New Traders - Learn First to Control Your Emotions
by B.M. Davis
As new traders begin to trade the markets they quite often find there is an expensive learning curve to the financial markets. The trader who has decided on technical analysis as the method of choice will soon find it's not as easy as all of the books and websites make it sound. The single biggest reason is that trading in itself is a psychological game and when putting real money on the line, many new traders panic and become the losers in the game. Those who are experienced traders realize that's what makes technical analysis in itself work. Spotting patterns caused by collective fear or greed make up the basis of technical analysis itself. New traders need to overcome the emotions of fear and greed if they are to become successful traders before going broke.
Obviously, the new trader has to learn to overcome their emotions. It's easier said than done and most honest experienced traders will probably admit that it's something they struggle with even now. Here are some ways you can learn to keep your emotions in check:
1. Perfect a trading strategy and stick with it â€" Plan your trade and trade your plan. Don't start listening to stock trading gurus and their stock picks. Stay away from most stock message boards (at least until you gain confidence in yourself). The most successful traders learn to think for themselves and take personal responsibility for their trading. When you stop following your plan and start breaking your own rules you're probably trading on emotion.
2. Don't become emotionally attached to your trades â€" If you're watching the price of your stock like a hawk and become elated when the price goes up and depressed when the price goes down, you're trading on emotion. Remember, your trading strategy should be so ingrained that you trade like a robot. 3. Take adequate position sizes â€" Don't take a position size larger than ten percent of your account value. Large position sizes are great if the price goes up but never forget that a losing trade of too large a size can decimate you're trading account. This also will help keep fear in check. 4. Remember, it's ok to take a loss â€" If you have a plan to cut losses, taking a loss is just part of trading. Even pro's experience losses. The difference is they have a plan for managing them.
Trading is a great way for anyone to generate income online and I highly recommend everyone invest in one way or another. But remember, keep you're emotions in check and learn all you can about the craft of trading. The more knowledge you gain, the more confident you will become. Keep it simple at first. Expand your trading strategy as your knowledge grows, take small steps and soon you will be able to consider yourself a successful trader.
About the Author
B.M. Davis is an active trader and the publisher of Market Master Trading Course. For more information on stock trading, technical analysis or candlestick charting, please visit http://www.market-masters.com
Read More......Candlestick Stars - Morning Star, Evening Star, Doji Star, and Shooting Star
by Al Hill
What are Candlestick Stars? So far, in Part 1, we have covered the construction of a candlestick chart and also discussed a few common reversal patterns. I want to continue building your knowledge on these candlestick patterns. With this article, I will focus on another group of very powerful signals, the candlestick stars. Stars have small real bodies which gap away from a large real body that precedes it. The key rule to a star is that its' real body does not overlap the previous candles real body. There are several variations of the star pattern which we will discuss in this part; they are the morning star, evening star, doji star, and shooting star. Psychology of the Candlestick Star Pattern As a star has a small real body, it represents indecision by both the bulls and the bears. While the larger trend may be strongly up or strongly down, the presence of the star indicates that the prevailing direction may have come under profit taking or that the other side has actually taken control. Remember, the previous bar should be a strong bar in the direction of the trend which indicates that the bulls (in an up trending market) or the bears (in a down trending market) are in control. This strength in direction is what makes the appearance of the star that much more important as the conviction has dissipated.
Candlestick Star Variations Morning Star
The morning star candle is a bottom reversal signal that comes after an extended downtrend. This pattern is a three candle reversal setup. The first two bars are the typical star setup discussed above. The major difference with this pattern is the third candle in the formation. It is a very strong green candle, which does not have to be a gap, which closes at least half way into the first candle. The further it eats in the first bar, the more bullish the formation. Outside of morning star showing itself, look for other indications that this pattern is for real. For example, you want to see high volume in the third candle, indicating strength. I have noticed that the morning star works very well when it occurs at previous support levels. The adds that extra layer of confidence to my trading when I look at this way. On the other side of the coin, if you buy a stock that prints the morning star, be prepared for some sort of pullback. It is not uncommon for that to happen nearly 50% of the time. What we want to see however, is that the lowest low of the morning star is not violated. If there is a violation of the lows, then the morning star is negated.
Lets take a look at the morning star candlestick at work on a live trading example.
This is a beautiful morning star setup. Let's consider why. First of all, the morning star came it at previous support near the 60.37 level. The star candle came in the form of a hammer. Refer back to Part 1 to learn more about the hammer. There was high volume that came along with the hammer and this was an even bigger sign that this level would hold as support. The following day, the stock accelerated with a gap higher and closed well into the top half of the first bar. As I said earlier, the presence of this pattern does not indicate an immediate rally. As you can see, the gap created from the second to third bar was back filled. Smaller gaps, such as this one, tend to get filled in the short term more times than not. Even if one would have waited for the high of the third candle in morning star to be broken above, five points could have been made in a short amount of time.
