Online Trading Blog

The Week Ahead: Consumer sentiment reached a 16 year low blamed primarily on high gas prices, falling home values and weak expectations for future spending. The ISM Manufacturing Index is released on Tuesday with auto sales and construction spending. Wednesday, Ben Bernanke will testify on the economic outlook and factory order numbers are due out. The jobless claims figures and the all important March employment report come out on Friday.

Stocks to Watch: Commerce Banc will be replaced by HCP Corp. (HCP) and Circuit City will be replaced by Phillip Morris International (PM) on the S&P 500. Cnooc Ltd. (CEO) the big chinese oil firm received a buy rating from S&P after forming a possible double bottom. The International Trade Commission overturned a judges decision of a stay against Tessera Technologies (TSRA) in a wireless patent case, but the stock remains volatile.

Special Note: With earnings season around the corner, profit growth for the first half of 2008 are now expected to contract as opposed to previous growth estimates underscored by weak housing markets and consumer spending.
The first quarter of 2008 will be the 2nd quarter in a row down since the 2nd and 3rd quarters of 2002. An election year rally off these lows could unfold especially if a selling capitulation occurs or news that the financial sector crises is easing.

Commentary provided by Barry Ward, Registered Principal, NobleTrading.com, Inc.


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Triple bottom is a trend reversal pattern, which is used by traders to generate buy signals. Triple bottom patterns occur rarely for most stocks and are considered as one of the most reliable indicators for buy signal. These are usually long-term trends and are thus noticed in weekly, biweekly or monthly charts.

Triple bottom pattern occurs at the end of a prolonged downtrend; and is an indicator of market reversal. It is characterized by three troughs in charts near a price level and is followed by a long upward trend, breaking the resistance level. The repeated lows and highs forms informs fairly clear support and resistance levels and buy signals are generated when the price breaks the resistance level after the third low. Height of the pattern, time taken for pattern formation and trading volume involved can give some idea about longevity of the bullish trend and price targets.

Once the stock enters the long bullish trend, the breakout point (original resistance level) becomes the potential support. Triple bottom formations help mainly long-term traders and investors, and less favor day traders and swing traders.

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Becoming a successful stock trader is not at all an easy task and is impossible with out clear goals, dedication, planning and hard work. Below are some features those most successful stock traders have.

• A successful trader always trades with a plan, and he will be well informed about his strengths and weaknesses.
• He maintains proper charts and records and will be keen to update it regularly.
• Every evening he evaluates the day just finished and does home work for next trading day.
• A successful trader maximizes his profiting by going with the trend and limits his loss by exiting losing trades early.
• He never overtrades or under-trades. He adjusts trading volume with respect to stock, market trend and account balance.
• Successful trader holds his nerves on both profit and loss. He knows no one single trader can control the market and thus he has to adjust with the market.
• He never predicts the market blindly.
• He will be keen to learn from every opportunity he comes across. He learns from other traders, books, charts, his profits and from his losses.
• He always keeps a backup plan and will be keen in managing his money.
• A successful trader always trades in search of profit, not just for trading.
• He always keeps a reasonable ratio between high-risk and low-risk trading practices.
• He only follows a limited number trading strategies and technical indicators.

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Accumulative swing index or ASI is a technical indicator developed by Welles Wilder. It was originally designed for futures trading, but is also used for trading stocks and forex currencies. ASI is a simple and easy tool to interpret technical indicator which traders use predominantly as a trend conformation tool.

Accumulative swing index is a better indicator than plain ‘Swing Index’. It gives relatively long-term trend information, and is useful for traders of all styles. The values range from positive to negative integers, which can be plotted on a graph for easy interpretation. ASI shows positive values if long-term trend is up, shows negative values if long-term trend is down, and oscillate around zero for sideways trends.

For easy interpretation, Welder used two terms as High Swing Point (HSP) and Low Swing Point (LSP). HSP is the any trading day with ASI value higher than previous and following trading days. LSP is the any trading day with ASI value lower than previous and following trading day. Trading systems following Accumulative swing index, generate buying signals on upper breakout point – when ASI value go above previous significant HSP, and selling signals on lower breakout point – when ASI value go below previous significant LSP.

