Successful investors and traders alike usually have a rule-based strategy that provides them with a financial advantage or edge. A combination of institutional supply and demand, fundamental and technical analysis are typical components. Another analysis we can add to the recipe is investor mood, commonly called sentiment. In other words, do market participants feel bullish, bearish or neutral about the future?
While each region and country has a unique economy, given the volume of international trade, those individual economies are part of a larger global economy. The U.S. economy is the largest in the world but, more importantly for this analysis, it is also the last market traded on the daily clock. This allows U.S. investors a...
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Scalpers seek to profit from small market movements, taking advantage of a ticker tape that never stands still during the market day. For years, this fast-fingered crowd relied on Level 2 bid/ask screens to locate buy and sell signals, reading supply and demand imbalances away from the National Best Bid and Offer (NBBO), or the bid and ask price the average person sees. They would buy when demand set up on the bid side or sell when supply set up on the ask side, booking a profit or loss minutes later as soon as balanced conditions returned to the spread.
That methodology works less reliably in our modern electronic markets for three reasons. First, the order book emptied out permanently after the 2010 flash crash because deep standing...
There are thousands of equities to choose from and day traders can pick virtually any sort of stock they want. So the first step in day trading is figuring out what to trade. Once one, or several, stocks or ETFs have been selected, the next step is coming up with some ways to profit from them. Here is how to select stocks for Intraday Trading.
1) High Liquidity.
Liquid stocks have big volume, whereby larger quantities can be purchased and sold without significantly affecting the price. Since intraday trading strategies depend on speed and precise timing, a lot of volume makes getting into and out of trades easier. Depth is also critical, which shows you how much liquidity a stock has at various price levels above or below the current...
Futures
trade with high leverage in comparison to the stocks making up the
indexes. Buying 100 shares of the SPY
(the ETF that tracks the S&P 500 index) would cost nearly $29,200 at the
time of this writing. Even with 2:1
margin, a trader would need $14,600 to maintain the position. To trade one contract of the ES (the S&P
500 eMini future), a trader only needs $6930.
For an intraday trade, the margin could be as low as $500!
The
first half hour to hour of the equity markets can be very volatile. Sometimes
it seems like prices are fluctuating wildly with no rhyme or reason. However,
there is a technique that could help you predict the morning price movement and
even potential price reversals. This technique could be used for...
Short
term trading can be very lucrative, but it can also be risky. A short term
trade can last for as little as a few minutes to as long as several days. To
succeed at this strategy as a trader, you must understand the risks and rewards
of each trade. You must not only know how to spot good short term opportunities
but also how to protect yourself. In this article, we'll examine the basics of
spotting good short term trades and how to profit from them.
The Fundamentals of Short Term Trading
Several basic concepts must be understood and mastered for successful short term trading. These fundamentals can mean the difference between a loss and a profitable trade.
Recognizing Potential Candidates
Recognizing the "right" trade will mean...
Fundamental Analysis Technical Analysis Day Trading & Scalping How to Know the Difference Between Retracements and Reversals
Most of us have wondered whether a decline in the price of a stock we're holding is long-term or a mere market hiccup. Some of us have sold our stock in such a situation, only to see it rise to new highs just days later. This is a frustrating and all too common scenario. Whilst it can't be totally avoided, if you know how to identify and trade retracements properly, you will start to see improvement in your performance.
Retracements Versus Reversals
Retracements are temporary price reversals that take place within a larger trend. The key here is that these price reversals are temporary and do not indicate a change in the larger trend. A reversal, on the other hand, is when the trend changes direction, meaning that the price is likely...
Beginning stock traders know the stock market has regular trading hours - they are open for business between 9:30 a.m. and 4:00 p.m. Billions of shares of stock are traded in the American markets alone, making the markets very liquid and efficient.
What beginners may not know is the stock market is also open for business after regular trading hours. Pre-market and post-market trading sessions allow investors to trade stocks between the hours of 4:00 a.m. and 9:30 a.m. during pre-market trading, and 4:00 p.m. to 8:00 p.m. for the post-market session.
Compared to the billions of shares traded during the day, after-hours sessions trade only a small fraction of that volume, which invites other problems traders have to consider before...
Swing & Position Trading Technical Analysis Day Trading & Scalping Using Fractals: A Guide for Traders
Although prices may appear to be random, they actually create repeating patterns and trends. One of the most basic repeating patterns is a fractal. Fractals are simple five-bar reversal patterns. This article will explain fractals and how you might apply them to your trading strategy.
