I’ve read a few option books.
THANKS... This is probably the most comprehensive "greeks" article/book I’ve read.

Wonderful blog. …..
A wonder wealth of knowledge there. Thanks so much for your kindness in publishing it!

Thank you very much for the most concise and simplest option intro. Highly recommended.

So far, yours is the best blog/site on basic options notes in the web that I have chanced upon.

Thursday, July 30, 2009

Trading Educational Video: Technical Tips from Dan Gramza

Good news for everyone, particularly for those who have missed the chance to learn from the trading experts (for free) through the 4 trading educational videos I shared previously.

There is a new free trading educational video from Dan Gramza.
If you’re interested, you may want to grab this opportunity soon, so as to prevent disappointment from losing the chance to learn something to enhance your trading knowledge.
What is this video about? Here is the introduction of the video...


Hello everyone, this is Dan Gramza and welcome to Gramza Market Studies Technical Tip.

Well today we're going to be talking about selling rallies. Now what does it mean when people say, "sell the rally" when you want to get into a trade? Or they sell a pull back? Or you hear things like, "The Trend Is Your Friend?"

Well we're going to explore this here in just a minute. I want to show you the technique and I want to show you some examples of how these markets behave in those settings.

I want to show you an example, but before I can talk to you too much about this example I need to define a few things for you. First candles... the approach that I use with Japanese candle charts, and that is what you're looking at here, is not the standard approach. So from my perspective, I don't focus on patterns, I focus on behavior. If we see a green candle that represents buying, that means that the closing price is higher than the open. If you see a red box that represents selling it means that the closing price is below that opening price. If you see a white line on top that's called a shadow, I think that represents selling. If you see a White line on the bottom that represents buying. Now with that in mind, the sizes of the bodies and the shadows tell us about the degree of buying or selling.

Now let's talk about this set-up here...

To get the rest of the tips, please visit this link and WATCH me!

Update as at 15 Jan 2010:
The above video is no longer available for free. Sorry if you've missed this opportunity. However, there are even more interesting videos available for FREE.
Find out more here.

Saturday, July 25, 2009

Market Analysis Video: How high the S&P market can potentially go?

The S&P market has been moving very strong. But the question is how high the market can potentially go?
Find out the market analysis and prediction in this video.

Also, learn how to use MACD Divergence to find the clue of a potential market turning.
Hope you can enjoy & learn something from it.

Analysis Tool:
Get Free Trend Analysis for your favorite symbols

Related Topics:
* FREE Trading Educational Videos You Should Not Miss
* Learning Candlestick Charts
* Learning Charts Patterns
* Understanding Implied Volatility (IV)
* Option Greeks
* Understanding Option’s Time Value

Saturday, July 18, 2009

Paper Trading Experience with tradeMONSTER Online Brokerage (Review)

Recently, I tried the free online paper trading platform from tradeMonster. Just want to share my experiences with the readers here.

What I like about the trading platform:
* Very easy customization of interface, really user-friendly.
If we want to customize / change the layout of the screen, it can be done just by one click.
This easy customization is offered in each screen.
For example:
In the Option Chain screen, with just one click, we can expand/collapse the Calls/Puts sides of the Option Chain.
When we expand the Calls side (and collapse the Puts side), for instance, we can see all information about Bid/Ask Price, Volume, Open Interest, Implied Volatility (IV), etc. for various strike prices, all can be viewed in one page. We can even choose to view all those info for different expiration months.
In addition, in case we want to customize (add/remove) the column/s (e.g. add High and Low Price, Greeks info, such as Delta, Gamma, Vega, Theta, Rho), we can simply check or uncheck boxes provided. Marvelous!

* Real-time, streaming data throughout the trading platform, such as Quotes, Charts, Option Chains, Time & Sales, etc.
It allows quick monitoring of the fast changing market and also helps to make trading a lot more convenient, e.g. for setting the limit price.

* Browser-based trading platform.
We don’t need to download any software to start the application and, therefore, can trade from anywhere. I like this, because it is particularly convenient when we need to work on a few different computers (e.g. office and home computers), or when we want to change from old to new computer. We don’t need to reset our preferred interface settings all over again when we need to use another computer.

* Easy click trading.
Whenever we want to trade, we can simply click on the symbol (whether stock or option), and then a new window will pop up to allow for a quick trade. We can do this at any page/window we’re in, such as Watch List, Option Chain, Market View, Quotes.
With this quick trade window, we don’t need to type in the symbol when we want to trade, so it’s much easier and faster, especially for trading options (e.g. spreads, strangle, straddle, condor, butterfly, etc.)
I believe that option traders who like to trade more complicated strategies as mentioned above would love this!

