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STEEL, THE MARKET LEADER

Continued reading from from Tape Reading & Market Tactics.

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Chapter 9

Steel, The Market Leader

Watch Steel

There is a saying: “As Steel goes, so goes the market.” There is no question that X is the market leader, its bellwether. American Can, General Electric, Westinghouse, American Telephone, and a few other stocks, are also termed market leaders. They are, but the market will follow Steel when every other stock loses its leadership. This was particularly well illustrated, I think, in October, 1930, during the period of persistent liquidation. For days, American Can did not break; it held like a rock. Steel, however, led the market in the decline, or at least sagged simultaneously. I believe that if Steel had withstood the pressure, the market would have halted its drift likewise.

 

By the way, when you hear loose talk about “support-orders” in Steel, Can, and other leaders—when you are told: “They are going to support the market”—take out your pencil, add up the volume of transactions, and figure the millions “they” would need in order to support the market. Think in the same way when you hear stories to the effect that “they are going to run Steel up ten points.” I do not imply that Steel is not ever supported, or that powerful interests do not push Steel forward at times—for they do—but they do it when the market is technically set for the maneuver. There are no interests in Wall Street powerful enough to stem the tide of wholesale public liquidation (this was proved in October, 1929); nor have they enough money to run Steel up 10 points, when they know from the market’s position that thousands upon thousands of shares of Steel would be offered for sale all the way up. It is simple enough to sit around a brokerage office and glibly spin yarns about the “big fellows.” Forget it; if any of your informants knew them well enough to know what they were doing, they would not be sitting in a broker’s office talking to you and me.

 

 To return to Steel: watch Steel closely at all times. Pay the same attention to its action that you do to your own stock. Your stock will probably rally with the market, if your selection has been correct; it may follow the market, or advance ahead of it; but it should not go against the trend. (If it does, check your position quickly, because when the general list does not follow Steel it is quite likely that many stocks are being sold under cover of strength in Steel.) Steel is a particularly helpful indicator because it is always active, thousands of shares being traded daily; and it never swings wildly, its market usually moving by eighths of a point.

 

If you hold an inactive stock (which is not recommended for short-turn trading), and for some time there have been no transactions in that stock, yet in the meanwhile Steel has reacted two or three points, it is well to “quote” your stock (obtain the bid and offered prices from the floor through your orderclerk). This will give you your “market;” otherwise, you may be disappointed when you finally see a transaction some dollars away from the last sale. Of course, if Steel is advancing and you are long, you need not feel uneasy; but it is none the less a comfort to have the “quote.”

 

If you intend to watch the tape constantly, it is good practice to obtain the market on Steel, the bid and offered prices, shortly after the opening. From these you can detect whether Steel is being bid for, or whether it is offered below the bid price. Let me explain: assume that the market on Steel at five minutes after 10 o’clock is 149¼ bid and 149½ asked. If you notice 3,000 shares of Steel pass soon after at 149¼, you know at once that someone has “hit the bid,” that in this block of Steel the selling has been more urgent than the buying. If it happens the other way about, with the transaction at 149¾, you will know that someone is bidding for stock and is willing to pay more than the asked price.

The Tape Story of Loew’s

  Continued reading from from Tape Reading & Market Tactics.

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Chapter 8

The Tape Story of Loew’s

A Day-by-Day Illustration

A detailed tape story of Loew’s action during November, 1930, will, I believe, be helpful, corroborating as it does, so completely, the principles of tape reading.

 

At least this action was of peculiar interest to me at the time, for I then owned the stock and, in consequence, for a while found myself quite uncomfortable.

 

In November, 1930, Loew’s Incorporated, reported earnings for the year ending the preceding August 31 of $9.65 per share, which indicated a splendid record. On Plate 6, which gives the course of Loew’s during the period from November 1 to December 2, you will note that this stock held up against the drastic selling waves common in the market at that time.

 

A Puzzling Reaction

On November 5, 6, and 7 (“A” on Plate 6), the tape action of Loew’s was not satisfactory. A trader watching the tape on the 7th would have seen the activity of volume in Loew’s to be more impressive on the declines than on the rallies. In other words, the selling was better than the buying. One attempting to catch the minor intermediate fluctuations would have immediately sold his stock. There were plenty of opportunities to sell, inasmuch as the stock ran up well on light volume on several distinct occasions.

