Tuesday, June 13, 2006

Master Trader Session 2

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.

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