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Forex currencies are the most recent financial product available for individual traders. Forex market is the largest and most liquid financial market available today. Starting your trading career with forex is always a good option; although it is better to have previous trading experience. Here are steps to follow for starting your forex career.

• Learn about currency pairs, economy of countries and factors causing currency price changes.
• Know different technical analysis and fundamental research tools used by traders.
• Decide which type of product you are going to trade standard, forex contracts or mini contracts, and also figure out the expected volume and frequency of trades.
• Arrange enough money to open a trading account. Account sizes differ for mini and standard accounts.
• Develop a trading strategy with respect to the time and money you can spent, your risk tolerance and your previous trading experience.
• Find a right forex broker offering online forex trading account. Compare features like leverage, currency pairs offered for trading, spreads offered for major currency pairs, trading software offered, forex charting, minimum account size, minimum account balance needed, type of stop-loss execution (guaranteed or no guaranteed), fee of trading software, etc.
• Learn about different risk minimizing practices which you can practice with your trading strategy.
• Be strict with your trading plan and money management.

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The Week Ahead: Leading economic indicators showed a fifth straight monthly decline confirming the economic slump. With this data now widely known, will the markets start looking ahead to a possible recovery? Existing home sales are due on Monday. Consumer confidence figures are out on Tuesday. New home sales and durable goods numbers are reported Wednesday while the final 4th quarter GDP is released Thursday. Friday brings the personal income and spending reports along with consumer sentiment.

Stocks to Watch: Credit Suisse (CS) management warned it may post its first quarterly loss in 5 years, but the stock has been resilient to bad news of late. Winnebago Industries (WGO) showed only .09 a share compared to .24 in its 2nd quarter do to fewer motor home sales caused by tough economic times and high gasoline prices. Long term the chart looks weak for this stock. The Children's Place Retail Stores (PLCE) reported weak earnings but traded up on a pending deal to sell its Disney store chain back to Disney.

Special Note: The Dow Jones Industrials have not broken the January lows on an intra-day basis despite the dramatic news in the financial sector a week ago while most other major indexes have. This sets up a possible inter-market bullish divergence if the next sell-off in the market does not produce a new low for the DOW. This will be watched closely as seasonal factors such as retirement contributions in April could influence the market positively and then the economic stimulus package checks go out in May.


Commentary provided by Barry Ward, Registered Principal, NobleTrading.com, Inc.

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Gaps occur when there is no trading of financial instruments in between a two different price levels. They can be easily noticed from trading charts, where one worm stops a place and starts from a different place. Gaps occur for all type of financial instruments like stocks, options, forex and futures, and are more predominant is volatile markets with less liquidity. Usually gaps are created when traders collectively respond to news or rumors.

Gaps can be of 4 types as 1) Breakaway gap, 2) Exhaustion gap, 3) Common gap and 4) Continuation gap. Breakaway gaps are created when the stocks are at the start of bullish or bearish trends. Exhaustion gaps are created when the stocks are at the end of bullish/bearish trends. Common or area or trading gaps are created as a result of normal trading practices and they do not give any specific messages. Continuation or runaway or measuring gap is created at the middle of a trend in same direction of trend and is used by traders as a measure calculating the longevity of the trend.

The price differences occurred as a result of a Gap is often corrected in subsequent trading hours. This process is called ‘gap filling’ or fading (if the gap is filled in same trading day). Common and exhaustion gaps are filled more often than breakaway and continuation gaps. Many day traders and swing traders take advantages of specific gap trading systems and technical analysis tools to profit from gaps.

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Most people consider stock market trading or investing as an option for diversifying their portfolio, and are less active traders. Most stock market investors are employees, who want to maximize their savings by retirement. But trading or investing in stocks or other financial products is a risky practice and the trader/investor has to be strict with the portfolio management. To create an effective investment portfolio, you’ve got to understand the principles of risk and asset allocation.