 

On November 12 (“B” on the chart), under increasing volume, Loew’s dipped as low as 53¼, although it was able to close the day at 56¼. The volume of transactions on that day was 61,300 shares, as contrasted with an average daily turnover the week previous of about half that amount of stock. On November 13, Loew’s opened at 56⅝, but sank steadily through the day until it reached a low of 53⅜. The next day it opened at 54¼, ran up to a high for the day of 55¾, and then under constant pressure of liquidation the stock, fell as low as 52⅝.

 

PLATE 6

How to Take Money from the Markets

Steve Palmquist, one of our great blog contributors, has a new book coming out next month.  Here is a sneak peek from How to Take Money from the Markets: Creating Profitable Strategies Plus Six Ready-to-Use Systems.

 

Chapter 7: Market Adaptive Trading

 

Trading is about being positioned to make profits if a stock, or the market, does the usual thing in a given situation. If we find that a specific price or volume pattern is most often followed by price increases in bullish markets, then we focus on taking long positions when we see the pattern form during a bullish environment. If we find that another pattern is most often followed by price declines during a bearish environment, then we focus on taking short positions when we identify the pattern in bearish market conditions. There is no way to predict the future and know what the outcome of any particular trade will be. We can, however, discover what the most likely outcome of a trading pattern is over hundreds of trades in similar market conditions, and thus have a reasonable expectation that over a number of trades, in similar conditions, profits may be realized.

 

The market has three basic modes: bullish, bearish, and trading range. It really can not do anything else. There is no way of knowing what the market will do next year, or over the next five years, and it is odd that so many people gamble their life savings based on some stranger’s prediction of future market direction. Listening to market forecasters is basically “hold and hope.”

 

Hope is not a trading strategy.

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Download to read the rest of Chapter 7 and take a look at the Table of Contents and Index.

VARIOUS TYPES OF TOP ACTION

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Chapter 7

Various Types of Top Action

 

Tops More Difficult to Distinguish Than Bottoms

Top-signals of the market as a whole, or of the market averages, are not as readily discernible as bottom-signals. The reason for the difference in action is that, in making for a top, all stocks do not reach their pinnacles at the same time, because, broadly speaking, buying is always, in any market, more slowly actuated than selling; whereas, in making for a bottom, stocks gain momentum as prices decline, and the rank and file, becoming panicky, dump stocks without rhyme or reason, and thus bring on a climax.

 

We have many rounding-over tops of the general market, as differentiated from sharply defined bottoms. The best illustration of this is the broad two to three months’ top in the fall of 1929, as contrasted with the bottoms in the single days of October 29 and November 13, 1929.

 

In detecting the tops of moves, therefore, we must watch our individual stocks and not depend upon the general market for the signal to sell. However, when we notice that the market as a whole, as reflected in stock averages, slows up—becomes tired, and is apparently struggling to make higher peaks—we then are safe in assuming that the demand is not sufficient to push stocks farther without an intervening reaction. That is the time to analyze with particular concentration the action of individual stocks, because volume as a signal of the composite market is often deceiving, inasmuch as the top may consume several days and, therefore, each day will not be marked by conspicuous volume.

 

These tired-appearing markets must be carefully analyzed, as I have said, because in straightaway bull markets this action sometimes becomes nothing more than a rest-period (see page 92-93 and Plates 15 and 16), after which the advance is resumed. You will notice, however, from the following examples, that when tops are formed we do get the signal from volume—either at the top, followed by an immediate “turn-over” on greatly increased volume, or with a slowly “falling-over” top followed by the momentous volume a day or more later. Thus it may be broadly stated, that markedly increased volume following a run-up in price signifies distribution.

 

A Sharply Defined Top

In Plate 3 is shown the July, 1930, top in American and Foreign Power. It hardly needs explanation. The three-day spurt to the top was followed by a sudden turn-over on the 30th from a high of 77 to a closing price of 73, attended by heavy volume. You will notice in this illustration that the high figure of the top day exceeded that of the day previous by only $0.25 per share; yet the volume at this last drive was larger. (The curve in the chart, by the way, is formed by the high prices of each day.) The period covered is from July 14 to August 10, 1930.

