Thursday, June 29, 2006
Tonight's retake of the class was without technical problems. It was particularly interesting because of how the market reacted to the Federal Reserve's interest rate increase. You might even say it was a benefit to have the Tuesday night class have such trouble, just so I could retake it after the Fed announcement.
The rally the market experienced today did manage to knock out almost all good Bear Rally Short setups, so we didn't get to see too many live examples. However, it was really great to hear Matt's take on this event. It brings to light one particular advantage an individual trader can use: we don't have to trade. If we're not seeing any good setups for a trade, whether it be an Option Strategy, long or short position. We can wait for the setup to improve.
Tonight Matt gave a different example for selling short, and I think now that I've been exposed to it using so many different examples and in so many different concepts, I definitely get it. For your benefit I'll give tonight's example too. Matt decided that, while he was in town, he'd borrow Jennifer's super-sporty fun car. As Matt was driving around a gentleman in a limousine rolled down his window at a stoplight and said "I like your car, how much?" Matt knew from a previous conversation that Jennifer paid $30k for it. Since Matt is quite the entrepreneur, rather than explaining that it's not his car, he replies with an outrageous number: $50k. The man in the limo counts out $50k and Matt hands over the car. Now Matt is now short one super-sporty fun car, but he has $50k which he can use to purchase a new car to give back to Jennifer. He's expecting that he can go to the super-sporty fun car dealership and purchase a new fun car for $30k and he walks away with a nice $20k profit. Of course, it could be that Jennifer just happened to get a really great deal on her super-sporty fun car and the dealership wants $60k. If the dealership wants $60k Matt will have to come up with $10k out-of-pocket to cover the difference.
I covered most of what the session was about in the previous posting: Master Trader Session 4. This time it was just much easier to follow along because I didn't have any trouble seeing the visual cues for which Matt referred.
Wednesday, June 28, 2006
Bill did give us homework. We need to write a review for 2 out of 4 possible brokerage firms; possible firms: www.OptionsXpress.com, www.InteractiveBrokers.com, www.ThinkOrSwim.com, and www.PTISecurities.com. I've already set up an account with Options Xpress and am about 85% complete with an Interactive Brokers account. I'll write up my Interactive Brokers adventure soon, it should be quit entertaining, you won't want to miss it! Since I've already taken the tours of each of these and have set up the account, they'll probably be the ones I write about, however I will look at the other two as well. I'll also post my review here for your reading pleasure.
Tonight was an overview of Options as well as an introduction to the Bull Call Spread. What's that classic definition? Oh yes: An option is a contract between a Buyer and Seller, that give the buyer the right, but not the obligation to buy or to sell a specific stock at a specific price on or before a specific date in exchange for a market premium. By the way, that was from memory because I have not yet received the materials for this course (and I'm not a very good note-taker). The "specific price" in that definition is referred to as the strike price and the "specific date" is known as the expiration date. Options expire on the 3rd Saturday of each month, but for all practical purposes we only have up to the last trading day before the expiration to exercise the option. However, as Bill Keevan explained, we should never exercise, and especially we should never exercise an option. Instead of exercising the option, we should close our position by buying or selling the option.
There are two types of options that we can Buy and Sell: a Call Option and a Put Option.
When you buy a Call Option, you have the right, but not the obligation to Call the stock away (to buy the stock) at the Option's Strike Price. This is a debit trade, because you pay a market premium for the right to purchase the stock. Typically, you would buy a Call Option if you expect the stock to go up. For example, if the stock is currently trading at $35 today, you could buy the October 40 Call (a Call option with the strike price of $40 that expires the 3rd Saturday of October), anticipating that the stock would increase in value between now and October. Let's say it cost you $2 per share for the Option (the market premium). You'd end up spending $200 for the right to buy (to Call away) the stock for $40. If the stock does not increase in value, you lose that market premium. If the stock increases to anything above $40, say $45, you have the right to purchase the stock for $40, ensuring that you will make $5, minus the cost of the option ($2) meaning you stand to profit $3 for simply exercising the option.
