Many, many people will advise against the use of the one-minute chart. And there are plenty of good reasons for such advice, the main being that the one-minute chart has tremendous amounts of noise, is choppy, and encourages overtrading. I agree with all of those points. I would never recommend trading solely from the one-minute chart unless you can mentally compress it into a five or fifteen minute chart (yes, you'll receive an edge from this madness). If you think of every five or fifteen candles on the one minute as a single candlestick, then you can obtain the same level of perspective (which provides stability and less noise) while still being able to see how those candles on the five and fifteen minutes were formed. On this chart it is much easier to see the descending support on the one minute than the five or fifteen (I took the screenshot two weeks or so ago and do not have the five or fifteen). I nearly always give the benefit of the doubt to the larger trend, but sometimes it is nice to see what the underlying trend is in order to supplement your knowledge of the five, fifteen, or longer trends.
This next chart is full of all sorts of patterns, as well as a sample of a hedging strategy (I wrote a little about this several posts ago). The main patterns are the double tops that form at least twice. One thing to look for when determining tops or double tops is the RSI. While the RSI can theoretically stay above the 70 point for an extended period of time, on the longer timeframes it typically reverts to the mean (50) fairly fast. Shorting near the peaks, or after the RSI fails to make a new high can be profitable or at least a nice compliment to an already solid system.
Odds of 58.2% with equal downside and upside is a bet you would want to take, especially if you could take it again and again. Although the edge may look insubstantial, no casino you go to or lotto you participate in is going to give you such an edge. If you're relatively patient, I'm certain you'll be somewhat pleased over time (unless you were looking for a rush).
The screenshot clip is from a new game at Wall St Survivor that allows you to bet 50 "loyalty points" on the next tick on a random stock. What I did for 122 times (I had to get to class, but I did this last week too, with similar positive results) was place my bet on whatever direction the stock was heading at the time. Basically, I was following an extremely short range trend. If the line chart was heading up, I bet up; and, vice versa. Not bad for little effort (albeit, you need 50,000 loyalty points to trade for $5...if only I could develop a cmoputer program to do it for me).
You may be thinking: hey this is cool, but I don't think it will work on a larger scale. Well, I beg to disagree, and so do many influential and successful economists, traders, and investors. Here is my theory--derived and distilled from such brilliant minds as Robert J. Shiller, Charles Kirkpatrick, and Michael Covel, among many, many others:
Trend following works on the large scale because when companies are successful (or percieved to be successful) people will continue to invest in them, pushing stock prices up. Most people are not going to put their entire savings into a stock and never invest in it again. Many people are going to put some money into a stock, wait for their next paycheck and put more money into it as long as the stock continues in a positive direction. They may also tell others about their success, increasing the demand for the shares, further strengthening price. This is what Shiller refers to as a postive feedback loop. As money experiences success, more dollars will follow.
The same works for the downtrend. If people are panicking around you, you (maybe not you but the statistically average person) are also going to panick. The process feeds on itself driving prices further downwards. People will probably tell their friends about their lack of success in the stock market and warn them to stay away. People may also feel sick to their stomach continuing the optimistic investment process they had performed up until then, further reducing demand.
So, why does this work in the short term? Well, in order for the line chart to be driven upwards, greater demand than supply must be present, meaning more buyers than sellers (i.e. a greater chance for an uptick). When there is a greater supply than demand, you will have the opposite.
Candlestick reversal patterns can be a boon to any trader's repertoire. Combining them with support/resistance lines and other indicators can increase a trader's edge substantially. Each set below contains both the bearish and bullish counterparts. These are ideal setups that require directional movement (i.e. nothing range bound). The more volume at the given point, the more strength each of these patterns portend.
Bearish and Bullish Harami - Identified by a long bar followed by a very short one. Harami signal a loss of momentum and a possible reversal.
Dark Cloud Cover and Bullish Piercing Pattern - The dark cloud cover and bullish piercing patterns reveal weakness in the current trend and emerging strength in the opposition.
Shooting Star and Inverse Hammer - Both the shooting star and the inverse hammer have a small body with long upper wicks. THe shooting star shows the failed attempt of the bulls at maintaining control over higher price levels, while the inverted hammer is like a spring ready to pop.