Introduction to Fractals
When people hear the word "fractal," they often think about complex mathematics. That is not what we are talking about here. Fractals also refer to a recurring pattern that occurs amid larger more chaotic price movements.
Fractals are composed of five or more bars. The rules for identifying fractals are as follows:
A bearish turning point occurs when there is a pattern with the highest high in the middle and two lower highs on...
Many people participate in the stock markets, some as investors; others as traders. Investing is done with a long term view in mind, years or even decades. Trading, meanwhile, is done to pocket gains on a regular basis.
There are many sub categories of traders. One of the common ways to distinguish them is the “time period” for which traders hold a stock, which can vary from a few seconds to months or even years. Some of the popular trading strategies are day trading, swing trading, scalping and position trading. Choosing a style that suits your own trading temperament is essential for the success in the long term. This article lays out the differences between the scalping strategy and a swing trading strategy.
Scalping
The strategy...
Swing & Position Trading Day Trading & Scalping Stop-loss or stop-limit order: – Which order to use?
Traders and investors who seek to limit potential losses can use several types of orders to get them into and out of the market at times when they may not be able to place an order manually. Stop-loss orders and stop-limit orders are two tools that can accomplish this, but it is critical to understand the difference between the two similar sounding orders.
Stop-Loss Orders
There are two types of stop-loss orders.
1) Sell-stop orders protect long positions by triggering a market sell order if the price falls below a certain level. The underlying assumption behind this strategy is that if the price falls this far, it may continue to fall much further, so the loss is capped by selling at this price.
For example, let's say a trader owns...
For active stock traders, having different strategies for different market conditions is a crucial factor. Trends emerge, fade, reverse and ranges develop, all playing out in ever broader trends and ranges, all within a single trading session. Thus, the trader is faced with a choice: trade one strategy and profit only at times that suit the strategy, or trade several strategies that allow them to trade profitably, in an array of market conditions. Different times of the day pose different opportunities and threats, and must be accounted for. Once several strategies have been adopted, it is crucial that the trader know when to implement each type of strategy.
Three Types of Trading Strategies
For day traders, strategies will generally...
Very few films capture the essence of life as a day trader. The pressure of walking the tightrope between profitability and looming losses is rarely captured in mainstream films. While movies such as "Wall Street" and "Boiler Room" glamorize the lifestyle of accumulating wealth by any means necessary, they do not capture the essence of actual trading in the trenches. These five movies illustrate key lessons every trader can take with them to understand more about their career.
1. "Rounders" - Money Management and Spotting Fades
This movie is a favorite among poker players, and it exemplifies the parallels that exist between playing poker and trading the markets. The two main characters literally represent the two sides that exist in...
It's the question at the tip of every aspiring day trader’s tongue: how much money can I earn from day trading?
Since most day traders do not disclose their trading results to anyone but the tax authorities, an exact answer to how much money an average day trader makes is impossible to answer. However, there are numerous sources of information, including reliable academic studies, that offer clues on average earnings. The majority of available information does not shed a positive light on day trading. The research typically indicates that, in fact, most day traders lose money.
Day traders make money by buying stock and holding it for a short period of time--anywhere from a few minutes to a few hours--before selling it off again. Day...
Millions of traders test their skill in the financial markets each year, but most are destined to lose their stakes and walk away with their tails between their legs. A select few defy the odds, churning out profit after profit over long periods, building the wealth, security and wellbeing that others just dream about. So what separates these elite traders from the mediocre pack and how can you gain membership to this exclusive club?
First, let’s consider what isn’t required to become an elite trader. You don’t need to take special courses or move to Manhattan and work on Wall Street for a decade or two, although many elite traders follow that path. Nor do you need a huge stake to start your journey, because you already possess the...
Swing & Position Trading Day Trading & Scalping Is High-Frequency Trading (HFT) A Fancy Term For Cheating?
The furore over high-frequency trading (HFT) was once just a preoccupation of those directly connected with Wall Street. Now the topic has gone mainstream and may soon go all the way up to the White House.
