Archive for Technical Analysis
10 Steps to build a great stock market trading system
Posted by: | Comments10 Building Blocks to a Professional Stock Market System
After you have undergone stock market education in fundamental and technical analysis you will be ready to start to create your Stock Market Trading System. Of course any good educational service in the equities/security space should help you to create this system yourself.
Developing a stock trading system is about combining logic, knowledge, experience, art and science. Your system will need to perform well (higher than 6% on average per year) both historically and be expected to perform well in the future at least for the time-frame in which you expect to use it. The “Nirvana” of a trading system is that it would need to perform well and need little “user interpretation” for it to function. This would mean using “trading robots” or a mechanical method. I do not recommend a trading robot that would place your trades for you as this will essentially take any on the fly decision making out of your hands. However you should use a mechanical method (computer) to help you test your systems and create the buy and sell signals for you.
In this context your systems would have the following requirements.
- A good stock trading system will need to be back-tested to prove that it worked in the past. This would give us an element of proof that the logic upon which we base our assumptions are functional.
- A good system allows us to trade with less emotion providing a market advantage. Emotion is known to be the culprit of many trading errors and losses.
- Automation of the fundamental screening for the stocks will save us a lot of time.
- Automation of the Technical Indicators Scan will also narrow the list further to enable us to focus only on our preferred candidates.
Step 1 – Get educated
Take a high quality stock market training course. This site has a FREE 10 module Stock Market Training Course, covering fundamental and technical analysis. For help on choosing a quality stock market education read this Stock Market Training Review.
Step 2 – Choose your favorite time-frame for trading / investing
If you have the time to fully immerse yourself in the Stock Market you might want to trade shorter time-frames (days to weeks). If you have a full-time job and less free time available you may want to trade longer time-frames and only monitor your stocks on a weekly basis.
Step 3 – Choose your favorite Markets
As an active trader you should choose your Stock Markets wisely. If you want to be active (checking your stocks intra-day or on a daily basis) then is may be wise to trade a stock market that is not in your time-zone. For example, Mr. Smith has a busy day job and only has time free in the evening. Mr. Smith is based in India. Normally he would want to trade the Indian Stock Market. But actually the European Markets might be a good choice as they open close to the end of his working day. Therefore he can dedicate and focus his spare time on the stock market in question.
If you are a less active trader, then it might be wise to trade the stock market in your own time-zone as you may have the advantage of being able to spot successful companies in your country and investigate them further using your “Local Knowledge”.
Step 4 – Understand what your profit target is
What is your target? Active traders should expect higher returns/profits as they will be spending more time trading the market. Less active traders might expect a slightly lower return as the trade off for not being as focused. But what is a good target. Do not believe the scam artists of “Penny Stocks Newsletters” and peddlers of “Microcap Stocks” ; in the real world 100% or 1000% profits are not realistic, in fact it is irresponsible that they would promote their services in this way.
Warren Buffet has averaged just over 24% annual return over his entire career. That is just 2% per month. Realistically you should choose this as a viable upper target.
Step 5 – Select you favorite Fundamental Screens
Capitalization, Earnings Per Share, Earnings Acceleration, 5 year revenue % increase, Price Earnings Ratio. If these terms are simply vague notions to your, please go back to step 1.
Step 6 – Select your preferred Stock Market Indicators using technical analysis
What Charts should you use?
- Bars
- Candlesticks
- Point and Figure Charting
- Ichimoku Cloud Charts
- Market Profile
What indicators should you use?
- Price Indicators – the study of price based chart indicators or Oscillators know as Stochastics,”Relative Strength” (RSI), “Rate of Change” (ROC), “Moving Averages” (MA), “Moving Average Convergence Divergence” (MACD), Parabolic SAR, ADX Average Direction Movement Index.
- Study of Volume – understanding how the level of volume has a relationship with price – and how price has a relationship with volume.
- Study of Price Volume Indicators – “On Balance Volume” (OBV), Chaikins Money Flow, “Time Segmented Volume” (TSV), MoneyStream.
