Adjusting your Stop Loss Orders using Moving Average

Adjusting your Stop Loss Orders using Moving Average

Adjust your stop loss orders, after some time, toward the pattern being traded: 

- In an up-trend move your stop loss up to underneath or below the Low of the latest trough. 

- In a down-trend move your stop loss down to over or above the High of the last top/peak. 

Just a break in the pattern/trend (or large correction) will stop you out. 

Utilizing Moving Averages 

An alternative  approach, that may keep you from being shaken out of a pattern too soon, is to utilize a long-term moving average in conjunction with the above. Stan Weinstein (Secrets for Profiting in Bull and Bear Markets) proposes utilizing a 30-week moving average. This is reasonable for speculators following the primary trend, adjust the length of the moving average if trading in a shorter time allotment. 

In an up-trend, move your stop loss to below: 

- the Low of the latest trough, or 

- the moving average, whichever is lower. 

In a down-trend, move your stop loss to above: 

- the High of the latest top, or 

- the moving average, whichever is higher. 

Example:

Johnson and Johnson is graphed with a blue 63-day exponential moving average. Stop loss order levels are delineated by yellow horizontal trendlines. 

Adjusting your Stop-Loss Order

1. Go long [L]. The sign is taken when price regards the moving average. A stop loss order is put at [S1], below the Low of the latest trough or below the moving average, whichever is lower (appeared by the begin of the trend line). 

2. At [S2] move the stop loss up to beneath the moving average at the following trough. 

3. At [S3] move the stop loss to beneath the Low at the following trough (this is lower than the moving average). 

4. At [S4] move the stop loss to beneath the moving average at the following trough. 

5. The stop loss order is actuated [X] when the following correction falls underneath the previous trough. 

Ranging Market 

In a ranging market, adjust your stop loss in view of the cycle in one-time frame shorter than the cycle being exchanged. For example, if trading an intermediate (in a ranging market), move your stop loss orders up or down as per the short cycle.

Start your Stock Market Trading

Start your Stock Market Trading

1. Know What Are You Going To Trade

Knowing what to trade will help you clarify what you don't want to trade.

The first step of becoming a trader is to know what securities to trade. The smaller group of securities to trade, the better specialized knowledge you are going to accumulate.

• What market or exchange?
• Types of Securities?
• Sectors?
• What size stocks?

Types of Security

Common shares, ETFs, REITs, preference shares, convertibles, hybrids, notes, debentures, corporate bonds, municipal bonds, government bonds, options, warrants, or futures. And, when it comes to futures, there are index futures; currencies; energy; grains and oil-seeds; bonds and interest rates; metals; meats; and softs.

Sectors

Specialize in certain sectors at one time I only traded IT and Communications Industries.

Size

Large caps, mid-caps, small-caps, penny stocks or some other criteria based on size or liquidity.


2. Know What Directions To Trade


Know whether you are going to trade long and short, or long only.

3. Know When To Trade

The character of the market changes when bears are in control. Anxiety levels are a lot higher and panic spreads faster than overconfidence. Declines are a lot steeper in a bear market than advances in a bull market; rallies in a bear market are more tentative than corrections in a bull market; and, because the falls are steeper, bear markets tend to have a shorter duration.


Trade when the time is right. When it is not right, trade another system or take some time off and go fishing.

4. Know How Much Capital To Trade

Only trade with money you can afford to lose. If you have money set aside for an upcoming operation, or your kid's college fees, don't trade with it. The market makes a living out of punishing those with a nonchalant view towards risk.

Leverage

Beware of leverage. Leverage is great when you have predictable returns. It can also deliver substantial tax advantages, given the right structure.

Example 1:

50% Leverage

If you invest in the stock market, with historic returns of 12.5% a year and volatility (measured as standard deviation of returns) of 25%, your Risk-Reward ratio is calculated as 

12.5/25 = 0.50 

I find Risk-Reward a useful tool as it weighs expected return against your expected risk. 

