Lesson 1: Advanced Trading And Technical Analysis The majority of investors have an Achilles heel, a fatal flaw that hinders their ability to generate profits. There is an old saying on Wall Street that the market is driven by just two emotions: fear and greed. Although this is an oversimplification, it can often be true. Succumbing to these emotions can have a profound and detrimental effect on investors' portfolios and the stock market. It's difficult to remain devoid of emotion when your hard-earned money is on the line - and the Dow closes down over 1100 points in a single day - but mastering the art of market apathy is the key to investing success. A stop-loss order takes the emotion out of trading decisions and can be useful if a trader is on vacation or cannot watch his or her position. However, in many cases the execution is not guaranteed, particularly in situations where trading in the stock halts or gaps up or down in price. This type of order works efficiently in an orderly market; however, if the market is falling quickly, investors may get a fill well below their stop-loss order price. Price gapping is a major drawback of stop-loss orders and a reason why many experienced investors use stop-limit orders instead of stop-market orders. Stop-limit orders seek to sell the stock at a specified limit price – rather than the market price – once a specified price level gets breached. Although stop-limit orders do not offer investors a perfect solution, they do reduce the risk of a long position selling at a price that is significantly below a stop-market order. Markets are also moving based on the economic news that are released on a timely basis. When trading a currency pair or Forex CFDs, then it should be considered that the currency pair is actually representing two different economies. For example, the Euro-Dollar pair, the most traded currency pair of them all, it is also moving based on the differences between the US and Eurozone economies, so analyzing and interpreting those economies is something what traders do in order to have an educated guess about future price movements. The economic calendar is an important tool in this respect. It is a clear schedule, known in advance and it is free to be found on the Internet as many websites are offering it. There are a lot of things to look at when studying the economic calendar. Firstly, there is the date that the trader is interested in as the economic calendar is not only showing the economic events that are supposed to be released in the future but also the previous ones. So, if you are interested in finding a trend or what the previous data was and looking for a comparison then you can select the period.
There is nothing more important than knowing which currency is influenced. If the news is coming out of the Eurozone, then the Euro is going to be affected so you can expect the Euro pairs to move the most. If the news is coming out of Australia, then the Australian dollar pairs are going to be more active etc... If the news on the other hand is coming out of China, then still the Australian dollar is influenced the most as it is a well-known fact that Australian exports are sent mostly into China. The next thing to look at is of course the previous release, then the forecasted value to be released, and of course the actual result. If the actual is bigger than the forecasted values, that is generally bullish for the currency and depending on the currency pair that is traded, call or put options can be traded. In some cases, reports may hit a stock or the whole industry, or with the oil reports – both the industry and the oil price. It’s highly recommended to subscribe to various economic newsletters to get a daily update sent to your email. Now let’s look at swing trading. Swing trading attempts to capture gains in a stock (or any financial instrument) within an overnight hold to several weeks. Swing traders use technical analysis to look for stocks with short-term price momentum. These traders may utilize fundamental or intrinsic value of stocks in addition to analyzing the price trends and patterns. The trader must act quickly to find situations in which a stock has the extraordinary potential to move in such a short time frame. Therefore, swing trading is mainly used by at-home and day traders. Large institutions trade in sizes too big to move in and out of stocks quickly. The individual trader is able to exploit such short-term stock movements without having to compete with the major traders. The distinction between swing trading and day trading is the holding position time. Swing trading involves at least an overnight hold, whereas day trading closes out positions before the market closes. Day trading positions are segmented to a single day only. Swing trading involves holding for several days to weeks. By holding overnight, the swing trader incurs the unpredictability of overnight risk resulting in gaps up or down against the position. By undertaking the overnight risk, swing trades are usually done with a smaller position size compared to day trading, which utilizes larger position sizes usually involving leverage through day trading margin. In our next videos we’ll be covering the concepts of the dynamic stop and issues and pivot point calculation.