 

This is a clear illustration of how a stock oftentimes rushes up accompanied by heavy volume and turns over on a big volume day.

 

A Broad Top

The action of General Electric (Plate 4) at this time in July was not so simple to interpret. There was no clear-cut indication of which was the top-day, as there was in American and Foreign Power.

 

From an analysis of a full day’s activity, you will see it was not until the 30th that we received a definite message that the supply exceeded the demand and that a top had been formed.

TURNING POINTS ON LIGHT VOLUME

Continued reading from Tape Reading & Market Tactics. 

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Chapter 6

Turning Points on Light Volume

 

The Struggling Market

The characteristics of a struggling market are: a slow or irregular advance of prices, light volume, and dullness in general. (Reverse the illustration for the turning point after a struggling decline.)

 

If we are holding stocks for an advance, action of this kind tries our patience—which is exactly what it does to the other hundreds or thousands who are waiting for profits. No one seems willing to bid for stocks in any quantity; yet there are few sellers offering blocks of stock, realizing as they do that the demand is not sufficient to absorb them.

 

What is the natural outcome? Either one of two results, and the action of the volume should tell us which it is. The buying may eventually dry up, and the selling increase, as sellers see that they cannot hope to dispose of their stocks at higher prices. This may bring on an abrupt downward trend, the indications of which will be the appearance of larger blocks of stock offered at continually lower figures. (See Plate 2 and following text for explanations.)

 

The second eventuality is that prices will roll over and sag under their own weight, without the increase of selling pressure. In other words, the market struggles up and turns over as impatient holders take profits, or sell out in disgust. While the demand dries up, the supply likewise remains light. We then have a sagging, dull reaction, following the tired upward movement. This may continue until a level is reached where there is a greater demand, which, in turn, will be indicated by larger blocks. These dull markets may reflect a temporary indecision of the speculative powers, who await definite news from the business world. They may follow a severe upset, when public sentiment is at a low ebb and the professionals simply “sit tight” until the public “forgets.”

 

These markets are difficult to follow because you can tell neither whether they will roll over on light volume nor whether they will be reversed suddenly. The latter is the more frequent; and for that reason the trader is doing the wise thing to step aside, or to protect himself against large loss by placing stop-loss orders against his commitments. 
  

PLATE 2

 

TURNING POINTS ON HEAVY VOLUME

Continued reading from Tape Reading and Market Tactics.

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 Chapter 5

Turning Points on Heavy Volume

Heavy Volume But No Headway

Heavy volume at the end of a move is extremely important, inasmuch as it generally indicates a turning point in the market. In this situation, on the upward side, we have volume during the advance with continued, increasing activity of transactions at the top without stocks making further headway. In other words, our buyer wants more stock and continues to enter order after order; meanwhile, our seller, who previously would sell only on advancing prices, now offers for sale great quantities of stock. For a time there is a tug of minds between buyers and sellers, but this extreme activity near and at the top is indicative of a substantial reaction to follow.

This is true, likewise, at the bottom. You are familiar with some of the turning points of the declines in 1929 and 1930, when volume increased tremendously. June 18, 1930, furnished an example. On that day more than 6,000,000 shares changed hands. Late in the day a rally set in, and soon buyers were bidding for stocks, whereas just before that all the weight was on the side offering stock for sale. There were many of these volume days during 1929 and 1930. September and October, 1929, witnessed this churning of stocks at the top.

 

Lesser movements are marked by the same characteristics. I have mentioned these big days because the illustration is clearer.

 

Let us run over these first two phases of volume action and translate them into terms of human action.

Volume Indicating an Advance

During the rally, what has been going on? Two things: first, the buying of stocks by those who are covering their previous short sales; and, second, new buying by those who expect the advance to continue. Both factions are spending their money to purchase something; but one faction is closing out a transaction, while the other is entering one. The man who covers his short position is in a greater hurry than the long buyer. The short seller will rush to cover if he believes that the rally will endure for some time. If you are contemplating a purchase (likewise, if you consider selling stock which you own), you are interested in both of these opinions—the judgment of John Smith, who is short, and that of John Jones, who is buying stock to hold for the advance. You would like also to determine whether there are many more Smiths than Joneses—more short-coverers than long buyers—because if the rally is due mainly to short-covering it is likely to be brief, and may be followed by further declines.

