Day Trade Online

Trading Tactics [Part 4]

2006-11-11T13:01:00.000+08:00

Trading Tactics [Part 3]

2006-10-28T10:49:00.000+08:00

Trading Tactics [Part 2]

2006-10-21T11:51:00.000+08:00

Trading Tactics [Part 1]

2006-10-14T11:39:00.000+08:00

Support and Resistance Concepts

2006-10-07T20:07:00.000+08:00

Retracement Concepts

2006-10-01T10:15:00.000+08:00

Moving Average Concepts

2006-09-23T10:24:00.000+08:00

Candlestick Concepts

2006-09-16T11:04:00.000+08:00

Candlestick Trading

2006-09-09T11:58:00.000+08:00

Power & Finesse of Candlestick Charting (Part 3)

2006-09-02T13:43:00.000+08:00

Extended pattern groups used with candlesticks

1. Confirmation

Confirmation patterns are created after an initial candlestick pattern has formed. The confirmation pattern is considered a conservative traders entry point. They identify that the initial candlestick pattern nowhas a higher likelihood of prompting a market price move in the directing predicted. Confirmation patterns are an essential part of trading with candlesticks and have been taught to generating after generation of Japanese.

2. Continuation

Continuation patterns are created after an initial candlestick pattern has formed, and normally appearsafter a confirmation pattern. The continuation patterns are used to identify a trending market and tomaintain an awareness of the trend strength. Many times, the continuation patterns will form during the individual Three Level Fluctuations as described earlier. These continuation patterns are generally helpful to keep you long or short during a defined market trend after the initial candlestick buy or sellpattern.

3. Combination

Combination patterns are fairly simple to understand. They are created when two or more individual candlesticks, or two or more individual multi candlestick patterns, or any combination thereof, appear side by side and issue similar signals. An example would be a Hanging man and Doji Line found at or near a ceiling. This is a strong indication of a potential bearish price move. Combinations patterns are not rare,they appear in generally all stocks and commodities. The key to these unique patterns is to be able to identify them as a stronger influence to a possible future price move and to help identify the direction of the future move.

4. Confluence

Confluence patterns are composed of a number of other technical oscillators or patterns that assist in confirming or denying the potential for any candlestick pattern probability of success. For example, one might choose to use Moving Averages, Stochastics, Momentum and Elliot Wave Theory as confluence indicators to assist in determining the current conditions of any market and to assist in confirming the possibilities of the current candlestick pattern(s). Generally all Western technical oscillators can be used as Confluence patterns. The key is to understand the relationships between the price movement of the chart, the relative change in the Western technical oscillators, and the candlestick pattern(s) that have formed. This could be considered part of the Sakata Constitution as it is an underlying concept. Although, this is more a fundamental reality of profitable trading than a concept.

Candlestick Analysis Rules & Suggestions

As one learns to interpret the different candlestick patterns, one should always keep in mind the following rules to assist in the proper identification and possible actions taken from the patterns. There are three simple rules to interpreting candlestick patterns:

1. Size

Larger candles play an important role when identifying patterns. They represent accumulation or distribution within the market or stock. When you begin to see an increase in size of the candles, the trend is accelerating and accumulation is occuring. When you begin to see a decrease in the size of the candles, the trend is decelerating and distribution is occuring.

2. Shape

The shape of the candlestick, or pattern, determines the type of pattern generated, the possible trading signal and the potential direction of trend. Shape and sizework hand-in-hand. A very small Engulfing Bullish pattern would indicate the potential for a market rally, yet the small size indicates that the trend has not yet begun to accelerate.

3. Location

The location of a candlestick pattern will assist in determining the possible trading signal. For example, a Shooting Star found after a defined up trend strongly indicates a potential bearish correction or top. A Piercing Line found after a defined down trend indicates a potential for a bullish reversal. Either of these twopatterns found within a consolidated, sideways trend, do not indicate as strong a potential for a trend reversal, and one should wait for confirmation of the candlestickpattern before taking action.

Power & Finesse of Candlestick Charting (Part 2)

2006-08-26T11:00:00.000+08:00

Sanzan (Three Mountains)

The Three Mountains consist of two groups, each with three individual shapes of market topping and bottoming formations (see figure 2). These two groups directly correlate to the three level fluctuations theory we have already discussed. The Three Mountains pattern is very similar to the Western Head and Shoulders Top. They both consist of the very same price movement characteristics. The Japanese also consider the Double Top and Rounded Top as variations to the Three Mountains group.