In October 2015, US Presidential hopeful Hilary Clinton's campaign proposed a tax on HFTs, a move that surprised many, since previously this was considered some quixotic notion of her rival Bernie Sanders. At a press conference in May 2015, Sanders' "Robin Hood Tax" campaign detailed the Vermont senator's proposal for a tax on trades at $0.50 per $100 for stocks and a smaller amount for certain other financial instruments. The quixotic purpose: to use the tax revenue to make US public universities free, and eradicate student debt...
Every good investor knows that in order to make money on any investment, you must first understand all aspects of it, so let's look at why most trading volume is concentrated at the beginning and end of the day.
If you have ever come home from work and used your evening hours to research stocks and place trade orders for the next day, you and others like you are the reason for the first hour high volume. As soon as the stock market opens, a rush of programmed trades enters the market and is quickly filled.
Along with the trades executed for retail investors, much of the volume comes from mutual funds, hedge funds and other high volume traders. Another source is day traders who have to set their positions for the day during the first...
Day traders need continuous feedback on short-term price action to make lightning fast buy and sell decisions. Intraday bars wrapped in multiple moving averages serve this purpose, allowing quick analysis that highlights current risks as well as the most advantageous entries and exits. These averages work as macro filters as well, telling the observant trader the best times to stand aside and wait for more favorable conditions.
Choosing the right moving averages adds reliability to all technically-based day trading strategies, while poor or misaligned settings undermine otherwise profitable approaches. In most cases, identical settings will work in all short-term time frames, allowing the trader to make needed adjustments through the...
With the upsurge of investor interest in high-frequency trading (HFT), it is important for industry professionals to come up to speed with HFT terminology. A number of HFT terms have their origins in the computer networking/systems industry, which is to be expected given that HFT is based on incredibly fast computer architecture and state-of-the-art software. We briefly discuss below 10 key HFT terms that we believe are essential to gain an understanding of the subject.
Co-location
Locating computers owned by HFT firms and proprietary traders in the same premises where an exchange’s computer servers are housed. This enables HFT firms to access stock prices a split second before the rest of the investing public. Co-location has become a...
Swing & Position Trading Day Trading & Scalping Do Trades Keep Losing? – 5 Things You Might Be Doing Wrong
A "trading rut" is invariably endured by almost all traders at some point in their trading experience. A trading rut is a point in time where profits are elusive, or losses may even be mounting. These losing or unprofitable streaks can happen to anyone at any time. It may occur because the market has shifted in some way. At other times, it may be because the trader has altered a strategy or is no longer adhering to a trading plan. No matter what the reason for the slump is, there are five questions a trader can ask to help isolate the problem so changes can be initiated and hopefully a return to profitability will ensue.
The Questions
The following questions should be answered as honestly and as fully possible. Each will probe current...
I have always found it very interesting, how many different ways people look at charts and all the different pieces of information people try to attain from a price chart. How could so many people look at the same chart and have so many different opinions? Fascinating.
With all the different schools of thought on money, markets, charts and so on, what should we really be looking for on a price chart? I mean, conventional technical analysis books have hundreds of pages in them with information on so many indicators, oscillators, chart patterns and more. With all this, there must be some edge to be gathered, right? I speak with thousands of traders around the world and everyone is trying to make something “work”. This is where I see most...
A momentum strategy seeks to profit from buying high and selling higher on the long side while selling low and covering lower on the short side. Most traders fail in this enterprise because they haven’t mastered the five elements of a perfect momentum trade. Once in place, the profit and loss statement can improve dramatically, adding significant capital to the bottom line.
Trading momentum markets require sophisticated risk management rules to address volatility, over-crowding and hidden traps that steal profits. Market players routinely ignore these rules, blinded by an overwhelming fear they’ll miss the rally or sell-off while everyone else books windfall profits. The rules can be broken down into five elements: selection, risk...
Algorithmic trading (or "algo" trading) refers to the use of computer algorithms (basically a set of rules or instructions to make a computer perform a given task) for trading large blocks of stocks or other financial assets while minimizing the market impact of such trades. Algorithmic trading involves placing trades based on defined criteria and carving up these trades into smaller lots so that the price of the stock or asset isn't impacted significantly.
The benefits of algorithmic trading are obvious: it ensures "best execution" of trades because it minimizes the human element, and it can be used to trade multiple markets and assets far more efficiently than a flesh-and-bones trader could hope to do.
What is Algorithmic...