* There are brief descriptions/explanations about the technical indicators just below it.
It helps to give some ideas (e.g. what it is for, how it is derived) before applying the study to complement chart analysis.

* Provide comprehensive research and fundamental analysis about a company.

* Provide comprehensive & clear Help menu.
It even has pretty cool introduction videos that show all the capabilities of the interface.
So, it’s very easy to learn and familiarize ourselves with how to do certain things using this interface.

* Provide free Investor Education, including live webinars, articles, and interactive courses.

Areas of Improvement:
* The Technical Analysis studies for chart analysis are currently still rather limited.
For example, there is no Fibonacci tool for chart analysis. Of course, this limitation may be subjective. This may not matter to other people, because they might not need to use this analysis tool as I normally do.

* The use of chart is not as convenient as the other interfaces.
For example, when I’m interested to analyze the particular area of the chart, I cannot zoom in to that particular area to by simply dragging the cursor. Also, I cannot show and monitor several charts for different symbols simultaneously in one screen. However, these can easily be done using Prophet’s JavaChart.

* While there is an advantage of being a browser-based trading platform, there is also disadvantage.
When clicking some tabs / buttons, it takes some time (a few seconds) to load the application. The loading speed will depend on our internet connection. The faster the internet connection is, the faster the loading speed will be. However, once the application is already uploaded, we need not go through the loading process again, as the interface is already “cached”.

Wish Lists:
If I could wish, it would be even much better if the trading platform provide the following:
* Screener for Stock and Chart Patterns
* Options Calculator / Pricer

This is particularly useful for those who like to use technical analysis to help their trading and option traders. As if most their needs can be fulfilled in one integrated application.
Though they are not available yet now, I heard that many improvements for trade analysis tools are under development.

The commission charges for Options are $0.50 per contract, with a minimum commission of $12.50 for single leg orders, and $7.50 per leg for multi-leg orders.
For Stocks, the commission charge is $7.50 per trade (regardless how many shares bought), unless trading in after-hours where there is a 1.5 cent per share added charge.
Here are the tables for some comparison:

For Options – Single Leg Order:

For Options – 2-Leg Option Spread:

For Stocks:

As comparison, for options trades, my broker (Interactive Broker) charges commission $0.70 / contract, with minimum per order is $1.00.
So, for those who usually trade 18 contracts or more per trade, TradeMonster will be cheaper.
For those who trade less than 18 contracts per trade, Interactive Broker would be cheaper.

However, the good thing about TradeMonster is that there is no minimum monthly fee. Hence, in case you’re on holiday and do not trade at all or do not actively trade for that month, you don’t need to pay any fee. Whereas for Interactive Broker, there is a minimum monthly fee of $10, even if you don’t trade at all for the month.

In addition, for Interactive Broker, if you make any cancelation or modification to the order (that has not been executed yet), it will charge you some fees as well. However, no such fees will be charged by TradeMonster.

Closing Note:
Actually, it’s rather difficult to describe how easy and simple the customization of interface is. Like when I was trying to explain about how easy and simple to customize Option Chain, actually words are still not good enough to describe. Of course, it’ll be much better if one can experience it himself. Hence, if you’re interested, you may want to try the free paper trading provided from this broker. One good thing about its paper trading platform is that it allows you to execute trade during non-trading hours. So, you can try it anytime, during the weekend or your own free time.

Opening a paper trading account is very easy. You don’t need to open the real account or fund the account first. You just simply apply by filling up some particulars, then the free paper trading account will be open instantly, no need to wait for approval process, etc.
Happy trying! =)

Friday, July 10, 2009

DOUBLE BOTTOM PATTERN – Part 2: Important Characteristics

Go back to Part 1: Double Bottom Formation

Important Characteristics of Double Bottom Pattern

Existing Trend:
There should be an established existing DOWNWARD trend. The downtrend should be fairly long and healthy (at least about 3 to 6 months).

Shape of Double Bottom Pattern:
1) The Two Bottoms:
* The bottoms can be either sharp & narrow (like V) or a bit rounded looking & wider. Ideally, the price bottoms should be the same. However, some difference in the price bottoms is still acceptable.
Although the price bottoms do not necessarily need to be exactly the same, but it should appear near the same price level. The price difference between the two bottoms should be less than 3%.
If the price difference between the two bottoms is more that 3%, the pattern may not be Double Bottom.
* If the low of the 2nd bottom does not hit the low of the 1st bottom, it is less worrying.
However, if low of the 2nd bottom is even lower than the low of the 1st bottom, we should be more cautious, as the probability that the downtrend would resume is still higher.