Evening Star The evening star candlestick is the bearish version of the morning star. It is a top reversal pattern that occurs after a sustained up trend. The evening star also a three candle pattern with the first candle being a strongly bullish candle with good price spread. The second candle is the star while the third is red real body that closes well into the first candle. Again, as with the bullish morning star, the third candle in the evening star does not have to be in the form of a gap. Here are a couple of factors that increase the chances of this pattern succeeding:
1) The real bodies of all 3 candles do not overlap on each other
2) The third candle closes well into the first one; preferably regaining 75% of the candle
3) Volume should lighten up on the first candle and increase on the third.
Just as the lows of the morning star pattern provide support against any decline, the highs of the evening star candle trio serve as resistance to any further upside movement.
Doji Stars When a doji represents the star within the morning star and evening star, the formations are known as the morning doji star and evening doji star. A doji is a candle that lacks a real body, meaning the open and close of the bar are the same or have a very small difference. It has a strong significance after substantial advances or declines. The lack of direction that the doji illustrates can offer a potent reversal signal, especially if it is followed by a candle in the anticipated direction. Therefore, when a doji represents the star of the morning and evening star pattern, you need to take notice.
An extremely powerful version of the doji star is known as the "abandoned baby top" or "abandoned baby bottom". This pattern is the equivalent to what some of you have heard of through using bar charts, the "island bottom". The abandoned baby has a doji as the second candle with a gap on both sides. Notice, the Evening Doji star image above is an abandoned baby top, while the morning doji star is not.
If you think about the psychology of this setup, the first gap came in an almost exhaustive fashion. The stock was already in a strong uptrend or downtrend and then it made a gap which closed right near its open. This was the first sign that the directional pressure was fading. Now, with the third candle gapping in the opposite direction of the trend, we now have confirmation that a more significant trend reversal has taken place.
Shooting Star The final star variation we will discuss is the shooting star which occurs after a strong uptrend (or the "inverted hammer" that occurs after a strong move down). The shooting star has a long upper shadow with a small real body at the lower end of the candle. This pattern usually presents itself as a sign of a short term correction rather than a more potent reversal signal. The shooting star is basically telling us that the markets rally could not be sustained. The market opened at or near its lows, shot up much higher and then reversed to close near the open.
Ideally, the real body of the shooting star should gap away from the previous candles' real body. While it is not necessary, it adds confirmation to the validity of the impending reversal. Additionally, take a look at the previous candles; many times you will see overhead shadows on those candles as well. This indicates that the stock is struggling to go higher; just another clue as to what might happen. When a shooting star forms near a resistance level, which also was created with a shooting star, a very powerful resistance level is created. As mentioned before, the shooting star is a short term topping formation and any break above the high of this candle negates the ramifications of the formation.
There is one variation to the shooting star, it is known as the "gravestone doji". The "gravestone doji" is a shooting star with virtually no real body, the open and close are exactly the same. This formation is more powerful than the typical shooting star as portends a more serious reversal.
Link to original article: http://www.mysmp.com/candlestick-charts-stars.html
See You at the Top,
Alton Hill
About the Author
Al Hill is the co-founder of mysmp.com (My Stock Market Power) which provides free trading articles to investors. Please visit http://mysmp.com for more free articles.
Stock Market Fear And Volatility Factor
By Justin Blasi
What an exciting day yesterday was in the markets. How can I say exciting? Well an extremely volatile day like yesterday is an intraday trader's haven. However this may be the market place for the proactive intraday trader, but what are thoughts, strategies, and feelings for the average retail swing trader?
Elite Trading & Speculations outlook has not changed, and if you have read our previous essay our strategy is playing out. Tech has had a great run up and we took money off the table; our outlook for tech is the same so we will redeploy capital back into this sector once a correction has been set. Consumer staples had a great day and this was due to reports and analysis suggesting a domestic slowdown, however this is nothing to fear causing you to pull money out of perfectly good stocks.
Fear, this is a huge variable in the markets along with recent volatility levels. Also a lack of knowledge in the financial sector is a great reason we have been experiencing big swings in the market. Traders and investors are missing a piece of the puzzle that would show the current state of the markets. With this situation we have a great amount of speculation, which is not a bad thing for some, but increases fear in some traders and investors. In turn we believe there is a lot of cash sitting on the side line now and this can be a good thing for the future. All of these variables cause these recent huge swings in the markets. There was indication of this yesterday near the end of the trading session. When the financials did a huge reversal, the markets intraday fear and speculation turned as well so this caused the market to turn in parallel with the financials.
Fear is a great variable in which you can use to your advantage. Not your fear of course, but the fear of others. When the market or a stock is selling off and they become undervalued this gives us great entry points and trading set ups. Fear must be controlled to master the market. I say controlled, because you will never eliminate this human factor that is a part of all of us, and anyone who claims they can eliminate fear or just does not feel it is ignorant and will fail in the greatest game on earth.
Remember to look at a stocks fundamentals, and ask yourself is there any new factors in the stock or its sector that will affect the future demand of its services or products. If nothing has changed in variables that determine future outlook and demand from the past during a market uptrend, your stock may be on sale. You must look at the technicals as well. At this point they most likely are broken down. A new down trend is most likely developing. At this point you should look at past support areas and if the downtrend is broken at these areas of support this may be a good entry point. We are not suggesting to pick bottoms, but to deploy capital on the way down in the extreme oversold conditions. If you are a more advance trader options work well in these setups to reduce risk.
