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Found 115 results

  1. The main thing to remember when dealing with direct quotes is the nationality of the person making the quote. *For example, a direct quote from Europe in the Euro against the Dollar will not be the same number that is quoted in the USA.
  2. Depth of Market is also referred to as market liquidity. *Higher liquidity levels generally mean less volatile trading conditions, as there are more willing buyers and sellers at all levels.
  3. Forex brokers offer free demo accounts so that forex traders are able to practice trading strategies before real money is deposited into an account.
  4. Many traders fail for many different reasons. I am sure if you have been active in the markets for any decent period of time you will have experienced the numerous obstacles that the markets can throw in front of you. Sometimes the thing holding you back from being successful is one the most basic principles. A high percentage of traders are not able to overcome them, and often have not even considered them. Below you will find my list of the most encountered obstacles which stop a willing trader from making a profit. Find Your Edge So you have a trading system but do you know what makes it profitable? Have you any idea of its strike rate and can you trust it? A question many traders cannot answer. A simple system that gives you 51 winners versus 49 losers from every hundred will make you money if you know how to manage it correctly, but there is an element of trust needed. Before you trade your system you need to properly analyse it to find out how often it wins and how often it loses. How big are the wins compared to the losses? How big is the drawdown? After answering these questions you will gain an element of trust in your system and be able to ride out the lean times to harness the gains from the bigger picture. Stick To A Plan If you are in a hurry to get somewhere you wouldn’t take the long route would you? Would you drive 1000 kilometers without consulting a map? I would think not. Much is the same with trading. Your system (or edge) is your plan and when travelling to your destination you must stick to the highway. Never stray from the plan and ignore any signs that tempt you to try a different route. Don’t Spend What You Can’t Afford Often a big mistake a losing trader will make is to trade too heavy in one single position. To lose a large percentage of a trading account on one trade is suicide and in doing so you are giving yourself a mountain to climb whilst clawing yourself back to breakeven. Not even mentioning the psychological damage it will do. Trade small in comparison to your trading account, the market will always be there tomorrow and trades will come each and every day. Focus On Points Not Profit We are all in this for one reason and that’s to make money, but money is also the root of all evil. By focusing your mind on percentages of your trading account, counting the points won (not dollars) and risk reward ratios eventually the money will stack up on its own. Thinking “I lost 20 points on that trade” rather than “I lost $200 on that trade” will also help you to stay out of the markets emotional games. Learn From Mistakes They say the clever people in this world are the ones who can instantly learn from their mistakes. This is also true when trading. If you repeat the same mistakes over and over its possible you may not have the correct frame of mind needed to become successful in this game. Learn and never look back. If you stray from your plan and lose try to understand the mistake and reinforce to yourself that it will never happen again. Less Is More How much time can you commit to this? This is a question that should be answered well before you select a system. Trade when you feel happy, trade when the markets open, take your money and leave. Often no position is the best position. Overtrading is one of the biggest downfalls of any new trader and will most likely lead to your account (and mind) burning out. Takes some trades and go do something else to stay fresh. Live Your Life Last but not least never forget what you are doing this for. You are doing this to give yourself a better life and more money. Enjoy it, take some time to live your life and don’t get caught up in the trap of being addicted to the markets. Written by Pete Southern, editor at stockpricetoday.com
  5. Generally, the information on a Deal Slip will include Dollar amounts, transaction type and the settlement date.
  6. A Deal Blotter can help a investor to monitor the progress based on many different variables. *This information can be looked at from a time basis or a strategy basis, and the Deal Blottercan help an investor to know which type of trading activity is producing profits and which activitys are creating losses.
  7. Traders are often instructed to “cover on a approach” when short positions are taken and prices approach a significant area of support. Excessive declines might indicate that prices are ready to reverse upwardly, and thus, sell positions should be closed.
  8. Traders are often instructed to “cover on a bounce” when short positions are taken and prices bounce out of a significant area of support. This bounce might indicate that prices are ready to reverse upwardly, and thus, sell positions should be closed.
  9. Cleared Funds are thought of as being “liquid” in nature and are different from “pending” funds as their source has been verified previously. Cleared Funds can be easily transferred into a new account or into cash form.