 

How can you tell which it is? Watch the volume and, in this situation, the rapidity of price changes. If you are considering purchases, you will probably not be in a rush; and, furthermore, you will not wish to buy if you feel that an order “at the market” may be executed at two or three dollars per share more than you see on the tape. On the other hand, if you are short, and feel the decline has spent itself, you will place your buying-orders at the market, satisfied to get out with your profits.

 

Let us assume that you sensed the turn at the bottom and purchased two or three stocks. Your interest now would be to decide whether to hold for a sizable advance, or to throw out your stocks if you misjudged the turn in the trend. Your problem then resolves itself into determining whether good buying comes into the market along with short-covering. (By “good buying” is meant purchases made by those who are in a position to know the underlying conditions of the market, and also the buying done by those who are sponsors of certain issues.) You notice large blocks of stocks taken at steadily rising prices. At intervals, the market becomes quieter, with less volume and fewer transactions; yet you notice that coincidentally there is very little weakness apparent; that reactions are on transactions of only 100 to 1,000 or 2,000 shares: there are few huge blocks frequently changing hands at lower prices.

INCREASING VOLUME DURING AN ADVANCE

Continued from Tape Reading and Market Tactics.

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Chapter 4

Increasing Volume During An Advance

I have stated that the essence of tape reading is the interpreting of the action of the volume. The broadest example of this is when the market rallies briskly, with the volume of transactions increasing—millions of dollars’ worth of stocks changing hands. After a time, it will be noticed, stocks generally slow up in their advance. Right then is the important time to watch the volume. If the volume decreases perceptibly with the diminishing advance of prices, it is a favorable sign, indicating that, although purchasing orders have slowed down, there is not a heavy supply of stock offered for sale; otherwise, an immediate reaction would set in. If, following this stabilizing period, prices begin to decline, watch for increasing volume on the downward path. If prices sag under slight pressure—that is, if the volume of transactions is dull, in hundreds of shares rather than in large blocks—it is again a favorable signal for the resumption of the advance later. It is from this action that one of the old adages of Wall Street doubtless sprung: “Never sell a dull market.” I believe that this was intended for bull markets, for it appears just as dangerous to “buy a dull market”—during a bear market.

 

Therefore, watch for dullness to appear on reactions, for then you may expect a resumption of the advance. Conversely, small volume on rallies, after a decline, is an indication of lower prices later. During the summer and fall of 1930, when stock prices were declining disastrously, the rallies were marked by an immediate lessening in the volume of transactions: volume dried up on rallies. During the declines, however, volume increased rapidly. It simply meant that there was a far greater amount of stock for sale than the buyer would purchase, except at constantly cheaper prices.

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THE PRINCIPLES OF TAPE READING

Continued reading from

Tape Reading & Market Tactics.

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Chapter 3

The Principles of Tape Reading

Tape Interpretation

Tape interpretation depends upon a consideration of the action of the volume. It is not price action, but volume—the amount of money, the supply and the demand—which best tells the story. You will readily agree that it makes a great difference whether tile buyer is willing to pay $15,000 for 100 shares of Steel (X-150) or $150,000 for 1,000 shares (X-10.150). The demand is greater in the latter case, as is the supply. Do not forget that every purchase of a share of stock means a sale also. Our job is to determine the balance of the supply and the demand: whether the demand is greater than the supply, in which case the price advances, of course; or the reverse. The action of the volume tells us of the supply and demand; price merely denotes the value of the volume.

 

Tape reading is an art, rather than a science. After experience and familiarity with varying types of markets, the trader arrives at a stage where his intuition comes into play. He then has the “feel” of the tape. I cannot hope to pass along this intuitive understanding of tape reading; but if you understand the principles and hints herein pointed out, not many months should pass before you begin to get this “feel.” Familiarity with many symbols, a quick eye, concentrated observation of important transactions, or the lack of them, and a studied belief that the philosophy and psychology of the tape are the all-important factors, will bring success—success in interpreting movements of prices, although not necessarily success in making money.

 

The latter will depend upon your own actions and reactions, your emotions, your ability to act in accordance with your opinions, and the hundred and one other human factors, many of which are to be discussed in Part Three of this book.