The reverse of the three individual market top formations detailed above create the second group of patterns that complete the Three Mountains. This group identifies a market bottom. They are the Head and Shoulders Bottom, the Double Bottom and the Rounded Bottom.

The Japanese view these patterns from a broader perspective. These patterns are attuned to identifying major reversals of trend over a longer time frame. Often times, we see these patterns as smaller pieces to amuch larger puzzle. When we begin to piece together the puzzle, we can only then begin to predict its outcome.

Sansen (Three Rivers)

The Three Rivers patterns reflect a complete reversal of price direction. They form in either Morning or Evening positions with many variations. The Three River Morning Star pattern reflects a bullish reversal of trend or a possible market bottom. Whereas the Three River Evening Star pattern reflects a bearish reversal of trend or a possible market top.

The common formations, as shown in figure 3, often consist of very strong single candle types (such as Dojis, Bozu or Marubozu lines). These individual candle types represent some of the strongest single candle types to identify price direction or lack of it. For example, the Doji Line, that separates the other two candles within this pattern identifies that the market is unable to continue its current trend. The third candle that completes this pattern confirms the fact that the market trend has reversed.

The variations of the Three Rivers include the Upside Gap's Two Crows, the Evening Southern Cross, the Two Crows and the Unique Three River Bottom. Although these variations may appear visually completely different, they reflect the same intention of the market - to reverse.

Sanku(Three Gaps)

The Three Gaps pattern consists of three individual gaps in price that occur during a defined trend. The gaps do not need to be consecutive, they may form throughout many days of trading. This pattern signifies that the market has continued in its defined trend and current trend may soon end. The Three Gaps pattern can form during either a bullish or bearish trend to identify specific trend reversals. Remember that this pattern has a specific correlation to the Three Level Fluctuation theory. The gaps may form during the three individual price advances or declines that support the Three Level Fluctuation theory.When a Bullish Three Gaps is formed, the Japanese call this Sanku Fumiage. It represents a price ceiling and one should start selling.

When a Bearish Three Gaps is formed, the Japanese call this the Sanku Nage Owari or the Sanku Tatakikomi and one should start ordering long positions. In either condition, once the market price begins to reverse and the third gap is filled, one should increase one's current long or short positions.

Sanpei(Three Parallel Lines)

The classic formation of the Three Parallel Lines occurs when three of the same color candles appear withno price gaps between them. If they are all bullish candles (white), they create the Three White Soldiers pattern. If they are all bearish candles (black), they create the Three Crows pattern. These common types of Parallel Lines are viewed as a continuation of the current market trend.

The variations of the bullish (white) Three Parallel Lines are different in shape and meaning from the classic formations. The White Three Line Advance Block (Sakizumari) differs slightly from the Three White Soldiers, yet it represents the possible end a current bullish price move. It depicts a continuing bullish price move that is diminishing in strength and likely to reverse. Another variation is the bullish (white) Three Line Star in Deliberation (Akasansen Shianboshi). It represents that the current price move is indecisive and is likely to reverse. Often, this pattern may form into an Engulfing Bearish or a Three River Evening Star indicating strong selling in the market now.

The bearish variations of the Three Parallel Lines are a little more complicated. The first is the Bozu Three Wings. It varies from the Three Crows because of a gap between the first and second candles and the requirement that all three candles be of the Bozu or Marubozu type. This pattern represents strong bearish price action. The second variation occurs when the second candles opening price is equal to the first candles closing price and the third candles opening price is equal to the second candles closing price. So to say, each new candle opens on the previous candles close. This is called the Simultaneous Three Wings, and is an indication of continued bearish price action.

Sanpo (Three Methods)

The Three Methods patterns are related to one's position in the market (buy, sell, or wait). So to say, one shouldnt buy and sell all year, it is often wise to wait and not enter any position in the market. These pattern groups indicate a congestion period within the market and one should wait for confirmation of new trend.

These two patterns are the Rising Three Methods and the Falling Three Methods. If the Rising Three Methods appears in a rising market, one should expect a short rest before a further climb in price. The opposite is true for the Falling Three Methods. If it appears is a declining market, one should expect a short break before a further fall.

Facts about Japanese Candlesticks

Candlesticks are a true leading indicator. They regularly identify potential market pricemoves before they begin to happen.

