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.

Wednesday, November 17, 2010

Historical Volatility – Part 2: Formula to Calculate HV

Go back to Part 1: Definition of Historical Volatility

As mentioned in Part 1, to obtain Historical Volatility, we need to calculate the standard deviation of the price returns using historical data (which can be in terms of daily, weekly, monthly, quarterly or yearly) over a certain period.
Commonly, the daily price data for the period of 10 days, 20 days, or 30 days are used.

Theoretically, the formula to calculate Historical Volatility (i.e. standard deviation of % stock’s returns) is as follow:

































After the standard deviation is calculated, we then need to annualize it.
To annualise the Standard Deviation resulted from formula (1) in order to get Historical Volatility (HV):









The formula above may look complicated. However, they are actually quite simple with the help of MS Excel to calculate it.
We’ll discuss it further along with the example in the next part.

Continue to Part 3: Steps to Calculate HV using MS Excel (with Example).

To view the list of all the series on “Historical Volatility”, please refer to:
More Understanding about HISTORICAL VOLATILITY


Other Learning Resources:
* FREE Trading Educational Videos with Special Feature
* FREE Trading Educational Videos from Trading Experts

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

Sunday, October 31, 2010

Historical Volatility – Part 1: Definition

Historical Volatility (HV) is a measure of the fluctuations of the stock price (i.e. how volatile the prices had fluctuated) over a certain period of time in the past.

Suppose the daily closing prices of Stock X and Y for the past 10 days are shown as follows:


As can be seen from the data above, regardless of the direction (up or down), the closing prices of Stock X in the past 10 days have fluctuated / changed by $2 to $5, whereas Stock Y by $1 to $3.
Since given the same initial stock price of $100, Stock X has shown bigger fluctuation in terms of dollar, Stock X is said to be more volatile than Stock Y.

Now, suppose Stock Z has an initial stock price of $50 and has also fluctuated by $2 to $5 like Stock X. In this case, given the same fluctuation in terms of dollar but lower stock price than Stock X, Stock Z will be considered to be more volatile than Stock X.
Hence, to get relative measurement of volatility and to compare volatilities among stocks with different prices, it is more accurate to reflect the price change in terms of percentage of the stock price, which is known as “Price Returns”.

Historical Volatility (HV) is therefore obtained by calculating the standard deviation of historical price changes (i.e. price returns) over a specified period in the past.

In Statistics, Standard Deviation measures the dispersion (spread) of a set of data points from its mean (average).
The more disperse (spread out) the data points from its mean, the higher the standard deviation. This deviation is referred by traders as “volatility”.
(Note: Further understanding about standard deviation will be discussed in the future article).

The higher the historical volatility, the bigger fluctuation the stock has experienced. As such, theoretically, the more likely the stock may make big movement in the future too, although this does not give any insight about the trend / which direction it will move to.

Depending of its uses/purposes or data availability, for calculation of HV, we can use historical price data in terms of daily, weekly, monthly, quarterly or yearly.
The common period used to calculate HV is 10 days, 20 days, or 30 days (using daily data).
To allow comparison between volatilities that are calculated using different period, the HV would be annualized.

By expressing HV using annualised standard deviation of % price returns, the figures can be used to compare the volatility across different stocks, regardless of the stock price and the period used for HV calculation.

In conclusion, Historical Volatility can be defined as follow:

Historical Volatility (HV) is the annualised standard deviation of historical price changes (i.e. returns) over a specified period in the past.

In the next posts, we will discuss:
* Formula to calculate HV
* Steps to calculate HV using MS Excel (with example)
* Further understanding about Standard Deviation

Continue to Part 2: Formula to Calculate Historical Volatility.

To view the list of all the series on “Historical Volatility”, please refer to:
More Understanding about HISTORICAL VOLATILITY

Other Learning Resources:
* FREE Trading Educational Videos with Special Feature
* FREE Trading Educational Videos from Trading Experts

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

Saturday, October 16, 2010

More Understanding of HISTORICAL VOLATILITY

In the previous article, we had explained what Historical Volatility is very briefly. In these series, in order to gain better understanding and hence be able to interpret its meaning better, we’ll discuss more in-depth about Historical Volatility. As usual, I’ll try to share my understanding about this topic as simple as possible, so that it’ll be easier to understand for everyone.
Click the following link to read each article:

1) Definition of Historical Volatility
2) Formula to calculate HV
3) Steps to calculate HV using MS Excel (with example)
4) Understanding Standard Deviation
5) How to annualise Standard Deviation
6) Interpretation of Historical Volatility
7) Comparing HV



Other Learning Resources:
* FREE Trading Educational Videos with Special Feature
* FREE Trading Educational Videos from Trading Experts

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

Thursday, September 23, 2010

THREE BLACK CROWS - Bearish Candlestick Pattern









Three Black Crows (Bearish)

Three Black Crows is a top reversal / bearish reversal formation.
It could occur at the end of an uptrend, or during a bounce within a downtrend, or at the resistance.

This pattern consists of 3 consecutive long black candlesticks that appear in an upward price trend.
The opening price of Candles 2 and 3 of the pattern should be higher than the previous day's closing price (i.e. The prices open within the previous day’s body).
And all the 3 candles should close near or at their lows, and make new lows in each day.

Since all the 3 candles should close near or at their lows, the lower shadows of the Three Black Crows formation are normally short, or even no shadow in some cases.

This pattern is formed when the prices are in overbought condition, and indicate a sign that the bulls might have lack of conviction in the current uptrend. This uptrend has now reached levels where the bears have started to short the market.
On 1st day, due to increasing selling pressure, the price closes below its opening price.
On 2nd and 3rd days, it seems that as if the price wants to regain its former strength, as the price opens higher than the previous day’s close. However, by the end of each day, the sellers would regain control, causing the price to fall to a new closing low (i.e. the price closes at lower levels than previous day’s closing price).

The Three Black Crows pattern does not occur very frequently. However, when it does occur, traders / investors should be very alert, because their appearance indicates a period of strong selling pressure, and hence the reliability of this pattern is likely to be very high. If on the 4th day the stock is not able to show strength, then lower prices may potentially continue.

The reliability of this pattern tends to increase in the following conditions:
1) Longer black candlesticks’ body.
However, it should not be too long as well because if the black candlesticks are too long (over-extended), traders / investors would worry that the market could be oversold by now and hence may pause accordingly.
2) Shorter lower shadow of the candles.
3) The opening prices of the 2nd and 3rd days can be anywhere within the previous day's body. However, it is better to see the opening prices to be below the middle of the previous day's body.
4) Increase in trading volume.

