What type of trader are you?


Note: This post is an excerpt from Investopdia from contributor Lisa Smith this may help you guide on what type of trader you want to choose in your stock market investing.

You know that the stock market provides an opportunity to make money, but you aren’t quite sure how investors know when to buy and sell. Or maybe you’ve heard some terms like “noise trader” or “arbitrage trader” and you want to know more about them. Either way, an exploration of a few of the many types of trading strategies will provide some insight into the terminology and strategies used by various investors as they seek to build wealth by investing in the stock market. Understanding these strategies can help you find one that best matches your personality.

Fundamental Trader
Fundamental trading is a method by which a trader focuses on company-specific events to determine which stock to buy and when to buy it. To put this in perspective, consider a hypothetical trip to a shopping mall. In the mall, a fundamental analyst would go to each store, study the product that was being sold, and then decide whether to buy it or not.

While trading on fundamentals can be viewed from both short-term and long-term perspectives, fundamental analysis is often more closely associated with the buy-and-hold strategy of investing than it is with short-term trading. That noted, the definition of “short term” is an important consideration.

While some trading strategies are based on split-second decisions and others are based on trends or factors that play out over the course of a day, the fundamentals may not change for months or even years. At the shorter end of the spectrum, for example, the release of a firm’s quarterly financial statement can provide insight into whether or not the firm is improving its financial health or position in the marketplace. Changes (or lack of changes) can serve as signals to trade. Of course, a press release announcing bad news could change the fundamentals in an instant.

Fundamental trading has a real appeal to many investors because it is based on logic and facts. Of course, unearthing and interpreting those facts is a time consuming, research-intensive effort. Another challenge comes in the form of the financial markets themselves, which do not always behave in logical ways (especially in the short term) despite reams of data suggesting that they should.

Noise Trader
Noise trading refers to a style of investing in which decisions to buy and sell are made without the use of fundamental data specific to the company that issued the securities that are being bought or sold. Noise traders generally make short-term trades in an effort to profit from various economic trends.

While technical analysis of statistics generated by market activity, such as past prices and volume provides some insight into patterns that can suggest future market activity and direction, noise traders often have poor timing and over-react to both good and bad news.

While that description may not sound very flattering, in reality, most people are considered to be noise traders, as very few actually make investment decisions solely using fundamental analysis. To put this style in perspective, let’s revisit our earlier analogy about a trip to the mall. Unlike the fundamental analyst, a technical analyst would sit on a bench in the mall and watch people go into the stores. Disregarding the intrinsic value of the products in the store, the technical analyst’s decision would be based on the patterns or activity of people going into each store. Technical analysis, like other strategies that involve data analysis, can be time consuming and may require quick reactions to take advantage of perceived opportunities.

Sentiment Trader
Sentiment traders seek to identify and participate in trends. They do not attempt to outguess the market by finding great securities; instead, they attempt to identify securities that are moving with the momentum of the market.

Sentiment traders combine aspects of both fundamental and technical analysis in an effort to identify and participate in market movements. There are a variety of sentiment trading approaches, including swing traders that seek to catch momentous price movements while avoiding idle times and contrarian traders that try to use indicators of excessive positive or negative sentiment as indications of a potential reversal in sentiment.

Trading costs, market volatility and difficulty in accurately predicting market sentiment are some of the key challenges facing sentiment traders. While professional traders have more experience, leverage, information and lower commissions, their trading strategies are restricted by the specific securities they are trading. For this reason, large financial institutions and professional traders may choose to trade currencies or other financial instruments rather than stocks.
Success in this endeavor often requires early mornings studying trends and identifying potential securities for purchase or sale. Again, analysis of this nature can be time consuming and trading strategies may require quick timing.

Market Timer
Market timers try to guess which direction (up or down) a security will move in order to profit from that movement. They generally look to technical indicators or economic data in order to predict the direction of the movement. Some investors, especially academics, do not believe that it is possible to accurately predict the direction of market movements. Others, particularly those engaged in short-term trading, take the exact opposite stance.

The long-term track record of market timers suggests that achieving success is a challenge. Most investors will find that they are not able to dedicate enough time to this endeavor to achieve a reliable level of success. For these investors, long-term strategies are often more satisfying and lucrative.

Of course, day traders would argue that market timing could be a profitable strategy, such as when trading technology shares in a bull market. Investors who purchased and flipped real estate during a market boom would also argue the market timing could be profitable. Just keep in mind that it’s not always easy to tell when to get out of the market, as investors that got burned in the tech wreck crash and real estate bust can attest. While short-term profits are certainly possible, over the long term, there is little evidence to suggest that this strategy has merit.

Arbitrage Trader
Arbitrage traders simultaneously purchase and sell assets in an effort to profit from price differences of identical or similar financial instruments, on different markets or in different forms. Arbitrage exists as a result of market inefficiencies; it provides a mechanism to ensure prices do not deviate substantially from fair value for long periods of time. This type of trading is often associated with hedge funds, and it can be a fairly easy way to make money when it works. For example, if a security trades on multiple exchanges and is less expensive on one exchange, it can be bought on the first exchange at the lower prices and sold on the other exchange at the higher price.

It sounds simple enough, but given the advancement in technology, it has become extremely difficult to profit from mispricing in the market. Many traders have computerized trading systems set to monitor fluctuations in similar financial instruments. Any inefficient pricing setups are usually acted upon quickly and the opportunity is often eliminated in a matter of seconds.

Bottom Line
So maybe none of these trading strategies seem to be a good fit for your personality? There are a host of other strategies to consider, and with just a little research you may be able to find a strategy that is a perfect fit for you. Or perhaps proximity to your investment goals rather than company-specific factors or market indicators is the primary factor driving your buy/sell decisions. That’s okay. Some people engage in trading in an effort to achieve their goals. Others just buy, hold and wait for time to pass and asset values to rise. Either way, knowing your personal style and strategy will help give you the peace of mind and fortitude to remain comfortable with your chosen path when market volatility or hot trends make headlines and cause investors to question their investment decisions.

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The “best” things in my stock market journey


As I consider looking back into those years that have passed by, I started to recall all the glorious and of course sorrowful mysteries that I encountered in my journey. And in this post I would like to share (please bear with me with this) the best things that stock market has offered me.