Bearish and Bullish Engulfing Patterns - In the bearish and bullish engulfing patterns, the opposing side's strength overwhelms previous advancement. These tend to be stronger than the dark cloud cover and the bullish piercing patterns. Make a note of the difference: in the engulfing pattern the second candle completely overtakes the first.
Hanging Man and Bullish Hammer - Both the hanging man and bullish hammer resemble the shooting star and inverted hammer, however they are flipped. The hanging man and bullish hammer display a struggle between the bears and the bulls. In the first, the bears are beginning to gain traction against prior bullish strength. In the second, any movement downward has been stalled, signalling a possible bullish reversion.
Southern and Northern Dojis - The southern and nothern dojis are some of the most watched patterns in the candlestick charting world. The both signal a parity between the bears and the bulls. At the moment a doji forms, and as with all these signals increased volume strengthens the pattern, momentum has been prevented from continuing. Sometimes this signals confusion, sometimes this signals a stronger opposition with increasing attrition of the side previously in control.
Morning and Evening Stars - The morning star and the evening star do not necessarily have a doji as pictured here. The top candlestick will be shorter and if it is a doji, signals increasing odds that a reversal will take place. These two patterns, though rare, give the highest odds of reversal. Strength goes in, it faces stiff resistance, after which control shifts hands.
While I have some charts from last week and a few from my forex trading today that I’d like to post, at the moment I’d like to discuss something else: The Death of Capitalism; or, on the contrary, the possible renaissance of Capitalism that will be born from the ashes of Socialism.
Over at ContraHour, the most recent post on Martin Armstrong’s work piqued my interest. It focuses on the question often asked in the media: Does the current crisis suggest that Capitalism is dead?
He argues that this is not the case—far from it.
To understand the reasoning behind his conclusion, we should turn to Armstrong’s main contentions:
1) “Vote for me and you will get something for nothing” is a central tenet of our current government doctrines (socialist).
This is the steal from Peter to pay Paul idea, except at the moment, the politicians are stealing from a Peter who has yet to be born to pay for a Paul who may never die (I exaggerate, albeit people are living much longer than expected). People aren’t being encouraged to work at developing new skills in order to obtain better health care or a higher standard of living; instead, they are obtaining a higher standard of living and longer life spans funded by debt.
2) We cannot spend our way out of a crisis that stems from excessive leverage and debt, but government is definitely going to try.
Armstrong discusses the collapse of the Spanish, the Romans, the French, and how all of these collapses were caused, fundamentally, by excessive debt. Each of these entities failed to understand the importance of maintaining their credit. If we do the same, and we are on are way, we too could face collapse as we struggle with untenable debt to foreign entities.
Armstrong argues that, of course, the government will try to spend its way out of the mess it has created for itself (e.g. Obama’s stimulus plan, bank bailouts, auto bailouts, etc). This is done so that those in positions of government power can retain their power. However, such spending can only go so far before it begins to oppress the members of the union, leading to revolt or extreme discouragement.
3) Communism and socialism centralize power in the government, not in the forces that increase wealth, forge progress, and enhance life in the long-term.
Because of the tendency for government to misallocate resources (refer back to point number one for the reason this happens), the centralization of power can stifle progress and harm citizens. While communism and socialism redistribute wealth in order to more equally equip members of society, capitalism distributes wealth to those who develop skills and towards that which allows progress.
4) “Where in a normal economic model, to earn more one improves his skills, the Communistic model promotes advances income without improvement in skills” = Unions stall growth and causes skill to remain stagnant.
Currently, one of major strongholds of a union (the Detroit automakers), is displaying its own ineptitude. Compared to the non-union production models of automakers in the South, Detroit is failing miserably.
Teachers’ unions are perhaps an even better example of the failure of the union. Instead of making the educational environment more potent, it enables many teachers to continue work that they may not be suited for simply because of the difficulty in firing them. Through the collective, those without the necessary skills can impede the functioning of the education system. This happens in any business that is forced to use a "one size fits all" approach.
5) Unfunded state promises will collapse. It is helpful to understand them as an attempt to impose a Marxist-like (i.e. Utopian) environment on society.
