Swing Highs and Lows The first thing that we need to recognise is what is a Swing High and Swing Low. This is probably the easiest part of price action and bar counting although the whole process gets easier with practice. |
Market Phases There are only three ways the market can go;
With the swing high/low definition now in mind we can start to build some layers on to the chart to identify these market phases and start to do a simple count of these swing highs and lows. In short
This may sound like child's play and a statement of the obvious but you will be surprised at how often people will forget these simple facts. One of the biggest questions I get asked is, which way is the market going? By doing a simple exercise you can see which way that price is going and decide on your trading plan and more importantly timing of a trade. What do I mean by timing? It may be that you are looking for a shorting opportunity as the overall trend is down but price on your entry time frame is still going up (making HH's & HL's). There is, at this stage, no point in trying to short a rising market until price action start to point down (making LH's & LL's. More on this shortly). Bias Changes
A Short or Bearish Bias Change occurs when the following sequence develops. HH>HL>LH>LL>LH The bias change is confirmed when price moves below the las lower low made as highlighted on the chart. Another way of saying this is 123 reversal and you are trading the pullback as your entry trigger (Red Line). There are a few variations of this pattern but this is quite simply a price action bias change in its simplest form.
A Long or Bullish Bias Change occurs when the following sequence develops. LL>LH>HL>HH>HL The bias change is confirmed when price moves above the last higher high made as highlighted on the chart. Another way of saying this is 123 reversal and you are trading the pullback as your entry trigger (Blue Line). There are a few variations of this pattern but this is quite simply a price action bias change in its simplest form. Trending Price Action After a bias change has been seen and confirmed, one of the phases that the market can then take is to start trending either up or down depending on the bias change previously. In the chart below we can see what price ideally looks like when price is trending up and trending down. Each phase shows price making HH's & HL's on its way up and LH's & LL's on its way down.
Ranging Price action Now this is where the chart can become interesting. By using the price action counting of the swing highs and lows we can know at a very early stage IFprice is going to start to develop range bound activity.
I don't mean all time highs/lows or new day/week/month highs/lows... just simply a new chart swing high or low. Price will start to stall and not make a new swing high/low and typically will stay contained within the last swing high and low that was made on the chart. Isn't that a simple definition? Range rule definitions
In the chart below you can see that from the left side of the chart price is making LH's & LL's all the way to the first blue arrow which in real time would be the latest lowest low. Price then moves higher to make a HH. These two swing levels have been highlighted. At the point of the chart, in real time, price needs to either start moving higher past the last swing high (red Arrow) making a new high OR move lower past the last swing low (blue arrow) making a new low. Until either of those things happens price will most likely remain range bound. In this example that is what happened.
Range considerations Some considerations for identifying ranges at an early stage in real time are;
By Philip Newton |
What separates the 10% that make money from the 90% that don't?
1. 10,000 hours
In his recent book Outliers: The Story of Success, Malcolm Gladwell describes the 10,000-Hour Rule, claiming that the key to success in any cognitively complex field is, to a large extent, a matter of practicing a specific task for a total of around 10,000 hours. 10,000 hours equates to around 4hrs a day for 10 years. For some reason most people that 'try their hand' at trading view it as a get rich quick scheme. That in a very short space of time, they will be able to turn $500 into $1 million! It is precisely this mindset that has resulted in the current economic mess, a bunch of 20-somethings being handed the red phone for financial weapons of mass destruction. The greatest traders understand that trading much like being a doctor, engineer or any other focused and technical endeavor requires time to develop and hone the skill set. Now you wouldn't see a doctor performing open heart surgery after 3 months on a surgery simulator. Why would trading as a technical undertaking require less time?
Trading success, comes from screen time and experience, you have to put the hours in!
2. Education, education, education.
The old cliche touted by politicians when they can't think of anything clever to say to their audience. The importance of education to success in trading cannot be placed on a high enough pedestal. You have to learn to earn, the best traders work obsessively to refine their edge further to stay ahead of the curve.
3. Think for yourself.
"NO! NO! NO!"... "Bear Stearns is not in trouble"..."Don't move your money from Bear! That's just silly! Don't be silly!"
A quote from well known stock guru Jim Cramer aired on CNBC days before Bear Stearns lost 90% of its value. Many followed this call and felt the obvious pain as a result. As the old saying goes, too many cooks spoil the broth; it is very much the same in trading. Successful traders blinker themselves from the opinions of others; they focus on their own analysis of fundamental and technical information.
