The Basics of Trading

This is a discussion on The Basics of Trading within the First Steps forums, part of the Reception category; Originally posted by Fluke With SB To open a short position I would sell and To close it, I would ...

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Old Feb 20, 2003, 1:57pm   #76
 
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Quote:
Originally posted by Fluke
With SB To open a short position I would sell and To close it, I would buy.
therefore, you are 'covering your short'.

Covering just means closing.
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Old Feb 20, 2003, 2:04pm   #77
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iSquared and Skimbleshanks.

Thank you both for your prompt reply Thats cleared it up for me.
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Old Feb 20, 2003, 2:53pm   #78
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Hi FTSE Beater, Fluke and iSquared et al

Well, first post here (and first post ever on trading, soÖbig gulp)

FWIW, this is my reading of these charts (hope Iíve understood these candles)

ABF, long, buy 511, target 532, SL 500, R/R 2
Al., short, buy 760, target 720, SL 790, R/R 1.33
DGE. Short, buy 600, target 570, SL 650, R/R 0.6
JMAT, long, buy 740, target 800, SL 700, R/R 1.5

Coming up to speed with this thread but feel the only way to make progress is to publish andÖ

Look forward to hearing from you, Mark.

Regards

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Old Feb 20, 2003, 6:18pm   #79
 
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FTSE Beater started this thread Hi all

Hi SoldierOfOne Ė Welcome to T2W, and straight in the deep end

Thank you Chartman for posting up that chart. Shows exactly what I should have done with my BARC trade

ABF

Click the image to open in full size.

I would put the stop at 498 (below the January support and just below the round number) The target would be the resistance at 545 which was support in September and December Ė which is exactly what iSquared has said.

Fluke, I think you got it spot on. The only change would be the Stop loss, as round numbers often offer support or resistance, but thatís a minor point at best.

SoliderOfOne. With regards the Stop, I think the same applies to you as Fluke. I think the target of 532 would be great if you were trading intra-day, but for End of Day trading you need to look for more major resistance. Iíll be hopefully looking into that over the weekend.


AL.

Click the image to open in full size.

Fluke, we agree with each other. Stop at 792 (above the last recent high) and the target of 648, as that is the January low.

ISquared. I can see why you set your stop at 801, but I feel if it broke out of recent high, then 801 would soon get taken out. The profit target was good though and a RR of 7.9 is great.

SoldierOfOne, a great place for the stop-loss. I feel think the same applies as before, the target could be a little further, but for a short-term target, I would agree 720 is the next stop


DGE

Click the image to open in full size.

Everyone said 650 as a stop which is great
The target is the difficult thing with this one. I would be tempted to say no target and just see what mid-air support it finds. If on the current chart you canít see a logical target, then you need to see a longer time frame. Even when you do that though the only support I can see is at sub 400, but at those levels bargain hunters come into buy the stock up Ė so itís a tricky one that one.

JMAT

Click the image to open in full size.

Click the image to open in full size. Oh sorry Ė fell asleep looking at this chart.

The main problem is that it is just drifting, with no clear direction. I agree with SoldierOfOne. Iíve put the target and stop on the edges of the range, but if I found myself in this trade I would be looking to get out as iSquared pointed out.

Fluke. I think your right to set a tight stop, and just find the nearest exit door.


MKS

Click the image to open in full size.

This is an interesting one because it is coming upto what would have been itís profit target at 280. At this point I would be looking to narrow the stop, and get out at the first sign of a bounce off 280 (maybe with the view to short again after the break-out)

Fluke Ė I think your right, but then you end up with a poor R/R. 318 would be a good stop if you think that 280 will fail to hold.

iSquared I agree with you on this one, and Iíll make sure I cover target setting this week.


Well thatís how I see these charts. I hope my criticism came over as I might it, which is purely constructive. There are no right or wrong answers and I would like to thank SoldierOfOne for being brave enough to post up their views.

Thank you to those who posted and the next lesson on target setting is in production.

Take care,
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Old Feb 20, 2003, 8:06pm   #80
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Mark.
Thanks for your valuable tuition on R/R,I am learning how to put it together now and using this on my Sharescope charts.
Its practice. practice. practice.from now on.
Looking forward to you next lesson
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Old Feb 20, 2003, 9:23pm   #81
 
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I agree - beginners board

TC

I agree with your comments re: "THIS IS SUPPOSE TO BE A BEGGINERS FIRST STEPS".

I rate myself as not even a beginner, so am looking to threads like these to learn a few things. After not even half way through I am met with phrases like Risk/Reward, protective stop, cup and handle, BillG's nice but SCARY Sharescope chart, and many other terms.

As a beginner looking for an introduction to these concepts I was expecting something more basic. FTSE Beater please continue with your approach, its very helpful. The other folks wanting to contribute perhaps a small suggestion for others like me who are keeping quite and trying to read through this lot. Why not define any new concepts/terms before using them. This way more of us will benefit and follow your discussion. Perhaps other threads can be used for the more advanced trader if you feel you must discuss in a more technical vein.

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Old Feb 20, 2003, 11:09pm   #82
 
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"therefore, you are 'covering your short'.

Covering just means closing"

Ok, so by the same logic would 'covering your long' mean closing a long position, or does the jargon only apply to shorts
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Old Feb 20, 2003, 11:48pm   #83
 
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The word 'covering' tends to apply to shorts only.

You 'close' a long, but 'cover' a short - in both these cases you are closing your position to make you flat. If you are flat it means you do not have a position (trade) open.

