Top Trader_1. Advanced Trading And Technical Analysis

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.