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All experienced traders use Forex trading strategies in their work. Some, the most experienced, develop strategies for themselves. This is quite a labor-intensive process, and it is not as easy to develop an optimal and profitable strategy as it might seem at first glance.
There are many strategies that are classified according to the most diverse characteristics. One of the classifications is based on the use of indicators in the strategy.
Accordingly, allocate Forex strategies without indicators and strategies based on indicators. At the heart of the latter lie either fundamental or technical indicators. And in the work of the second indicators are not used at all. The basis of such strategies is the analysis of the schedule and currency quotations. These strategies are universal, they are great for players who prefer long-term transactions and for fans of short-term deals. The most optimal strategies without indicators are suitable for those traders who prefer to work with the market directly.
The category of such strategies includes strategies based on the analysis of currency quotations, graphs and waves. Also here it is possible to carry positional systems and strategies that work with tics. These include the following most common strategies:
⦁ A strategy based on the analysis of resistance and support for a currency pair;
⦁ Strategies based on scalping;
⦁ Strategies based on the Martingale method;
⦁ Ordinary price strategies;
⦁ The so-called “Inner Bar” strategy.
As already mentioned above, the main advantage of strategies of this type is their universality. But in general, it is recommended to have in the arsenal of several trading strategies, one of which will be optimal in this situation. And it is desirable that the strategies chosen by the trader belong to different types. After all, strategies are based on a variety of algorithms and methods, and if you use different strategies for analyzing one particular situation, then the probability of making the right decision significantly increases.
Forex strategies without indicators are universal, but they do not provide a comprehensive analysis of the situation on the market. And that’s why one type of strategy can not be fully trusted, but it’s worthwhile to have several different plans in service.
Many people, after listening to stories about how quickly you can get rich in the interbank currency market, are trying to understand – what is the essence of trading on Forex. As in any other market, the main principle of forex trading is to buy cheap and sell the same commodity more expensively.
Buy and sell
On the forex, the transaction is made by opening the position and closing it. What is interesting: here you can start immediately with the sale of goods, even without having it. But it is important to comply with the condition: buying is still cheaper than sold, regardless of the order of the committed actions.
In the hope of increasing the value of the currency trader opens the position of “buy” or BUY.
If the trader assumes that the currency will fall in price, then opens the opposite position “sell” or SELL.
The currency itself is not necessary. You need to have money on your trading account to open the desired position. Such a set of operations is called a transaction. Therefore, the essence of Forex trading is to make a transaction with profit for yourself.
Margin and transaction volumes
To understand the basics of trading on forex, you need to know the size of lots of currency and what is margin.
Lot – a unit of the transaction, the amount of goods of a certain type. So, 1 lot represents 100 thousand units of that currency, which in the currency pair is the first (ie the base currency). But you can also trade in fractional lots: 0.1 lot (ie 10 thousand units of base currency), 0.2 lots …
Margin is a pledge that a trader creates to obtain a loan for the transaction on the stock exchange. Simply put, the margin is equal to the size of the contract divided by the leverage.
Spread is the difference between the purchase price and the sale price at the same time. This is the broker’s interest. The size of the spread for different currency pairs is fixed and is 3 or more points.
Forex for beginners
Some believe that trading on Forex is terribly difficult, while others call trading a usual gambling game. However, the principle of trading on Forex is absolutely different. Studying the basics of forex trading, new players come to the understanding that the interbank foreign exchange market is, above all, a strict trading system based on technical and fundamental analysis.
The psychological aspect is also important in forex trading . To make profitable and successful transactions, a trader should minimize the excitement when making a decision on the transaction. Therefore, for a trader in forex, control over himself is more important than complicated mathematical calculations.
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HOW DO I USE THESE KEYWORDS?
The only goal that unites all traders of the Forex currency market is to extract the maximum profit. You can have a stable profit from transactions in the foreign exchange market, but for this you need to use Forex trading strategies . There are several ways to get strategies.
The first is to independently develop a successful model of behavior in the foreign exchange market. This method is not suitable for beginners, they can only be used by experienced players who in detail have studied all the subtleties and nuances of working in the foreign exchange market.
The second option is to take advantage of the already existing strategy, choosing the best option, corresponding to your trading style and deposit size. The only sure sign of a successful trading strategy is the positive balance of the deposit, and therefore each trader has his own successful strategy. Conventionally, Forex strategies can be divided into three categories, depending on the basis on which their principle of operation is based. Allocate fundamental forex strategies, strategies based on indicators and strategies that do not use indicators in their work.
At the heart of fundamental strategies lies the fundamental analysis of the market and global factors that can influence the exchange rate. Such strategies are especially effective when concluding long-term transactions in the foreign exchange market. The most popular strategies of this type include:
⦁ A trading strategy based on key news;
⦁ Strategy on Wednesdays for the currency pair AUD / JPY;
⦁ The carry trade strategy;
⦁ A strategy based on gaps.
The strategies on the indicators are based on the use of a variety of graphical indicators of the currency market. Modern trading platforms greatly simplified the use of this type of strategy. These strategies are based on technical analysis and are perfect for fans of short-term deals. The most popular Forex trading strategies of this type are:
⦁ Strategies with the intersection of two moving averages;
⦁ Strategies with MACD divergence;
⦁ Strategies with an oscillator;
⦁ Strategies based on a combination of stochastics and SS.
Forex trading systems work as a “stop-cock” for your emotions in trading. They help automate your trading. In it, you clearly define under what conditions you will enter / exit, at what timeframe to trade, risk and money management.
In fact, there are a lot of such systems (more than 1000), we will consider the most popular of them, which can become the basis of your unique Forex trading system.
Types of Forex trading systems
Trading systems are divided into specific groups depending on the trader’s trading style.
⦁ The trend system is one of the most popular in the Forex market. Here, you follow the growth and fall in prices, assess how stable the trend. Such a system is based on moving averages.
⦁ Opposite her – countertrend system. Here you determine the point where the trend unfolds. If you correctly calculate it, you can break the “big jackpot”. Be careful – there is a high probability of getting on a false signal.
⦁ Scalping – You quickly react to signals and “remove the cream” from the trends.
⦁ Universal systems – the connection of different trading systems into one. Such systems are thoroughly tested and then applied in trade.
Any of the proposed systems can be the basis of the automatic Forex trading system.
Automatic Forex Trading System
The automatic Forex trading system is becoming more popular. It is not surprising, because it has a lot of advantages:
⦁ Trade is carried out by an impartial adviser who does not experience emotional pressure.
⦁ Such trade can be carried out in a non-stop mode.
⦁ The adviser always follows your risks, puts stops and is focused on the maximum profit.
However, to create an ideal advisor a trader needs to make a lot of efforts – to prescribe the algorithm of his work, develop a strategy for his win-win trade, regularly update it.
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For a quick and successful trade on Forex, mechanical trading systems (MTS) are the best. They can work both under your control, and without it. Trade advisers, robots, which you probably did not read once, when surfing the Internet, are also such systems. The advantage of such systems is that the Expert Advisor does not get tired of working, can work around the clock on the VPS server.
Considering the algorithms of such systems, this conclusion suggests itself, 60% of trading robots use the Martingale system, which means that sooner or later they will destroy your deposit, one more huge disadvantage, you earn from 0.8 to 2% per day from your deposit. Some traders mock the risk management, and just turn it off, which leads to a profit of 5-10% per day, but the risks are 100%. With such risks, with a strong price movement, the trading advisor will begin to multiply the size of the deal. For example, you think that the best for you will start with a small transaction, 0.01 lots.
Many robots of this type, use a grid of warrants, for example, the size of the grid you have set to 20 points of the price. Suppose that the price went to a non-profitable side, by 110 points. So, the system will open 5 orders, each of which will be 2 or 3 times greater than the previous one, that is, 0.01, 0.02, 0.04, 0.08, 0.16 lots, if the multiplier is 3, then 0.01, 0.03, 0.09, 0.27, 0.81 lots . For every next transaction you need to have a lot of free funds. Therefore, such advisers are not designed for long-term trading.
The rest of the forex trading systems work on the corresponding trading strategies. It is dangerous to use systems called pipsers, they earn from 0.1 to 0.3% for one short position, risking the whole balance of the deposit. The best robots have systems that trade in impulses, but depend on the trend, and the rate of change in price. Such robots are engaged in programmers with extensive experience, as well as writing advisors of this type requires a lot of time and effort. Some brokers offer traders their trading systems, but, unfortunately, they only open trading positions with large grids, that is, you do not benefit to the broker.
If you want to work quickly and efficiently on Forex, you need to order a trading system for a programmer, only with a proven strategy that will bring you good returns and minimal risks.
Each player has his own tactic and strategy, however, there are some free forex strategies that are worth taking into account. First of all, they include trade in graphic models and patterns.
