Stock Forex Market Trading Blog, Daily Trading Blogs for Traders

Friday, May 30, 2008

Fundamental and Technical Trading - Comparison

Fundamental analysis and technical analysis are the most common trading strategies adopted by position traders and investors. Both types of strategies often offer reasonable profits and limit risks, when interpreted and practiced correctly. Here is a comparison between trading/investing based on fundamental analysis and on technical indictors.

Fundamental analysis includes the detailed study of the company, its promoters, its management, its past performance, its industry, financial stability, etc. These types of strategies favor long-term investors, investors who have no time to monitor the price changes of stocks, and investors who lack access to advanced trading tools. Fundamental investors face less downside risk.

Technical analysis includes interpreting historical and current stock price and market performances, and predicting short-term and long-term price trends. These types of strategies favor comparatively short-term investors and traders. Technical investing often requires active monitoring and access to advanced trading tools. The downside risk can be high compared to fundamental investing.

Many investors follow a mixed strategy. They short-list a number of companies having good fundamentals and then use technical analysis to find out the most suitable stock for investing over a fixed term. In this way they can increase the short-term profit and can limit the downside risk.

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Thursday, May 29, 2008

Fibonacci Sequence and Trading

Fibonacci sequence was discovered by Fibonacci (actual name Leonardo Pisano), an Italian mathematician in early 13th century. The series is very simple where a number in the series is the sum of preceding two numbers (1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144……).

The more interesting aspect of the sequence is that there is reasonably definite relationship between all the numbers in the sequence, which can be represented as ratios, like every number is 1.618 of its preceding number. The important Fibonacci ratios are 0.236, 0.5, 0.382, 0.618, 0.764, 1, 1.382, 1.618, 2.618, etc. These ratios – also known as ‘Golden Ratio’ - are very common in nature.

Fibonacci ratios are also widely applied in trading of diverse financial instruments for various purposes. Usually they are applied to charts to find out support and resistance levels, to predict entry and exit points, longevity of trends, trend reversals, creating stop-loss orders, profitable positions, etc. There are also many trading systems built around these ratios. The four most popular Fibonacci trading applications are Fibonacci Arcs, Fibonacci Fans, Fibonacci retracements and Fibonacci time zones.

Over the years many traders made more complex Fibonacci applications, which made them difficult to be understood by novice traders. But once traders understand the basics they can make use of Fibonacci ratios with other trading tools and indicators to better perform the trades.

NobleTrading.com Features

Wednesday, May 28, 2008

Things to Consider When Choosing a Forex Broker

Within the last two or three years online forex trading has became very popular and now there are many online forex brokers providing trading account and platform. Here are some things to consider when choosing an online forex broker.

Spread: Spread amount differs with brokers. Some brokers have variable spread amounts – which changes with respect to market time, volatility, currency pair, etc.; while others have fixed spreads.
Execution: Check whether your orders are executed fast enough, automatically, etc. Demo forex trading is best option to do so.
Types of accounts: Check whether the broker offers standard and mini accounts. Mini forex accounts are best suited for beginners and traders with limited trading capital.
Leverage: check the leverage options. Do they have different leverage ratio with different accounts? Or do they allow you to use the right leverage for you?
Trading system. Check whether their trading system(s) suits your needs and is advanced enough. Look for different tools, order types, charts, etc. Again demo trading is the best option for checking this.
Trading tools: these are vital for trading success. Look for features like real-time news, charts, technical analysis, etc.
Minimum account requirements: Minimum account size, minimum capital balance needed, etc.
Customer support: Check – is there support available on trading hours? Can you close your positions on phone in case of an adversity? How much time they take to respond to your needs?

NobleTrading.com Features

Tuesday, May 27, 2008

NobleTrading Weekly Market Letter, May 27, 2008

The Week Ahead: The DOW had its worst week since February as housing prices declined nationally by 8%, gas prices hit new records, and word that more write-downs are coming at some banks and investment houses. Watch for the Case-Shiller Home Price Index on Tuesday along with new home sales figures and consumer confidence. Durable goods numbers are due Wednesday, and preliminary GDP for Q1 are due Thursday. Personal income and spending are released Friday along with May's Univ. of Michigan Consumer Sentiment final reading.

Stocks to Watch: Universal Corp. (UVV) in the leaf tobacco business dropped hard through its 200 day moving average after reporting revenue fell 7.3% and earnings were .21 lower than a year ago. Vivus, Inc. (VVUS) had positive mid-stage trials of its Qnexa drug showing promise in treating diabetes and obesity. The stock has pushed up strongly from the $5 level. Hurco Companies (HURC) an industrial technology stock missed estimates for Q2 earnings and may find support in the mid 30's. Del Monte (DLM) was downgraded from neutral to sell.

Special Note: A recap of 1st quarter earnings shows that energy and technology companies led the S&P 500 with 28% and 18% returns respectively while financials led the way on the downside. One interesting note though is that ex-financials the S&P 500 earnings would have rose 10% in the 1st quarter as opposed to a minus 16% decline overall. This shows how heavily weighted the S&P 500 is with financial companies and how vulnerable the index could be to the downside if the credit markets deteriorate further.

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

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

Click here to open an account.
NobleTrading Direct Access Trading

email: info@nobletrading.com
phone: 877.872.3311
web: http://www.nobletrading.com

Tuesday, May 20, 2008

Parabolic SAR (Stop and Reverse)

Parabolic SAR or Parabolic Stop and Reverse or simply Parabolic is a time/price stock market indicator, which is very a useful trading tool in a trendy market. This indicator is widely employed for placing stop-loss orders and to generate buy and sell signals. Parabolic SAR only works when market/stock is on a trend, not in choppy and stagnant markets.

Parabolic SAR is represented as dots in the trading chart; for upward trends, dots are placed below the price and for downward trends, dots are placed above. Future SAR values of stocks are calculated with respect to the current, recent top and recent low trading prices. The exact formula is very complex. The simplified one is below.

Where EP is the highest high or lowest low of the trend and AF is the acceleration factor. The original value of AF is 0.02 and is increased by 0.02 every time a new high or new low price is created for a trading day. The maximum AF value is 0.2.

The exit from a current position is made at the end of a parabolic SAR (the point where SAR touches the price). The entry to a new position is made from the same price (at the start of a new parabolic SAR). Trailing stop-losses are made according to the distance between price and parabolic SAR. Tighter stop-losses are made when this distance decreases and wider stop-losses when distance increase. The shrinking of distance occurs when the price is on the verge of a reversal.

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Monday, May 19, 2008

Weekly Stock Market Information Letter, May 19, 2008

The Week Ahead: Optimism that earnings are poised to move higher are propelling stocks despite consumer sentiment at its lowest level since 1980, oil over $126, and housing inventories at an 11 month supply. Leading economic indicators on Monday may give further clues. Tuesday, the Producer Price Index is due while Wednesday the FOMC Minutes will be released. Housing data on Thursday and Friday include the Housing Price Index and the existing home sales for April respectively.

Stocks to Watch: First quarter earnings for Kohl's (KSS) came in lower than a year ago with a weak outlook given mainly do to high oil prices and slackening consumer demand. This sent the whole retail sector down but many are near support. Advanced Auto Parts (AAP) gapped up strongly from the mid 30's after beating estimates for 1st Q numbers, but 40 may be resistance. Meta Financial Group (CASH) reported a big turnaround in the 2nd Q after nearly being de-listed in April as revenues rose 74% and earnings quadrupled.

Special Note: Second half earnings projections in excess of 10% seems high as expectations for a fast recovery are built into stock prices. This may be setting up for disappointment later though for many reasons. One is the low quality of the recent GDP numbers and possible downside revisions to come. Two, domestic demand via a weak consumer. Three, a weak housing market getting worse with a new wave of ARM loan resets coming, and finally high oil and gasoline prices hurting both consumers and businesses.