  10. The Bitomat was introduced to support the Polish Zloty and is deposited digitally into virtual wallets. Since all transactions are digital the Bitomat is viewed as a way of keeping trading costs low and as a way of providing constraints to inflationary pressures.
  11. Volatility describes the change in price movement of a financial instrument. If a Stock moves up and down rapidly over a short span of time, it has high volatility, If the price moves slowly it has low volatility. In other words Volatility can be referred to uncertainty in the market.
  12. Volume indicates effective clues for future prediction and is very useful technical indicator. High volume in any directions of the markets form future trends while low volume appears during the unsure periods.
  13. An Automated Trader is generally focused on trends in technical analysis and sets trade entries to meet predetermined criteria. This type of trading carries with it specific types of risk, so traders looking to automate their processes should take position sizes into consideration so that excessive risk exporure is not seen.
  14. Automated Forex Trading is a broad term that could refer to stop or limit orders that have been previously established by a trader, or in the algorithmic trading that defines trade parameters independently through mechanisms such as an Expert Advisor in MetaTrader. Automated trading can carry a higher risk of loss and position sizes should be lowered as a means of protection against adverse market movements.
  15. Bear Markets show that investors lack optimism on the strength of the economy and expect asset prices to for the medium to long term. Downtrend are generally defined as when prices continue to make lower highs and lower lows and when this happens in excess relative to the historical averages, markets are said to be in a bearish trend.
  16. Bad Fills can be frustrating for traders as they are often executed as a worse price than expected (too high in buy positions or too low for sell positions). There are generally two situations where this might occur. First is during times of excessive market volatility. Low liquidity levels can make it difficult for brokers to execute trades at specific prices. Other instances are seen when broker platform reliability is questionable. This situation is more avoidable, however, as long as a reputable broker is used.
  17. The 3 M’s are: MIND METHOD MONEY MIND This part of Trading is most important. It deals with Psychology. When one enters Trading business, he/she has some beliefs about the environment, about markets. They have to understand the importance of Discipline, How people think, how greed and fear affects investors. There are sub-parts to this Individual psychology of traders: You have to understand how to control Fear and Greed. How you should take rational decisions and not fall pray to your emotions while trading. Mass psychology of the markets: You also have to understand how mass psychology works. Why most of the people do what they do. The rules for maintaining personal discipline: You also have to understand the importance of Self Discipline, why you must be always consistent with your trading. You must never violate your rules. Because in long run your discipline in one thing which will make you most money, not your knowledge or your skills. METHOD This is the part which deals with your knowledge about market, technical analysis, and other tools which you can use to make Entry and Exit from any trade. This part is perceived to be the most important aspect and most of the people run after these a lot, but these are the least important part of your trading. Let us see part of this. Technical indicators : These deals with the tools available for making decisions , for example , MACD , RSI , Stochastics , OBV and other 200 weird words . The best chart patterns: Then you must know different types of patterns, which gives some idea about future action and how masses are thinking, some examples can be double top, Head and shoulder pattern etc . Developing a trading system: Then finally after you are done with knowledge part, you should build up your trading system .What is trading system? It’s your rules for buying, selling, booking profits and cutting losses. MONEY Now this part is an amazing one and my favorite. What this determines is how will you manage your money, it decides how much money will put in market at any given time, and how much loss will you take maximum on any given trade. How much will be your maximum loss on any one trade, things like that. Basically this part decides how long can you in the game of trading if things would go wrong. This part is extremely important. Without proper money management no can survive for long in Trading. Let’s see some basic and widely accepted views. - The 2% Rule for individual traders: These rule days that on any given trade your loss should not exceed 2% of total capital. So if you have Rs 1, 00,000, first time your loss should not be more than 2,000. This rule makes sure that even if you make long series of loosing trades, still you are in the game. Even if you make 10 consecutive losing trades, your overall loss will be 18.3%, though this will be rare, still you take care of this situation. The 6% Rules for every trading account: This rule says that your monthly loss should not cross more than 6% in a month. Sometimes when you trade it may happen that there is some problem with your analysis or some issue between you and market which cannot be explained, you keep trying to win, but don’t succeed, that time you have a great urge to revenge trade and get your money back. The best thing at that time is to stop and get some rest, go for vacation and come back with fresh mind. This rule will make sure that if your chemistry with market doesn’t fit, you stop after losing 6% of your capital. You can choose your own percentage amount. I would like to choose 12% for me. it all depends on your risk appetite and stubbornness You might be interested in money management example Essential record keeping for success: This part says that you should always keep all the information regarding each trade. Buy price , sell price , date of purchase , how many days you carried , Reason for buy , reason of sell , what you learned from the trade , chart at the time of buying , charts at the time of selling etc . Why do you do this? Record keeping makes sure that any day you can go back to your records and see what kind of mistakes you have done, why some trades failed, why you succeeded in some trades? You can get lots of information from your records, you need to analyze your performance over days/months/years . It’s extremely important , after a series of trades when you look back to your records , you may be able to find out some pattern , some particular aspect or mistake which you do with each loosing trade and hence can take corrective measures . So, finally we are done with 3 M’s of successful trading. If we talk about how much percentage a trader should give to these 3 M’s should be Mind: 60% Money: 30% Method: 10% It’s totally opposite of what people perceive it to be, general people think that having all market knowledge and technical analysis is most important. Nothing is far from truth, it won’t be too ambitious to say that you can make money in market by simple coin toss if you have sound money management Techniques and Great control over yourself; you need to cut your losers short without any emotion and let your profits run till they can by sitting tight and doing nothing.
