Price Action Trading Method

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; Up Down Sideways 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 The market is going up when price is making higher highs and higher lows The market is going down when price is making lower highs and lower lows The market is going sideways when price is not making higher highs and higher lows OR lower highs lower lows 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. Price is not making new highs OR new lows 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 Price doesn't make a new high or low on the move If price stays contained within the last swing high and swing low to be made, price will remain range bound until it makes news move highs or lows. Price confirms the range when a lower high and a higher low is made within the previous swing high and low. 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; That price could be creating a pullback or bias change and as the chart unfolds for you a new high or low could be made voiding the potential range. There are several definitions of a range one of the more common ones is that you are looking for a double touch of support and resistance. For me this is a little too late in the game as price may not create the double touch as in the example above. With this price action method you can identify the possibility of a range developing VERY early without having to worry IF price does or does not give you the double touch. As you can see with that definition you would interpret that price is not range bound at all but, you can clearly see visually that price is moving sideways without any definition. Acronyms used HH - Higher High HL - Higher Low LH - Lower High LL - Lower Low By Philip Newton www.trading-strategies.info Philip Newton is a professional trader and teaches new and experienced traders the skills needed to trade for a living. His live chat room is amongst the best in the industry. Inside the members area traders can watch videos of his trades and receive support for any question they may have. The live trading room is the heart of the website where the real learning begins. www.trading-strategies.info

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The 9 Characteristics of Great Traders

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

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Andrew's Pitchfork

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

1. Find a significant pivot or retracement (in the chart above, the lower left corner)
2. Find the next significant pivot or retracement (the dotted blue line connects the first pivot to this second pivot)
3. 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.

via - http://www.onlinetradingconcepts.com

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Moving Average Crossovers

Let's talk about the Golden Cross and the Death Cross. No, we're not opening a deck of cards and telling your fortune. These colorful terms refer to patterns you probably use every day in your trading but don't refer to by these names. Along with its many cousins, they comprise a whole division of technical analysis. You might know them better as moving average crossovers.

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.

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Five Fibonacci Tricks

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. Fibonacci ratios describe the interaction between trend and countertrend markets -- 38%, 50% and 62% retracements form the primary pullback levels. Apply these percentages after a trend in either direction to predict the extent of the countertrend swing. Stretch a grid over the most obvious up or down wave, and see how percentages cross key price levels. Convergence between pattern and retracement can point to excellent trading opportunities. Keep in mind that retracements work poorly in a vacuum. Always examine highs, lows and moving averages to confirm the importance of a specific level. Discord between retracement and the underlying pattern generates noise instead of profit. Move on to a new chart when nothing lines up correctly. This divergence generates most of the whipsaw in a price chart. Alternatively, strong phasing between Fibonacci and pattern exposes highly predictive reversals at narrow price levels. Let's look at five tricks to improve your Fibonacci skills. Add these twists and turns to your toolbox and apply them to your next trade. I promise they'll serve you very well in the years ahead. First Rise/First Failure 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. Parabola Hunt 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. Continuation Gap Extensions 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. Overnight Grids 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. Second High/Low 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.

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Fibonacci

Fibonacci

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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.

Options Basics

• Puts and Calls
• Options Risk Characteristics
• Implied Volatility - Definition & Equation
• Option Greeks
• VIX - Volatility Index Definition & Trading Strategies
• Stock Options

Options Glossary

• Underlying Security
• Strike Price
• Put Option
• Options Moneyness
• Intrinsic Value
• LEAPS
• Alligator Spread
• Call Options
• Options Expiration Week

Options Strategies

• Synthetic Calls
• Collar Option Strategy
• Bull Calendar Spread
• Married Puts
• Condor Spread
• Short Strangle
• Bear Put Spread
• Strangle
• Long Straddle
• Butterfly Spread
• Vertical Spread
• Short Straddle
• Call Ratio Spread
• Bull Call Spread
• Long Guts
• Covered Call
• Bull Put Spread
• Naked Puts
• Call Ratio Backspread

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

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Welcome to PANGUVANIHAN

Dear friends,

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

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How is the SENSEX Calculated !