Learned to love the Accounting subject

I love numbers because of being an Engineer but during my school days, I am not fond of the accounting subject. I just don’t love to analyze expenses vs savings and also the thing they called the “balance sheet” in which I could not balanced at all. But beginning to start knowing stock market investment, I can now read and understand these accounting terms not because I already know how to compute it but because of its availability in the financial statements of every company in which can be easily be access through the web. Engaging in the stock market is to first learn the very basics of accounting.

Learned to love Financial Literacy

When I started working and earning money, I always thought that the only way to secure my financial future is to only save my money in a “piggybank” and later deposit it in a bank and I can earn interest. I always heard about “inflation rate” but never try to understand how it works. But when I realized its true economic nature it scares me since it defeats the interest rate of my bank savings. Although banks are still very helpful financially, but investing in the stock market will help you secure your financial future.

Learned to love a new Hobby

I realized now that I already developed a new hobby which is reading. Yeah! really I now love to read financial blogs, books, ebooks, business section of newspapers, self help books, financial statements of companies and many more that are related to investing, entrepreneurship and personal development. Because when I was still a student I don’t usually have books since I don’t love to read it. I also do not want to go to the library to do research on those thick books and thanks to the internet I can now do research online.

Learned to love Controlling my Emotions

Being an investor has taught me a lot on how to temper my emotions especially towards my spending habits. It also helps me to control my greed and fear not only in the cycle of the stocks in my portfolio but also considering the “must have” and “nice to have” things. Controlling my emotions is very important to to keep me always on track of my goals since too much of it can lead me to nowhere. As all I know that life is a matter choice, you can be happy or sad it all depends on waht you choose.

Learned to love my Passion

Passion by simple definition is to love what you are doing. Stock Market investing is one of my passion, I love to talk about it and to listen about it. And because of this I would like to share some of my very basic learning and understanding about our very own Philippine Stock Market.

And with this passion, that I am now starting to love, I’ve meet people like YOU (although not personally) who is now reading this blog post, whom I consider my new “cyber” friends. I would just like to say Thank you very much for dropping by and spending your valuable time in my blog site.

How to Interpret Volume on a Stock Chart


The volume on a stock chart is probably the most misunderstood of all technical indicators. There is only a couple of times when it is actually even useful. In fact, you could trade any stock without even looking at it!

First a definition…

Stock chart volume is the number of shares traded during a given time period.

Usually plotted as a histogram under a chart, volume represents the interest level in a stock. If a stock is trading on low volume, then there is not much interest in the stock. But, on the other hand, if a stock is trading on high volume, then there is a lot of interest in the stock.

Volume simply tells us the emotional excitement (or lack thereof) in a stock.

Liquidity

Stock chart volume also shows us the amount of liquidity in a stock. Liquidity just simply refers to how easily it is to get in and out of a stock.

If a stock is trading on low volume, then there aren’t many traders involved in the stock and it would be more difficult to find a trader to buy from or sell to. In this case, we would say that it is illiquid.

If a stock is trading on high volume, then there are many traders involved in the stock and it would be easier to find a trader to buy from or sell to. In this case, we would say that it is liquid.

Let’s look at a couple of common volume patterns on a stock chart of Metrobank (MBT):

volume

A surge in volume can often signify the end of a trend.

Here, on the left side of the chart, this stock begins to climb. Volume increases dramatically as more and more traders gets greedy about the rapid growth of this stock. Eventually everyone piles in and the buying pressure ends. A range trade or consolidation takes place.

Then, in the middle of the chart, volume begins to taper off (1st circle) as traders begin to lose interest in this stock. There are no more buyers to push the stock higher.

Then, on the right side of the chart, volume begins to increase again (second arrow) this time it is from a downtrend and a reversal on an uptrend takes place when the volume tapers off (2nd circle).

This chart is a good example of how the trend of a stock can reverse on high volume or low volume either it means up or down trends.

Mistakenly, some traders think that stocks that are “up on high volume” means that there were more buyers than sellers, or stocks that are “down on high volume” means that there are more sellers than buyers. Wrong! Regardless if it is a high volume day or a low volume day there is still a buyer for every seller.

You can’t buy something unless someone is selling it to you and you can’t sell something unless someone is buying it from you!

Volume and price

So if all volume represents is interest in a stock, when is it useful? The only time volume is useful is when you combine it with price. For example:

Expansion of range and high volume – If a stock is drifting along sideways in a narrow range and all of sudden it breaks to the upside with an increase in range and volume, then we can conclude that there is increased interest in the stock and it will probably continue higher.

Narrow range and high volume – If a stock has very high volume for today but the range is narrow then this is called churning. In this case, significant accumulation or distribution is taking place.

Ever heard the saying, “volume precedes price”?

Many times you will see volume pick up right before a significant move in a stock. You can see that interest is building. On a stock chart, look for volume to be higher than the previous day. This is a sign that there may be a significant move to come.

Take a look at this example of Ayala Land Incorporated (ALI)…

volume1

This stock significantly picked up a large volume on the last week of August 2014 (1st arrow) with a bullish candle stick pattern, and the stock eventually went on an upward trend. On January 2015 (2nd arrow) it again picked up a significant large volume, and the stock continues to move up,

Interpreting volume on a stock chart can be confusing! Just remember that the price action is the most important factor on a chart.

All else is secondary.

How to Use Moving Averages


Moving averages help us to first define the trend and second, to recognize changes in the trend. That’s it. There is nothing else that they are good for. Any thing else is just a waste of time.

I won’t be getting into the gory details about how they are constructed. There are about a zillion websites that will explain the mathematical make-up of them. I’ll let you do that on your own one day when you are extremely bored out of your mind! But all you really have to know is that a moving average line is just the average price of a stock over time. That’s it.

The two moving averages

I use two moving averages: the 10 period simple moving average (SMA) and the 30 period exponential moving average (EMA). I like to use a slower one and a faster one. Why? Because when the faster one (10) crosses over the slower one (30), it will often signal a trend change. Let’s look at an example of the Meralco (MER) stock chart:

moving average

You can see in the chart above how these lines can help you define trends. On the left side of the chart the 10 SMA is above the 30 EMA and the trend is up. The 10 SMA crosses down below the 30 EMA in mid March and the trend is down. Then, the 10 SMA crosses back up through the 30 EMA in May and the trend is up again – and it stays up for several days until last Friday.

