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Myths about stock trading.

admin — Fri, 09 Dec 2011 20:30:31 +0000

Many people are unnecessarily discouraged from investing in the stock market due to the perceived complexity and misinformation. A common myth about investing is that it is expensive, and gains are often lost to brokerage commissions. This article will help to dispel those myths. With just a little research, the average person can collect enough information to get started, and get beyond the initial fear of the markets. This is a valuable step toward long-term security and diversity of your assets.

Rather than the challenging process of evaluating financial performance, and pouring over mathematical formulas with chart analysis of individual companies, investors should consider trading ETF funds. Many ETF funds are also commission-free, enabling the investor to keep more of their profits for continued capital growth. These funds allow you to hold diversified positions in multiple companies, often based on an industry sector or a stock index. This is far simpler and provides the safety that comes from diversity.

For a detailed explanation of ETFs, read the SEC definitions of ETF intruments. Investing in ETF funds are a great way to start gaining some experience in the stocks markets. Spreading your capital over several companies via an ETF reduces the investor’s exposure to the performance of any one company, since the investment is diversified over several entities. Also, the trader can between business sectors, emphasizing those that are poise to rise with an economic recovery, or perhaps those with a strong asset base. For example an investor concerned with the potential of inflation, could select ETF funds which are invested in precious metals, or mining.

In summary, new stock traders should consider ETFs, both as a long-term holding, as well as an entry to active stock trading, to take control of their finances.

Momentum Trading Strategy

admin — Tue, 19 May 2009 16:45:40 +0000

Description: The momentum (M) is a comparison of the current closing price (CP) and a specific length of the previous closing prices (CPn).

Calculation:

M = Closing Price [today] – Closing Price [n days ago]

The Momentum indicator is a rate of change indicator that is designed to identify the speed of a price movement. Usually, the momentum indicator compares the most recent closing price to a previous closing price, but it can also be used on other indicators.

The majority of traders use a value greater than zero to indicate an increase in upward momentum and a value less than zero to indicate an increase in selling pressure.

Some of the most valuable signals are generated when the price action and Momentum are diverging, that means heading in opposite directions.

There are basically two ways to use the Momentum indicator:

Momentum Trading Chart

As a trend-following oscillator: Buy signal when the indicator bottoms and turns up and sell signal when the indicator peaks and turns down. Useful is to plot a short-term moving average of the indicator to have a better indication of when it is bottoming or peaking. If the Momentum indicator reaches extremely high or low values, in relation to historical values, you should assume a continuation of the current trend. (See attached Chart)

As a leading indicator: This momentum trading strategy assumes that market tops are typically identified by a rapid price increase, when everyone expects prices to go higher, and that market bottoms typically end with rapid price declines, when everyone wants to get out. As the market peaks, the Momentum indicator will climb sharply and then fall off, diverging from the price action. Similarly, at a market bottom, Momentum will drop sharply and then begin to climb well ahead of the price action. Both of the above-mentioned situations will create a divergence between the indicator and the price action.

Contributed by Toyogo00, Lori, Roberto, & FibMaster at
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Trading with the QQE

admin — Thu, 14 May 2009 16:40:40 +0000

QQE, which is actually Quantitative and Qualitative estimation is based on exponential moving averages of RSI or relative strength indicator. QQE can be used in many ways and based on many different levels of smoothing averages, most popular that I have seen used in my trading are 2, 5, 30 and 60, I employ 5 for my upper panel usage and 60 for my lower panel usage, this way I have a variety that is spread apart quite a bit.

This is helpful when looking to enter the market, as when both levels of QQE are moving in same direction, there is a very high (95%) chance of an ensuing move going forward and being successful. The key to QQE is not so much what the actual indicator does, but rather what it shows in relation to the EMA’S one employs in their upper panel in coordination with the candles or bars.

The key to the QQE is the smoothing factor of the QQE or the number placed for the smoothing of the indicator lines. The lower the number, the more bumpy of a line and certain confusion to what is really going on with the market, the higher the number, the smoother the line. So the best way to use the 2 different QQE lines is to place one in one panel of ones platform with a lower smoothing number and the next panel down place the 2nd QQE with a higher smoothing factor, so one can see and optimize what is going on in the market at both a shorter and longer term at same time.

I employ a factor of 5 for my upper QQE which has just a blue line and when it starts to move up, we start to look long, but no entry until QQE crosses the 50 line which is red and the exponential moving averages that I use start to cross over and upwards, the lower panel QQE is used with the higher factor of 60 for a smoothing factor.