Candlesticks are attuned to the short term trend (3 to 15 trading sessions) when charted on a Daily basis. To apply candlestick to longer term trending markets, one must use a Weekly or Monthly chart.

Candlesticks can be applied to any other Western technical oscillators to produce asynergistic trading approach.

Candlesticks are the only technical analysis tool that generates intuitive text massages(results) about the inner psychology of any market.

Candlesticks have been relatively unknown, except in Japan, for the last three centuries.

Candlesticks use the same price data as bar charts, yet the candlestick technique better promotes the ability to recognize complex patterns and to identify what these patterns mean.The Japanese candlestick technique consists of hundreds of different patterns that accurately identify specific market traits or tendencies.

[to be continued next week ..]

Power & Finesse of Candlestick Charting (Part 1)

2006-08-19T11:05:00.000+08:00

Over three centuries ago, one Japanese man began developing a technical analysis tool that was directly related to the actual price movement of any commodity or stock issue. He was not a mathematician or astatistical genius, he was simply observing the types of patterns that are created during each trading session to identify and establish traits or tendencies that occurred after individual patterns had formed. His name is Sokyu Honma.

Although it is still unclear as to who is responsible for inventing the candlestick chart, much of the develop-ment and maturing process was completed by Honma. It is rumored that the chart was first introduced near the beginning of the Meiji era (around 1870) by an English man and was used primarily for the silver marketin Yokohama. The most widely accepted theory as to how candlesticks were introduced into Japaneseculture is that the chart originated at the beginning of the rice market (around 1750). After both Western Europe (1561) and Japan (1654) established exchanges, the increase in the complexity and diversity of the economic conditions, and the continuing technological advances provided an ideal environment for the development of the candlestick chart.

The Japanese first used the candlestick chart in the commodity market (primarily the rice market), then integrated these techniques into their stock market. After World War II, the chart became very popular in Japan due to an increase in the number of active speculative investors. Prior to this last 50 or so years, thecandlestick technique was known to only a few Japanese investors.

Japan's most elusive technical trading methodology has now entered the twentieth century and traders worldwide are interested is sharing the wealth of knowledge that is only available with this technique. Japanese candlesticks blend perfectly with nearly all of the common Western technical analysis methods and willincrease your understanding of any commodity or stock issue as well as provide an incredible insight into any markets future price moves. The technologically advanced era that we have evolved to provides thenecessary tools (computers and software) to simplify the candlestick technique and makes it available toanyone interested in using this enhanced technical analysis method.

Constructing Candlesticks

The construction of Japanese Candlesticks is really quite simple. Because the emhpasis is placed on the Open~Close range, Candlesticks are drawn with a "rectangle" around the Open~Close range. If the closeis higher than the open, then the rectangle is left "Empty" - which appears as a "White" candle. If the close is below the open, then the rectangle is drawn in, or "Filled" - which appears as a "Black" candle. Lastly, if the Open and Close are "Very Close" or "Equal", a small rectangle (or horizontal line) is drawn - creating a"Doji" shaped candle.

The Sakata's Constitution and Sakata's Five Methods

Sokyu Honma was actually born Kosaku Kato (1716-1803) in the city of Sakata, Yamagata Perfecture, Japan during the Tokugawa period (Eighth Shogunate). Later in life, he was adopted by the Honma family. At that time, the port of Sakata was a distribution center for shonai(rice). Honma concentrated his attention on the rice cash market and later on the popular fixed rice market. His detailed attention to the markets and his understanding of candlesticks propelled him to become a very wealthy man. He was considered an elusive and feared individual trader because of his diligent and effective understanding ofcandlesticks and the psychology of the rice markets. Through his very charismatic personality and highly effective trading methods gained him the nick-name Dewa's long nosed goblin.

The Sakata's Five Methods originated from the rules and methods that Honma first developed to trade with called Sakata's Constitution. At this time the candlestick chart had not evolved yet and was not incorporated into Honma¡'s technique. Later, after Honma began using the candlestick chart, the Sakata's Five Methods was developed by fusing the Sakata's Constitution with the advanced techniques of the candlestick chart. Honma's secret methods were divided into two groups and have been passed down through many generations of Japanese. The two methods are the Markets Sanmi no den and Sakata's Strategies.