Here are the rules:

Focus on long positions only when the 10 SMA is above the 30 EMA. Focus on short positions only when the 10 SMA is below the 30 EMA. It doesn’t get any simpler than that and it will ALWAYS keep you on the right side of the trend!

Note that moving averages only work well when a stock is trending – not when they are in a trading range. When a stock (or the market itself) becomes “sloppy” then you can ignore moving averages – they won’t work!

Here are the important things to remember (for long positions – reverse for short positions.):

  1. The 10 SMA must be above the 30 EMA.
  2. There must be plenty of space in between the moving averages.
  3. Both moving averages must be sloping upward.

The 200 period moving average

The 200 SMA is used to separate bull territory from bear territory. Studies have shown that by focusing on long positions above this line and short positions below this line can give you a slight edge.

You should add this moving averages to all of your charts in all time frames. Yes. weekly charts, daily charts, and intra-day (15 min, 60 min) charts.

The 200 SMA is the most important moving average to have on a stock chart. You will be surprised at how many times a stock will reverse in this area.

Use this to your advantage!

Also, when writing scans for stocks, you can use this as an additional filter to find potential long setups that are above this line and potential short setups that are below this line.

Support and resistance?

Contrary to popular belief, stocks do not find support or run into resistance on moving averages. Many times you will hear traders say, “Hey, look at this stock! It bounced off of the 50 day moving average!”

Wrong!

Why would a stock suddenly bounce off of a line that some trader put on a stock chart? It wouldn’t. A stock will only bounce (if you want to call it that) off of significant price levels that occurred in the past – not a line on a chart.

Stocks will reverse (up or down) at price levels that are in close proximity to popular moving averages but they do not reverse at the line itself.

So, suppose you are looking at a chart and you see the stock pulling back to, let’s say, the 200 period moving average. Look at the price levels on the chart that proved to be significant support or resistance areas in the past.

Those are the areas where the stock will likely reverse.

The Top 10 Best Candlestick Patterns


There are many candlestick patterns but only a few are actually worth knowing. Here are 10 candlestick patterns worth looking for. Remember that these patterns are only useful when you understand what is happening in each pattern.

They must be combined with other forms of technical analysis to really be useful. For example, when you see one of these patterns on the daily chart, move down to the hourly chart. Does the hourly chart agree with your expectations on the daily chart? If so, then the odds of a reversal increase.

The following patterns are divided into two parts: Bullish patterns and bearish patterns. These are reversal patterns that show up after a pullback (bullish patterns) or a rally (bearish patterns).

Bullish candlestick patterns

bullish candlestick patterns

Ok, let’s begin with the first one…

Engulfing

This is my all time favorite candlestick pattern. This pattern consists of two candles. The first day is a narrow range candle that closes down for the day. The sellers are still in control of the stock but because it is a narrow range candle and volatility is low, the sellers are not very aggressive. The second day is a wide range candle that “engulfs” the body of the first candle and closes near the top of the range. The buyers have overwhelmed the sellers (demand is greater than supply). Buyers are ready to take control of this stock!

Hammer

As discussed on the previous page, the stock opened, then at some point the sellers took control of the stock and pushed it lower. By the end of the day, the buyers won and had enough strength to close the stock at the top of the range. Hammers can develop after a cluster of stop loss orders are hit. That’s when professional traders come in to grab shares at a lower price.

Harami

When you see this pattern the first thing that comes to mind is that the momentum preceding it has stopped. On the first day you see a wide range candle that closes near the bottom of the range. The sellers are still in control of this stock. Then on the second day, there is only a narrow range candle that closes up for the day. Note: Do not confuse this pattern with the engulfing pattern. The candles are opposite!

Piercing

This is also a two-candle reversal pattern where on the first day you see a wide range candle that closes near the bottom of the range. The sellers are in control. On the second day you see a wide range candle that has to close at least halfway into the prior candle. Those that shorted the stock on first day are now sitting at a loss on the rally that happens on the second day. This can set up a powerful reversal.

Doji

The doji is probably the most popular candlestick pattern. The stock opens up and goes nowhere throughout the day and closes right at or near the opening price. Quite simply, it represents indecision and causes traders to question the current trend. This can often trigger reversals in the opposite direction.

Bearish candlestick patterns

bearish candlestick patterns

You’ll notice that all of these bearish patterns are the opposite of the bullish patterns. These patterns come after a rally and signify a possible reversal just like the bullish patterns.

Ok, now it’s your turn! I’ll let you figure out what is happening in each of the patterns above to cause these to be considered bearish. Look at each candle and try to get into the minds of the traders involved in the candle.

Kickers

There is one more pattern worthy of mention. A “kicker” is sometimes referred to as the most powerful candlestick pattern of all.

kicker candlestick patterns

You can see in the above graphic why this pattern is so explosive. Like most candle patterns there is a bullish and bearish version. In the bullish version, the stock is moving down and the last red candle closes at the bottom of the range.

Then, on the next day, the stock gaps open above the previous days high and close. This “shock event” forces short sellers to cover and brings in new traders on the long side.

This is reversed in the bearish version.

Should you wait for confirmation?

Most traders are taught to “wait for confirmation” with candlestick patterns. This means that they are supposed to wait until the following day to see if the stock reverses afterward. This is absolutely ridiculous!

If a stock pulls back to an area of demand (support) and I have a candlestick pattern that is telling me that buyers are taking control of the stock, then that is all the confirmation I need.

As a swing trader I have to get in before the crowd piles in, not when they get in! In other words, I want to be one of the traders that make up the pattern itself! That is the low risk, high odds play.

Just the way I like it.

How to Read Candlestick Charts?


Reading candlestick charts is an effective way to study the emotions of other traders and to interpret price. Candles provide a trader with a picture of human emotions that are used to make buy and sell decisions.

On a piece of paper, write down the following statement with a big black marker:

There is nothing on a chart that matters more than price. Everything else is secondary.