The strategies of this type are based on methods of graphical analysis of the Forex market. This strategy uses a chart of the exchange rate for a strictly defined period of time, corresponding to the period of the selected trading system. The chart is divided into repeating figures. Then the trader assumes which of these figures will be repeated in the future. Then you need to analyze the current section of the chart and try to determine its behavior in the future, based on the available data on its behavior and development in the past. The most effective of these strategies is the Elliott wave analysis.
There are also strategies based on technical analysis. With such strategies, technical indicators and their aggregate analysis are widely used. You can analyze them and singly, but this method is not effective enough. Indicators can be divided into leading and lagging indicators. Their cumulative analysis brings brilliant and accurate results. At the moment, there is a sufficient amount of literature on technical analysis, so the study of this issue is not difficult.
There are also free Forex strategies based on Japanese candles. This type of strategy is very popular now, and in combination with other strategies is also effective. This method is based on the method of plotting sections of the chart during the trading session. Analysis of units on the chart in the form of Japanese candles is the prediction of the next unit of the graph.
The next type of strategy is based on the methods of capital management. After all, absolutely any trading strategy is doomed to failure, if you do not take into account the size of the available capital at the moment. This type of strategy is based on mathematical analysis and probability theory. It is recommended to use it together with other strategies. The most popular method is Martingale’s method.
The hedging strategy is also quite relevant. This tactic involves reducing possible risks. And the risk, as a rule, decreases in parallel with the probability of obtaining a large profit. However, this method justifies itself.
Private and institutional investors use fundamental analysis as the basis for buying stocks, while short-term traders use technical analysis. Since the profit and risk coefficients used in investing and trading, as well as the time horizons are very different, both methods of trading stocks can be effective.
The fundamental analysis relies on long-term information on economic demand and supply and short-term data on the company’s financial position. The investor receives information about this through reports of companies. Investors are more interested in the behavior of the stock for many years than the current market situation. They do not care if today in the market there are sharp drops down, and tomorrow – up, because their goal is a steady, conservative growth.
Although fundamental analysis provides very valuable information, most people do not have the time and knowledge to study it. Fundamental analysis takes into account such factors as the potential of the company’s new products, compares profit in the past and at present. A lot of statistical data is used – one type of such statistics is EPS (net earnings per share). Net profit per share is calculated by dividing the company’s total profit, net of taxes, by the total number of shares outstanding. At the same time, specialists compare EPS of the company of interest with other companies in the sector to see how you can earn in this industry.
Technical analysis is an alternative method of stock research, focused on studying the calculation of time, price fluctuations and the behavior of large buyers and sellers. The most common method of technical analysis is the study of charts that show the history of stock prices. We know that the price takes into account everything. The prices presented in the chart do not appear arbitrarily, but are the result of a collective point of view of all investors who participate in its formation. Each trader has his own chart types and his own set of indicators, which he uses to determine the entry point to the market, and exit points. Analyzing the charts, a trader can try to predict the mood of the market and the movement of the price per share, but in general terms, technical analysis is not an objective science.
Technical analysis and fundamental analysis are the two main types of thinking that investors and traders use when choosing stocks. In stock trading on the exchange, you must rely on your own financial knowledge when you decide to be a day trader or an investor, and what is more convenient for you is technical or fundamental analysis.
I think you have watched more than once the market, it would seem paradoxical to react to these or other news. Yesterday, on the increase in inflation in the UK, the pound market went up by 50 points, although a year ago it almost did not react to this news; Yesterday the Consumer Confidence market did not react at all, and in a couple of months it will arrange the flights of a wounded woodcock at the slightest deviation of the released data from the consensus forecasts of riders or bloombergs. What’s the matter?
The fact is that at different stages of the business cycle, the market reacts differently to the same news. But this is all “blah, blah, blah”, as they said in one famous film.
In fact (IMHO) on the market there is a main theme, currently being promoted by market analysts-fundamentalists. Such topics somehow go unnoticed in popularity and also quietly come out of favor.
What is the main theme of the market? This is the topic by which the talking head constantly carries something in the bloomberg, according to which different “main analysts from the Tokyo branch of Mushito Bank” write “fundamental” articles in magazines, etc.
Themes are periodically pop-up, for example, geopolitical tensions and terrorism; long-playing, as the recent theme of the twins: the negative trade balance in the US and the budget deficit, lasting a year and a half. There are topics that can be described as “who is first” when the market is waiting for leading indicators, such as consumer confidence, ISM, etc.
What is the main theme of the market?
Most importantly, it makes a trend. Makes not even a topic, but an evaluation of the topic (here Soros’s reflectivity is manifested in full measure).
In the near past, Evra went on an apprentice for about a year on one of such main topics. When such a topic is in the market, everything else (indicators, statements) are evaluated in the common market pot only through its prism. What is the main theme of the market now? You know yourself. Rates for the USA. Will raise – will not, faster – slower, etc. All indicators are currently evaluated in terms of “what the Fed thinks about this indicator.” Since the FRS comrades have already said something like “there would be more jobs, then you can pull the stitch”, then the market looks at the “number of applications for unemployment benefits” and “the number of new jobs, although half a year ago he would not have moved from his place if the “jobles” had reached the level of 500. If the Fed were told that they need a lift, say, in the industry of durable goods, we would already look at “durable goods”, but on everything related to the workforce would not pay attention. What else influences the decision on rates? Inflation. The more it is the stronger the expectations of the people for raising the rates and the more they are zapped by the dollar (not paying attention to the fact that inflation is the depreciation of national currencies). Remember that another year or two ago the rise in inflation was estimated from the opposite point of view in a different way. One would think of something like “an increase in inflation reduces the field of leverage for the Fed in raising the economy” and would begin selling bucks. The more it is the stronger the expectations of the people for raising the rates and the more they are zapped by the dollar (not paying attention to the fact that inflation is the depreciation of national currencies). Remember that another year or two ago the rise in inflation was estimated from the opposite point of view in a different way. One would think of something like “an increase in inflation reduces the leverage for the Fed in raising the economy” and would begin selling bucks. The more it is the stronger the expectations of the people for raising the rates and the more they are zapped by the dollar (not paying attention to the fact that inflation is the depreciation of national currencies). Remember that another year or two ago the rise in inflation was estimated from the opposite point of view in a different way. One would think of something like “an increase in inflation reduces the field of leverage for the Fed in raising the economy” and would begin selling bucks.
How does the main theme work? First of all, she completely ignores all other news. Again, let us recall, as an example, the recent past and the upward trend in the euro. Look, what was when the bad news on the US came out? Euro shot up by 100 points. And the good news about the US? The euro still shot up, but by 10 points. Poor fundamental analysts who tried to explain this! Their head hurt, too. 🙂
I remember one such news bulletin. It was Consumer Confidence in the US, which came out, it seems almost 20! points above the previous value. I do not remember exactly, but it seems that this was the second largest increase in the history of calculation. The euro reacted with a short move down, pips at 20, and then again rushed up, more than a figure. And all because the main theme was different and the market by and large was just like America’s there with confidence. He drove the euro up on the topic of the deficit.
Another liked the statement of one analyst about the reaction of the euro to good data on the US on consumption. He said something like “the growth of consumption in the US further contributes to an increase in the trade deficit” in general, if we rephrase it “little bourgeois eat – bad, eat a lot – too bad.”
The main themes of the recent past, remember what was in their time.
Deficits of trade balance and the budget of the USA.
The ECB will intervene at 1.3.
For Europe, the Euro is not so terrible.
The real estate market in Britain is overheated.
Greenspan follows unemployment.
Europe and Japan are more dependent on higher oil prices than the US.
1. The main trend is not the foundation, but the main theme of the foundation.
2. During the existence of the main theme, all the fundamental indicators and statements are either viewed through its prism, or completely ignored.
3. You can work on the news only on the “trend of the main topic”. The market will still in most cases go to her side, ignoring everything else.
4. The long-term main theme usually ends with the market switching to a new one.
Technical analysis (short technical analysis) is a modern method of studying financial markets, as well as the behavior of quotations of investment instruments on the basis of data on prices and volumes of previous trades. The main task that faces this kind of analysis is to determine the phase of the current market condition and forecast its future development.
The technical terms used in technical analysis make it possible to present compactly and accurately the current picture of any local or global financial market cleared of random factors and insignificant news even without using graphic visualization.
Thus, we can say that, among other things, forex analysis, in contrast to the fundamental one, is also a kind of language with the help of which it is easy to format the behavior of any markets and on which the overwhelming number of professional traders and financial analysts.
The discovery of the basics of technical analysis is attributed to Japanese rice vendors, who in ancient times tried to predict the behavior of prices for their goods on the basis of elementary mathematical calculations and charting. As for interest in such experiences from European and North American investors, it was in the late nineteenth century that the publications of Charles Dow, a journalist specializing in financial topics, provoked.