4. Adapt or Die.
Market conditions change and technology advances, thus the conditions for trading are always evolving, the rise in mechanical trading is testament to that. The very best traders through a process of education and adaptation are constantly staying ahead of the curve and creating ever new and ingenious methods to profit from the markets evolution.
5. Fail to plan, you plan to fail.
The best traders have a well documented plan; they know exactly what they are looking for and follow that plan to the letter. Their preparation for a trade starts long before the market open, it is this meticulous planning and importantly adherence to that plan that helps them avoid the biggest demons for any trader, over trading and revenge trading.
6. "Be like Machine"
As human beings emotions pay a key role in our existence, for a trader emotions can be a source of great pain. Trading psychology and the management of your emotions in a trade play a key role in overall success. Fear and greed can cut your winners short and let your losers run. Dealing with emotions follows on from your plan; the more robust your plan the less likely you are to fall into the emotional mine field.
7. Know your tools
Every trader has a set of tools they use, DOM, Charts, News feeds etc. These tools are a trader's bread and butter; they are the most vital part of a trader's arsenal, without which it would be impossible to trade. The best traders have mastered their order entry methodology, they know all about the features they need from their charts. This mastery of their tools, allows the trader to get the very best out of the resources they have available to them and ensures perfect execution of their trading ideas.
8. Know Thyself
Behind all the egos and excess, the best traders know their limitations; they focus on what can go wrong in a trade, and expend a lot of energy in limiting and controlling their risk before thinking about profits. They have a heightened sense of self-awareness and focus on incremental self improvement.
9. Profit & Loss
The best traders focus on the trade itself rather than the P&L; they view each trade as a technical exercise and focus on getting the most out of the market in accordance with their plan. They do not think in terms grocery payment, the electric bill and the desire to make X amount to cover a mortgage payment. Focusing on the money behind a trade can cloud technical objectivity.
In Conclusion
The greatest traders work hard to get ahead and even harder to stay ahead. Through increased and niche knowledge they constantly adapt with the market and remain profitable in every environment. Drive, tenacity and the will to succeed is the greatest edge of every successful trader.
Aamar Shehzad is Chief Technical Analyst and Managing Director of Technical Analysis provider Pivotfarm.com. Prior to creating Pivotfarm.com, Aamar worked as an independent trader and analyst, he is a regular speaker at trading seminars and expos and is currently authoring a book on trading using Support & Resistance entitled 'Support & Persistance'.
via - http://www.tradingmarkets.com
Andrew's Pitchfork, otherwise known as median line studies utilizes the concepts of support, resistance, and retracements (see: Support & Resistance). As is visually depicted below, Andrew's Pitchfork consists of:
- Handle
- Resistance Trendline "tine"
- Median Line
- Support Trendline "tine"
Steps to creating a Pitchfork
- Find a significant pivot or retracement (in the chart above, the lower left corner)
- Find the next significant pivot or retracement (the dotted blue line connects the first pivot to this second pivot)
- Find the next retracement (in the chart above, the solid blue line starting from the left and going down to the right)
Charting software finishes the pitchfork by creating the upper resistance "tine", the lower support "tine", and the median line. Note: "tine" is the terminology used by the creator of Andrew's Pitchfork, Dr. Alan Andrews.
Interpreting Andrew's Pitchfork
The same rules for support and resistance apply to Andrew's Pitchfork. Look to buy at support and look to sell at resistance (see: Support & Resistance). Also, prices are thought to gravitate towards the median line as depicted in the chart above of the S&P 500 exchange traded fund. The chart above shows the long-term view (1 year 6 months) of the stock market; however, Andrew's Pitchfork can be used for shorter time frames.
Moving averages emit vital market data, but all of them exhibit one common limitation: They lag current events. By the time a 20-bar average curves upward to confirm a trend, the move is already underway and may even be over. While faster incarnations (such as exponential averages) will speed up signals, all of them ring the trading bell way too late.
Multiple moving averages overcome many flaws of the single variety. They're especially powerful when used in conjunction with price patterns. For example, pick out a long-term and a short-term average. Then watch price action when the averages turn toward each other and cross over. This event may trigger a good trading signal, especially when it converges with a key support or resistance level.
Averages display all the common characteristics of support/resistance. For example, one average will often bounce off another one on a first test, rather than break through right away. Then, like price bars, the odds shift toward a violation and crossover on the next test. Alternatively, when one average can't break through another average after several tries, it sets off a strong trend-reversal signal.
Different holding periods respond to different average settings. One-to-three-day swing trades work well with averages that maintain a 3x to 4x relationship between shorter and longer periods. This allows convergence/divergence between different trends to work in the trader's favor.