Social Security, Medicare and Medicaid, are unfounded liabilities. The government cannot maintain these promises for very long, especially with the mounting economic crisis, the baby boomers coming retirement, exploding debt, increasingly expensive health-care, and more.
Yes, without these promises our union will not be as utopian-like as it would be with them. However, remember what the word utopia actually stems from: the Greek for “not” “place,” or a nonexistent place. While the homophone eutopia in Greek means “good” “place,” it is much more likely that when Sir Thomas Moore wrote his book he intended for the former to take precedent over the latter, as his vague explanation of the perfect society is oftentimes humorously naïve and at others satirically unbelievable.
It is time to stand back and look at what the current situation is telling us.
Someone posted a link to my site on the Google Finance message boards over the weekend. I guess quite a few people found the image below fairly humorous, which makes me happy (while many may not appreciate the XKCD humor, if you have ever had an interest in math, science, or computers, it may be just for you). Actually, every time I find Google has directed someone to my site because of something I wrote or posted I feel fairly good about myself. While this tends to lead to an anxiety about whether I can continue to provide content in an interesting manner and a consistent basis, I will push myself to get over it and test and play with ideas. Failure isn't failure unless you let it be.
And I suppose that is partly where I intend to go with this post. Last night, a friend who is living in Spain for the next six months or so sent me a link to check out. She said it was kind of corny, but when I got to the site, it was anything but. With sites dedicated to the attitude aspect of trading (there are many, because it contributes a large portion to being a successful trader, but I am mainly thinking of Attitude Trader), I thought it might be beneficial to post the link she sent: Happiness-Project.
While the entire site is full of useful information for maintaining a good attitude and alleviating stress and escaping feelings of failure, a link to one article struck me as particularly important in the realm of trading (and the economy, for that matter): Does Money Buy Happiness? The conclusion is that many wealthy countries self-define as less happy than certain poorer countries. The reason for this is because happiness is not defined by money, despite what popular culture may have us believe, but instead by success and perceptions of success. The article delves into many reasons why this is, but for the most part it has to do with feeling valuable. Yes, being in a job that makes you money can make you feel valuable, but if you do not participate in other social or intellectual pursuits that may not directly make you money, you lose out on certain value components that will weigh on any feelings of success you may derive from work.
Even instances of failure can be used as stepping stones to success. Embrace the failure and the possible loss of money (whether real or imagined) and proceed. It takes more than two steps to get from wherever you are to the top of the world. Learn to treat each step as a success, whether you find yourself retracing or tripping, climbing or falling.
Practice Makes Better - You've heard it a million times before--it's a cliche that is worth its weight in gold (not that it makes any sense to weigh a cliche...).
How to Play Liar's Poker - Another relatively popular article that explains the subtleties of this bluffing game (Michael Lewis named his famous book after this game).
34 Steps to 25,000 - My optimism overtook me here. But, at least this gives some idea as to how much effort it would take to get from $1,000 to $25,000.
This isn’t going to be a long post. The method is fairly simple and the idea behind it just as simple. This will not make you large amounts of money instantaneously, but may help you determine a strengthening trend or a weakening trend.
All this technique requires of you is a chart of the stock or currency you would like to analyze and the overlay of three moving averages: the 50 period simple moving average (SMA), the 100 period SMA, and the 200 period SMA. Nothing else is required. Because you can use this on any type of time frame (e.g. 1 minute, 15 minute, daily, weekly, etc), I call the moving averages 50 period, or 200 period, rather than 50 day.
Once you have this information on your screen take a look at the location of the moving averages. Based on the following list, you will be able to ascertain important pieces of information from this chart:
- If the 50 period is below both the 200 period and the 100 period, the stock is trending relatively hard to the downside.
- If the 50 period is below the 100 period but not the 200 period, the stock is trending with some strength to the downside.
- If the 50 had recently been above the 100 and the 200 but is slowly converging with one or both, then the uptrend is losing steam. It is becoming relatively neutral.
- If the 50 is above the 100 but not the 200, then the stock is beginning to regain momentum to the upside. It is relatively bullish.
- If the 50 is above both the 100 and the 200 period moving averages, you have a stock that is strongly bullish.