  18. So how does AMT play out in trading? There are several ways of locating the requisite support (upper limit), resistance (lower limit), and consolidations (or congestions or trading ranges or any sort of sideways movement). One can, for example, plot a volume distribution (the hinge is circled): Drawing a line below the bottom of the middle distribution gives one a zone on which to focus, particularly when price opens below this zone (price also opened below this zone the previous day, leading to another profitable trade): Or one can draw a box around the congestion: Or one can use plain ol' S/R lines, noting the test of the previous day's high: All ways of illustrating the same thing. And it doesn't require special software. This, then, is what one should have had for the day following the previous chart, at minimum. If one doesn't know in advance what he’s going to do at each point, then he’s not prepared. And this is what happened the day after that: Price finds support at B, resistance at C. Preparation, Execution, Review. Let's see how it all worked out (same chart but drawn with Sierra): Monday and Tuesday, price tested R ©. Thursday it bounced off the midpoint of the lower trading range (D) and tested R © again. Friday it dropped to S (E). The advantage being, again, that all of this can be plotted in advance, saving one from having to peer fixedly at his screen for however long looking for a particular type of bar. For the coming week, the setup was the same, keeping in mind that the interface between the two ranges, at 1970, might take on added importance. And as it turned out..... Note that while intraday data is included in these charts, the principles of AMT apply regardless of the bar interval of the chart, even if there is no bar at all (e.g., a tick chart or a T&S digital display). The high of the range is the high of the range, regardless of how one chooses to display it. Ditto the low of the range. And the bulk of the trades take place in the middle. Therefore, whether one trades off a tick chart or a weekly chart, he can incorporate AMT principles into his work. NEXT: [THREAD=12805]For Daytraders Only: the TICKQ[/THREAD]
  19. I read somewhere recently -- and can't remember where -- having to do with Market Profile, I believe -- that most experienced traders will avoid trying to catch the tops and bottoms and focus on "the middle", waiting for confirmations to enter and confirmations to exit. However, since "the middle" is by definition where most of the trading is going on and is largely non-directional, there is also a lot of whipsawing in the middle, and that generates a lot of losing trades. One can sometimes avoid this by widening the stops, but, since the market always teaches us to do what will lose the most money, this will turn out to be an unproductive tactic. The safest and generally most profitable trades are found at the extremes. Therefore, you wait for the extremes. Wyckoff used a combination of events to tell him when a wave was reaching its natural crest or trough: the selling/buying climaxes, the tests, higher lows/lower highs, and so on, all confirmed by what the volume was doing and by the effect the volume had on price (effort and result). As a result of this work and of his exploration of trading ranges, he developed the concepts of support and resistance along with their practical application. Auction Market Theory (AMT) takes these investigations into support and resistance further, an “organic” definition of support and resistance like Wyckoff’s, that is, determined by traders’ behavior, not by a calculation originating from one’s head or from a website somewhere. Determine whether you are trending or “balancing” (ranging, consolidating, seeking equilibrium, etc), determine the limits of the range (support and resistance), and you’re in business. The notion of support and resistance has been and is the missing piece for many market practitioners. One can try to hit what appear at the time to be the important swings again and again and be stopped out again and again, hoping all the while that once one hits the true turning point, all the effort will turn out to have been worthwhile and the P&L will change from red to black. But by waiting for the extremes, one avoids most or all of those losing trades, and, even more important, avoids trading counter-trend. These boxes -- which are simply a graphic variation of the Market Profile distribution curve, whether skewed or not, or of the VAP (Volume At Price) pattern -- are nothing more than a means of locating those extremes. What I've found more useful about them is that they are encapsulated by time, i.e., the price and volume ranges have a beginning and an end. This enables me to see at a glance where the important S&R are, or at least are likely to be. Without them, one ends up with line after line after line until the S/R plots become a parody of themselves. All of this can be very confusing to someone who’s learned to view the market in a different way, perhaps less so to someone who’s just starting since he has so much less to unlearn. But backing up to the basic tenets of AMT, as well as to the concepts developed by (and in some cases originated by) Wyckoff, one can perhaps find a solid footing and proceed from there. To begin with, in the market, price is often not the same as “value”. In