I am testing a new trading strategy

The strategy is simple, straightforward and so far has been easy to follow. I will be posting my trades to site as an example. Here is a link to the game I created to test the strategy:
http://www.marketwatch.com/game/teststra

The strategy is simple : Invest in stocks that are doing well. When stocks are gaining in the market, they indicate an uptrend, and no matter what point you enter the uptrend, you can still make a profit.

He are my transactions for the last 3 days(I did not trade yesterday), Altera was the only one where I have made potential losses, as I brought it at a high (big mistake), but the strategy did work overall:

I did not hold any of the stocks for more than 1 day, once I made a gain I sold them. So here is the strategy : Pick out the first 5 gainers of the day, and select the best 3, which are likely to go up today, and invest at the pivot point price, that will likely hit several times in the day. Sell the same day, or the next, after you have made the profits. Do not wait for a couple of days, as uptrends often have a run for a few days, and there will be corrections. The idea is to sell before the correction happens.
This is the first part of my testing strategy. The second part of the strategy is to save your losses when dealing with loosing stocks, like the one I have for Altera. I will post an update on this soon.

Symbol	Order Date & Time	Trans Date & Time	Type	Shares	Exec Price
GENE	4/1/15 3:25a	4/1/15 9:45a	Sell	6000	$4.91
GENE	3/31/15 6:01a	3/31/15 9:45a	Buy	6000	$5.08
KRFT	3/30/15 10:48p	3/31/15 9:31a	Sell	510	$89.68
ABMD	3/31/15 5:59a	3/31/15 9:31a	Sell	600	$73.00
KRFT	3/30/15 7:44a	3/30/15 9:32a	Buy	510	$88.56
ALTR	3/30/15 7:48a	3/30/15 9:31a	Buy	600	$43.80
ABMD	3/30/15 7:45a	3/30/15 9:31a	Buy	600	$71.00

testing trading strategies : methodologies and risks

Testing your trading strategies is one of the best ways to gain confidence before you begin real time trading. I recently came across a great website called Market watch which allows you to test your trading strategies by creating your games. You can basically create a few different games, and test different strategies consecutively to figure out which works for you the best. The question now arises, as to how you would formulate your testing strategy.

I will take an example of explaining a simple testing strategy that I recently tested, by testing it on a dummy account first. Here is the link to my dummy test :
http://www.marketwatch.com/game/minetrades

I named the game minetrades. They provide you with a starting amount of $100,000 to test your strategy. Henceforth I will refer to the strategies that I used in this game with reference to the name of the game aka 'minetrades'.

Earnings season is always the focal point of day traders who want to make a few quick bucks. If you are one of the traders who want to make good use of the upheavals in the stock market during earnings season, a very good website to follow is the whispernumber.com. WhisperNumber.com is the official site of Real Earnings Expectations, Whisper Numbers, Earnings Estimates, Earnings News, and Individual Investor Market Sentiment according to the website. Whisper Numbers are basically like analyst ratings of a stock, they are basically the forecasted earnings or unofficial earnings that circulate among professional traders in wall street.

Whispers list the earnings per share forecast days before the actual earnings announcement, thereby enabling trade enthusiasts to gauge the ability of a stock to go up in the near future. As a rule, market works on sentiment, and therefore these whispers even though not 100% accurate drive stock prices. our trading strategy during earnings season needs to focus on the strength of the following points not necessarily in sequence:
1. the financial stability of the stock & company
2. the past earnings of the stock, and whether the stock has been performing consistently well in the past few quarters
3.the analyst ratings of the stock
4. the overall market value of the stock
5. the 1-day reactions and the 5-day reactions of the stock in the previous earnings
6.any recent market news associated with the stock

Since market go up by sentiments, usually the biggest move in the market for a particular stock is before the earnings announcement.