When you sell a Call Option, you are obligated to sell the stock (have the stock Called away from you) at the strike price. This is known as a credit trade because you receive the money up-front. It also means you place yourself in an unlimited risk position as you are obligated to deliver the stock at the strike price. Bill made it very clear that he will NEVER recommend selling more options than you buy for this exact reason.
Buying a Put Option gives you the right, but not the obligation to sell the underlying security (to Put the stock to someone else) for the Strike price. You typically purchase a Put Option when you anticipate the value of the stock will decrease in value. You pay a market premium to have the right to sell the stock (to Put the stock) to someone else. If the value of the underlying stock is less than the Strike price, you stand to make a profit.
Selling a Put Option means you sell the right for someone to sell the stock to you (to put the stock to you) for the striking price. This one seems to be the oddest one of the bunch doesn't it? After all, you're selling the right to have the stock sold to you. This, like selling a Call Option, is a credit trade and puts you in an unlimited risk position. You are obligated to purchase the stock for the strike price because you were paid the market premium. You could profit from this trade if the stock's value increased while the option was still good. However, your profit is limited to the credit (the market premium) you receive when you sell the option.
The At-The-Money (ATM) Option is the option with a strike price that is nearest the current stock value. An In-The-Money (ITM) Call Option means the value of the stock is greater than the option Strike price. An Out-of-The-Money (OTM) Call Options means the value of the underlying security is less than the Strike Price. The opposite is true of a Put Option, it is ITM when the value of the stock is less than the Strike Price and OTM when the stock is greater than the Strike Price.
A bit more on terminology: If you Buy an Option you are described as Long the Option or the Option Holder. If you are Selling an Option you are Short the Option or the Option Writer. Why is all this terminology important? It's the language traders speak. If you don't know what it means to be an Option Writer, you don't know what the person is attempting to convey to you. And, of course, you need to know the difference between Calls and Puts and what it means to buy or sell either of those options. It is also important to know the Intrinsic Value versus the Extrinsic Value of an option. The Intrinsic value is simple enough. If the Option is In-The-Money (ITM) the option has intrinsic value, specifically the difference between the strike price and the current value of the stock. For more information about Options take a look at Wikipedia's entry on Options.
The introduction of the Bull Call Spread necessitated an explanation of Delta and Net Delta. Delta describes the value change per $1 move, so the Delta of a stock is 1-to-1. For every dollar the stock moves the value of holding the stock moves one dollar. Options are far more interesting because the Delta changes relative to the underlying stock. An Option's delta is at 0.5 when the stock value equals strike price, and approaches 1 when the option is deep enough In-The-Money (ITM). Likewise the further Out-of-The-Money (OTM) the option becomes the lower the Delta.
The Bull Call Spread involves taking advantage of simultaneously buying the At-The-Money (ATM) Call Option and selling an OTM Call Option. I'd share with you TMTT's specific rules for entry into this kind of a trade, but I'll let you pay for classes if you'd like to know. However, I will let you know that understanding Delta is important, and that you calculate the Net Delta by subtracting the OTM Option Delta from the ITM Option Delta.
If all this has your eyes glazed and your head spinning, not to worry. Bill will be reviewing all of the above information on the first half of Session 2 of the Trading P.I.T. If you've been reading this blog, you'd know that I gave myself a head-start by going through the OnDemand classes nearly a month ago. It's been my plan all along to go through the materials more than once to really solidify what I'm learning. I have a feeling most of these Trading P.I.T. Sessions are going to be on the technical side, and honestly I don't think I'll be able to share the specifics so as to no violate TMTT's copyrights and such. I'll do my best to give you a decent, general idea of what the class is about. Thanks for reading all this, I know it isn't easy!
We also took a moment to setup and test NetMeeting, which we'll use for sharing my desktop to review the same thing at the same time. We successfully connected, slightly ahead of schedule. For next week, I'm to read Chapter 2 and go through the workbook for the same chapter.