Now if we borrow an equal amount to our capital, at an interest rate of 8.0%, our returns will be enhanced. The expected return on equity is now 
(12.5%*2) - 8.0% = 17.0% 

Expected volatility, however, also doubles, to 50%. And the new Risk-Reward ratio is 

17.0/50 = 0.34 

So our enhanced return is not sufficient to compensate for the increased risk.

Now, imagine if you are offered a CFD (contract for difference) with 90% leverage.

Example 2:

CFD with 90% Leverage

Investing in the same market, with historic returns of 12.5% a year and volatility (measured as standard deviation of returns) of 25%, and assuming a lower interest rate of say 6.0%: 
We are now investing ten times our capital, giving an expected return on equity of 

(12.5%*10) - (9*6.0%) = 71.0% 

Expected volatility also increases 10 times, however, to 250%. The new Risk-Reward ratio is 

71/250 = 0.28 

The lower interest rate softens the blow, but again enhanced return is not sufficient to compensate for the increased risk. And volatility of 250% is the stuff of nightmares, with constant margin calls as your equity is wiped out by the magnified swings.

5. Know Your Cost

Brokerage and slippage are two important costs that you need to factor into your calculations. And the shorter the time frame that you trade, the higher your turnover, and the more important those two numbers become. 

Slippage is as important as brokerage and occurs when a trade executes at a price other than the expected price. Stop losses may be executed at a worse rate than the trigger level because price is falling fast and liquidity is low,  a common experience when market volatility is high.

Another instance is when markets gap up/down overnight. If you take signals on the close, you will frequently find that price moves overnight, so your execution in the morning is better or, more often, worse than the close of the night before.


Slippage also occurs when market orders are executed at worse than the expected price — when the spread alters. In a long trade, the Ask may increase. In a short trade, the Bid may fall. The larger the order, the more likely this is to occur when there is insufficient stock available at the Bid or Ask.

6. Know What Time Frame To Trade

Time frame is closely related to risk and cost. The longer your time frame, the lower your brokerage and slippage costs as a percentage of your capital. And the longer your time frame, the closer your actual return is likely to conform to your expected return, based on historic performance.

7. Know How Much To Trade

Trade all your capital on a single position and one wrong call will wipe you out. Trade a small percentage of your capital on any individual position and you are far more likely to survive any false steps.

8. Know How To Trade

Your choice of trading style is related to the time frame you trade.

Long-term

Positions are held for several months or longer.....often years.

• Value investing
• Trend-following
• Momentum
• Mean reversion
• Medium-term

Positions are held for several weeks...... sometimes months.

• Momentum
• Swing trading
• Mean reversion
• Short-term

Positions are held for several days...... sometimes weeks.

• Swing trading
• Mean reversion
• Pairs trading
• Day trading

Positions are closed by the end of the day.

• Scalping
• Fading
• Pivot trading
• Pairs trading
• High frequency trading (HFT)

Positions are held for milliseconds...... sometimes seconds, seldom minutes.

• Scalping
• Pairs trading
• Arbitrage

9. Know When To Quit

Probably the most important step besides position-sizing (step #7). Knowing when to take profits and cut losses is crucial to profitability — more so than entering at the right time — for most systems.


Source/Reference:
Incredible Charts - Trading

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.

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.

Sources:

http://www.investopedia.com/terms/m/macd.asp#ixzz4ETQlTppc

http://www.investopedia.com/terms/m/macd.asp#ixzz4ETQZdNoM

https://stockcharts.com/articles/tradingplaces/2015/07/the-power-of-the-macd.html

http://www.learncfds.com/discover-the-power-of-using-the-macd-moving-averages/ 

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 Fargo, Coca-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.

Source:

Stansberry Research

Related Articles:

http://investingandmoneyeducation.blogspot.com/2015/12/how-to-start-investing-in-philippine.html
http://investingandmoneyeducation.blogspot.com/2016/06/25-golden-rules-of-investing.html
http://investingandmoneyeducation.blogspot.com/2016/07/7-most-commonly-used-technical-analysis.html

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.

