recognition system" and find good opportunities for short-term Swing trades for good profits.
Technical Indicators MUST always be used in conjunction, ie. NEVER use a single technical indicator to place your trades. Use as many as you can. This gives you a comfort level as your stance(buy/sell on a stock) has been confirmed by many technical indicators. This Article attempts to create a Trading System using MACD and MFI. MACD as is popularly known gives you a short-to-medium term overview of a stock and MFI tells you if "Good money" is flowing into or out of a security.
Let us Consider TCS from the Indian Market as it is one of the street favorite.
You could as well use, "Money flow index 3 days lower" and "MACD crossed DOWN 9 day MACD EMA above 0".
Explanation: The above system is a set-up to Sell-Short. If you used our screener with these conditions around late February, you could have made over 20% within a short time.
If MACD has been going down for 3 days in a row, then this is a concern.
Similarly, we want only those stocks that are Strong, if we want to short. And hence we selected the option MACD to be above 0. Stocks above 0 macd are considered to be very strong.
MFI 3 days lower, and that too below 75 line. This indicates that the strong money that has been in the security is gradually moving out.
All of the above conditions take us to our near to perfect Bearish/Sell-Short setup.
Let us now consider same TCS from Long perspective and the System/conditions for this setup would be as below.
Explanation: If you used our screener with these conditions around early May, you could have made over 20% within a short time.
We want to select only stocks that have their MACD going up for 3 days in a row. This shows that the stock is generating interest.
MACD below 0, because stocks that are above 0 are already strong. Which means, profit potential is limited. As opposed to those that have MACD below 0.
MFI 3 days higher gives us another confirmation that there is strong money flowing into the security for 3 days in a row.
Again, by no means ALL setups will work. If you used the above setups and ended up with say 20 stocks, you can pick the one that gives the maximum confirmation(maximum number of indicators) in the trend you are working with(long or short). Please Note: This article can be re-published as long as the source is mentioned.
Technical Analysis & Decision Making . . . . Support/Resistance Level and It's importance . . . . . Crossovers-Bullish & Bearish . . . . Fibonacci Retracements And How to Benefit From It . . . . BreaOuts & BreakDowns of Stocks . . . . MACD Indicators . . . . Volume & It's Importance
Source:Stocks.dlngroup.com
Trading and investing in Stocks for short-term is an art and the more you practice and use it, the more accuracy you would have. The immediate next question one would have in mind is, "How to find the best stocks that would definitely go up". Now this is a $Million dollar question nobody has answer for. If someone did, he would have been a Billionaire already. If there is no answer to this question, then what is this article for.
Pattern recognition has been used by people across the globe for various purposes, from meteorologists to detectives. What do they do. They establish a pattern and predict what might happen next. This scientific approach minimizes the probable options that you have to look for. Without which you are more or less playing a lottery game, which has odds of 1 in many millions. This article is the first in our Series of Articles that would show how to create your own "pattern recognition system" and find good opportunities for short-term Swing trades for good profits.
Technical Indicators MUST always be used in conjunction, ie. NEVER use a single technical indicator to place your trades. Use as many as you can. This gives you a comfort level as your stance(buy/sell on a stock) has been confirmed by many technical indicators. This Article attempts to create a Trading System using MACD and MFI. MACD as is popularly known gives you a short-to-medium term overview of a stock and MFI tells you if "Good money" is flowing into or out of a security.
Let us Consider TCS from the Indian Market as it is one of the street favorite.
In this example Our System is made up of the following conditions.
- MACD 3 days lower.
- MACD MACD line above 0.
- Money flow index 3 days lower below 75 line.
You could as well use, "Money flow index 3 days lower" and "MACD crossed DOWN 9 day MACD EMA above 0".
Explanation: The above system is a set-up to Sell-Short. If you used our screener with these conditions around late February, you could have made over 20% within a short time.
If MACD has been going down for 3 days in a row, then this is a concern.
Similarly, we want only those stocks that are Strong, if we want to short. And hence we selected the option MACD to be above 0. Stocks above 0 macd are considered to be very strong.
MFI 3 days lower, and that too below 75 line. This indicates that the strong money that has been in the security is gradually moving out.
All of the above conditions take us to our near to perfect Bearish/Sell-Short setup.
Let us now consider same TCS from Long perspective and the System/conditions for this setup would be as below.
- MACD 3 days higher.
- MACD MACD line below 0.
- Money flow index 3 days higher above 25 line.