Trade or invest with proper financial goals. Determine what you want from your investing account, how much money or what percentage of savings you can invest in market and how much risk you can afford. If you have no intension of active trading, then it is good to construct an investment account with spare money that would not affect your living standards and living costs for a considerable period of time, say 6 months. Long-term investors should adopt a systematic investing plan for managing account size, like increasing account size every year or buying more stocks when you have more earnings, or shortening the positions when you need more money.

Choosing right stocks or other financial products to invest is also a main factor determining an investment success. A good option is to invest in stocks of both large established companies offering good dividends and companies presenting high growth rates. If you are not sure about your portfolio management, you can hire the service of an experienced financial planner, who can help you in determining your income and developing a portfolio allocation strategy according to it.

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Dividends are payments that stock holders receive as a ‘share of wealth’ from companies of which stocks they are holding. Dividends are paid either as cash or as stock and will be on a quarterly or annual basis. Here are some basic things a trader must know about dividends.

• Dividends are usually paid by large established successful companies. Fast growing companies often retain their profits for sustain or push the growth rate.
• For receiving the dividend, the trader should hold the stock on ex-dividend date. Remember buying the stock of ex-date does not qualify you for dividends, as sellers are qualified to receive them.
• On ex-dividend date, the exchange(s) on which the company stock is listed lowers the stock price according to the amount of dividend. This adjustment is easily noticeable for large company stocks trading in higher prices. This is because the amount payable for dividend now does not belong to the company, but to its shareholders.
• Dividends from stocks are subjected to tax, either on normal rate or on reduced rate. Usually for qualifying for reduced rate the trader should own the stock for more than 60 consecutive days in a 121 day period.
• The trader or investor is personally responsible for keeping records of all things for qualifying for dividends and paying tax. This record keeping is important when you follow strategies similar to dividend reinvestment plan (DRIP).

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Both martingale and anti-martingale are position sizing strategies, which can be used to win trades and/or to maximize profit from trades. Remember both are high-risky trading strategies, are not at all suited for inexperienced traders and traders with low risk tolerance, and need very strict money management.

Martingale is the position sizing system that includes doubling position sizes after each loses. The idea behind it is no trader can lose a series of consecutive trades as the market will reverse at any time. By doubling the position size, a winning trade can thus recover previous loses and can yield profit. In a falling market the average entry price for entering trades also falls because of falling stock, equity or currency prices. Martingale trader must ensure virtually unlimited supply of money so that he/she can remain alive in market till he/she wins. Also there is chance of margin call if trades are done using burrowed money.

Anti-martingale is just opposite to martingale system. Here the trader doubles his position size after every trade he wins. The idea is to maximize the chance of profit in a bullish market. Like martingale it is also a risky practice as traders can lose more than the accumulated profit amount by losing only one trade.

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The Week Ahead: The collapse of Bear Stearns and its ultimate rescue by the Fed and J.P. Morgan has financial markets fearful others may follow and may be more widespread than is actually known. The Fed also lowered the discount rate this past weekend between lending institutions by a 1/4 percent in an emergency move. The FOMC meeting on Tuesday is likely to produce a .75 to 1.00 reduction in the fed funds rate as well. Other reports to watch are Tuesday's PPI and housing starts. Friday the markets are closed.

Stocks to Watch: Ann Taylor Stores (ANN) showed a 4th quarter loss versus a profit a year ago and is very cautious about next quarter as same store sales fell 3.7%. Newcastle Investment (NCT) was downgraded after a dividend cut from .72 to .25 a share. S&P placed Western Refining (WNR) on notice for a possible rating downgrade. SkillSoft (SKIL) reported earnings of 31 vs .08 in the 4th Q and sees .32 to .35 in the 1st Q. Finally the largest IPO ever of VISA is anticipated to go public on Thursday.

Special Note: The buyout of Bear Stearns for the equivalent of $2 a share from a $30 close on Friday by J.P. Morgan financed in part by the Fed is not exactly giving confidence for stocks around the world. The Fed has truly become "lender of last resort" in an attempt to keep financial markets stable. The question on many investors minds will be how to value other banks similar to Bear Stearns and the related impact this will have on market indexes? The 3.3 year cycle appears to be building towards a climactic low.

Commentary provided by Barry Ward, Registered Principal, NobleTrading.com, Inc.