fact, one could say that since the process of “price discovery” is a search for value, they match only by accident, and then perhaps for only an instant. Blink and you missed it. Add to this the fact that for all intents and purposes there is no such thing as “value” but rather the perception of value. After all, what is the “value” of, say, Microsoft or GE or that little stock your stylist told you about? This state of affairs may seem like a recipe for chaos, but it is in fact the basis for making a market, that is, reconciling the differences – sometimes extraordinarily wide differences – in perceptions of value. As Wyckoff put it, if a stock (or whatever) is thought to be below “value” and a trader or group of traders see a large potential for profit ahead, he/they will buy all they can at or near the current level, preferably on “reactions” (or pullbacks or retracements), so they don’t overpay. If the stock is above what they perceive to be value, they'll sell it (or short it), supporting the price on those pullbacks and unloading the stock on rallies until they are out (or as much out as they can be before the thing begins its downward slide). “This”, he writes, “is why these supporting levels and the levels of resistance (a phrase originated by me many years ago), are so important for you to watch.” When price then begins to lose momentum and move in a generally sideways direction, you’ve found “value” (if value hasn’t been found, then price won’t stop advancing or declining until it has). Value, then, becomes that area where most of the trades have been or are taking place, where most traders agree on price. Price shifts from a state of trending to a state of balancing (or consolidation or ranging), the only two states available to it. The trading opportunities come (a) when price is away from value and (b) when price decides to shed its skin and move on to some other value level (that is, there’s a change in demand). This is also where it gets tricky, partly because demand is ever-changing, partly because you’ve got multiple levels of support and resistance to deal with and partly because we trade in so many different intervals, from monthly to one-tick. If we all used daily charts exclusively, it would all be much simpler, though not necessarily easier. But that’s not the case, so we must remember always that a trend in one interval – say hourly – may be a consolidation in another, such as daily. The hourly may be balancing, but there are trends galore in the 5m chart. Or the 5s chart. Or the tick chart. Regardless of how one chooses to display these intervals – line, bar, dot, candle, histogram, etc – there are multiple trends and consolidations going on simultaneously in all possible intervals, even if they’re in the same timeframe, even if that timeframe is only one day (to describe this ebb and flow, Wyckoff used an ocean analogy: currents, waves, eddies, flows, tides). To sum up where we are so far, and keeping in mind that there is no universally-agreed-upon auction market theory, the following elements are, to me, basic, and are consistent with what I've learned from Wyckoff et al: An auction market's structure is continuously evolving, being revalued; future price levels are not predictable An auction market is in one of two conditions: balancing or trending. Traders seek value; value is price over time; price is arrived at by negotiation between buyers and sellers. Change in demand drives change in price. One can expect to find support where the most substantial buying has occurred in the past and resistance where the most substantial selling has occurred. Now let’s translate all of this into a chart. I'm sure everyone has noticed that swing highs and lows and the previous days’ highs and lows and other /\ and \/ formations can serve as turning points and appear to act as resistance. However, this type of resistance stems from an inability to find a trade and is accompanied by low volume*. Price then reverts to an area where the trader finds it easier to close that trade. That's what provides that ballooning look to the volume pattern “A” in the following chart. "Resistance" in this sense, then, refers to resistance to a continuation of the move, whether up or down. *Volume may look “big” at the highs and lows, but the price points are vertical, not horizontal (as they would be in a consolidation), so the volume – or trading activity – at each price point is lessr than it would be if the same price were hit repeatedly (again, as it would be in a consolidation). Note that you may have more than one "zone of concentration" (this is how jargon gets started), as in the first balloon. Nearly all the volume is encompassed by the pink lines, but there is a heavier concentration within the blue lines because of where price spends the greater part of its time. The volume in the balloon “B”, however, is more evenly distributed throughout the zone, partly because price spends so much time in it and partly because it ranges fairly steadily within it. Instead of rushing to the limits and bouncing back toward the center, they linger at those limits, the sellers trying to push price lower, the buyers trying to push price higher. Thus there is more volume at these edges than in balloon “A”, but buyers eventually fail in their task as sellers do in theirs, and trading drifts back