Best of the Week
Most Popular
1. Crude Oil and Water: How Climate Change is Threatening our Two Most Precious Commodities - Richard_Mills
2.The Potential $54 Trillion Cost Of The Fed's Planned Interest Rate Increases - Dan_Amerman
3.Best Cash ISA Savings for Rising UK Interest Rates and High Inflation - March 2018 - Nadeem_Walayat
4.Fed Interest Hikes, US Dollar, and Gold - Zeal_LLC
5.What Happens Next after February’s Stock Market Selloff - Troy_Bombardia
6.The 'Beast from the East' UK Extreme Snow Weather - Sheffield Day 2 - N_Walayat
7.Currencies Will Be ‘Flushed Down the Toilet’ Triggering a ‘Mad Rush into Gold’ - MoneyMetals
8.Significant Decline In Stocks On The Cards! -Enda_Glynn
9.Land Rover Discovery Sport Extreme Driving "Beast from the East" Snow Weather Test - N_Walayat
10.SILVER Large Specualtors Net Short Position 15 Year Anniversary - Clive_Maund
Last 7 days
Do Stocks Bull Market Tops Need Breadth Divergences? - 19th Mar 18
Doritos Instant £500 Win! Why Super Market Shelves are Empty - 19th Mar 18
Bonds, Inflation & the Market Amigos - 19th Mar 18
US Housing Real Estate Market and Banking Pressures Are Building - 19th Mar 18
Stock Market Bulls Last Stand? - 18th Mar 18
Putin Flip-Flops Like A Drunken Whore On Bitcoin Cryptocurrency Legalization - 18th Mar 18
How to Legally Manipulate Interest Rates - 18th Mar 18
Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - 18th Mar 18
Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - 17th Mar 18
Strong Earnings Growth is Bullish for Stocks - 17th Mar 18
The War on the Post Office - 17th Mar 18
GDX Gold Mining Stocks Fundamentals - 16th Mar 18
Nationalism, Not the Russians, got Trump Elected - 16th Mar 18
Has Bitcoin Bought It? - 16th Mar 18
Crude Oil Price – Who Wants the Triangle? - 16th Mar 18
PayPal Cease Trading Crypto Currency Bitcoin Warning Email Sophisticated Fake Scam? - 16th Mar 18
EUR/USD – Something Old, Something New and… Something Blue - 16th Mar 18
DasCoin: A 5-Minute Guide to How It Works - 15th Mar 18
Stock Market Downward Pressure Mounting - 15th Mar 18
The Stock Market Trend is Your Friend ’til the Very End - 15th Mar 18
6 Easy Ways to Get What Women Want, for Less! - 15th Mar 18
This Isn’t Your Grandfather’s (1960s) Inflation Scare - 15th Mar 18
Eye Opening Stock Market Index, Volatility, Charts and Predictions - 15th Mar 18
Gold Cup At Cheltenham – Gold Is For Winners, Not For Gamblers - 15th Mar 18
Upcoming Turnaround in Gold - 14th Mar 18
Will the Stock Market Make Another Correction this Year? - 14th Mar 18
4 Ways To Writing An Interesting Education Research Paper - 14th Mar 18
China Toward Sustainable Economic Growth - 14th Mar 18
Stock Market Direction Is No Longer Important - 14th Mar 18
Trade Tariffs Defeat Globalists and Return Prosperity - 14th Mar 18
Stock Market Crash is Underway and Cannot be Stopped! - 14th Mar 18
Are Energy Sector Stocks Bottoming? - 14th Mar 18
Nasdaq Stocks Soars to New Record High After Strong Job Reports - 14th Mar 18
Bitcoin BTCUSD Elliott Wave View Calling for Rally toward $15,000 - 13th Mar 18
Hungary’s Gold Repatriation Adds To Growing Protest Against US Dollar Hegemony - 13th Mar 18
Record Low Volatility in Precious Metals and What it Means - 13th Mar 18
Tips for Writing and Assembling the Classification Essay - 13th Mar 18
Gerald Celente "If Rates go up too High, the Economy goes Down, End of Story" - 13th Mar 18
Stock Market Selloff Showed Gold Can Reduce Portfolio Risk  - 13th Mar 18
Silver Does it Again! Severe Consequences - 12th Mar 18
Has the Stock Market Rally Run Out of Steam? - 12th Mar 18
S&P 500 at 2,800 Again, Stock Market Breakout or Fakeout? - 12th Mar 18
The No.1 Energy Stock To Buy Right Now - 12th Mar 18
What Happens Next When Stock Market Investor Sentiment is Neutral - 12th Mar 18
Economic Pressures To Driving Gold and Silver Prices Higher Long-Term - 12th Mar 18
Labour Sheffield City Councils Secret Plan to Fell 50% of Street Trees Exposed! - 12th Mar 18
Stock Market Uptrend Resuming? - 11th Mar 18
Bond Market Interest Rate Yields Are Rising Again… Stocks Are on Thin Ice - 11th Mar 18
Death of Europe's Greenest City, Police State Sheffield Labour Council to Fell 50% of Street Trees - 11th Mar 18
Do All Bull Stocks Markets Need to Have a Bearish Divergence? - 11th Mar 18
An Inflation Indicator to Watch, Part 3 - 11th Mar 18
Online Stock Trading Tips - Tips about Online Trading & Day Trading - 11th Mar 18
NDX makes a new high. What does that mean? - 10th Mar 18
Blue Chip Companies on Track for $800 billion Buyback Record in 2018 - 10th Mar 18
Cheap Gold Stocks Basing - 10th Mar 18
An Introduction to Online Forex Trading - 10th Mar 18

