Sunday, October 4, 2009

Trader's Technical Analysis

Below are the summaries of a course that I attended in one of the workshop.

What are the 5 common mistake done by trader?
1. Buy Cheap
A trader need to know what's the current trend for a stock, be it up tread, down trend or side way. A trader will do better if trade in the same direction as intermediate and longer terms trends. Do not simply buy cheap, as tomorrow can become cheaper. One of the example is
Flag Formation break up, then it good tendency the stock will go up.

2. Holding onto hope
This is another mistake done by trader, even he already plan when to cut loss, but when the stock price move down, he just can not follow the plan and hope one day it will rebound again. No body know when it will rebound and in this case, a trader will lost the opportunity to find another potential stock and lock the capital in one stock.

3. Ignoring about Risk Management
If a trader trade without a strategy, then he will not able to control the risk and emotion. When the sell signal appear, he may not know when to cut loss and protect the capital.

4. Ignoring about Floor and Ceiling
Some trader forgot about support and resistance levels - The best place to buy a market is near the support levels and the best place to sell a market is near the resistance levels. However in bull market, once the resistance levels have been broken, it will usually provide a support on subsequent pullbacks.

5. Loss unnecessarily
Beware of double bottom "W" or triple bottom, sometimes it's a descending triangle.

What are the 5 strategy trader can use?

1. Trend Trading

By identifying higher high and higher low, one can know when is the start of up trend. Similarly, one can catch the reversal by identifying Lower Low and Lower High. The other thing is follow the moving average, a combination of two moving average is the most popular way of finding trading signal. Look for reversal signal by two popular indicator, RSI and Stochastics.

2. Buying at Low
A good sample can be used by identifying Bullish Harami or Morning Star.

3. Sell at High

Normally if Shooting Star or Bearish Harami are good signal for selling.

4. Support and Resistance breakout
Tried to identify breakout price early, it's better follow by volume. However, if you miss the early signal, do not worry, wait for a retest. Market correction up or down usually retrace the previous trend. You can measure the correction in an existing trend in simple percentage. A minimum retracement is usually one third of prior trend, the max retracement is usually two thirds. Fibonacci retracement of 38% and 62% are also worth watching.

5. Chart Formation Breakout
Say for a stock with 20 days moving average, each time it touch a 20 days moving average, it start to rebound. However, if one day it break down the 20 MA, then sell immediately.

Saturday, October 3, 2009

Why you want to buy a stock now?

When you heard about Dow fell 203 point, would you rush in to buy?

If most people think the answer is yes, then you will noticed the Dow index close higher on October, especially the first two days. However, this is not the case, it's probably good time for those trader to log in some profit right now and wait for one to two weeks for more clearer direction.

For those who want to buy a stock for investment now, may be you need to ask a question why you want to buy a particular stock. A proper plan need to develop, don't wait until its price goes up or down to think about it. Many investor not sure why they bough a stock, so when the price down suddenly, they are not sure what to do next.

Every investor and every stock present different indicator or reason, one need to carefully consider before open the position. Just ask yourself if now the stock fairly value? What's the price would you want to sell and the reason is due to stop loss or the company report lower quarterly profit?

In weeks to come, perhaps we will find a stock used to trade at 50 now drop to 40. Is it a good buy now? May be yes or no. Buying stock that look cheap maybe is not a good idea, as usually we tend to catch a falling knife. It's always better do nothing and let it going down until it touch the floor, let the price stable and start to rebound, then buy it with proper trading strategy plan in place.