For the premier Bombay Stock Exchange that pioneered the stock broking activity in India, 128 years of experience seems to be a proud milestone. A lot has changed since 1875 when 318 persons became members of what today is called The Stock Exchange, Mumbai by paying a princely amount of Re 1.

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.

via- tips4trade

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OptionsORACLE - Options TRADING Analysis Tool

OptionsOracle is free tool for stock options trading strategy analysis, built for options traders.

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Measuring Reward: Risk

Why do great trade setups fail, while lousy ones move in our favor? The answer is quite simple, yet frustrating. Trading is an odds game, in which anything can happen at any time. Price will go where price wants to go, no matter how hard we hit the books, study the charts or pray to the deities. So rather than searching for the perfect trade, we're better off learning to control risk first.

You've forgotten the nature of risk if you can answer "yes" to any of the following questions. Do you still buy "how-to" books, even though you've traded for years? Do you sit in bad losses because you hate to be wrong? Do you reject market wisdom because you lost money trading it?

Measure reward:risk before taking a trade, and let it guide your open position. Price close to good support identifies a low-risk long setup. Price close to substantial resistance identifies a low-risk short sale. The distance between your trade entry and the next obstacle within your holding period measures the reward, and intended exit. The distance between the entry and the price that breaks the trade points to the risk, and unintended exit. Put the odds firmly in your favor by only taking trades with high reward, and low risk.

The best swing trades exit in wild times, just as advancing price approaches a strong barrier. Reward planning seeks discovery of this price before trade entry. This profit target sits at a level where risk will increase dramatically when price reaches it. Traders should exit immediately once this profit target is struck, or at least place a stop that locks in profit, in case of a reversal.

Every setup has a price that busts the trade. The safest trades need only a small move to signal a bad outcome, and the need to jump ship. This loss target changes dynamically after entry. Consider the impact of the last price bar on evolving reward:risk, and adjust the plan accordingly. Many traders find it difficult to absorb new information quickly. So they're better off sticking with the original plan, and using trailing stops to protect the position.

How do you know the price that kills the trade? You'll find it at the convergence of support-resistance boundaries on your setup. These usually turn up through combinations of violated moving averages, broken patterns and filled gaps. Every situation is different, so finding the loss target may require all of your trading skills.

Exit swing trades to book profits, take losses or close mediocre positions. A good exit is more valuable than a great entry. Emotions usually run high at both reward and risk targets. So take a deep breath and clear the mind before closing out a position.

Tips on Reward:Risk Management

- Watch the clock and become a market survivor. Market cycles affect price movement in many ways.

- Exploit market quirks in your entries and exits. Events like overnight gaps and options expiration can benefit positions, rather than hurt them.

- Enter smaller trades when signals don't line up well.
Good timing on bad stocks makes more money than bad timing on good stocks.

- The best signals converge through many different types of technical analysis.

- Use common sense and good mathematics in your profit and loss projections.

- The most profitable entries and exits come when the crowd is leaning the wrong way.

via - www.tradingday.com

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Learn from your mistakes to master the art of investing

The Thirukkural is an ancient non-religious literature that guides people on better living. Though written over 2,000 years ago by Thiruvalluvar in Tamil, the way of life advised by Thirukkural is still relevant today.

This article is an attempt to bring the wealth of knowledge embedded in Thirukkural about finance; accessible to everyone. Thirukkural is composed of 1,330 kurals in 133 sections of ten each.

A Kural is a couplet and each Kural is composed of 7 words spread across 2 lines [4 + 3 words]. The work on wisdom is divided into three major chapters - those that speak about Virtue, Wealth and Love.

Kural 411 says "Chelvathul chelvam sevichchelvam; achchelvam Chelvathul ellem thalai"

The translation of the Kural goes like - "The best wealth among wealths is that got by listening; this wealth is the leader of all wealths."

Learning from experience, may many times prove to be very costly in terms of the time, emotions and cost involved in the learning. So it is better if we could learn form the others too. Among the many ways to leverage learning of others including proper education, reading, listening is said to be best by Thiruvalluvar.

The philosophical meaning

The meaning of this Kural in a philosophical sense is that, one should not depend only on the material wealth. The wealth of knowledge got by listening to others' experiences will be ours for ever; whether we have material wealth or not. That way the wisdom that we have received is indestructible and hence is the best wealth one could get.