Tuesday, June 27, 2006
After wrapping up the discussion of the above Bull strategies Matt Gildea explained the Short Sale. I've been on the verge of understanding how selling short works, but never quite got it until hearing Matt describe it using the George Foreman Grill example. When you order a George Foreman Grill from a TV commercial, you'll notice that you should allow 8-10 weeks for delivery. This is because they don't have any set number of the product sitting around in a warehouse. It's likely they don't have any on hand at all, but they know they can have it manufactured and delivered within 8-10 weeks. So, basically the commercial is selling this product short because they're selling something they don't currently have. Unlike stocks, they probably know precisely what the cost per unit will be, and so they know what their profits will be. The same ability to sell something you don't have is available in the stock market. In this case you're selling before buying, with the goal of selling high and buying low. You loan the sold stocks (short sale) from your broker and then buying them back, hopefully at a lower price. I hope that example helps you as much as it helped me.
Before explaining how the short sale works Matt demonstrated entering a stop-limit trade on Options Xpress. Unfortunately my computer froze in the middle of this demonstration, and I couldn't reconnect in time to see all but the start. That's ok, as I've used Options Xpress for paper trading already, so I'm at least a little familiar with their site and the way to place a stop-limit.
It wasn't just my computer that had a problem for this session. Matt Gildea, our presenter, was having trouble with his local connection. He was giving the presentation from Chicago, and has done so without issue in the past, however this evening there were multiple interruptions in the presentation. The end result of these problems left me staring at blank screens most every time Matt moved the presentation forward. It seems that I was the last on the update list with WebEx. Needless to say, staring at a blank page while listening to visual cues being described was exceedingly frustrating. Being the computer nerd that I am, I looked into how WebEx connects and discovered that I may benefit from forwarding a port on my router (TCP port 1270, if you're interested). WebEx does tunnel through port 80 using HTTP, so it's not required, but it may improve the connection speed for me. I've contacted Tricia Moore, my coordinator for the Master Trader course to see if any make-up can be arranged.
It just wasn't Matt's night, as he was suffering from the remnants of a cold. His 35th birthday is this Friday, and although that's not really a bad thing, it must not be pleasant to be ill for such an event. Hopefully he'll be feeling better by Friday. Say it with me: Happy Birthday Matt!!
Not to harp on it, but it was particularly frustrating to have these interruptions with the presentation, especially given that this session was most appropriate for the current Bearish market condition. We did go through many examples of Swing Bear Rally Short tactic trades and since they're essentially just the inversion of the Swing Bull Pullback Long, I don't think it was a total loss, just frustrating. I think Matt did well to convey much of the information, even during the periods of time that his connection did not allow him to manage the presentation.
To wrap things up we were going to look at some live examples of bearish trades; unfortunately, due to the technical difficulties, Matt gave us the list of about a dozen stocks he identified but was unable to point out the setups visually with us. All of us as students need to do our homework now and take a look at the stocks that he picked for demonstrating the Swing Bear Rally Short tactic. Aside from just giving us some stocks to look at, Matt pointed out how to do our own scans using Trade Seeker to identify likely candidates for ourselves.
All in all, a frustrating evening, but not fruitless. It truly seemed to be an exceptional evening of technical difficulties. The previous 3 sessions were not fraught with such problems, so please don't interpret this as "normal" operations. Stay tuned, hopefully future sessions will go as smoothly as previous.
When asked by the application processor how I incurred this debt, I responded: "To pay for educational materials for my personal business." She ended the conversation by telling me that a credit analyst will be reviewing my request for the balance transfer. I'm now waiting to hear from them about this second request. You know I've got my fingers crossed, will you cross yours with me?
Wednesday, June 21, 2006
This is a huge amount of money for me to carry on my credit card and leaves me with little to trade with. I'm still happy to be on the path to Professional Trading, and truly see it as a viable future, but it seems I've handicapped myself for the short term. I guess the good part about having spent so much money on training is that I can't afford to not pay attention and not put the knowledge to use as soon as possible. I do expect that I'll be able to recoup the cost of the classes through the market within a year's time (hopefully sooner). I practically have to recoup my money through the market. How else can I dig myself out of this kind of debt?
Am I in a precarious position? Yes, and it's unlike any I've ever been in before as I am rather conservative, especially on the debt side of the equation. If you think it's some strange dichotomy for me to be debt conservative, yet willing to put my money (and livelihood) into trading... I can sum it up with the following statement: I have an aversion to debt.