Step 7 – Turn your previous choices into specific rules
Quantify your choices of the fundamental screens and technical analysis screens.
At what point would you by?
- When the 10 day Moving Average crosses the 20 day moving average and holds above price for 2 days?
- When RSI holds above the RSI 5 days Moving Average for 2 days?
At what point do you sell?
- When MACD turns negative?
- When you see a negative divergence in Money Flow?
Step 8 – Run your rules and back test
Using back-testing software you can start to implement your rules and see if they actually work historically. This is a fascinating and immersing topic. One excellent back-testing software I use is called stock finder.
If the systems produces the targets you expect, move to step 9.
Step 9 – Let your rules run
Let your rules run for a week or two to see if it continues to perform.
Step 10 – Go or No Go
If successful – Implement the system – If unsuccessful – tweak the system and start again from step 5.
If your rule are working then implement your system, start to trade it. If not you may need to refine the system. The best systems have been refined over and over again to remove logical errors and improve the percentage of winning trades and the % of the profit per trade.
The results of a great stock trading system
Building and running a trading system takes time, a logical mind and patience. Many successful traders have started to make losses because through boredom they have deviated from their winning system or strategy. Try not to make the same mistake.
The results will be profits and plenty of them.
Good luck and may the trade be with you.
The single way to make money in the Stock Market.
Posted by: | CommentsI received a question from a new member today after he read the post about Volume and Supply & Demand.
I was so touched with the question I decided to write a post to try and answer his question.
So firstly I would like to welcome Deepak to the club. Here is his question.
“sir,
i have read about volume and other tools , which u mentioned above. but fact is that , in share market i can not believe any single tool. bcoz i learnt this course last year . since then i have been trying and hard working to learn technical course , i checked many tools of it but not useful till now. so sir my request to u that u may provide any one techniq or tools by which i can earn some mony . bcoz i lost much money in share market and so on. i m waiting ur rply sir” Deepak.
So what is the single way to make money in the stock market?
Dear Deepak,
I completely understand where you are coming from. I too have lost a lot of money in the stock market, back in 2000 when I was younger, fresher and more eager to gamble. I also attended a Stock Market Training Seminar in 2000, it cost me nearly $3000 (actually British Pounds as I am English), and I really thought I was a hot shot. In the seminar it was only me and 2000 other people. You can imagine how much the famous trader made out of teaching his skills.
Anyway, I took notes, revised and started to trade, heavily, every day multiple trades. I saw big winners, but I also many many losers. The only thing that stopped me completely wiping out my remaining portfolio was my ability to say “enough is enough” and pull out with the remaining cash I had.
I then took a trajectory of deep knowledge acquisition. I studied and experimented more intensely with the stock market than with anything else I have ever done, including my degree in business and all my schooling rolled up into one. After 10 years, hundreds of books, heaven knows how many trades, I finally get it. To prove it I took the IFTA Technical Analyst exam. This required some heavy duty reading and deep contemplation before it was all absorbed. But I passed first time.
I now trade quite well, I like to think. I can assess the direction of the overall market and really understand what makes the market move like it does.
You asked me for a single strategy so you can start making money. You asked me for a single tool to use to enable you to recoup your losses.
The single strategy to make money on the stock market.
No matter what the con-men, penny stock newsletter writers or gurus tell you, I can really tell you this. There is only one way to make money in the “share market / stock market”. Education!
I believe that the future of the individual is in their hands not mine. This is why I have written over a number of years the Liberated Stock Trader Academy FREE training course. It is a great starting point to learn about what matters. Not just Technical Analysis, but Fundamental Analysis also.
But there are so many things that they never teach you in a Stock Trading seminar. They like to focus on chart patterns and indicators, like they are the holy grail. But if you really want to make money in the stock market and understand why and how the market moves the way it does, you need to understand the Fundamentals. By that I mean:
- the business climate
- market cycles
- economics
- monetary and fiscal policy
- the role of the government and central banks in the fate of the stock market
Combining a solid knowledge of the fundamentals of business economics with technical analysis is the key. Only then can you understand if the business climate is worsening what affect will it have on the stock market.
