The Advent of Technical Analysis
Technical analysis is the study of chart patterns. This particular art has evolved considerably over the years, but one of the earliest pioneers in the field was the legendary Jesse Livermore who traded in the late 1800’s into the early 1900’s. It was said that Livermore could ascertain the future direction of a stock by watching the ticker tape (a paper tape that would print out a record of price quotes and trades). By simply watching the characteristics of the tape, he could detect certain patterns that indicated an upcoming move in either direction. Although he probably didn’t articulate it fully, what he was “reading” was the mind of the market---or the composite opinion of every person involved with stocks.
“Tape reading” was further refined with the introduction of charts, and still later refined with the advent of computers, and finally, the internet. Today, there is a wealth of information on technical analysis---the reading and interpretation of charts.
The Fundamental Debate
Generally, there are two schools of thought in the world of investment: There is fundamental analysis, and technical analysis. Fundamental analysis is the study of the underlying companies, financial, and economic conditions for which a stock or commodity represents, while technical analysis is the study of chart patterns to ascertain the probable direction of a stock or commodity. Followers of each camp will usually insist that their methods are superior, and in fact, some proponents of fundamental analysis even think that “chart junkies” are no more accurate than fortune tellers or tea leaf readers.
Fundamentalists feel that their methods are superior because a stock value is ultimately driven by underlying financial and economic factors. For example, if a company shows strong growth, that growth will eventually be reflected in its stock price---the price will move higher. However, there is one problem with fundamental analysis that is impossible to work around, which is:
There is nothing you could discover or know about a company that hundreds of thousands of other people do not already know.
You could study all day and all night, you could research each company of the entire stock exchange, you could interview executives, you could do this for days, weeks, months, or years, but you would learn absolutely nothing that is not already known. At least not already known legally. You see, there are already hundreds of thousands of people doing the same thing; there are huge research firms that do this every minute of the day; there are financial firms who pay people 6-figure salaries to know everything there is to know about companies. Where is your edge? There isn’t any. Frankly, they will beat you to it. A stock will already have reflected their research---it is already “priced in.”
After the update, our system is back in full accuracy! Almost all trades make a profit. Given the conditions in the stock market, we only work with day trades. Today we made a profit with a daytrade on $SRRK this has exploded, more than 40% profit with a daytrade!!! The whole week the system has managed to make a consistent profit. On Saturday you can see all our trades on our site. Our team has been working for years to build a system that works in all markets! At the moment we have reached our goal. In fact, we have exceeded our expectations. This week for example we have made top profits. Several trades with more than 25% profit. And many trades with 10% profit. And then today the blows with more than 40%. The old saying that you can't beat the market is now really a thing of the past. The market took a dive of more than 3.5% several times this week, while on the same day we made a nice profit. At this moment daytrade is the key to success! We'll wait until our stock market indicator is back in the plus before we start swing trading again. Today we sold all shares and are back on the sidelines. Just as safe. Have a nice weekend and if you also want to work with our very cheap method check out our site!
Of course, you can also just follow the free tips on Facebook, Twitter or StockTwits.
Sometimes our customers make more profit than we do! We sold everything on Friday, but look at this smart customer! He really has a top profit! just a little while longer and our customers will do better than our system. But that's what we do it for.
I believe that anyone with the right attitude and commitment can become a successful trader. This article has already given you some basis to start day trading.
If you have any questions, want advice on choosing a strategy, fine-tuning a strategy or run into other issues, you can email me and I'll be happy to look at it with you.
It is also possible to copy me. I offer an accessible signal service, where the other providers often have somewhat high rates, I also want to make it accessible to every beginner.
You will receive messages in which I indicate which trades I will open, and at which price I will close them approximately. This allows you to trade like I do after 12 years of experience, training and fine-tuning.
The difference with other signal services is that I not only place the advice, but also place an indicator on the site for day trading and swing trading. As you piggyback on my winnings, you will also learn to gain the insights and you may not even need my advice over time.
For $16.95 per month you can already start being a profitable trader without any knowledge of trading, following this blog can also help you further on your way.
And there is also the possibility that I can test and fine-tune a strategy for you, or for any advice, you can always email me. I like to help new traders get started.
Yes, I want to be able to trade as a profitable trader for $16.95 per month. you can stop your subscription whenever you want!
Cardinal Sins of Trading
A wise man once said that there is usually only one way to do something right, but a thousand ways to do something wrong. So it goes with trading: There are far more things you can do wrong than right, so this has to be an important topic of discussion.
Some of the classic mistakes were covered earlier, but here is a list of the top unforgivable sins of trading (“unforgivable” because if you commit these, you will eventually get wiped out and there is no recovery).