Although the reliability of this pattern is likely to be very high, but it is always better to substantiate this signal with other technical indicators to confirm that the momentum is actually changing.

Analysis Tool:
Get Free Trend Analysis for your favorite symbols

Other Learning Resources:
* FREE Trading Educational Videos with Special Feature
* FREE Trading Educational Videos from Trading Experts

Related Posts:
* Learning Candlestick Charts
* Learning Charts Patterns
* Options Trading Basic – Part 1
* Options Trading Basic – Part 2
* Understanding Implied Volatility (IV)
* Option Greeks

Wednesday, September 8, 2010

One-Cancels-Other (OCO) & One-Cancels-All (OCA) Orders

One-Cancels-Other (OCO) Order is a group of orders that consists of two individual orders; if one of the orders is executed, then the other order will be automatically canceled.

One-Cancels-All (OCA) Order is a group of orders that consists of 2 or 3 individual orders. When any one of the orders in the group fulfils a trigger condition, the triggered order will be sent to the market for execution, whereas the other order(s) will be automatically canceled.
Basically, One-Cancels-Other (OCO) Order and One-Cancels-All (OCA) Order are similar. The difference may be that OCO Order consists of two individual orders in a group, while OCA Order can be made up of 2 or more individual orders in a group.

Generally, the following are some characteristics of One-Cancels-All (OCA) Order:
* Individual orders in one OCA group order can be either stocks or options, and the security type does not need to be consistent across all individual orders in the group. That means you can mix the orders for stocks or options in one OCA group order.
* Once one of order is triggered, the other remaining order(s) in the group will be canceled. The triggered order does not need to be executed for other remaining order(s) to be canceled.
* All orders in an OCA group order will be are held at the brokerage until triggered. Once triggered, the triggered order will be sent to the market as either Market Order or Limit Order as set by the trader/investor.
* If one order is partially filled, the remaining order(s) will be reduced proportionately to the remaining quantity of the unfilled order.
* If one order is canceled by the trader/investor before it gets triggered & executed, all the remaining order(s) will automatically be canceled as well.
* However, if one of the orders is rejected or canceled by the system, the remaining order(s) will NOT be canceled automatically.

Some examples of how you can make use of OCA order:

Example 1:
You want to enter into a long position in either a particular stock or an option in that stock.
You can place a One-Cancels-All (OCA) order that consists of the following orders:
a) Order 1 – Buy stock DEF with Limit Price of $30.00.
At the time you’re placing the order, stock DEF is trading at $32 / share.
b) Order 2 – Buy option DEFJKL of stock DEF with Limit Price of $1.60.
At the time you’re placing the order, Option DEFJKL is trading at $1.80 / contract.

If the price of stock DEF drops to $30.00 before option DEFJKL hits $1.60, Order 1 will be triggered and sent to the market as Buy Limit Order to buy stock DEF at $30.00 or lower. At the same time, Order 2 will be canceled automatically.
On the other hand, if the price of option DEFJKL drops to $1.60 before stock DEF hits $30, Order 2 will be triggered and sent to the market as Buy Limit Order to buy option DEFJKL at $1.60 or lower. At the same time, Order 1 will be canceled automatically.

Example 2:
You’ve own stock OPQ that is currently trading at $25.00. In order to manage the position without having to constantly monitor the market, you want to place Sell Limit Order at $32.00 to lock in profit when the price has reached your Profit Target Price, and Sell Stop Order at $20.00 to limit your losses in case the price moves against your expected direction. When one of the orders is triggered & executed and your position is closed as a result, the other order will be automatically canceled.
Note:
The purpose of the order in this example is actually similar to that of Bracketed Order, which is to allow you lock in profit and limit your losses.
The difference is that in this case, you place the above two opposite orders when you’ve already own the stock; whereas for a Bracketed Order, the above two opposite orders are submitted together with the buy order for opening the position.

Disclaimer:
This order is a more complicated order, not all brokerages can accept this order.
Even the procedures, rules, terms and/or how to place this order may vary from one to another brokerage. Hence, you need to check with your own brokers specifically for the details before placing such order.

For the list of other types of order, go to: Types of Orders in Trading.

Related Topics:
* Free Trading Educational Video: Learn Technical Tips from Dan Gramza
* Option Greek
* Understanding Implied Volatility (IV)
* Understanding Option’s Time Value
* Learning Candlestick Charts
* Learning Charts Patterns

Friday, August 27, 2010

FALLING WEDGE PATTERN – Part 2: Important Characteristics

Go back to Part 1: Falling Wedge Formation

Important Characteristics of Falling Wedge Pattern

Existing Trend:
There should be an established existing trend (either uptrend or downtrend). As mentioned before, Falling Wedge, which has a bullish bias, can be categorised as a reversal or continuation pattern.
As a reversal pattern, Falling Wedge normally occurs after an established downtrend. The slope of Falling Wedge will be downward, which is in the same direction as the prevailing trend.
As a continuation pattern, Falling Wedge occurs after following an uptrend. The slope of Falling Wedge will still be downward, but this slope will be against the prevailing uptrend.

Shape of Falling Wedge:
* There should be at least 4 reversal points to draw two converging lines, i.e. two successively lower peaks (highs) forming a downward sloping upper line and two successively lower troughs (lows) forming a downward sloping lower line. The descending upper line acts as resistance, while the descending lower line as support.
The more times the price tests each level, particularly on the upper side (resistance), the higher quality the wedge pattern is thought to be.
* The upper line (resistance) should have a sharper slope (more negative slope) than the lower line (support). If the lines were extended to the right, both lines would converge and slanted in a downward direction.
* There should be some distance between the two peaks as well as the two troughs.
In other words, prices should increase and hit the descending upper line then decline for at least twice (forming at least two peaks). Prices should drop and hit the descending lower line then bounce up for at least twice (forming at least two troughs).

Volume:
Volume should be diminishing; heavy at the beginning and contracts as the pattern develops.
However, when breakout occurs, there should be a significant increase in volume.
Monitoring the existence of significantly higher volume to confirm a valid breakout for Falling Wedge is more crucial than for Rising Wedge.
Without a significant surge in volume, the upward breakout above the resistance of Falling Wedge would lack conviction and be more vulnerable to failure.

Duration:
This pattern is generally a longer term pattern. It takes from about 3 to 6 months to form.
If the pattern duration is less than 3 weeks, it can be considered as a pennant.

Breakout Direction:
For Falling Wedge, the breakout usually happens to the upside, hence it is considered as a bullish pattern. However, the breakout might also occur to the downside.

