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Stock Charts

Two Chart Reading Tips to Increase Profitability

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You NEVER want to enter a long trade just because of what an indicator says like RSI in an oversold catefory or just because the market is in an uptrend.

You want to have additional “supporting evidence” to give you the signal, to enter the trade. Think of it as having a great supporting cast for a great movie, like the Godfather. The supporting casts helps make the movie what it is in addition to the main actors.So back to our example, this “supporting evidence” like a “supporting cast” you want to look for on a chart is known as, Confluence.

Confluence is when two or more factors give the same trading signal. E.g. The market is in an uptrend, and price retraces to an area of support and the RSI is pointing higher.

Going back to one of the many stocks we’ve posted in the Swing Trade section, we’re going to take a look at the success of the stock INSY. We’ll use this as an example to show confluence across 3 different time frames. The 3 different time frames are Daily chart, the 4hr chart, and the 1 hr chart. We point out 2 – 4 signals on each time frame that would meet the confluence guidelines

we’ve listed to follow below:

Here are two guidelines for you:

1. Not more than four confluence factors

– The more confluence you have, the higher the probability of your trade working out. But…

– In the real world, your trading strategy should have anywhere between 2 – 4 confluence factors.

2. Do not have more than one confluence factor in the same category

– If you’re going to use indicators (oscillators) to identify overbought/oversold areas, then use that only.

– Don’t add Stochastic, RSI and CCI because it’ll leave you with analysis paralysis.

Remember stay Seeking Value, Investors!

Buy Stocks

Are You a Buyer or Seller?

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The chart illustrates how supply and demand translates into price movements. The first upwards move at the beginning of the chart, accompanied by that up arrow, is the result of demand exceeding supply for this security. To put it in practical terms, the total volume of buy orders was greater than the total volume of sell orders, which is causing the price to move up. Regardless of their reasons, the sellers did not have the confidence to enter into the market at that time. They probably felt that the price of this security is not in accordance with their evaluation of the latest fundamental news and it should be priced higher. Only then they will enter the market, creating a supply and they did that in the area marked with a rectangle. They entered the market increasing supply and causing the price to stop its ascent, as a result. This area where the price is moving sideways, shows that the market has found a balance, the supply is matching demand.

The market has met its purpose to facilitate trading between buyers and sellers. At this point, both buyers and sellers are in accordance that this price area is fair for this security and neither is interested in stepping into the market to push the price higher or lower. They feel content with keeping the price in that confined area, with the buyers stepping in only as much as it takes to keep the price from falling below the lower boundary of this area, and the sellers entering at the higher boundary of the area, to push the price back inside.

It is important for you to understand the following: the buyers and sellers that I speak of and that behave in this manner are not individuals like you and me. In any given market, there are two types of traders, short term traders and long term traders. The short term traders are mainly retail individual traders like you, me and many others. Short term traders like us engage in trading with one thing in mind. To speculate the market. We make trading decisions based on the short term timeframes, we do not really care about the weekly or the monthly trend. We do not make trading decisions based on the underlying fundamentals of a stock or foreign exchange pair. Some of us read the news, avoid trading when important news come out, some even try to trade the news. We use the news in a speculative way, we avoid trading when they are released but, I think it is safe to say that the the impact fundamental news has on our trading stops here. We do not make trading decisions based on the news. The only thing we are really interested in is turn a profit from speculating market imbalance. We do this by analyzing the market from a technical point of view, in the hope of finding a solid trading opportunity. We wait patiently for the opportunity to present itself, we act on it to make a small profit hopefully, exit and repeat the process.

Then there is the long term trader. And he does care about the markets health. He has open long term positions in stocks in the market. He, this long term trader, is actually an investment fund with large amounts of capital at his disposal. He is looking to invest on a long term basis as he sees fit, in order to keep the capital growing bit by bit each month, to keep his clients satisfied. He operates with large trading volumes, as opposed to you and me. He will suffer direct losses if the market falls, so he decides to sell the stocks and close his open positions. He will maybe decide to take that capital and invest it in gold securities until the market becomes more stable. When the uncertainty returns to a normal level he will close all or part of his gold positions and buy securities of companies again, at a much lower price this time. The long term traders are the banks and all the other large financial institutions. These are the ones that move the market due to their large trading volumes. They do analyze the markets from a fundamental point of view and they adjust their open positions based on this analysis, they distribute their investment capital in a way that will minimize risk and maximize returns. They are very interested in the overall status of the market because they are in the front line, their capital is exposed to risk, they will suffer direct loses if they do not have a bird’s eye view of the market at all times. This is why they usually keep to the higher timeframes, to see the big picture.