Download my file for QQE in MetaTrader4.

With three lines employed in bottom QQE, we really want to see the cross of the dotted red and white lines by the solid blue line, so we have confirmation of the first panel QQE, it is not necessary to have all these lines cross the solid red 50 line. If it does, well then that is awesome for extra confirmation.

Remember, the key is to see upward movement by the QQE. Go along with upward movement of the exponential moving averages. I also place a volume indicator to help in trading, but the key to my trading is all in the QQE and exponential moving averages, simple and smart.

Contributed by Hlass, & FibMaster at
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The gartley pattern part 2

admin — Sun, 10 May 2009 16:01:34 +0000

In our last article, we discussed how the Gartley pattern is formed and where entries and stops should be placed for the initial trade. In this article we will discuss ways to profit from the pattern and maintain appropriate risk management.

Every trade should have targets. These can be fixed targets or dynamic ones specific to the current trade. In the case of this trade we have used Fibonacci retracements from the swing low of the AB=CD to the swing high or D point in order to set the targets. Managing a trade for profit taking is a good practice, as it allows initial profits while maintaining potential for further profits.

As seen in our example trade, our first target was hit (Chart 3). At this point two things happen. First, profits are taken on a percentage (scaling out) of the trade. Second, risk is reduced by moving the original stop which was located above the swing high of the larger move to just above the D point of our entry. This was done again for one reason; we don’t know anything for certain in trading!

As the trade developed through the London session we can see that a rally was established. Will it last? We don’t know. Therefore, our movement of the stop to just above D helps control our overall risk but still gives the trade room to work. See highlighted bars in Chart 4.

By allowing our trade to develop and giving it room to move, we have attained our profit targets in just less than a 24 hour day. The trade grossed near 100 pips on the first target followed by a slower move to our second target which gave us a profit of near 200 pips. Some traders also use a three part “peel” to capture further moves. If this is done, it is acceptable to move the stop loss to just above the 1st target, thus ensuring a profit on the third portion of the trade if it was used. This allows for two distinct targets with a third left to “run” with the trend. See Chart 5.

An intrical part of using the gartley is a better understanding of fibonacci ratios and how they work dynamically to assit a trader to see current market support and resistance. Details regarding these methods can be found at http://www.fibmarkets.com

The gartley pattern part 1

admin — Sun, 10 May 2009 15:10:20 +0000

The Gartley pattern was outlined by H.M. Gartley in his book Profits in the Stock Market, published in 1935. Gartley reversals appear on all time frame charts. These patterns form near important support or resistance levels and are very powerful. It’s important to note that these patterns as with most patterns work best if found in harmony with a larger trend. As with any strategy, there are warning signs that the trade may not work, such as long range bars or gaps into the entry area. With that said, let’s look at an example trade that was done during the writing of this article In April of 2009. We followed a one hour trade on a bearish Gartley pattern on GBPJPY.

The Gartley Pattern is always preceded by a larger move prior to its formation. This move can be up or down and would therefore present opportunity for a bullish Gartley or a Bearish Gartley. This article focuses on the bearish Gartley. A visual of the patterns overall look is found in Chart 1.

The Gartley’s basic structure is an AB=CD retrace into the prior longer move. An AB=CD move is simply this; A is starting point at bottom/top, B is the first major swing point. The distance from A to B should be noted. The C point is found as a higher/lower swing than A followed by a move in direction of the A to B move and somewhat equidistant as A to B thus forming AB=CD. See Chart 2.

The D point of the AB=CD is complete at a 1:1 ratio, however, many times it moves 1:1.272 and occasionally 1:1.618. 1:1 or 1:1.272 are Fibonacci expansions found in AB=CD patterns and are preferred entry areas especially if it harmonizes with another Fibonacci (or FIB) ratio from the original larger move. (More on advance Fibonacci techniques can be found at http://www.fibmarkets.com) This creates the entry area with a stop above the swing high from the prior larger move.

This cannot be stressed enough; Appropriate risk management must be used to ensure stop loss is appropriate to trade. The reason is simply put; we don’t know anything for certain in trading! A trader must be able to carefully allocate their risk capital and establish a maximum stop loss that gives these patterns room to play out without damaging the trading capital, should you be wrong on your analysis.

In part II of this article, we will discuss trading targets, risk management, and appropriate ways to scale out of a trade and ensure profits.