As you can see above, the main goal is to compare the average strength of the past shorter period with two longer periods. Seeing the average increase or decrease in value tells you quite a bit. Remember that just because the trend is bullish or bearish based on the above, that is not enough information to put on a trade. While it is often smart to put a trade on in the direction of the trend (stocks tend to move in the direction of strength), you want to watch for weaknesses in the trend.
Feel free to play with other lengths of moving averages. EMAs (or exponential moving averages) often aid in short term trend direction. They react to the underlying prices faster, although, that can lead to whipsaws. The smart thing to do is practice and experiment on your own. Having some understanding of the current trend will definitely aid you in your stock trading endeavors.
At the very least, aim not to get your stock tips and information from the likes of Jim Cramer, MSNBC, Fox Business, or your local news channel. None of these outlets strive for excellence. None of them aim for much more than a glitzy story to draw in the viewers. If you have some method of using the information as a contrarian indicator, then by all means, go right ahead. Many, on the contrary, will find the sources muddying their thought and clouding their profit potential.
Albeit much more helpful, use caution when reading The Economist, Bloomberg, WSJ, and even the technical analysis journals at your local bookstore. You will find many of these sources of use, at times, especially if you work at ferreting out the useful and shifting through the misleading or unpredictable; but, many of these outlets will be at least a day behind and sometimes more than a month. The monthly magazines can be particularly disappointing. Use them for their technical ideas, their intellectual side, but not for current market information.
What I am trying to say, I suppose, under my warnings against the media is to find another way to analyze information. You will often find the media utilizing data to serve their interests, whether that is to say what you want to hear, sell advertising to mutual fund companies, or any number of other things.
When Cramer screams at you to buy because the fundamentals are strong, take a step back, look at a chart, look at several sources for a likely fundamental scenario, and make your own decision on the data. It may be hard at first, but in the long run, you will thank yourself for putting in the effort.
I don’t know how many of you have read Outliers by Malcolm Gladwell, but one of the main points definitely needs to be repeated here: practice makes better.
Sure, if you have some sort of disability or innate inability to do something, practice may not help. But, given you have some ability, and if you are reading this site you likely have some ability to trade (or you got here completely by accident and probably have no idea what the hell I am talking about). You have some ability to trade. Say it to yourself and own it.
Now you need to practice. If you are reading this article, you likely are searching for ways to improve your skills. Most likely, you aim to improve your trading abilities, but it is not like this works only in the market.
In Malcolm Gladwell’s book he states that 10,000 hours is a well accepted number for achieving a high level of strength in a certain skill. Bill Gates had access to a computer in high school, a good computer for the time, and racked up more hours of programming than nearly any college student would have had at the time, and more than most any public high school students. Those extra hours gave Gates a push. And any extra time you put into trading will give you an edge over the competition.
There is tons of competition, but do not let that frighten you. Opportunities abound. With practice you can hone your skills, reduce your losses, maximize your gains, and skip trades that have a tendency not to succeed for you. With practice, you will know your game like the back of your hand.
So, how do you practice?
Read trading books. Look at the charts. There are a lot of free ebooks on the internet, and a lot of blogs that post analyses of charts. Read along or make an analysis and then compare your thoughts on the chart to the blogger’s. Write some entries on stock forums, or in the comments of blogs. See if your theories pan out.
If you do not have enough money to constantly trade the market, or if you have fear of losing money, there are many online stock trading games. Most of them are free as well. Try inspectd.com for a stock game that can be played at any hour of the day or check out wallstreetsurvivor.com to get a free paper trading account. Either way, you’ll build up your skill.
If you want to put some real money on the line, but nothing significant, why don’t you try a micro forex account? FXCM.com has, in addition to a paper trading account, a micro forex account that allows you to trade in the real markets, using their software, for a minimum opening price of $25. I’m not sure if they are doing it anymore, but you may be able to find a link to their account promotion through google where they even give you the $25 just to open an account.
What was the point of this article?
You need to practice. People do not get better at doing without doing. It would seem to be coming sense, but sometimes we have these magical images in our heads. Sometimes the media, or our crazy uncle, or someone ranting in a chatroom leads us to believe that Warren Buffet got to where he is as though he were a successful businessman without any work at all. It is just not true. He puts in a lot of effort, a lot of work.
And if you want to get better, you will have to do so too.
