Stock Market Course – Average Directional Movement September 14, 2009
Posted by admin in : Stock Market Basics , add a commentAverage Directional Movement or ADX is a fantastic way of seeing on a chart whether or not the stock is trending.
The ADX, which was devised by Welles Wilder, gives a good indication of how strong the a trend is.
There are three types of trend. There is up, there is down and there is sideways. When the trend is going up, you will find that each peak and trough in the chart is higher than the previous peak or trough. Vice versa for a downward trend. When the trend is sideways, you’ll find it trading within a support and a resistance level which it doesn’t usually break until a new trend establishes itself.
As can be seen in the picture above, the sideways market has a low ADX. Typically the ADX of a sideways market is between 10 and 15.
As the share price begins to break down though the support level you can see the green ADX line beginning to show a rise. This means that there is a possible new trend occurring. An ADX between 16 and 25 shows the share price is in a trading range.
Once the ADX moves to 26 to 40, the market is said to be a trending market and 41 and over shows a strong trending market.
The other two lines (red and blue) on the bottom chart are the Directional Movement Indicator or DMI. Wilder suggested that these two lines could be used to determine the right time to buy and sell stocks. The method is to go long when the +DI (blue line) crosses above the –DI (red line) and to go short when the –DI line crosses below the +DI line.
There is a slight drawback to the ADX in that the information is slightly delayed and the signals can be a bit late. However, as with all indicators, the ADX should be used in conjunction with other indicators to give a clearer picture of the market.
Stock Market Course – Trend Spotting August 25, 2009
Posted by admin in : Stock Market Basics , add a commentWith the amount of stock market data which can be found on the internet these days, you would be forgiven for feeling a little overwhelmed. Yet there is a simple method to make a profit that gets overlooked with all the other indicators out there.
The simple truth is that the best way to make a profit on the stock market is to get in at the start of a trend and get out at the end of the trend. Easy! But how do you know when the market is starting a new trend and when it is ending?
A very good question and this is the tricky part. There is no guaranteed way of knowing if you’re at the bottom or at the top but there are ways to determine the probability of a bottom or a top.
There are two schools of thought when it comes to analyzing a stock. The first is to use a company’s fundamental data (PE ratio, PEG factor, EPS, director buying/selling, company news etc) and the second is to analyze the stock’s price chart. In this article we are going to use technical analysis.
Let’s take a look at this chart of the S&P 500. You can see the closing weekly price of the S&P 500 over the last 3 years. This chart clearly shows that the price has gone down over the last three years and we have drawn a line touching the tops of some short term price increases on its way down. The line we have drawn is called a trend line which, as its name states, shows the trend the S&P 500 has taken over the last three years.
Another thing we can see from this chart is that the price has broken above the trendline and this usually signifies a change in trend. As you can see from the chart, we were unable to get in right at the bottom of the new trend but as you can clearly see, since the price broke out over the trend line, it has since gained 126 points and is still gaining.
Do you think you could have made a profit from this one technical indicator?
Stock Market Course – Types of Chart August 25, 2009
Posted by admin in : Stock Market Basics , add a commentTechnical analysis of a stock means looking at a chart to figure out where the price is going next. But before we even start to look at technical indicators to see where a price is likely to go, we need to decide on the type of chart we want to view this information on. There are various types of charts but the most popular are the line, bar and candlestick chart. Any good stock market course should go into further details of the different charts available along with details of the most popular indicators.
When we first draw a stock chart we need to decide whether we want to see a closing price line, a bar chart or a candlestick chart.
Each of these types of chart give different information is different ways. Each of the following charts show the exact same index over the exact same time period.
The first type of chart is a line chart. Its beauty is in its simplicity. This chart gives the closing price of each period that you have drawn the chart for. So, for example, if you have drawn a daily chart, the line gives the closing price for each day. You can change the period to suit your style of trading. If you are day trading you might want to look at the closing price for each minute or for every five minutes. If you’re a long term investor you may only want the closing price each week.
The next type of chart is a OHLC (Open High Low Close) chart or commonly known as a bar chart. This does what it says on the tin. It gives the Open price by a little mark to the left of the bar, shows the days trading range ie the highest price it reached and the lowest price it reached during the time period and then to the right of the bar is a little marker to show where the price closed. Again, depending on your type of trading the period could be minutes or days.
A candlestick chart shows the same information as the bar chart but makes it a lot easier to read. A candlestick has two parts. There is the main body of the candle and then there are usually ‘wicks’ at each end. If the price went up during the period, then the open price would be the bottom of the candle and the closing price would be the top of the candle. The wicks at each end show the high and low point of the days trading. Candles are usually coloured in to show at a quick glance whether the price went up or not. The up candles are usually coloured in green whereas the down candles are usually coloured in red.
My personal favourite is the candlestick chart as I can see the price action with a quick glance, but this doesn’t mean to say that I don’t take a look at the other types of chart. They all have a valuable role to play when analyzing a stock.
These are some of the stock market basics that you will learn on a good stock market course and are essential knowledge to be able to trade profitably on the stock market.
Stock Market Course August 24, 2009
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If you’re making your first foray into the stock market hoping to make a bit of cash on the side then the best place to start is with a Stock Market Course.
Money is won and lost on Wall Street and other exchanges around the world on a daily basis. We want to ensure that you’re not one of the losers.
If you’ve ever had an attempt at making some money in stocks and lost some money then don’t give up. Trading stocks is a skill and is like learning any other skill. With a bit of practice your skill will improve and you’ll start to consistently see some good returns.
Don’t be mislead into thinking that you won’t make losses. You will. All good traders do. The difference between a trader who makes money and those that don’t is that good traders cut their losses and let their profits ride.
A good Stock Market Course will tell you exactly how to do this. It will show you have to keep your losses low and make your profits large. It will go into detail about how to analyse a stock so that you will know if it is worth investing in now, keeping an eye on for the future, or leaving well alone.
Stock Market Courses also introduce you to the terminology used which may have one meaning in normal day to day language but mean something completely different in terms of trading the stock market.
Other stock market basics which should be covered include moving averages, ADX, Bollinger Bands, Relative Strength Indicators, and volume as examples of technical indicators. Some fundamental indicators include P/E Ratios, ROCE, how to read company accounts, and management trading to name just a few.
Don’t worry if some of these terms mean nothing to you now. After a short introduction these terms and others will be rolling off your tongue as if you’d known them all your life.
So, if you’re serious about making money in stocks, make sure you know the basics and get yourself a good course.