Having read all of the above regarding short term and long term traders, looking at the chart, what type of behavior do you observe there? It’s the long term traders who have the power to move the price up or down, and it’s the long term traders who decide to keep the price confined into a sideways motion. They are the ones with the huge trading volumes, and the trading volume is what moves the stock. You and me, we do not have any impact on the price movements whatsoever. Making the connection with the price movements on the chart above, the long term traders decided that the price should be higher at the beginning of the chart on the left. The long term buyer entered the stock creating demand while the long term seller stayed on the sidelines. He will enter the stock to sell at a more advantageous price for him. Why should the seller make his appearance earlier? He has read the same news as the buyer and he made the same fundamental analysis. Both long term buyer and seller agree that the price should be higher. This type of behavior is what generates the price movements you see on your charts. Throughout this book, whenever I will discuss about buyer and seller behavior, you will now be aware that I am talking about the long term traders. They are the ones who move the markets, it makes all the sense in the world to study their behavior, observe how price moves as a result of their actions, and formulate concepts, rules and strategies to follow what they do, to be in the same boat as them.

We have to discover their footsteps and follow them. This is the main idea behind the price action concepts and strategies I will be presenting throughout this book. With respect to this chapter, we are especially interested in price movements like that in the above chart, emphasized by the rectangle, because this is where fair value of price is born. You will see shortly what exactly fair value is, how to correctly mark it, and how much insight it can provide when making trading decisions. Back to the chart, after price has moved sideways for quite a while, it finally breaks to the downside.

This is shown on the chart by the down arrow that accompanies the down move of price on the right of the chart. Supply has exceeded demand causing the market to move down, seeking buyers so that it can again facilitate trading between both parties. Price will go down until demand will be met or, in other words, until it sparks buying interest, which will result in increase of buying orders for the security.

Damir, Laurentiu. Price Action Breakdown: Exclusive Price Action Trading Approach to Financial Markets (p. 15 – 21). Laurentiu Damir.

Buy Stocks, Investing Strategy

Choosing a Broker that’s Best for YOU!

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There’s never been a better time to be an investor: Competition among online brokers is fierce, which means costs are coming down and services are being ramped up.

But picking the right online brokerage comes down to your individual priorities. Some investors are willing to pay higher trade commissions for a state-of-the-art platform; others count costs above all else. Here’s how to find the best online broker for you.

Choosing the best online broker

To decide on an online broker, you should look at the following factors:

  •     Commissions
  •      Account minimum

Account fees

Your trading style and tech needs

Promotions

Look at commissions on the investments you’ll use most

Online brokers generally offer a similar menu of investment options: individual stocks, options, mutual funds, exchange-traded funds, and bonds. Some will also offer access to futures trading and forex (currency) trading.

The investments offered by the broker will dictate two things: whether your investment needs will be satisfied, and how much you’ll pay in commissions. Pay careful attention to the commissions associated with your preferred investments:

  • Individual stocks: You’ll typically pay a per-trade commission of $4 to $7. Some brokerages also offer per-share pricing.
  • Options: Options trades often incur the stock trade commission plus a per-contract fee, which usually runs $0.15 to $1.50. Some brokers charge only a commission or only a contract fee.
  • Mutual funds: Some brokers charge a fee to purchase mutual funds. You can limit mutual fund transaction costs or avoid them completely by selecting a broker that offers no-transaction-fee mutual funds. (Mutual funds also carry internal fees called expense ratios. These are charged not by the broker, but by the fund itself.)
  • ETFs: ETFs trade like a stock and are purchased for a share price, so they are often subject to the broker’s stock trade commission. But many brokers also offer a list of commission-free ETFs. If you plan to invest in ETFs, you should look for one of these brokers.
  • Bonds: You can purchase bond mutual funds and ETFs at no charge by using no-transaction-fee mutual funds and commission-free ETFs. Brokers may charge a fee to purchase individual bonds, with a minimum and maximum charge.