No matter what type of market you may be in, you need a plan. It should outline how your actions should develop within the market. The stronger your plan, the more likely you will be able to maximize gains and limit losses.
If you jump into a stock with no outline describing where to purchase and where to sell, you will likely find yourself in a less than desirable situation. You want to have set arrangements in order to increase your odds of coming in and out of stocks with an overall gain. You need to have an outline, whether on paper or in your mind, that tells you not to buy when the price is overextended and volume is decreasing, or to tell you to sell when the price falls beneath a set support level.
If you have a diagram of your trade you will be able to get in and out of a trade a predefined level—a level you determined while you were, hopefully, rational and not overly emotional. The plan should limit the effects of wishful thinking, superstition, poor judgment, emotional irrationalities, and other less than desirous obstacles.
This is not to say that your plan should be so rigid that you find yourself acting as a voodoo prognosticator. You do not know how the stock will rise or fall, or if it will do both or neither. But the idea is that you have a plan in place to deal with the fluctuations, so you find yourself holding, selling, or buying at opportune times determined by reason and more thought than you can devote while action is taking place.
You can change your plan mid-way through. Perhaps you did not take something into consideration, or maybe you have to leave the computer for the rest of the day; change your plans, but make sure you do it in as sober a state of mind as you can summon. Cut the hope; cut the gastro-intestinal premonitions; cut the crap, and increase your odds.
No one wins all the time, and no one wins on hope alone either. With a plan you will have something in place to protect your capital and to guide your decisions as you progress in the world of stocks, options and forex.
Having finished Liar's Poker: Rising Through the Wreckage on Wall Street by Michael Lewis, last week, it seemed appropriate to explain the rules of the game. Yes, a review might have been interesting, but definitely not more entertaining (and I would consider the book an entertaining read). So, in the spirit of trading sites everywhere, I have written this tutorial to explain the basics of liar's poker:
1) There are several version of liar's poker. One involving bidding and another more in the spirit of poker. Because the bidding version appears to be the most popular, and because Micahel Lewis features it in his book, I will discuss the general rules for that game. As with any game, remember to clarify rules before beginning since more than a single version of the game likely exists.
2) The game requires 2 or more players and each player needs a dollar bill (several if you want to increase the uncertainty of serial numbers drawn).
3) Put all bills face down, covering the serial number, into a pile in the center of the group. Shuffle the bills.
4) Have each player take a bill. Do not show it to any other players. Keep your "hand" covered, just like in a game of cards.
5) Look at your serial number. In general, 1's count as aces and 0's count as tens, but make sure to clarify this at the beginning of the game. Some versions play with 0 being the lowest number and 9 being the highest. Either way works out well. Count the number of times each number appears in your serial number. This is your hand. Remember it.
6) Begin the bidding. You can choose the starting player in any number of ways. If you have only two players, a coin toss works well. Otherwise, rolling dice or picking a card. Use your imagination.
7) Make a bid. That means, make a bet on how many of a certain number you believe to be among all the serial numbers. Say you have 2 5's on your serial number. You could safely bid 2 fives, as you know there to be two five's for a fact.
8) Continue to the next person. This person can now bid a higher amount of the number you last bid on, say 3 5's; or, they can bid a higher amount on a lower number, say 4 4's or 4 2's; or, they can bid on any amount of a higher number, say 2 6's or 1 ace.
9) Another option everyone after the first player has is to call the last player's bid a lie, or a bluff. Say you do not think there could possibly be 4 aces among all the serial numbers, but that was the last bid. You could call the last player's bid a bluff.
10) Now, the next person can agree with you and also call that player's bid a bluff. But if they do not believe it to be a bluff, they can also continue the bidding in the manner explained in step 8.
11) If the belief that a person has in fact bluffed becomes the consensus of the entire group, everyone must show their serial numbers.
12) Count up the serial numbers.
13) If the person being called the liar actually bid correctly (e.g. the player said there were 5 aces and there were, or there were more), then that player wins. Each player gives him a dollar, or a point, whichever has been decided upon.
14) If the person is incorrect, then that player must give everyone else a dollar, or a point, whichever is decided upon. You do not have to play for dollars; playing with smaller or larger amounts works just as well.