Breakout Confirmation:
Sometimes, the price may also make a deceptive/invalid breakout whereby it touches above the upper (resistance), but then it moves 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 upper (resistance) line, not just an intraday penetration.
Some traders may apply certain price criteria (e.g. 3% - 5% break from the upper (resistance) line 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.

Potential Price Target:
For Wedge pattern, there is no price target, as it is difficult to project specific potential price target in this pattern.

Return to Breakout Level:
After the breakout occurs, the price may sometimes return to the breakout level for an immediate test of this new resistance before continuing their moves in the direction of the breakout. (Remember that the support now has turned into new resistance level).
However, the prices should not re-enter the wedge and move outside the opposite line of the breakout line. When this happens, it means the pattern has failed or considered in invalid.

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

Analysis Tool:
Get Free Trend Analysis for your favorite symbols

Other Learning Resources:
* FREE Trading Educational Videos with Special Feature
Free Trading Videos:
* FREE Trading Educational Videos from Trading Experts

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

Friday, August 20, 2010

FALLING WEDGE – Part 1: Formation

Falling Wedge is generally regarded as a bullish pattern. The breakout usually occurs upwards through the wedge and then move on into upward trend.
Falling Wedge can be categorised as a reversal or continuation pattern.

As a reversal pattern, Falling Wedge normally occurs after an established downtrend. The slope of Falling Wedge will be downward, which is in the same direction as the prevailing trend.

As a continuation pattern, Falling Wedge occurs after following an uptrend. The slope of Falling Wedge will still be downward, but this slope will be against the prevailing uptrend.

Regardless of whether it occurs as reversal or continuation pattern, Falling Wedge is regarded as bullish pattern.

However, Falling Wedge is not seen as a popular pattern, as the failure rate of this pattern is quite high and more difficult to trade.

The Formation of Falling Wedge



Falling Wedge Pattern contains at least two lower highs (peaks) and two lower lows (troughs). When the peak as well as trough points are connected by separate lines and then extended to the right, they would respectively form a descending upper line and a descending lower line, whereby the upper line should have a sharper slope than the lower line. As such, both lines would converge and look slanted in a downward direction, creating a pattern that looks like a Falling Wedge.
In this case, the descending upper line acts as resistance, whereas the descending lower line as support.
When the lower line (support) is noticeably flatter as the pattern develops, it indicates that selling pressure is weakening, as sellers are not really able to push the price down further each time the price is under pressure.

The completion of the pattern occurs when prices break out through the upper line (i.e. breakout to the upside) with a high volume.

Continue to Part 2: Important Characteristics of Falling Wedge pattern.

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

Analysis Tool:
Get Free Trend Analysis for your favorite symbols

Other Learning Resources:
* FREE Trading Educational Videos with Special Feature

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

Friday, August 13, 2010

Market Analysis Video: Updates on Dow and Nasdaq Markets

Watch the following videos to see what’s happening in both of the markets:
* Updates on Dow market
If nothing else, watch this video as this could be one of the most important weeks for the DOW and its future. This 3-minute video will share both interesting and educational analysis from both a Fibonacci and Japanese candlestick point of view.
The weekly chart on the DOW is flashing the same Japanese candlestick signal that it had earlier in April of this year. Back then the DOW dropped from 11,200 to 9,700 in the space of just 10 weeks!

* Updates on Nasdaq market
This video shows an eerily similar pattern in the NASDAQ. If the pattern repeats, then it certainly is going to be a rough 3rd and 4th quarter for most investors.
The video would also give you exact points and the formation that could make a huge difference to most people's portfolios.

Other Learning Resources:
* FREE Trading Educational Videos with Special Feature
* FREE Trading Educational Videos: Learn Technical Analysis from Award Winning Author John Murphy

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

Thursday, August 12, 2010

Sunday, August 1, 2010

Bracketed Order

Bracketed Order allows traders/investors to manage the trade/position by “bracketing" an order for opening a position (i.e. the “main order”) with two opposite “side orders” for closing the position in order to limit losses and lock in profits, without having to constantly follow the position.
The order quantity for the “side orders” matches the original order quantity of the “main order”.

When the Bracketed Order is placed, the trader/investor must determine the corresponding prices for all the 3 component of the Bracketed Order (One “main order” for opening position and two opposite “side orders” that bracketed the “main order” for closing the position).
When one of the side orders is being executed, the other side of the order will automatically be cancelled.

Depending on the “main order” for opening a position, there are 2 types of Bracketed Orders:

1) BUY ORDER
The Buy Order will open the position by buying a security.
The price for the Buy Order can be set as a Market Order (to buy at the market price) or Limit Order (to buy at the Limit Price or lower).
The Buy Order will then be bracketed by:
a) Sell Limit Order: The Limit Price to sell should be above the Buy Order’s Price.
This Sell Limit Price serves as Profit Target in order to lock in profits.
b) Sell Stop Order: The Stop Price should be below the Buy Order’s Price.
This order serves to limit losses.
Other than Sell Stop Order, you can also use Sell Stop Limit Order or Sell Trailing Stop Order for this purpose.

2) SELL ORDER
The Sell Order will open the position by selling a security.
The price for the Sell Order can be set as a Market Order (to sell at the market price) or Limit Order (to sell at the Limit Price or higher).
The Sell Order will then be bracketed by:
a) Buy Limit Order: The Limit Price to buy should be lower the Sell Order’s Price.
This Buy Limit Price serves as Profit Target in order to lock in profits.
b) Buy Stop Order: The Stop Price should be above the Sell Order’s Price.
This order serves to limit losses.
Other than Buy Stop Order, you can also use Buy Stop Limit Order or Buy Trailing Stop Order for this purpose.

Example 1:
You place a Sell Order for Stock STU at the price of $20, along with a Buy Limit Order with Limit Price of $15 and a Buy Stop Order with Stop Price of $25.

If the price falls to $15 or lower (and never go up touching the Stop Price at $25), the Buy Limit Order will be triggered and sent to market to buy back the shares at $15 or lower. You will then realize at least $5 profit. In this case, the Buy Stop Order at $25 will automatically be cancelled.

If the price increases to $25 or higher (and never go down touching the Sell Limit Price at $15), the Buy Stop Order will be triggered and sent to market to buy back the shares at the market price. You will then realize at least $5 losses. In this case, the Buy Limit Order at $15 will automatically be cancelled.