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Condor spread is a multi-leg options trading strategy. It is a complex neutral trading strategy with limited profit and limited risk. Like butterfly options trading strategy, condor spread strategy also has maximum profit and loss levels; but instead of 3 legs it consists of 4 legs. Condor spread is a debt spread options strategy and employed when minimum change is expected in underlying stock price.

A long condor spread involves 4 call options - 2 in-the-money (ITM) and 2 out-of-the-money (OTM) options. Condor trader enters the trade by writing an ITM call of lower strike price, buying an ITM call of even lower strike price, writing an OTM call of higher strike price and selling an OTM call of even higher strike price. Traders can also construct put condor spreads using puts instead of calls.

Maximum profit is attained when the underlying stock price on expiration is between lower short and long call strike prices. Maximum profit is the difference between lower short and long calls minus net debt taken to enter the trade. Maximum lose occurs when underlying stock price on expiration is above highest strike price or below lowest strike price. Maximum loss is the net debt taken to enter the trade.

Compared to most other neutral trading strategies, condor spread has lower profit potential, higher loss potential and include higher commissions. But it has wider profit range.

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Percentage price oscillator (PPO) is a stock market indicator used to figure out the relationship between long-term and short-term trends. Percentage price oscillator gives the percentage difference between long-term exponential moving average (usually 26 day EMA) and short-term exponential moving average (usually 9 day EMA). The formula for PPO is,

PPO = (short-term EMA – long-term EMA) / long-term EMA

Results are integers, both positive and negative, which can be plotted on either side of a center line Zero. Positive values mean short-term average is above long-term average and negative values mean short-term average is below long-term average. Usually buy signals are issued when PPO values are above zero and sell signals are issued when PPO values are below zero.

Percentage price oscillator offer many advantages over Absolute price oscillator (APO), including better representation, easy to compare price oscillation of different stocks regardless of their price and easy to compare EMAs over time. PPO is very similar to Moving Average Convergence Divergence (MACD), but as it presence percentage difference it is easy to follow and understand. Like MACD-Histogram, PPO-Histograms are also used to figure out the result between PPO and short-term EMA of PPO.

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Over the years, futures trading is considered as a measure of hedging the price volatility of underlying stock or commodity. In addition to hedging price changes, futures trading offers much more advantages over other forms of trading.

• Easy to own underlying commodity or stock.
• No need for holding/storing the underlying commodity or equity.
• Standardized contracts guarantee the quality and quantity of underlying product.
• Reasonable market liquidity available for all major futures types.
• Instant execution of market orders.
• Availability of both standard and mini contracts helps traders to choose; especially with modest accounts.
• Availability of around the clock electronic trading services.
• Futures trading usually includes simple and reasonably low commission fees and plans.
• By using futures contracts, traders can maximize profit or limit risk on trading other funds, equities or commodities.

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Triangle or triangular arbitrage is a Forex trading strategy, which is theoretically ‘risk free’. As the name suggest, triangle arbitrage includes trading 3 different currency pairs almost simultaneously to profit from exchange rate difference between them.

In global Forex market, the price of one currency pair depends on the price of one or more other currency pairs. The basic formula for the relationship of three related currency pairs, having 3 different currencies, is as follows.

AAA/BBB x CCC/AAA = CCC/BBB

Chance of triangular arbitrage occurs whenever this equation goes wrong. A triangle arbitrator buys BBB spending AAA, then buys CCC spending BBB and lastly returns to AAA selling CCC, capturing a small profit. The chance of profit is maximized by utilizing margin from brokers and trading with higher amounts.

For example take exchange rates EUR/USD = 0.6522, EUR/GBP = 1.3127 and USD/GBP = 2.0129. With $500,000 one can buy 326100 Euros, using that he can buy 248419.29 Pounds. He can now sell the pounds for $500043.19. Thus he can earn a profit of $43.19.

In today’s Forex market, the chances for triangle arbitrage are getting rare. Even if there is one, it last only for seconds. Thus for profiting from triangular arbitrage traders need advanced trading systems, programmed for automated trading. Taxes and fees may also reduce the profit.

