By Chris Blanchet
As far as learning technical analysis goes, many investors will make short-term trades based on longer-term, "solid" patterns such as the head and shoulders top covered previously in this series. The problem with relying on solid patterns is that they are generally longer-term in nature and may not produce the short-term returns one hopes for.
One of short-term patterns that investors seek is a two-bar pattern known as the inside bar. This pattern reflects a short-term change in investor sentiment, so that if a pattern has been driven downward, the possibility is that the short-term prices will turn around and head the other way.
Spotting an Inside Bar
Investors who are just learning technical analysis might have a tough time identifying the inside bar. Explained (our website has a diagram), the inside bar pattern consists of a taller bar (wide trading range) followed by a shorter bar (tighter trading range). The shorter bar will fall within the same range as the preceding bar.
Find Supporting Data
When it comes to using this trend to commit to a trade, investors should seek additional confirmation through additional analysis. This step is often overlooked when investors start learning technical analysis. Other analysis includes fundamental data for the security, sector and market, as well as technical data such as support and resistance levels and momentum.
As far as the reliability of the inside bar pattern, investors will find greater success when the bar takes shape following a steeper inbound trend. In terms of the bars themselves, investors will want to see a longer first bar (which suggests that stronger momentum has dissipated and reversal is imminent) and a shorter second bar, which suggests a more dramatic reversal to come.
Finally, volumes should be smaller on the inside bar than on the first bar.
For investors learning technical analysis, please remember that no single indicator should be used in isolation. Confirmation is highly recommended from other tools. For investors who would prefer a hands-off approach, there are trading software programs that will simply make buy or sell calls.
Thursday, September 3, 2009
Wednesday, August 26, 2009
Trading in Stocks Short Term Style
By Justin DeMerchant
There has always been a movement by people to "own" stocks. Really in my professional opinion that is the absolute wrong approach. Stocks are for trading, not for owning. You can make a lot of money trading stocks, and lose a lot of money owning stocks. I think people should look at stocks as an investment, and unless you can buy a huge stake in a company and exert some influence over the operations you shouldn't think you "own" the company or any piece of it.
Far too often people decide "Hey, I like this company. I like the things they do." and so they won't sell their stock in the company because they want to support it. This is foolish. The company doesn't care about you, and you shouldn't really care about it. Being emotional is for relationships, and make no mistake, you are not in a relationship with a company.
People need to stop and think with their brains more often and that is why rules based trading is so smart, and while stock trading programs can help a lot of people in making money. This is a business and needs to be treated as such.
Short term trading basically encourages people to take up an investment only as long as it is immediately profitable. If a stock isn't going to make you money RIGHT NOW then sell it, buy something else, and then if you think the first stock is going to grow in value later you can buy it then. Stocks are money, not lovers. Be smart and you'll make money.
There has always been a movement by people to "own" stocks. Really in my professional opinion that is the absolute wrong approach. Stocks are for trading, not for owning. You can make a lot of money trading stocks, and lose a lot of money owning stocks. I think people should look at stocks as an investment, and unless you can buy a huge stake in a company and exert some influence over the operations you shouldn't think you "own" the company or any piece of it.
Far too often people decide "Hey, I like this company. I like the things they do." and so they won't sell their stock in the company because they want to support it. This is foolish. The company doesn't care about you, and you shouldn't really care about it. Being emotional is for relationships, and make no mistake, you are not in a relationship with a company.
People need to stop and think with their brains more often and that is why rules based trading is so smart, and while stock trading programs can help a lot of people in making money. This is a business and needs to be treated as such.
Short term trading basically encourages people to take up an investment only as long as it is immediately profitable. If a stock isn't going to make you money RIGHT NOW then sell it, buy something else, and then if you think the first stock is going to grow in value later you can buy it then. Stocks are money, not lovers. Be smart and you'll make money.
Thursday, August 13, 2009
Why Technical Analysis is So Important to the Short Term Trader
By Doug Fisher
Trading for short term profits is a profession, not unlike owning a small business. It requires dedication and a commitment to discipline just as any vocation on the professional level demands. What sets this kind of trading apart from a traditional small business is the freedom provided once the trader becomes successful. However, every year many turn to the equity markets with dreams of taking huge profits using trading methods such as day trading, swing trading or scalp trading. Unfortunately, these methods of trading require skill levels that cannot be obtained overnight.
These methods of trading primarily rely on technical analysis rather than a fundamental approach used by long term investors. Investors traditionally only consider individual companies or stocks and possibly one general sector as whole and whether it is in favor or ignored by Wall Street. This is generally the extent of a long term investor's "technical analysis" with all other research being the financial health of individual companies.
