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Strategies: Gap Fills

Now that we have discussed the basics of trading, this post will be another addition to the “strategies” series where we will discuss the how-tos of specific strategies. For this post, we will be discussing the gap fill strategy to be used when trading the stock market. Everyday, the regular hours trading session for the stock market opens at 9:30am EST and closes at 4:00pm EST. However, there is also the extended hours session which fewer investors have access to which generally begins trading at 6:00am EST and closes at 8:00pm EST. Very few traders are able to place trades during this time and even fewer actually do. As a result, this time is marked by incredibly low volume in the stock market as compared to the regular trading hours. Because of this, large orders can move the market significantly during this time. For the trader who only uses the regular trading hours session to look at charts, this can create “gaps” in data. A gap occurs when there is a difference between the clos
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Strategies: Moving Averages

In this article I will present one of the technical strategies used by many technical and fundamental traders alike. Moving averages, often abbreviated as MAs, are used as a data smoothing technique and are considered a lagging indicator. Moving averages work by averaging the price fluctuations over a given time frame. The time frame used is referred to as the “period.” Common periods include 14, 50, 100, and 200 period moving averages but these can further be adapted to additional time frames by adjusting the length of one period. In stock trading, the most common length of a period is the day, which means that a 200 period moving average is in this case a 200 day moving average. The 200 day moving average is widely regarded as a very telling indicator in the world of stock trading. In other markets, traders may apply the 200 period moving average to an hourly chart effectively making it a 200 hour moving average. This technique can be used to provide more specific and recent data wh
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Technical and Fundamental Analysis

Now that you have an idea of the capital involved in beginning to trade and the different types of markets available to you, the next step is to identify a strategy to trade with. There are countless strategies available to the beginning trader. Many of these basic strategies can be found readily and for free online. However, it is important to realize any strategy that is widely accepted among the trading community is most likely being overused. Large retail and institutional traders are able to manipulate the markets against the beginning trader using these basic strategies. Because of this, many new traders will find simple strategies that appear to be profitable but once they begin trading live they will find that the strategy actually nets a loss. This is because of market manipulation. This is not to discourage the beginning trader from trying these strategies, however, because every strategy works differently and some may work for others and not for you. There are essentially t
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Choosing The Right Market

Now that we have discussed the basic hardware needed to begin trading and the types of markets available for the beginning day trader, it is time to choose a market to begin trading. This post will be provide a simple approach to choosing the right market for the individual retail trader. The most important factor in determining your options is of course the amount of seed capital you have access too. It is important to note that all capital used for trading should be treated as risk capital, that is money that has been set aside knowing that it could be entirely lost. Never trade with money that you cannot afford to lose. In order to begin day trading the Stock Market, you need $25,000 in order to do it efficiently. This is because of the Pattern Day Trader Rule. The PDT rule limits the number of times a trader can open and close a position within any given trading week. A trader cannot open and close a position within a 24 hour period more than 3 times per 5 day trading week. If thi
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Financial Markets: Futures

The futures market is the oldest of all the financial markets dating back to the year 1710 with the establishment of the Dojima Rice Exchange in Japan. Instead of shares like in stocks, the unit of measurement in the futures market is referred to as a contract. This name is derived from the original purpose of futures markets which was to establish agreements between buyers and sellers of rice in Japan. Essentially, a futures contract allows a buyer and a seller of a physical good to agree to purchase a commodity at a specific price in the future. This is highly useful today in the agricultural sector. Producers of crops purchase futures contracts from buyers of their crops in advance of the harvest so as to hedge against any possible movements in the value of the crop. For instance, if a farmer buys 100 corn futures contracts at an underlying price of $400 that is set to expire after the crop has been collected, he or she has guaranteed the price and quantity of crop to be sold at a
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Financial Markets: Forex

One of the newest financial markets available to the individual retail trader is the foreign exchange market. While the foreign exchange market has been around for a long time, only recently have small retail traders been able to participate in it. The foreign exchange market also known as Forex or simply FX is the single largest market available today. Each day, there is approximately $5.1 trillion that exchanges hands in the FX markets. In comparison to the entire US stock market which trades an average of $100 billion in daily turnover, the FX market is not only the largest but is over 50 times the size of any other market. Because of this, liquidity is never in short supply in the FX market. Investors can rest assure that if the underlying price touches their predetermined values, it is almost certain that their orders will be filled. FX pairs are composed of two currencies represented by three letters and arranged in the pattern XXX/YYY. For example, the largest pair is EUR/USD w
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Financial Markets: Stocks

This article will be the first of a 3 post series that goes into more depth about the different investment vehicles and financial markets available to the retail trader. The most common and well-documented investment vehicle available in the United States is of course the U.S. stock market. The stock market is among the oldest of all the financial markets and has been the preferred method of investment for many years. Stocks, also known as securities, are publicly traded shares of the company that corporations issue in order to raise funds to conduct business. Most people are familiar with the major indices: the Dow Jones Industrial Average, the Standard & Poor's 500, the NASDAQ 100, and the lesser known Russell indices. When you hear on the news that the markets are up or down, generally news anchors are talking about the Dow Jones Industrial Average; also known as the Dow 30 or simply that Dow. The Dow 30 is comprised of the 30 largest US corporations and is the oldest index
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