By ITMS Education on August 9th, 2010 5:12pm Eastern Time
Over the years I have found myself being gradually refined, on my way from being an amateur to a pro trader. As time passes and I trade amongst beginners, I find more and more differences that stand out. This is the normal progression showing itself in any trader over the course of their trading career. From amateur to pro, each of us will learn a vast amount of rules and lessons. In fact, as a trader you will never cease to refine your technique and learn new lessons. I wish to convey one of the biggest differences and rules I have learned. It is quite possibly the most notable difference I see when discussing a trade with those less seasoned than I.
Throughout the day, I search literally hundreds of charts to try and isolate the best/optimal patterns and setups for a profitable trade. When I glance at a chart my mind is racing through hundreds of pattern, price and time setups to see if one fits a possible trade. The amateur will isolate a chart and the first thing they are thinking about is the profit. This is the key difference with seasoned trader. When I look at a possible trade, my eye is scouting the chart for how much I could lose. I look at the pattern, moving averages, time of day along with many other possible issues. I am looking at my max loss before I even think about the profit. Once I have isolated my max loss and risk of the trade, then I move on to the profitable side to see if the risk reward fits. This is extremely important to do as a pro trader is concerned not what they will make at first, but what they will not lose. Think about it like a parent. A parents eye is scouting a park for possible things their child could hurt themselves on before they let their child go play. Often times an amateur trader is too caught up in the emotion of making money that they will forget to examine the downside risk and focus purely on the upside. This is disastrous.
When I find a trade that looks promising, I do my best to convince myself NOT to buy it. I make myself give 3 reasons NOT to buy this chart. If I cannot come up with any, I may take the position. This mentality is opposite of an amateur. I know this, I used to be one.
Gareth Soloway,
Chief Market Strategist
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By Nicholas Santiago on August 2nd, 2010 3:18pm Eastern Time
Everything is wonderful in the stock universe today. The major market indexes are advancing sharply higher on the back of positive news out of China and the falling U.S. Dollar Index. Investors are even seeing the 10 Year T-Note yield inch higher today to 2.95% indicating that maybe some big fish are taking some money out of bonds today and putting it in stocks. Leading energy names such as Exxon Mobil Corp (NYSE:XOM), and Chevron Corp (NYSE:CVX) are both trading sharply higher as the U.S. Dollar declines to fresh three month lows. Leading commodity stocks such as U.S. Steel Corp (NYSE:X), and Freeport McMoRan Copper & Gold Inc (NYSE:FCX) are soaring higher by nearly 5.0 percent on the session. From the outside this inflation rally looks picture perfect.
However, there is something that is missing from today's large stock market advance; the volume. Today the SPDR S&P 500 Trust (NYSE:SPY) is trading 121 million shares as of 3:00 pm EST. Since the March 2009 low the major indexes have rallied on light volume and declined on extremely heavy volume. This tells us that the true conviction of a bull market is missing. During past years a true bull market moves higher on heavy volume and declines on very light volume. Since 2009 this market has done the opposite and this is why when the corrections occur experienced traders and investors run for cover. Most traders and investors truly feel the the moves to the upside are lacking conviction.
As for now the major stock market indexes have have rallied by more than ten percent since the early July pivot low. This recent rally has been very impressive especially for the many of us that played it and benefited from it. There could still be a little upside left in the tank. However, when markets rally on this type of weak volume you must always be careful because it is truly lacking conviction.
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By Nicholas Santiago on July 12th, 2010 3:20pm Eastern Time
Tonight will mark the start of earnings season when the leading aluminum company Alcoa Inc (NYSE:AA) reports earnings after the bell. Many traders and investors are now suspecting since the April decline in the major indexes that the bar has been lowered for corporate earnings. This is certainly true for many of the leading stocks. However, a very strong case could be made that it is all about the strength in the U.S. Dollar that determines where the stock market goes after earnings. Remember when the dollar declines the stock market indexes usually inflate and when the dollar rallies the opposite happens as the stock market indexes deflate. Take a look at today's action for example. The U.S. Dollar is trading higher by 0.23 to $84.20 and most leading commodity stocks are trading lower. Stock such as U.S. Steel Corp (NYSE:X), AK Steel Holdings Corp (NYSE:AKS), and Cliffs Natural Resources Inc (NYSE:CLF) are all trading sharply lower.
Many traders and investors will agree that this inverse U.S. Dollar and stock market relationship will effect commodity stocks, however, it will not effect technology stocks. That is not necessarily true. The markets all seem to trade together. At times certain sectors or industry groups will trade in their own world, however, the bulk of the sectors will trade in tandem with each other.
Intel Corp (NASDAQ:INTC) will report tomorrow after the bell and this will be the next important earnings release. Regardless of what the company reports and says the reaction from the market will likely be determined by the strength in the U.S. Dollar. Should the dollar continue to slide it is likely that the major stock market indexes will continue to inflate. Watch for the opposite effect to occur should the dollar pop or bounce. At this point I'm not sure that earnings really make much of a difference for the overall market indexes as the movement in the U.S. Dollar really inflates and deflates everything.
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By InTheMoneyStocks.com on July 4th, 2010 6:42pm Eastern Time
The SPDR Dow Jones Industrial Average ETF (NYSE:DIA) lost 4.85 for the week ending July 2nd, 2010. This is a decline of nearly 400 points on the actual Dow Jones Industrial Average index. It is safe to say the trend is down as it has been a violent decline since the April high. Many traders and investors are now looking at the head and shoulders top pattern that has now triggered. The measurement of that pattern should it play out to fruition will be a decline into the $84.00 - $85.00 area. That means that there is another 1000 points to go in order to satisfy this downside target on the Dow Jones Industrial Average index. Often when indexes or stock have such large targets they generally do not play out so quickly and will find support levels for bounces. Currently the DIA will have support around the $96.00 area. The next important support level for the DIA would be the $92.00 area. While the major market indexes look to be falling apart rarely will it occur when everyone is expecting it. Next week is going to be a critical time for the markets. This should be a summer to remember as major patterns and price levels are now in play.
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