In my game minetrade, I will take the example of A - Agilent technologies. When I brought Agilent, it had a projected Zacks rating of 1, and a positive whisper number. If see Agilent's chart, the major move in the stock occurred in between August 12 to August 18. The earnings were announced on August 14, and Agilent reached it's peak in 4 days. So the stock rose in anticipation for 3 days up-to $3 per share, and then after the mixed earnings reviews pulled down the stock shortly after. Sometimes, if the earnings are as per expectation but there are mixed reviews from analysts, like in the case of Agilent  where the guidance for fourth quarter fell well below analyst Zack's expectations, the bulls for the stock, kept the stock going up for a few more days based on the positive earnings report. On August 18, the stock tends to be more or less flat, and on August 19th the stock starts sliding down. This is aptly the right time to sell the stock. if the stock has been going up for a while based on market news and sentiment, and then eventually stalls and starts to slide, that is the right time to slide out of the stock. remember, sometimes, the slide maybe sudden, and you must be extremely careful , not allow your potential gains to become your potential losses eventually. as in the scenario above, make a sell anytime soon after august 18th is the wisest decision to made here for this stock. For those who want to invest, there are different strategies that must be applied. the strategy I explained here is for people who are interested in short term trading.

With positive news around the beginning of September, the stock seems to be rallying again, however, there is different strategy that works for trading stocks based simply on market sentiments minus the earnings data.


 

My simple Day Trading Strategy - Trade Log for FAS on 060214(yesterday)

Stock specially financials make huge moves primarily on two scenarios :

1. In anticipation of an upcoming event - could be an announcement from Fed, jobs report, employment data, policy changes, presidents address
2. In reaction to a particular event - again could be as varied and almost similar to the group above

Usually in anticipation the stocks and ETF's will move up, unless there is a negative precursor to the anticipated event

Usually in reaction stocks will go down, as many have either already made their profits and sell out, or they are scared by the negative news.

Once you are able to determine whether the above scenarios and the markets move is a certain direction, you can determine the prices at which you want to BUY and Sell.

I am posting my Trade Log from yesterday below to describe how this can be accomplished :

I brought 200 shares of FAS at 77.82 and sold at 79.90 , profit of about 2 dollars per share. This can multiply to larger value if you decide to invest more.

You could also make multiple trades and still make profit on a day like this, however you would need to ensure that your transaction costs are met.

In the beginning of the day, it is almost impossible to enter the market, as the volume is very high, but as soon as there is a first dip, you can make your move. In the trade above, the first dip happened at around 9:45 am, which was a good time to enter due to the following reasons:
the anticipation of jobs data based on the anticipation theory explained above
Volume was high near about the 80 mark
Both the slow stochastic and fast stochastic showed a dip signal (should ideally be between 10 to 25 for the right buy, and then bounce back above 25) Note the Stochastic signal a buy twice once at around 9:45 and next at around 9:56 , so there will be at least two opportunities for you to make your move
MACD is largely positive
Also if you notice the candlesticks, green sticks (the longs are quite strong) compared to the red ones(shorts), indicating that the market is moving in a positive direction

Important Note: I do not day trade on days that the market is on a negative direction. This is a rule I believe one must follow always!

Why us stock market will go up today! watch out financial stocks and ETF's

With US jobs report pending Friday, markets will be more cautious, but today they will definitely go up in the hope of seeing some improvements. However the jobs report is unlikely to be positive tomorrow, in the event of which the markets may go down tomorrow.
So for those of you who want to make some quick bucks in the leveraged etf's like FAS , today might be a good day. Here are some other indicators and stocks that might be good to take a look at:

BAC : Bank of America
S: Sprint
JCP: JC Penny
CSCO: CiSCO
C: Citigroup

Do Note: all these stocks may perform well only today, as they will most likely go down tomorrow in anticipation for a negative jobs report.

Applying Technical and market analysis to shortlisted stocks on 24th Jan (Fri)

GEL, SILC, LOGI, TECUA

GEL : Genesis Energy
The price target for this stock ranges from 52 to 60, and considering that it has already broken its low, there is a great likelihood that it will try to reach its median target, given the market is on a positive note on the day. Not from upside from thereof though.

SILC: Silicom Ltd.
the stock skyrocketed on Thursday based on the earnings report. This stock will definitely have more upside, do note that the low target is at 68, and it may definitely try to reach this target, and most probably go above it. People who bought it on Thursday or Friday, will definitely see an upside, and make some quick bucks.

LOGI: Logitech
The company has posted a great earnings, even though the stock price has shot very quickly very high, it did provide some good opportunities for people to buy the share on Friday. There is definitely more upside left, although, this will be very short term and will need continuous monitoring.