Do I feel that I've been ripped off by EduTrades, Inc./TMTT? No, I don't think so. Certainly knowing what I know now I would have rather paid only $3,500 for the coaching and kept the rest for trading. I am very happy to have personal attention and individually tailored coaching, and I couldn't be happier with Rob as my coach. I see personal attention as one of the most valuable of the services TMTT offers. After all, every professional trader that I've read about has had a mentor that helped them become successful.
Rob is rather insistent that I only paper trade for the majority of the time I'm training with him. He also informed me that 85% of people that begin to take the path to becoming a professional trader quit within 6 months. As you must know by now, I'm not in this for the short term. I have made a real commitment to becoming a professional trader. I'm obviously not going to recoup my money until I'm actually doing live trades, which won't happen quite as soon as I was lead to believe when Tim Kane asked me to participate in the special package they offered. Being completely new to trading, I'm ok with running paper trades while I cut my teeth. It's much better to burn paper than real money and I would like to learn from my mistakes as safely as possible.
I'm feeling slightly desperate being this much in debt. I'm still awaiting an update on my credit report in order to figure out what can be done to make the loan less costly. I certainly hope TMTT is able to help me negotiate my card rate and balance with Chase (as they have offered and claimed that they've done successfully in the past) to make it possible for me to float that money with a lower usage cost.
Knowing all that I've just shared with you, what would you do differently? Comments are very welcome.
Tuesday, June 20, 2006
Matt also gave us a peak into his office (pictured on the right). I don't know about you, but I'm getting a case of display envy!
We began this evening's session with Chaikin Money Flow (CMF), one of Matt's favorite secondary indicators that is a practical tool for confirming swing highs in uptrends and swing lows in downtrends. Because CMF is a volume based indicator, it is particularly useful in showing us the buying or selling "pressure" (remember what we learned about volume in Master Trader Session 2).
Adding to our arsenal of indicators, we learned about the Average Directional Indicator (ADX) which is a great tool for measuring the strength of a trend. ADX is particularly suited as something to aid in determining when to exit a trade. Similarly, it's quite good for tightening up our stop (stop loss).
At this point in time we have a lot of indicators -- various Moving Averages, MACD, Stochastics, ADX, CMF -- from which to identify ideal uptrends and downtrends. They are also useful in determining our outlook, which can be from Extremely Bullish, Bullish, Bullish to Neutral-Stagnant, Neutral-Stagnant, Bearish to Neutral-Stagnant, Bearish, to
Extremely Bearish. Quite honestly these outlooks are obvious enough, but consider how valuable this information is when applying it to a specific stock, when attempting to capture the swing movements with the trend. The aforementioned outlooks can be applied in a top-down manner to aid in determining what kinds of trades or option strategies we would like to employ for the highest probability and reward/risk ratio. This top-down method of determining the outlook means scoring the market as a whole -- by looking at broad indices such as SPY, QQQ, and DIA -- as well as scoring the sector, and eventually the individual stock. Although we're given great rules to determine the outlook, it becomes a subjective task. For example, it will be extremely rare when all the criteria is met for an Extremely Bearish outlook. Generally some aspects will show as Bearish to Neutral-Stagnant or even Neutral-Stagnant, while other aspects may be showing a solidly Bearish trend.
And finally, after being steeped in indicators and general chart reading skils, we have enough knowledge to contextualize our tactics. Today we looked at the price correction Swing Bull Pullback Long. This tactic takes advantage of a stock's natural tendency to have price correction pullbacks during an uptrend. These tend to occur because of profit taking; traders sell at swing highs in order to lock in profit. We looked at this as a powerful setup for entry into a trade and covered how to place a stop-limit order based on the stock's movement. We also discussed one strategy for placing out stop (stop loss) for exiting the trade.
Unfortunately, in the current bearish market, we were unable to have a solid example in the live market. Honestly, this makes sense and we wouldn't be looking to enter a Bullish trade in a Bearish market, unless we had a stock (hopefully in a Bullish sector) that was truly outperforming the market.
Next session begins our shorting tactics. If the market continues its bearish trend we could have plenty of examples for a Swing Bear Rally Short. Until then, thanks for taking an interest in my blog, I hope you're finding what I have to useful and (hopefully) entertaining.