To watch a sample game, click here. There are also free tournaments and games on that site. If you are interested in the odds behind the game, I found this page (go to the bottom). It's not perfect, but interesting nonetheless.
The title is probably a little misleading. It assumes you already know certain things such as how to make more successful trades than unsuccessful trades. The steps to develop that skill are not taken into account in these 34 steps. Instead, I have posted these 34 steps to motivate myself and other traders (and possibly potential traders). Among my many psychological hurdles, pushing my expectations beyond the realistic resides as one of those near the top. If you do not know what to expect, and if you do not set realistic expectations (and even these below may be much too high), then how can you psychologically prepare yourself for the battles ahead?
At least that's the idea behind this post. You see, in order to be a day trader (that is, to trade whenever and however many times you please) you must have $25,000. Therefore, I am setting that as the goal. With many stocks at the moment, and especially with options, I figure a 10% gain is a reasonable stepping stone. Sure, there will be times when you will get less or even lose money, but there will also be times when you obtain more (at least, that's my experience).
With those as guidelines, I wondered how long it would take to get to $25,000 on a $1,000 account, and I came up with 34 steps:
If you want to count obtaining the $1,000 as a step, then you would have 35, but, as with the trading knowledge, turning on your computer and the breakfast/morning routine, I will stick to 34 steps, and assume you are beginning with 1,000 at the moment. The above isn't quite accurate, as I did it by hand, cutting off any gains below a dollar.
Using the formula (I'm a math tutor) A = Pe(rt) you'll get ~32 times after plugging in all the information. But, as mentioned before, these are just guidelines.
PS: I finished reading Liar's Poker over the weekend. Expect a review soon. Also, I am about half way through Irrational Exuberance and Kirkpatrick's book (long title). If you had to choose one, I'd go with Irrational Exuberance, but I'm a little more biased towards the macro side at the moment.
Side Note: This weekend has been rough and somewhat stressful. I hadn't been close to him since middle school, but one of my cousins was shot and killed over the weekend by a gang. My aunt is, understandably, very upset. My mom and the rest of my family is rattled as well. Take care, and remember to love those around you.
First, let me emphasize that you do not need to be able to construct your own point and figure charts (click here instead), nor do you even need to be able to read one. If you are reading this guide, you have enough knowledge to be successful.
Second, there is, to my knowledge, no simpler way to locate support and resistance than with point and figure charts. The ease with which it can be done will astound you. Because of the simplicity inherent in the point and figure chart’s structure, creating successful entry and exit points will become a snap, enabling you to reduce your loses while increasing, not only your profits, but your confidence as well.
The beauty of the point and figure is its simplicity. Because only significant moves are plotted, much of the noise of a stock gets discarded. In the place of your normal line or candlestick chart, you will get something like the chart pictured below:
(chart obtained from stockcharts.com. Create your own by clicking here)
When you make a chart using stockcharts.com certain trendlines will be drawn automatically. In my experience, these tend to give poor or limited guidelines; therefore, we will add some of our own.
Bottoms and Tops:
General bottom resistance and top support, whether short term or long, are easy to spot. Using your favorite drawing program (e.g. Paint, Photoshop, or GIMP), take the line tool and draw a line below the bottom-most “O” or the top-most “X”. That is all there is to it:
How to use this new data will not be difficult for the veteran trader, and for the novice, a little common sense is all that is needed. For instance, say your own 100 shares of Apple and it appears to have a long-term resistance at 100 and a short-term support at 80. If it goes up to 100 you will want to consider selling all or a portion of your stake. If the price falls below the short-term support you may want to consider liquidation your position. Furthermore, if the price hovers above support you may want to consider adding to your position. To determine your reaction with greater precision, in addition to point and figure support and resistance lines use other technical, fundamental, and sentiment indicators.
Uptrends and Downtrends:
Creating your own uptrend and downtrend lines takes little to no more time than the above. With the point and figure grid as a guideline, find any diagonal pattern of X’s and O’s. Using your favorite drawing program, draw a line along these trends like so:
It really does not get much harder than that.