Shorter term traders, on the other hand, usually could care less about the fundamentals of a company since short term trading by definition means the trader will not be invested in the company long enough to matter fundamentally, anyway. The only concern the short term trader has is what technical analysis tells him about the stock on that day and at the most, a couple of weeks.
Chart patterns, overbought-oversold conditions, uptrend or downtrend, support and resistance, these are just a sample of the terminology the short term trader lives by. In order to be successful with short term methods and profiting in the equity markets, the trader must gain the necessary knowledge and acquire the skill level needed to compete and win. Technical analysis requires an the ability to interpret stock charts, proficiency in understanding indicators and oscillators as well as an understanding of market internals.
Once an understanding of technical analysis is obtained, the trader should then decide which short term method best fits his personality and risk tolerance. Learn more about one short term trading method, scalp trading, which is used by many traders to execute winning trades and reduce exposure time in the equity markets.
Trading for short term profits is a profession, not unlike owning a small business. It requires dedication and a commitment to discipline just as any vocation on the professional level demands. What sets this kind of trading apart from a traditional small business is the freedom provided once the trader becomes successful. However, every year many turn to the equity markets with dreams of taking huge profits using trading methods such as day trading, swing trading or scalp trading. Unfortunately, these methods of trading require skill levels that cannot be obtained overnight.
These methods of trading primarily rely on technical analysis rather than a fundamental approach used by long term investors. Investors traditionally only consider individual companies or stocks and possibly one general sector as whole and whether it is in favor or ignored by Wall Street. This is generally the extent of a long term investor's "technical analysis" with all other research being the financial health of individual companies.
Shorter term traders, on the other hand, usually could care less about the fundamentals of a company since short term trading by definition means the trader will not be invested in the company long enough to matter fundamentally, anyway. The only concern the short term trader has is what technical analysis tells him about the stock on that day and at the most, a couple of weeks.
Chart patterns, overbought-oversold conditions, uptrend or downtrend, support and resistance, these are just a sample of the terminology the short term trader lives by. In order to be successful with short term methods and profiting in the equity markets, the trader must gain the necessary knowledge and acquire the skill level needed to compete and win. Technical analysis requires an the ability to interpret stock charts, proficiency in understanding indicators and oscillators as well as an understanding of market internals.
Once an understanding of technical analysis is obtained, the trader should then decide which short term method best fits his personality and risk tolerance. Learn more about one short term trading method, scalp trading, which is used by many traders to execute winning trades and reduce exposure time in the equity markets.
Tuesday, August 4, 2009
4 Benefits of Long Term Trading vs Short Term Trading
By Mark Crisp
Both short term trading and long term trading can be effective trading strategies, however, long term trading has several significant advantages. These include the effect of compounding, the opportunity to earn from dividends, reduction of the impact of price fluctuations, the ability to make corrections in a more timely manner, less time spent monitoring stocks.
1. Compounding
Time can be investor’s best friend because it gives compounding time to work its magic. Compounding is the mathematical process where interest on your money in turn earns interest and is added to your principal.
2. Dividends
Holding a stock to take advantage of payouts from dividends is another way to increase the value of an investment. Some companies offer the ability to reinvest dividends with additional share purchases thereby increasing the overall value of your investment. Additionally, dividends are more a reflection of a company's overall business strategy and success than volatile price fluctuations based on market emotions.
3. Reduction Of The Impact Of Price Fluctuations
In the long term investment the persons is less affected by short term volatility. The market tends to address all factors that keep changing in the short term. So a person involved in long term investment or trading will not be affected as much by short term instability due to factors such as liquidity, fancy of a particular sector or stock which may make the price of a stock over or undervalued. In the long term, good stocks which may have been affected due to some other factors (in the short term) will give better than average returns.
Long-term investors, particularly those who invest in a diversified portfolio, can ride out down markets without dramatically affecting his or her ability to reach their goals.
4. Making Corrections
It is highly likely that you could achieve a constant return over a long period. The reality is that there will be times when your investments earn less and other times when you make a lot of money in short term. There may also be times when you lose money in short term but as you are in quality stocks and have long perspective of investment you will earn good returns over a period of time.
There are always times when some stocks do not perform and it is the wise choice to pull out of an investment. With a long term perspective based on quality stocks, it is easier to make decisions to change in a more timely manner without the urgency that accompanies short term and day trading strategies chasing volatile changes.