toward the center, providing, again, a relatively even distribution of volume throughout the range. Balloon “C” is similar to “A” but much thinner due to the fact that price has made only a single round trip to the bottom of the range. It lingered a bit in the middle, simultaneously creating that protrusion in the center of the volume pattern. But volume at each end is thinner than in “B”, thinnest at the bottom due to the \/ shape, giving the volume – if one is fanciful – something of a P shape. If price drops through one of these zones, those who bought within that zone are going to be miffed. Some of these people are going to try to sell if and when price re-approaches that zone. This is the basis of resistance. There's just too much old trading activity to work through in order for price to progress unless there is enough buying pressure to take care of all those people who want to sell what they have, then push price even higher (in which case those who sold may think they screwed up yet again and buy back what they just sold). However, those who bought or sold at the outer reaches of these zones will also be disappointed if they can't find buyers for whatever it is they just bought, not because there's too much volume but because there isn't enough. So how does one trade all this? First, you will have to monitor several intervals at the same time in order to (a) find out what interval you want to trade and (b) where price is within whatever range or ranges is/are in that interval. For example, if you’re most comfortable with a 5m interval, you’ll want to check a smaller interval or two to see what price is up to down there, but you’ll also want to look at larger intervals, such as the 15m or 60m or even the daily (I’m using time intervals here in order to keep this from becoming even longer than it will be, but the same approach applies whether you’re using range bars, volume bars, tick bars, candles, lines, etc). Second, locate the ranges. Box them or circle them or color them or in some other way highlight them. If you find a range that is wide enough for you to trade (that is, there are enough points from top to bottom to make a trade worthwhile), get “into” the range via a smaller interval in order to find a trend. Perhaps at some smaller interval, price is at the bottom of that range. That gives you a good possibility for a long (or it may be at the top of the range, giving you a good possibility for a short). At this point, you have three options: a reversal, a breakout, or a retracement. If, for example, price bounces off or launches itself off the bottom of the range (support), trade the reversal and go long. If instead it falls through support, short the breakout (or breakdown, if you prefer). If you don’t catch the breakout, or you prefer to wait in order to determine whether or not the breakout was “real”, prepare yourself to short whatever retracement there may be to what had been support and may now be resistance. A more boring alternative is that price is nowhere near the top or bottom of any range that you can find but rather drifting up and down, aimlessly. No change is occurring; therefore, there is no trade, or at least no compelling trade. Finding the midpoint of the range may be useful since price sometimes ricochets off the midpoint, or launches itself off the midpoint if it has settled there. Such actions represent change since price may be looking for a different value level. It may come to a screeching halt and reverse when it gets to one side or the other of the range and return to the midpoint, or it may launch itself through in breakout form and extend itself into the next range, if there is one, or create a new range above or below the previous range (in determining which, back off into larger intervals in order to determine whether or not price is in a range in one of those larger intervals). NEXT: [THREAD=12809]Getting Down to Cases[/THREAD]
  20. DbPhoenix

    Indicators

    The indicator phase is something that probably everybody probably has to go through, whether it's MAs, stochastics, MACD, %R, VWAP, Market Profile (if you're looking only at the form if it), Pivot Points, Fibonacci, Bollinger Bands, chart patterns of one sort or another, candles, or even the price bars themselves (range bars, CVBs, tick bars, VSA, etc). And if one can make that endeavor successful by going through the necessary testing and developing the necessary plan, then there's absolutely nothing wrong with settling into that phase for the rest of one's successful trading life. Since all of this depends on its existence on the movement of price, however, it is all "price action", hence the confusion over what is meant by "price action". But trading by price means simply that one is following price flow (not order flow, but the movement of price) and the imbalances between buying pressure and selling pressure that prompt that flow. It has nothing to do with any kind of indicator or any sort of bar or even any kind of chart. Is it superior? Yes, if it makes more money than an indicator-based approach. If it doesn't, then no. Does it get one into moves earlier than an indicator-based approach (including those which focus on bars)? Yes, if one understands the buying-selling dynamics mentioned above. But getting in early is only part of what is required to make a profit. Otherwise, all