Example 2:
You place a Buy Order Call Options of DEF at the price of $3.00, along with a Sell Limit Order with Limit Price of $4.00, and a Sell Trailing Stop Order with Trailing Amount of $0.50.
Since the current option premium is $3.00, the Initial Stop Price will be $2.50 (= $3.00 - $0.50).

If the option premium increases to $4.00 or higher, the Sell Limit Order will be triggered and sent to market to sell the options at $4.00 or higher. You will then realize at least $1.00 profit. In this case, the Trailing Stop Order will automatically be cancelled.

If the option premium increases to $3.20 first, that it starts to fall. In this case, the Stop Price would reset to $2.70 (= $3.20 - $0.50). It the premium continues to drop and pass $2.70 (the new Stop Price), the Sell Stop Order will be triggered and sent to market to sell the shares at the market price. You will then realize at least $0.30 losses. In this case, the Sell Limit Order at $4.00 will automatically be cancelled.

Advantage & Disadvantage of Bracketed Order:
The advantage of Bracketed Order is that it allows the trader/investor to manage the trade without having to constantly follow the position. They also can control how much they’re willing to lose and determine what the Profit Target Price is, based on their planned risk/reward ratio. Hence, this can help take some emotions out of your trading decision.

However, the disadvantage of Bracketed Order is that since you place a limit on how much profit you want to make, you might potentially “lose money” should the price continues to move to your expected direction. In order words, you could not let the profits run using this kind of order.

Disclaimer:
This order is a more complicated order, not all brokerages can accept this order.
Even the procedures, rules, terms and/or how to place this order may vary from one to another brokerage. Hence, you need to check with your own brokers specifically for the details before placing such order.

For the list of other types of order, go to: Types of Orders in Trading.

Monday, July 26, 2010

Market Analysis Video: Intense Bull vs Bear Battle in the Current S&P Market

The battle between the bulls and the bears continues in the S&P 500 with neither side able to gain the upper hand. This choppy trading action will eventually lead to a large move one way or the other. The bulls are betting that we are headed higher and the bears are betting that the economy is going to tank.

This new video shares some of the key technical points that are still in play and where the market needs to go in order to break out of the current logjam that it's in.

Other Learning Resources:
* FREE Trading Educational Videos with Special Feature
* FREE Trading Educational Videos: Learn Technical Analysis from Award Winning Author John Murphy

Related Topics:

* Options Trading Basic – Part 1
* Options Trading Basic – Part 2
* Understanding Implied Volatility (IV)
* Option Greeks
* Understanding Option’s Time Value
* Learning Charts Patterns
* Learning Candlestick Charts
* Getting Started Trading

Monday, July 12, 2010

THREE WHITE SOLDIERS - Bullish Candlestick Pattern


Three White Soldiers is a 3-day bottom reversal / bullish reversal formation.
It could occur at the end of a downtrend, or during a pullback within an uptrend, or at the support.

The appearance of Three White Soldiers pattern signals that higher prices are likely ahead.
This pattern is more powerful particularly when it appears after an extended decline followed by sideways movement.

Three White Soldiers pattern consists of 3 consecutive long white candlesticks that occur during a downward price trend.
The opening price of Candles 2 and 3 of the pattern should be lower than the previous day's closing price (i.e. The prices open within the previous day’s body).
And all the 3 candles should close near or at their highs, and make new highs in each day.

Since all the 3 candles should close near or at their highs, the upper shadows of the Three White Soldiers formation are normally short, or even no shadow in some cases.

This pattern is formed when the prices are in oversold condition, and indicate a sign that the bears might have lack of conviction in the current downtrend.
On 1st day, due to increasing buying pressure, the price closes above its opening price.
On 2nd and 3rd days, it seems that as if the bears want to regain controls, as the price opens lower than the previous day’s close. However, by the end of each day, the buyers’ strength overcomes the earlier bears, causing the price to move up to a new closing high (i.e. the price closes at higher levels than the previous day’s closing price).

The Three White Soldiers pattern does not occur very frequently. However, when it does occur, traders / investors should be very alert, because their appearance indicates a period of strong buying pressure, and hence the reliability of this pattern is likely to be very high.

The reliability of this pattern tends to increase in the following conditions:
1) Longer white candlesticks’ body.
However, it should not be too long as well because if the white candlesticks are too long (over-extended), traders / investors would worry that the market could be overbought by now and hence may pause accordingly.
2) Shorter upper shadow of the candles.
3) The opening prices of the 2nd and 3rd days can be anywhere within the previous day's body. However, it is better to see the opening prices to be above the middle of the previous day's body. The higher a candle opens compared to the prior candle, the stronger the chance of a continued reversal.
4) Increase in trading volume.

Although the reliability of this pattern is likely to be very high, but it is always better to substantiate this signal with other technical indicators to confirm that the momentum is actually changing.

To learn about other major candlestick patterns, please refer to the following:
Learning Candlestick Charts

Other Learning Resources:
* FREE Trading Educational Videos with Special Feature
* FREE Trading Educational Videos: Learn Technical Analysis from Award Winning Author John Murphy

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

Tuesday, July 6, 2010

Friday, July 2, 2010

Trading Educational Video: BEARISH ENGULFING Candlestick Pattern

Japanese Candlestick patterns have been popular and widely used by traders. There are several major Candlestick Patterns which most technical traders should be familiar with, such as: Bullish vs. Bearish Engulfing, Harami Bullish vs. Bearish, Piercing Line vs. Dark Cloud Cover, Hammer vs. Hanging Man, Inverted Hammer vs. Shooting Star, etc.

This video shows the real current example for BEARISH ENGULFING Candlestick Pattern in the Nasdaq market. Do watch it to see the more detail analysis and why you should pay attention to this pattern when it appears in the chart.

You may want to read this previous article to find out more about Bullish & Bearish Engulfing Candlestick Pattern.

To learn about other Japanese Candlestick pattern, please refer to the following:
Learning Candlestick Charts

Other Learning Resources:
* FREE Trading Educational Videos with Special Feature
* FREE Trading Educational Videos: Learn Technical Analysis from Award Winning Author John Murphy

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

Monday, June 28, 2010

Trading Educational Video: How To Use FIBONACCI RETRACEMENT and MARKET DIVERGENCE in Your Trading

Some of the powerful tools in the technical analysis which many traders use to help them in their trading are Fibonacci Retracement and Market Divergences.

How to make use of these two powerful tools in your trading?
The following are two videos that discuss and explain in very detail about how to use Fibonacci Retracement and Market Divergence to help in your trading analysis.

* Fibonacci Retracements Explained
* Market divergences Explained

I believe the explanation in the videos will be very useful & educational, along with the real examples from the current markets.
Happy learning!