Investors that begin early and stay in the market have a much better chance of riding out the bad times and capitalizing on the periods when the market is rising by taking a longer term view using long term trading strategies.
Both short term trading and long term trading can be effective trading strategies, however, long term trading has several significant advantages. These include the effect of compounding, the opportunity to earn from dividends, reduction of the impact of price fluctuations, the ability to make corrections in a more timely manner, less time spent monitoring stocks.
1. Compounding
Time can be investor’s best friend because it gives compounding time to work its magic. Compounding is the mathematical process where interest on your money in turn earns interest and is added to your principal.
2. Dividends
Holding a stock to take advantage of payouts from dividends is another way to increase the value of an investment. Some companies offer the ability to reinvest dividends with additional share purchases thereby increasing the overall value of your investment. Additionally, dividends are more a reflection of a company's overall business strategy and success than volatile price fluctuations based on market emotions.
3. Reduction Of The Impact Of Price Fluctuations
In the long term investment the persons is less affected by short term volatility. The market tends to address all factors that keep changing in the short term. So a person involved in long term investment or trading will not be affected as much by short term instability due to factors such as liquidity, fancy of a particular sector or stock which may make the price of a stock over or undervalued. In the long term, good stocks which may have been affected due to some other factors (in the short term) will give better than average returns.
Long-term investors, particularly those who invest in a diversified portfolio, can ride out down markets without dramatically affecting his or her ability to reach their goals.
4. Making Corrections
It is highly likely that you could achieve a constant return over a long period. The reality is that there will be times when your investments earn less and other times when you make a lot of money in short term. There may also be times when you lose money in short term but as you are in quality stocks and have long perspective of investment you will earn good returns over a period of time.
There are always times when some stocks do not perform and it is the wise choice to pull out of an investment. With a long term perspective based on quality stocks, it is easier to make decisions to change in a more timely manner without the urgency that accompanies short term and day trading strategies chasing volatile changes.
Investors that begin early and stay in the market have a much better chance of riding out the bad times and capitalizing on the periods when the market is rising by taking a longer term view using long term trading strategies.
Saturday, July 4, 2009
Short Term Options Trading
By Amit Kothial
There are many traders who still consider options and warrants to be long term trading markets, but options can even be traded short term. It is important to understand that trading options short terms is not dramatically different from trading any other market but there are a couple of options specifics that need to be taken into account. In short term trading, the aptitude to steer the short term market is a key component for continued success. As an equity trader one has to learn to trade with the short trend of the markets to reduce market risk.
An option trading is a strategy that does not depend on the market direction; in fact it does well in volatile markets. With options trading there are two methods through which you can enter a long trade and short terms trade. While a long fundamental trade can be entered either by buying a call or by selling a put, a short underlying trade can be entered either by buying a put or by selling a call.
In short term options trading calculating risk reward is yet another important point that trader need to well aware of. Calculating the risk reward can be defined as the amount trader would risk if he or she were wrong and the amount trader would make if he or she were right. If we don't figure out this number, the chances are more where we may find the stock that may go in favor but the option goes against.
If we compare long term and short term options trading, then both have their own advantages. However, buying short term options can be very beneficial as it gives more control. It very general that no one can exactly make prediction very clearly when it comes to stock trading. It's really hard to predict what will happen to a stock 3 months down the road. Though sometimes it is easier to predict which way the stock will be heading in just a few weeks as opposed to a few months. Thus, selling short term options allow capture more premiums over a longer time frame.
Apart from this, it even works well and provides an excellent way for novice traders to trade. This is because as the price movement is so fast and dynamic that when things happen, beginners may not know what to do and be able to do it quickly. Moreover, it is an enormously lively options trading method where options are bought and sold very quickly in order to gain profit from the least intraday price swing or change in volatility.
Today certainly short term option trading has gained its world-wide popularity. It has become extremely money-making method in the hands of options trading veterans and new comers in current extremely volatile market conditions.
There are many traders who still consider options and warrants to be long term trading markets, but options can even be traded short term. It is important to understand that trading options short terms is not dramatically different from trading any other market but there are a couple of options specifics that need to be taken into account. In short term trading, the aptitude to steer the short term market is a key component for continued success. As an equity trader one has to learn to trade with the short trend of the markets to reduce market risk.
An option trading is a strategy that does not depend on the market direction; in fact it does well in volatile markets. With options trading there are two methods through which you can enter a long trade and short terms trade. While a long fundamental trade can be entered either by buying a call or by selling a put, a short underlying trade can be entered either by buying a put or by selling a call.