Pay attention to account minimums

You can find highly ranked brokers with no account minimum, including TD Ameritrade, Merrill Edge and Ally Invest.

But some brokers do require a minimum initial investment, and it can skew toward $500 or more. Many mutual funds also require similar minimum investments, which means even if you’re able to open a brokerage account with a small amount of money, it could be a struggle to actually invest it.

Watch out for account fees

You may not be able to avoid account fees completely, but you can certainly minimize them. Most brokers will charge a fee for transferring out funds or closing your account. If you’re transferring to another broker, that new company may offer to reimburse your transfer fees, at least up to a limit.

Most other fees can be sidestepped by simply choosing a broker that doesn’t charge them, or by opting out of services that cost extra. Common fees to watch out for include annual fees, inactivity fees, trading platform subscriptions and extra charges for research or data.

Consider your trading style and tech needs

If you’re a beginner investor, you probably won’t need extras, like an advanced trading platform. But you may want an education and a little hand-holding. This could include videos and tutorials on the broker’s website, or in-person seminars at branches. Many brokers offer these services free to account holders.

Active traders, on the other hand, will want to look for a brokerage that supports that kind of frequency. That includes weighing a broker’s trading platforms, analysis tools, research and data offerings in addition to commissions — including discounts for high-volume traders — and fees.

Plenty of high-quality online brokers offer access to trading platforms, tools and research for free, so beware of brokers that nickel and dime each feature; those costs can add up quickly.

Take advantage of promotions

Online brokers, like many companies, frequently entice new customers with deals, offering a number of commission-free trades or a cash bonus on certain deposit amounts. It isn’t wise to choose a broker solely on its promotional offer — a high commission over the long term could easily wipe out any initial bonus or savings — but if you’re stuck between two options, a promotion may sway you one way or the other.

This content was created by: Arielle O’Shea of Nerd Wallet – Updated September 12, 2018

Investing Strategy

10 Percent Compound Theory…

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What is the 10% compounding theory?
First I’ll give you an example. When investing in a retirement account, lets say you put 10k into a 401k or a Roth IRA account. Lets also say that over a given period of 20 years, if you contribute 2k annually, with a nice 5% return annually, over the course of 20 years that 10k could be potentially 95,971.48! Not bad for a 10k investment wouldn’t you agree! Many investment advisors use examples such as ones like I just mentioned to get people to investment in the markets for individuals retirement. How does 10k with a annual 2k contribution turn into almost 100k in 20 years? Well it’s the compounding interest theory!

By definition, it is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the principal sum plus previously-accumulated interest. That is how 10k turns into almost 100k in 20 years’ time frame. Now, here comes the twist. What if you applied this same principle using the number in years as the number of successful trades in the stock market with the same amount of initial funds, and the same amount contributed annually to your personal investment account. For example, you have 10 successful trades a year, with each trade netting you 5% each trade. Now you’ve just accomplished 20 years of work in just 2 years! NOW do I have your attention?!

There’s a saying, “How do you eat an elephant, one bite at a time” translating to the investment world, “How do achieve substantial capital for retirement, one successful investment at a time!” Essentially what people need to realize is the road to a great financial future can be achieved using some of the same principles that have worked for years, however applying them to suite your needs. With the stocks that are provided at Seeking Value Investor, this very same goal can be achieved by investing in the recommended stocks we provide and with a little time and patience, before you know it, you’ve eaten that ENTIRE ELEPHANT (YOUR retirement goal) in the room, one bite at a time!

There are literally hundreds of stocks that move 5% within a month’s time, and that’s being conservative. Let’s bump things up a notch, and apply the same principle however this time, let’s look for a 10% return instead of the 5% return used in the example. The stocks that are provided to here will have the ability to net you a 10% at the very least! Everyone’s investment risk tolerance is different, however this is a principle that can work for the aggressive investor or the passive investor. In the end, you both reach your destinations in almost less than half the time you originally planned for. This does not take into account the tax implications that are involved with whichever account you choose to use for your investing, so we recommend that you contact a tax professional for more information pertaining that subject.