Friday, June 16, 2006
I've had the username Taocode at a variety of sites for the past dozen years. It originally started as a double entendre (double meaning). 1) The Art Of Code, meaning: creative, elegant programming code that has an intrinsic, artistic value. 2) Tao Code, as in: "the way" to conduct oneself. This adopts the concept of Tao, which is the natural order of things and cannot be explained since it exceeds senses, thoughts and imagination, as a code to follow. Deep, right?
As it turns out, the former interpretation of Taocode fits right in to trading, making it a triple entendre. Allow me to explain: even though it starts with a T, one pronounces Tao exactly like Dow (Charles Dow & the Dow Jones Industrial Average, etc...).
It appears that trading has been calling to me for some time and it's high time that I answer. If you think I'm making something of nothing... Smile, and don't take things so seriously!
Thursday, June 15, 2006
I've been dragging my heels on this long-over-due post. I say that because I've been figuring out exactly what my goals should be for some time. I want my goals to be as complete and specific as possible, yet flexible; aggressive, but realistic. I may be putting too much pressure on myself on this issue. So, here goes...
Short term goals:
- To learn, apply, and follow EduTrades, Inc./Teach Me To Trade's methods for chart reading, trade entry and exit guidelines, and structure/type of trade (option play, etc...). I'm not here to re-invent the wheel; my father and I have paid a lot of money to be instructed on TMTT's effective methods of trading and I'm going to do exactly as I'm taught. This is best, in particular for you: the reader of this blog. I don't want to invalidate the results by not following their guidelines. That would ruin why you're reading this blog, wouldn't it?
- My first paper trade (virtual trade). Sounds a little silly that I haven't yet, right? I actually have attempted to paper trade a Bear Put Spread, but wanted to ask for a discount off the bid-ask to make the spread cost less than 40% of the expected move (in this case a $5 dollar move, so I wanted the trade to cost me <= $2). The trade was looking great with a 0.58 Net Delta (the in-the-money put buy at 0.69 and the out-of-the-money put sell at 0.11). The expiration was 7.5 months out as the underlying stock was averaging <$1.6> per month, so I gave it 3.5 months for the move and doubled that. The January expiration date looked very nice. Since I wasn't sure how to specify the discount I canceled the order (silly thing to do... now that I think about it). Yesterday the underlying stock had already moved 3/5s the distance and I could have closed the position today -- profitably -- since the stock started to go bullish. But it's more likely that I would keep the position open for a while. I would have had plenty of time left on the option and today wasn't a reversal candlestick. Also, it was still below the 13EMA and hasn't proven that it's found support. But I still need to place that first paper trade. ;-)
- Fund my account to execute actual trades. (*gasp*) That probably doesn't seem like big a deal to you, and I know I'm blowing it out of proportion but... WOW! that is kind of a BFD for me. I've never even had a brokerage account before! This leads into my next goal...
- To learn my lessons as they come and not get spooked by a couple bad trades. It's really easy to mentally or virtually enter and exit a position, but it's certainly different with actual money. I know I pay way more attention when playing poker for a decent sized pot. Don't you? After all: "That's my money!" say it with me: "That's my money!" ;-) (thank you Lee Dotson!)
- To make my credit work better for me. I don't have a great credit situation right now. You may know (from earlier posts) that I've taken some actions to improve my credit score. Doing so should give me some negotiating room to get lower rates because I really don't think I'm a credit risk. Maybe everybody says this, but I assure you that my integrity won't allow for that. Aside from two collections that slipped through the cracks -- and have since been paid -- I don't think I've ever been past due on any money owed.
- To make enough Trading to offset the cost of the interest for the education that we've put on credit cards. I hope to negotiate a low interest rate to make that easier to achieve. While, at the same time, being able to pay that debt off as soon as it makes sense financially. If I'm netting more % return Trading with the use of that money, I may not be in such a hurry.
Mid term goals (you know -- like a mid term exam):
- Become financially independent. Earn enough Trading (while still being able to grow my account) to pay my bills and have the option to quit my job. At a bare minimum, $4k per month, but my real target is $10k per month and eventually more, as needed.
