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7 Most Commonly Used Technical Analysis Indicators in the Stock Market

Indicators are used as a measure to gain further insight into to the supply and demand of securities w ithin technical analysis . Those in...

Saturday, July 16, 2016

3 Day-Trading Technical Analysis Indicator for FOREX, CFD and Stocks

3 Day-Trading Technical Analysis Indicator for FOREX, CFD and Stocks

There are lots of technical analysis indicators, it is a complex task to go through them one by one. Hence, many of our readers have asked for recommendations of day trading indicators. 

To get you started with day trading, I suggest these three trading indicators.
  1. Donchian Channel
  2. Moving Average
  3. Stochastic Oscillator

They are simple, easy to understand, and useful for day trading. No, they are not perfect. But they form a nice package to start with.

1. DONCHIAN CHANNEL (BLUE)

Richard Donchian, the pioneer of trend following, invented the Donchian Channel. The channel plots the highest high and lowest low of a specified time period. An average of the two values is also calculated and plotted as the mid-line.
Donchian Channel shows you where the market is now, compared to its past, in a direct and visual way.
The Donchian Channel is useful for day trading as you can use it to keep on eye on the larger time frame. Use a 100-period Donchian Channel to keep you with the longer term trend.

2. MOVING AVERAGE (ORANGE/RED)

A x-period moving average is the average of the past x number of  price closes. As new price bars close, the moving average will move along, dropping the oldest close and including the newest close in its calculation.
The direction of the moving average highlights price trend, and the space between price and the moving average highlights momentum. This simple indicator packs a punch if you know how to use it.
While there are dozens of moving average flavors, start with the simple or exponential moving average with a 20-period setting for day trading.

3. STOCHASTIC OSCILLATOR (LOWER PANEL)

The stochastic oscillator is a popular day trading indicator.
Its working logic is like that of Donchian Channel, in the sense that it measures the current market position relative to the market’s past trading range. However, it assumes that the market is in a trading range and turns that measurement into an oscillator that moves between 0 to 100.
It is useful for finding day trade entries as it is sensitive and responsive. (Use %K-5, %D-3, Smooth-3 for your settings.)
For a multiple time-frame day trading method using stochastic, take a look at Kane’s %K Hooks strategy.

DAY TRADING INDICATORS – A WORD OF CAUTION

You get three indicators. Now it’s time for three warnings against them.
  1. Indicators are not perfect, understand when and how to use them.
  2. Don’t neglect price action when trading with indicators. Consider using price action patterns to improve your analysis. (Like this simple failure pattern, or the Hikkake pattern.)
  3. Do not overwhelm yourself with indicators. Consider the value of every single indicator you add to your chart. Does it add value? Remember to trade simply.

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Friday, July 15, 2016

MACD (Moving Average Convergence Divergence) - A Powerful Technical Analysis Indicator

There are over 180 indicators available to the Technical Analyst all attempting to determine what the share price is likely to do next, with the MACD & Moving average the most widely used. It is a testament to the human mind that we can take 5 pieces of information, the open, high, low, close and volume information and create all these different indicators.

Indicators work like magnifying glasses allowing a trader to closely examine the information available to them. The indicator however tells the trader no more than what they can see in a candlestick or bar chart. It is based on the same information.

Powerful Technical Analysis Indicator


Moving Average Convergence Divergence (MACD) trails only the combination of price and volume in my hierarchy of trading tools and indicators.  It's THAT good.  But it has one major limitation in that it only considers price action, not volume.  Hence, it cannot be trusted as much as price/volume.  There are many reasons why the MACD works in gauging momentum, too much in fact to discuss in one blog article so I'll write about the MACD often.  But I would suggest that before you follow ANY indicator that you fully understand how and why that indicator works - and its limitations.  Buying or selling a stock simply because "this line crosses that line" is a recipe for disaster.  You're swimming in a sea of market maker-infested waters and your capital is the bait.  When I lose on a trade, I want to at least know that I had a plan to limit my risk and maximize my potential return.  If it results in a loss, then so be it.  Stock trading is a zero-sum game.  Someone is going to win and someone is going to lose.  Our goal should be two-fold:  (1) to win more than we lose and (2) to have higher percentage winners than losers.  If we can achieve both, we'll make money.  It sounds easy, but it takes a lot of knowledge, patience, discipline and experience.

The MACD is a powerful tool to help us achieve our goals.

Moving average convergence divergence (MACD) is a trend-following momentum indicator that shows the relationship between two moving averages of prices. The MACD is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA. A nine-day EMA of the MACD, called the "signal line", is then plotted on top of the MACD, functioning as a trigger for buy and sell signals.



There are three (3) common methods used to interpret the MACD:

1. Crossovers - As shown in the chart above, when the MACD falls below the signal line, it is a bearish signal, which indicates that it may be time to sell. Conversely, when the MACD rises above the signal line, the indicator gives a bullish signal, which suggests that the price of the asset is likely to experience upward momentum. Many traders wait for a confirmed cross above the signal line before entering into a position to avoid getting getting "faked out" or entering into a position too early, as shown by the first arrow.

2. Divergence - When the security price diverges from the MACD. It signals the end of the current trend.

3. Dramatic rise - When the MACD rises dramatically - that is, the shorter moving average pulls away from the longer-term moving average - it is a signal that the security is overbought and will soon return to normal levels.