Other Learning Resources:
* FREE Trading Educational Videos with Special Feature
* FREE Trading Educational Videos: Learn Technical Analysis from Award Winning Author John Murphy

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

Saturday, June 12, 2010

The Battle of the Bull and Bears in S&P 500 market

The battle between the Bulls and Bears continues with very choppy trading action. The rally from a potential double bottom is a cause for concern for the Bears. However, the Bulls are in a similar situation as they have to prove their case with sustained market action.

This video shares some of important key levels in the S&P 500 market. Volume continues to be light and that is why the markets are moving around and are so volatile at the moment.

Analysis Tool:
Get Free Trend Analysis for your favorite symbols

Other Learning Resources:
* FREE Trading Educational Videos with Special Feature
* FREE Trading Educational Videos: Learn Technical Analysis from Award Winning Author John Murphy

Sunday, June 6, 2010

HEAD AND SHOULDERS BOTTOM PATTERN – Part 2: Important Characteristics

Go back to Part 1: Head & Shoulders Bottom Formation

Important Characteristics of Head & Shoulders Bottom Pattern

Existing Trend:
There should be an established existing DOWNWARD trend prior to the pattern.

Shape of Head & Shoulders Bottom Pattern:
1) Head & Shoulders:
Ideally, the shape Head & Shoulders should be symmetry. The Left & Right Shoulders should bottom at about the same price level. The Left & Right Shoulders should also about the same distance from the Head, which means the time duration to develop the formation between the bottom of Left Shoulder & the Head should be about the same as that between the Head & the bottom of Right Shoulder.

However, in the real world, the Shoulders are rarely perfectly symmetrical. Sometimes, one shoulder is lower than the other, or takes longer time to develop.
In any case, the Left or Right Shoulder should not reach the level of the Head. If it does, the formation is actually not Head & Shoulders Bottom pattern.

When the bottom of the Right Shoulder is higher than the bottom of the Left Shoulder, it may carry a higher chance of larger price increase after the breakout, as it implies more strength & bullish sentiments.

In addition, ideally, the shape Head & Shoulders should also be made up of three downward sharp bottoms. But in real world, the Shoulders can be a bit more rounded / flat.
Also, sometimes in a more complex formation, the pattern could have more than one head and/or more than two shoulders (e.g. 2 Left Shoulders with about the same size and 2 Right Shoulders that are more or less equivalent to the Left Shoulders). This more complex formation is more often seen in the Head & Shoulders Bottom than in the Head & Shoulders Top.

2) Neckline:
The Neckline that connects the two high points in between the Left Shoulder-Head and the Head-Right Shoulder can be horizontal, sloping upwards or downwards, but should not be too steep.
The slope of the Neckline could predict degree of bullishness of the pattern and hence affect the chance of stronger price increase.

A downwards sloping Neckline has a weaker tendency that the price would increase further, as the lower high of the 2nd low point of the Neckline still indicates the strength of bearishness & market weakness, and thus it carries lower chance of stronger price increase.

An upwards sloping Neckline, which rarely happens, is more reliable as a bullish reversal signal, as it may imply stronger bullish sentiments & more rapidly increasing market strength, and hence have a higher chance of stronger price increase.

Duration:
The duration of the formation of the pattern from the start of the development of Left Shoulder to the break of the Neckline can take several months, normally range from 3 to 6 months.
Normally, Head & Shoulders Bottom takes longer time to develop and less volatile in price swing than Head & Shoulders Top.
Hence, bottoms tend to be wider (due to longer duration to develop) and flatter (as a result of less volatile price swing) than tops.

Breakout:
Even when the price has increased from bottom of the Right Shoulder, the pattern is not completed yet. The chances that the existing downtrend will continue are still higher than the chances of reversal to take place, as it is normal during a downtrend for the price to test a support level a few times, and then bounce up, and then resume the downtrend again.

Head & Shoulders Bottom pattern is only completed and confirmed when the price increases and closes above the Neckline, which serves as the key resistance level in this pattern.

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 Neckline resistance, accompanied with an increase in volume, in order to avoid jumping the gun and/or prevent deceptive Head & Shoulders Bottom pattern.

Nevertheless, since this pattern is considered as one of the most reliable pattern and has a relatively high success rate, some aggressive & experienced traders like to enter the market when the price is increasing from the bottom of the Right Shoulder, provided they are sure that a valid Head & Shoulders Bottom is forming. But of course, this trade is much riskier and not recommended for novice traders.

Breakout Confirmation:
Sometimes, the price may also make a deceptive/invalid breakout whereby it touches above the Neckline, but then it moves 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 Neckline resistance, not just an intraday penetration.
Some traders may apply certain price criteria (e.g. 3% - 5% break from the Neckline 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.

Traders / investors should be more cautious if the price keeps hovering around the Neckline without making a decisive break. When this happens, the reversal might never happen and the downtrend is likely to resume.

Volume:
Volume should be diminishing as the pattern is forming.
Volume is the highest during the formation of the Left Shoulder, and then gets lighter as the pattern develops the Head, and should be the lightest during the formation of Right Shoulder, showing an indication that the selling sentiments are getting weaker.
During & after the breakout of the Neckline support, the volume should significantly increase again.

Monitoring volume for Head & Shoulders Bottom is more crucial than in Head & Shoulders Top, as a breakout from the key resistance (i.e. Neckline) 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.

When during the increase from bottom of the Right Shoulder, the price experiences an accelerated increase, perhaps with a gap up or two, accompanied by an expansion in volume, this might give a good sign, as the price increase tends to increase further, and hence it may provide higher chances that the pattern is a bullish reversal pattern.

Potential Price Target:
1) Compute the height of the pattern: The vertical distance between the bottom of the Head (which serves as the support) and the Neckline (which serves as the key resistance).
2) To compute the potential price target: Add the result to the point where the price finally breaks Neckline.

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.

Example:
Suppose a Head & Shoulders Bottom pattern is forming with the Neckline is sloping upward.
The bottom of the Head is at $50 and the Neckline vertically above it is at $65.
The height of the pattern is therefore 15 (= 65 - 50).
Suppose the Neckline was finally broken at $70.
Hence, the price target would be $85 (= 70 + 15).

Return to Breakout Level:
After the breakout occurs, the price may sometimes return to the Neckline 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 turned into new support level). It is also normally only a minor & short-lived retracement.
If this price return move happens, it could actually offer an opportunity to participate in the breakout with a better reward to risk ratio.
However, when the breakout occurs with a heavy volume, the chance of the price to return to the breakout level before continuing its upward movement will be smaller.