TECUA: Tecumseh Products
Slightly risky considering the change in Board, may be prone o a lot of insider trading at this point, but the technical indicators are definitely positive at this stage, so could be a good buy, but would need more in depth analysis
some high level analysis can be found here:
http://seekingalpha.com/article/1857191-another-chance-to-double-your-money-with-tecumseh-products-company?source=yahoo

Stocks for today (7 day direction)

GEL : Genesis Energy
Analysis: Both 20 and 50 day moving average is on an uptrend.
MACD is (26,12) indicating the stock is in a positive direction
14 day Relative Strength is above 70
Slow stochastic indicates there is still some upward trend left
The stock will go further high from here in the next few days

LOGI : Logitech International
Analysis : Both 20 day and 50 day moving averages are on an upward trend
MACD is moving in a positive direction
14 day relative strength is above 70
Slow stochastic indicates there is a definite upward trend from here in following days
Definite uptrend from here

SILC : Silicom Ltd.
Both 20 and 50 day moving average is on an uptrend.
MACD is (26,12) indicating the stock is in a positive direction
14 day Relative Strength is above 90
Slow stochastic indicates there is still some upward trend left
Definite uptrend in the next few days

TECUA : Tecumesh Products company
Both 20 and 50 day moving average is on an uptrend.
MACD is (26,12) indicating the stock is in a positive direction
14 day Relative Strength is at 60
Slow stochastic indicates there is some upward trend left

Day Trading Fundamentals

If you want profits in a single day, and do not want to wait it out for your investments to grow in the market, day trading is a viable option, given that you have significant hours to spend doing research and practicing your trading strategy in advance.

To Day Trade you would need the following :
1. your internet connection has good speed
2. if there is a connection failure at any point you have a backup broker over the phone to assist you
3. a reliable online trading platform
4. a trading platform that has the best plans in terms of trade execution charges(transaction fees). Opt for a firm that will give you the best transaction fee and the most user friendly online software, and charts as well.
5. You have access to real time market data, i.e. no delay in the relay of market data
6. Access to real time charts and stochastic tools
7. A spread sheet application to keep track of the losses and profits you made over a day

Once you have access to the above, you may first need to build your strategy for day trading and test it with filters and regressive cases to make sure that your strategy works in most scenarios.

To build your day trading strategy you will need access to pivot points, MACD, slow and fast stochastic charts, and volume indicators. In addition you may also need to be aware of news triggers and the overall direction of the market, and the time of the day, as most stocks have greater movement in the first half of the day, although this is a trend that is sometimes overpowered by market news and sudden unexpected triggers.

Pivot Points and their significance in everyday trading

Pivot point is a price level that is calculated for a stock based on its previous days open, close, high and low price. It is basically an average of these prices and helps to predict where the price will more likely be for the day, given no other factors of involvement. If the market, or if the stock itself is bearish, the prices are more likely to be below the pivot point and if the prices are bullish, they are more likely to be above the pivot point.

Pivot points have associated price levels as well, that are referred to as support and resistance levels. On a bullish day, a stock price is highly capable of reaching these support levels or even cross them, depending on the volume and the bulls. On a bearish day, to the contrary, the prices are likely to reach these resistance levels, and once a resistance level is broken, it signals bearish movement.
Support levels are S1, S2, S3 and resistance levels are at R1, R2, R3. Online pivot calculators are available that help calculate the pivot point for a particular stock based on the previous days prices.

I am providing a link below of the 5-day intra-day chart of the SPDR Gold Trust in Wikipedia, that illustrates how pivot points might be helpful in determining entry and exit points for inter-day as well as intra-day trades. http://en.wikipedia.org/wiki/Pivot_point (see the Trading Tool section)

If you analyse the chart more carefully, you will observe the following:
On the first day, the market is directionless, and hence the prices fluctuate more or less around the pivot point. Even though the price tries to reach the first resistance level, it is immediately pulled back, and keeps hovering near the pivot point for the rest of the day. This indicates that the support is not strong enough.
On the second day, it starts near the second support level, indicating, that it is going to remain bearish for the rest of the day.
Note on the fourth day, that even though the stock price falls very close to the pivot point, it is not able to break it and go below it or reach it, indicating a bullish trend ahead. When it crosses the first resistance level, this is further confirmed. If the point at which this happens is used in conjunction with candlestick patterns, it will be even easier to identify the entry and exit points during the five day chart referred to here.

In my next post I will try to illustrate how pivot points when used in conjunction with Fibonacci numbers can act as a helpful tool to determine entry and exit point for trades.

Fibonacci Numbers and their Significance in Trading

A lot of the times, when the market is moving at its terrific speed, we are unsure whether the price we are buying or selling at is correct, and if the price of the stock will go further up from here and vice-versa. Since we are not sure of the point of the change in trend, we often either BUY and SELL too late, or BUY and SELL too early. Fibonacci numbers help us at these points to determine what could be the highest range the stock may reach for the day and vice versa.

Fibonacci tools unlike a lot of the other tools in the market are not trailing indicators but leading indicators.

Fibonacci tools allow you to track retracements and extensions. So what exactly is a Fibonacci retracement? A Fibonacci retracement is based on the fact that Stocks will often pull back or retrace a percentage of the previous move before reversing their direction.

Fibonacci retracement is created by taking two extreme points on a chart and dividing the vertical distance between the two by the key Fibonacci ratios. 0.0% is considered to be the start of the retracement, while 100.0% is a complete reversal to the original move. Once these levels are identified, horizontal lines are drawn and used to identify possible resistance and support levels.Fibonacci retracements often occur at the following levels: 23.6%, 38.2%, 50%, 61.8%, 100%.

Even though Fibonacci retracements work best over a longer time-period they can be pretty useful for getting into short term trades as well, when used along with MACD and stochastic oscillators.

Here is a snapshot for LNKD chart which mainly had a downtrend yesterday. For the second wave in the day, the high is at 231.29 and the low is at 227.59 which gives an approximate retracement of 50% at 229.42 and retracement of 61.8% at 229.85%. Since this was a downtrend, the retracements were pulled down before they could reach the 61.8%, indicating a further downtrend in the day. If you notice the next high is at 229.64.

So here even though it is a single day chart, the Fibonacci retracement still helps to more or less predict at which point one should sell, to reduce their losses during a downtrend.

Now lets us look at FB which was on an uptrend yesterday.

It's first high for the day was 54.46, and the subsequent low was 53.77 which gives an approximate retracement of 54.29 at 76.4% and 54.19 at 61.8%. The next  subsequent highs were 54.16 and 54.24 which were just below the 76.4% and 61.8% mark indicating that even though it was in an uptrend, it was not strong enough to cross these marks, and hence starting on a downtrend with the next high not able to cross 54.16 again.


So here even though it is a single day chart, the Fibonacci retracement still helps to more or less predict at which point one should sell in a single day trade, to reduce their losses during a downtrend.

Stocks to watch Today

ADT: has been upgraded to outperform, given a target of $44-49. It is most likely to open high today, however, if you can buy the stock at a range of anywhere between $40 to $42 it is great BUY.

LNKD: has been recently upgraded, and considering that Chinese market has performed so well today, this stock is likely to go up today

CASY: will most likely cross the 75.44 median target today and cross the previous high of 76.21. However this should be short term buy as the upside is not that high for the time being. They are announcing their Q3 earnings today

FCE-A: was recently upgraded, and has an earnings report today. Most likely to go up.

Others : ALOG, STZ, CSCO

Notes:
CSCO(Cicsco): has shown significant volume in the pre-market today
AEO: has been upgraded today to BUY
GIL: has been upgraded today to BUY
KRFT: has been upgraded to a BUY
VLO: has been upgraded to BUY
MPC: has been upgraded to a BUY
PL: upgraded to a BUY
MHK: upgraded to a BUY

Stocks to Buy Today

I had listed three stocks to follow out yesterday : ZOOM, ADAT and ICLDW

ZOOM reported third quarter losses yesterday morning, and therefore it was better to stay away from this stock. However, if you have invested in this stock, I would suggest a Sell.

Since the overall US market was weak yesterday, both ADAT and ICLDW fell as well.

So here is my Rule No. #1 : always follow News, and if the overall market is falling wait before you invest in any stock. It is sometimes good to wait and watch the market before you make your move, and yesterday was just one of those days.

Festive seasons like Christmas means more investing by consumers on Groceries and travel, and Retail in general. It is therefore the Retail sector that steals the show during this period. Dec and Jan are therefore a good time to watch Retail stocks. Also, noteworthy is the point that since Retailers sell more in this period, they will post better earnings report in the first quarter of the year.

Since all other sectors have little momentum during the holiday season, it is my favourite Oil & Gas sector that investors turn their attention to during this season. Hence the other sector that needs to be followed closely now is the Energy and Oil and Gas sector.

Some of the stocks worth watching in the Retail sector are :

Cabella(CAB) : has been recently upgraded to a BUY, and will probably see some upward movement today, a good one to invest if you are planning to make a quick buck. Make sure to get out of it within the week.

American Eagle Outfitters (AEO) : the earnings report is due 6th Dec, however the projected growth estimates for this stock are stagnant for the next few months, and hence I would not be interested. It is probably a good BUY in the long run if you are interested to invest now and wait for a year, to see if the stock goes up. However you will most probably get a better BUY somewhere near its next earnings report, so I would suggest to wait for the time being.

Now moving to the Oil & Gas sector :

MPC: everything is in favour including the recent upgrade to a BUY. Looks like a good BUY at this point.

OK, so we do consider earnings report and recent Upgrades and Downgrades in determining which stocks to invest in. How earnings and upgrades/downgrades can affect the movement of a stocks price, and how technical analysis can help us to determine at what point this movement will happen, I will try to cover in my next post.

Till then, Happy Learning and Happy Market Watching!

Stocks to buy Today : roadway to developing your own trading strategies

We have discussed Candlesticks and certain simple strategies in my previous posts. I am now going to discuss some of my trading strategies using examples, that help identify the stocks that I watch for the day. Once I have established the rules for identifying the stocks that I watch, I will explain further on the simple strategies that I use for the same. Below are a list of stocks that I will be looking at today and I will later follow up with another brief later to explain the strategies used. So here is the list :

ZOOM : has risen quite a bit in the premarket hours, and has positive news over the last few days. The stock will be a good buy at the previous close price, however it should be considered a short term investment of a day or two, and my advice would be to lock in the profits within the week. The mean and median target prices are 8, so I would ideally sell it before it reaches 8, at around 7.8. So for an investment of let's say $3000 I could make around $600 if I am lucky! Lets see.

ICLDW : need to keep a watch, as it has already reached it's high in last two weeks of November. A second peak could be possible.

ADAT: is a buy as well, it has recently reported profits and is a very cheap stock. However, the target currently is $2, which means that it has a significant upper curve in the next few days.


Now that we have listed a few stocks that we have sorted out to watch for the day. we will revisit them, after the market opens, and follow up with strategies used to oversee these stocks.

Tools for Trading successfully : Candlesticks

The term Technical analysis in Finance is primarily used in context to tools which are helpful in forecasting the future prices of a stock. These tools have been used by traders for hundreds of years and date back to the 17th and 18th century. So how can technical analysis be helpful to a current day novice trader? The answer lies in the power of these tools to predict patterns, and help avoid common mistakes and pitfalls, that starter traders so always commit.

Candlesticks are one of the easiest to follow and helpful tools that one can use in day to day trading. However they are more useful in context to day trading, and often do not provide enough support to forecast long term movements. However on days when news is against a stock, and you have discovered other trends that indicate that the stock might be going downhill in the near future, it is best to exit from your trade while making substantial profits. It is at these crucial moments that candlesticks can provide helpful exit points to make your sell. Candlesticks have coloured patterns to depict when the stock is bullish, and when the stock is bearish. However, in addition to these indications, candlesticks also have patterns like a an upper shadow or a lower shadow and of course the length of the candlestick itself which can suggest which direction the stock will most likely be taking in the next few minutes. For ex if you see the diagram below

A strong lower shadow in the shape of a hammer suggests that the stock is most likely to go down from this point. An exit at this point can be contemplated, based on a few other indications from some other very handy tools. Smart Trading often involves going to and forth between these indicators in a few seconds and make a decision to exit or stay in your trade. Don’t be jolted by the timeframe, once you get used to it, it is rather ok to use!

I will be providing further details on candlesticks and other frequently used Technical analysis tools in my future posts. Happy reading!

Trading for a living - Continued

To be able to start trading and make profitable income from it, the first step you will need to do is identify a few financial websites and journals that you may want to regularly follow. To identify a good news and stock analysis resource start with identifying which market you want to trade in. A plausible market would be one which has high volume and reasonable volatility. Avoid high volatility markets and ones with lower volumes. Some markets or exchanges that satisfy the above criteria are the NYSE, NASDAQ, LSE, TSE.

Once you have identified which stock exchange you want to stick to, identify the websites and journals that are usually most preferred for those exchanges. For NYSE and NASDAQ, I prefer to follow yahoo finance and NASDAQ websites.

I also like to read analysts opinions over major stocks and track down recent downgrades and upgrades.

In addition following a live Business News channel can sometimes be helpful as well. I keep my CNBC on when I am trading, to get live news updates.

Now coming to the tools required to start trading, you would need a trading platform like Etrade that would allow you to execute trades online. Do note, that a lot of banks provide you a trading platform when you open a securities account with them. But a customised and professional trading platform can provide you additional features that can come handy. You can also use a broker to execute your trades, but I personally think executing trades using your own platform is a better option.

Once you have practiced trading in a Demo account, opened your own trading account, finalized your trading platform that you will be using, the next step is to finalize your trading strategy and the tools you will be using to help in your strategy. And remember always to try out your strategy first in your Demo account, before you proceed to make actual trades using the strategy. The more you test your strategy, the more robust it is likely to become over time.

In order to come up with a trading strategy it is very important to understand the fundamentals of technical analysis and how it can help you in identifying when to execute your trades. Profitable trading in one sentence is about knowing roughly when to buy and when to sell!

Trading for a living

A lot of people wonder how people can make money in trading, even though they seem to have never figured out how the market moves. Even though stock trading seems to be an insane idea to make money, and generally involves trying to put your foot into a peddle you have no idea about, it is fairly simple and straight forward once you start understanding the market and the more difficult part of when to and when not to take calculated risks to invest your money.

Now knowing the fact that it is possible to make money by trading stocks and perhaps even possible to make a regular income by investing in stocks, the next question that arises in everyone's mind is how is this complex possibility made real. The answer to that is the only way to make money in the stock market is by spending time and effort in understanding the market, and then taking calculated risks and following your investments closely.

The first question that naturally pops is how much time is required to make a regular income by investing in stocks. The answer depends on how much income are you expecting, and would you want it to be a backup to your regular income, or actually and eventually your regular income. If the latter is your goal, you would need to spend as much time and effort as you would in a regular day job, maybe slightly less but, you would still need to be very disciplined in the time and effort you spend. Stock trading from home is like an effective weight loss regime. It requires dedication, discipline, and consistent effort put in to studying and analysing to be able to generate regular profits.

For any beginner, the best way to understand stock trading is to foremost open a demo trading account that allows you to trade live. Remember, experience in Trading Live is important, so choose a demo account which allows you to trade live. For suggestions on good Demo Trading accounts, keep checking my posts, they will soon follow. Recommended time to practice Demo trading is about 2 to 3 months, 5 days a week. This will help you build up your individual trading strategy and allow you more time to identify your weaknesses.

The next step is to gain an understanding of the Financial Status of the company in whose stock you are investing. Such Financial Analysis requires understanding of some of the basic concepts of accounting and being able to read balance sheets o companies, and follow and understand Insider Trading  trends. This takes more time to master and will come gradually as you start trading.

Another very important aspect of trading that you would need to understand is Technical Analysis, and during your practice trading identify some of the technical analysis tools that work for you. There are a host of technical analysis tools in the market. My advice is to stick to the very basic tools and indicators available. Choose a few tools that are effective and simple and easy to use. My favourites are slow stochastic, 5 day stochastic, 5 day and 3 day MACD, and the 5 minute slow stochastic and MACD, and the 5 minute volume indicators. Another important indicator is the candlestick. Another of my favourites are the pivot point calculators which give a fair enough idea of what price the stock is more likely to reach based on the trend.

In addition to the above earnings report, news, and pre market trade patterns are important factors for stock trading as well. The best way to make profitable trades is to trade stocks before and after earnings report to cash in on the market sentiment for the stock. Keep watch for my brief on earning reports and stock rallies in my next post.

On a regular trading day start by looking at most active stocks during pre trade, and list down the stocks that you want to follow for the day based on market volume and most active trades with high volume, and then further shortlist based on any news related to the stock that has been in highlight recently. Also, look out for any insider trades that may have happened in the recent past.