counter-trend traders would be rich. Though there are undoubtedly price action people who look down their noses at indicator people, the PA people have no reason to feel superior. And contrary to the beliefs of some indicator people, the PA people do not fail to understand indicators; they just don't see the point (other than perhaps scanning a database for price movements). In most cases, the latter have in fact gone through all this, as mentioned earlier, and had insufficient success with it, just as they've been dissatisfied with the chat room phase and the newsletter phase and the advisory service phase and the red-green arrow software phase and the seminar-course-workshop-DVD phase and the trade-the-news phase and the chart pattern phase and have instead found a more comfortable fit with a focus on price flow. It's all about the money and how one chooses to go about getting it. There is no inherently better way, particularly if the trader doesn't care to do the work. A good fundamentalist, after all, will beat a bad technician any day. Therefore, if one is using indicators but has no idea how they're calculated, much less done the testing necessary to make the most of them, he is unlikely to reap the full -- or any -- benefit. If one is trading price flow but embraces irrational views of what constitutes support and resistance, he is similarly unlikely to reap the full benefits of that approach. Either way, it's all about study and testing and screen time. Without that, it makes absolutely no difference how one goes about the process of entering and exiting a position. NEXT: [THREAD=12808]Auction Markets[/THREAD]
  21. A springboard can be said to exist when preparations have been made for, and the psychological moment has arrived for, a quick and important move . . . Auction markets are in continuous flow from trending states to non-trending states. If a trader is interested in movement and momentum, he will likely be interested in a trending market and try to avoid a non-trending market (what is often called "chop"). Springboards serve to alert him to upcoming changes from one state to another. They alert him to prepare for a transition (whether it turns out to be substantial or trivial) from non-trending to trending or vice-versa, i.e., that point at which price is on a "springboard" to an advance. One can busy himself with questions of who's doing what and why (weak hands, strong hands, professionals, amateurs, intent, prediction, and so on), but none of this is essential or perhaps even important. What is important is being prepared for whatever hand the market deals you. In this way, one can maintain calm and objectivity, not dither with last-minute surprises. What one does with what is in front of him depends largely on whether he is in a trade or he is looking to enter one. If he is in a trade, he's looking for signals that momentum is slowing. If he isn't, he may be looking for the same thing as an opportunity to enter, depending on what else is going on (e.g., is support being tested, is this the end of a parabolic move, has trading activity spiked or evaporated). However, before getting into all the possible tactics that can be employed to play these movements, I suggest that whoever is interested in this subject work toward finding these zones where traders are seeking balance (or equilibrium or fair value or whatever one chooses to call it). Again, these zones occur in all charts in all timeframes. And if one understands why they form, he is less likely to be freaked when his trade stops, much less retraces (he will, of course, have decided in advance what he is going to do when this unavoidable circumstance presents itself). To start, a chart of the DJTA over the past four years (originally posted in March ’07). It could be any instrument over any time period with any bar interval, but I'm being specific -- and using bigcharts, which is available to everyone -- so that anyone who's interested can follow along. I've also deleted the periodic volume bars and used dots rather than price bars in order to turn attention away from what is immaterial and toward the movement of price. Without any annotations whatsoever, one ought to be able to see that price is moving in a generally upward direction with occasional "pauses": If annotations are necessary, the following may be helpful: The exact lower (support) and upper (resistance) levels of these "zones" are not critical. What is more important in each is the general area in which the bulk of trades occur. What may also be important to the trader from a tactical standpoint is the "mean" within each of these zones toward which price will revert when bouncing around between support and resistance. Note that each time price trends upward, it then stops or pauses in order to find equilibrium (or balance or fair value or whatever). It may engage itself in this for minutes or years, depending on time frame and bar interval. Once it has found this equilibrium, it gets comfortable. This is a "safety zone", and the bulk of trades will occur here. These pauses are not as dramatic as the trending moves because it seems as though nothing is going on. But more trades are placed at these prices than at the prices within the trending move simply because these prices are traded again and again over a period of time. This process