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The Week Ahead: American businesses cut jobs at the fastest pace in 5 years as back to back increases in job losses in January and February combined with a record number of home foreclosures intensifies recession fears. The markets will key in on the wholesale inventories report on Monday and the trade balance numbers on Tuesday. More significantly though will be Thursday's retail sales and business inventories followed by Friday's Consumer Price Index.

Stocks to Watch: National Semiconductor (NSM) bounced strongly off its recent low despite a weak tech sector after announcing earnings 5 cents better than street estimates. Ciena Corp. (CIEN) which makes networking equipment also beat earnings estimates by 8 cents and gave a positive growth outlook for 08'. American Axle (AXL) is seen benefiting from its UAW workers accepting buyouts resulting in sharp labor cost reductions. Germany's Allana is said to be in talks with Rockwood Holdings (ROC) to buy the company.

Special Note: The Volatility Index (VIX) may be signaling another period of heightened volatility directly ahead for the stock market. A triangle or flag pattern has developed which typically precedes a sharp directional move in a continuation of the trend that preceded it. An upward breakout would likely coincide with the major indexes testing the next major areas of support. These would be the summer lows of 2006 which are roughly 11,000 on the DOW, 1225 on the S&P 500, and 2100 on the NASDAQ.


Commentary provided by Barry Ward, Registered Principal, NobleTrading.com, Inc.

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NobleTrading Direct Access Trading

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Good understanding of order flow – ask and bid prices – is vital for market timing. It is found that many beginners although strong on technical analysis and trading strategies lose their money because of poor order entry timings. These tips below can help a novice trader to better read the order flow.

• Comparing the volume of best 5 bids against best 5 offers. Roughly add the numbers and compare, keep the ratio in mind.
• Do the same for next change. If the bids number increased against offers then market can be bullish; if opposite, market can be bearish.
• Examine the difference between offer volume for last trade (often top of the offer column) and you can estimate the number of orders executed last time.
• Examine whether the volume of last bid price is increasing or decreasing. If increasing, market can be bearish as more sellers are placing orders and if decreasing market can be bullish as more traders are willing to buy.
• Examine whether the volume of last offer price is increasing or decreasing. If increasing bullish, and if decreasing bearish.
• If you notice considerable budging of offer volume for a certain price level in a bullish market, the price level can be the resistance level, if you notice same with bid volume in a bearish market that can be support level.

Remember, in actual market there are many other factors which determines the direction of market and are very difficult to predict; like impact of news, institutional trading, day trading, scalping etc. And in actual trading, things can change very fast and traders may only have seconds to respond.

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Long guts is an options trading strategy which is practiced by traders when high volatility is expected in underlying stock price. It is a neutral options trading strategy with unlimited profit potential and limited risk. Long guts traders buy the same number of call and put options of underlying stock with the same expiration date and higher strike price.

Long guts is a debt spread options trading strategy, i.e. trader enters the trade with a net debt. Profit increases with the increase/decrease of underlying stock price. If the stock price goes beyond the striking price of put option, the trader will profit by exercising in the money call option; and if the stock price goes below the strike price of the call option, then the put option expires in the money. In both cases, profit is calculated by deducting the original debt from the amount earned by exercising in-the-money option.

Loss occurs when both options expires in the money. Net loss is calculated by deducting the amount earned by exercising both call and put options from original debt. Short guts options trading strategy is also available, which is practiced when traders expect least volatility in underlying stock price.

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McClellan oscillator is another stock market indicator, which can be used in conjunction with other technical analysis tools for predicting market direction and overbought and oversold conditions. McClellan oscillator was developed by Marian McClellan and Sherman in 1969. This market indicator is most helpful for short-term traders, especially for figuring out correct market reversal points.

The actual formula of McClellan oscillator is quite complex, and takes consideration of EMA (Exponential Moving Average) of difference between daily advances and declines. The simplified formula is,

McClellan Oscillator = (19 day EMA of Advances-Declines) – (39 day EMA of Advances-Declines)

The oscillator values include both positive and negative integers. For NYSE the values above or around +100 indicate the market is overbought and selling pressure is increasing. The values below or around -100 indicate the market is oversold and a rally is around the corner. For NASDAQ the overbought and oversold values are +40 and -40 respectively. A trend reversal is confirmed when the oscillator crosses 0 after reaching +100 or -100 (NYSE).