For example, the daily chart may show a strong uptrend, while the 60-minute chart begins a deep pullback. A 40-day average will stay pointed in the trend direction for a long time, but a 13-day average (3x13=39) will turn down quickly, and head straight for the longer average. The point where they intersect represents a major support level.
Crossovers mark important shifts in momentum and support/resistance regardless of holding period. Many traders can therefore just stick with the major averages and find out most of what they need to know. The most popular settings draw charts with a 20-day for the short-term trend, a 50-day for the intermediate trend and a 200-day for the big picture.
Long-term crossovers carry more weight than short-term events. The Golden Cross represents a major shift from the bears to the bulls. It triggers when the 50-day average breaks above the 200-day average. Conversely, the Death Cross restores bear power when the 50-day falls back beneath the 200-day. The 200-day average becomes major resistance after the 50-day average drops below it, and major support after breaking above it. When price gets trapped between the 50-day and 200-day averages, it can whipsaw repeatedly between their price extremes. This pinball action marks a zone of opportunity for swing trades.
Crossovers add horsepower to many types of trading strategies. But try to limit their use to trending markets. Moving averages emit false signals during the "negative feedback" of sideways markets. Keep in mind these common indicators measure directional momentum. They lose power in markets with little or no price change.
For years, technicians have tried to filter crossover systems through trend-recognition formulas in order to reduce whipsaws. You can try this for yourself, or just look for price patterns that tell you the crossovers are worthless.
Persistent rangebound markets limit the usefulness of all types of average information. All moving averages eventually converge toward a single price level in dead markets. This flatline behavior yields few clues about market direction. So stop using averages completely when this happens, and move to oscillators (such as Stochastics) to predict the next move.
Fibonacci jumped into the technical mainstream late in the bull market. Futures traders had it all to themselves until real-time software ported it over to the equity markets. Its popularity exploded as retail traders experimented with its arcane math and discovered its many virtues.  First Rise/First Failure marks the first 100% retracement of a trend within your time frame of interest. It provides an early reversal warning after a new high or low. The 100% retracement violates the major price direction and terminates the trend it corrects. From this level, the old trend can reestablish itself if it breaks through the old 38% level. More often, traders will use that level to enter low-risk positions against the old trend.  Parabolic movement tends to occur between the 0%-to-38% and 62%-to-100% Fibonacci levels in all trends. This tendency offers a great tool for finding the big moves when looking for trades. Watch for congestion to form at the 38% or 62% level. Then use a simple breakout or breakdown strategy when price moves past it. The next thrust can be dramatic, with price moving like a magnet back to an old high or low. Of course, the strategy only works when you can find these levels in advance.  You can often target the exact price a rally or selloff will end at by using the continuation gap as a Fibonacci extension tool. Identify the gap by its location at the dead center of a vertical price wave. Then start a Fib grid at the beginning of the trend and extend it so the gap sits under the 50% retracement level. The grid extension points to the terminating price for the rally or selloff.  Find an active stock and start a grid from the high (or low) of a session's last hour. Stretch the grid to the opposite end of the next morning's first hour low (or high). This defines a specific price wave traders can use to uncover intraday reversals, breakouts and breakdowns. The overnight grid also offers a way to trade morning gaps. The gap will often stretch across a key retracement level and target low-risk entry on a pullback.  Many traders can't figure out where to start a Fib grid. Here's a trick to help you place it where it'll do the most good. The absolute high or low in a price wave isn't the best starting point for a grid most of the time. Instead, look for a small double bottom or double top within the congestion where the trend began. Swing one end of the grid over this second high (or low), instead of the first. This will capture a specific Elliott Wave that conforms to the trend you're trying to trade. |
Options
Welcome to the mysmp.com options trading education center. Now, more than ever, is an extremely important time for traders to learn what option trading is all about and also to understand how they can use options to help control risk during times of heightened volatility. While many traders use option contracts to help mitigate risk, others will use them to speculate on volatility and direction. Whatever type of trader you may be, it is important to understand your risk profile and investment objectives before selecting a strategy.
For the newbie’s to option trading, you can get started with a quick primer on calls and puts with our stock options introduction article above. Here you will be given an overview of calls & puts and also be provided with descriptions of the various components which go into the pricing of an option such as expiration date, strike price and moneyness. Be sure to review our glossary to get a more detailed explanation on these subjects.