Market Oracle FREE Newsletter

Urgent Stock Market Message

Successful Financial Markets Day Trading Brief

InvestorEducation / Learn to Trade May 22, 2009 - 06:45 AM GMT

By: Christopher_Quigley


Best Financial Markets Analysis ArticleJudging from the contents of an increasing number of emails more and more investors are choosing to "actively" trade the market rather than "buy and hold." In the main, this is due to the fact that in a bear market the latter strategy creates losses that are difficult to accept long term. However another reason is that with limited business opportunity available investors are seeking "income" rather than capital gain from their investments.

Accordingly I set out below some parameters to help these new "traders" avoid the worse pitfalls and hopefully guide them towards the mindset required for long term success.

1.        Start. Markets are rational. The best theory to gain this insight is Dow Theory. Learn everything you can about Hamilton's and Dow's perceptions and make it part of your investment "macro-view".

 2.       Due to the growing complexity in financial reporting and the opportunity for abuse therein, with its concomitant risk, it may be advisable to trade through exchange traded funds (ETF') or Contracts for Difference (CFD's). These funds trade like stocks but offer exposure to equity sectors, commodities, currencies and interest rates. Thus you have better opportunity for diversification with less risk. If you do not understand CFD's see note 1 below.

3.        When you enter a position know beforehand your exit point. Always place a sell stop thus limiting your potential loss.

4.        As your profits rise adjust your sell stop upwards thus locking in your profits.

5.        A trading platform offering discount commissions is absolutely vital. I like IG Markets or Ameritrade.

6.        Technical analysis data is vital to judge your entry and exit points. Get a good system that offers "real time" streaming providing one minute, five minute, ten minute and one hour ticker readings in addition to the regular daily timelines. I prefer the five minute screen. I use Worden Bros.

7.        Using too many technical indicators creates "paralysis by analysis". Get to know the indicators that work for you and stick to them. Consistency will bring greater reward. I like MACD (moving average convergence divergence, 10 and 20 DMA's (daily moving averages) and purchase volume. For price I use the candlestick format rather than the simple line as it gives more information on the market psychology of actual price movement. See note 2 below on MACD.

8.        You must adopt a trading strategy. If you do not have one find one. If you are new to trading use the many simulation packages available online to test and retest your knowledge and approach. Do not start to spend a major part of your capital until you have proven to yourself that you can consistently make good investment decisions in real time. It is better to be losing time rather than time and money. For me the best strategy to successfully day trade is our Wealth-builder MOMENTUM STRATEGY. This strategy highlights top stocks which are going long and going short. Our BUY indicator is a BULLISH ENGULFING candlestick moving up through a DMA on high volume. ideally with a MACD changing from negative to positive. Our SELL indicator is a BEARISH ENGULFING candlestick moving down through a DMA, ideally with MACD moving from positive to negative.

9.        The holy grail of trading is patience. If you do not have a trade that has a good

probability to work profitably for you the best place to be is in cash. This is hard to learn but is

absolutely essential.

10.      If you think trading is gambling you have missed the point and need to be re-educated. Go back to start and get your thinking rational.

Note 1:

Contracts for Difference

ONE of the most innovative financial instruments that have developed over the last decade or so is the CONTRACT FOR DIFFENCE, better known as a CFD. The explosion in the use of this product is one of the reasons why London, as opposed to New York, is becoming the financial location of preference for many financial managers and hedge traders. CFD's are not allowed in the U.S. due to legal restrictions imposed by the American Regulators.

Contracts for Difference were developed in London in the early 1990's. The innovation is accredited to Mr. Brian Keelan and Mr. Jon Wood of UBS Warburg. They were then initially used by institutional investors and hedge funds to limit their exposure to volatility on the London Stock Exchange in a cost-effective way, for in addition to being traded on margin, they helped avoid stamp duty (a government tax on purchase and sale of securities).