Take that piece of paper and tape it to the top of your monitor! I think too often swing traders get caught up in so many other forms of technical analysis that they miss the most important thing on a chart.

You do not need anything else on a stock chart but the candles themselves to be a successful swing trader! And, there is nothing that can improve your trading more than learning the art of reading candlestick charts. Believe it.

Who are the buyers and sellers?

There are only two groups of people in the stock market. There are buyers and sellers. We want to find out which group is in control of the price action now. We use candles to figure that out.

candlestick chart description

CandlestickBasicsChart

The picture above shows how candlesticks are constructed. The highs and lows of the time period are called the “wicks” and the open and close form the “body”. The candle itself is the “range”. When stocks close at the bottom of the range we conclude that the sellers are in control. When stocks close at the top of the range we conclude that buyers are in control.

Note: In the stock market, for every buyer there has to be a seller and for every seller there has to be a buyer.

If a stock closes at the top of the range, this means that buyers were more aggressive and were willing to get in at any price. The sellers were only willing to sell at higher prices. This causes the stock to move up.

If a stock closes at the bottom of the range, this means that sellers were more aggressive and were willing to get out at any price. The buyers were only willing to buy at lower prices. This causes the stock to move down.

Where a stock closes in relation to the range tells us who is winning the war between buyers and sellers. This is the most important thing to know when reading candlestick charts.

We can classify candles in two categories: wide range candles (WRC) and narrow range candles (NRC). Wide range candles state that there is high volatility (interest in the stock) and narrow range candles state that there is low volatility (little interest in the stock).

The arrows on the chart below show how stocks move in relation to the range and closing prices. You’ll notice that stocks tend to move in the direction of wide range candles. This is important!

candle stick

Wide range candles

If we know that stocks tend to move in the direction of wide range candles, we can look to the left of any chart to gauge the interest of either the buyers or sellers and trade in the direction of the trend and the candles.

The importance of this cannot be overstated! You want to know if there is interest in the stock and if it is being accumulated or distributed by institutional traders.

Narrow range candles

Narrow range candles imply low volatility. This is a period of time when there is very little interest in the stock. Looking at the chart above you can see that these narrow range candles often lead to reversals (up or down) because:

Low volatility leads to high volatility and high volatility leads to low volatility. So, knowing this, doesn’t it make sense to enter a stock in periods of low volatility and exit a stock in periods of high volatility? Yes.

Consider this…

When we are reading candlestick charts, why would we need to know the name of the pattern? What we do need to know is why the candle looks the way that it does rather than spending our time memorizing candlestick patterns!

P.S. More on candle stick patterns on the next article.

The Trader Business-Plan


Business-Plan-No-watermark-small
image credit: pixabay.com

Many people, excited by the opportunities presented in the markets,leap before they look. Some people find temporary success “winging it” or learning as they go.  However, more often than not, that approach results in massive draw downs, despondency and closed trading accounts. Newcomers to the markets, and even those who have already started trading (even successfully), may find themselves reading this article and thinking “What does this chap mean by…?” or“ I never thought of that”. If that’s the case, you may very well benefit from the time investment required to thoroughly learn your trade, study all the tools available, and  design a business plan before expanding your activity in the markets. Here, Chris Terry offers an outline for designing a business plan with the elements required for a successful career trading.

Just as a carpenter needs his hammer, saw, and blueprints,it is important for the trader to be well equipped with the proper tools. The trader must have a good charting platform, data feed, books, and proper education. However, the most important tool required for trading success is a good, solid business plan. There is a saying: “Without a plan to win, you automatically plan to fail.” Compare trying to trade without a “goal” to a soccer team playing without a goal or a net to put the ball in for a score. They would run the field in circles aimlessly until they tired out. Below we examine the basic concepts for how to develop a business plan. This is an outline to inspire ideas. Traders should use the ideas only to inspire and design their personal, custom plan.

Business Plan, Part I: Personal growth

Maintaining a great attitude is vital for success, and negativity is one of the greatest challenges a trader must overcome. Self doubt and lack of confidence are poisons – not just for traders,but for anyone striving for success. One cannot expect to succeed long-term if their brain has recorded years of negativity with relatively little positive input to defend against the negative influences. A negative thinker will lack the confidence to take the required steps to achieve success. The first goal is to decrease negative influences and build a positive attitude. As a trader, it is vital to start diluting the negative influences in life with positive input. Since the subconscious portion of the brain is more powerful than any computer invented, it cannot erase any of the sights, sounds, and smells of life; they are imprinted forever. Making an effort to becoming deaf to negative influences, and choosing not to read or listen to negative inputs, while also adding positive input, will start to dilute the past negatives and create a mental state conducive to success. Achievers in any field strive for peak performance mentally,physically, emotionally, and spiritually. Combating negativity is the primary goal for achievers, and this is why the “Self Help” section of any bookstore is one of the largest, with rows and rows of books. The game plan for personal growth is:

1. Read books on “Positive Mental Attitude” (PMA). See below for a list of recommended titles.

Books by Napoleon Hill:

  • Master Key to Riches
  • Keys to Success 
  • Success Through a Positive Mental Attitude
  • Think and Grow Rich
  • Keys to Positive Thinking

Books by Norman Vincent Peale:

  • Power of Positive Thinking
  • You Can if You Think You Can
  • Results of Positive Thinking 
  • Enthusiasm Makes the Difference

2. Positive self talk

Start to think of yourself as a winner. Say to yourself: “I am a winner. I am a success. I am constantly learning, I surround myself with positive influences, and I am a great trader.” For many, this may seem to be pure nonsense, but believe it or not, it will help improve your trading results. It is a key element for creating positive results and preventing negativity from sneaking into your thoughts and trading results.

3. Associate with like-minded people

Another important component of success is being part of an association or a group of people striving for the same goals in the same business. As a trader, one should do his best to find others who have a common interest in technical analysis and short-term trading. There may be groups in the local area that meet on a regular basis, but there are also many chat rooms where traders can trade insights and inspire one another.

4. Physical

Exercise, not just to stay healthy physically, but also for a healthy mind can greatly support you in creating success as a trader. Doing 30-45 minutes of exercise at least three times a week will assist in keeping the juices flowing physically and mentally.