Above, you will find options strategies for every type of investor and every type of market. You will find a broad array of strategies that can be used in bull markets, bear markets, or flat markets. For example, bull call spreads can be used in bull markets to take advantage of upward prices while bear put spreads can do the same in bear markets. In those times where there is no volatility at all, you want to be short options to take advantage of their time decay; the short straddle is a great example of this. Be sure to understand the potential risk and reward scenario as well as the breakeven points before establishing a position. Remember, a net buyer of options (debit spread) will have a defined risk while a net seller (credit spread) will have an unlimited risk profile.
Take your time and learn how to trade these option strategies at your own pace. It is advisable to start with the more basic strategies which only consist of a single leg such as the covered call, married put, naked put, or synthetic call. Once you have these strategies mastered, you can move on to double leg strategies such as the straddle and strangle. For the more advanced options traders, triple and quadruple leg option strategies may be reviewed such as the butterfly and condor spreads.
via - http://www.mysmp.com/options.html
Welcome to Panguvanihan. Panguvanihan..that is Stock Trader, is a new addition in line with my existing Tamil Blog http://panguvaniham.wordpress.com/ and English blog http://paisapower.blogspot.com/ . Panguvaniham closely follows the daily market movement in which I try to give my views in easy Tamil, whereas Paisapower is purely an educational platform for both the traders and investors.
From today...here in Panguvanihan I will be sharing my views and ideas about potential scripes, which is meant for short term and long term investment. All the suggestions given in this blog are purely for educational purpose and hence you are requested to do your own analysis, homework before taking any trade decisions.
I Wish you good luck and Happy trading.
-Saravanakumar
Since then, the country’s capital markets have passed through both good and bad periods. The journey in the 20th century has not been an easy one. Till the decade of eighties, there was no scale to measure the ups and downs in the Indian stock market. The Stock Exchange, Mumbai in 1986 came out with a stock index that subsequently became the barometer of the Indian stock market.
Sensex is not only scientifically designed but also based on globally accepted construction and review methodology. First compiled in 1986, Sensex is a basket of 30 constituent stocks representing a sample of large, liquid and representative companies.
The base year of Sensex is 1978-79 and the base value is 100. The index is widely reported in both domestic and international markets through print as well as electronic media.
The Index was initially calculated based on the “Full Market Capitalization” methodology but was shifted to the free-float methodology with effect from September 1, 2003. The “Free-float Market Capitalization” methodology of index construction is regarded as an industry best practice globally. All major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the Free-float methodology.
Due to is wide acceptance amongst the Indian investors; Sensex is regarded to be the pulse of the Indian stock market. As the oldest index in the country, it provides the time series data over a fairly long period of time (From 1979 onwards). Small wonder, the Sensex has over the years become one of the most prominent brands in the country.
The growth of equity markets in India has been phenomenal in the decade gone by. Right from early nineties the stock market witnessed heightened activity in terms of various bull and bear runs. The Sensex captured all these events in the most judicial manner. One can identify the booms and busts of the Indian stock market through Sensex.
Sensex Calculation Methodology
Sensex is calculated using the “Free-float Market Capitalization” methodology. As per this methodology, the level of index at any point of time reflects the Free-float market value of 30 component stocks relative to a base period. The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalization is further multiplied by the free-float factor to determine the free-float market capitalization.
The base period of Sensex is 1978-79 and the base value is 100 index points. This is often indicated by the notation 1978-79=100. The calculation of Sensex involves dividing the Free-float market capitalization of 30 companies in the Index by a number called the Index Divisor.
The Divisor is the only link to the original base period value of the Sensex. It keeps the Index comparable over time and is the adjustment point for all Index adjustments arising out of corporate actions, replacement of scrips etc. During market hours, prices of the index scrips, at which latest trades are executed, are used by the trading system to calculate Sensex every 15 seconds and disseminated in real time.
Dollex-30
BSE also calculates a dollar-linked version of Sensex and historical values of this index are available since its inception.
Understanding Free-float Methodology
Free-float Methodology refers to an index construction methodology that takes into consideration only the free-float market capitalisation of a company for the purpose of index calculation and assigning weight to stocks in Index. Free-float market capitalization is defined as that proportion of total shares issued by the company that are readily available for trading in the market.
It generally excludes promoters’ holding, government holding, strategic holding and other locked-in shares that will not come to the market for trading in the normal course. In other words, the market capitalization of each company in a Free-float index is reduced to the extent of its readily available shares in the market.
In India, BSE pioneered the concept of Free-float by launching BSE TECk in July 2001 and Bankex in June 2003. While BSE TECk Index is a TMT benchmark, Bankex is positioned as a benchmark for the banking sector stocks. Sensex becomes the third index in India to be based on the globally accepted Free-float Methodology.