- Take over some of my father's investment accounts to get him better and more consistent returns.
- Do what I can to help my friends and family that are interested in Trading* (and I do hope that all of them are interested) to get them to where I will be: financially independent. If that means sending them to TMTT on my tab, so be it. They can return it to me when they become successful Traders*. Plus interest! HA! (no, just kidding about that... or am I?)
- Buy a home. Stop renting and get a nice place that accommodates me much better. I need a better kitchen situation to really help improve my life and health. This is very important to me and something that I've neglected for too long. I love food and I do enjoy preparing healthy & tasty dishes!
- Find out if laser eye surgery is appropriate for my sister and pay for it as a gift. ... So she can clearly read and learn how to become a Professional Trader* in even less time!!! I think she'd be really good at this, better than me.
- Have more free-time. Ideally, I'd have enough available time each day to do some things I enjoy: music, surfing, paragliding, exercising, learning a foreign language (preferrably in a foreign land :-D), etc...
- Remain humble, attentive, and adaptive to the market environment. I don't want my ego to cost me money when I'm successful. I want to always remain involved and continue to make smart trades. I also want to keep my skills current and learn to improve my trades to exploit whatever condition the market is giving.
Long term goals:
- Have vacation and travel time to see much of the
, often with my parents as well as plenty of travel abroad. Asia, Europe, Australia, ... I could go on and on about specific locations and how much time I'd like to spend and what I'd like to see and do, but I don't want to make you too jealous because you didn't think about that ;-). Maybe, if you ask nicely, I'll share a fantasy trip or two with you. US
- Be able to sponsor deserving and needy musicians/music groups. I have this crazy notion: I'd like to be able to afford to have (enough of) a semi-pro orchestra's interest under my control (buy that interest via sponsorship/shares/BoD) in order to get my favorite conductor (and friend) a position for others to see that he's worth more than a second look. I'd love to allow him the chance to prove to the world what a fine conductor he is and how improved the orchestra becomes under his direction. I told you it was a crazy notion, didn't I?
- Help this world. Respond to what's calling me, what I feel most passionately will do the most good.
Short and to the point, exactly as I intended ;-)
* I am joking about converting everyone into a Professional Trader. There are many people that don't want to have that much responsibility for their own finances. Who do you blame, curse, and begrudge if you're the only one responsible? It certainly can be a lot of pressure: to not have any excuses; especially if accustomed to using them as crutches.
Wednesday, June 14, 2006
Review Title: Expensive But Valuable
I've only recently begun with Teach Me To Trade (EduTrades, Inc.). The statements made in the critical review are not entirely accurate. You do pay a considerable amount for the courses and individual coaching/mentoring, and there is no guarantee of ROI, and you certainly can lose all your money without recourse (isn't that true of any investment system if you take it to it's theoretical limits?), however the courses are well organized, and contain thorough information about what it takes to become a successful professional trader. I think it's a gross inaccuracy to state:
"The truth behind TeachMeToTrade.com is that you only pay money for different programs and in the end receive nothing."The instructors, courses, coaches and materials they provide are top notch. There may be cheaper ways to acquire the knowledge they present, but they have done a very good job making the concepts accessible and digestible. I realize stock and option trading is not suitable for all investors due to the inherent risk, but the Teach Me To Trade methods are all geared towards limiting your risk exposure in the market. Limiting your exposure is key to consistently getting returns in stock and options trading (you keep the money you make, rather than giving it all back).
For a really in-depth look at exactly what they're teaching, how much I've spent and what I'm getting, please visit my blog. It's a first-hand account of my experience with EduTrades/TMTT:
It is heavy on me to make this decision. For those of you who don't know, I've paid a lot of money for these courses; if you're interested, read my trading blog below to know how many $s have been expended (I'm getting better at plugging my blog...) did you notice that? ;-). I need to get some ROI ASAP, and the quickest way to get Return On Investment is to get my education in As Soon As Possible in order to put the knowledge to use! Anyway, the course isn't offered at any other time in the near future, so basically I'm forced into it by need (aka: financial desperation :-D).