1. Averaging Down
This means that you add more shares to a losing position. It is called “averaging down” because when you add more shares at a lower price, your cost average is smaller. Some financial advisors actually teach this method when it comes to buying long-term holdings or mutual funds. While this might make sense if you are feeding a retirement account over decades, averaging down is a suicide move for trading.
I can honestly say that my steepest losses have occurred from averaging down. In fact, it is possible that you could destroy your account beyond any hope of recovery if averaging down cascades out of control.
Once my nephew first learned about trading, and he opened an account with ScottTrade for $5,000. After successfully running the account up to $11,000 in less than a month, he decided to enter a hefty position on a stock that was getting hammered on bad news. He assumed it was oversold and would bounce handily.
Unfortunately, the stock fell even harder, and he found himself down 7% in less than a day. Instead of taking the loss, he bought more at the lower price. The stock fell again. Feeling trapped, he felt he had no choice but to continue “averaging down.” In less than a week, he was all-in on the position, and his account had fallen from $11,000 to $3,200.
He eventually gave up, sold the position at a terrible loss, and closed his account. I do not believe he has ever traded again. Had he sold on the first downturn, his $11,000 account would have fallen $800 to $10,200---which is terrible---but far better than falling from $11,000 to $3,200. And he might still be trading today.
The only thing worse than averaging down is to average down and it works. This is very unfortunate, because if you commit this sin and it works out, you will likely continue this practice again, eventually to your ruin.
Don’t average down---ever!
2. “I can’t Sell Now”
I have heard these famous last words more times than I can count. This scenario develops as follows: You assume a position, at falls. It reaches the point of no return (at which time you should exit), but you decide to hold on. After all, the stock might rebound, right? So you continue to hold on and hope. Eventually, the losses are so steep that your only hope of recovery is to hang on indefinitely. You just “can’t sell now.”
Over the years, I have encountered so many people who bought a few stocks, they went well under water, and they continue holding them to this day. When I ask why they can’t unload them, they say, “Well, I can’t sell now.”
A variation of this is, “I know if I sell them now, they will take off.”
Naturally, the argument could be made that they should have sold when the stock crossed the threshold of realistic recovery. If a position is down 20%, it has to gain twice that much just to get even, and how often do you see a 40% gain? Chance of recovery at such levels is little to none.
Honestly, you should shed the “can’t sell now” mindset and jettison the position. If you do that and it takes off, so what, you had no business in the trade to begin with. Remember that losing positions are dead money: You are much better off to free the capital to do new, intelligent trades.
Alternative: If you find yourself in the “can’t sell now” syndrome (sitting on a deep loss), then do the following. Pretend you have entered the position for the first time, then adopt a firm policy to follow sound trading rules. For instance, if your usual rule is to sell when the stock loses 2%, then sell your deep loser if it drops 2% from where you hold it. Otherwise, hang on and see if it gains. But this is an alternative if you can’t get yourself to sell unconditionally.
Second alternative: If you hold a lot of shares, you can recapture some of your losses by selling covered calls. This will be discussed in detail in a later section.
3. All In
“All in” means that you place all (or mostly all) of your account on a single position. This is a close cousin to “averaging down.” Frankly, this is an act of desperation, even though you might think of it as a “sure” play. Show me a trader who goes “all in” and I will show you someone who loses everything.
Going “all-in” does not always mean that you use your entire account for one trade. If you routinely allocate ¼ of your trading power to a trade, a sudden shift to ½ or more is also a form of going “all-in.”
Adhere religiously to the rule about trade allocations---no more than ¼ of your trading power on any one trade.
A typical reason a person goes “all-in” is due to tiny accounts. Perhaps they started with very little, or continuing losses eroded their trading power to small levels. Either way, if your trading power is insufficient to make safe, intelligent trades (and to overcome the commissions), then don’t trade. At this all-in level, you are merely gambling, and you are shifting from the side of the “house” to the side of the gambler.
Generally, the rules for trading are simple:
Play only probabilities that favor a win. There isn’t a lot of detail provided here, because this aspect is covered in all the previous Academy sections. There are many ways to locate trades with a high probability of winning. The point that might not be so obvious is that you should only enter trades in which you can clearly articulate the reasons for doing so.
An example of articulating a reason for entering the trade might be, “The stock is sitting on a known support level, and at least two indicators show it has reversed its trend and is likely to move much higher.”
An example that is not very good articulation would be, “This sucker is going up!” or, “I just have a hunch it will make a big move.”
Remember the insurance company and the casino: Neither of them “gamble” on a hunch. They have clear and proven rules of engagement.
Do not be under funded. The most obvious example of being under funded is starting with a trading account that is too small to even overcome commissions. If this is the case, you shouldn’t trade, because you are giving up your edge of probability. Imagine if a casino opened up with only $100 in the cashier cage. While it is possible that all the players lose (and hence, bankroll your operation), it is highly probable you will go broke with only $100 in the bank; the slightest winning streak from a few players could wipe you out.