Role of listening in investing

Active listening is said to be one of the best ways to be a good communicator. It is also one of the best ways to make good investment decisions. Robert G Allen author of 'Nothing Down' a book that talks about acquiring real estate without putting any of our own money as down payment, talks of one of his ways to buy a property.

The rule is 100-20-10-1. The rule in detail goes like this, when we want to buy a property, we need to visit and see 100 properties; take quotes from 20 of those properties; enter into negotiation for 10 of those properties; ultimately buy one.

Effect of leveraging listening

The effect to our wisdom related to buying property is that, by listening to 100 people talking about their properties, we get to know how property is valued. What could be problems in managing those? Which type of neighbors is better for us? Are we paying for the built-up area or the living area?

How good is the ground water, sun shine, noise, dust, etc? Will the walls bear the effect of banging long nails or drilling needed for putting the wiring? Is the government having any plans for acquisition in that area? Is the new electric crematorium planned for the area next our apartment? Does the cat in the opposite house love to measure the length of roots in potted plants (We have 25 highly valued Bonsais)?; so on and so forth.

If we had not done the 100 to 1 act of painstaking listening, we may be a victim and may have to endure a period of life-long education on how not to buy a house. How many people have we seen buying a house just because some relative or colleague said the property has 'good value'? Are they all happy?

Leverage wisdom before investing in stocks

We have a lot of people giving us tips for investing in the stock market. Some of them are from good intensions of friends, relatives and colleagues. Some of them are from our brokers and some from professional paid tips providers. The leveraging of listening to gain wisdom applies also to the stock market.

The way to learn and to some times pull the tipster himself/herself from trouble is to ask the question-WHY? If the answer is that some one reliable said so and that is WHY? Probably the reason for the buy or sell is already past its time. So please do not do anything.

If however the suggestion to buy or sell is substantiated by a set of reasons, there may be some substance for buying. But again we need to do our own reasoning and searching to make the decision to buy or sell a stock.

Skepticism vs listening

The above argument is not to be skeptical to whatever the other person says. Rather it is not to be carried away by what ever others say. The active listening way to creating wealth is to be empathetic to the other person's words and derive knowledge. This wealth of wisdom that we get from others becomes ours and no one can take it away from us - come what may.

Kural 421 says: "Arivuatram kakkum karuvi cheruvarkku Ulazhikkal aha aran"

It means "For the king (head of the family, manager) wisdom acts as a tool for protection and also as wealth that the enemy cannot destroy". Listen better so you can learn better. Learn better so you can invest better.

Source:
BankBazaar.com is an online marketplace where you can instantly get loan rate quotes, compare and apply online for your personal loan, home loan and credit card needs from India's leading banks and NBFCs.
Copyright 2009 www.BankBazaar.com. All rights reserved

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Which Time Frame is better ?

Time Frame Breakdowns

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Which one is better?

It depends on your personality!

Let me give you a breakdown of the three to help you choose:

Time frame	Description	Advantages	Disadvantages
Long-term	Long-term traders will usually refer to daily and weekly charts. The weekly charts will establish the longer term perspective and assist in placing entries in the shorter term daily. Trades usually from a few weeks to many months, sometimes years.	Don’t have to watch markets intraday Fewer transactions means less paying of spreads	Large swings which require large stops Usually 1 or 2 good trades a year so patience is required Bigger account needed to ride longer term swings Frequent losing months
Short-term	Short-term traders use hourly time frames and hold trades for several hours to a week.	More opportunities for trades Less chance of losing months Less reliance on one or two trades a year to make money	Transaction costs will be higher (more spreads to pay) Overnight risk becomes a factor
Intraday	Intraday traders use minute charts such as 1-minute or 5-minute. Trades are held intraday and exited by market close.	Lots of trading opportunities Less chance of losing months No overnight risk	Transaction costs will be much higher (more spreads to pay) Mentally more difficult due to frequency of trading Profits are limited by needing to exit at the end of the day.

You have to decide what the correct time frame is for YOU.

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MACD - An overview

MACD - An overview

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15 WAYS TO TRADE MOVING AVERAGES

Reading a chart without moving averages is like baking a cake without Butter or eggs. Those simple lines above or below current price tell Many tales and their uses in market interpretation are unparalleled.