Business Plan, Part II: Trading goals

Plan summary

  1. Mission statement
  2. Goal setting
  3. Financial and time commitment
  4. Record keeping
  5. Trading plan methodologies
  6. Draw down rules and contingency plan
  7. Compensation

1. Mission statement

What is your business objective? Here are some examples:
• To become one of the top traders in the world, I will;
1) invest time and money into books, seminars, and market research
2) associate with top traders in my field
3) always expand my mind with new idea.
• To develop as a solid, steady trader with a well-defined trading program, I will:
1) focus on the price action of the current market conditions for short-term trading;
2) work to become a 70%+ win-ratio trader
3) helping fellow traders improve their ratios.
• In the long-term, I will manage money for clients, become one of the top teachers in trading and technical analysis, and write a book on the subject.

2a. Trade goal setting

How many trades will you average per day? What is your maximum? How many points do you want to strive for per trade?

2b. Personal growth goal

Your personal growth should be to maintain a solid mental and emotional foundation and constantly improve knowledge and skill. The goals could also include both trading and non-trading related books to read. Table 2 is a list of recommended titles on technical analysis and trading.
  • Technical Analysis and Stock Market Profits: The Real Bible of Technical Analysis (Traders’ Master Class), Richard Shabacker
  • Technical Analysis of the Financial Markets, John Murphy 
  • Technical Analysis of Stock Trends, Robert Edwards /John Magee
  • The Psychology of Technical Analysis, Tony Plummer
  • Forecasting Financial Markets, Tony Plummer
  • Profits in the Stock Market with Charts, H.M. Gartley

3a. Financial commitment

Determine the financial commitment you will make to your business which includes account start-up capital, data feeds, accounting and attorney fees, telephone/fax services, computer equipment, seminars, etc.  For example:I will fund my short-term trading account with a minimum of $100,000 and will use a maximum 4-1 margin. My financial commitment to my swing trading account will also be $100,000. I commit up to $3,000 each to attend two training seminars per year, $50 per month for trading books, and $300 per month for my data and charting software.

3b. Time commitment

This is the amount of time you invest in your trading business each day, which for some traders might be just a few hours, five days per week, and for others it could be 14 hours per day, six days per week. For example:Trading Analysis will be done on a daily basis. If it is not done on any particular day, trade execution will not occur. Analysis on weekly, daily and intraday time frames will be done 8-10:00 pm. If this is not permissible for any reason, it will be done the following morning at 6:45 am. An analysis of actual trades executed will be a part of my end-of-week analysis. This will help to duplicate positive outcomes and eliminate poorly executed trades. Analysis of a monthly chart will be done on a bi-weekly basis. Both the end-of-week and monthly analysis will take place anytime between Friday and Sunday evenings.

4. Record keeping

It is important to keep a record of all business transactions.Keep a separate filing cabinet just for your trading business,and check daily trade summaries each night for possible errors. Stay on top of the paper work as it is created or this will getaway from you quickly. Expense reports, bank deposits and withdrawals, and credit card expenses should all be maintained and up-to-date. For example: All trades will be logged and all statements reconciled everyday, and any problems will be rectified immediately. I am currently keeping a sheet on each trade, noting trade rationale and time frame, profit objectives, and stop-loss parameters, plus a trade review noting adherence to the preceding and all other trading rules. I also keep a daily sheet noting daily P&L and open positions. Closed profit and loss will also be tracked on a weekly and monthly basis.

5. Trading plan methodologies

A trader must clearly define the entry method and be prepared to respond to all types of market conditions. How to exit the trade, both with a gain or a loss, must be predetermined and clearly defined. The following examples will give an idea for how detailed and specific the plan should be, and you should develop your own plan.

Entry plan for trending environment:

  • Markets to retrace 38-50% off its highs
  • A support at its 20-period exponential moving average
  • A bull-flag formation
  • On a smaller time frame, look for a ABC corrective wave to confirm bull flag pattern
  • Test of the lower trend-line of the bull-flag pattern 
  • Stochastic to have reached oversold condition of 20 or lower
  • Once the market confirms all this criteria, place a buy order at the market
  • Exit at the pivot low below its 20 EMA as risk point, typically no more than x points of risk on any one trade. Exits will be as follows: when profitability is more than x points, seek to take off 50% of my position immediately and move the stop up to the break-even point. Short sells are simply a reverse of the above.

Entry plan for breakout trades:

  • Use the first few hours’ range for a breakout trade
  • Pre-publications and criteria will be for a narrow range market that has been consolidating for at least five trading days
  • Let the market breakout of its first hour’s range and look to buy a bull flag on a one-minute chart
  • Should the market trade back and test support of a high of first hour range this would be a good time to buy
  • The exit will be just under the support of the first hour range. Shorts are reversed. Profits will be taken for more than x points on 50% of position, and move stops up to break even. Look for continuation patterns for pivots to adjust stops and seek to exit into recent resistances or higher time frames’ EMAs. Every plan must include the exit parameters for all market conditions, and how to respond when the market moves for or against the positions. Table 3 shows a list of several exit strategies and parameters.
  1. Exit at a retest of intraday high/low or swing high/low
  2. Exit at fixed profit objective in dollars
  3. Exit at an objective chart point
  4. Exit at a time interval (i.e. four days)
  5. Exit at a combination profit time: i.e. first profitable open or second profitable close
  6. Don’t exit but just reverse
  7. Exit on a range expansion
  8. Trail a stop off the low
  9. Trail a stop off the high
  10. Exit on close
  11. Exit if the day’s close is less than a certain percent of the daily range in the direction you are trading

6. Draw down rules

If you are experiencing a serious string of losses, called a draw down, there is something wrong.  Continuing to trade in the same manner without any preset rules for to respond to a draw down can result in a zero-balance account. However, having predefined rules will allow you to respond to a draw down in a calm manner, and will give you the opportunity to return to effective trading. Below are examples of draw down rules:

  • If three trades in a row are losers, trading for that day will come to a halt and no further trades will be made. The rest of the day will be occupied by either taking a break from trading and resolving any issues that may be hindering my thought process, or by analysing the market and why those trades lost.
  • Stop trading immediately if the account balance exceeds a 50% draw down of base capital. Traders should have a contingency plan. What is your plan in the event you take a severe loss or draw down? What could go wrong with your business plan that would put you in this situation? For example:
  • Not executing trades when signals occur
  • Executing trades when there is no entry signal• Not having an exit plan for a win or loss scenario
  • Allowing losses to exceed predetermined amounts
My contingency plan should any of those possibilities occur is: take one week off from the markets to reevaluate my trading,current market conditions, my risk management, and my mental and emotional stability. If a vacation is necessary, take one.