In short term options trading calculating risk reward is yet another important point that trader need to well aware of. Calculating the risk reward can be defined as the amount trader would risk if he or she were wrong and the amount trader would make if he or she were right. If we don't figure out this number, the chances are more where we may find the stock that may go in favor but the option goes against.
If we compare long term and short term options trading, then both have their own advantages. However, buying short term options can be very beneficial as it gives more control. It very general that no one can exactly make prediction very clearly when it comes to stock trading. It's really hard to predict what will happen to a stock 3 months down the road. Though sometimes it is easier to predict which way the stock will be heading in just a few weeks as opposed to a few months. Thus, selling short term options allow capture more premiums over a longer time frame.
Apart from this, it even works well and provides an excellent way for novice traders to trade. This is because as the price movement is so fast and dynamic that when things happen, beginners may not know what to do and be able to do it quickly. Moreover, it is an enormously lively options trading method where options are bought and sold very quickly in order to gain profit from the least intraday price swing or change in volatility.
Today certainly short term option trading has gained its world-wide popularity. It has become extremely money-making method in the hands of options trading veterans and new comers in current extremely volatile market conditions.
Tuesday, June 23, 2009
Profitable Short-Term Trading Techniques - Monitoring Money Flow
By Ken Long
Trim Tabs is a market research firm that tracks money flows into and out of mutual funds on a regular basis. They make their living providing money flow information to institutional money managers. Periodically they make their reports available to the wider public.
A lot of people pushed the panic button in September. TrimTabs reported $75 billion fled U.S. mutual funds during the month, three times the monthly record set in 2001 for redemptions! About two-thirds of the outflow came from equity funds and the rest from bond funds.
It is an axiom that the mass public will take exactly the wrong actions at market extremes, and so the normal interpretation of this Trim Tab report is that we are getting close to a major bottom in the market in the intermediate timeframe. The month of September's selling action would therefore be classified as panic selling which leaves only seasoned market professionals interested in buying which makes this an excellent entry point for the next leg up in the market.
This kind of statistical observation is not a sufficient reason to begin buying in my opinion. I am never interested in being the first mouse trying to get the cheese. I am more than willing to let someone else establish the turning point, I just want to be the second mouse after the market has already turned and I can see price action moving in my favor.
What this means for me, however, is that I will be looking for framing high quality trades that should move vigorously against the previous trend which was down. A good example of this kind of trade was today's intraday trade in General Motors (GM) which offered several entries at $9.20 with an initial capital preservation stop at $9.02 with a price target of $9.70 which offers slightly more than 3 to 1 reward to risk ratio. It turned out that intraday there were opportunities to exit the trade at $9.80, which shows the power of this kind of short-term trading.
With an initial risk of $.18 if you had risked $180 you could have purchased 1000 shares of General Motors, and cashed a win at $.60 a share for a profit of $600 less the cost of your round-trip trade. If you do the math, you can see why people are professionally interested in short time frame trading.
Recognize that it takes a lot of training, discipline, preparation and systems to make this a profession. Do your own due diligence, as the stock market and trading is inherently risky.
Trim Tabs is a market research firm that tracks money flows into and out of mutual funds on a regular basis. They make their living providing money flow information to institutional money managers. Periodically they make their reports available to the wider public.
A lot of people pushed the panic button in September. TrimTabs reported $75 billion fled U.S. mutual funds during the month, three times the monthly record set in 2001 for redemptions! About two-thirds of the outflow came from equity funds and the rest from bond funds.
It is an axiom that the mass public will take exactly the wrong actions at market extremes, and so the normal interpretation of this Trim Tab report is that we are getting close to a major bottom in the market in the intermediate timeframe. The month of September's selling action would therefore be classified as panic selling which leaves only seasoned market professionals interested in buying which makes this an excellent entry point for the next leg up in the market.
This kind of statistical observation is not a sufficient reason to begin buying in my opinion. I am never interested in being the first mouse trying to get the cheese. I am more than willing to let someone else establish the turning point, I just want to be the second mouse after the market has already turned and I can see price action moving in my favor.
What this means for me, however, is that I will be looking for framing high quality trades that should move vigorously against the previous trend which was down. A good example of this kind of trade was today's intraday trade in General Motors (GM) which offered several entries at $9.20 with an initial capital preservation stop at $9.02 with a price target of $9.70 which offers slightly more than 3 to 1 reward to risk ratio. It turned out that intraday there were opportunities to exit the trade at $9.80, which shows the power of this kind of short-term trading.
