The Basics of Trading

This is a discussion on The Basics of Trading within the First Steps forums, part of the Reception category; Hi Fluke, It has had a very steep downward movement. I expect a bounce of decent magnitute soon. I certainly ...

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Old Feb 2, 2003, 7:06pm   #36
 
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Hi Fluke,

It has had a very steep downward movement. I expect a bounce of decent magnitute soon.

I certainly wouldn't short at the current price.

JonnyT
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Old Feb 2, 2003, 7:20pm   #37
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JonnyT.

Thanks M8 I would rather make my mistakes here than for real.
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Old Feb 2, 2003, 7:57pm   #38
 
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Excellent post FB. Many a trader has fallen foul of this. The thing is some traders do not relate it to actually trading which is fatal imo.

For all you newbies, I suggest you ensure the above post is understood, and if not, read it again or ask further questions. Do not take the attitude of it being a 'tweaking technique' for attaining profits. It is a fundamental aspect of trading and if you cannot control it -

DO NOT TRADE
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Old Feb 2, 2003, 8:55pm   #39
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Can we please continue with this Risk Reward subject,I would like to see more chart examples showing points on a chart of buying,placing, stop and target.I have just woken up to the fact that this is one of the most important rules to stop me making more loss making trades than winners.Thanks again to JonnyT and Splurge,I have read other articles on this but it didnt sink in until I read the last threads. Very keen to learn more of this .
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Old Feb 2, 2003, 9:44pm   #40
 
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Here's my take on BAY. I haven't done TA on EOD stocks for a long time so don't take this as gospel, but follow the reasoning..... Firstly, one of the powerful TA formations is Negative or Posative Divergence- go look this up in the archives if you don't undertand the terminology.
Secondly, there is a rule that says 'history repeats itself, and each instrument has it's own characteristics'.
So here we have BAY showing Positive divergence in the price. NOW go back in time and see if the price responded in the past to Positive divergence. Answer, yes it did on at least one occaision.- Around Nov 1999 - look back further at your leasure. Notice also there was a responce to Positve Divergence in July 2000.
OK so now we have that bit done. We can assume that the price is now more likely to go up than it is to go down ( Is that a wise assumption in this climate?). OK let's go long, but what about the R/R? The risk is a drop below 100, so that's 14p. Give yourself some breathing space so say 95p....19 p away from 114p. The reward is , worst case, is 141p- downtrend resistance. You CAN'T assume the price will go beyond this value. That's a reward of 27p. So the R/R is 1.5. That's just no good at all , especially as you have a potential BIG drawdown of more than 10% to get to support.
Now here's the crunch. Patience.Why not put it on your "watch list" for a price of 145p? There is a triangle formation that may break to the upside through 150p. At this point we have a viable trade. The risk will be the value of the downtrend resistance line, which after the breakout will become support! This will be in the order of 140p. The reward will be around 190p, horizontal resistance, as drawn. This gives a R/R of 4:1. 10p down , 40p up.
You may think this is tedious, but it will win hands down over the "pin the tail on the Donkey"
An alternative possibility. Go long now, on the basis that the price IS at support, on a minor uptrend. Stop at 105p R/R is 2.5 :1. Not my cup of tea .)
If you didn't read it, take a look at my Dow analysis on Friday under Indicies. The Dow had a nice R/R 8:1 on a triangle breakout.
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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 2, 2003, 10:47pm   #41
 
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FTSE Beater started this thread Hi all.

First things first. Chartman, I can tell it’s been a long time since you traded EOD. Line charts are fine for 1 minute data, but useless for EOD charts - Unless your one of these newspapers who enjoy doing a dot to dot chart on the FTSE 100 to show all the people in the street what has happened

Hi Splurge

Thank you for your kind comments, and for any new traders out there, I think Splurge sums up how important this subject is.

Hi Fluke.

What JonnyT is saying is that the price has dropped quite a way and eventually the selling pressure runs out and people start buying it back up again, and after a major sell-off, you don’t want to be shorting because it could turn at any time. In the short-term it looks like it might bounce, and as Chartman pointed out there is some divergence. Which is something I will be looking at in a couple of weeks time.

Chartman makes a very good point. As I just said, we can’t really go short, and as Chartman says, the risk is too high to go long. We can’t trade BAY at the moment, so we look for a “Safe entry” or a point at which the risk / reward ratio comes into our favour. This is where the waiting comes in, it could take weeks for the price to enter a safe trading zone, but then the markets reward good safe entries, and not the gun-hoe approach.

My personal view on the chart is this.

Click the image to open in full size.

The support level (Which now becomes resistance) is at 130. So say the price hit 130 and started to fall again, to say 125. If you short at 125 then the risk / reward profile looks like this:

Entry Price: 125
Target: 100 (the last low)
Stop-loss: 133 (3 points slippage to give the price space to move around).

Reward: 25
Risk: 8
Giving a ratio 3.125:1


Getting to grips with Risk / Reward is hard, and its something that is not learnt overnight, so if anyone wants help with Risk and Reward, then post up a chart with your view on the risk and reward, and I’m sure someone will have useful comments to add. Remember we are all here to help each other.

Fluke, try your hand at the chart for BOC over the last 7+ months. Post a chart up, and we’ll see how you get on. Remember there is no wrong answer. If you would rather not post up a chart (and this goes to everyone) then feel free to email me at ftsebeater@btopenworld.com , but if you can post a chart up, then others can learn from it as well
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Old Feb 3, 2003, 9:06am   #42
 
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BAY

It's interesting to note my first resistance lines on the first chart
line up with the Fib lines on the second chart.
It looks like a reversal is taking place possibly on the strength of the positive survey carried out by Opodo ,an online travel service,
Bill
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