7. Compensation

Finally, what will your business need to pay you per month to cover your personal expenses? This is a business and, with time, should be able to afford to pay you an income just as you would receive working for any company.The possibilities for trading plan designs are limitless and extremely flexible – having a plan is the only strict requirement.The material presented here is an example only and can be used as a foundation to start building upon.Finally, attempt to find one method that works on anytime frame and that fits your character and risk tolerance. Then commence your work and strive for excellence with these methods in one market environment. After you have achieved that, then you can take your success and stretch it across all market environments and conditions.

P.S. Christopher Terry is a full-time stock and index futures trader.He lectures at a number of derivative conferences and writes for industry magazines. Chris,along with his partner, New Market Wizard Linda Bradford Raschke, educates traders on both equities and futures markets at http://www.lbrgroup.com.

Jack Ma


Jack Ma

Billionaire Jack Ma teaches you how to be successful in life and business

BY PRIS ON FEBRUARY 25, 2014NEW WEBSITESOPINIONS

Billionaire Jack Ma, the founder and ex-CEO of Alibaba Group, as well as one of the most successful Chinese Internet entrepreneurs, shares his wealth of experiences.

Jack Ma: The mistake I regretted the most

In 2001, I made a mistake. I told 18 of my fellow comrades whom embarked on the entrepreneurship journey with me that the highest positions they could go was a managerial role. To fill all our Vice President and Senior Executive positions, we would have to hire from external parties.

Years later, those I hired were gone, but those whom I doubted their abilities became Vice Presidents or Directors.

I believe in two principles: Your attitude is more important than your capabilities. Similarly, your decision is more important than your capabilities!

Jack Ma: You cannot unify everyone’s thoughts, but you can unify everyone through a common goal.

  1. Don’t even trust that you are able to unify what everyone is thinking; it is impossible.
  2. 30% of all people will never believe you. Do not allow your colleagues and employees to work for you. Instead, let them work for a common goal.
  3. It is a lot easier to unite the company under a common goal rather than uniting the company around a particular person.

Jack Ma: What does a leader have that an employee doesn’t?

A leader should never compare his technical skills with his employee’s. Your employee should have superior technical skills than you. If he doesn’t, it means you have hired the wrong person.

What, then, makes the leader stands out?

  1. A leader should be a visionary and have more foresight than an employee.
  2. A leader should have higher grit and tenacity, and be able to endure what the employees can’t.
  3. A leader should have higher endurance and ability to accept and embrace failure.

The quality of a good leader therefore is his vision, tenacity, and his capability.

Jack Ma: Don’t be involved in politics

  1. One should always understand that money and political power can never go hand in hand. Once you are in politics, don’t ever think about money anymore. Once you are running a business, don’t ever think of being involved in politics.
  2. When money meets political power, it is similar to a match meeting an explosive- waiting to go off.

Jack Ma: The 4 main questions the young generation must ponder on

  1. What is failure: Giving up is the greatest failure.
  2. What is resilience: Once you have been through hardships, grievances and disappointments, only then will you understand what is resilience.
  3. What your duties are: To be more diligent, hardworking, and ambitious than others.
  4. Only fools use their mouth to speak. A smart man uses his brain, and a wise man uses his heart.

Jack Ma: We are born to live and experience life.

I always tell myself that we are born here not to work, but to enjoy life. We are here to make things better for one another, and not to work. If you are spending your whole life working, you will certainly regret it.

No matter how successful you are in your career, you must always remember that we are here to live. If you keep yourself busy working, you will surely regret it.

Jack Ma on competing and competition

  1. Those that compete aggressively with one another are the foolish ones.
  2. If you view everyone as your enemies, everyone around you will be your enemies.
  3. When you are competing with one another, don’t bring hatred along. Hatred will take you down.
  4. Competition is similar to playing a board of chess. If you lose, we can always have another round. Both players should never fight.
  5. A real businessman or entrepreneur has no enemies. Once he understand this, the sky’s the limit.

Jack Ma: Don’t make complaining and whining a habit

If you complain or whine once in a while, it is not a big deal.

However, if it becomes habitual, it will be similar to drinking: the more you drink, the stronger the thirst. On the path to success, you will notice that the successful ones are not whiners, nor do they complain often.

The world will not remember what you say, but it will certainly not forget what you have done.

Jack Ma’s advice to entrepreneurs

  1. The opportunities that everyone cannot see are the real opportunities.
  2. Always let your employees come to work with a smile.
  3. Customers should be number 1, Employees number 2, and then only your Shareholders come at number 3.
  4. Adopt and change before any major trends or changes.
  5. Forget the money; Forget about earning money.
  6. Rather than having small smart tricks to get by, focus on holding on and persevering.
  7. Your attitude determines your altitude.

Jack Ma on entrepreneurship

  1. A great opportunity is often hard to be explained clearly; things that can be explained clearly are often not the best opportunities.
  2. You should find someone who has complementary skills to start a company with. You shouldn’t necessarily look for someone successful. Find the right people, not the best people.
  3. The most unreliable thing in this world is human relationships.
  4. “Free” is the most expensive word.
  5. Today is cruel, tomorrow will be worse, but the day after tomorrow will be beautiful.

Jack Ma: The 4 don’ts of entrepreneurship

  1. The scariest things about starting up is the inability to see, to be snobbish, to be unable to understand what is going on, as well as to be unable to keep up with pace.
  2. If you do not know where your competitor is, or overconfident and snobbish about your competitor, or are unable to comprehend how your competitor became a real threat, you will surely fall behind him. Don’t be the “they” in this idiom:First they ignore you, then they laugh at you, then they fight you, then you win.
  3. Even if your competitor is still small in size or weak, you should take him seriously and treat him as a giant. Likewise, even if your competitor is massive in size, you shouldn’t regard yourself as a weakling.