Explanation: If you used our screener with these conditions around early May, you could have made over 20% within a short time.
We want to select only stocks that have their MACD going up for 3 days in a row. This shows that the stock is generating interest.
MACD below 0, because stocks that are above 0 are already strong. Which means, profit potential is limited. As opposed to those that have MACD below 0.
MFI 3 days higher gives us another confirmation that there is strong money flowing into the security for 3 days in a row.
Again, by no means ALL setups will work. If you used the above setups and ended up with say 20 stocks, you can pick the one that gives the maximum confirmation(maximum number of indicators) in the trend you are working with(long or short). Please Note: This article can be re-published as long as the source is mentioned.
Earlier Articles:
Technical Analysis & Decision Making . . . . Support/Resistance Level and It's importance . . . . . Crossovers-Bullish & Bearish . . . . Fibonacci Retracements And How to Benefit From It . . . . BreaOuts & BreakDowns of Stocks . . . . MACD Indicators . . . . Volume & It's Importance
Source:Stocks.dlngroup.com
Stock Market Trading - Support/Resistance level
Support price is a price where Buyers come in huge numbers to protect the price of the stock and generally do NOT let the stock close below this price. Conversely, a Resistance Price is the one where Sellers come in big numbers and do Not let the stock close above this resistance price.
Support and Resistance levels are not made/established overnight. It is a pattern that is formed over a period of time. Generally 6 months is the ideal time-frame, which is what we also use on our site. Both Support and resistance have strengths associated with it. And this strength depends on how many times a stock visited a particular price and how much accumulation happen at that price. The more number of times a stock visits a particular price, the stronger the action. Either Resistance or Support. Let us take an example of Maruti Udyog from the Indian stock Market. Note, that the same is applicable to any stock anywhere in the world. Take a look at the Chart below. From September 04, until late November 04, it has been testing Rs.394 price range a few times. And it decisively broke out on more than daily average volume around November ending. Once it broke out, there was no resistance above it. Until in early January, where the steam went off and it could not hold the Rs.460+ level and turned south.
Support and Resistance levels are not made/established overnight. It is a pattern that is formed over a period of time. Generally 6 months is the ideal time-frame, which is what we also use on our site. Both Support and resistance have strengths associated with it. And this strength depends on how many times a stock visited a particular price and how much accumulation happen at that price. The more number of times a stock visits a particular price, the stronger the action. Either Resistance or Support. Let us take an example of Maruti Udyog from the Indian stock Market. Note, that the same is applicable to any stock anywhere in the world. Take a look at the Chart below. From September 04, until late November 04, it has been testing Rs.394 price range a few times. And it decisively broke out on more than daily average volume around November ending. Once it broke out, there was no resistance above it. Until in early January, where the steam went off and it could not hold the Rs.460+ level and turned south.
Most traders would jump into the ship and buy when it starts going down. And many keep averaging down until they are completely out of money, unfortunately. Instead a novel approach would be to wait for the price to drop to the last strongest support level which is and still has been(until the time this Chart was drawn) Rs.394 as reported by our very own support/resistance calculator. Guess what, Maruti again touched this price and started it's upward journey, again to face resistance at Rs.461 which is a relatively strong resistance level. Though it tried to break the 460+ barrier a few times, touching as high as 500+, it couldn't hold on and turned south all the time. Now if you look carefully at the chart, every time it turned south, it found support just around 400. Why, because, this is a very strong support level and buyers do NOT let the price of this stock close below 400+. Also every time it tries to go near 460, a huge resistance comes in the form of sellers and it turns south.
So to sum up, if a trader had waited enough to buy at the strongest support, he/she would have made good money(around 15%+ profit) within a very short time span(less than 12 trading sessions). Please note, this is NOT a hypothetical example, and it works with almost all the stocks.
Always buy at Support and Sell at Resistance, at least for the short-term.
Earlier Articles:
Technical Analysis & Decision Making . . . . Crossovers-Bullish & Bearish . . . . Trading System . . . . Fibonacci Retracements And How to Benefit From It . . . . BreaOuts & BreakDowns of Stocks . . . . MACD Indicators . . . . Volume & It's Importance
Source: stocks.dlngroup.com
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Stock market Trading - Technical Analysis & Decision making
Technical Analysis could assist you in better decision making and you can utilize it to your benefit. We always stress on the fact that NO single Technical indicator can give you a good Buy or Sell signal. It always has to be a collective effort, in a way. Let us consider TCS, from the Indian Market to see how we could have utilized Technical analysis and made decent profits in a very short span. We would recommend all our readers to go through our earlier articles to get a better understanding of what is being told in this article. Let us Break down the Chart into various time frames as below.