He, the inventor of the Dow Jones business index and the founder of the authoritative business publication The Wall Street Journal, is rightfully considered the “father” of modern technical analysis. In the mid-twentieth century, the active development of communication and computing devices contributed to the improvement of technical analysis methods, which made it the main working tool for short-term investors and financial speculators.
1. The price takes into account all.
This axiom implies that the current level of prices in the market is determined solely by the demand and supply of its numerous participants. Therefore, it makes no sense to follow the news and independently take them into account in the trading process. The market has already realized and invested in prices. There is also no need to understand the fundamental nature of prices for tradable assets. This information has already been taken into account in the market price and its dynamics.
In other words, all the factors influencing the exchange rate have already been laid in the technical analysis.
2. The price movement is repeated.
This axiom is based on the constancy of the human psyche and memory of the past and implies that the combination of prices of current trading periods already existed in previous periods. With this in mind, in order to predict future prices, it is enough to find in the past the closest possible approximation to the current market picture and see where the market moved after its implementation. In classical technical analysis, this axiom is used for a retrospective study of prices in order to reveal the patterns of its movement.
3. The market is similar to itself on different time scales.
This axiom implies that the same methods and techniques of technical analysis can be applied with equal efficiency on different time scales. This applies to the daily charts, where the trading day is taken as the considered period, and as the objects of study – the prices for opening, maximum, minimum and closing of the day, and schedules of any other time intervals – minute, hourly, weekly, monthly and even quarterly.
Thus, all known instruments and techniques of technical analysis can be successfully applied to different time scales of price movement. At the same time, the selection and use of specific working tools depends mainly on the selected investment asset, as well as the scale of prices. In other words, at different time scales for the same asset, the selected analysis tools can work differently. And on the same scale, different tools can work effectively for different assets.
Technical analysis is the weakest justified part of knowledge about the stock market, on the one hand, and the one most used by the trading community for decision-making, on the other. Until now, this subject is the object of the hottest disputes. Before considering the basic elements of technical analysis, it will be useful to determine what is actually such a technical analysis? What is it based on, what are the objectives pursued and what are the tasks to be solved?
Technical analysis is a way of studying the market in general and the behavior of securities quotations in particular, the initial data for which are prices and trading volumes. Technical analysis is a system of rules by which market movements are interpreted and which lead to certain conclusions about possible future movements.
4.1 Axioms of technical analysis
Beginning to study specific methods and indicators of technical analysis, we will become acquainted with the axioms on which the whole complex bu
The basic axioms laid down by the apologists of this method of market research in its foundation are the following:
Prices include everything.
History repeats itself.
The market is self-similar in different time scales.
It is argued that the methods of technical analysis work equally well on different time scales. As on the daily charts, where the period is a trading day, and the objects of study are the prices of opening, closing, maximum and minimum of the day, and at any other intervals – minutes, 5 minutes, hourly, weekly, and even monthly and quarterly charts. From this comes the conclusion about the self-similarity of the price movement schedule.
Instruments TA can be successfully applied to different time scales of price movement for different assets.In this case, the choice and use of tools should depend on the selected asset and the scale of prices.
In other words, at different time scales for the same asset, the same TA instruments can work in different ways. At the same time scale, completely different tools for different assets can work well.
So, the purpose of technical analysis is to forecast the future direction of price movements and the possible magnitude of this movement. Methods TA – determination of the current state of the market and the correlation of this state with one of the known samples of the past.
4.2 Support and Resistance Levels
The most important element of any picture of price movement is horizontal parallel lines, called support and resistance levels. These lines are present on all scales. They have different strength and the same explanation from the point of view of the psychology of bidding. If the current price is higher than this line, then the line is called the support level, if the price is below the line, then this line is called the resistance level (resistance level). With a high probability of price when approaching the levels will unfold and move in the opposite direction.
From the point of view of buyers, whose efforts on purchases move prices upwards, the line located above and hindering further price growth is quite logically called resistance.
With falling prices, when sellers push their prices down by their sales, from the point of view of the same buyers who are unequally fighting with sellers, the level from which prices are repelled and again goes up is called the level of support. Below in the figure is a 60-minute chart of movement of the prices of shares in Mosenergo. The levels of support (1), resistance (3), and a line that alternately acts as a support and resistance level (2) are shown.
In addition to strength, each level is characterized by one more parameter – age. The earlier the level was formed, the older it is.
Breakdown of the resistance level.
So, we found out that the level of support / resistance is the boundary in the neighbourhood of which the price of paper is likely to reverse and move in the opposite direction. What happens if this does not happen and the price passes through the level? In this case, they talk about a breakout or a breakout of the level.The level changes its name. Support turns into resistance, and resistance to support. Suppose that prices move up and approach the resistance level. Since many players assume that prices will reverse, they are applying for closing their long positions near this level. If, nevertheless, the forces of buyers who wish to purchase this paper in any case exceed the forces and means of sellers, then the demand for paper will remain dissatisfied, and prices will move higher. All, who wanted to sell – sold near the resistance line, respectively, the market of sellers is getting smaller and prices are heading higher with high speed. There is a so-called breakdown of the resistance level.
It should be mentioned that breakthroughs are often false. With a false breakout, the price successfully overcomes the level, and then returns back. To determine the falseness of a breakthrough, simple rules are used. It is necessary that the closing of the next period occurs higher with a breakthrough upward and downward if the level breaks downward. This is a rather weak condition. Strengthen it with the requirement that prices in the next price bar lie entirely above / below the appropriate level, or use the closing of the following periods to confirm the truth of the breakthrough. The more periods are used to confirm the truth of the breakthrough, the smaller the risk that the investor takes on, working on breakouts. But, on the other hand, the less and the profit on which he can count.
Setting up limited orders near support lines.
Another type of position opening is the issuance of a limited buy order near the support line. Here, the profit potential in the case of a reversal of the direction of the price movement is higher than when working with stop orders. However, such an order carries more risk. First, the price may not reach the level determined by the investor and turn up earlier, on higher levels. In this case, the player will be out of the market and will have to catch up with prices, thereby reducing the potential profit. Secondly, if the limited purchase order is successfully executed, the price may simply not stop and break the support level down.The rate at which prices fall, often exceeds the rate at which they usually grow. Accordingly, in the event of an unfavorable price movement, losses in the event of liquidation of an item by an open limit order,
There is an easy way to minimize the costs associated with incorrect opening of a position near the levels – placing aggressive bids for purchase significantly below the support level or for selling – above the resistance level.
4.3 Trends, support lines and trend resistance
Determination of the trend
In the event that prices as a whole move in a certain direction, then they say that prices are in a trend. If prices basically move up, then they say that there is an uptrend or up-trend. If prices mostly move down, then they say that prices are in a downtrend or down trend. If the prices are mainly moving in the lateral direction, then there is lateral or non-directional movement in the market (lateral trend, “outset” or “range”, range).
Phases of trend
Now we have to figure out the answer to the question: where do the trends come from? Each trend, as a process lasting in time, has three phases: origin, development and completion.
The emergence of a trend occurs, as a rule, under the influence of any news that is ready to enter the market. There is no news yet, but a certain circle of participants either foresees their appearance, or, possessing insider information, knows that they are most likely to appear. Such news can be a very good financial report, which few could envisage, or a positive forecast for the economic development of the issuer, any corporate event, for example, a profitable acquisition or a change in the management team to a stronger one, access to new markets or access to cheaper ones resources, etc. As a rule, such information should be “long-playing”, that is, the actions of the factors underlying it should have a long-term effect.
The development of the trend is based on the participants’ awareness of the unfairness of the current price of paper compared to its future value. No news is perceived by investors equally unambiguously. The most perspicacious part of investors immediately realizes its prospects, the other part, more conservative, needs time to obtain additional confirmations and calculate the various probabilities of the development of events. The most optimistic investors are rushing to enter the market on a trend and “feed” it with their money and emotions.
In the process of development of the upward movement, more and more investors are gradually imbued with the idea of a trend, take the majority side and come to the market, buying securities and pushing prices further upwards. This process can last long enough.
The end of the trend is usually associated with balancing the supply and demand balance. As long as there is an imbalance between supply and demand, there is a trend. It is this constant imbalance that pushes prices upward in the case of buyers’ advantage over sellers, and down, in case of superiority of sellers over buyers.
Signs of the end of the trend . It is not easy to recognize the moment when the trend is completed.However, there are some signs that can help in this.
First, the paper, which is in the trend, acquires unthinkable popularity and popularity among analysts and journalists. Once you meet the statement that the trend is developing successfully, look out! The end of trend development can be very close.
Secondly, before the end of the trend, there are very strong movements in the opposite direction of the trend. Players often confuse such movements with the usual correction within the trend itself and, accordingly, with a good entry point to the trend. However, it is not. These are moments when the most informed investors come out of one position and occupy the opposite position in the confidence of an early end of the trend and a reversal in the opposite direction. If the price chart became noticeable strong traffic in the opposite direction with a high volume of trading, then this is not just an excuse to alert, but the reason to close part of the trend positions to capture profits. And even more so the reason is not to enter the trend if you are not there yet.
The third sign of the completion of the trend, which works well in technical analysis, is the breakthrough of the support line of the uptrend down or the resistance line of the downtrend up.
4.4 Moving Averages
Simple and exponential moving averages
The simplest tool for technical analysis is the various “moving averages”. Moving averages (MA), originally intended to smooth out random price fluctuations and identify trends. Nevertheless, they can tell a lot about the current state of prices, about the presence or absence of a trend, about the need to open or hold a position, about the possible proximity of a trend reversal, etc. The sliding average is the average value of stock prices for a certain period, moving with time. There are simple moving averages and weighted ones.Virtually in any technical analysis package, the calculation formulas for moving averages are built-in functions.
Signals obtained using moving averages are lagging and, therefore, only confirmatory. The longer the averaging period, the greater the confidence of the confirming signal, but, at the same time, the less useful it is, since it appears rather late.
Each trader himself is looking for a different balance of signal reliability and timeliness of its appearance.
In this section, we provide information that explains the essence of the trading process in the stock market. Her study will help you understand the basics of trading and save from common mistakes. However, do not forget that theory is not a panacea. Exercise and self-control are much more important. Jumping from one idea to another or giving way to panic, you will not succeed in trading on the stock exchange. At the same time, by approaching the training properly and firmly following your strategy, you will be able to earn good money.
Of course, everything has its price. The payment for success for a trader is the losses incurred in trading, and the time spent studying the necessary information. However, with competent trade, all these efforts pay off handsomely. The main thing is not to lose endurance in any situation, and remember:
You and only you are responsible for all your actions
You and only you are responsible for every transaction you have made
You and only you are able to succeed
Fundamental aspects of trade
So, you want to learn how to trade in the stock market. The path of the trader is a path of trial and error, the determining factor of success on which is the discipline and literacy of the trader.
The fundamental issues considered in the analysis of the company include:
Does the company profit?
Now, during a recession, it is difficult to evaluate companies on profit indicators, as in most crisis years most companies do not have it. But you can, looking at the historical data, assess what profits the company received in the pre-crisis period, and look at the causes of its fall. In addition, there are companies that, despite the recession in the economy, receive a net profit. A good idea is to focus on the indicators that affect the profit itself. Is revenue growing, does the operating margin increase? It is also necessary to determine the company’s competitive environment in order to understand whether the company will be able to profit in the future.
Can the company pay its debts?
All companies have debts, almost no business can do without them. But you should look at the size of these debts. Will the company be able to pay for them? You can try to answer this question if you look at the structure of liabilities, cash flow and interest coverage – that is, the ratio of cash flow to the amount of interest paid on its debts for one year.
Is there potential for growth?
How much is it possible that a company will achieve a situation worse or better than its competitors? What are its prospects? Do you see the potential for growth? How does the company offer quality products or services? Try to answer these questions. In addition, try to assess whether the company is able to adapt to the changes that are taking place, and whether it has the opportunity to increase sales of its goods or services through access to the global market?
What is the management of the company?
Does management try to do the best for the company? How professional and competent is the management? Take a look at the accounting methods chosen by the enterprise when forming the accounting policy. Is management not engaged in “drawing accounts”, attributing profits or hiding losses? One way to determine how much management is interested in the success of the company is to track what proportion of the shares management owns, and how it has changed recently.
If management has a significant stake and recently builds it up – this is evidence that managers are confident in the company’s good prospects and consider its shares attractive for investment. In addition, one can count on the fact that management will focus on making decisions that can increase the wealth of shareholders.
The technical issues considered in the analysis of the company include:
Is the stock liquid?
A large number of traders and investors observe the shares with a large number of transactions. If a company can generate good news (or rumors) and its shares are liquid, then there is more chance of their movement due to this news. Plus, liquid stocks are easier to buy and sell.
Shares in a falling trend?
If yes, then forget about them, as the time for purchase is not suitable. Shares, while in the downtrend, fall because the psychology of the market is set up negatively. It will take some time to turn.
Shares rose for the first time in three months to a new high?
This is a very positive signal, meaning that investors have taken into account in the evaluation of the company some new information, unknown earlier. Often breakdown to new highs occurs before the news.
Did the falling prices of stocks rebound from the bottom?
Shares in a declining trend require some time to reverse. The signal to the reversal of the trend can serve as a series of rising bottoms.
Was there a period of accumulation?
Before the price rises sharply, there is often a period of quiet buying (accumulation) of shares from the market. When the price consolidates, this is used by large brokerage houses, accumulating large positions on these shares, which sometimes works.
Was there a strong closure?
If so, then it is likely that market makers or large players are sitting in these stocks, which is a positive signal from the market point of view.
Concentrate and do not play
Have you ever had days when everything starts perfectly, but then it abruptly goes wrong, and you become powerless to do anything? In the stock market, this can easily happen if you do not focus on facts and notice any alarms.
Experienced traders know the expression: “The stock market, like nature, has its seasons: spring, summer, autumn and winter.” There are known effects on the market, such as the “January effect”, “spring madness”, “formidable October”, etc.
History repeats itself, and if you do not know it, then your brokerage account is threatened with zeroing. Later we will tell an interesting story about this, but first a few important conclusions.
Often, when you are in a winning streak, it’s easy to fall into a player’s state, when emotions go off scale, and you lose objectivity. Always remember this.
Ignoring promises trouble
In trading in the stock market it is very important to do a good analysis. However, good analysis requires deeper knowledge than many of the newcomers have. Therefore, you can, for example, turn to real professionals and pay them for their information.
Often, by spending hours researching a company and concentrating only on it, you get a very narrow vision of the situation. It becomes difficult to cover other facts and events in the market and in the world that can affect the trading strategy.
Money money money. Just waiting to become mine!
Being a trader, the most difficult thing is to suppress emotions. Greed and fear are the most powerful factors that lead a trader to collapse. Fear enters the stage at a time when it is too late to do anything and the phase of denial is coming.
At this point, the numb trader is powerless to make any decisions, he only observes how his brokerage account tends to zero. Eventually, his ego takes up, and the trader blames everyone and everything for his defeat. Except myself, of course.
Limit your losses
For any trader, discipline begins with the fact that he must always limit his losses with stops. Stop-loss is set in order to limit the potential loss. The stop-loss is placed below the current price (to protect the long position) or above the current price (to protect the short position).
If you buy 1 000 shares of Sberbank at a price of 50 rubles, you can set, for example, such a stop:
SELL 1 000 shares IF the price will be less than or equal to 47 rubles.
If the price still falls to 47 rubles, your loss will be limited to 3 rubles per share (plus brokerage fees).
One more example
Suppose, you want to limit the maximum loss from the transaction to 2% of the trading account.
Imagine that your account is 50 000 rubles. You want to buy shares of company X at a price of 20 rubles. Purpose (on profit) at the level of 26 rubles. for a share, and a stop-order at level 18. How many shares can you buy? 2% of 50 000 is 1 000 rubles. – The maximum risk that you can take from a single transaction. We divide the maximum risk of the entire account by the maximum risk taken from one stock to find the required position size (ie how many shares you can buy in this transaction based on the maximum level of risk).
Divide 1 000 by 2 and get 500 shares – this should be the size of your position in theory. But in practice, it is also necessary to take into account slippage when closing a position, as well as commission fees for a broker. Therefore, to meet the 2% risk on the account, the position size should be less than 500 shares, for example 400.
Dear investors, in this edition we decided to include interesting, in our opinion, information for everyone who starts to try their hand at the stock market. Of course, those who were already interested in the history of the formation of stock exchanges, met stories about the greatest financiers of the XIX-XX centuries in various books of different authors or found information on the Internet. We also decided to devote this chapter to small stories from the life of unique professionals who worked in the stock markets of the world.
This chapter was included in the book to introduce you to people who have achieved the highest success in finance and become legends. Perhaps the success stories of these people will help to derive their Law of Success. We do not dare to classify, analyze the life and work of these people, but knowing the history of their lives will allow us to understand the philosophy and methods (approach to business) of their work and, possibly, to find a way to develop their talents, and also to work out tactics (strategy) of work on the modern stock market. Analyzing the personal qualities of the great world of finance, you can not only study them, but also consider yourself. We hope that these stories will help you navigate the modern stock market.
George Soros is a relatively recent phenomenon on the political horizon. Until 1980, this man was not known outside of Wall Street. His connections were limited to the stock exchange. The more interesting is his way, forms, methods and results of both charitable and financial activities. So, we bring to your attention George Soros (nee Derdi Shorosh).
When Soros was awarded an honorary degree in Oxford, when asked how he should be represented, he replied: “I want to be called a financial, philanthropic and philosophical speculator.” Honorary doctor can not refuse a sense of humor. By the way, this feature plays not the last role in this field.
The future financier was born in 1930 in Budapest. His father, a lawyer by profession, was from Russia, survived the October Revolution. In 1947, the family moved to the UK. Here George graduated from the London School of Economics and in 1956 moved to the United States, attracted by opportunities that opened up there for entrepreneurship. His future business “future king of the world’s speculators” began as an exchange broker, playing on the difference between the courses of the New York and London stock exchanges. It did not give big capitals, but he acquired useful experience and connections. In 1961, having obtained American citizenship, Soros began work on the creation of the investment “Quantum Fund”, which became the core of the system of high-yielding funds “Quantum groups.”
These structures were engaged in forecasting market fluctuations in different parts of the world, quickly bought up and sold local currency. Each thousand dollars, invested in “Quantum”, gave by 1994 2 million dollars. Super profits came at the expense of super-risk. For example, once, playing golf, Soros heard that the US-Japanese relations became more complicated. He immediately gave the order an hour and a half before the closing of the exchange to sell the entire package of shares of Japanese companies. The broker begged him to change his mind, to consult with experts, but Soros remained adamant. And won!
The next day, the government imposed restrictions on trade with Japan, and the stock price collapsed. His winnings were huge.
He often won for his clients. And so skillfully and for a long time that by June 1981 from the magazine “Institutional investor” he was awarded the title “The world’s greatest manager of capital.” As a rule, the world of finance is considered rational, and the stock price is necessarily inherent in internal logic. It is necessary only to comprehend this logic, and then you will get rich! Soros considers the world of finance to be rather unstable, and even chaotic. Soros is convinced that mathematics does not rule financial markets. They are ruled by psychology, or rather herd instinct. It is worthwhile to understand, when the crowd rushes behind this or that share, currency or raw materials, and luck itself will find the investor. The prices for stocks, bonds and currencies depend only on people who buy and sell them. In turn, traders often act under the influence of emotions, and not in accordance with the previously adopted trade strategy.
This is in short the theory of George Soros. It remains to add that no one has succeeded so long in the financial markets, like him. Neither Warren Buffett, nor Peter Lynch, nor even D. Gunn, whose history it is time to move on.
“You need to comprehend the chaos, and then you will get rich!” George Soros
Sometimes, he suffered losses: during the stock market crash in October 1987, he incorrectly estimated the trend in the stock market. Then he lost 300 million dollars. His further actions were to reduce losses to a minimum. In 1998, Mr. Soros lost $ 2 billion in Russia
William Delbert Gunn
Delbert Gunn is the greatest man ever seen on Wall Street.
He went down in history, and his methods are still used by successful traders all over the world. No doubt, Gann’s name is legendary in the stock market.
William Delbert Gunn was born June 6, 1878 on a farm in Texas. In his family there were 11 children, they all lived in a very small house without any frills. Young Willy spent three years attending school in Lafkin for seven miles and dreamed of becoming a businessman. But since the work he could perform on the farm was more important for the family, William never graduated from primary or secondary school. As the eldest son, he was given special responsibility, and those years of work on the farm may have initiated his habit of working hard. Several years later, William began working at a brokerage office in Texarkana, and in the evenings attended a business school. In 1903, at the age of 25, he made a fateful move to New York, where he began to trade on the commodity and stock exchanges. In 1908, he opened his own brokerage office “V.D. Gunn and Co.. “(WD
Using his method of technical analysis, Gunn earned more than $ 50 million in profits on stock exchanges! In today’s markets, this would be about $ 500 million! After many decades of incredible success, Gunn moved to Miami, Florida, where he continued his studies until his death on June 14, 1955.
Gann based his methods of trading on “time” rather than “price”, like many of today’s systems. This allowed Gann to determine not only when the trend changes, but also the best price for entering or exiting the market. Gann’s methods were so precise that, in the presence of representatives of the main financial public, he made 286 transactions during 25 trading days in both long and short positions. Of these, 264 transactions were profitable!
In 1933, Gunn made 479 transactions during the year, 422 – were profitable. The return on its capital was about 4000%. In most cases, Gann gave in advance the exact prices at which certain stocks or commodities would be sold, along with prices close to the then prevailing values that were not affected.
During his career, Gunn constantly repeated these incredible trading achievements, giving amazing forecasts for a variety of markets for the year ahead. Gann used the law of nature and geometric proportions based on a circle, square and triangle, which are just as effective today on stock and commodity exchanges as they were 50 years ago. His methods work in any market and time interval. His methods seem to many traders a little unusual and even mystical, but in the last century they were confirmed again and again. V.D. Gunn was a “Scientist of Wall Street,” he could predict the top of the “bull market” for the year. One of his striking achievements was the outlook for the shares for 1922, issued in December 1921.
This forecast indicated the first peak of the bullish wave in April, the second in August and the last peak and end of the bull market in the period from 8 to 15 October. And amazingly, the average prices of twenty industrial shares reached the highest point on October 14 and decreased by 10 points in thirty days from this date. Gunn predicted a big decline during November. He indicated in the forecast: “From 10 to 14 November there will be a panic fall”. During this period, there was a serious decline in shares, many fell by 10 points or more within four days, and on November 14 the lowest average prices for 1,500,000 shares traded on the New York Stock Exchange were achieved.
Gann’s remarkable predictions are based on pure science and mathematical calculations.
Here are the words of William Delbert Gunn, in which, in all likelihood, his entire experience is concluded.
“For the past ten years, I have devoted all my time and attention to speculative markets. Like many others, I lost thousands of dollars and experienced the usual ups and downs inherent in a beginner who enters the market without prior knowledge of the subject. Soon I began to understand that all successful people, whether lawyers, doctors or scientists, spend years studying and studying their profession or profession before earning money on it. “
The words said by Mr. Gunn went down in history forever, as history repeats itself, and greed and desire for big profits are still characteristic of human nature to this day. We can look back to the past and take advantage of the elements of his research, as well as the way of thinking. No doubt, the name of V.D. Ganna is legendary in the world of trade, and his lessons are really valuable to us.
Warren Edward Buffett
Warren Buffett is a great conservative! Evil tongues still claim that he is a terrible scoundrel, probably this is an exaggeration, but, as you know, maybe it was modesty and conservatism that allowed him at the present time to be called a financial guru and a man who discovered money, like “Mozart opened music”.
Warren, Edward Buffett (Warren E. Buffett) was born in 1930 in Omaha, Nebraska. His father was the owner of a brokerage firm and a Republican congressman. As a boy, Warren began to show interest in business.
When he was only six years old, he bought a package of six bottles of Coca-Cola in his grandfather’s store for 25 cents and resold the bottles separately on a five-pointer apiece. So the investor earned his first five cents.
In college, he acted under the pressure of his father. Pennsylvania University young man was dissatisfied, he complained that he already knows more. And two years later he transferred to the University of Nebraska-Lincoln. As a student, Buffett worked full time, which did not stop him from obtaining a diploma in just three years of training. Father insisted on postgraduate education, and Warren once again without special enthusiasm submitted documents to Harvard. The Harvard business school then denied the future billionaire investor with the phrase “too young.” But for Buffett himself, that failure became fatal: he went to New York and entered Columbia University, where he was taught by the famous investor of the time, Benjamin Graham. The meeting with him changed the life of Warren Buffett. Now Benjamin Graham has become the immediate leader of Buffett, who at the end of his studies became the only student who ever received a higher grade (A +) on the Graham course. The influence of the mentor was so great that Buffett was trying to get a job in his office. He was ready to work even for free, but was rejected.
“Too young” – with such a verdict, the Harvard Business School denied Warren Buffett the opportunity to enter.
Buffett returned to his hometown, got married and tried to invest in Texaca gas stations and real estate, but these attempts did not bring him success. However, after a while, luck smiled at him: Benjamin Graham invited Warren to work in his firm. He again moved to New York. Buffett spends whole days analyzing Standard & Poor’s reports in search of investment opportunities. It is then that his views begin to diverge from the philosophy of the teacher.
Making a decision about investments, Graham considered only the accounting statements of the company, having little interest in its management. Buffett, however, was increasingly thinking about another question: how does the company work and what makes it the best among its kind? For six years of work at Graham’s office, Buffett increased his personal capital from $ 9,800 to $ 140,000, after which he again returned to his native Omaha and created his first investment partnership. Interestingly, he was able to convince a group of Omaha investors, each of whom handed him $ 25,000 each. Buffett at the time was able to place only $ 100 of his capital. He is appointed general manager of the company, and the business starts. Warren begins to buy shares, profitable, from his point of view. He set himself the minimum goal: to beat the growth of Dow Jones with his average 10% per year.
The principle of Buffett is to invest only in those companies that he personally likes. Companies such as American Express, Wells Fargo, Coca-Cola, Gillette, Washington Post – impressed him the most. And investments in them almost never failed the billionaire.
In 11 years, Warren made his first step in the stock market. He bought three shares of Cities Service, paying $ 38 for each. Soon the share price fell to $ 27. The young investor had the prudence to wait until the course began to grow again, and soon he was able to sell the shares for $ 40. What was his disappointment when the rate jumped to $ 200. This incident was for Buffett the first lesson of patience.
In 1962, Buffett starts buying shares in New Bedford Mass, or rather, he was interested in a textile plant called Berkshire Hathaway with a price of less than $ 8 per share. At that time, the American textile industry withered under the onslaught of foreign production, but Buffett did not embarrass. He began to develop the capital of Berkshire, including insurance. This turned out to be a classic move by Buffett. At that time, insurance companies were better invested than others. Insurance premiums are payments in advance, which means that cash was provided for the further creation of various funds. Such funds were called “floating”, and soon Berkshire began to produce millions of dollars. The mechanism worked, and it turned out to be the biggest news after the syncope of the country since the 1930s. Buffett was always in search of other values,
However, sooner or later the biggest investor will leave this world. And then what will happen with Berkshire Hathaway? For sure it will be one of the biggest dramas of Wall Street. The high cost of the company’s shares directly depends on the largest shareholder of the stock, as it supports the company’s efficiency. And it is not known whether someone can adequately replace Buffett in this position. Anyway, something will happen with Berkshire Hathaway Inc. or not, but the lesson taught by Warren is already being studied in all parts of the world, and the next small Buffett already contributes to the development of the investment school.
When he was only six years old, he bought a package of six bottles of Coca-Cola in his grandfather’s store for 25 cents and resold the bottles separately on a five-pointer apiece. So the investor earned his first five cents.
Peter Lynch newspaper Wall Street Journal named one of the greatest investors in history for his remarkable work as the manager of the well-known fund Magellan fund (Magellan fund), owned by Fidelity.
Lynch, who grew up in the suburbs of Boston, was forced to work because his father died when he was only 10 years old, and Lynch had to help support the family.
Lynch went to Boston College for a caddy scholarship, then to Wharton, where he received an MBA, and finally, in 1969, was admitted to the Fidelity. Work began as an analyst, specializing in the metallurgical industry. In 1974, he was promoted to the position of director of the research department, and three years later – he was appointed the head of the Majellan fund. Being the manager of the largest fund, in the whole history of the market development, Peter Lynch paid much attention to personal communication with clients and partners. He also preferred to do most of the work himself: appoint 40-50 meetings a month, make dozens of calls every day.
At the same time he spent only 15 minutes per year on market analysis and exactly the same number – on the analysis of macroeconomic indicators. Thanks to Lynch, the market drew attention to such growth leaders as Dunkin Donuts, Pier 1 Imports and Taso Bell. According to Lynch, the best results are achieved due to a slow but steady growth, for example, as shares of companies Chrysler and Stop-n-shop, whose value for 15 years has grown 20 times.
In the 1980s, Lynch despised the mania of mergers that swept the country, preferring to invest in more prosaic opportunities, such as a funeral home network, this is what everyone eventually needs. He advises you to look for such actions near the house, where you contact the goods and services of the companies that produce them every day. In his essay “Stalking the Tenbagger,” he shows how one of such small companies can easily turn into a celebrated tenfold – a company whose shares can potentially grow tenfold.
His simple investment philosophy says: “Choose an enterprise that any fool can manage, because sooner or later a fool will probably lead him.”
Lynch avoided working with options and futures and always believed that the most important thing in investing was to catch a turning point in the fate of each company.
Mario Gabelli, who compares himself with a jet fighter pilot, has built a financial empire that includes an institutional brokerage firm, a mutual fund manager company and a capital management firm advising institutional and private investors. Amazing success and his personal energy brought him the nickname of a supermario.
Like Peter Lynch and some other well-known electors, Gabelli, who grew up in the Bronx, first became interested in the stock market when he worked as a boy on the golf course, serving management companies. After studying at Fordham University, he received an MBA from Columbia University, where he was influenced by a professor who taught the analysis of securities in the spirit of the pedantic and conservative Benjamin Graham.
In 1967, Mario Gabelli began his Wall Street career as an auto parts analyst in the firm Loeb Rhoades, and then at William D. Witter. In 1977, he founded the Gabelli Asset Management. Gabelli, who reads annual reports as others read novels, in the process of creating a firm that manages assets of over $ 10 billion, earned a reputation as a tireless hard worker. “This is not work for me,” he says, “this is my passion. Some people collect works of art or ride horses, or play in castles of Ireland. I like to choose stocks. ” For this purpose, there are many days from 5 am to 9 pm and even occasional staff meetings on Sundays.
Although Gabelli is a workaholic, he also has frivolous sides, which was reflected in the name of the fund focused on global information and entertainment companies – “Gabelli Global Interactive Couch Potato Fund” (Gabelli Global Interactive Couch Potato Fund). In English it sounds roughly like “Gabelli’s Global Interactive Fund”. As for his investment style, in the article “How to win a big helmet” he among other strategies tells how to look for “catalysts”.
One of them is the introduction of the idea of ”private market value,” that is, how much a public company could cost if it became private. He likes to exclude expenses such as taxes, depreciation and interest, in order to obtain more reliable data on net income and assets.
Another idea he presented was to look for something called Gabelli “catalyst”, that is, an event that can raise the price of a company’s shares, for example, a merger or a change in state regulation.
Charles Dow – one of the founders of the newspaper “Wall Street Journal” and the creator of the Dow Jones index for shares of industrial companies – represented a serious half in partnership with the bright Eddie Jones.
Dow was born in Connecticut countryside, his father died when he was only six years old. He spent his entire life in the newspaper business. At the age of 16 he began to work in a local weekly newspaper as a student of a compositor and a reporter. His next job was a daily newspaper in Springfield, Massachusetts. Later, he became a New York correspondent for a daily newspaper in Providence, Rhode Island. Since he preferred research and analysis rather than the work of a free reporter, he settled for another job, where his task was to cover the shares of mining companies for the “New York Mail and Express”. The financial editorial he wrote was reportedly the first in the daily press.
Around 1880, Dow entered the news agency, where he convinced the management to hire his old friend Eddie Jones, who appeared in New York and told Dow he had problems with his debts and with his wife. Jones began to cover the work of the New York Stock Exchange. In the end, in 1882, Dow and Jones decided to set up their own news firm, focusing on the stock market and using boys to deliver news on parcels. Their first office was under an institution selling soda, on the ground floor of No. 15 on Wall Street. They spent most of their working day visiting bankers, financiers and members of the exchange. To monitor the ebb and flow of stock markets, Dow alone created the Dow Jones Index. The first index, calculated on July 3, 1884, was the average price of 11 shares and was called the “Dow Jones Railroad Average”, as 9 out of 11 shares were issued by railway companies. By 1896, Dow had introduced an average industrial index, which was defined as the arithmetic average of the price of 12 shares. The value of the index for the closing of the first day was 69.93 points (the total value of its shares at that time was 769.23). In 1928, the number of shares used to calculate the index was increased to 30, as it remains at the present time. The NYSE (New York Stock Exchange) updates and publishes the DJIA index every half hour throughout the day. In 1928, the index calculation procedure was modified: a special multiplier (current divisor -current divisor) was introduced, designed to prevent distortion of values,
The stock index can characterize both the market as a whole, and a separate branch of the economy (industry, transport, etc.).
The crown of all three indexes to date is the Dow Jones Composite Average.
Dow Jones Composite Average – includes 65 shares, included in other indices of the Dow Jones family and traded on the NYSE.
The methodology for calculating indices for all time was practically unchanged, however, the shares included in the listing changed many times. Of all the indices included in the calculation of shares, only General Electric can boast of enviable stability, while the rest of the shares that were, then came out of it and generally disappeared from the market. It should be noted that in Dow Jones for a long time did not include shares of companies of the “new economy”, their inclusion brought the value of the index a lot of trouble. Although, it is worth admitting, the fact of inclusion increased the representativeness of the indicator and brought its composition closer to the real balance of power in the US stock market. Futures for the Dow Jones are traded in Chicago on the Chicago Mercantile Exchange.
Why is the market tied to buyers and sellers?
This is the easiest bazaar. If you treat it, you will act just like a big buyer or seller. For example, how to determine that this is a hidden seller? Imagine there is a simple sense of the market, a person comes there, he needs to buy tomatoes, if he is a big player, normal people will inflate prices. Why? Because, he has already made it clear that he needs tomatoes. What will he do? He will just go along, and buy up all the tomatoes until he buys everything and then releases the market.
What does it mean? He will throw in the general sale and see what will happen in the market. That is, there is exactly the same situation that happens in real life, absolutely the same principles when you need to pick up the price, everything is bought up and then the market opens, because there are no other sellers, and you have to buy from the one who has it.
Everyone leaves their footprints in the market, the buyer leaves traces and sellers. There are certain things that you can do to find out where everyone is going. You have to understand that after a long consolidation there will be a shot, after the shot there are
two movements – or it will roll back, because the energy will end, the back reaction comes, or it will be further consolidated in order to go ahead. You have to lead yourself to a logical end, to what? I found the entry point, then
I get a waiting list and advantages in my side. I always say that an entry point with a short Stop is already an entry point. A very short Stop when accumulated gives a very good input.
Let’s start with the buyer, they are of two types:
Three-quarters of the market is in the Ranch, so the levels worked, work and will work.
What is most important for a trader? It’s to tie the entry point to something. You can not make a deal if your entry point is not tied to something, you can not just stick a finger on it and say “I’ll come here”. Your entry point should always be tied to something. To what it can be tied? Output volumes, for example, support level, resistance level, previous levels.
You can not believe in technical analysis, open the BEAC, who sells the Russian market, what’s his hight? 111.5, and last year? In September, it’s 111.5, exactly the same level. GazProm has 132.5. Now he has updated, and before that he started to roll back with exactly that number. What does it mean? Always near every digit is everything you need to do?
You do not have to guess, but know what’s going on . For example, you have some long level, which was before, and you have a point, I’m not telling you to guess the direction of the market, no one can do it. So, we know the point and we are waiting for what will happen at this point. What can be at this point? You are waiting for the behavior of the action, how it will behave. That is, if we go and hit exactly at this point and start consolidating, then mathematically and statistically it looks more like a retreat. If we break through and start fixing, then let’s go down.
When I showed you the model – 35% of positive transactions, what does it mean? You have the right to be out of ten times six times wrong, and you will still get out. You should not worry and think “I have 65% of losing trades, it’s so bad”, if you subtract the risk-to-loss ratio four to one, then you have nothing to worry about. You trade in your system, you know that out of fifteen deals – five profitable and ten unprofitable, then you will be all right. Sasha Litvinenko said yesterday that he put four to one, or four to one, or a loss.
How to determine a false breakdown? False breakdown is determined only by one movement – this is after fact. For us, a false breakdown shows who is gaining the position. Can we get here? Of course, we can, we do not know what will happen next and we do not need to guess. I also get into false breakdowns, like you. Why? I’m selling a model, and I do not know what will happen next.
You have everything, every step should have a fixed figure, then you can safely trade. For example, any current price, when it has a 25% rollback, if I have a thousand dollars, I have an elected figure of 750, I close the computer and leave.
Margin Call plunges the trader into despair and forces him to tear his hair. Contrary to a common joke, this is not a terrible dream of a stockbroker. This is a harsh reality. And if you have not already made a call, it will happen. Or not necessarily? Let’s deal with it.
Why is it needed?
Margin call is a call to a broker informing you that the trader’s deposit has already expired or the money will run out very soon.
Then the events can develop in two directions:
The trader replenishes the deposit to trade on.
The deal is forcibly closed, so that the trader does not get into debt.
It turns out, the broker informs the trader that the instrument went against him, and has already reached a critical level. Attention, a question! Why does not the trader know about the state of his account? Then, let him say thank you that he is reminded. Without margin calls he could fly into a large sum. Fortunately, a notice of loss of deposit is mandatory and spelled out in the legislation. (Pay attention to this, so as not to run into an unscrupulous broker!) So, in many cases, the call margin is a saving stopcock, a guarantee that a person will not get up from the terminal for the poor.
Two Simple Ways to Go Bust
Why then do thousands of people die daily on the exchange? Because the call margin is not an absolute guarantee against bankruptcy. As they say, “I do not need to deceive myself, I’m happy to deceive myself”. Here are the two most common ways to squander more than you can afford:
Start trading on loans, or the latest funds. This method is used by desperate romantics, maybe traders and just inexperienced people. They want to fix their lives in one fell swoop, put everything on zero, oh, was-nebyla! They go against the theory of probability, and do not obey older, more experienced traders who know – you’ll earn two times, and lose the third. And if you lost the last, or someone else’s – there will be no more trade. It is necessary to give.
Take a big leverage. This option is good for large companies and funds, and is often disastrous for novice traders. The amount of money earned with a positive outcome of the transaction turns his head, and the person forgets that the proportion works in both directions. With a negative outcome, you will have to give a lot and immediately. With that, the deposit will be closed not by the size of the shoulder but by the amount of the initial deposit. In fact, the same call margin, but with multiplied rates.
It is necessary to be protected
There is one sure remedy for margin calls and other losses. And everyone knows it. This is risk management. You expect a stop-loss, and you expose it without fail. According to the method, the standard ratio of risk: profit should be 1: 3, at most 1: 4. This will not lose the critical mass of the deposit, and subsequently multiply it. The trader will work statistics, he will earn a little, but constantly.
What’s stopping you?
But even traders with long-term experience continue to receive margin calls. Why? The answer is simple – they hope for super profits and want quick results. Move the feet. But in trading so it is impossible.
There is no place for hope and excitement! Here you need to be true to your decision, and make a decision based only on calculations. Analyzed the deal at the premarket, calculated the entry point and stop-loss. Put out the stops, and do not move! Even if the transaction is unprofitable, it should be accepted. Better than with the margin call.
Trading is an interesting and promising sphere , therefore it attracts many seekers of good earnings. You want to know how to become a trader, what you need to do to achieve your goals, how to cope with possible difficulties and just do not know where to start? In this article you will find answers to the main questions and will be able to outline an action plan. We want to draw your attention to the fact that each trader himself chooses the order of actions, so there are simply no universal recipes, but to understand what’s what, our material will help you.
From beginner to professional, or Long history of success
Many people try their trading in trading, but only a few are professional traders. How to raise the level of professionalism? What should I do, and what can not be done in pursuit of high wages? How to become a successful trader?
What you can not do without, so it’s without:
Action Plan. Chaos, emotions, inconsistent actions – this is not what distinguishes a professional trader.
Understand the fundamentals of the economy, knowledge of the theory of trade in the securities market, develop their own strategies.
Patience – success is achieved by rare traders, but even they do not get to get everything at once.
About the stages of turning a beginner into a professional, read on.
How to become a trader: a step-by-step guide
To turn from a novice trader who tries his hand on a demo account, in a real pro who has high stable incomes, you will need:
Stop talking and start acting. Wanted to learn trading – train, for this fit articles, courses, books, forums. Study the theoretical part – without her knowledge on the stock exchange, there is nothing to do. If you do not have the opportunity to complete a full training course, limit yourself to small ones, but it’s better to find time and finance-training creates the basis for successful trading in the future.
When you learn the basics of trading, get acquainted with the basic terms and principles of the exchange, open a demo account. You can not earn on it, but you can practice and sharpen your skills completely.
After training on the demo account, you can start trading by using real money and making real deals. Do not hurry and do not bet large amounts – to learn skills and start earning on trading, it usually takes years, although sometimes the process goes faster. The main thing is not to forget that transactions on the exchange are a profession, and not a casino with its easy money.
Familiarize yourself with different trading strategies, choose or form your own. The theory can be found in specialized publications. Take the time to learn money management – the relevant knowledge will help you succeed in managing capital.
Now you can try to apply the available knowledge in practice. To find your own approach, which works effectively, you need to test different.
When the theory is mastered, the approach is chosen, you can start developing a profitable strategy that will allow you to earn well. When this is done, consider that much of the way behind – many newcomers are “blown away” already in the first stages, because they are aimed at easy and quick money, rather than long and stubborn training.
Open a real account – and do it best in the company Trade-UA. It is not worth investing large sums at once, it is better to test the chosen methodology further, to see how effectively it works for several months. If you are satisfied with the results of the observation, continue to work and develop, and if not, identify errors and think how they can be eliminated.
Do not forget about the psychology of the trader. Every participant of the transaction risks, and emotions can go off scale. You need to learn to control yourself, and if this is not possible, then just look for another area of study. Emotions are the main enemy of a successful trader.
Many of you have already come across such a concept as an automatic trading system. These systems should not be confused with mechanical trading systems or with trading robots.
The essence of the automatic trading system is as follows:
1) . A certain software is being developed that allows “subscribers”, absolutely accurately, to copy all transactions for the purchase and sale of currencies of so-called “signal providers”. That is, if you are a subscriber, then choose the most successful, in your opinion, traders from the rating. Attach to them your trading account. And the system automatically, copies all transactions of your “signal providers” on your account. If the trader (the “signal provider”) is making a profit, so are you, respectively. In case of a loss, you also receive a proportional loss.
