Showing posts with label b. TRADING STRATEGY. Show all posts
Showing posts with label b. TRADING STRATEGY. Show all posts

Chart Analysis: Where Is My Next Checkpoint?

Once I find momentum on a chart I ask myself the following question...

Where is my next checkpoint?

This is the level I believe an index or stock could reach if the momentum keeps going the way it's going. 




How do I determine where my next checkpoint will be?

Well this part is totally subjective. I admit that it's a purely personal decision. It's my educated guess!

However, I do work off certain guidelines when I make this decision:

Round numbers approach
E.g. Lets say a stock is moving upwards. Pretend the current price is $17.30. Using a round number projection I might have a checkpoint at $20.00 which is a round number to me.

Chart Pattern approach
E.g. This time pretend a stock is falling fast. Pretend the current price is $7.70. If I spot a support level at $7.00 I might just call that my checkpoint.

To summarise, deciding where I’m going to place my next checkpoint is a purely personal decision.

It is based on my chart analysis and my gut feel for where I believe the market may be heading.





Stock Market Rallies: How Do I Assess If Rallies Will Be Short Lived or Long Lived?


To help me answer this question one of the first things I like to turn to is a chart of the index or the stock.

My chart analysis occurs on two levels:

Level 1 - I look at the long term chart (eg daily, weekly).

Level 2 - I look at the short term chart (eg 30mins, 1 hour).


Based on the direction of the rally, I ask myself to decide where the next “checkpoint” will be.

My checkpoint is the level I believe an index or a stock could reach if the momentum continues.

This type of analysis helps me to assess if a rally will be short or long lived.



Bear Markets: Do you have a strategy for when the bear bites?



When I trade stocks my strategy is simple.
Buy Low, Sell High
In a bull market I like to trade stocks. But what happens when markets fall?
When markets head south I may turn to CFDs.
CFD stands for Contracts For Difference and they have revolutionised trading. One of the main benefits of CFDs is they allow short selling.

SHORT SELLING DEMYSTIFIED

In CFD lingo, to buy low and sell high is to trade "long" or from the "long side."
CFD's however also allow the reverse to happen. They allow trading "short" or from the "short side." Short selling makes it possible to make a profit from a falling security price.
When you short sell your goal is completely reversed.
 Sell High, Buy Low
Let’s now compare a "long" versus a "short" strategy.

LONG STRATEGY

Let’s say the market is going up. My strategy - buy low, sell high.
I find a stock that I believe is set to explode. We’ll call the fictitious stock ABC. I might buy 2,000 units of ABC at $10.00.
Pretend I’m right and the stock rises to $10.50.
What is my profit? $0.50 X 2,000 units = $1,000.
Nice.
SHORT STRATEGY

Imagine now the market is going down….BIG TIME!
I find a stock that I believe is heading south...plummeting to planet earth!
I decide to short sell CFD's on this fictitious stock. Let’s call the stock XYZ.
By short selling CFDs on the stock I use a reverse strategy.
Sell high, Buy low.
Let’s say I sell 2,000 units at $10.00 using CFD's.
XYZ drops to $9.50.
What is my profit? $0.50 X 2000 units = $1,000.
What's the difference?
Answer: There is no difference!
In both examples the stock price moved $0.50. ABC went up $0.50. XYZ went down $0.50.
The profit however on both trades was exactly identical...$1,000!
By employing the right strategy money can be made regardless of price direction.
In a bear market, CFDs give me the flexibility to short sell. This might form part of my trading strategy.
NB This article is for illustration purposes and therefore has not factored in brokerage and/or other CFD financing costs.


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