7 Best Investing Advices of Warren Buffet

Everyone listens when Warren Buffet offers an investing advice. Warren Buffet had never been shy to tell his strategies to come up with a $72 billion net worth and grow his company, Berkshire Hathaway, into valued at $212 billion.

Here's the 7 Best Investing Advices of Warren Buffet:

1. Cash is the worst investment that you can make over time.

Cash is a bad investment over time. We always keep enough cash around so I feel very comfortable and don't worry about sleeping at night. You always want to have enough so that nobody else can determine your future essentially.

2. Invest in a broad-based index fund that tracks the S&P 500.

If you're professional with a confidence, then I would advocate lots of concentration. For everyone else, if it’s not your game, participate in total diversification. The economy will do fine over time. Make sure you don’t buy at the wrong price or the wrong time. That’s what most people should do, buy a cheap index fund, and slowly dollar cost average into it. If you try to be just a little bit smart, spending an hour a week investing, you’re liable to be really dumb.

3. Invest in yourself.

The best investment that you can make is to invest in yourself. Anything that can improve yourself to develop your own abilities will be helpful to achieve success.

4. If you’re determined to pick stocks, don’t buy into a business you don’t understand.

It is very significant that when you buy stocks, make sure that you understand the business. Make a comprehensive research to the fundamental analysis of the company before you put your money to invest.

5. Focus on the competition as well.

“Competition is always a good thing. It forces us to do our best. A monopoly renders people complacent and satisfied with mediocrity.” 

6. Invest for the long haul.

"If you are not willing to own stock for 10 years, don't even think that owning it for 10 minutes."

7. The hardest part about investing: trusting yourself.

Trusting yourself is the hardest part about investing if and only if you do not understand the company to invest. That's why you need to study the company so that you gain confidence to trust yourself the stock picks you choose. To be successful investor, you need to get away from fears and greed of the people around you and keep on trusting yourself.


Source: Yahoo! Finance

Related Articles:

How to start investing in the Philippine Stock Market using COL Financial

25 Golden Rules of Investing

Step-by-Step Guide to Investing in the Philippine Stock Market

25 Golden Rules of Investing

25 Golden Rules of Investing

Rule 1: Bulls, Bears Make Money, Pigs Get Slaughtered

It is important for both investors and traders to know when to buy and sell and make money from stock market.

Rule 2: It Is Good To Pay Taxes

Stop to afraid from paying your taxes and start fearing the loss.

Rule 3: Don't Buy All At Once

Warren Buffet said that "Do not put all eggs in one basket".

Rule 4: Buy Broken Stocks, Not Broken Companies

There is no refund in trading, make your own research and buy undervalued stocks, not the broken companies.

Rule 5: Diversify Your Portfolio To Manage Risk

Make a diversification of your stock portfolio so that you can control the risk.

Learn the Basics of Forex Trading

Learn the Basics of Forex Trading

What is FOREX?

FOREX (FX) is the another short term for Foreign Exchange. It is the market exchange of the different currencies around the world. 

Learn How To Invest in Mutual Funds

Learn How To Invest in Mutual Funds

A mutual fund is a collective investment that pools together the money of large number of investors purchase a variety of stocks, and bonds. When you buy a share in a mutual fund, you've a small stake of all investments included in that fund. Think of a mutual fund like a basket of investments, when you buy a share of mutual fund, you're buying a share in a mutual fund, and therefore you have a stake of one small fraction of all the investment.

There are benefits of a mutual fund:

• It is an easy way to make a diversified investment.
• It managed by the fund managers/professionals.
• It allows investors to participate in a wide form of investments.