Good news: If all goes as hoped, funding for Allegro con spiracy and yours truly will not be a problem within a couple years. Thank you for your understanding, and let's reschedule :)
Check my progress in becoming a Professional Trader:
Tuesday, June 13, 2006
Matt Gildea presented again tonight for the Wealth Intelligence Academy'sTM Advanced Training Course: Master TraderTM Session 2; see: super-official overly long full name ;-). Why did I take all the time to write that out? Because I'm not taking any shortcuts on this blog :). You're getting the full unadulterated experience in all it's glory. Now, where was I? Oh yes...
Matt started by sharing a few downloads. A couple were images that showed how to link up Trade SeekerTM scans and alerts directly into The Trade CenterTM software. Very cool. Another neat trick he showed us was: how to link active charts in order to view the same stock over different time spans at once. Even cooler. Also included in the downloads was an Excel Spreadsheet that gives you some numbers on positions: Reward/Risk Ratio, % of Account Invested In Trade, Gain at Basic Investment Target (%), Loss at Initial Stop ($). All quite essential things to know before entering a trade, don't you think?
Today's session is still on the analysis side of chart reading. We learned about the following Moving Averages: 20, 50, and 200 Simple MA as well as the 13 Exponential MA. These were introduced as useful guides to support and resistance, help to identify the dominant trend and a stock's momentum. We looked at how combining these MAs can help us identify ranges and timing for entry or exit for a trending stock.
After those primary indicators we looked at how Volume comes in to the picture. A cool way that it was explained is:
If PRICE ACTION shows us whether a stock is hot, cold or lukewarm ("thermometer"), VOLUME shows us the buying or selling pressure at any given price level ("barometer").
It also often indicates where the "big money" is moving. An important issue related to volatility is liquidity. Liquidity is import for a couple reasons: 1) basically, slippage is a lack of liquidity on a low volume stock ("thinly traded"), where the fill price will vary from what you hoped because your order affects the price of the stock more than higher volume stocks. This is because there aren't enough other trades on the stock to allow the market to trade the stock at such a fine granularity. That was a mouthful. I'm sure someone else has stated it more simply, but that's how my brain interpreted and spit out what it learned. 2) Above average volume can be used to help determine if a trend is likely to continue (again, following the barometer, or how much "pressure" was behind the direction).
We then turned our attention to Gaps and how they can be used to determine energy, sentiment, and emotion. We studied the following kinds of gaps: Filled, Open, Breakaway, Exhaustion and Catastrophic. Each of the above imply different things about the gap -- how to interpret a gap based on it's specific movement.
After those aforementioned Primary Indicators, we looked at the Stochastic and MACD (Moving Averages Convergence/Divergence) Secondary Indicators and how they are used as additional signals or confirmations. They're known as secondary indicators because they are derived from the Primary Technical Indicators of stock price and volume. We learned how events on these can be leading or lagging signals based on the recent stock movement. Depending on the event shown in the indicator and the recent stock direction, we can interpret the signal and make higher probability trades. Both the Stochastic and the MACD are clear signals that help smooth out the "noise" of the day-to-day price action and can, under certain circumstances, be used as leading signals, however they don't give an exact entry price, and often give incorrect & lagging signals in many circumstances.
Both Primary and Secondary Indicators are to help us interpret & support which direction we think the stock may go: up, down or sideways. It's another bit of information to support what kind of trade we may want to enter or know when to exit.
Next session we will continue with Chaikin Money Flow and Average Directional Indicator. What's really exciting is that after we get these basic technical indicators and how to interpret them out of the way, we can begin to look at setups and how to apply all of the information to help us place high probability trades.
Friday, June 09, 2006
Regardless of who I need to talk to at Chase, it seems I should wait for the good credit updates to hit my credit history before having any additional credit checks performed, as a credit check will be performed again upon asking. Also, delaying this process a bit may help as the credit inquiry frequency will go down and I won’t lose points for too many checks in too short a time, though, I’m not certain enough time will have passed to offset that negative aspect. I’ve had 3 credit inquiries over the last month: 1) to increase my limit on my existing Visa to $15k, 2) Chase Visa application, and 3) Discover application.
