Archive for the ‘Novice Level’ Category
How To Minimize Stock Market Risks?
Irrespective of whether you are a beginner or a seasoned stock market investor, there is one universal question that every one is trying to grapple with, ‘How to minimize stock market risks?’
This, in other words tells us that risks are inherent in stock market investments and that we cannot do anything to avoid it completely but only minimize the risk factors. Here are a few tips that will help you minimize your stock market risks.
First take time to learn the basics. When you are new to stock market investments and when you are venturing into the stock market, give yourself enough time to understand how the stock market works and what are the different problem areas, etc. Poor basics in the stock market will always keep you an amateur stock investor. You must also learn different approaches that are used by successful stock marketers.
Secondly, before you go to your desk, do your homework. Never approach your stock investments without first studying the current trends. Many people make the mistake of considering stock markets as a gamble. In gambling you will rely completely on your luck and there is no reasoning involved. Here in stock market trading, reasoning and analysis are the key elements. So Technical Analysis should never be forgotten. You will have to start your analysis of the market from day one. You cannot wait to become an expert trader before you can start learning Technical Analysis because without trying you will never become one.
Thirdly, improve your ability to connect various happenings around your market and deduce your conclusions based on the prevailing trends. Remember, the stock market is affected by many factors. So, depending on the stocks you choose you should know the factors that affect your stocks and you should keep a close tab on such factors.
Fourthly, always make a basis for all your decisions on stock market analysis and not on your emotions. Never make hasty decisions when you are panicked. When you are panicking, your reasoning abilities will be diminished. So decisions made in such situations cannot be sound stock market decisions.
The next and most important factor is finding all the help you can get. To achieve this you should find reliable resources that you can use to make sound stock market decisions. There are number of resources available both on-line and off-line. Try to make use of those resources prudently so that you will have a wider understanding of the stock market. Though there are many resources on the web, not all resources are equally effective in imparting you with the best information. So carefully choose your on-line stock market resources so that you will not be misled in any way.
By following the above basic tips you will be able to minimize your stock market risks to a great extent.
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Triangles, Flags, Fans and Pennants
This is a kind of a short-worded article. Even though I truly enjoy writing, I have to stop here and let the Charts speak for themselves. In a previous post I showed a recent symmetric triangle that the S&P 500 took. Below you see a similar triangle, this time Cattle Feed Futures from the Chicago Mercantile Exchange, the C.M.E. After you will see an example of an upwards-pointed triangle, also from the C.M.E Cattle Feed Charts. Then you see the downwards pointed triangle, this time–yes its the C.M.E again, but Orange Juice Futures instead.
The Flags in the 4th Chart are the present of System Flash Disk Pioneers, the Intra-day Chart from sometime in 2004, in the 60 minute time-frames. All about time frames in a future lesson, there are a few things to make clear about them and I’ll save them for the near future. Last is a nice, colorful chart from about 3 weeks ago showing the USO, or US Oil Fund, an equity E.T.F shown here both at the daily (left) and weekly (right) charts. It shows a Fan sloping outwards as fans tend to do.
Don’t worry, the explanation of dealing with all theses object of art, and truly Technical Analysis is also an art form besides being a Science, is forthcoming. By dealing with I only mean one thing, trading based on them; or rather their breakout periods and how also to determine breakout. Meanwhile, enjoy the art show and try to see what conclusions you can draw yourselves from what you see. This is truly a homework lesson, so take it seriously!.
These are, in order:
This is the way a Symmetric Triangle looks
This is the way an upwards-pointed triangle looks:
This is the way a downwards pointed Triangle looks
This is the way flags look, the pole being an extremely long Candle:
This is the way another type of symmetric triangle looks–long and thin:
This is the way Fans look, check the large one on the right side.
Like I wrote before, there is more to be said about trading using these patterns and I intend to say a lot more in future Tutorials.
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Tips for Stock Market Beginners
Today there is an increasing interest in stock markets because they let people make good returns for their money. Though there is a certain amount of risk involved in investing money in stock markets, with the right approach, this is a great scope for increasing ones’ wealth. As a beginner, you are very likely to be overwhelmed with the market trends, the rise and fall of the stock values and the volatility of the market. Very often beginners tend to get discouraged with the initial losses that they face due to the mistakes they commit and the wrong moves they make. If you are just venturing into stock market then here are some useful tips that you can use.
One of the most important things that you should take into consideration is the nature of your personal financial investment in the stock market. Are you planning to use stock market as a secondary source of income by investing a certain portion of your funds or are you planning to venture into stock market as a full-time investor? Once you know your path, you will have to make your decisions accordingly. It is best to get some additional help from experienced stock market experts. When you get such reliable help, you will be able to find the right investment opportunities in the market and invest your funds correctly.
You must spend enough time to understand the stock market trends and interpret the various happenings that normally affect the stock market. You must learn the basics of technical analysis. Your success and failure as a stock market investor lies in your ability to perform proper technical analysis. You cannot expect yourself to turn into an expert overnight. You will have to spend a considerable amount of time in the stock exchanges. You should also allow yourself some room to commit mistakes and of course learn from them. Mistakes and losses are part of stock market investments. So you should not get discouraged with initial mistakes made, but rather get reliable financial consultation. There are number of resources available today both on-line as well as off-line. You will have to take into consideration such resources that are available on-line. You will also be able to find lot of useful information at our website that you can confidently put into use.
When you are making use of stock market help that is available on-line, you need to use your discretion in terms of finding the best help. Not everything that is posted on-line is based on experience. So carefully choose resources that you can consider trustworthy.
Another important factor that you should keep in mind is that you should not make hasty decisions. All your decisions should be based on sound technical analysis and not driven by your emotions.
