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Showing results for tags 'techniacl analysis'.
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A major barrier to option trading for the average retail investor is the complete lack of relevant and pertinent information available regarding the intricacies of options. Anyone that has attempted to learn option trading from scratch knows how painstaking a process it can be. Outside of the "online training courses," which typically cost upwards of $1000; the web is somehow void of any option related study materials beyond the absolute basics found on Investopedia and similar websites. (I find it ridiculous that step by step tutorials can be found on how to build a nuclear generator in your garage, yet its nearly impossible to find info on intermediate to advanced combination strategies?!) Intent on learning all the ins and outs of options but lacking the funds to pay for an expensive class, I was led to a place typically dismissed by anyone under the age of 30, the library. Over the past 36 months, I have read every option related book in my state library system, and have scoured online book retailers for any other texts recommended by astute bloggers and other investors I respect. Through much trial and error, I have come to find what works and what doesn't when applying many of the option strategies and theories out there. While no trading vehicle is perfect, it is my belief that options are the best way to trade in this highly volatile, up and down market with which we must now contend. Thus, it is my intention to provide insight and commentary into a world often described as too risky for the average retail investor. To this end, I recently published what I hope to many informative articles on Options trading and welcome everyone take a look, let me know what you think and hopefully foster some fruitful discussions regarding the many intricacies of options trading. This initial article provides an in-depth analysis of a mistake made by many new options traders, paying way to high of a premium for options in the dates just leading upto qtr earnings when Implied Volatility is highest as I demonstrate in the article. In addition, I show how steps can be taken to anticipate and possibly profit from these consistent IV spikes.
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The ADX indicator is a trend indicator. The ADX indicator has three lines: the main indicator line, the +D1 line and the –D1 line. The +D1 and –D1 lines are the signal lines, and crosses of these lines indicate signals with which to take positions. If the +D1 line crosses the –D1 line upwards, a Buy signal is generated. If the +D1 line crosses below the –D1 line, a sell signal is generated. The ADX line itself has readings which fluctuate between 0 and 100. If the ADX line is >40, the signal/trend is strong. If the ADX is <20, then the trend is weak or the market is ranging.
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The 3 simple rules of Elliott wave analysis can help traders manage risk, ride market trends and spot price reversals. EWI's Chief Commodities Analyst Jeffrey Kennedy values the Wave Principle not only as an analytical tool, but also as a real-time trading tool. In this excerpt from Jeffrey's free Best of Trader's Classroom eBook, he shows you how the Wave Principle's built-in rules can help you set your protective stops when trading. Let's begin with rule No. 1: Wave two will never retrace more than 100% of wave one. In Figure 4-1, we have a five wave advance followed by a three-wave decline, which we will call waves (1) and (2). An important thing to remember about second waves is that they usually retrace more than half of wave one, most often making a .618 Fibonacci retracement of wave one. So in anticipation of a third-wave rally - which is where prices normally travel the farthest in the shortest amount of time - you should look to buy at or near the .618 retracement of wave one. Where to place the stop: Once a long position is initiated, a protective stop can be placed one tick below the origin of wave (1). If wave two retraces more than 100% of wave one, the move can no longer be labeled wave two. Now let's examine rule No. 2: Wave four will never end in the price territory of wave one. This rule is useful because it can help you set protective stops in anticipation of catching a fifth-wave move to new highs. The most common Fibonacci retracement for fourth waves is .382 retracement of wave three. Where to place the stop: As shown in Figure 4-2, the protective stop should go one tick below the extreme of wave (1). Something is wrong with the wave count if what you have labeled as wave four heads into the price territory of wave one. And, finally, rule No. 3: Wave three will never be the shortest impulse wave of waves one, three and five. Typically, wave three is the wave that travels the farthest in an impulse wave or five-wave move, but not always. In certain situations (such as within a Diagonal Triangle), wave one travels farther than wave three. Where to place the stop: When this happens, you consider a short position with a protective stop one tick above the point where wave (5) becomes longer than wave (3) (see Figure 4-3). Why? If you have labeled price action correctly, wave five will not surpass wave three in length; when wave three is already shorter than wave one, it cannot also be shorter than wave five. So if wave five does cover more distance in terms of price than wave three - thus breaking Elliott's third cardinal rule - then it's time to re-think your wave count. The Best of Trader's Classroom presents the 14 most critical lessons that every trader should know. You can download the entire 45-page eBook with a free Club EWI Membership. Download the free Best of Trader's Classroom now. This article was syndicated by Elliott Wave International and was originally published under the headline How to Set Protective Stops Using the Wave Principle. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
