from wed 31st Jan


Active member
From the chat room on 31st Jan 2001-01-31

The below does not constitute financial advice is the opinion of the speaker. As always you must do your own research in any stocks or style of trading you use.

shall we do some learning

The stock market operates at several levels, say ftse100, sectors, stocks. Think of the market as if it were the sea, the sea is the ftse or techmark, the sectors are the harbours and the stocks are boats on the harbour.
what happens when the tide goes down,what happens to the water in the harbour
it falls
yep and the boats in the harbour also fall
so when you buy stocks at the moment do you look at the sea and harbour first or do you just look at the stock
Most look at the stock this is a very normal investor method.
If you look at stock first this is called a BOTTOM UP APPROACH
If you do it the other way its called a top down approach
Lots of people look at the stock and never at the sea
so when the sea rises some harbours ( sectors ) rise more than others and so is the same with some stocks
surely they are inextricably interrelated - the stocks and the ftse or whatever
yer but some move better on the rise of tide, what makes them rise better
and also some are helped with the news flow etc
so you can use top down approach to give you a set of strong sectors and strong stocks within those sectors
if you have a list of strong sectors and strong stocks in those sectors you better your chance of rising
so how do we select strong sectors
ok you can do top down using the web for free or pay lots of money to get a software package
i have in the past used this site
we can go through a selection routine if you want
please click on the web address
we sort out strong sectors by comparing the sector with the ftse100
if we do not outperform the ftse we might aswell put our money into a ftse100 tracker
so we need to compare the sectors with the ftse 100
so at the comdirect site select uk sectors
over what period do you use a benchmark
1 yr or 6 months depends on what strenght you want your stock
ok lets try out a sector chose tobacco, click on the chart icon 2nd square in
change the chart to show one year
ok then scroll down to benchmark in extra info part
ok when you got there put in ftse100 as your bench mark and click on update chart
ok so how does it compare
very good, wish I had taken up smoking
favourably i'd say
ok how many people here have ever bought tobacco stocks
not here
when you do this style of analysis it takes away the sentimentality and gives you clear data
ok next part is to go back to main list of sectors should be 3 clicks back
ok nxt to the tobacco sector you see a little box before charts with 6 squares, click it
ok should show all tobacco companys, ok scroll along to far end and click on SHARES TRADED
this will sort out the shares in order of volume.
we do that cos the rule is DO NOT TOUCH stocks that do less than 300k daily vol
unless you like penny stocks and big spreads
other wise you might never get rid of them
ok when you done that click on the chart for the top one BR.AMER.TOB ORD 25P
ok when the chart is up change it to 1yr and then go to benchmark but this time compare it to its own sector.
ok how does it compare to the sector
kind of tracks it but not massively below
ok so we are ideally looking for those that outperform their own sector
but tracking an outperforming sector would still be ok
so at this point we have gained 2 things
1 we know that the tobacco sector currently way outperforms the ftse100
2. that if we go through the stock that do over 300k we can find which are outperforming that sector
this gives you at the end of the process a list of strong sectors and strong stocks
how often do you evaluate sectors
once you have these you should learn their support and resistance
well i use aiq software so i do it weekly but before i got it i used to do this monthly
takes time and gives you a big list but mostly the sectors don't change that much
the point is people if you want to beat the market you have to use analysis
it takes away some of the risk
well this site is good
i use invetsech, i just like the look of comdirect
you don't have to day trade to make good money, sometimes you are better off weekly trades
you must though have an aim say 5% per month so when you make that on a trade get out
sefty You were going to give an insight into resistance and support
ok so what is resistence
This is the level that the stock does not seem to be able to rise through
where the stock reachs a point on the chart where selling moves the price down as volume decreases
yes but remember that the chart is only a map of what is going on.
how do we find it, we look at the price history
when you think of it like that then resistence and support becomes easier to think about
so what is support then
where people find the stock cheap enough to buy
the more times a price hits these two levels the more it is likely to because its history repeating
ok so when you know the support and resistance you know when something is a bargain and when its over the top and should be sold.
for example at the moment Marconi
this stock has a really strong support at 635 mostly bounces of 650
If you know the support and resistance of a stock that way you will pick up bargains now and then
so any questions
stocks such as moni, why the big drop from the stock trading in the 900 to1000, and now it trades in the 650s to 750s, nothing changed fundamentaly
again the tide is falling, you have to look at it in context of market
we all want a bargain
ah, right, its all making sense now
I suppose so,the sector is out of favour, and people are frightened of anyhting tech, although moni is slightly different it suffers
stock always changes thats why you have to constantly watch for change
yes and don't forget the wider economic picture
true, but it is the speed of change which appears a lot faster
yer frightening
it is that which has caught me out
I would love to learn charting, I have read one book and looking for another
well you have to learn to use your knowledge to get rid of the emotions
what 2 emotions drive the market
fear and greed
combat those through knowledge and you will buy when others are panicing sell when others are greedy
not trend be your friend
most traders here use those emotions to make money
also when certain sectors are flying start looking at what is falling for tomorrow they could be your bargains and they will rise
besides picking some winners or saturdays lottery numbers, thanks you have been very helpful
no probs, everyone here is at different levels, we all have started out knowing little all we ask is that if you can help your fellow trader do so

The more you learn the more you earn
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