So it goes with trading. If you start too small, you won’t be able to absorb an inevitable “losing streak” that you would otherwise take in stride. Don’t throw away your edge in probability by being under funded!
What are sufficient funds? You can roughly use the following guidelines. Note that these guidelines are for stock trading, as trading in options will be different.
If each trade needs to be $2,800, your trading power needs to be $11,200 (since you never want to commit more than ¼ of your trading power for each trade). Note the term trading power, which might be different than your account cash value. A margin account, for instance, will let you trade 2X your cash, so your cash value could be $5,600 to have sufficient backing ($5,600 X 2 = $11, 200).
Never let a loss significantly damage your trading power. There are a number of ways this can happen, but let’s look at the most common problems.
First, it is essential that your trade allocations remain consistent. Never “load up” or engage in unequal amounts. If you are allocating ¼ of your trading power to each trade, then stick to that---no more, no less. It doesn’t matter how “sure” the trade seems to be, the allocation should always be the same. And by “same” we mean dollar amount, not share amount.
For example, if ¼ of your trading power is $3,000, then each of your trades should be $3,000. Of course, this doesn’t need to be exact, you can approximate, but try not to fudge more than plus or minus 10%.
Let’s illustrate what can happen if you violate this rule. Let’s say your trade allocation should be $3,000, but you decide to only trade $1,000 out of caution. You have a solid 2% gainer, so you bag $20. Feeling confident, your next trade is the correct allocation of $3,000, and this time you gain a modest 1%. Feeling confident, you decide to go “all out” on a solid play and you make a trade for $6,000. It doesn’t go your way, so you manage to bail out at a 1% loss.
The problem with these variations is that you are now underwater, whereas you should be ahead had you followed the $3,000 allocation rule. Let’s take a look at these results:
When you second-guessed the allocations, you lost $10. When you allocated proper (and equal) amounts, you gained $60---a $70 swing!
Another way of crippling your trading power is to let a loser run too deeply. Unfortunately, this is probably the most common mistake that beginning traders make---the inability to accept (and take) a loss.
The rule of thumb should be this: Never allow a trade to sink beyond a level in which a reasonable recovery is not possible.
What constitutes “reasonable” depends on what your typical winning trades return. If you are routinely bagging 2% gainers, it is unrealistic that you can recover from a loss greater than 2%. Of course, there are certain cases when you have no control over a loss (holding overnight, for example, might produce losses that you had no way of controlling), but you should never allow a losing position to go beyond what can be recovered realistically---when you do have control.
Be willing to take a loss when holding longer will damage your chances of recovery. Always look at the bigger picture!
$RHI gets a nice technical rating. Both in the recent history as in the last year, RHI has proven to be a steady performer. The long and short term trends are both positive. This is looking good! A resistance zone ranging from 118.76 to 119.57. This zone is formed by a combination of multiple trend lines in multiple time frames. Trade the breakout on $120.31!
IPAR's chart formation suggests an upward trend is beginning. stock is in the early stages of a rising trend. A close above $101.42 is a number to watch to confirm a trend reversal.Momentum as measured by the RSI is gaining in strength This is due to a consistent overall performance, although we see some doubts in the very recent evolution. In the medium time frame things are still looking good.
The MACD is confirming that the intermediate-term trend is bullish at this time. A close above $27.16 is a number to watch to confirm a trend reversal.Momentum, as measured by the RSI is beginning to strengthen. $DCP does present a nice setup opportunity. Prices have been consolidating lately. There is a resistance zone just above the current price starting at 28.72. Right above this resistance zone may be a good entry point. There is a support zone below the current price at 28.36, a Stop Loss order could be placed below this zone.
We're going to follow $MLCO the rest this week because!
The VIX index (volatility index) rose to well above 30 points on Wednesday, reflecting the tensions in the financial markets. Investors have clearly decided to take some money off the table with all the increased uncertainties. Not only is the revival of the coronavirus causing unrest, but tapering also remains a topic of conversation.
Fed Chair Jerome Powell again announced last week that there is talk of an accelerated phasing out of the asset purchase program. Powell also said he no longer considers inflation a 'transitory'. Sky-high inflation remains a difficult issue for central banks and investors, and the only way to slow it down is by raising interest rates.
The November jobs report was a minor setback last Friday. Only 210,000 jobs were added to the US economy, but the unemployment rate fell sharply to 4.2%. Also positive was the fact that the participation rate has risen to 61.8%, the highest level since March 2020. The question now is to what extent a new coronavirus revival will reduce economic growth.
The Chinese and American inflation figures are on the agenda for next week.
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