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

Analysis Tool:
Get Free Trend Analysis for your favorite symbols

Other Learning Resources:
* FREE Trading Educational Videos with Special Feature
* FREE Trading Educational Videos: Learn Technical Analysis from Award Winning Author John Murphy

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

Saturday, May 22, 2010

HEAD AND SHOULDERS BOTTOM PATTERN – Part 1: Formation

Head & Shoulders Bottom Pattern is a bullish reversal pattern that normally forms after an extended downtrend, which marks a shift in trend from bearish to bullish. This pattern is very popular because it is regarded as one of the most reliable of all patterns.
Head and Shoulders Bottom pattern is sometimes referred to as Inverse Head and Shoulders pattern.

The Formation of Head and Shoulders Bottom Pattern



Head and Shoulders Bottom Pattern contains three consecutive, sharp bottoms, whereby the middle bottom is the lowest (Head) and the other two bottoms (left & right bottoms) are higher & roughly equal in size (Left & Right Shoulders).

This pattern forms when the price is in an existing downtrend. The price falls and hits a low then bounce up (forming the Left Shoulder). Afterwards, the price falls to an even lower low and then bounces up again (forming the Head). The Right Shoulder is formed when the price drops again but it does not reach the low of the Head. Instead, the price bounces back up after it has hit about the same price level as the Left Shoulder.
Although the Left & Right Shoulders do not necessarily need to be exactly the same, but it should appear roughly equal to one another.

The important part of this pattern is the Neckline. The Neckline is formed by drawing a line that connects two high points: (1) the high point in between the Left Shoulder & Head, and (2) the high point in between the Head & Right Shoulder.
This Neckline can be horizontal, sloping upwards or downwards.

The pattern is only completed and confirmed when the price increases and closes above the Neckline, which serves as the key resistance level in this pattern.

Although Head & Shoulders Bottom is viewed as a common pattern and quite easy to identify, it’s actually not the case. Therefore, one should pay close attention & take proper steps to analyze the characteristics of Head & Shoulders Bottom in order to minimize / avoid making mistakes in spotting the pattern.
The characteristics of the pattern will be discussed in more detail in the next post.

To be continued to Part 2: Important Characteristics of Head & Shoulders Bottom pattern.

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 Option Greek
* Understanding Implied Volatility (IV)
* Understanding Option’s Time Value

Sunday, May 9, 2010

Market Analysis Video: Bearish View on Dow and S&P markets

Watch the following videos for an update on Dow and S&P markets:
* Dow market analysis
* S&P market analysis

In the videos, you’ll again see the “power” of Fibonacci tools, along with MACD Divergence analysis. Happy watching! :)

Other Free Trading Videos for Learning Resources:
FREE Trading Educational Videos with Special Feature

Analysis Tool:
Get Free Trend Analysis for your favorite symbols

Friday, May 7, 2010

Binary Options

What is Binary Options?
According to Wikipedia, Binary option is a type of option where the payoff is either some fixed amount of some asset or nothing at all.
There are two main types of binary options:
* Cash-or-nothing binary option: Pays some fixed amount of cash if the option expires in-the-money.
* Asset-or-nothing binary option: Pays the value of the underlying security if the option expires in-the-money.

Hence, the options are “binary” in nature, because there are only two possible outcomes.
They are also called all-or-nothing options, digital options (more common in forex / interest rate markets), and Fixed Return Options / FROs (on the American Stock Exchange).

For example:
A trader speculates on a binary cash-or-nothing Call Option on Company ABC that its stock price will be at $50 at the expiry date with the investment amount of $100.
If at the future expiry date, the stock is trading at or above $50, the trader will receive $100, in addition to $100 invested.
If the stock is trading below $50, nothing is received. That means he lost all the $100 invested.

One broker that provides Binary Options Trading is StartOptions.
StartOptions offers a FREE Demo Account that will allow newbie’s traders to become familiar with their product and user-friendly platform, as well as testing and improving trading strategies. The demo account operates exactly the same as a real account, enabling you to have the full binary options trading experience without risking real money.

StartOptions’s "Above Below" game lets you trade real-time binary options across various financial instruments; from US stocks and Indices to commodities and Forex Pairs.

On a virtual account you can buy CALL (Above), or buy PUT (Below) and trade the same way you would in the real account. You will also have access to your trading history, as well as all the tools and features of the trading platform.
Every new player begins his trading journey with a virtual wallet of $500 to speculate with and to show the world his trading skills.

What is the payout for the options traded in "Above Below" game?
StartOptions's "Above Below" game offers up to a 75% payout for successful trades (options that expired In-the-money), and a 10% return for unsuccessful trades (options that expired Out-of-the-money).
You can take trading positions for as little as $30.

Example:
You can speculate $100 that the price of Google stocks will be higher than the current stocks in one hour from now. If correct, you will receive 72% payout on your initial investment i.e. your account will be credited with $72 in addition to your $100 investment.
On the other hand, if by the end of the hour Google's stock is lower, you'll keep 10% of your investment, i.e. your account will be credited with $10. That means you lose $60 in this case.

What is a Call Option in "Above Below" game?
An option that yields a profit when the option closes higher than the level it was purchased at. If it closes at exactly the same price, the original investment amount will be returned to the player.

What is a Put Option in "Above Below" game?
An option that yields a profit when the option closes lower than the level it was purchased at. If it closes at exactly at the same price, the original investment amount will be returned to the player.

What is 'In-The-Money' expiry in "Above Below" game?
A professional term to describe a successful option trade in "Above Below" game, i.e. a CALL option that expired above the option price during purchase, or a PUT option that expired below the option price during purchase.

What is 'Out-of-the-money' expiry in "Above Below" game?
A professional term to describe a failed option trade in "Above Below" game, i.e. a CALL option that expired below that expired above the option price during purchase, or a PUT option that expired above, or at the same option price during purchase.

What kinds of instruments are traded on StartOptions?
US Stocks:
Apple (Symbol: AAPL), Cicso (Symbol: CSCO), Citybank (Symbol: C), Google (Symbol: GOOG), Microsoft (Symbol: MSFT), Yahoo! (Symbol: YHOO).

Forex Currency Pairs:
EUR/USD, GBP/USD, USD/CHF, USD/JPY, USD/CAD, GBP/JPY.

Commodities:
Gold, Platinum, Silver.

How to start trading the markets?
You can register via this link, then click “Register”.
After the registration procedure you will receive a confirmation e-mail to the e-mail address you entered during registration, after confirming the e-mail log in to: StartOptions.com and start trading.