Simply stated, they're the most valuable indicators in technical Analysis.

You can trade without moving averages, but you do so at your own risk.

After all, these lines represent median levels where your competition Will make important buying or selling decisions. So it makes sense to Predict what they're going to do before the fact, rather than afterward.

Here are 15 ways you can manage opportunity through moving

Averages:

1. The 20-day moving average commonly marks the short-term trend, The 50-day moving average the intermediate trend, and the 200-day Moving average the long-term trend of the market.

2. These three settings represent natural boundaries for price

Pullbacks. Two forces empower those averages: First, they define Levels where profit- and loss-taking should ebb following strong price Movement. Second, their common recognition draws a crowd that Perpetrates a self-fulfilling event whenever price approaches.

3. Moving averages generate false signals during range-bound markets Because they're trend-following indicators that measure upward or Downward momentum. They lose their power in any environment that Shows a slow rate of price change.

4. The characteristic of moving averages changes as they flatten and Roll over. The turn of an average toward horizontal signifies a loss of Momentum for that time frame. This increase the odds that price will Cross the average with relative ease. When a set of averages flat line And draw close to one another, price often swivels back and forth Across the axis in a noisy pattern.

5. Moving averages emit continuous signals because they're plotted Right on top of price. Their relative correlation with price development Changes with each bar. They also exhibit active convergence divergence Relationships with all other forms of support and resistance.

6. Use exponential moving averages, or EMAs, for longer time frames But shift down to simple moving averages, or SMAs, for shorter ones.

EMAs apply more weight to recent price change, while SMAs view each Data point equally.

7. Short-term SMAs let traders spy on other market participants. The Public uses simple moving average settings because they don't Understand EMAs. Good intraday signals rely more on how the Competition thinks than the technicals of the moment.

8. Place five-, eight- and 13-bar SMAs on intraday charts to measure Short-term trend strength. In strong moves, the averages will line up And point in the same direction. But they flip over one at a time at highs And lows, until price finally surges through in the other direction.

9. Price location in relation to the 200-day moving average determines Long-term investor psychology. Bulls live above the 200-day moving Average, while bears live below it. Sellers eat up rallies below this line In the sand, while buyers come to the rescue above it.

10. When the 50-day moving average pierces the 200-day moving Average in either direction, it predicts a substantial shift in buying and Selling behavior. The 50-day moving average rising above the 200-day Moving average is called a Golden Cross, while the bearish piercing is Called a Death Cross.

11. It's harder for price to break above a declining moving average than A rising moving average. Conversely, it's harder for price to drop Through a rising moving average than a declining moving average.

12. Moving averages set to different time frames reveal trend velocity Through their relationships with each other. Measure this with a classic Moving Average-Convergence-Divergence (MACD) indicator, or apply Multiple averages to your charts and watch how they spread or contract Over different time.

13. Place a 60-day volume moving average across green and red

Volume histograms in the lower chart pane to identify when specific Sessions draw unexpected interest. The slope of the average also Identifies hidden buying and selling pressure.

14. Don't use long-term moving averages to make short-term

Predictions because they force important data to lag current events. A Trend may already be mature and nearing its end by the time a specific Moving average issues a buy or sell signal.

15. Support and resistance mechanics develop between moving

Averages as they flip and roll. Look for one average to bounce on the Other average, rather than break through it immediately. After a Crossover finally takes place, that level becomes support or resistance For future price movement

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Investing in an IPO? Read this!

Here is a simplified idea of how to analyse initial public offerings (IPOs) using technical and fundamental analysis.

There have been raging discussions during the past three years, both, when the Indian IPO market was booming and when it was crashing.

Should we invest in IPOs or rather buy the stock when it comes to the secondary market? The debate over this a long-drawn one with varying answers during boom and bust.

This article will try to give some tools and ratios, which help us decide whether to invest in an IPO or not at any time!

Analysis based on market value (market cap)

Market value in the case of an IPO can be defined as the number of shares available for subscription multiplied by the price per share plus the price per share multiplied by outstanding shares if any.

In the case of analysis, when there is a price band available, it's advisable to do the analysis based on the lowest price.