lays the groundwork for what may become important support and resistance later (as opposed to, for example, a swing point, which, while dramatic, represents relatively few trades). Eventually, there is an imbalance, or disequilibrium, and the springboard makes good its name. Price emerges from this "comfort zone" and either reverses the trend or resumes it. The emergence may be gradual, or it may be dramatic, as with a breakout. Here, in June of '04, it moves up 200pts and immediately forms a new zone. Only later, in October, does it make a more dramatic move. But that, again, reverts into yet another zone in which traders seek balance, this one lasting for 11 months. For those who aren't scalping and who like a deliberate approach to trading, the profit opportunities will most likely be found in the reversals which occur between support and resistance in these zones and in the breakouts which occur when price's state of equilibrium is fouled and it seeks a new one. But whether one trades reversals off of S&R or breakouts through S&R, he is working the edges and avoiding the "chop". If price isn't approaching S or R, much less testing it, he's waiting, and observing, and monitoring. Traders rejected 5000 in May ‘06, then again in July. 4200 was rejected in August and September. This is a wide range, the mean of which was 4600. Price worked the area between 4500 and 4900 for several months, again seeking equilibrium. This equilibrium was broken in February, but traders have now returned to their most recent "comfort zone". This is where they can find trades and reasonable safety. Price may remain here and find balance either side of 4800 (again, this was posted in March ’07). Or it may try again to resume the uptrend. The reversals trader who doesn't mind trading tight ranges might trade here. The breakouts/momentum trader will wait for some determined move out of the range, either up or down. But he will not likely be searching for trades in chop. If locating these zones or pauses in which these efforts toward balance and equilibrium take place is a problem, plotting "volume by price" can help: Note, again, that the bulk of trades are taking place within these zones. It is those areas with the fewest trades, those areas where traders are least secure, where the most potential for price movement -- often sustained price movement -- occurs. If one has no understanding of support and resistance whatsoever, much less where to locate them, this is as good a place as any to begin, and better than most. As for hinges, these are an additional aid to spotting those areas in which traders are seeking equilibrium. They are created by successive lower highs and higher lows and represent a tightening and compression. If interest is sufficient, this compression will eventually lead to a worthwhile move (if it isn't, price may simply dribble off into nothing worth bothering with). As Schabacker later said, these hinges or coils should be "filled with price", that is, there is no aimless drift but a struggle between those who want to move price ahead and those who don't. Therefore, price should bounce in an ever-tightening range which culminates in a release of pent-up energy and a tradeable move.
  22. Jones buys 100 shares of Fruehauf Trailer at 24. He will tell you with all the enthusiasm of the true believer what a fine company Fruehauf is, and what excellent prospects they have for the coming 12 months. He will tell you everything he knows that is good about the stock, but he will not tell you anything that is bad. For him there is no bad. His mind is made up. He does not want to be confused with facts. He is not looking for the truth; he has found it. And like a politician or a minister or a trial lawyer, he is not trying to see reality as it is. He is trying to keep himself convinced that his map of Fruehauf is actually a good one. He wants to hear nothing that will upset his all-out judgment. What he wants and needs is argument to bolster his shaky judgment and make him feel a little more secure. Therefore, he will not read, or he will forget, anything that appears in the Wall Street Journal that threatens his faith that Fruehauf is all good. And he will clip and treasure the favorable comments or reports that tend to show that he was in fact right. The data he collects are no doubt true, but they present a very one-sided picture. Suppose, now, that Fruehauf stock sells off to 18. Will he re-examine the territory and see whether there have been essential changes in the situation “out there”? Or will he, more often than not, cling to the old map of his original opinion and simply go on a search for more evidence to confirm his rightness in that opinion? He may even buy another hundred shares on the basis that if his original conclusion was valid, then this new purchase will lower the average cost of all the shares he owns, so that even a moderate advance would put him back in the profit column. What is he doing? Is he making an impartial evaluation of a stock? Or is he defending his obsolete opinion in the face of present facts? Is he acting in a way that is likely to make him profits? Or is he setting a higher value on being right than on the money involved. Let Fruehauf drop to $12 a share. Will this man sell now? No. It would hurt too much to sell. Who would it hurt? Why, it would hurt him, of