The Market's Sanmi no den or Sakata's Constitution:

1. Without being greedy, think about the time and price ratio by looking at past price movements.

2. Attempt to sell at the top and buy at the bottom.

3. One should increase one's positions after a rise of 100 bags from the bottom or a fall of 100 bags from the top.

4. If one forecasts the market incorrectly, one should attempt to identify the error as soon as possible. As soon as the error is discovered, one should liquidate one's positions and rest on the side for 40-50 days.

5. One should liquidate 70 to 80 percent of one's profitable positions, liquidating the remainder a changing directions once the price has reached its ceiling or bottom.

Upon execution, all of these methods can be considered Sakata's Strategies. Methods 4. and 5. are primarily trading principles used to limit loss and increase profits. Methods 1., 2. and 3. require the use of a chart and are techniques designed to realistically enhance one's trading ability over time.

The Japanese Method of Three:

There is a Japanese saying: 'consult the market about the market', which means when observing the market, we should pay close attention to the market movement itself rather than observing the international affairs and economic policies that may or may no effect the market. The chart is a recording of market price movements in a picture form. By studying the chart, one is able to identify the path the market has taken in the past and is able to attempt to predict the future course of the market price.

As divulged by Seiki Shimizu in his book 'The Japanese Chart of Charts', the natural law of market price is the 'Three Level Fluctuation'. This method teaches us that market prices move in three levels, moving upthree levels, then, always moving down three levels to form a zigzag pattern. This 'Three Level Fluctuation' greatly corresponds to the 'Elliot Wave Theory' (see figure 1). There are many unforeseen circumstances that can alter or cause a breakdown in this pattern, such as recent news items which may cause erratic price movements. We need to be able to adjust to the realities of the future by sorting through the various shapes and patterns that have formed and using only those with the highest probabilities. This is what the candlestick chart is all about. The chart's task is not to predict exact tops or bottoms, but to instantly assist in confirming market tops or bottoms when they form.

Very early in Japan's cultural history, the number 'three' has been considered a mysterious number and it is thought that a divine power lives within it. This is more than likely where the 'Sakata's Constitution' and the 'Sakata's Five Methods' attained its mysticism. The 'Sakata's Five Methods' consists of 'Sanzan' (ThreeMountains), 'Sansen' (Three Rivers), 'Sanku' (Three Gaps), 'Sanpei' (Three Parallel Lines) and 'Sanpo' (Three Methods). To preface all five terms of the'Sakata's Five Methods', the Japanese term 'San' translates to the number 'three'.

[to be continued next week ..]

Laws of Technical Trading

2006-08-13T09:23:00.000+08:00

I must admit, I am not smart enough to have devised these ridiculously simple trading rules. A great trader gave them to me. However, I will tell you, they work. If you follow these rules, breaking them as infrequently as possible, you will make money year in and year out, some years better than others, some years worse - but you will make money. The rules are simple. Adherence to the rules is difficult.

"Old Rules...but Very Good Rules"

If I've learned anything in my years of trading, I've learned that the simple methods work best. Those who need to rely upon complex stochastics, linear weighted moving averages, smoothing techniques, fibonacci numbers etc., usually find that they have so many things rolling around in their heads that they cannot make a rational decision. One technique says buy; another says sell. Another says sit tight while another says add to the trade. It sounds like a clich¨¦, but simple methods work best.

1. The first and most important rule is - in bull markets, one is supposed to be long. This may sound obvious, but how many of us have sold the first rally in every bull market, saying that the market has moved too far, too fast. I have before, and I suspect I'll do it again at some point in the future. Thus, we've not enjoyed the profits that should have accrued to us for our initial bullish outlook, but have actually lost money while being short. In a bull market, one can only be long or on the sidelines. Remember, not having a position is a position.

2. Buy that which is showing strength - sell that which is showing weakness. The public continues to buy when prices have fallen. The professional buys because prices have rallied. This difference may not sound logical, but buying strength works. The rule of survival is not to "buy low, sell high", but to "buy higher and sell higher". Furthermore, when comparing various stocks within a group, buy only the strongest and sell the weakest.

3. When putting on a trade, enter it as if it has the potential to be the biggest trade of the year. Don't enter a trade until it has been well thought out, a campaign has been devised for adding to the trade, and contingency plans set for exiting the trade.

4. On minor corrections against the major trend, add to trades. In bull markets, add to the trade on minor corrections back into support levels. In bear markets, add on corrections into resistance. Use the 33-50% corrections level of the previous movement or the proper moving average as a first point in which to add.