Check 1: Price to Sales (P/S) ratio

This number is derived by dividing the market value by the value of annualised sales. It can also be derived by dividing the price of a share by the sales per share. It is basically an indication of the amount the company is trying to garner from the market vis-a-vis its current business.

A rule of thumb for the P/S ratio when deciding on IPO investment is that lower the P/S ratio the better it is as an investment.

A word of caution is that it should not be the only parameter before deciding.

Check 2: Price to Earnings (or Loss) P/E ratio

This number is derived by dividing the market value by the annualised profits (loss) for the company. It is an indicator of the number of multiples that the market is ready to pay for the stock over its current profit levels.

If the profit is Rs 2,500 crore (Rs 25 billion) and number of equity shares is 1,000, then the P/E is 2.5. Meaning, the market is ready to pay 2.5 times the profit per share to buy the stock.

Thumb Rule for P/E with respect to IPOs

The lower the P/E, the better it is for the investor. In simple terms, a lower P/E means, you are getting to buy something that has the ability to reap high benefits at a very cheap price.

The irony is that during boom times uninformed investors get carried away by high P/E multiples.

Check 3: Price to Book value (P/B) ratio

The book value is defined as the difference between total assets and liabilities. In a more crude way, it is also defined as the amount that will be left back after paying all liabilities in case of a closure.

The P/B of an IPO is calculated as market value divided by the book value. It gives an idea on what value the market places on the stock based on its books.

Thumb rule: Lower the P/B the better. It would be advisable for a potential IPO investor to look for IPOs with low P/B. Some of these stocks are called value stocks.

Long-term investors buy such companies and hold on to them till they slowly but steadily grow their business till a day when the share prices might shoot up phenomenally and then exit with huge profits.

Check 4: Price to Tangible Book Value (PTBV) ratio

This number is derived by dividing the market value by the tangible book value. The Tangible Book Value (TBV) is equal to the book value of the company minus the intangible assets.

Intangible assets are those that cannot be seen or felt. Examples include IP rights, goodwill patents, etc. Similar to P/B, it can also be crudely seen as the amount an investor would get if the company ceases to exist and all its assets have to be sold.

The reason it is seen separately is that most intangible assets would be very difficult to sell in case of closure.

Thumb rule: Lower the PBTV the better. A PBTV of 0-1.0 (zero to one) means the company is trading at or below the worth of its own tangible assets. Once the mark crosses one, the risk for the investor too is proportionally higher.

In case of certain companies the PBTV could be negative too.

Check 5: Gross margin percentage

The gross margin percentage is derived by dividing the gross margin of the company (the margin before accounting for taxes, depreciation, expenses, etc) by the total value of sales. This gives an idea of what is the percentage of margins for any value of sales.

Thumb rule: Higher the gross margin the better. This in simple terms indicates that the company's product of service has a good margin of income. The higher the gross margin, the better would be the actual profit. For certain industries where costs are very high the gross margin percentage would be low.

In such cases, we need to analyse if it's higher than for other competitors in the same domain of business.

Check 6: Profit margin percentage

This number is derived by dividing the profits by total value of sales. Again, as in the case of gross margin percentage, higher the profit margin percentage, the better it would be to invest in the IPO of that company.

A word of caution, though. The gross profit margin percentage and the profit margin percentage should be analysed for at least 3-4 years to check for consistency.

Some companies might show higher margins due to one off reasons which might not hold true after the IPO.

All the above calculations need to be taken into consideration along with the analysis of the company's management, its business model, the sustainability of its product/service and other such fundamental parameters while deciding to invest in an IPO or not.

Source: BankBazaar.com is an online marketplace where you can instantly get loan rate quotes, compare and apply online for your personal loan, home loan and credit card needs from India's leading banks and NBFCs.Copyright 2009 www.BankBazaar.com. All rights reserved

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Is the stock market a gambling arena?

Many people shy away from the stock market thinking it is a lot like gambling and some even think it is gambling. The vagaries of the stock market in the form of sudden spurts and dizzying falls only add fuel to this thought.

Adding fuel to the aversion is the past pain from few experiments -- many in their 40s are still not entering the market because they were hurt by the Harshad Mehta scandal!

Short-term trading versus Investing
The goals for any investor in the stock market change very dramatically based on whether he is a short-term player or a long-term one. In the short term, the market has to be perform the role of an income generator for the trader/investor. In the long term, it has to give capital appreciation for the investor.