A CFD is in essence a contract between two parties agreeing that the buyer will be paid by the seller the difference between the contract value of the underlying equity and its value at time of contract. This means that traders and investors can participate in the gains and losses (if shorting) of the market for a fraction of capital exposed if the equity was purchased outright. In This regard the CDS's operate like option contracts, but unlike calls and puts, there are no fixed expiration dates and contract amounts. However contract values are normally subject to interest and commission charges. For this reason they are not really suitable to investors with a long-term buy and hold strategies. 

CFd's allow traders to invest long or short using margin. This fixed margin is usually about 5-10% of the value of the underlying financial instrument. Once the contract is purchased there is a variable adjustment in the value of the clients account based on the "marked to market" valuation process that happens in real time when the market is open. Thus for example if a stock ABC Inc. is trading at $100 it would cost approx. $10 to trade a CFD in ABC. If 1000 units were traded

it would therefore cost the investor $10,000 to "control" $100,000 worth of stock. If the stock increased in value to $110 the "marked to market" process would add $10,000 to the client's account (110-100 by 1000). As we can see the situation works very similarly to options but for the fact that there are no standard option contract sizes and expiration dates and complicated strike levels. Their simplicity has added greatly to their popular appeal amount the retail public.

Contracts For Difference are currently available in over the counter markets in Sweden, Spain, France, Canada, New Zealand, Australia, South Africa, Australia, Singapore, Switzerland, Italy, Germany and the United Kingdom. Their power and scope continue to grow. This development poses a problem to American financial institutions in that unless there is a change in security regulation Wall Street will lose out on a financial instrument that is changing the manner in which the greater public and aggressive financial managers are investing for the future. It is expected that Contracts for Difference will become the medium of transaction for the majority of World traders within the next decade.

Note 2:

Moving Average Convergence Divergence (MACD)

 Developed by Gerald Appel, MACD is one of the simplest and most reliable indicators available. MACD uses moving averages, which are lagging indicators, to include some trend following characteristics. These lagging indicators are turned into a momentum oscillator by subtracting the longer moving average from the shorter moving average. The resulting plot forms a line that oscillates above and below zero.

The most popular formula for the standard MACD is the difference between a stock's 26-day and 12-day exponential moving averages. However Appel and others have since tinkered with these original settings to come up with a MACD that is better suited for faster or slower securities. Using shorter moving averages will produce a quicker, more responsive indicator, while using longer averages will produce a slower indicator.

What does MACD do?
MACD measures the difference between two moving averages. A positive MACD indicates that the 12-day EMA (exponential moving average) is trading above the 26-day EMA. A negative MACD indicates that the 12-day EMA is trading below the 26-EMA. If MACD is positive and rising, then the gap between the 12-day EMA and the 26-day EMA is widening. This indicates that the rate-of-change of the faster moving average is higher than the rate-of-change for the slower moving average. Positive momentum is increasing and this would be considered bullish. If MACD is negative and declining further, then the negative gap between the faster moving average and the slower moving average is expanding. Downward momentum is accelerating and this would be considered bearish. MACD centerline crossovers occur when the faster moving average crosses the slower moving average. One of the primary benefits of MACD is that it does incorporate aspects of both momentum and trend in one indicator. As a trend following indicator, it will not be wrong for long. The use of moving averages ensures that the indicator will eventually follow the movements of the underlying security.

As a momentum indicator, MACD has the ability to foreshadow moves in the underlying stock. MACD divergences can be a key factor in predicting a trend change.  For example a negative divergence on a rising security signifies that bullish momentum is wavering and that there could be a potential change in trend from bullish to bearish. This can serve as an alert for traders and investors.

In 1986 Thomas Aspray developed the MACD histogram in order to anticipate MACD crossovers. The MACD histogram represents the difference between MACD and the 9-day EMA of MACD. The plot of this difference is presented as a histogram, making centerline crossovers and divergences more identifiable. Sharp increases in the MACD histogram indicate that MACD is rising faster than the 9-day ema and bullish momentum is strengthening. Sharp declines in the MACD histogram indicate that the MACD is falling faster that its 9-day ema and bearish momentum is increasing. Thomas Aspray recognized the MACD histogram as a tool to anticipate a moving average crossover. Divergences usually appear in the MACD histogram
before MACD moving average crossover. Armed with this knowledge, traders and investors can better prepare for potential change. Remember the weekly MACD histogram can be used to generate a long-term signal in order to establish the tradable trend, thus allowing only short-term signals that agree with the major trend to be used for investment action.

By Christopher M. Quigley
B.Sc., M.M.I.I. Grad., M.A.

Mr. Quigley is 46 years of age and holds a Batchelor Degree in Management from Trinity College/College of Commerce, Dublin and is a graduate of the Marketing Institute of Ireland. He commenced investing in the Stock Market in San Francisco, California where he lived for 6 years. Now based in Dublin, Mr. Quigley actively trades utilising the principles set out in the modules above. This Wealthbuilder course has been developed over the last 9 years as a result of research, study, experience and successful application.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Christopher M. Quigley Archive

© 2005-2018 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules