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  • Parent Category: Articles

Keeping It Simple

I commonly see very complex trading plans and strategies. This one came across my desk recently:

  1. Share prices are predominantly above 30 week EMA
  2. A golden cross with two moving averages of different time durations; for example, a 30 week EMA and a 15 week EMA
  3. A rising momentum indicator at a historically low level (using MACD as the indicator)
  4. An upward sloping trend line
  5. A breakout through a significant resistance line on heavy relative volume, preferably initiated by a white bullish candle or a gap
  6. A recovery from a period of retracement
  7. A resistance line that becomes a line of support
  8. Heavy relative volume when a share moves upward in price
  9. A low relative volume when a share moves down in price, compared with when it moves upward
  10. A predominance of white candles compared with black candles
  11. Longer white candles compared with black candles
  12. A series of candle tails pointing downward, indicating buyers moving into the market
  13. Ease in the share’s ability to break through round dollar value figures for example 5, 5.5, 6
  14. A series of higher lows and higher highs (close price)
  15. A momentum histogram showing higher highs while the share price is also displaying higher highs (using MACD)
  16. A gap that hurdles a previously established level of resistance, particularly on heavy relative volume levels

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  • Parent Category: Articles

Disappointment

Disappointment manifests itself in many different ways when trading or investing. It’s one of those psychological traits that must be overcome in order to move forward to achieve our longer term goals. Generally disappointment stems from having a preconceived expectation about what the future holds. In its simplest form it’s an expectation about a particular trade or scenario that doesn’t come to fruition. This can result in large losses when we hold off realizing a small loss whilst attempting to prove our expectations right.

Not realizing a loss is an attempt to delay disappointment.   

Another type of disappointment is when a stock tags your stop loss and subsequently reverses and continues on its merry way with out you. We can create a theory that someone was out to target our stop, that the market is rigged. Complete garbage but it gives us an excuse to pass the blame and avoid disappointment.

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Think Outcome Before Input

We hear that some 95% of traders fail. Whether that's true or not I don't know, but it is recognised that the vast majority of new traders fail. The 'why' is probably for a number of reasons, including lack of strategy, lack of discipline, patience and the list could go on.

But in my view a core ingredient is wanting to be a 'type' of trader without recognising what is required to mathematically gain an edge. I'm not talking discipline and patience or lack of strategy, because even with these traits a trader can still fail.

I'm talking about a lack of capital and the impact of commissions being a secondary consideration to the 'type' of trader one wants to be. In other words many people come to trading with illusions of grandeur, excitement and the thrill of the game so they naturally gravitate to shorter-term trading. Short term trading also adds to the 'instant gratification' mentality that is prevalent in society today.

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All That Sparkles Is Gold

It's been a disturbing few years for hard-core Gold bugs as the precious metal declined from $1900 to a recent floor of $1200. It is commonly said the market will take as much money off the majority and what appeared to be a 'no-brainer' trade on the demise of the US economy, seems to have turned into a disaster for many investors.


Source: Premium Data

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  • Parent Category: Articles

Find a strategy. Validate It. Do It.

That's the key to trading and investing success in a nutshell.

However, there are many myths that swirl across the online trading world about what works and what doesn't so it's very important to validate.

As an example let's look at the Bearish Outside Reversal Day (BORD) which is a pattern commonly accepted as one that switches the trend from up to down, i.e. prices should fall after this pattern occurs. A BORD is a two-day pattern where the second day has a higher high, a lower low and a lower close from the day prior. But is it a valid bearish setup?

Let's put it to the test and see what an unbiased computer simulation shows. We'll await the pattern, sell on the next day's open and measure how much profit we'll make from the fall over the next 0 to 20 days. For this test we'll use the SPDR S&P 500 ETF ($SPY) back to 1993.

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