2) The Peak:
The height of the peak between the two bottoms should be around 10% - 20% from the bottom (It could be even more than 20%, but it should not be less than 10%).
In general, the higher the peak between the two bottoms, the better the performance of the pattern.
If the two bottoms are not exactly the same, the higher bottom should be used as the benchmark for the height measurement.

Since Double Bottom is an intermediate to long term reversal pattern, the pattern should not be formed in just a few days.
The duration of time period between the two bottoms may vary from a few weeks to many months (generally about 1 to 3 months). Normally, the formation of Double Bottoms should take longer time and less volatile in price swing than Double Tops. Hence, bottoms tend to be wider (due to longer duration to develop) and flatter (as a result of less volatile price swing) than tops.
Basically, the longer the time duration between the two bottoms, the more likely the pattern could work out as a reversal pattern.
Hence, we should be extra cautious if a pattern only has a few days apart between the two bottoms.

Even when the price has increased from the 2nd bottom, the pattern is not completed yet. The chances that the existing downtrend will continue are still higher that the chances of reversal to take place, as it is normal during an downtrend for the price to test a support level a few times before resuming the downtrend again.

Double Bottom pattern is only completed and confirmed when the price increases and closes above the highest point of the peak in between the 2 bottoms, which serves as the key resistance level in this pattern. This highest point is called the “Confirmation Point”.

Remember that we should always assume the existing trend (i.e. in this case is downtrend) is in force unless proven otherwise.
Therefore, it is important to wait for the price to make a decisive breakout by breaking through and closing above the Confirmation Point, with an increase in volume, in order to avoid jumping the gun and/or prevent deceptive Double Bottoms pattern.

Nevertheless, sometimes the price may also make a deceptive/invalid breakout whereby it touches above the Confirmation Point, but then it goes back down again & resumes downtrend.
One possible way to prevent this is by having certain criteria to confirm if the breakout is a valid one.
A minimum penetration criteria for a breakout should be the price closes above the Confirmation Point, not just an intraday penetration.
Some traders may apply certain price criteria (e.g. 3% - 5% break from the Confirmation Point depending on the stock’s volatility) or time criteria (e.g. the breakout is sustained for 3 days) to confirm the validity of the breakout.

Usually, volume is lower during the formation of the right bottom than the left bottom, showing an indication that the selling pressures are getting weaker.
In general, volume tends to be diminishing as the pattern is forming. The volume may pick up when the price hits the 2nd bottom, but it is often only a slightly higher than the average volume during the peak.
When the price is breaking out the Confirmation Point, it should happen with an increase in volume.
Monitoring volume for Double Bottoms is more crucial than for Double Tops, as a breakout from the key resistance (i.e. Confirmation Point) accompanied by an expansion in volume may indicate increased buying pressures and a potential change in sentiment from selling to buying. Hence, it may provide higher chances that the pattern is a reversal pattern.
It is even better when the price is rising from the 2nd bottom, the price experiences an accelerated increase, perhaps with a gap up or two.

Potential Price Target:
1) Compute the height of the peak: The distance between the bottom (support) and the Confirmation Point (resistance).
If the two bottoms are not the same, the higher bottom should be used for this calculation.
2) To compute the potential price target: Add the result to the Confirmation Point.

Hence, the above formula implies that the higher the peak between the two bottoms, the larger the potential of the increase.

In general, any price target should only be used as a rough guide. To determine the price target, other factors, such as previous support / resistance levels, Fibonacci retracements, or long-term moving averages, should be considered as well.

Return to Breakout Level:
After the breakout occurs, it is common that prices may return to the breakout level for an immediate test of this new support level before continuing their moves in the direction of the breakout. (Remember that the resistance now has become a new support level). This could actually offer an opportunity to participate in the breakout with a better reward to risk ratio.

To find out more about other Chart Patterns, please refer to:
Learning Charts Patterns

Analysis Tool:
Get Free Trend Analysis for your favorite symbols

Related Topics:
* Learning Candlestick Charts
* Options Trading Basic – Part 1
* Options Trading Basic – Part 2
* Understanding Implied Volatility (IV)
* Option Greeks
* Understanding Option’s Time Value

Friday, July 3, 2009

Market Analysis Video: Potential Head & Shoulder pattern in the S&P market?

Are we potentially looking at the Head and Shoulder pattern in the S&P market?
Find out the answer in the comprehensive in this video.
Not only you benefit from the current market analysis & tips, but more importantly, learn how to do the analysis itself.
Hope you can learn something from it.
Enjoy! :)

Analysis Tool:
Get Free Trend Analysis for your favorite symbols

Related Topics:
* FREE Trading Educational Videos You Should Not Miss
* Learning Candlestick Charts
* Learning Charts Patterns
* Option Greeks
* Understanding Implied Volatility (IV)
* Understanding Option’s Time Value