Traders also watch for a move above or below the zero line because this signals the position of the short-term average relative to the long-term average. When the MACD is above zero, the short-term average is above the long-term average, which signals upward momentum. The opposite is true when the MACD is below zero.


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Tuesday, July 05, 2016

Secrets of Self-Made Billionaire Investors

Secrets of Self-Made Billionaire Investors

 
Warren Buffett, the world’s greatest investor, was born in 1930. He became a child of the Great Depression. Now, his value in excess of $50 billion.



George Soros was born the same year, and became a child of the Great Depression, the Holocaust and WWII. According to Forbes.com, his value over $19 billion.


Carl Icahn was born in 1936. He was once very broke he had to sell his car to feed himself. Forbes.com says he's worth around $20 billion today.

They were started with nothing. All went up billionaires. All did it by INVESTING.

At first glance, they don't seem to have much in common... Buffett buys stocks and whole companies and says his favorite holding period for investments is "forever." Soros became a billionaire by making huge leveraged trades in stocks and currencies. Icahn buys controlling stakes in public companies and badgers management to sell assets, buy back shares and do anything to realize hidden value.

But they do have some traits in common; a few core investing ideas that helped make them billionaires. Like every great secret of life, this one is hiding in plain sight. These three self-made billionaire investors...

1. Don't diversify
2. Avoid risk
3. Don't care what anyone else thinks

1: DON'T DIVERSIFY. CONCENTRATE.

Consider what your greatest source of wealth generation is likely: your career. You probably haven't diversified at all in your career. Even if you tried many different careers, you were never doing several of them at once. And, even if you do more than one job, it's highly likely you spend the great majority of your time at just one of them and that just one provides the great majority of your income.

Why should investing be any different?

For many years, Buffett had most of Berkshire Hathaway's money in just four stocks: American Express, Coca-Cola, Wells Fargo, and Gillette. Today, most of Berkshire Hathaway's money is still in just four stocks: Wells FargoCoca-Cola, IBM, and American Express.

2: AVOID RISK

When Carl Icahn bought Tappan shares, he was paying around $7.50 each. But he knew by looking at the balance sheet that the company was clearly worth $20 if it were broken up. That's a 62% discount to fair value, a very safe bet.

After Tappan, Icahn targeted a real estate investment trust called Baird and Warner. At the time he found it, the stock was trading for $7.89. Its book value was $14. That's a 44% discount to book value, and a generous margin of safety.

Soros manages risk differently than Icahn and Buffett. He says the first thing he's looking to do is survive, and he's known to beat a hasty retreat when he's wrong. He keeps loss potential in mind before trading. When he shorted $10 billion of British pounds in 1992, he first calculated that his worst-case loss scenario was about 4%.

3: THINK FOR THEMSELVES

Wall Street wouldn't buy shares of The Washington Post when Buffett started buying it in February 1973. That's true, even though most Wall Street analysts acknowledged that this was a $400 million company selling for $80 million. They were too scared because the overall market had been falling for some time.

Soros talks to lots of people to get a feel for where a market is going. But he never talks about what he's buying or selling. He just does it.

Carl Icahn doesn't need Wall Street, because he has his own research team. Icahn's people comb through thousands of listed companies to find the ones that are right for Icahn's corporate raider style. Icahn has to have his own research team. If he bought research from Wall Street, the whole world would figure out what he was doing, and it would become difficult to buy shares cheaply.

If you really want to be successful in stocks, these rules will be your foundation.

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Sunday, July 03, 2016

7 Most Commonly Used Technical Analysis Indicators in the Stock Market


Indicators are used as a measure to gain further insight into to the supply and demand of securities within technical analysis. Those indicators (such as volume) confirm price movement, and the probability that the move will continue. The Indicators can also be used as a basis for stock trading, as they can create buy-and-sell signals.


1. On-Balance Volume

The on-balance volume indicator (OBV) is used to measure the positive(+) and negative(-) flow of volume in a security, relative to its price over time. It is a simple measure that keeps a cumulative total of volume by adding or subtracting each period's volume, depending on the price movement. This measure expands on the basic volume measure by combining volume and price movement. The idea behind this indicator is that volume precedes price movement, so if a security is seeing an increasing OBV, it is a signal that volume is increasing on upward price moves. Decreases mean that the security is seeing increasing volume on down days.



2. Accumulation/Distribution Line

One of the most commonly used indicators to determine the money flow of a security is the accumulation/distribution line (A/D line). It is similar to on-balance volume indicator but, instead of only considering the closing price of the security for the period, it also takes into account the trading range for the period. This is thought to give a more accurate picture of money flow than of balance volume. The line trending up is a signal of increasing buying pressure, as the stock is closing above the halfway point of the range. The line is trending downward is a signal of increasing selling pressure in the security.


3. Average Directional Index

The average directional index (ADX) is a trend indicator used to measure the strength and momentum of an existing trend. This indicator's main focus is not on the direction of the trend, but with the momentum. When the ADX is above 40, the trend is considered to have a lot of directional strength - either up or down, depending on the current direction of the trend. Extreme readings to the upside are considered to be quite rare compared to low readings. When the ADX indicator is below 20, the trend is considered to be weak or non-trending.