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

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

Click here to open an account.
NobleTrading Direct Access Trading

email: info@nobletrading.com
phone: 877.872.3311
web: http://www.nobletrading.com

Friday, May 16, 2008

Gartley Trading Pattern

Gartley trading pattern or Gartley butterfly pattern is considered one of the most reliable trading patterns to identify a trend and to find the entry/exit point. It was outlined in 1935 by H.M.Gartley in his book ‘Profits in Stock Market’. Gartley is a complex pattern, which requires good trading knowledge and experience to be cited and utilized. It can locate both short-term and long term trading trends; and thus beneficial for all types of traders.

A bullish Gartley pattern is M shaped and a bearish pattern is W shaped. The first wave in the pattern (XA) joints the highest and lowest points of the pattern. The pattern is based on Fibonacci numbers, and should fulfill the following regulations.

Wave AB should be 61.8% of XA and should equal CD in time length.
Wave BC should be 61.8 to 78.6% of AB.
Wave CD should be 127 to 161.8% of BC.

In reality, an ideal Gartley pattern is very rare. Many traders allow a Tolerance percentage (T%) to expand the range of Fibonacci numbers. Eg: providing a 5% value to T% can give a range 56.8 to 66.8 instead of 61.8.

D is the point to enter or exit a trade. X is often taken as the stop loss value. The ideal profit target for a bullish Gartley is D + (0.618 x CD) and the ideal profit target for a bearish pattern is D - (0.618 x CD).

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Thursday, May 15, 2008

Wolfe Waves Trading Pattern

Wolfe waves are trading patterns which occur naturally in all financial markets. Wolfe waves are considered as one of the most reliable trading pattern for finding the trends, supporting and resistance levels, possible equilibrium price range and the breakouts. Wolfe waves are created as a result of both short-term and long-term trading, as thus can be useful to any type of traders trading any product.

A five point wolfe wave is the complete wave consisting of 5 waves with equal time intervals and symmetry. A bearish trend consists of 3 bearish and 2 bullish trends and a bullish trend consists of 3 bullish and 2 bearish trends. The waves must fulfill certain regulations

The range of wave 3-4 must equal to that of wave 1-2.
There should be regular intervals between all waves.
Waves 3 and 5 should show Fibonacci relationship (127% or 162%) with previous channel points.
Wave 5 should extend beyond the trend line formed by wave 1 and 3.

The channel formed by the first three waves is the support and resistance levels. The point 5 is the breakout point and is the best time to buy or sell. The point six, which is derived by connecting the points 1 and 4 with the 5th wave; it is the most profitable position. Remember the success with wolfe wave depends on how accurately it is identified.

NobleTrading.com Features

Wednesday, May 14, 2008

Strategies to Profiting from Weak US Dollar

Fall in dollar price compared to other foreign currencies can sufficiently affect a normal portfolio. Weak dollar triggers a chain reaction in the county’s economy, which includes increase of trade deficit and national deficit, increase of imported product price, interest rate hike, etc. However investors can also hedge against their portfolio value decrease by following many strategies.

Investing in exporting companies. Weak dollar favors exporting companies as they get more dollars in exchange of foreign currencies that they get as a result of trading.
Investing in multi national companies (MNCs). And also companies which get considerable part of their income from foreign countries.
Investing in companies which are indirectly benefited from weak dollar. Such as companies that support exporters by providing them materials and services, companies which have production units in other countries, and outsourcing companies.
Investing in foreign companies, funds and markets.
Strategies that can benefit you in interest rate increase.
Investing in gold and other precious metals.

Remember, the success with these strategies will solely depend on the investors’ ability to pick right strategies and products.

NobleTrading.com Features

Tuesday, May 13, 2008

Weekly Stock Market Letter, May 12, 2008

The Week Ahead: The price of oil reached new highs daily for five straight days, and the lower trade deficit in March reflect a slowdown in the economy with consumers cutting back. Reports to watch are Tuesday's retail sales, import prices, and business inventories. Wednesday brings the Consumer Price Index while Thursday the industrial production and jobless claims numbers are released. The University of Michigan's Consumer Confidence numbers as well as housing starts are announced Friday.

Stocks to Watch: Shares of Bristol-Meyers (BMY) fell sharply after news of European competition for the generic version of its drug Plavix, but support in the low 20's could be at hand. Medicis Pharmaceutical (MRX) had earnings that more than doubled and received a strong upgrade by S & P as the stock moved up from a price base. A turnaround in the 4th quarter earnings for Activision (ATVI) saw revenue rise by 93% thanks to its Guitar video game sales as the stock lifted to new highs.

Special Note: Financial stocks were the biggest drag on the markets in the past week with some technology stocks disappointing as well. Support for most major indexes appears to be surrounding their respective 50 day moving averages since the lows recorded in both January and March. In contrast, resistance would be just north of the 200 day moving averages. Both moving averages are merging which could be indicating a sharp price move developing in either direction weeks from now.

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

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

Click here to open an account.
NobleTrading Direct Access Trading

email: info@nobletrading.com
phone: 877.872.3311
web: http://www.nobletrading.com

Monday, May 12, 2008

What is Systematic Risk?

Systematic risk also known as systemic risk, market risk and un-diversifiable risk is risk which applies to whole market or market segment. It is opposite to idiosyncratic risk which applies to specific stocks or other financial products. Often systematic risk results in declining of total portfolio investment value as all/most portfolio investments declines in value.

Systematic risks often originate from political or economical problems, wars, interest rate changes, and calamities. They are usually hard to avoid; and avoidance steps should come from higher authorities like governments. Usually systematic risks cannot be minimized by diversification of investment in a particular market segment; but may be by investing in different market segments, because the factors causing the risk affect different market segments differently. The major ways to reduce these risks are avoiding investments, reducing investments and hedging investments.

Systematic risks often trigger a chain reaction in an economy. They necessitate change of plans and strategies by governments, companies, banks, financial markets and individual portfolios. Systematic risks are also a major cause for failure of banks. The beta value of a stock gives information about the systematic risk it faces.

NobleTrading.com Features

Friday, May 9, 2008

Different Ways to Invest in Gold

Gold is considered as the major hedging investment against inflation and economic crisis. The price of gold is some what steady compared to other investment options. There are many different options available for investing in gold.

Gold bullion: involves investing in certified gold bars and gold coins. This is somewhat costly option which includes the direct ownership of the commodity; and thus includes storage and insurance costs. The price volatility of gold and dollar can cause positive or negative impacts.
Gold jewelry: this is a more costly option from an investment point of view as you are buying product which is far more priced than the underlying gold value. But is a good option if gold price is expected to rise considerably in future.
Gold based ETF and Mutual funds: cheaper option compared to first two and one does not need too much investing knowledge or research. No direct ownership required. But the fund allocation of mutual funds and ETFs may differ and thus investors should choose the one right for them.
Futures on Gold and Options: For those having trading experience, gold futures are the most cost effective method to invest in gold. Because of low commission and margin requirements investors can control large sized contracts for small amounts. Options on gold futures are also a good option as they limit risks.
Stocks of gold mining companies: this is one another indirect way of profiting from gold. But there are risks of holding equities and one should do proper research and analysis before owning a companies stock.

NobleTrading.com Features

Thursday, May 8, 2008

What is Capital Growth Strategy?

Capital growth strategy is an aggressive asset management strategy, which aims at maximizing value of the capital or asset. It is a long-term strategy in which the portfolio is mainly constituted of equities. Capital growth strategy is usually a high-risk high-profit strategy which requires extreme money management and discipline.

Usually, a more than 65% of a portfolio based on capital growth strategy is of equities; the exact percentage can vary according to individual goals, portfolio capital and risk tolerance. 20 to 25% capital is allocated for fixed-income securities to limit the overall portfolio risk. More portfolio diversification is achieved through money market securities and keeping money as cash. Most individuals following capital growth strategy prefer growth stocks for investment. Most give preference to mid-cap and small-cap stocks because many of these sector companies show higher growth rate than market average.

The upside of capital growth portfolio management is faster capital appreciation – i.e. increase in asset value with rise in market value. The downside is high risk, high portfolio volatility and unpredictable return. One should properly analyze his financial stability and risk tolerance before adopting this type of portfolio management strategy.