5. Be patient. If a trade is missed, wait for a correction to occur before putting the trade on.

6. Be patient. Once a trade is put on, allow it time to develop and give it time to create the profits you expected.

7. Be patient. The old adage that "you never go broke taking a profit" is maybe the most worthless piece of advice ever given. Taking small profits is the surest way to ultimate loss I can think of, for small profits are never allowed to develop into enormous profits. The real money in trading is made from the one, two or three large trades that develop each year. You must develop the ability to patiently stay with winning trades to allow them to develop into that sort of trade.

8. Be patient. Once a trade is put on, give it time to work; give it time to insulate itself from random noise; give it time for others to see the merit of what you saw earlier than they.

9. Be impatient. As always, small loses and quick losses are the best losses. It is not the loss of money that is important. Rather, it is the mental capital that is used up when you sit with a losing trade that is important.

10. Never, ever under any condition, add to a losing trade, or "average" into a position. If you are buying, then each new buy price must be higher than the previous buy price. If you are selling, then each new selling price must be lower. This rule is to be adhered to without question.

11. Do more of what is working for you, and less of what's not. Each day, look at the various positions you are holding, and try to add to the trade that has the most profit while subtracting from that trade that is either unprofitable or is showing the smallest profit. This is the basis of the old adage, "let your profits run."

12. Don't trade until the technicals and the fundamentals both agree. This rule makes pure technicians cringe. I don't care! I will not trade until I am sure that the simple technical rules I follow, and my fundamental analyses, are running in tandem. Then I can act with authority, and with certainty, and patiently sit tight.

13. When sharp losses in equity are experienced, take time off. Close all trades and stop trading for several days. The mind can play games with itself following sharp, quick losses. The urge "to get the money back" is extreme, and should not be given in to.

14. When trading well, trade somewhat larger. We all experience those incredible periods of time when all of our trades are profitable. When that happens, trade aggressively and trade larger. We must make our proverbial "hay" when the sun does shine.

15. When adding to a trade, add only 1/4 to 1/2 as much as currently held. That is, if you are holding 400 shares of a stock, at the next point at which to add, add no more than 100 or 200 shares. That moves the average price of your holdings less than half of the distance moved, thus allowing you to sit through 50% corrections without touching your average price.

16. Think like a guerrilla warrior. We wish to fight on the side of the market that is winning, not wasting our time and capital on futile efforts to gain fame by buying the lows or selling the highs of some market movement. Our duty is to earn profits by fighting alongside the winning forces. If neither side is winning, then we don't need to fight at all.

17. Markets form their tops in violence; markets form their lows in quiet conditions. 18. The final 10% of the time of a bull run will usually encompass 50% or more of the price movement. Thus, the first 50% of the price movement will take 90% of the time and will require the most backing and filling and will be far more difficult to trade than the last 50%.

There is no "genius" in these rules. They are common sense and nothing else, but as Voltaire said, "Common sense is uncommon." Trading is a common-sense business. When we trade contrary to common sense, we will lose. Perhaps not always, but enormously and eventually. Trade simply. Avoid complex methodologies concerning obscure technical systems and trade according to the major trends only.

How to Make money Shorting stocks in Up and Down markets.

2006-08-08T21:44:00.000+08:00

Now I am very much aware that many market players do not like to short stocks. This bias against the short side of the market is totally understandable, especially given the fact that the widespread reluctance is garnered and perpetuated by the various exchanges and the other powers-that-be. In US markets, one can only short stocks on the 'uptick' meaning u can only queue your sell and not dump it on the buy queue. to prevent people adding on to the selling pressure. In Singapore however, there is no such rule, thus giving a hand to the big players. Of course these rules are said to be for the benefit of the "average investor," whatever that term means.

But we as professionals know this to be untrue, at least to a certain extent. These hindrances or barricades to the world of shorting are to protect one of the last areas of really big money. Small fortunes (and some not that small) are made everyday on the short side of the market by those professionals who do not have these restrictions imposed on them. A Specialist on the American Stock Exchange (AMEX) does not have to wait for an uptick to get short. Neither does a NASDAQ market maker, for that matter. Again, my nature compels me to ask, "Why? Why can they and not us?" It's the same age-old reason, my friends. Money. Big money. And instead of the little guy being let in on it, he is being kept out, or at least discouraged, all in the false light of "protection." The public is being duped again, and many are buying it. "Why short when the market is going up" is the loud cry we hear from the establishment. Yet it's the establishment who has conveniently made sure they are free of these restrictions in this up market. I smell a rat! And the stench is incredible.