When you’re ready for trading of binary options using real money, you can open an account with them.
The initial minimum deposit amount is either USD100, EUR100 or GBP100.
Deposits can be made with Visa, MasterCard and Diners cards. Also by wire transfer, moneybookers and several debit cards.

Saturday, April 17, 2010

HEAD AND SHOULDERS TOP PATTERN – Part 2: Important Characteristics

Go back to Part 1: Head & Shoulders Top Formation

Important Characteristics of Head & Shoulders Top Pattern:

Existing Trend:
There should be an established existing UPWARD trend prior to the pattern.

Shape of Head & Shoulders Top Pattern:
1) Head & Shoulders:
Ideally, the shape Head & Shoulders should be symmetry. The Left & Right Shoulders should peak at about the same price level. The Left & Right Shoulders should also about the same distance from the Head, which means the time duration to develop the formation between the top of Left Shoulder & the Head should be about the same as that between the Head & the top of Right Shoulder.

However, in the real world, the Shoulders are rarely perfectly symmetrical. Sometimes, one shoulder is higher than the other, or takes longer time to develop.
In any case, the Left or Right Shoulder should not reach the level of the Head. If it does, the formation is actually not Head & Shoulders Top pattern.

When the peak of the Right Shoulder is lower than the peak of the Left Shoulder, it may carry a higher chance of larger price decline after the breakout, as it implies more weakness & bearish sentiments.

In addition, ideally, the shape Head & Shoulders should also be made up of three upward sharp peaks. But in real world, the Shoulders can be a bit more rounded / flat.
Also, sometimes in a more complex formation, the pattern could have more than one head and/or more than two shoulders (e.g. 2 Left Shoulders with about the same size and 2 Right Shoulders that are more or less equivalent to the Left Shoulders). Nevertheless, a more complex formation is more often seen in the Head & Shoulders Bottom than in the Head & Shoulders Top.

2) Neckline:
The Neckline that connects the two low points in between the Left Shoulder-Head and the Head-Right Shoulder can be horizontal, sloping upwards or downwards.
The slope of the Neckline could predict degree of bearishness of the pattern and hence affect the chance of severe price decline.

An upwards sloping Neckline has a weaker tendency that the price will decline further, as the higher low of the 2nd low point of the Neckline still indicates the strength of bullishness, and thus it carries lower chance of severe price decline.

A downwards sloping Neckline, which rarely happens, is more reliable as a bearish reversal signal, as it may imply stronger bearish sentiments & more rapidly increasing weakness, and hence have a higher chance of severe price decline.

Duration:
The duration of the formation of the pattern from the start of the development of Left Shoulder to the break of the Neckline can take several months, normally range from 3 to 6 months.

Breakout:
Even when the price has declined from peak of the Right Shoulder, the pattern is not completed yet. The chances that the existing uptrend will continue are still higher than the chances of reversal to take place, as it is normal during an uptrend for the price to test a resistance level a few times, then retreat, and then resume the uptrend again.

Head & Shoulders Top pattern is only completed and confirmed when the price declines and closes below the Neckline, which serves as the key support level in this pattern.

Remember that we should always assume the existing trend (i.e. in this case is uptrend) 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 below the Neckline support, preferably accompanied with an increase in volume, in order to avoid jumping the gun and/or prevent deceptive Head & Shoulders Top pattern.

Nevertheless, since this pattern is considered as one of the most reliable pattern and has a relatively high success rate, some aggressive & experienced traders like to enter the market when the price is declining from the peak of the Right Shoulder, provided they are sure that a valid Head & Shoulders Top is forming. But of course, this trade is much riskier and not recommended for novice traders.

Breakout Confirmation:
Sometimes, the price may also make a deceptive/invalid breakout whereby it touches below the Neckline, but then it moves back up again & resumes uptrend.
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 BELOW the Neckline support, not just an intraday penetration.
Some traders may apply certain price criteria (e.g. 3% - 5% break from the Neckline 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.

Traders / investors should be more cautious if the price keeps hovering around the Neckline without making a decisive break. When this happens, the reversal might never happen and the uptrend is likely to resume.

Volume:
Volume should be diminishing as the pattern is forming.
Volume is the highest during the formation of the Left Shoulder, and then gets lighter as the pattern develops the Head, and should be the lightest during the formation of Right Shoulder, showing an indication that the buying pressures are getting weaker.
Ideally, during & after the breakout of the Neckline support, the volume should significantly increase again.
When during the decline from peak of the Right Shoulder, the price experiences an accelerated drop, perhaps with a gap down or two, accompanied by an expansion in volume, this might give a good sign, as the price decline tends to drop further, and hence it may provide higher chances that the pattern is a bearish reversal pattern.

Potential Price Target:
1) Compute the height of the pattern: The vertical distance between the top / peak of the Head (which serves as the resistance) and the Neckline (which serves as the key support).
2) To compute the potential price target: Subtract the result from the point where the price finally breaks Neckline.

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.

Example:
Suppose a Head & Shoulders Top pattern is forming with the Neckline is sloping downward.
The peak of the Head is at $80 and the Neckline vertically under it is at $60.
The height of the pattern is therefore 20 (80 - 60 = 20).
Suppose the Neckline was finally broken at $50.
Hence, the price target would be $30 (50 - 20 = 30).

Return to Breakout Level:
After the breakout occurs, the price may sometimes return to the Neckline for an immediate test of this new resistance level before continuing their moves in the direction of the breakout. (Remember that the support now has turned into new resistance level). It is also normally only a minor & short-lived bounce.
If this price return move happens, it could actually offer an opportunity to participate in the breakout with a better reward to risk ratio.
However, when the breakout occurs with a heavy volume, the chance of the price to return to the breakout level before continuing its downward movement will be smaller.

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 Option Greek
* Understanding Implied Volatility (IV)
* Understanding Option’s Time Value

Wednesday, April 7, 2010

Important: Rare Opportunity Offered by Market Club

If you often watch many of trading videos here, you should have known about Adam Hewison from Market Club and the powerful tools he uses. Now, the Market Club is opening up a rare opportunity.... a 2 week free trial where you can have access to try all the powerful tools at no costs at all.

There are 4 powerful tools available to Market Club members that you, as a free trial member, will have access to: Smart Scan, Trade School, Chart Analysis, and Data Central. They all will be opened up just for you.
On top of that, you can get unlimited support via emails and phones, and also from Adam Hewison himself.