The single tool to make money in the stock market.
As you are probably aware, I am also a fan of Technical Analysis, the use of charts. But I am not a purist. I really understand that the greatest appreciation of a chart only comes in combination with a solid understanding of Fundamentals also.
The single tool is non-existent.
However, there is a combination of tools that works. Once you have a grasp of why the market moves in a certain direction (Economics and Governments), and an understanding of the way it moves (Cycles & Waves), then you can interpret charts (Technical Analysis) in a whole new way. Understanding “Supply and Demand” within a given economic climate is critical.
Then we can combine Price, Trends, Volume and the Price Volume relationship to give us something akin to a true visualization of what may happen. This will put you in the top 5% of stock market investors.
The single tool is the combination of Fundamentals and Technical Analysis.
This probably sounds like a monstrous amount of information.
This is why I created the Liberated Stock Trader PRO Training. It is absolutely unique. With 16 hours of intensive video, and a full book to back up the learning experience. You will have an absolutely solid grasp of everything I have discussed here.
What is also worth noting is that it is selling at less that 1/10th of the cost of a weekend seminar, and at less than a single losing trade. If you avoid a single losing trading in the market because of my training, you have made a profit.
Why is it so inexpensive? Because I am using the power of the internet to deliver it. I do not need to hire seminar venues, print DVD’s, publish a book on paper, or fly to exotic venues. You simply get a intensive training course direct on your PC, Mac or iPhone.
After this training course you will understand. Even if you need to repeat it many times. You can. I know how it is, I have re-read so many books and experimented so many times before it all sank in. What I can guarantee is that I only provide you the most important knowledge in my training, so in 16 hours your will have an excellent understanding of everything you will need to know.
So my advice is education. If not with me with someone else. But trust me, you will not get better value training than at Liberated Stock Trader.
Deepak, I am completely with you. Your question reminded me of why I have dedicated years of my life to this cause.
My mission states, “your future in your hands” and “take control of your destiny” for a reason.
I am on your side. Do not believe the big Wall Street propaganda merchants, do not believe the news, do not follow gurus or penny stocks newsletters. Believe in yourself. Take a time out, learn, and then conquer the market.
Take the Liberated Stock Trader PRO Course you will not be disappointed.
Thanks you for your question, it reminded me of why I spend so many hours doing what I do.
Barry
Name: Barry D. Moore
Bio: Certified Technical Analyst (Stock Market Technical Analyst), Full Member of Society of Technical Analysts (STA) Level II CFTe (Certified Financial Technician), independent trader, author, trainer & blogger.
Market Update – Technical Analysis – US May16 2010
Posted by: | CommentsTechnical Analysis of the US Markets – SP-500
Well the market telegraphed the move down in mid-April with the negative divergences forming in the major oscillators and the market kept its promise.
But where to go from here?
Market Outlook.
The market is in a downtrend so it is important for us to build a number of potential scenarios.
To do this I have incorporated Fibonacci, RSI and a new tool called Volume at Price. Volume at price gives us a completely new way to evaluate volume, by enabling us to see volume not categorized into daily segments, but by looking at volume categorized into price segments.
Look at the chart.
Chart courtesy of FreeStockcharts.com Worden Brothers Inc.
We can see in the top pane, on the left hand side volume bars. The longer the bar the more shares were traded at that given price level. It is a really nice complement to our arsenal of tools. In this example we can see that the price level of 1,100 for the SP-500 was significant and undoubtedly will be again. Also the next major resistance point according to Volume at Price, is 1,060 which is very close to the February low. So as far as downside targets go, we could assume.
- A pullback to 1,100
- A further test of the February low.
- A further drop than these to levels would signify that we need to seriously rethink our contingency planning.
I will not be long in the market until the market tells me to. Right now the Price, the Volume and the Oscillators, on many time-frames are telling us to be careful.
Research I released in the Liberated Stock Trader PRO training tell us that Mondays are typically negative days, but in the last 10 years Fridays have been the worst day of the week. This we saw in evidence on Friday the 14th May. So we may expect further negativity Monday. But an expectation is never a certainty.