The first thing to remember is that when we buy a stock (a share in any company), we get a part ownership in the company. We have a right to a part of the assets and a part of the profits that the company generates.

The price of the share will be reflected by the current and future profits of the company and also by the various forces that affect the business of the company. There are several macro-level factors such as the political, social, and international environment too that affect the business and hence the share prices.

Shares are best for the long-term investor
To generate income out of shares is possible in two ways:
Wait for the dividend. This income is going to be quite low compared to the market price of the share. Typical Indian dividend yield (dividend per share/market price of share) is in the range of 1% to 2%. Not quite attractive.

The other way is to generate trading gains. This is highly risk laden as inherently share prices follow randomness. The Random Walk Theory says that the events in the past do not affect the price of the shares in the future. Hence, it is not possible to predict the future price of shares. This means that to generate income by trading one has to speculate. That is gambling.
In the long run (three years and above), however, the scenario is different. There is sufficient control for the management of the company to steer it to success or failure. And this will be reflected in the stock market as rise or fall in the share prices.

As an investor in the company, we too get signs on whether to hold on to the share or to let it go. In the short run companies can fool its investors by changing some numbers and by making good presentations but in the long run to compete and to grow, they have to deliver value.

Returns in the long run
The stock market remains the undisputed and consistent leader for returns in the long run. In spite of the economy slowing down in India and going into a depression in many parts of the world, the historical Sensex returns are still very attractive.

The Sensex was formed as an index to reflect the stock market movements in the year 1979. The value at that time started at 100. On August 14, 2009 this figure stood at 15,400. This translates to a compounded annual growth rate of an amazing but true 18.28%.

We cannot see any other asset class giving such returns over the long term. Is there a reason why stocks perform so well in the long run? Yes, there are.

As business people, the promoters of the companies have an inherent reason for working towards the growth of their companies. Also businesses need time to grow and flourish.
As businesses compete with each other during their growth, they come out with creative, efficient and effective solutions to our needs and problems. This creates value for us as consumers and as investors. The country itself grows because of this.

Case in proof
A case in proof is a Bangalore family that was surprised by the value of shares that their late father had accumulated. He had bought shares of Hindustan Level Limited (HLL -- now Hindustan Unilever Ltd) consistently for over 20 years from whatever savings he could scrap from his earnings as an executive in a private company.

At one point in time HLL was the largest company in India and he loved the company. Post his retirement he continued to hold the shares in the material form itself. After he passed away, the family found that he had over Rs 1 crore (Rs 10 million) worth of HLL shares!

Stock market is not a gambling arena
The stock market is a tool for investing and wealth-creation. As discussed above it is a way to create wealth in the long term. It should not be mixed with gambling nor should it be used for that purpose.

Like gambling, it might be thrilling in the short term but too much indulgence in thrill at the expense of strong fundamentals could lead to major losses.

Ironically, the media and the people around us always highlight the extremities rather than focus on the fundamentals. For example, a person losing Rs 500,000 in one day is given more importance than someone earning the same amount in three years. This has been the major cause of creating a negative picture of the stock markets.

We need to come out this imagery and look at the broader and long-term picture. Long-term investors can never lose money in the stock market if the fundamentals are right!

BankBazaar.com
Source: BankBazaar.com is an online marketplace where you can instantly get loan rate quotes, compare and apply online for your personal loan, home loan and credit card needs from India's leading banks and NBFCs.Copyright 2009 www.BankBazaar.com. All rights reserved

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What Are The Different Types Of Technical Indicators?

If you open up any charting package and attempt to put some form of technical indicator alongside the price, you will usually be presented with endless different technical indicators to assist you with your trading.

This can be slightly overwhelming when you first start using technical analysis, because you don't know which indicators are best, what information they are conveying, or how to interpret the data. So in today's article I'm going to briefly discuss the different types of technical indicators available to you.

There are basically four different types of technical indicators:

1. Trend indicators.

These indicators are used to indicate the direction of a trend. These are very useful because the basic rule is that you should always trade with a trend and not against it. Some examples of trend following indicators include Parabolic SAR, MACD and Moving Averages.