In order to know when the VW Credit report has made it to my history, I took up the nice folks at Chase on their offer of a free credit report from all 3 bureaus. It is 100% free for 30 days, but after that they want to set me up with a credit monitoring program for about $12/month. I’ll cancel before I get charged, but it should give me enough time to verify the VW report has hit my credit history.
It appears that there is nothing more I can do at this point in time to improve my credit. I’ll probably have to eat some of the interest on my original credit card, hopefully less than 2 months worth. It’s time I get back to studying so that I can start trading and making money to pay off this debt!
Thursday, June 08, 2006
On a separate note, I cleared up a collection that was appearing on my credit report a couple weeks ago. I have a confirmation number for settling that blemish, but it still may be showing on my report because of the aforementioned lag time.
Hopefully these actions will help when negotiating with Chase & I'll even talk to Discover to see if sending in proof of the additional loan/credit history will help.
Wednesday, June 07, 2006
Problem. I applied for both a Chase Platinum card and a Discover Platinum card. Discover got back to me first with a rejection notice based on a lack of enough credit history. That bummed me out, but Chase sent a pre-approval letter to me, which I understood had up to 15 months of 0% interest on purchases and balance transfers. I returned the approval letter and they sent me a card. Not a platinum card (does not say platinum anywhere), and only 3 months of 0% interest on balance transfers, standard rate on purchases.
But here's the clencher: the limit is $1,400! I can't even get myself into trouble with that amount, let alone take a $15,000 balance transfer and only have the reduced interest rate for 3 months! This isn't looking good. I'm going to talk to Angela at Teach Me To Trade to see if she can help me out talking to them. Hopefully we'll be able to get 0% interest for at least a year and be able to transfer the whole amount, ideally with some dollars to spare to put into my brokerage account.
Do I feel I'm on thin ice right now? You betcha! I'm not going to panic until after my people talk to their people to see what we can do :).
Tuesday, June 06, 2006
Matt Gildea, the presenter for the entire course, began with a brief history about himself as a trader. He worked as a broker for a while before becoming a day trader in April 2000. At a glance, to the uneducated, it looked like he would have lost everything during the long downtrend from that all time high. What perfect timing, no? Actually, thanks to the guidance of his mentor, he did quite well.
We covered the difference between Fundamentals and Technicals and the roles and values of each. In short, Technical data is the information about a stock's movement including volatility and price changes, whereas Fundamentals have to do with the underlying company information including price to earnings ratio, officers, etc... Both technicals and fundamentals are valuable sources of information and aid in making decisions on which stocks to trade and when to enter and exit. The difference is that fundamentals tend to be more valuable for long term investing; when talking about day trading or swing trading, technicals are more valuable in figuring out the probability of the future stock movement.
One thing strongly emphasized is that we use technicals and fundamentals to asses the probability of a particular stock's movement, not to predict the future. The probability is based on a number of factors, such as technical indicators and things like the stock crossing a major moving day average, etc... We'll get into more of this sort of analysis in future sessions.
Today's session was an introduction chart reading. We went over how to read candlestick charts and identified the following candlestick reversal patterns:
- The Doji - the stock closes where it opens it matters not how much upper or lower shadow shows up. Not a reversal candlestick when there is no clear trend leading up to it.
- Bullish & Bearish Engulfing - the main body of the candlestick engulfs the previous day's candlestick
- The Hammer - during a downtrend, the stock sells off during the day but closes higher than it opens, leaving a long lower shadow with a small main body.
- The Hanging Man - during an uptrend, the stock sells off during the day but closes just slightly lower than it opens, leaving a long lower shadow with a small main body, much like a Hammer candlestick.
- Bullish & Bearish Harami - the inversion of an engulfing pattern; the body of the candlestick will fit into the previous day's candlestick.
- The Shooting Star - similar to the Hanging Man except with a long upper shadow.
- Dark Cloud Cover - during an uptrend, the stock gaps up and sells off to a point lower than the midpoint of the previous day's candlestick body.
- The Piercing Line - the opposite of Dark Cloud Cover
- The High Wave - after a multi-day uptrend, this is a bearish candle that has very long upper and lower shadow with a relatively small main body.
That's the quick-and-dirty description of the first session -- OK, not so quick, but it was a 3 hour class!