 

Do not be discouraged. If it were easy, there would not be any stock market; if it were not for the variance of opinions, active speculation would not exist and orders would be transacted over the counter.

 

Continued reading from Tape Reading & Market Tactics

Continued reading from Tape Reading & Market Tactics.

Click here to read Chapter 1

Chapter 2

The Ticker Tape

Behind the Tape

In Part One we have seen something of the power behind the ticker. You will agree with me, I am sure, that it will tax our ingenuity, observation, and perceptive judgment to the limit if we are to be successful in foretelling from market action when stocks will advance and when they will decline. (These discussions relate to the intermediate trends and minor fluctuations of stock prices, and not to the long-term, or commonly called “long-pull,” trends.)

 

Market action—the buying and selling of stocks—is recorded on the tape. To the uninitiated eye and brain the tape means little—it is simply a confusion of hieroglyphics and figures. To the student, however, it offers opportunities commensurate with the skill, judgment, study, and self-mastery employed.

 

As the tape records money transactions, I am going to ask you to forget, for the time, the word “points” when discussing stock quotations and think instead in terms of dollars. The mention of dollars immediately conjures up the idea of buying and selling. For instance, if you notice a 5,000-share transaction of Steel (symbol, X) on the tape at $170, call to your mind the fact that this means that $850,000 worth of common-stock certificates of the United States Steel Corporation have changed hands. If you then notice, some hours later, another exchange of the same quantity at $175, realize that this, translated, means an increase in value of $25,000. To me such transactions take on a far greater significance if spoken of in terms of dollars than they would if someone said: “Steel advanced five points.”

 

Before we attempt to understand the technicalities of tape reading, let us picture in our minds the scene behind the symbols. If you have never visited the New York Stock Exchange, I suggest you do so at your first opportunity. In the mean time, visualize a marketplace where hundreds of men are busily engaged in buying and selling goods. You see a little knot here in this corner where one man in the center has orders from his clients to buy, we will say, 1,000 shares of American Can stock at $150 per share—an order totaling a value of $150,000; quite a sizable piece of business. The other men in the group may each have smaller orders to sell: one is willing to sell 300 shares; another, 200; and so on.

 

On the floor of the Exchange there are many groups such as the one described. These men spend their entire time between 10:00 and 3:00 o’clock each day executing orders which they receive from their offices—orders placed by you and me and the hundreds of thousands of buyers and sellers throughout the world. There are also floor traders—members of the Exchange—who buy and sell stocks for their own account. All of these orders for millions of shares of stocks are recorded on the tape.

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Our experts are our greatest asset; we invite you to more from learn them here.

 

Jake Bernstein

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Tape Reading & Market Tactics

Chapter from Tape Reading & Market Tactics.

Part One: Stock Speculation

 

Chapter 1:Stock Speculation

 

Before we launch into our study proper, let us first review our ABC’s.

 

What is the stock market? It is simply a marketplace for the exchange of certificates for money, or money for certificates. In the world of securities speculation, stock certificates hold the same place as, say, cloaks and suits do in the cloak-and-suit trade: they are merchandise, to be bought and sold for profit. Whereas the cloak-and-suit manufacturer buys cloth from which he makes his merchandise, the financial “manufacturer” (called “underwriter” or “banker”) seeks situations for which he may manufacture stock certificates. Many plans of refinancing have been initiated by the financial community when their shelves have been bare of merchandise. They must sell stocks or they cannot earn profits.

 

In addition to the manufacturers, there are others who do no underwriting, but act solely as distributors of stocks; and others still who limit their business to buying and selling for their own purposes.

 

When common stocks possess certain qualifications, their listing is permitted upon the New York Stock Exchange. In addition, there are thousands of issues listed upon the other exchanges. I shall devote the discussions in this book to the New York Stock Exchange, although the principles will hold good in nearly all speculative situations.

 

Who makes the purchases and sales of stocks so listed? Let me group them roughly into three divisions:

1.   Investors seeking income. Institutions (insurance companies, industrial corporations, trusts, etc.) Banks’ investment affiliates. Investment trusts (those which actually invest).

 

2.   Businessmen speculators, brokerage-office traders, and the other thousands of amateurs who trade in the hope of making easy money; also, trading trusts and corporations.

