Archive for Liberated Stock Trader Book
Chapter 15 – Making the trade – Cash Allocation
Posted by: | CommentsThis is an excerpt from the Liberated Stock Trader Professional Stock Market Training Course, Chapter 15 – Making the Trade – Section 4 – Part 1 – Cash Allocation.
Making the trade – Cash Allocation
We have covered stop losses and elements of risk, we also covered how many stocks to purchase and now we are looking at how to allocate your money to stocks. Otherwise known as betting styles, cash allocation is important to understand. There are two approaches, Martingale and Anti-Martingale. They help us understand cash allocation strategies.
The Martingale Approach
Before I understood the term “Martingale” I had worked out a way to win at roulette. I thought it was highly original until I learned that any top level trader or professional technical analyst understands this approach. When I was younger, before I found the stock market, marriage and children, I enjoyed a regular night out at the casino with friends gambling a small amount. I used to go with $50 dollars in my pocket and utterly refuse to gamble any more money. This was play money and when it was gone, it was gone. My strategy paid off quite well when it worked but when it did not work I went bust.
My strategy was to only bet Black or Red, if I won, I won double. If I bet $2, I won $2 and got my $2 stake back. If I lost I would double my next bet to $4, so that if I won I would win back my original loss. The idea was that I could sustain with $5, 5 straight losses before going bankrupt. But by constantly doubling my stake I only needed one win to come out ahead.
Quick Tip: On a losing streak do not double your betting size to recover your losses in the Stock Market.
This I now know is called the “Martingale Betting Strategy” and it certainly is not recommended for the stock market. When it worked it was good, especially if lady luck was one my side, but if I hit a losing streak I was broke. Sometimes I would come out with my money doubled, but sometimes I came out with nothing. If you adopt this approach in the stock market you may do well for a period, but all it will take is to go bust once, then you have no money, which means you have to leave the table. In the example above, after my 5th successive loss, I was one bet away from bankruptcy.
This chapter goes on to discuss in detail:
- How to track your trades
- How many stocks to own
- Timing and Stop Losses
- Risk reward
- Setting price targets
Chapter 12 What type of investor are you?
Posted by: | CommentsThis is an excerpt from the Liberated Stock Trader Book & Trading Academy Pro Stock Market Training Course. Chapter 12, Section 2. This Chapter is Dedicated to Trading Strategy
Before you start to buy and sell stocks it is important to look at who you are and what you want to achieve. To begin with we need to understand some basic terms.
The term investor has many different meanings, the Collins English dictionary defines it as “An investor is a person or organization that buys stocks or shares or pays money into a bank in order to receive a profit”. But this is a little generic to be used clearly for us to reference.
In the world of finance, investments and speculation the way in which you seek to gain your profit dictates what you are.
The Speculator:
A speculator seeks to exploit short term trends, loopholes, momentum or news to seek a gain on money invested. For example, if I see that there is incredible Volume on a stock and I want to trade into that stock to get a quick gain without having any in depth understanding of the company, industry or management team I am essentially speculating that this event will make the stock rise.
Alternatively, someone who enters into an Options Contract shorting a stock, in order to make a profit is also speculating that the stock price will drop during a given time frame. This certainly is not investing. None of the Cash invested in the Options Contract will ever be seen by the company in question; therefore you are not investing in that company.
George Soros could be considered one of the ultimate Speculators, and indeed the most successful with a net worth of circa $7 Billion. Soros, known as the “man who broke the Bank of England” took out a $10 Billion Short Position betting that Pound Sterling would fall. Although the Bank of England did everything it could to prop up the currency it failed dramatically and Soros bagged $2 Billion profit from the bet. Soros was betting on a future event happening. Was this risky? George Soros does not take undue risk, his knowledge of the Global Finance and Capital markets enabled him to take a calculated risk which paid off handsomely. What he did is classic speculation.
Those who speculate in stocks usually use Charts and News events to trade with.
Chapter 10 Advanced Stock Charting Techniques
Posted by: | CommentsThis is an excerpt from the Liberated Stock Trader PRO Book and Training Course. Chapter 10, Section 2. In this section we will look at some other techniques used in charts that may be considered advanced techniques, these are perhaps not critical to success, but when you learn them can provide additional insights. Chapter includes Parabolic SAR, Ichimoku Charts, Bollinger Bands, Directional Movement System ADX and Market Sentiment
Parabolic SAR – Stop and Reverse
The Parabolic system created by Welles Wilder, is a popular trading system that gives extremely clear buy and sell signals. The SAR in the name means “Stop and Reverse”. In essence this is a system that keeps you in the market all the time. When the indicator signals a “Buy” you should buy the stock and go long. When it signals a “Sell” you should sell the stock and go “Short”
Other indicators like moving averages or oscillators may have a delay between when the stock changes direction and when a signal is generated; Parabolic SAR aims to improve the situation by adding two factors:
- Acceleration Factor Increase : A factor to accelerate the buy and sell signal responsiveness.
- Acceleration Factor Max : A factor to limit the acceleration of the signals.
Below is a chart of General Electric for 2009, you can see that the Parabolic SAR is plotted as a series of dots (this could also be a line). When the Dots are above the Price this is a downtrend and is interpreted as a Sell or go Short. When the Dots are below price, this is an uptrend and the signal is a Buy or go long.
The actual signal is when the price cuts through the Parabolic SAR line and the Dot move from above to below and vice versa. The signal is the first dot. The acceleration factors come into play when a stock has moved in a trend for a substantial amount of time, the indicator will then move the dots closer and closer to the price line as the trend slows or falters. This theoretically maximizes your gains. The two configurable parameters allow you to tweak the acceleration of the Dots to the price line.
The way this indicator works is quite impressive however it is not perfect, like most oscillators when the stock is in a period of lateral consolidation or channeling then many false signals may be produced and losing trades can occur.
A great place to experiment with the Parabolic SAR indicator is over at FreeStockCharts.com
Other Chapters of the Liberated Stock Trader Book are listed below
Chapter 1 – Essential Stock Market Knowledge – Fundamentals
Chapter 2 – Why do Booms and Busts Occur?
Chapter 3 – Stock Market Cycles – Business & Economic Cycles – Kondratieff to Kuznets
Chapter 4 – Is the Company in great shape – P/E Ratio
Chapter 5 – How to find the best stocks
Chapter 6 – Japanese Candlesticks – Bullish Reversal Patterns
Chapter 7 – How to draw trend lines
Chapter 8 – ROC Rate of Change Indicator
Chapter 9 – Chart Indicators Volume – The Price Volume Relationship