2) . For convenience of a choice, on a site of the company rendering service of automatic trade, the rating of “signal providers” is published.
3) . In order for a successful trader to be interested in becoming a “provider”, the company motivates him by sharing a portion of the commission of all those who have subscribed to his signals.
4) . The company itself, through the service of auto-trading attracts new customers, both “subscribers” and “providers”. This increases the total amount of the commission earned by the company.
As you can see, if you are an investor and are interested in the automatic trading system, then the most difficult thing for you is to identify and select successful “signal providers”.
On our website, advice on choosing managers and providers has several basic selection criteria.
Let’s dwell on some of them in more detail:
1) . Actually the rating of signal providers, posted on the company’s website. Algorithm for rating formation, takes into account many factors. However, it is far from always possible to achieve optimal results using only the rating.
2) . An important factor in choosing a “provider” is the term of its activities. Often happens, that the trader, having shown in the beginning magnificent profitableness, very quickly loses all the earned money and even leaves in “a minus”. I would advise you not to consider trading accounts with a lifetime of less than 1 year.
3) . The yield shown by the trader for the whole period and for the last month. Comparative returns for different periods and especially the values of the so-called “drawdowns” of the account. “Drawdown of an account” or “Maximum drawdown of an account” is the maximum “depth” of the fall of assets from the maximum value in percentage terms. Let’s say that the account “grew” to 100 units, then “fell” to 80 and after that it began to “grow” again, breaking the 100-unit mark. In this case, the “maximum drawdown of the account” was 20 percent. The smaller this indicator, the more attractive the “provider”.
4) . The principle of diversification is the cornerstone principle in investing. Nabivshaya nauseam truth that “you can not keep all the eggs in one basket.” No matter how good the “signal provider” seemed to you, do not sign your trading account just for it. Be sure to include at least one more “provider”, distributing your risks.
5) . Own capital of the “provider”. Some providers send signals not from the real, but from the demo account. Personally, I am very negative about the idea of subscribing to signals from an account that is manipulating virtual money. However, some traders have a psychological barrier, which is that they are very successful on demo accounts, they suffer huge losses when it comes to trading for real money.
6) . One of the main, in my opinion, investment principles. I conditionally call it the “dynamic principle”. The thing is, in my opinion, no matter how well the “signal providers” were chosen, over time, the results of their trade can deteriorate quite a lot. Therefore, it is not possible, once correctly selecting the “providers”, taking into account all of the above criteria, a lifetime to receive a stable and high profit. It is necessary, from time to time to monitor the results and constantly monitor the status of your trading account.
Why do we need to choose a timeframe? Many newcomers do not attach importance to this. And in vain! After all, for each style of trading is different timeframe. The constant change of timeframe is similar to the constant change of a class of cars in races – you will go to many, but you can not reach the finish line.
There is also a downside to the coin – working only on one timeframe, you miss the opportunity to earn money on others, you lose flexibility in your trading system. Many newcomers hope to find a 100% profitable strategy on only one timeframe and miss a lot. Let us be more flexible and consider all options!
Those. this is the time that includes one candle or bar.
The increase in the timeframe is directly proportional to the duration of the period for analysis, i.e. the longer the period, the higher the timeframe.
The letter of the timeframe shows to what time interval it relates, and the figure – for how many units of time a candle or bar is formed.
M – minute. M1 – one-minute, M5 – five-minute, M15 – fifteen minutes , M30 – thirty minutes.
H – hourly. H1 – one-hour. H4 – four-hour.
D – day time. D1 – one-day trips.
W – weekly. Sometimes referred to as W1.
M – for a month. Sometimes referred to as WN .
Y – annual.
In trading, the senior and junior timeframes are also singled out. The first is a time interval of 1 more than the specified one (for example, for H4 this will be D1 , and for D1 it is W1 ). The second is a time interval of 1 less than the specified one (for example, for M15 this will be M5 , and for H1 it is M30 ).
You can change the timeframes – switch them by pressing the necessary timeframe button on the terminal panel.
Each timeframe is good in its own way . “Bisons” of trading are traded on small as well as large timeframes. Of course, everyone has their own “pet”, but they know how to trade at all. As practice shows, experienced traders are focused on increasing the percentage of their deposit, and beginners – on the amount of currency they have in their account. The goal of a successful trader is to constantly increase profits, and the goal of the beginner is to “cut down the cabbage.” This determines the choice of the timeframe.
Beginners try to make a profit as quickly as possible, i.e. trade on small timeframes, make more deals, do not comply with risk management. As a result, everything is “poured”!
It’s like racing.
Experienced “racers” smoothly and gently lead their “baby” from turning to turning, skirting the obstacles and calculating the risk. After all, they are trying to win the entire race and come to the finish unscathed to play next. And the newcomers press the pedal into the floor and race at full speed, creaking fit into the turn and whistling flying over the pits. It should be faster, otherwise they will take the whole victory, the “track” will be closed and everyone will have to wait for the next season. As a result, the bursting tires, the maximum consumption of the “fuel” (deposit) and the chances of getting alive decrease with the speed of sound!
If you came to trading for a long time and thoroughly, it is better to gently and smoothly lead the “baby” along a long “track” – and the skills are typed and live will remain! First, choose the “routes” – H1 and H4 . Here you will not have such a strong psychological pressure, enough time to prepare for a turn (deal), a more understandable price picture (you’ll see the entire “track” entirely). You can adhere to your algorithm, comply with risk management, save (or even multiply) your “fuel”. Having thoroughly learned this “route” of the market, you can try your hand at shorter distances.
The stock exchange is increasingly attracting people who view it as the beginning of its investment and business. All newcomers are always interested in the question – how to make money on the stock exchange ? Earnings on the stock exchange is based on trading stocks , bonds, futures , options and others. Due to this, the exchange gathers representatives of different branches of trade at its auctions.
Today, thanks to computer innovations and Internet spaces, the most popular type of Uncategorized has become the Internet Uncategorized . It is very simple and accessible, everyone can participate in trading on the stock exchange . Of course, for a successful trade there is little training , it is also necessary to understand the economy, both the state and the world as a whole, understand the functioning of the exchange, always be aware of economic news.
If you are determined to go to the stock market, you need to step by step to know what to do and how to make money on the stock exchange .
How to make money on the exchange
⦁ Trading platform. What would be in your pockets went good earnings on the stock market, you need to choose the right trading platform. Her choice will depend on many factors, starting with your preferences and then on the list. Thanks to the Internet, today you can without leaving home, find all the information you need about each exchange you are interested in. When choosing a trading platform, remember, it should be not only the direction you need, but also convenient for work. You must have full access to viewing the auction in real time, without any problems to submit and receive applications, have access to the dynamics images of the right instrument.
⦁ Brokerage company. Of course, this is a very important choice for your trading. ⦁ Choose your broker for all your selection criteria, do not hesitate to ask all the questions that interest you, what would then prevent unpleasant situations in dealing with the broker.
⦁ Directions for investing. Unquestionably, the leading place in trading instruments today is held by shares. They give a wide range for investing and speculation. Slightly less popular are bonds and futures, mostly beginners begin with them, although here you will not earn big dividends, but the risk of losing all the money is much less. As for the shares – they should be started, having a good and proven work plan, here inherent big risks, both losses and earnings.
⦁ Trading strategy. If you are a beginner, ⦁ the easiest way to get a good trading strategy is to turn to successful and famous traders who have already been successful trades on exchanges for several years . On the Internet, you can find a lot of different seminars, video courses, video lessons, and different plans for work. Most often take as a basis already a ready-made trading strategy, and complement their points, which are checked by personal experience.
Now you know where to start and how to make money on the stock exchange . Before you is a long and thorny path, but with these tips you will be much easier, and perhaps we will help to avoid the stupid mistakes that will be on your way.
For successful trading on the exchange, it is important not only to know the market and a refined strategy, but also a comfortable workplace for the trader. It would seem, what a trifle – a workplace! But could you successfully trade, if you have a child screaming over your ear, you are sitting in an uncomfortable chair, everything is blurry on the monitor, the wife thunders with pans and tempts with the smell of your favorite dishes? I doubt it.
Yes, to work effectively a trader needs a separate workplace. Ideally – a study. And if you live in a one-room apartment? Some trader are renting an office for trading. And what if you can not afford it? Refuse to trade at all ?! Agree, this is not serious. Will you give up financial freedom and independence only because you have nowhere to work?
The solution is to organize your workplace correctly, even in a small space. It’s real. It’s possible. You have all the resources for it. The main desire.
What should be in the workplace of the trader?
It’s better if it’s a system unit, not a laptop. You can connect several monitors to it, it has more power. In fact, simultaneously opening of 3 different trading terminals takes almost 1 GB of RAM. The system unit must have a large video card, a powerful processor and a motherboard.