 

3.   Professional operators, stock exchange floor traders, pools, investment bankers, and other intelligent speculators.

Free Chapter from Iron Condors

This week’s free chapter comes from the Iron Condor: Neutral Strategy for Uncommon Profit.  Don’t forget to take the quiz at the end!

 

Chapter 7: Iron Condor Variations

Iron Butterfly

The “iron butterfly” position is a special case of an iron condor where the short put options and the short call options have identical strike prices. A profit and loss diagram for the iron butterfly strategy is shown in Figure 7.1.

As you can see in Figure 7.1, the iron butterfly has a very narrow profitability region as compared to an iron condor; however, the maximum potential profit for an iron butterfly is greater than for an iron condor, all else being equal.

An iron butterfly is best applied to securities that are stuck in a trading range and unlikely to venture from the trading range prior to expiration.

Traders' Library goes to BookExpo America

Last week, a couple of us from Traders' Library and Marketplace Books went to BEA, BookExpo America and had a great time.  Met with a lot of great people, attended some awesome sessions, and of course got some free stuff!  All-in-all it was a great learning experience. 

Boy! How the publishing industry is changing! 

Here are some photos of the event!

Be sure to let us know if there is a better way we can serve you with valuable trading information, any topics you feel we should cover, etc.

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Chapter 9 : Charting Tool of the Microtrader

Now, let’s talk about the trading style known as microtrading. It covers a holding period anywhere from seconds to hours. It does not call for holding stocks overnight. This style of active trading goes after small, but frequent bite-size gains. The microtrader typically uses two time frames. Not a weekly time frame, not a daily, but two dominant intraday time frames—the 5-minute and the 15-minute.

Figures 9.1 and 9.2 are examples of two microtrading charts. They are the 15-minute time frame and the 5-minute time frame (respectively), and they are from the same stock at the same time. Remember, on a 5-minute chart, every bar represents 5 minutes worth of trading, and on a 15-minute chart, every bar represents 15 minutes worth of trading. Remember also that we are looking at the same price pattern being viewed, first through the eyes of the 15- minute chart, then through the eyes of the 5-minute chart. The 5-minute offers us a closer look. It is a zoomed-in or magnified look at the same price pattern. 

 
 

Free Chapter: Trading Systems Explained

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Chapter 11: The (Almost) Perfect System

Make Sure the System Fits Your Personality

If anyone says they have “The Perfect System” it is a bit of a misnomer since there is no such thing. I use “The (Almost) Perfect System” as the title of this section as a guideline to help you tailor-make the kind of system that can work for you. This is a very important part of the process. Remember, to be successful you need to act on every signal without question and without second-guessing what might happen. In order to arrive at this point, you must be psychologically tuned-in to the system and have total confidence in the outcome. The following are a few guidelines to steer you in that direction.

 

First, the system should be one that trades with your personality. If you are an intraday trader who likes the excitement of the moment, there is no sense in adopting a system that will trigger signals every six months or so. Chart 11-1 shows the Nikkei and the buy and sell signals that resulted from a 2-day MA crossover with no margin. This just happened to be the best-optimized timespan from a test ranging from 2 to 65 days as shown in Table 11-1. You will also notice a 17 percent drawdown in 1997. While we can say the system is successful based on these limited results, it is not for everybody. Many people just do not have time to devote to such trading, nor do they relish the constant excitement and emotional drain that its execution might involve. In this test, 222 signals, or one every 4 days, were triggered just based on going long. You also have to take your lifestyle into account. Those with a full time job should not be trading on a day-to-day basis. Do your homework in the evenings, or better still, the weekends, and plan your trades using systems based on daily or weekly closes. This way you can do a good day’s work without the distraction of entering new positions or being stopped out. It is impossible to concentrate on your job and the market at the same time. If you try to do both, one or both will slip.

  

 

Free Chapter from Michael Jardine's New Frontiers in Fibonacci Trading

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CHAPTER 12: Shifted Moving Averages and Bollinger Bands

 

 

 The moving averages—which include both stochastics and the moving average convergence divergence indicator (MACD)—are lagging indicators and, as such, are open to whipsaws. Whipsaws occur when prices jump back and forth across the moving average, and trigger false trade entry signals before the moving average can catch up with the price action. However the moving average may also function as a leading indicator when used together with the Bollinger Band. Both are lagging indicators, but by combining them together, they become leading indicators.