2. Momentum indicators.

Momentum or strength indicators are used to indicate the speed or strength of a move in price and are best used to determine a change in direction. They tend to be oscillating indicators showing overbought and oversold positions. Examples include CCI, RSI and Stochastics.

3. Volatility indicators.

These indicators, as the name suggests, show a change in volatility, which often leads to a change in price. Examples include ATR, Bollinger Bands and Envelopes.

4. Volume indicators.

Volume indicators are used to show the volume of trading in a particular currency. These are useful to confirm the direction of a trend or to signal a breakout. For example, if the pair trades in a narrow range and then breaks out on high volume, then this is a very bullish signal. Examples of volume indicators include Chaikin Money Flow, Demand Index and OBV.

The ideal charting set-up should have at least one indicator of each kind, but it's also important to remember that technical analysis is not foolproof. It's there to help you make trading decisions, but no indicator or set of indicators will give you a 100% success rate.

via - http://theforexarticles.com/

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The 3 Duck’s Trading System

Firstly I would like to say, I did not reinvent the wheel with this system, I have just added one or two ideas to a 60 period simple moving average (sma) to make it my own and named it “The 3 Duck’s Trading System” for obvious reasons as you will find out later on. The system is fairly straight forward and easy to use. Like a lot of trading systems it will be more productive when prices are moving in one direction and not stuck in a tight trading range. Of course this system has losing trade and losing runs, but with proper money management and good discipline I’m sure this system will keep you out of bad trades and give you a great chance to make profits in the Fx market. One of the nice things about this system is it will quickly tell you if prices are in an up or down swing phase and stop you from guessing! It will also allow you to decide to be a bull or a bear and trade in the direction of that trend. There are 3 charts involved in this system: a 4hr chart, a 1hr chart and a 5min chart. There is 1 indicator, a 60 period simple moving average (60 sma) plotted on each chart. There you go, its that simple.

How it works:

Step 1 - First Duck

The first thing we need to do is look at our largest time-frame (4hr chart) and see if current prices are above or below the 60 sma. From this chart we can see that current price is below the 60 sma. This tells us that we maybe looking to sell.

Step 2 - Second Duck

The second thing we need to do is drop down to our 1hr chart. We need to see the current price below the 60 sma on this chart also, this gives us confirmation. Important: If the current price was to be above the 60 sma on this chart we could not move on to step 3.

Step 3 - Third Duck

From step 1 and 2, current prices need to be below their 60 sma’s on each chart. We are now on the 5 min chart and we are looking to sell when price crosses below the 60 sma. For extra confirmation we should let prices break the last low on the 5 min chart. This would mean that prices will be below their 60 sma on all 3 time-frames, therefore all 3 Ducks are lined up in the same direction.

Stop-Losses: This is where you can make this system your own. If you are a short term trader you may want to put your stop-loss above the highs on the 5 min or the 1 hr chart. If you are more of a positional trader you may wish to put your stop-loss above a high on the 4 hr chart. You could also use a fixed stop-loss, maybe 25-30 pips or more from entry. It all depends what type of a trader you are, so you decide! If you are a longer term trader or investor, this system can help you get a good entry point into the market. Another “trick” that may help you preserve capital, If you do sell and prices get back above the 5 min 60 sma by 10 pips (not a good sign) you may want to cut your losses short before your stop-loss. But if you are a longer term trader this may not be a big deal for you.

Targets: Same again, depends what type of a trader you are but target can be support or resistance levels.

Summary: The above example was carried out when the gbp/usd was trading lower so obviously we where selling - the system works just as well for buying opportunities, just look for prices to be above the 60 sma on all 3 time-frames, starting with step 1 again. I like this system a lot as it does not try to out-guess the markets movements and pick tops and bottoms. The system will quickly tell you to be a buyer or a seller. Its a good honest system that tries to follow prices. This system works better on currency pairs such as the Eur/Usd and Gbp/Usd, but there is nothing stopping you from plotting this system on any pair, but as we know some pairs act differently to others. The best time I found for trading this system is the European and US sessions. I lke to use this system as a guide in addition to my own market knowledge. Take care to watch what is going on around you - economic new releases, holidays etc.

Good Luck with the 3 Duck’s Trading System.

Captain Currency.

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