NobleTrading.com Features

Wednesday, May 7, 2008

Ratios for Good Stock Picking

Determining the strength of the company and growth possibilities of its stocks are important steps in stock picking with a long-term profit goal. Traders and investors use many technical indicators and ratios for this purpose. Below are some of the important ratios to be considered when picking good stocks.

Reserves and ploughback : Reserves are the accumulative profit of the company and plaughback is the profit available for adding to reserve after expenses and dividend payoffs. Growth companies usually have high reserve and high ploughback.
Book value : shows the worthiness of company shares. Book value per share is the ratio between total asset minus total liabilities of the company and total equity shares.
EPS (Earnings Per Share) ratio : one of the most important investment ratio. Is calculated as profit after tax divided by number of issued equity shares.
P/E (Price to Earning) ratio : shows the relationship of market price of stock with earnings per share (EPS).
Dividends : Many investors own stocks for yielding dividends. Although most growth companies offer very small dividends at their growing phase; they offer good returns over long periods of time.
PEG (Price/Earnings to Growth) ratio : shows whether a stock is fully or over or under priced. It is a comparison of P/E ratio of the company with the expected future growth of the company.

NobleTrading.com Features

Tuesday, May 6, 2008

NobleTrading Stock Market Letter, May 6, 2008

The Week Ahead: Employment fell for the 4th straight month in April, but the decline was smaller than expected. Wage growth continues to stagnate as well as consumers cut back on spending. Further evidence could be in the Non-Manufacturing Index for the service sector on Monday. Also, watch the consumer credit numbers and pending home sales on Wednesday. The chain store sales figures and wholesale trade inventories will be out on Thursday. The March trade balance will be released on Friday.

Stocks to Watch: The aircraft components business of Triumph Group (TGI) was solid in the 4th Q beating estimates and recording a strong backlog of orders. Shares of Netsuite (N ) showed a smaller 1st Q loss versus a year ago and sees a potential breakeven 2nd Q, but the shares still made a new low after going public in December of 08'. The aerospace and industrial components maker, Barnes Group (B ), beat earnings from a year ago and boosted there forecast for 2008, but the stock could see resistance at its 200 day moving average.

Special Note: The three major indexes are either at or approaching 200 day moving average resistance. This may limit upside potential near term, but the back-in filling nature of the recent rally may also limit downside risk as well. With the volatility Index (VIX) now at its lowest level since last November look for markets to trade in a relatively narrow range with upside potential increasing the longer the markets stay sideways. One potential positive catalyst for markets going forward is a peak in oil prices followed by a lower gas price trend.

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

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

Click here to open an account.
NobleTrading Direct Access Trading

email: info@nobletrading.com
phone: 877.872.3311
web: http://www.nobletrading.com

Friday, May 2, 2008

Commodity Channel Index or CCI Indicator

Commodity Channel Index (CCI) is one of the most popular momentum indicators used by traders to identify trend formation and ending, and/or overbought and oversold conditions. CII was originally developed by Donald Lambert in 1980 for commodity traders, but is now widely used by all traders trading all financial instruments. Commodity channel index is considered a better trading tool when used in conjunction with other indicators.

The basic idea behind Commodity Channel Index is that the market moves in a cyclic fashion with periodical ups and downs. The actual formula for calculating CCI is some what complex, the simplified one is,

CCI = (Current Price – Simple Moving Average) /0.015 x D.

Where D is the normal deviation OR Typical Price, which is calculated as

Typical Price = (High + Low + Close) /3

Commodity channel index is used as an oscillator having positive and negative values (the value 0.015 is used for this purpose).

With Commodity channel index overbought conditions are identified when CCI is above +100 and oversold conditions are identified when CCI is below -100. Beginning of an uptrend is identified when CCI crosses +100 line and beginning of a downtrend is identified with CCI crosses -100 line; the trend ends when CCI crosses back over the line. Buy signals are generated when CCI crosses +100 and the position is closed before or on reaching back +100. Similarly sell signals are generated when CCI crosses -100 and the position is closed before or on reaching back -100.

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