Early April 2005: The price of TCS kept rising from around 1350 until around 1430+, but all the indicators kept moving down.
MACD Crossed down. Fast line crossed the slow line from up to down. Bearish.RSI, MFI, Williams %R and all other indicators were moving down while the price of TCS kept going up. Sounds to be very Fishy.This was the time to Short or sell your Long positions. One might argue, MACD crossed down a few times earlier too and other indicators too went down along with MACD earlier. Why this one should have given more clearer indication of a downturn. Reason. Confirmations. The number of Confirmations kept increasing. In this case, as you can see, we have also drawn "Negative Divergence" lines around the same time. And guess what. This negative divergence did NOT happen just for MACD, but for almost all the indicators. This was a clear confirmation of where the stock is headed in the short term. A 25% profit from around 1450 to 1100 in less than 2 weeks time. Of course, not all stocks would work this way and not all would have the same kind of profit ratios, but the basics are the same.
I(With a balck arrow) in the chart below shows the day we broke the last known good support point and was the second chance for someone to short the stock.Early May 2005: We now got quite a few confirmations that the stock is getting ready to move up now.
MACD fast line crossed from down below to up.Positive divergences in all RSI, MFI and Stochastics.This was a very good buying opportunity. But one could have waited further to get even better confirmation, which is what you see in the form of II(Second Arrow). This day stock broke the short-term resistance line and kept moving up from there on.From the day MACD and other indicators crossed up and had a "Positive divergence", a good run up of about 22% within approximately a months time.
Now. Is this difficult. No, Not at all. But it takes time for someone to understand all of this and have as much patience to implement it. Does this work for all stocks. Not of course. But yes, it does work for most of them.So to Conclude, Technical Analysis is a Great tool that if used properly could make you big bucks. But you must invest time to learn and understand how it works, before trying it out. Lastly, always get as many confirmations as is possible before trading any stock.
Technical Analysis could assist you in better decision making and you can utilize it to your benefit. We always stress on the fact that NO single Technical indicator can give you a good Buy or Sell signal. It always has to be a collective effort, in a way. Let us consider TCS, from the Indian Market to see how we could have utilized Technical analysis and made decent profits in a very short span. We would recommend all our readers to go through our earlier articles to get a better understanding of what is being told in this article. Let us Break down the Chart into various time frames as below.
Early April 2005: The price of TCS kept rising from around 1350 until around 1430+, but all the indicators kept moving down.
MACD Crossed down. Fast line crossed the slow line from up to down. Bearish.RSI, MFI, Williams %R and all other indicators were moving down while the price of TCS kept going up. Sounds to be very Fishy.This was the time to Short or sell your Long positions. One might argue, MACD crossed down a few times earlier too and other indicators too went down along with MACD earlier. Why this one should have given more clearer indication of a downturn. Reason. Confirmations. The number of Confirmations kept increasing. In this case, as you can see, we have also drawn "Negative Divergence" lines around the same time. And guess what. This negative divergence did NOT happen just for MACD, but for almost all the indicators. This was a clear confirmation of where the stock is headed in the short term. A 25% profit from around 1450 to 1100 in less than 2 weeks time. Of course, not all stocks would work this way and not all would have the same kind of profit ratios, but the basics are the same.
I(With a balck arrow) in the chart below shows the day we broke the last known good support point and was the second chance for someone to short the stock.Early May 2005: We now got quite a few confirmations that the stock is getting ready to move up now.
MACD fast line crossed from down below to up.Positive divergences in all RSI, MFI and Stochastics.This was a very good buying opportunity. But one could have waited further to get even better confirmation, which is what you see in the form of II(Second Arrow). This day stock broke the short-term resistance line and kept moving up from there on.From the day MACD and other indicators crossed up and had a "Positive divergence", a good run up of about 22% within approximately a months time.
Now. Is this difficult. No, Not at all. But it takes time for someone to understand all of this and have as much patience to implement it. Does this work for all stocks. Not of course. But yes, it does work for most of them.So to Conclude, Technical Analysis is a Great tool that if used properly could make you big bucks. But you must invest time to learn and understand how it works, before trying it out. Lastly, always get as many confirmations as is possible before trading any stock.
Source: stocks.dlngroup.com
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