Bottom line, in the end supply & demand determines a stock's price, not fear. It takes time to develop the skill to control your fear and in time you will improve this skill. This important factor of fear will play a part in the determination in one success in the markets.
www.elitestockpicker.com Article Source: http://EzineArticles.com/?expert=Justin_Blasi |
No Investment Is Safe! The Types Of Investment Risk
By Paul Jorgensen
If you've been researching the basics of investing, you've most likely read a little bit about the varying degrees of risk in different investments. I'd like to look more closely at risk and find out what it means how we can deal with it. Risk is the possibility of loss to your investment. If there is no guarantee that you will receive your maximum possible return, then there is risk of some kind. All investments involve risk.
The most basic kind of risk involves a loss of principal (the original amount of money that you invested). If you buy a stock or mutual fund or invest in real estate, there is no guarantee that you will get all of your principal back. You can greatly reduce or eliminate the risk to your principal by keeping your money in a bank savings account, purchasing a fixed term deposit (agreeing to deposit your money for a specified amount of time), or buying investment grade bonds. But even when you guarantee your principal, there are still other kinds of risk.
Another kind of risk is inflation risk, the risk that your money will hold less value in the future than it does now. Keeping your money in a bank savings account, and to a lesser extent a fixed term deposit, exposes you to inflation risk because your returns will probably be lower than the rate of inflation. This is why banks are terrible places to leave large amounts of money for more than a short time.
Another kind of risk is opportunity risk. This occurs when you lock up your money in an illiquid investment, like a fixed term deposit with very modest returns, and miss an opportunity to invest in something with a chance of much higher returns. When I first began learning to invest, I was in a hurry to get started and put around $5000 into a fixed term deposit. I didn't know much about investing, so I plopped my savings into a guaranteed investment. About 1 day later, there was a drastic drop in the stock markets, which would have been a golden opportunity for me to buy stocks while prices were low. But I couldn't buy stocks, because I had committed that $5000 to a 1 year fixed term deposit with no option of early redemption. I could have made some real gains on the stock market, but I was stuck with a modest 5 percent interest rate. I had avoided risk to my principal, but I was bitten by opportunity risk. You can avoid opportunity risk by keep your money in liquid investments like stocks and mutual funds with no minimum time commitments.
Opportunity risk is similar to marketability risk, which is the chance that there will be no buyer available when you wish to sell your investment. This is important especially with real estate. Selling property can take a long time. You need to hire a realtor, advertise, have open houses, etc. If you need that money immediately, you will likely be out of luck. Your money is tied up for the time being. Real estate is not a good investment to make if you may need to liquidate it anytime soon, or at short notice.
Another kind of risk, and one of the most major, is concentration risk. This occurs when you have too much of your money concentrated in one area, for example all in one particular stock or all in one industry. Have you heard of Enron? Well, anybody who had their investments concentrated in Enron ended up getting the shaft. When the dot com bubble burst several years back, a lot of people who had their money concentrated in new internet businesses lost everything. The lesson to learn here is to diversify your investments. Diversification, as we've mentioned before, means holding a variety of different investments across a variety of sectors so that if one of your investments flops, you are losing only a small portion of your money rather than a large portion of it or, God forbid, all of it. It's of central importance to build a diversified portfolio to reduce your concentration risk.
Another kind of risk is interest rate risk, which is the possibility that the relative value of your investment will decrease due to changes in interest rates. This is mainly relevant for fixed income investments like bonds. If you buy a bond with a fixed 5% interest rate, but then market interest rates increase, you may be stuck with that bond at a 5% interest rate even though bonds with higher interest rates are now being issued. The dollar value of your investment upon maturity doesn`t change, but the relative value has changed, since there are now other people out there earning more interest than you. This will decrease demand for your bond, so if you decide to sell it it will fetch you a lower price than the newer bonds with higher interest rates. Interest rates have a profound effect on various aspects of investment, but this is the most basic kind of interest rate risk to understand for now.
Another kind of risk is currency exchange risk. Currency exchange rates are constantly fluctuating and can change the value of your investments. If the base currency of your investment is different than the currency you are purchasing with, then the value of your investment will fluctuate depending on the currency exchange rates. For example, if you buy a China growth mutual fund whose base currency is the Chinese Yuan, and you buy it in US dollars, then any increase in the Yuan will work in your favor when you sell the investment, and any decrease in the Yuan will work against you when you sell the investment. This risk can not be eliminated and it is best to have a balance of hard currencies. Hard currencies are basically trusted currencies of stable countries with consistent fiscal policies.
Those are some of the major types of risk you need to be aware of. Once you understand these kinds of risks, you can determine your own risk profile and decide how much risk you are prepared to take on.
Paul Jorgensen gained financial independence after years of turmoil by taking control of his finances and learning to invest strategically
For more tips visit http://www.learning-to-invest.net
Article Source: http://EzineArticles.com/?expert=Paul_Jorgensen