How to Break Procrastination and Start Your Own Business

• Technique on how to break procrastination.
• How to turn your dream business into a reality.
• How to take control of you life.
• The lesson I learned from my mentor Anthony Robbins.
• The power of imagination and emotion.
• And a lot more.

How to break procrastination?

Basically, business owners or aspiring entrepreneurs already know what to do but the problem is they are not TAKING ACTIONS. They are not doing it. Are you one of that?

Actually what I am about to share to you is also applicable in other parts of your life, not on your business alone. For example, for those people who would like to lose their weight, who feel that they are overweight, they feel bad about themselves. They already know what to do. They really know the secrets on what to do but they are not taking actions to do it.

Step-by-Step Guide to Investing in the Philippine Stock Market

Many people are doubted to invest in the stock market because they heard that the rich people are the ones who can only invest in the stock market. Others are afraid to lose their money in the stock market. However, if you are being equipped with the financial knowledge and right mindset, you will be discovered that the stock market is the place where you can make money.

Now, I will tell you the step-by-step procedure on how to start investing in the Philippine Stock Market.

Step 1: Have an emergency fund first.

Before you invest in the stock market, please make sure that you have an emergency fund first. An emergency fund is a savings that you keep in your pocket more likely 3 to 6 months of your salary, so that it will protect your investment from withdrawing your shares in the stock market.

Step 2: Have an effective strategy in the stock market.

Once you already have an emergency fund, now ask yourself, "What strategy that I am going to use in the stock market?" What is the most effective strategy to follow? How do I do it?

There are 3 common strategies in the stock market: Buy and Hold, Peso Cost Averaging, and Market Timing.

10 Filipino False Beliefs About Money

Many Filipino money beliefs are one of the main cause of poverty in the Philippines. Whether we like it or not, it’s the “mindset” that stopping us from being one of the richest country in Asia and in the world.

There are Filipino beliefs that are factors of the poverty in the Philippines. Whether you believe it or not, it is the "mindset" that make us rich.

There are 10 Filipino False Beliefs About Money:

1. Money is the root of all evil

Some Filipinos believe that money is the root of all evil and aiming to have more money will not do anything good in your life. This is completely false. Money is not evil and not the root of all evil. It’s how you do and how you use money that will dictate and provide results of how you think and see money.

If you use money to help other people, to bless others, to inspire your family and other people that will produce better results than the previous. You see, it’s the use of money that dictates its meaning. Money is just a paper, it’s how we use them that dictates its value.

2. One-day millionaire

Filipino has this one-day millionaire mindset that makes them poor. It’s something like they splurge left and right thinking that their money is unlimited. They’re only thinking the present time and not planning ahead.

If you have this kind of mindset, let it go. This will not help you achieve financial abundance.

3. Get-rich-quick mindset

Getting rich and achieving financial freedom is not a sprint, it’s a marathon. Forget the get-rich-quick mindset. Be patient, committed and focus working on your financial goals. Be informed. Be financially literate. These are the sure ball ways to financial freedom.

4. I came from a poor family

If you want to have breaks and if you’re really committed in achieving your dreams, let go of these mindsets and start thinking positive. Your situation must not be hindrance on what you want to achieve in life. As the old saying goes, “if there’s a will there’s a way“.

5. I’ll lose my friends and family

Nah, forget this belief! True friends stay whatever happens. And sure your family too.

Again, money is not evil. It’s how you use them. Having more money means more opportunity to help friends and family in needs. That should how you look at.

15 Well-Known People Who Failed Before They Come Up Success

Success will happen when you persevere the most difficult part of your life. Famous people who are most successful today also didn't happen for them overnight.

Take a look at these 15 persons who failed their way to success. Their stories are really interesting and hope it gives you inspiration for yourself.

This video below shows 11 famous individuals.

1. Michael Jordan
2. Albert Einstein
3. Oprah Winfrey
4. Walt Disney
5. Lionel Messi
6. Steve Jobs
7. Eminem
8. Thomas Edison
9. The Beatles
10. Dr. Seuss