Stocks that are up robustly on the day, and actually close near the day's high, are no doubt very strong stocks. In fact, this strength, particularly if a lot of it occurred near the day's end, will typically lead to immediate upside movement the following morning. The reason behind this upside tendency is quite simple, though relatively unknown. Many people forget or do not realize that the job of a specialist or market maker is to provide liquidity. This means that if a stock is falling and there is an absence of buyers, they must buy. Conversely, if a stock is running up quickly and there are no sellers to offset the buying, they must take the other side as sellers. This often times puts the specialists and the market makers at odds with the trend and or the current momentum. In many cases, the specialists and the market makers will actually sell so much of their inventory (personally owned stock) on the way up, that they become what the industry terms, "net short." This simply means that they have sold more stock than they own and will have to buy the stock back lower than their average short price if they are to make money.

Therein lies the key to our philosophy. With specialist and market makers (large firms backed by enormous amounts of money) short, they have a vested interest in the stock dropping so that they can cover their open short positions at a profit. And believe me my friends, they will do everything in their power to make it happen. Otherwise they will lose, which they do at times, and lose big. This is where we come in.

The focus of our approach is to join the well-capitalized professionals (the specialists and/ or the market makers) precisely when they are the most interested in the stock going down. In other words, we only want to think about shorting when these heavy weights are also rich with open short positions. This dramatically increases the odds of our being right. To this end, we have devised a very simple yet powerful approach to let us know when to strike on the short side. This approach enjoys a very high degree of accuracy, and as mentioned above, is predicated on what the big money will be doing. Let's take a closer look at what's required to use this professional technique.

1) A daily price chart which displays roughly three to six months of price data. We rely on the price chart to reveal the flow of money. An upward movement in the price chart shows buying and a downward price chart reveals heavy selling.
2) Standard Bollinger Bands (20 period exponential bands with 2 standard deviations). This technical tool can be found in every commercial charting package on the market.

The Setup:
1) The stock must first puncture and close outside (above) the upper Bollinger Band. The closer the closing price is to the high of the day, the better. And the bigger the day's advance, the better. As a general rule, you will want this day's bar to be at least $0.10 (for penny stock) or more in length from high to low. This is not always necessary, but it's better to have it.
2) On the following day, the stock must "gap" down below the prior day's close. This "gap down" is crucial as it serves as the most important criteria of the entire strategy. If the stock does not open for trading below the prior day's close by at least 0.04 cents (preferably more), no action should be taken. We need weakness right at the open. Example: If on Tuesday the stock closed at $1.40, we want to see the stock open for trading on Wednesday no higher than $1.36. It must open down! Note: In many cases, this gap down will be caused by either an exceptionally weak market open or a negative news item on the company, such as a brokerage downgrade. But in either case, the gap down signifies major selling (profit taking), and the pros who short will be loving it. Keep in mind that both the above criteria must be met before action is taken.

The Action Once the above Set Up Criteria is met, the trader will do the following:
1) Sell the stock short (at the market if you have the luxury of being able to kill the trade instantly in the event the stock gets too far away from you).
2) Once the short has been filled, place a protective stop (mental or otherwise) above the high of the prior day. This is our insurance policy against disaster. If the stock rises above the high of the prior day, that is our sign that the shorts are being squeezed, and the major advance has more steam left, as those short will be forced to buy at higher prices to curtail their losses.
3) Hold for two to three days or more, protecting your profits on the way down with some form of trailing stop methodology. Note: Some traders may want to move their protective stop above each prior day's high. This is called "tracking the prior highs." Others may want to "book profits" in the following manner: "Once down by $0.10, move stop to break-even. Once down by $0.20, protect 1/2 of the gain, and once down $0.30 or more, protect 2/3 of the gain. Note: The idea is to ride the short for maximum profits. But of course if the trader is shorting a weak stock in the context of a bullish market environment, booking the profits sooner rather than later is preferred, even if it means missing additional gains. We don't want to fight the major flow of the market too long. A few examples will make this clear.

Well, there you have it. Your key to making profits on the short-side, just like the pros!