In the chat rooms people tend to say "cover at 837.5 for +1". So that tells you that they were short, and have closed their short at 837.5 for +1 point. And "close at 837.5 for +1", so you know they were long and are closing their trade at 837.5 for a gain of one point.
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Old Feb 21, 2003, 10:12am   #84
 
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For the sake of completeness, perhaps I can add my own two penn'orth on short covering. As previously explained, a short position involves selling shares you don't own with a view to making a profit on a fall in price. Eventually you have to give them back to the original owner, which means buying them in the market at the price then prevailing. Obviously the hope is that you buy them back for less than the price at which you originally sold.

When you buy a share, the maximum at risk is the price you paid. If the share goes to zero, then you have lost your initial stake, but no more. With a short position, risks are unlimited. So you may sell at a 100 in the expectation that the price will fall to 80, giving you a profit of 20. If the price starts to rise, there is no limit as to how far it can go. Share prices can double quickly (particularly after a prolonged fall). A takeover bid may come in which raises the price. So you may sell for 100, which drops 100 into your account - some of which will be needed to buy back ("cover") later, but if the price rises to 1000, then you have a loss of 900 - hence the derivation of the expression "don't get caught short" - nothing to do with toilets!

After a prolonged fall, those holding shorts may feel that it is time to take their profit, so they "cover their shorts" by buying in the shares they have shorted so that they can be returned to their original owner. This buying can push up prices, and those who remain short see their profits decline, so they also decide to cover, increasing the buying volume, and accelerating the price rise. A rise in prices may be read by those not already in the market that a recovery is in place and these investors/traders may also start to buy, adding to the wave of buying from the covering shorts. This goes some way to explaing why initial recoveries can be so dramatic. One minute you have investors selling shares they hold, and there are also traders short selling, and no one buying. Then traders start to cover their shorts, genuine buyers also come in, and everyone who wants to sell has already sold. Short covering + genuine buyers + no sellers = a price spike up.

A sudden rally in prices due to short covering can be frantic, and is known as a "short squeeze". Market Makers may mark up prices if they know that there are a large number of short holders of the stock to shake them out. The big question when these rallies take place is whether it is just due to short covering - in which case once the shorts have closed their position the buying will dry up and the liklihood is that the share will revert to the original trend - or has the rally been caused by new buyers, in which case the buying may continue leading to a sustained rise in price.
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Old Feb 21, 2003, 10:13am   #85
 
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FTSE Beater started this thread Hi NastyItch.

Thank you very much for your post, it gives me an idea of who is reading and what issues need tackling.

I'm sorry for not explaining the terms better, and from now on I will make sure I do so. In the mean time, these are the terms you were asking about.

Risk/Reward - The risk is the amount your prepared to lose. The Reward is the reward you expect to get if the trade goes your way. If you then divide the Reward by the Risk you end up with a RR or Reward/Risk ratio - It's mainly used to get your mind to see if the trade your entering into carries to much risk for the reward, in which case the trade shouldn't be traded. After all you wouldn't buy a car that had mechanical problems as the risk of it breaking down is too high.

Protective stop - This is linked to a stop-loss. The stop-loss is there to say if the price goes against me this much then "I'll get out - It's already cost me too much" - The protective stop is normally set a long way from the price and is used as an Emergency stop loss to protect against big disasters. For one reason or another, it's really not worth having a protective stop - but a Stop-loss is vital!!!

cup and handle - This is a charting pattern. The best explanation I found is http://www.investopedia.com/terms/c/cupandhandle.asp
This is what the pattern looks like
Click the image to open in full size..
It really is an advanced pattern and something I might cover later on.

Hope this Helps
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Old Feb 21, 2003, 11:06am   #86
 
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Thanks FB

It all helps, and starts to tie in with stuff I'm reading in Murphy.

Ta also to RogerM and Skimbleshanks for their explanations. I always wondered what longs and shorts meant (other than the one covers the other on my legs) I SEE SOME LIGHT, FAINT BUT APPROACHING!!!

NastyItch
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Old Feb 21, 2003, 11:17am   #87
 
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Beware the light at the end of the tunnel.............. It could be someone bringing bad news...
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The views expressed here are my personal views and for your information only. Any expression of likely movement of a share is merely guesswork and is to be treated as such.This information must NOT be used as a basis for making any investment decision.
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Old Feb 21, 2003, 11:21am   #88
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Thanks again to every one that replied to my question Re "COVER".
At first I thought it was a stupid question and sat on it for some time.Hope it helped others to understand the meaning of COVER.

RogerM.

I thought your explanation was exelent.I never really understood how covering shorts produced a bear squeeze etc .

.
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Old Feb 22, 2003, 8:24am   #89
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Here is my input to see if it might help.

The UK market shuts at about 4.30pm and it has a natural tendency to see what the US is doing in the afternoon and copy it.However the US market continues to trade until 9pm gmt and many strong moves can happen in the last section of the US day only to be reflected by market makers when the UK opens the next day.This can make it quite difficult for UK traders to hold positions over night.

The basics of trading can be used on any market, many feel that its worth looking at the US because its a leader and not a follower.We only make money if a stock moves and one market where this is very prevalent is the Nasdaq market.An electronic market that can be traded from anyones pc anywhere in the world.A market that has big names like Microsoft and Intel amongst its leading companies.

I enclose a chart of a large Nasdaq stock and you will see that it moves over 100% from October into November.

Where can you view the charts for these companies?There is a company like Sharescope that gives end of day data. www.tc2000.com I enclose a sample of their charting package that costs about $29/month.
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Old Feb 22, 2003, 11:26am   #90
 
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For anyone contemplating trading the US, TC2000 is a great value package for $29 (about £20) per month. You can easily pay that just for data with other packages, and it contains some great screening tools. If you send off for the CD, its free, and you can play with it as long as you like. It only starts to cost once you activate your account to update the data - so you can play with the full range of shares/indices using the historic data on the CD rather than a watered down version as is the case with many other packages.
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