USEFUL TIPS

There is a series of free trading lessons, which consists of 10 topics that traders, both beginners and experienced traders, should find them very useful.

The 10 Free Trading Lessons will cover the following topics:

(1) The importance of psychology in price movement.
(2) How to spot mega trends.
(3) Understanding of technical price objectives.
(4) How to picture price objectives.
(5) How to trade with moving averages.
(6) How to use point and figure trading techniques.
(7) How to use the RSI indicator.
(8) How to correctly use stochastics in your trading.
(9) How to use the ADX indicator to capture trends.
(10) How to capitalize on natural market cycles.

On top of the above, you will learn all about Fibonacci retracements, MACD, Bollinger Bands, and much more.

These 10 free trading lessons will be sent via email.

In order to get this, just fill out the form here. Then you should be able to get it started right away. Hope this info can be useful to you.

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.