Jack Ma on starting your own company

What starting your company means: you will lose your stable income, your right to apply for a leave of absence, and your right to get a bonus.

However, it also means your income will no longer be limited, you will use your time more effectively, and you will no longer need to beg for favours from people anymore.

If you have a different mindset, you will have a different outcome: if you make different choices from your peers, your life will then be different from your peers.

Jack Ma on opportunities

If there are over 90% of the crowd saying “Yes” to approving a proposal, I will surely dispose the proposal into the bin. The reason is simple: if there are so many people who thinks that the proposal is good, surely there will be many people who would have been working on it, and the opportunity no longer belongs to us.

The article is originally published in Chinese, and is translated into English. If you think this was helpful, feel free to share it with your friends.

About Jack Ma: Jack Ma is a Chinese Internet entrepreneur. He is the Executive Chairman of Alibaba Group, a family of highly successful Internet-based businesses. He is also the first mainland Chinese entrepreneur to appear on the cover of Forbes Magazine and ranks as one of the world’s billionaires.Ma was named the Financial Times’ 2013 Person of the Year because he personifies the Chinese internet, referring to him as the “godfather of China’s scrappy entrepreneurial spirit.”.

How to Identify Support and Resistance Level


When you start to invest or trade in the stock market the terms “Support” and “Resistance” will always be mentioned in the daily technical analysis.

Support and resistance identify areas of supply and demand. But what exactly is supply and demand?

In our economics class during college days, supply represents how much the market can offer while demand refers to how much (quantity) of a product or service is desired by buyers. The relationship between supply and demand underlie the forces behind the allocation of resources. Price, therefore, is a reflection of supply and demand.

In relation to the stock market supply is an area on a stock chart where sellers are likely going to overwhelm buyers causing the stock to go down we call this resistance. Demand is an area on a chart where buyers are likely going to overwhelm sellers causing the stock to go up. On a chart, we call this support.

Knowing this, it only makes sense to buy at support and sell at resistance!

Stocks run into resistance (supply) because those traders that bought too late and saw the price go down now want to get out at break even so they sell. Stocks find support (demand) because those traders that missed the move up now have a second chance to get in so they buy.

There are varying degrees of support and resistance.

On the long side (up trend): When a stock falls down to a prior low it is more significant than when a stock falls down to a prior high.

On the short side (down trend): When a stock rises up to a prior high it is more significant that when a stocks rises up to a prior low.

Here is an example of the Bank of the Phils. Isaland (BPI):

SupportResistance2

The chart above shows how stocks run into resistance and find support. When this stock reached a prior high (resistance), it fell. When it reached a prior low (support), it rose. Now, look at the next chart…

Support Resistance1

This stock broke through resistance. When it pulled back, it found support at the prior high. This chart shows how resistance, once broken, can become support.

Tip 1: The more times a stock hits a support or resistance area the weaker it becomes (and the possibility of a breakout increases). Look back up at the previous chart. That stock hit the Php 95.00 area several times before finally breaking out.


SupportResistance

Look again at those areas that I highlighted in yellow, these are the areas that resistance and support can happen. I use the word “area” since support and resistance is considered by some as a specific stock price in a stock chart which is wrong. Always remember that there is no specific stock price for support and resistance.

Tip 2: Always look at on the previous chart as the trends goes on and always look for a significant areas where support and resistance is happening. Same on the last stock chart above when it hit in the previous support area which is at around Php 90.00 on July 12, 2015 it bounced back to Php 95.00.

P.S. Let me hear your comments on this article so I may know in which part that I can improve so I may share effectively my basic understanding in trading and investing in the stock market. Thank you very much.

The Psychology & Habits of Successful Investor


“Sharing this excerpt from chapter 2 of the book Secrets of Millionaire Investors by Adam Khoo

Secrets of Millionaire Investors_page272_image4

Very often what sets average and successful investors apart is their psychology or their way of thinking. Although all master investors use very different strategies and investment tools that may even contradict each other, they all share the similar psychological makeup that makes them successful.

Here are seven of the most powerful success habits of successful investors.

1. Buy On Strict Rules & Not Emotions
All successful investors have developed a time-tested and proven system for selecting, buying and selling investments in a way that makes them money consistently. They always buy and sell securities based strictly on a set of clearly defined rules or investment criteria. For example,Warren Buffett will only buy a company if it has shown consistent earnings growth over five years, has little debt, has a high return on equity, has a strong management team and is selling at a price that is way below the company’s intrinsic value. If a stock does not meet every single criterion, he does not buy!
Successful investors never allow their decisions to be swayed by their emotions or by the advice of other people. For example, many successful investors have a rule for selling their investments and cutting their losses once their investments fall 10%-20% below their purchase price.The moment this happens, they sell without thinking twice.They never let fear, pride or ego get in the way.

On the other hand, most average investors (who keep losing money) do not have a system for investing. They buy and sell based on the opinions and advice from their friends or relatives (who are usually broke too).Their decisions are usually driven by the emotions of fear and greed, instead of a set of well-defined criteria. For example, when they see a stock rallying like there is no tomorrow, their greed for quick profits and their fear of losing out drives them into buying, even if the stock may have lousy earnings or may have broken other rationale buying criteria. Sure enough, the stock come tumbling down the moment they make their purchase, causing them to lose their hard earned money.

And when the stock’s price falls 10%-20% below their purchase price, they do not follow smart selling rules and cut their losses early. Instead, their ego and pride gets in the way.Their fear of making a loss makes them hold on to their losing position. They say to themselves ‘it will come back again’ or ‘it cannot go down any lower’. Sure enough, the stock sinks lower and lower until they are forced to sell at a massive loss.

2. Admit Your Mistakes Early.
Successful investors know that no matter how great their investment strategy is, it is never hundred percent accurate. They know that no matter how smart or experienced they are, they too make mistakes.

The difference between successful investors and average investors is that the former admit their mistakes early. Once successful investors know they have made a wrong investment decision (the stock price moves against them), they will sell and minimize their losses immediately. On the other hand, most average investors hate to admit that they made a bad decision.They will start giving excuses and hold on to their bad investments in dissent. As a result, they make huge losses that wipe out any gains they may have made in the past.