 

  This application was introduced to me by Russell A. Lockhart, PhD., though I have adapted it to my own trading style. I would encourage you to do exactly the same—take a look, see how it works, and then adapt it for your own use.

 

  Bollinger Bands, developed by John Bollinger, are moving averages of the standard deviation of prices, over a given period of time. Standard deviation (SDV) is the square root of the variance, and variance is a measure of how spread out a distribution is. These calculations are performed for you in the majority of charting programs. The Bollinger Bands show you exactly what price level, based on prices up and down over a given time period, would be considered to be out of the ordinary if prices were to then reach or exceed that level.

Winner of the 3rd Annual Axiom Business Book Awards

Marketplace Books is proud to announce that we been awarded two medals from the Axiom Business Books Awards in the category of Investing. Toni Hansen’s latest release, Simple Steps to Trading Discipline: Increasing Profits with Habits You Already Have, won the silver medal, and our very own blog contributer, Sylvain Vervoort’s Capturing Profit with Technical Analysis: Hands-on Rules for Exploiting Candlestick, Indicator, and Money Management Techniques, won the bronze.

Congrats to Toni, Sylvain, and the whole Marketplace Books team!!

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Free Chapter Tuesday: Intra-Day Trading Strategies

Free Chapter Tuesday, from Intra-Day Trading Strategies by Jeff Cooper.  To take the accompanied chapter quiz log onto www.traderslibrary.com/TLEcorner.

CHAPTER 3 The Simple Tools are Often the Best

The whole idea of chart analysis is thought to be complicated. But if it is done right, the whole process can and should be quite simple.

Let’s take a look at a chart that demonstrates what I’m talking about: trend line behavior on a weekly pattern.  One of the keys to success in the market is trying to keep it simple.  It sounds very trite, but there’s so much out there with computer modeling and complicated and detailed plans that don’t really give you much insight at all. It can be very overwhelming.

In order to see something happen in the market, you have to place it on your radar.  You can’t be greedy.  You have to be able to drill down and look at only a few things if you’re ever going to take any money out of the market.  And by that I mean that some of the simplest tools, such as the straight trend line, are the best.

Let’s look at a weekly chart of ImClone (figure 3.1).  Notice that for this stock, after every turndown on the weekly chart, you never see any follow-through.  You didn’t necessarily see a thrust up, but this reveals that the trend was still up even on a down day.  Every time the weekly chart turned down, you still found the low, and then it stopped.  Then you see the turn. It was clearly signaled. Note that right before the turn downward, there were three days of progressively higher high price levels, offset by progressively higher lows. I call this a three-bar surge because the signal follows the established direction but also provides an exceptionally strong warning that the trend is about to end. The same thing works on a downtrend. You know you’re reaching the bottom when you see a three-bar surge with consecutive lower lows offset by lower highs.

Free Chapter Tuesday- Secrets of the World Cup Advisors

This week's free chapter is from Secrets of the World Cup Advisors.

 

C H A P T E R 6

Trading with an Equity Graph

By John Mills

 

First came the goal: To have a chance to win the Robbins’ World Cup Championship of Futures Trading, I would need to make at least a 50% return on a $10,000 account. That meant I needed to make $5,000 by trading before December 31st.

 

Traders who set weekly, monthly or yearly goals for themselves will recognize this rationale. Whether trade is your sole income or supplements it, you know what you want to make over a specific time period. Once that goal is established, you can break it down further: by day and even by trade. For me, this was not an intellectual exercise; it was an important part of the development of my strategy and trading plan, which ultimately led to a respectable finish in the World Cup Championship with a return that was almost exactly what I had planned.

 

Thus, as I set my trading plan, I broke my $5,000 yearly goal into smaller increments: I needed to make $416.66 per month or $96.15 per week. That certainly sounded more attainable than a 50 percent return. Through this exercise, I defined my objective and established a weekly goal of making $96.15 per week. All I needed was a tool to keep me on track.

 

The Trading Equity Graph, as I call it, became the single most important tool I used during the World Cup Championship. It remains the most significant part of my trading today. Traders who use this tool will find it is more than just a performance-tracking device. As you’ll see, the Trading Equity Graph also sets up profit targets and stop-loss points for each and every trade that you make.