50 MA

2006-08-06T14:50:00.000+08:00

First of all, it should be realized that the 50 MA can be used as a quick gauge to determine if an stock is very strong (rising 50 MA), neutral (flat 50MA) or weak (declining 50 MA). The chart on the left is an example of a very strong stock. Note how steadily ¡ts 50 MA has been rising. As long as the 50 MA is rising, as it is on the chart, it is undergoing major institutional buying and is a good candidate for purchase. However, aside from being a valuable filter, the 50 MA's most valuable trait is its tendency to halt a stock's decline dead in its tracks.

For reasons which I cant go into at this time, the 50 MA is a powerful area of price support for most stocks, and when an issue falls anywhere close to it, massive buying typically comes into the stock causing an almost immediate advance.

Once again we will turn to the chart for a perfect example of this amazing phenomenon. Note how each of the three times it moved down to the 50 MA, the price exploded to new highs (see circles). It appears that buyers were just waiting for it to decline to its 50 MA. And when it did, they took control of the issue by snapping up the shares at an unprecedented rate. In fact, it was the support of ¡ts 50 MA which caused the 6-8 Week Breakout ¡ referred to earlier. Had you bought at each point, your gains would be quite large. Try it.

4 Steps Trading.

2006-08-06T13:23:00.000+08:00

4- Step Trading Strategy:
1) Entry: You decide to buy.

2) Initial Stop: As soon as you have entered the stock, you must immediately establish the point at which the issue will be eliminated, should the trade go south. This sell point is commonly referred to as a stoploss. When using this approach, your stop loss will be set directly below the previous day's low. Most successful short term trades do not fall back below the lowest price of the previous day. This makes this point very critical.

3) Adjust Stop: Assuming the trade is not stopped out by the end of the day, the issue is held into the next day. On the 2nd day, prior to the market's open, you will adjust (raise) your stop loss to the lowest price of the entry day. For instance, let us say that you have successfully entered a stock on day one at a price of $2.50. Your initial stop was not triggered so you will now be going into the 2nd day of the trade. However, before the market opens, you will have to determine what the lowest price of the first day was. For the sake of simplicity, lets assume this was $2.38. You would then call your broker to place a stop loss order at $2.38. If your broker cant take stop loss orders, than you would have to carefully watch that price, and sell on any violation of it. This will help curtail the losers.

4) Sell. Once we are into the 2nd day of the trade, and our adjusted stop has been set(actually or mentally), we are ready to concentrate on selling as the stock continues its move forward. Sell on the our objective will be today the stock moves above the high price of the entry day (the1st day). This will typically occur on the 2nd or 3rd day; but please note that this will not always be the case. At times you may have to wait four or five days for the 1st day's high to be exceeded. Of course there will be times when not the stock will rise above the highest price of the entry day.

Rather it will fall back, setting off the adjusted stop you placed on day number 2. In these cases, you will be stopped out for a small loss. However, the point which must be remembered is this: held, day after day, until either the high price of the entry day is exceeded to the upside, or the low price of the entry day is exceeded to the downside. Both sell scenarios (profit or loss) will Day of Entry hinge on the critical. The above example should make this perfectly clear.

Now it should be noted that at times this strategy will have you selling for very meager profits of $0.50 or less. But do not scoff at these tiny gains. While the majority of traders will be taking $0.50 to $1.00 losses, due to a difficult trading environment, you will be nickel and dime-ing the market to profit. Of course you will have your share of $1 to $2 runs as well.Try it!

Day Trade Online.

2006-08-06T11:30:00.000+08:00

Hello, thanks for dropping by Day Trade Online. The reason why this site is created is to share whatever daytrading information i have on hand, and what i have leant and experienced from my own trading. Lets face it, any Tom, Dick or Mary can daytrade, but to be successful in it, requires more than the ability to press the buy button.

Trading is a business and it should be taken as such. You commit a portion of your capital in the hope for getting back profits for utilising that capital. The shares u bought are your goods, your wares, to be sold later for a profit. When disasters strike, as in any business, you must have the ability to offload whatever goods you have to cut loss at that very point. Trading is a business.

And as a business, you can earn a living out of it if you treat it as serious as you would to a brick and mortar business. To this end, you need more than luck, you need discipline, alertness, firm decision-making, skills and strategies. Day Trade Online will feature everything you need to know about making trading a full-time business for any who aspire to earn a living out of it.