However, you must be quick to grab this rare opportunity, as it is only available until 9 April 2010 (inclusive).
So, don’t miss this chance to give it a try! Register yourself here now.

Sunday, April 4, 2010

HAPPY EASTER 2010!

Wishing you a Blessed and Happy Easter 2010!



Source of the picture: http://www.flickr.com/photos/52334279@N00/2327100884/

Hope you enjoy and be blessed by the song below here....
GOD bless!
http://www.youtube.com/watch?v=qrPAZbD6fG0&feature=related

Saturday, March 27, 2010

HEAD AND SHOULDERS TOP PATTERN – Part 1: Formation

Head and Shoulders Top is a bearish reversal pattern that normally forms after an extended uptrend, which marks a shift in trend from bullish to bearish. This pattern is very popular because it is regarded as one of the most reliable of all patterns.

The Formation of Head & Shoulders Top Pattern




Head and Shoulders Top Pattern contains three consecutive, sharp peaks / tops, whereby the middle peak is the highest (Head) and the other two peaks (left & right peaks) are lower & roughly equal in size (Left & Right Shoulders).

This pattern forms when the price is in an existing uptrend. The price increases and hits a high then declines (forming the Left Shoulder). Afterwards, the price increases to an even higher high and then declines again (forming the Head). The Right Shoulder is formed when the price rises again but it does not hit the high of the Head. Instead, the price falls back after it has reached about the same price level as the Left Shoulder.
Although the Left & Right Shoulders do not necessarily need to be exactly the same, but it should appear roughly equal to one another.

The important part of this pattern is the Neckline. The Neckline is formed by drawing a line that connects two low points: (1) the low point in between the Left Shoulder & Head, and (2) the low point in between the Head & Right Shoulder.
This Neckline can be horizontal, sloping upwards or downwards.

The pattern is only completed and confirmed when the price decreases and closes below the Neckline, which serves as the key support level in this pattern.

Although Head & Shoulders Top is viewed as a common pattern and quite easy to identify, it’s actually not the case. Therefore, one should pay close attention & take proper steps to analyze the characteristics of Head & Shoulders Top in order to minimize / avoid making mistakes in spotting the pattern.
The characteristics of the pattern will be discussed in more detail in the next post.

Continue to Part 2: Important Characteristics of Head & Shoulders Top pattern.

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

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

Analysis Tool:
Get Free Trend Analysis for your favorite symbols

Saturday, March 13, 2010

Trading Educational Video: “Day Trading Made Simple”

If you’re keen to learn some knowledge about Day Trading, here is the chance to learn from a renowned trading expert William Greenspan for FREE.

Watch this video, and grab this chance while it’s still free.

Friday, March 5, 2010

A Technical Video Analysis of the Equity Market

Although all the indices are undergoing some correction recently, the major trend for all the indices still remains positive. However, the trend may potentially reverse to negative in these markets should the key reversal price levels are broken.

This new short video will show you an analysis of where the key reversal area is in the S&P 500, the NASDAQ, and the Dow, if in fact the markets are ever going to reverse to the downside.

Sunday, February 21, 2010

Conditional / Contingent Order – Part 2: Examples

Go back to Part 1: How It Works.

Examples of Conditional / Contingent Orders:

Example 1:
Stock XYZ has been trading in a range between $30.00 and $35.00. You want to place a buy order to buy the shares of XYZ when the stock has broken out the range and show upward price movement. You can place a contingent order and set a condition that when the price is trading at $35.20 or above (Trigger Price >= $35.20), place an order to buy XYZ at $35.30 (i.e. Limit Order with Limit Price $35.30).
Suppose when the market opens the next day, XYZ opens at $35.25, the order will be triggered and sent to the market as a Limit order. The order should be executed at a price around $35.25. Basically, the order will only be filled with the price $35.30 or lower.
However, suppose stock XYZ opens at $40.00, the order will be triggered, but it won’t be executed as the price is higher than the Limit Price. Hence, this can prevent you from buying more than the price that you’re willing to pay.

Example 2:
Adding to Example 1, suppose that in order to ensure that there is also sufficient momentum leading to the price breakout of the trading range, you also want to specify a minimum volume target of 300,000 units traded.
In this case, if the price increase to $35.20 or above, but only 200,000 units are traded that day, then your order will not be triggered.
Only when both the price is $35.20 or above AND the volume traded on that day (i.e. all units traded on the day the price is traded at $35.20 or above, including units traded at both above and below $35.20) is 300,000 units or more, the Limit order to buy stock XYZ at the price $35.30 or below will then be triggered and submitted to the market.

Example 3:
You own Call option contracts of stock ABC and would like to sell the options if a certain market index falls below 10,000. You can place a contingent order and specify a condition that if the market index drops to below 10,000, your order to sell will be triggered and sent to the market.
In this case, you can choose to have Market Order, Limit Order, Stop Order, or Stop Limit Order to be sent to the market when the condition is met.
Remember that since the security you will be selling is options, when you place Limit Order, Stop Order, or Stop Limit Order, the Limit Price or Stop price you specify must be the options premium, not the stock price.

Example 4:
You’ve observed that normally when stock price of ABC drops, stock XYZ would also drop shortly after. Currently, stock ABC is trading in the range of $15 to $18. You expect that the stock ABC will fall and break down the trading range. When that happens, you wish to buy Put options of stock XYZ.
You can place a contingent order and set a condition that if the stock price of ABC falls to or below $14.80, your order to buy Put options of XYZ will be triggered.
Likewise, you can choose to have Market Order, Limit Order, or even Buy Market-If-Touched (Buy MIT) or Buy Limit-If-Touched (Buy LIT) Order (if available) to be sent to the market when the condition is met.

Example 5:
You have short sell stock PQR at $20.00 and wish to buy it back to take profit when the price has fallen to $18.00 (your profit target). In addition to the price condition, you also want to set a minimum traded volume before the order can be triggered.
For this purpose, you can place a contingent order and set a condition that if the stock price of PQR has fallen to 18.00 or below and at least 100,000 units of PQR are traded, your order to buy (back) the stock will be triggered. You can choose to have Market Order, Limit Order, Stop Order, or Stop Limit Order to be sent to the market when the condition is met.
In this case, if the price falls to $18.00 or below but only 90,000 units are traded that day, then your order will not be triggered.
Only when both the price is $18.00 or below AND the volume traded on that day (i.e. all units traded on the day the price is traded at $18.00 or below, including units traded at both above and below $18.00) is at least 100,000 units, the order will be triggered and submitted to the market.

For the list of other types of order, go to: Types of Orders in Trading.