The general idea behind McClellan oscillator is, a bull market weakens when the number of gaining stocks decreases and a bear market weakens when the number of losing stocks decreases. Over the years McClellan oscillator has remained a major trend indicator for swing traders and other short-term traders. It offers better results when combined with Arms index or similar indicators.

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Like all other financial products traded in different markets, currency trading also requires vast knowledge to be profitable. No trader can blindly trust his/her trading system or generated Forex signals. Knowledge of market and international affairs is must for Forex traders. Below are some basic things that a Forex trader must know.

• The nature of market and currency movement patterns. On close examination you can find that there are many currency pairs which go up or down with movements in other currency pairs; some go in same direction, while others in opposite direction.
• Fundamental trading tools. Here your ability to grasp international matters comes in to play. You must know about countries of which currencies you are trading, including the GDP growth, economics, politics, policies, geography, and more
• Risk reducing strategies. Including hedging by trading different (opposite) currency pairs or buying and selling same currency pair by timing the execution, arbitraging practices like triangle arbitrage, hedging arbitrage and netting arbitrage.
• Carry trades strategy. So that traders can better profit from the interest rate difference between two currencies of a pair.
• Pivot points. So that traders can better analyze currency pairs and can roughly predict upcoming movements.
• Support and resistant points, and break-out points. Bollinger bands are so far the best indicator for this.
• News trading. Things can change drastically within a minute or so; be vigilant.
• Trend analysis tools and trend following.
• Day trading, swing trading and scalping strategies.

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The Week Ahead: The credit contraction continues to threaten corporate profits going forward especially financial companies as they led the market down again this past week. With oil priced over $100 now, the inventory report on Wednesday takes on more meaning. The ISM Manufacturing Index will be watched on Monday. The Fed's beige book and factory orders are released on Wednesday. Pending home sales and chain store sales are due Thursday, but the most important report will be Friday' employment numbers.

Stocks to Watch: All 30 Dow Industrials were down on Friday in the markets sudden downspout. Exxon Mobil (XOM), Chevron (CVX), American Express (AXP), Caterpillar (CAT), and Boeing were among the hardest hit. R.H. Donnelley (RHD) which publishes yellow pages suffered another downgrade as the stock continues its spiral downward. Bucking the market's trend on strong earnings and revenue growth was Universal Health Services (UHS), CommScope (CTV), and FTI Consulting (FCN).

Special Note: The 3.3 year cycle low reported here previously is due by week's end, but many times the timing of its low can be off by a month or so. Being that March is the end of a quarter, it's possible the final low for this cycle will hit in early April. The Nasdaq is the first of the 3 major indexes to break both its February and January lows as the market took a decided turn for the worse on Friday. The wedge pattern the market has formed recently has taken the path of the trend that preceded it, down, which is technically correct.


Commentary provided by Barry Ward, Registered Principal, NobleTrading.com, Inc.

To view all of NobleTrading's historical newsletters, click here.

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NobleTrading Direct Access Trading

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Today most brokers offering online stock and Forex trades offer free demo trading of their trading platforms for a fixed period of time. Traders can make use of this offer for get familiar with the software and the market, and to test different trading strategies. Although demo trading is not that similar to real trading, it is advised to paper trade when you are new to trading, whenever you open an account with a different broker or whenever you change a trading platform. There are many things to get familiar with before you enter in to actual trading with real money.

• Make sure that the platform works for you. It is simple enough for you that you understand everything.
• Make sure the platform offers enough features like charting, news alerts, quotes, account balances, etc.
• Understand the order entry options and methods.
• Know how to place limit orders with the system.
• Know how to place stop losses with the system.
• Know the type of spreads in the software – fixed or variable.
• Know lot size, and how you can change, mix and match lot sizes.
• Know how it presents trading summaries.
• Make sure that you can use the summary for easily tallying.
• Make sure that you will have access to dealing room if your net connection goes down.

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