course. How would it hurt him? Well, it would mean a loss in money. But isn’t it clear that the larger loss is not measured in dollars, but in pride? It will hurt less to sweep the facts under the rug, delude one’s self, and maintain that one was right in the beginning and is right still, than it will to admit that one was a fool. To put it another way: If he has decid-ed, “The stock is worth $60 a share,” and the market says $12 a share, then the market must be wrong. For the sacred map cannot be wrong. It would hurt too much. Call it fantasy, prejudice, opinion, judgment, or what you will, when the high abstraction collides with bare facts, it is the facts that have to give way if your value system places such a high premium on rightness that your tender ego cannot suffer the slightest setback. Many men cannot afford to take monetary losses in the market, not because of the money itself so much as because of their oversensitive, poorly-trained selves. The humiliation would be unbearable. The only way that occurs to such men to prevent such painful situations is to strive to be always or nearly always right. If by study and extreme care they could avoid making mistakes, they would not be exposed to the hard necessity of having to take humiliating losses over and over again. And so? And so, too often, rather than settle for a relatively minor loss, our friend will stand firmly on the deck of his first judgment, and will go down with the ship. The history of Wall Street, and of LaSalle Street, too, is studded with the stories of men who refused to be wrong and who ended up ruined, with only the tattered shreds of their false pride left to them for consolation. How to avoid such unnecessary tragedies? Be always right? You know that isn’t possible. Keep away from the speculative market entirely? That is one answer, but it’s rather like burning down the barn to get rid of the rats. There are other answers, and they are simple. They are standing there, right at hand, like elephants in the front hall, if we can only see them. In the first place, there is no rule that we can’t change our minds. It’s not necessarily wrong or a mistake to believe that Fruehauf stock will go up from $24 to $60. What is wrong is sticking to the opinion after the evidence clearly shows that the conditions have changed. The rational approach is to be ready at all times to consider new evidence, and to revise the map accordingly. In the second place, it need not hurt so much to have to change one’s mind. Unless we are so wedded to absolute standards that we cannot entertain anything that will conflict with what we decided in the first place, we can alter the map to any degree we want, or completely reverse our position. If we have a good method of evaluation, in which we have confidence on the basis of observed and verified results, we will not have to think of these changes of opinion as defeats. They are simply part of the process of keeping our maps up to date. If we plan to travel to Boston over Route 20 and there is construction underway on a five-mile section of the route, we don’t try to blast our way through. We take the detour. We go by the territory as it now is, not by the old map. And if the road is blocked entirely and no detour possible, we don’t shoot ourselves, or run our car over a cliff; we simply turn around and go back home and try again tomorrow. It is perfectly amazing how many losses you can take in the market and not get hurt very much, provided you are able to cut these losses short as soon as a change of trend appears. In order to do that, you will have to keep an open mind—not open just to favorable things that confirm what you wanted to believe in the first place, but open to any reports that will have a bearing on the situation, whether good or bad. The really serious losses come when someone closes his mind and stubbornly refuses to recognize new factors in the situation. Of course, it’s not enough merely to keep losses small. In order to keep solvent, one must also have some profits; but profits, too, bring their psychological woes.
  23. There are many different periods from which moving averages can be based. For example, a ten period moving average on an hourly chart will show you the average price for the previous ten hours. A ten period moving average on a weekly chart shows you the average price for the previous ten week. In general, traders use moving averages are a means for identifying trend direction.
  24. When trading strategies are backtested and are shown to be successful over long periods of time, there is a greater probability that the same strategy will work in future markets. It is impossible to track all of the historical data manually, so traders tend to run software programs which open and close positions when certain conditions and requirements are met within the market. Backtesting is a technical analysis practice and is not generally used by fundamental traders.
  25. The term underlying asset is sometimes used interchangeably with financial asset, financial instrument, etc. The underlying assets are the items being traded and everything about trading is based on them. Without the underlying asset, there is no basis for trade on the financial markets. For a trade to be valid, there must be a financial asset.
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