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Trend lines
A trend is an upswing or downswing, that comes in waves, where the Japanese Candlesticks make on the upswings higher highs and higher lows on those waves. Lows and highs meaning the spiky ends of the Candlesticks, on top the high, below the low. On the downswings the waves make lower highs and lower lows. The lines are drawn at the ends of the lows on upswings and the ends of the highs on the downswings. This is usually the way to draw them, as shown on the weekly Tel Aviv 25 index below. The expertise in doing this comes with time and practice, and the benefit is knowing with a certain degree of certainty that the price is more or less likely to bounce off this line. The fact is that it IS a stronger line than a support/resistance line, to the best of my experience, no matter the significance of support/resistance lines and all that goes with that.
Sometimes the lines can be drawn on a line or closing-quotes chart. This is done at times with support/resistance lines also but the technique is used mainly for when drawing these lines is difficult on the candlestick chart or there is no line seen clearly on that chart.
Notice that there are parallel lines on the daily charts, the lower one is the most important to consider. The weekly chart is made of many mid-term lines that are each trend lines, though not strong trends.
This is to illustrate only, the true lines will come when you make them at your chosen charting software and they will get more and more useful and effective with practice.
please right-click your mouse on the Charts to get a clear view
This is the way the weekly Candlestick Chart looks:
And this is the way the daily upswing-line drawing looks:
This is the upswing Line Chart and the parallel trend lines it has:
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A guide to the perplexed
Many times is seems clearly to us that we know the direction the market is taking. Somehow we are not always successful in applying this to market orders and positions. We will concentrate here on the practical implementation of financial investments. I will propose several ideals that can serve as a foundation to start a process towards independence in investing and a reassessment of the investor’s opinions with regard to the financial markets.
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The decision-making process starts with several steps:
The Mapping of the personal assets in order to determine the relative exposure to the different financial asset types. Foreign currency or Bonds in foreign currency, cash or savings, stocks or options, commodities, etc.
Identification or exposure of the connection between the cross-linked assets that exist in the previous step. For instance, investment in equities abroad constitutes also investment in that country’s native currency, since you are paying for the financial instruments with the issuing country’s currency. If you want to benefit only from the equity, you have to protect against the possible losses from currency devaluation by hedging against that currency.
Discrimination among invested assets that are in reliable institutions and less reliable and clarification of the amount of liquidity they offer. For example, The Federal Reserve Bank is very reliable, offering its set of financial instruments of which many are able to be made into liquid assets. And for example, a savings account is only cash money on the day it matures, there are fines and penalties for taking out money from closed accounts.
The definition of the capital that is free for investment and that designated for independent management. For example; to possibly decide on initially investing 20% of one’s assets, and to augment the rate of exposure over time , that is, increase the rate of invested assets in the portfolio gradually over time. This usually obtains good results.
A determination of the amount of risk one is ready to take. There are the more secure, risk free opportunities with the proper amounts for investment that will enable one to sleep well at night. And if one invests more, the volatility may hurt his daily functioning. It is on each one to detect what level is good for him and follow up in his investing decisions so that he will always be able to sleep well at nights.
Target the purpose of the investment. For example, maybe what is desired is a fixed income for day-to-day use, the enlargement of capital wealth, or tuition and the like for gaining instruction towards the acquisition of a profession.
A determination of the availability and range of the investment activity. For example, a person who has regular work that is not connected to the financial framework, may not be able to take on himself the intense activity of managing a complex portfolio. Here I will emphasize a point: the larger the analytic time-frame; monthly as opposed to weekly and daily, so the chances of success is greater. If we will agree that the Technical Analysis exemplifies the psychology of the struggle between supply and demand, you will understand that a greater amount of opinions can be brought forth and analyzed at the larger time-frame, thus bringing us to a more accurate analysis. The amount of daily pointedly random news items we fix on get dwarfed when we take the more macro and long-term analytic approach.
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Support/Resistance lines
A support or resistance line (s/r line) is one line that functions for both. when th price level goes to it on the way up, it tends to stall, sometimes going back down to start, at least temporarily, a down cycle. Sometimes it will break through relatively fast and continue upwards, but the vast majority of the time it will go above the line somewhat go back down to the line to RETEST the line and after it will continue on its way up. That is to say, it meets RESISTANCE at the s/r line, passes it temporarily then somehow is drawn back to it, RETESTS that line and makes it now into its SUPPORT line, draws support from it and therefore continues upwards, bouncing off the support.
There are other instances, for example the false break, where the price line or candlestick crosses the line 1 or 2 times and then withdraws, sometimes damaging our false hopes.
I always draw s/r lines on the candlestick chart, trying to match the lows and highs (intra-day) on the ends of the candle wicks. When that is not possible, for lack of wicks or simply that other places on the line already match, I use the closing (line) chart to check my accuracy. Sometimes, the only method to use is the line chart, when there is no other choice.
Making accurate and testable s/r lines takes a lot of practice. And it has to be tested to have functioned for long periods of time to show its strength. A line is stronger the more history it possesses, that is how far back it stays accurate in its role as an s/r line. The real proof lies in trading. There you see your lines and what they do or don’t do to the price line. Also I do not recommend at all trading without knowing Technical Analysis well, so you at the novice level have to practice and practice. Some companies, like FXCM–a forex currency trading company, for example, offer demo accounts to practice completely free of charge–why spend hard-earned money to train or pass a course. You can learn the material you need from books, on-line videos, or my exclusive program here. To remind you this is the 2nd part of the Technical Analysis course I am giving over (support/resistance lines).
Please check out the lines I drew on the chart, they should help you see a little of what it is all about.
This is the way the Chart looks:
