Tuesday, June 06, 2006

Master Trader Session 1

Today was my first live online course with the Wealth Intelligence Academy (EduTrades/Teach Me To Trade). It was the first of six sessions of the Advanced Training course known as "Master Trader".

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.
No, I did not make those names up. After the reversal patterns, we explored the concepts of support and resistance. Major (tested) support is where the stock repeatedly does not go below a certain price; each time it reaches it's point of support buyers come in and the bull's push the price back up. Resistance is where the stock has difficulty pushing through a certain high point.

That's the quick-and-dirty description of the first session -- OK, not so quick, but it was a 3 hour class!

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