1. Economic Fundamentals
The market is governed by fundamental economic forces, which are affected by the current state of the political system, which in turn is constantly being changed by politicians.
2: Technical Analysis
The predominant psychology of market participants determines the timing of changes in the direction of price movements
- Dow Theory Confirmation date: The date on which the second of Dow industrials breaks below a previous intermediate low in a bull market or vice versa
Change of Trend
iii. 1-2-3 Rule (Change of trend) & 2B Rule
1. Trendline must be broken - prices must cross trendline drawn on chart
2. Prices must stop making higher highs in an uptrend or vice-versa
2B. In an uptrend, if prices penetrate the previous high, fail to carry though and then immediately drop below previous high, trend is apt to reverse. Converse true for downtrends.
3. Prices must go above previous short term minor rally high in a downtrend or vice versa
iv. Volume Relationships
1. Vol move with the trend, in a bull mkt, vol tends to be heavier during rallies and converse is true. Exception is when mkt is approaching a correction, covered in the next observation
2. In an intermediate rally, mkt that is overbought tends to lose vol on rallies and gain vol on declines, conversely is true
3. Bull mkts usually end in a period of extraordinarily high vol and begin in light volume. Stated differently, bear markets usually begin in high vol and end on light vol.
Breath indicators or advance-decline line (A/D line) when they don't follow the general direction of broader averages, discrepancy signals a coming change in trend
v. Four-day Rule
When the market has a reversal, in the form of a 4-day up or down sequence from a high or a low, after an intermediate move has taken place, the odds of the trend has changed is very high.
vi. High-low 3-days rule
When a reversal occurs, to the extent that it goes above or below a three-day high or low, you go long or short. You use the high or low of the third day as ur stop, and if that stop is hit, you then reverse your position.
Conclude: Evaluate the mkt indexes in terms of 1-2-3, 2B and market life-expectancy. Following on, vol relationships, MA, breath and momentum oscillators.
3: Options Trading
Keep trades small: 2 to 3 % of risk capital
Trade only when odds are in ur favour
Trade only when payout is at least 5 to 1
Never buy just because price is low; never sell just because price is high
High premiums always indicate impending news
Day trading:
Psychological Requirements: Able to take loses and be wrong
Knowledge requirements: predicting the pattern of the market of the day
- Knowledge of longterm, intermediate, short
- Feel for economic news
- Knowledge of the seasonals(Stock Trader's Almanac)
- Grasp of technical considerations (option expirations, program trading, end of quarter markup, earnings reports)
- Awareness of pending political changes
- Interpret Fed policy meetings
- Well read in Barron & WSJ (editorials in both), NY Times & Washington post (skip editorials)
His rule:
1. Do not overtrade
2. Do not take a loss home
3. Never add to a bad trade
4. Never let a profit become a loss
5. Always figure ur stop loss before initate a trade
6. Don't be a one-way trader, be flexible
7. Add to a profitable trades when appropriate. Best time to buy or sell is after consolidation and a break above or below range prices
8. Be cautious when you buy or sell breaks while initating a new trade
9. Cut your losses and let winner run
10. If you are unsure, dont trade.
Day's trade:
1. Opening range, direction prices take immediately, whether is higher than yesterday's high or lower
S&P futures have 4 distinct moves:
- Opening and contraopening move
- Choppy one-direction move from 10am -12pm
- Choppy move in opposite direction from 12pm - 2.30pm
- Close from 3.10pm usually in one direction
Posts