With an initial risk of $.18 if you had risked $180 you could have purchased 1000 shares of General Motors, and cashed a win at $.60 a share for a profit of $600 less the cost of your round-trip trade. If you do the math, you can see why people are professionally interested in short time frame trading.
Recognize that it takes a lot of training, discipline, preparation and systems to make this a profession. Do your own due diligence, as the stock market and trading is inherently risky.
Wednesday, June 17, 2009
Forex Long Term Trading Beats Short Term Trading
By Josh Tam
Is it better to trade Forex long term or short term? It all depends on your own personal characteristics as a trader. Let me explain in detail.
Long-Term Forex Trading
Long-term traders are often called Position Traders. They analyze the market as a big picture, and then they open trades when they see that the situation is right, according to their own analysis. Then they may hold on to their positions for days or weeks. Long-term trading is suitable for traders with more patience and are able to wait a longer time to see returns.
Short-Term Forex Trading
Short-term traders can be day-traders or scalpers. Day-traders are traders whose trades last about 1-2 days. Some traders open trades after analysis and then leave them overnight, and the next morning, they check to see whether they hit a profit or loss. Scalpers are traders who aim to win just a small amount of pips in a very short time. Their scalping trades usually do not last very long... from seconds to an hour.
Both Long-Term Trading and Short-Term Trading has their own advantages and disadvantages, but from my own experience and opinion, long-term trading is the better of the two because of several reasons.
1. Long-term trading frees up time. Analysis can be done in maybe a few minutes to a few hours a week, and when a good trading opportunity is identified, you can let it run and spend the rest of your time working your other job or with your family.
2. Long-term trading is less risky. It lets you see the big picture when you zoom out to see the daily or weekly charts. Most of the time, we still lose trades although we forecast the right direction just because of random market movement hitting our stop-losses. But with long-term trading, these random movements are not big enough to reach our stop-losses and will go in our direction eventually - if we are indeed correct and a reversal does not occur.
3. Long-term trading gives you more time to standby. You see, scalpers need to fix their eyes on their screens when they trade, just to watch the market move up and down. They need to identify opportunities and grab them almost immediately. But with long-term trading, you will have hours to make up your mind to trade or not to trade.
From points 1-3 above, it is clear that long-term trading will not make you a zombie-trader. The big disadvantage of long-term Forex trading is the wait. There are still many short-term traders around because they are treating Forex as a job and Forex is their passion. Some of them just cannot wait so long and want to see realized profits fast and so they turn to day-trading or scalping.
Is it better to trade Forex long term or short term? It all depends on your own personal characteristics as a trader. Let me explain in detail.
Long-Term Forex Trading
Long-term traders are often called Position Traders. They analyze the market as a big picture, and then they open trades when they see that the situation is right, according to their own analysis. Then they may hold on to their positions for days or weeks. Long-term trading is suitable for traders with more patience and are able to wait a longer time to see returns.
Short-Term Forex Trading
Short-term traders can be day-traders or scalpers. Day-traders are traders whose trades last about 1-2 days. Some traders open trades after analysis and then leave them overnight, and the next morning, they check to see whether they hit a profit or loss. Scalpers are traders who aim to win just a small amount of pips in a very short time. Their scalping trades usually do not last very long... from seconds to an hour.
Both Long-Term Trading and Short-Term Trading has their own advantages and disadvantages, but from my own experience and opinion, long-term trading is the better of the two because of several reasons.
1. Long-term trading frees up time. Analysis can be done in maybe a few minutes to a few hours a week, and when a good trading opportunity is identified, you can let it run and spend the rest of your time working your other job or with your family.
2. Long-term trading is less risky. It lets you see the big picture when you zoom out to see the daily or weekly charts. Most of the time, we still lose trades although we forecast the right direction just because of random market movement hitting our stop-losses. But with long-term trading, these random movements are not big enough to reach our stop-losses and will go in our direction eventually - if we are indeed correct and a reversal does not occur.
3. Long-term trading gives you more time to standby. You see, scalpers need to fix their eyes on their screens when they trade, just to watch the market move up and down. They need to identify opportunities and grab them almost immediately. But with long-term trading, you will have hours to make up your mind to trade or not to trade.
From points 1-3 above, it is clear that long-term trading will not make you a zombie-trader. The big disadvantage of long-term Forex trading is the wait. There are still many short-term traders around because they are treating Forex as a job and Forex is their passion. Some of them just cannot wait so long and want to see realized profits fast and so they turn to day-trading or scalping.
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