View the many stocks listed in the investing section, see which investment is right for you today!

Stock Charts

1 Secret to Improving Chart Reading

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Every technical trader (those who make decisions based on price charts, as opposed to fundamentals) trades a slightly different way. Yet the thousands of different strategies that are used can typically be classified into several major categories. There are price action traders, indicator traders and traders who use both price action and indicators. There are also other types of strategies, such as seasonality, order flow or statistical strategies.

Price action trading is one of the simplest forms of trading to learn, and one of the most effective. If you are new to trading, learning price action trading is a great starting point.

What Is Price Action Trading
Price action trading is basing trading decisions on the price movements of an asset. Indicators or other methods of analysis are not used, or given very little weight in the trading decision process.

A price action trader believes that the only true source of information is the price itself. If a stock is going up, that tells the price action trader that people are buying. The trader will then assess, based on how aggressive the buying is, whether it is likely to continue. Price action traders don’t typically concern themselves with “why” something is happen.

Using historical charts and real-time price information (such as bids, offers, volume, velocity and magnitude) the price action trader looks for a favorable entry point.

Types of Price Action Strategies
There are many price action strategies. A very common price action strategy is called a breakout. When the price of an asset has been moving with a certain tendency, when it breaks that tendency it alerts traders to a new possible trading opportunity.

For example, assume a stock is trading between $11 and $10 for the last 20 days. Finally, the price moves above $11. This is a change in tendency, and alerts traders that the sideways movement is possibly over, and that a move higher, possibly to $12 (or higher) is starting. Breakouts occur from many different types of patterns, including ranges (discussed above) triangles, head and shoulders and flag patterns.

A breakout doesn’t mean the price will continue in the anticipated direction, often it doesn’t. This is called a false breakout, and also presents a trading opportunity in the opposite direction of the breakout (see Day Trading False Breakouts).

Breakouts can be small or large. Watching for small consolidations (short periods where the price moves sideways) breakouts during a trend can provide excellent profit potential, as discussed in How to Day Trade Stocks in Two Hours or Less.

There are also price action strategies based on how price bars form on a particular type of chart. For example, when using candlestick charts there candlestick strategies, such as the Engulfing Candle Trend Strategy.

Related to all the above, traders use support and resistance regions that could provide good trading opportunities.

Support and resistance are areas where the price has tended reverse in the past. Such levels may once again be relevant in the future.

Benefits and Drawbacks of Price Action Trading
Once you know a price action strategy there is little research time required. You find an asset with the specific price conditions you need, or you wait for those conditions to develop. Another benefit is that you often get more favorable entries and exits compared to many indicator based methods. The reason is that indicators are based on price, but lag behind it. By simply focusing on price you get the information in real-time, instead of waiting for a lagging indicator to give you information.

A drawback is that price action strategies are typically hard to automate. That means you’ll need to sit and watch for patterns to develop and manually trade them yourself.

This isn’t a problem for most people, but if you had hopes of creating a trading robot that could trade for you, many price action strategies do not lend themselves well to that.

Price action isn’t perfect. Just as you’ll have losing trades with other types of trading strategies, you will have losing trades using price action as well. Even though in theory price action sounds great, we can only know what the price has been doing up till we get into a trade. If price was moving higher, and we buy, the price could start to drop shortly after. Such circumstances are unavoidable. The only thing that matters is that you win more than you lose. Learning to do that takes time and practice.

Final Word on Price Action Trading
Price action trading is something all new traders should learn. Learning to read and interpret how a price chart is moving is a trading system on its own, or can help you if you decide to implement other analysis tools such as statistics, indicators or seasonality. There are many price action strategies, but you only need to learn one to start. Become profitable with it before trying to learn more strategies. Price action trading doesn’t guarantee profits; it is a great trading style, but takes time and practice to learn…this is true of all trading styles though.

This content was created by: Cory Mitchell of The Balance – Updated November 27, 2015