Expanding your knowledge:
The goal of this article was not to teach you how to configure your own point and figure chart, or even how to decipher one. If you want to learn more about those aspects of point and figure charting, stockcharts has many guides on various technical analysis charts and techniques, and I have started writing one of my own describing patterns and setups to aid you in analysis. The major point of this article was to show you how to create simple areas of support and resistance without having to struggle with excessive noise. Using the above, you should be able to create your own successful support and resistance lines. Despite their simplicity, or quite possibly due to it, these charts make a powerful addition to any trader’s arsenal of analysis techniques.
1) Tai Chi - If the force is great, move with it in order to overthrow it (i.e. if great volume is pushing the market in one direction, move with it).
2) Heavy Weight Boxing - If your opponent is showing weakness, hit him hard and lean into the punches (i.e. if volume is waning and the stock is still going higher or lower, then be contrary).
3) Wisdom - If your opponent is swift, like the wind, do not waste your energy chasing him, because what kind of fool aims to beat up on the air? (i.e. if volume is low and price movement is whimsical, sit back so you don't strain your financial muscles).
Yes, you read the title of this post correctly. There is an easy, completely legal way to get the Wall Street Journal for free. Although you won't get the journal delivered to you every morning in its paper form, you can read all the online articles for free with these few easy steps:
1) Go to WSJ.com
2) Choose the article you want to read (any article).
3) If it is a subscriber only article, go to the bar right below "To continue reading, subscribe now." Look for the "share" section and go to the icon directly in the middle (at least it is at this time), the icon with a little guy and a shovel. Click it and it will direct you to the website digg.com.
4) A window should open to Digg's site. Click on the link with the title of the article you wanted to read.
5) Wah-Lah! It is as though you are now a subscriber! (i.e. you can read the complete article)
There are some sites out there that discuss the ethics of using this go-around, but I am not going to link any of them. The few that I have read are poorly written and have directions on how to perform the above that will definitely confuse you (much too convoluted and overly technical; stick to the easy five steps above). Furthermore, the paper wants people to be able to access their articles from websites such as Digg and Google News. They do this on purpose. There are plenty of other things that a subscriber gets besides the articles anyway. If you want MarketWatch, for instance, you will have to pay. The same goes for making and reading comments.
When I was younger I watched Blue's Clues. Things had personality. Things had names. It is only right. Of course, as the adult world grips the soul, things can tend toward nihilism. But, what the fuck does this have anything to do with anything? To which I reply, my point exactly.
In any case, the NYSE Bullish Percent Index is pushing its head above 30%. This occurrence, as mentioned many times before (if not here, in the world of technical analysis), means that the chance for a reversal in trend improves. In other words, it would not be surprising if the market began trending upward, although it would be nice to see the BPNYA break above 30 with an X.
Also, the VIX needs to continue dropping as it has been. This, of course, signals a reduction in market volatility (fear). Currently, maintaining the current downward trend does not look unlikely.
Here is the BPNYA on a more historic scale (thanks to Trader's Narrative for the chart). As you can see, mid-October we hit, what looks like, a historic low. Passing the 30% mark will hopefully confirm the current bullish sentiment.
Your stock went up $1.00 on Monday and continued down $.63 on Tuesday. It went back up $1.40 on Wednesday while falling down $.30 on Thursday. When you take a look at the intraday charts you see something frustrating and erratic. No price at which to sell is clear. If only there were a method to eliminate some of the noise perhaps the stock trend would be somewhat clearer. For this, many turn to point and figure charting, because it aids in reducing noise and elucidating market tendencies.
If you have seen charts with rows of X's and O's, then you have seen point and figure charts. Their beauty lies in their simplicity. The O's represent supply and the X's represent demand. Whichever resides in the row furthest to the right has control of the marketplace at the moment. When supply outpaces demand, price falls. When demand outpaces supply prices rise.
In order to make the concept of supply and demand somewhat clearer, let's think of it in terms of something less abstract than stocks and currency. Try thinking of supply and demand in terms of diamonds. Despite what businessmen in the diamond industry profess, diamond scarcity arises mostly from controls placed on the size of supply. Through the use of advertisements and various other psychological tricks, demand maintains its strength. With supply low and demand high, diamonds can carry a high asking price. If marketplace supply increased substantially, then price would have to be lowered in order to liquidate the product and to prevent customers from purchasing from less expensive competitors. If supply is high, and demand is low, then price must be lowered to entice consumers to purchase. If demand is high while supply is low, then the owner can raise prices.