‘It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong’
– George Soros, One of the World’s Most Respected Investors

As quoted by legendary billionaire investor George Soros, master investors know that they may be wrong from time to time. However, if they minimize their losses by admitting their mistakes early, they will still make huge profits from the gains they make from their good investments. For example, take a look at a typical profit & loss chart from an average investor.

chart 1

For simplicity and easy calculation, I have standardized the cost price and quantity of all six stocks in this hypothetical portfolio. As you can see, most investors would make some good investments and some bad ones. Typically, the losses from the bad investments would wipe out all the profits made from the good investments, sometimes even resulting in a net loss (a bracket signifies a loss).

chart 2Even if a great investor gets half his stock picks wrong (which is highly unlikely), he would still make a profit if he knows how to sell his losing investments once it falls 10% below his purchase price (i.e. $45).As you can see from table 2 below, even if you were to make 3 bad stock picks out of 6, you would still make an 18.67% return by cutting your losses early. So can you imagine how successful you can be when you learn how to pick 8 out of 10 great stocks and minimize your losses on the 2 bad ones?

This is why US presidential investment advisor Bernard Baruch once said; “Even being right three or four times out of 10 should yield a person a fortune if they have the sense to cut losses quickly.”

3. Become An Expert and Don’t Rely on Experts
The third success habit of successful investors is that they only make investments in areas in which they have an expertise. Great investors make investment decisions with a high probability of success not because they are lucky or because they have a crystal ball. Their successful track record comes from the fact that they have a tremendous depth of knowledge and expertise in their area of investments.

All this comes from hours of research and study.Warren Buffett is so good at being able to pick companies that will increase in value simply because he has a very good understanding of how businesses work. He will spend hours reading the company’s annual reports and dissect every price of information before making a decision. The reason why Warren Buffett makes very few bad decisions is because he only invests within his circle of competence. He only invests in businesses which he knows and understands inside out. The reason why Buffett avoided investing in any Internet businesses during the dotcom boom of 1998-2000 is because he did not understand their business models. By so doing, he avoided one of the greatest market crashes in recent history.

‘The market, like the lord, helps those who help themselves. Unlike the lord, the market does not forgive those who know not what they do’
– Warren Buffett

On the other hand, the average investor tends to invest in stocks
& other financial securities without having a thorough understanding of what they are doing. I am usually shocked to hear that people actually buy shares in a company without doing thorough research on the stock’s financial history, growth prospects, management strategy and historical price patterns. Instead, they buy on advice from ‘other experts’ who they believe have all the right answers. Remember, that making money in any field of endeavor is never easy, whether it is in business, Internet marketing, sales or investing. If you want to be a great investor, you must be willing to spend the time to learn thoroughly and be an expert in the subject of investing!

4. When there is Nothing to Invest in, Don’t Invest
One of the main reasons why many professionally managed funds are not able to consistently beat the S&P 500 is because they are required to invest 80% of their funds into the market at any one time. If they were to hold more than 20% of their assets in cash, they will be criticized for not putting the money to work. The problem is that it is not always a good time to invest and you will not always find investments that match the investment criteria of a successful investment. By constantly having to be invest in the market; they suffer as much losses from bad investments as they do enjoy the gains from good ones. The trouble is many amateur investors make the same similar mistake and are quick to jump into the first investment that comes along.

One thing about all great investors and traders is that if they cannot find an investment that confidently meets all their criteria, they do not invest or trade. Successful investors have the patience to wait indefinitely until they find an investment with a very high probability for success and a low risk of loss. Only then do they make the confident decision of taking a large position.

5. Take 100% Responsibility for Your Results
As a successful investor, you must have the attitude of taking full responsibility for the results you have acquired, both success and failure. Lousy investors tend to give excuses and lay blames whenever they lose money. Their usual responses include: ‘my broker gave me the wrong advice’, ‘the market went against me’ or it’s just bad luck’. As a result of not admitting that they made a wrong decision, the average investor does not learn from his mistakes to become a better investor. Successful investors are the first to admit that they made the wrong decisions and used the wrong strategy. They learn from their mistakes, become wiser and move on to their next investment.

6. Be Passionate About Investing
You must know that passion is the most important ingredient for being successful in any field of endeavor. The world of investing is no different. If you do not enjoy looking at charts and studying financial data from annual reports, then you will never be a successful investor. If you are purely investing with the motivation to make a quick buck then you will probably be like the majority of people who will lose money and give up.

‘I have enjoyed the process (of investing) far more than the proceeds, though I have learned to live with those, also’
– Warren Buffett

Tiger Woods did not chose to play golf because of the money; it was because he loves the game. Celine Dion (or any other successful artiste for that matter) chose to become a singer not because of the money, but because she loves to sing. Similarly,Warren Buffett started investing in stocks not because he was motivated by materialism; it was because he loved investing. This is evident by the fact that after making US$42 billion in the markets, he still lives in a $31,500 house that he bought 30 years ago. And what did he do with most of his wealth recently? He gave it all away to charity. In fact,Warren Buffett once remarked in a speech to his shareholders,‘we should pay to have this job!’

So why is passion so important to success? Remember that to be good in anything, you have to be an expert in it! The only way you can be an expert in something (i.e. investing) is if you live, breathe, eat and sleep investing. When an investment guru listens to the weather forecast, he thinks of how it will impact oil prices and energy stocks. When he shops at the supermarkets, he notices the best selling products and the companies (stocks) that sell it! When he reads the news to find that interest rates are rising, he thinks about how it will affect bond prices and financial stocks. The only way you can be totally focused in something is if you truly have a passion for it.

7. Reduce Risks & Maximize Returns
The average investor believes that in order to make high returns from investing, he has to take big risks! The successful investor on the other hand is usually risk averse. He believes that returns are not related to risk. Instead, risk comes from not being an expert at what you are doing. The master investor will only invests if he finds an investment with a very high probability of success, one with very high potential upside with limited downside. So, only invest when with minimal risks and very high returns.

Now that you have a clear understanding about the basics of investing, let’s get this party started by diving into the first growth strategy…