Financial markets are enormously complex, but most trading strategies tend to fall into one of two categories: trend following or swing trading. Each strategy has advantages and disadvantages, as well as specific requirements that investors must follow consistently in order to avoid errors. However, many investors randomly apply these contrary strategies without understanding how that can undermine profitability. Identify whether you are a trend trader or a swing trader in order to hone your strategy correctly.
In theory, the trend trader takes risk in an uptrend or downtrend, staying positioned until the trend changes. In contrast, the swing trader works within the boundaries of range bound markets, buying at support and selling at...
There are a number of things that can impact an investor's entry (buy) into or exit (sell) out of a given stock and/or sector. Depending on the investor and his or her goals and investing time frame, the importance of timing the entry will differ. Obviously, the shorter the time frame the more important the entry; specific entries matter little to long-term (five years or more) investors.
That said, all investors should be aware of some of the more common market moving influences that can affect a stock's price. By becoming aware of these market traits, investors can make better entries and catch an extra percent or two in return.
Let's take a look at eight items that can materially impact the average day's trading.
1) Overseas...
Active traders often group themselves into two camps: the day traders and the swing traders. Both seek to profit from short-term stock movements (versus long-term investments), but which trading strategy is the better one? Below, we explore the pros and cons of day trading versus swing trading.
Day trading, as the name suggests, involves making dozens of trades in a single day, based on technical analysis and sophisticated charting systems. The day trader's objective is to make a living from trading stocks, commodities or currencies, by making small profits on numerous trades and capping losses on unprofitable trades. Day traders typically do not keep any positions or own any securities overnight.
Swing trading is based on identifying...
Most brokerage firms today offer free or premium trading software applications to individual clients when they open a brokerage account. The bundled software applications, offering a wide variety of trade, research, and analysis functions, are used as a prominent sales-pitch to the trader client. They also boast features like in-built technical indicators, fundamental analysis numbers, integrated applications for trade automations, news, and alert features. We will examine some of the most widely used, based on features (not price point):
MetaStock Trader: One of the most popular stock trading software applications, MetaStock Trader offers more than 300 technical indicators, built-in drawing tools like Fibonacci retracement to...
Some 10 years ago any attempt to mention financial markets in a non-professional milieu inevitably hit the wall of skepticism: «Forex again?! Oh, spare us this rubbish, please!»
I would like to draw reader’s attention to a particular issue: this common reaction is based on the misconception known as fallacy of composition where the negative attitude towards Forex is inferred upon financial markets in general. Like it or not, that kind of attitude distorts the reality dramatically and we must figure out how to avoid detrimental generalizations.
It is obvious that this reality switch is rooted in the heavy advertising run by Forex brokers all over the world. The negative attitude is just an epilogue to the personal experience...
Trying to pick an intraday top or a bottom in a market move can be dangerous, yet many traders are obsessed with trying to get in right at the bottom and out at the top. A common method is to forecast a bottom, place a bid and then watch in horror as prices continue to plummet, resulting in a larger loss than initially anticipated. Traders can get into emerging trends early and exit near the top, but a prudent strategy requires that we wait for the market to provide us with a signal - a sign that it is reversing - before we enter/exit our position. In this way, we can enter and exit at relatively good prices, but with the benefit of knowing what our risk is, and having a solid indication from the market that is has already turned...
Making investments can be a fun way to pass the time on a rainy day, but it can just as quickly destroy one's livelihood. Financial markets are cold and unfeeling; they do not forgive easily and are not to be trifled with. The line between "hobby" and "addiction" is a thin one. Compulsive trading will ratchet up your transaction costs, stress level and time spent away from the important things in life.
An Online Brokerage Account
Prior to the advent of the online brokerage, prospective investors had to go through financial intermediaries with access to stock exchanges, otherwise known as brokerage firms. The process, being arduous and costly, was a textbook opportunity for middlemen to step in and lower the transaction costs. In 1969...
Single-market analysis is the study of one asset class or market in a single country. Intermarket analysis, on the other hand, is the study of multiple asset classes in a variety of markets in nations around the globe. Do investors and traders using the second technique have a significant advantage over those using the first when it comes to returns?
We have all heard financial experts sing the praises of the diversified portfolio. "It is never a good idea to put all your eggs in one basket," they say. What they mean is that limiting your investments to just a few companies greatly increases your risk, especially if one or two of your major holdings experiences a meltdown.
Investors who heed this conventional wisdom own a number of...