Similar phenomena occur in the stock market. When demand for a stock is low, demand can be increased by lowering the stocks price. That is what must be done if people want to liquidate stock while others have little desire to purchase that stock. If shareholders do not want to sell stock while others would like to purchase, then the potential buyer must raise his or her bidding price in order to tempt those who are holding onto their coveted shares.
Point and figure charting displays the interplay between these two fundemental forces of the marketplace, while at the same time not tracking relatively insignificant changes.
I have been doing some non-post updates--adding more blog links, gathering links to more of my favorite technical indicators, and fixing a few formating errors in past posts. I was pretty tired out this weekend, but I got to thinking about the LEH/WM/Etc debacle; and, I wanted to see how well a strangle or a straddle on LEH and WM would do (assuming the options were purchased at the close on Friday). Once I begin to do decently in stocks, I would like to begin some option trading. This will be one of my first experiments. Anyway:
LEH - strangle; sept 2.5 put @ .70; sept 5 call @ .90 - straddle; sept 4 call @ 1.36; sept 4 put @ 1.54 - strangle; oct 2.5 put @ .75; oct 5 call @ 1.14 - straddle; oct 4 call @ 1.43; oct 4 put @ 1.63
WM - straddle; sept 3 call @ .41; sept 3 put @ .65 - strangle; oct 2.5 put @ .69; oct 4 call @ .85 - straddle; oct 2.5 call @ 1.18; oct 2.5 put @ .85
I'll post results after tomorrow's close (and possibly throughout the day if things get interesting). Wish the best of luck to anyone who may be in either of these stocks.
Good trading. Good luck. And don't listen to me for anything important. I don't want to be the scapegoat for your own idiocy.
Exe file for the SMA generator. Python source code.
Started doing a little programming. Feel free to download the exe (it's in a zip file because boxstr doesn't upload .exe files) to install or the python file to look at the code (well commented, I assure you). The program is rather simple (oh, the puns). It will ask you to select a txt data file in the format: STOCKSYMBOL.txt (look at the included RIMM.txt file to see how it is organized)--I used NinjaTrader to generate the txt data file. Then it will ask you how far back you want to go. Enter the number of days you want to calculate. It will ask if you want to print the daily price and volume information; select yes (y) or no (n). Then watch it work its magic (if you would humor me in calling it magic).
I added tradingbots.blogspot.com to the side links a few days ago. Look there if you want to get an idea of what caused this madness.
Good trading. Do not use this program for anything important (like anyone would) without first checking it against a trustworthy source. Enjoy.
Many, many people will advise against the use of the one-minute chart. And there are plenty of good reasons for such advice, the main being that the one-minute chart has tremendous amounts of noise, is choppy, and encourages overtrading. I agree with all of those points. I would never recommend trading solely from the one-minute chart unless you can mentally compress it into a five or fifteen minute chart (yes, you'll receive an edge from this madness). If you think of every five or fifteen candles on the one minute as a single candlestick, then you can obtain the same level of perspective (which provides stability and less noise) while still being able to see how those candles on the five and fifteen minutes were formed. On this chart it is much easier to see the descending support on the one minute than the five or fifteen (I took the screenshot two weeks or so ago and do not have the five or fifteen). I nearly always give the benefit of the doubt to the larger trend, but sometimes it is nice to see what the underlying trend is in order to supplement your knowledge of the five, fifteen, or longer trends.
This next chart is full of all sorts of patterns, as well as a sample of a hedging strategy (I wrote a little about this several posts ago). The main patterns are the double tops that form at least twice. One thing to look for when determining tops or double tops is the RSI. While the RSI can theoretically stay above the 70 point for an extended period of time, on the longer timeframes it typically reverts to the mean (50) fairly fast. Shorting near the peaks, or after the RSI fails to make a new high can be profitable or at least a nice compliment to an already solid system. 
by Michael Lewis, last week, it seemed appropriate to explain the rules of the game. Yes, a review might have been interesting, but definitely not more entertaining (and I would consider the book an entertaining read). So, in the spirit of trading sites everywhere, I have written this tutorial to explain the basics of liar's poker:
