Articles

Most of us have wondered whether a decline in the price of a stock we're holding is long-term or a mere market hiccup. Some of us have sold our stock in such a situation, only to see it rise to new highs just days later. This is a frustrating and all too common scenario. Whilst it can't be totally avoided, if you know how to identify and trade retracements properly, you will start to see improvement in your performance. Retracements Versus Reversals Retracements are temporary price reversals that take place within a larger trend. The key here is that these price reversals are temporary and do not indicate a change in the larger trend. A reversal, on the other hand, is when the trend changes direction, meaning that the price is likely...

It is rare to hear any long discussion of the stock market without some mention being made of the economic outlook. As of Summer 2018, it's safe to say that the economy has recovered to a certain extent from the recession of 2008. What analysts are now wondering about is if the current good fortune is sustainable or if there's another crash around the corner. Given that the economists on business TV seem to live to disagree, what should a regular investor do? Just what should an economic recovery look like? Follow these economic indicators for signs of a recovery. Employment It is difficult to talk about an economy in recovery if people are not getting back to work. There are such things as "jobless recoveries", where there is enough...

When it comes to investing, there is no shortage of theories on what makes the markets tick or what a particular market move means. The two largest factions on Wall Street are split along theoretical lines into adherents to an efficient market theory and those who believe the market can be beat. Although this is a fundamental split, many other theories attempt to explain and influence the market - and the actions of investors in the markets. In this article, we will look at some common (and uncommon) financial theories. Efficient Market Hypothesis Very few people are neutral on efficient market hypothesis (EMH). You either believe in it and adhere to passive, broad market investing strategies, or you detest it and focus on picking...

Can the market predict a recession? A “yes” answer might seem tautological on the surface, but isn’t. A recession is technically a reduction in economic activity, rather than in stock prices. Rephrasing the question a little, is it possible to have, whether in the long term or the short, an environment of low stock prices and high real income (along with high industrial production and employment)? To the first part, certainly not if the population at large is relying on stock appreciation for its remuneration. But given that wages and salaries still make up the bulk of most people’s personal income, a bear market shouldn’t affect said income by all that much. Information, Not Opinions The data isn’t hard to plot. Sustained reduction of...

Part of the learning process is for you to understand the different types of traders. In essence there are two, and these are a fundamental trader or a technical trader. For you to succeed as an online trader you must understand the differences. Both have very different views in the techniques they use to assess market conditions and the direction an instrument may take. Whilst there is some overlap, these are two very distinct methodologies, and you need to be comfortable with one or the other. You will come across this terminology all the time. Whilst there are huge differences in the approach, it is safe to say that most large financial institutions now employ both methods as both have their strengths and weaknesses. Fundamental...

Newton's Third Law of Motion states that "for every action, there is an equal and opposite reaction." Such 'action' can be by direct contact, such as from friction, tension or applied forces. Then you have such 'actions' as a result of gravity, electrical and magnetic. Forces come in pairs. For every action, there is opposite reaction. The size of the reaction is equal to the size of the action. Nature is filled with such evidences of this law. For example, when a bird flies it uses its wings to push air downwards. As a result, the air reacts by pushing the bird upwards. The size of the force on the air equals the size of the force on the bird. The direction of the force on the air is opposite the direction of the force on the bird...

Open interest is without a doubt the least used bit of market data by chart watchers. Conventional wisdom; prices up on increasing O.I. being bullish, is just as often found to be bearish. What I want to show here is the relationship of O.I. and the buying patterns of the Commercials for the Commitment of Traders (COT) report. I'll begin by showing a chart of gold with an indicator I'm sure you have never seen before, a 13 week stochastics of just Open Interest. Yes, this index is simply an oscillator of O.I. What we see is that, generally speaking, low levels in this index are found at market bottoms. Thinking about it makes sense as what it is telling us is there is little interest, open or not, in the market we are studying. I...