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This is a discussion on Stock Market within the Trading Systems forums, part of the Trading Forum category; 10 Price Action Tips That Will Make You a Better Swing Trader Tip #1. Identify support and resistance levels This ...

          
   
  1. #1
    Senior Member ArticleMan's Avatar
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    Stock Market

    10 Price Action Tips That Will Make You a Better Swing Trader

    Tip #1. Identify support and resistance levels

    This is a no brainer. Identifying support and resistance levels is one of the first things you learn in technical analysis. It is the most important aspect of chart reading. But, how many traders really pay attention to it? Not many. Most are too busy looking at Stochastics, MACD, and other nonsense.

    Tip #2. Analyze swing points

    Swing points (some call them "pivot points") are those areas on a stock chart where important short term reversals take place. But not all swing points are created equal. If fact, your decision to buy a pullback will depend upon the prior swing point. Here is an example:



    Look at the area that I have highlighted in green. You may have considered buying this pullback. Now look at the prior swing point high (yellow highlighted). There are two problems with buying this pullback. First, there isn't much room to work with! The distance between the pullback and the prior high is too small. You need more room to run so that you can at least get your stop to break even.

    Tip #3. Look for wide range candles

    Wide range candles mark important changes in sentiment on every chart - in every time frame.

    Tip #4. Narrow range candles lead to explosive moves

    Narrow range candles can also tell you that a reversal is imminent. This low volatility environment can lead to explosive moves.

    Tip #5. Find rejected price levels

    On candlestick charts, lower or upper shadows on candles usually means that there is a hammer candlestick pattern or a shooting star candlestick pattern (if the shadow is long enough).

    Tip #6. Learn the 50% rule

    How can you tell if a candle is significant? Easy. Look to see how far it has moved into the prior days range. If it moves at least 50% into the prior days range, then it is significant. And, it is especially significant if it closes at least 50% into the prior days range. This usually shows up on the stock chart as a piercing candlestick pattern or an engulfing candlestick pattern.
    Here is an example:



    All of the important reversals in this stock happened only after a candle moved at least 50% into the prior days range (some moved much more than 50%).

    Tip #7. The gap and trap price pattern

    All gaps are important "tells" on any stock chart. But, there is one type of gap that is especially important when analyzing price action (and pinpointing reversals).

    Tip #8. Measure the depth of a swing


    Tip #9. Consecutive up days and consecutive down days

    Stocks will reverse direction after consecutive up days or down days. So, it pays to keep this in mind when you are looking to buy or short a stock. Here is an example:



    You should always look to short a stock after consecutive up days. And, you should look to buy a stockafter consecutive down days. This is counter intuitive for new traders because they tend to associate a stock going down as "bad" (meaning sell) and a stock going up as "good" (meaning buy). In fact, it is just the opposite!

    Tip #10. Location of price in a trend

    You have heard the saying, "The trend is your friend." I say, "The beginning of a trend is your friend!" That is because some of the best moves occur at the very beginning of a trend...


    This stock broke out (horizontal line) from a double bottom (circled). A new trend has begun. So, you want to buy this stock on the first pullback (arrow) after the breakout.



    So, there you have it. These price action tips and tricks will make you money in the stock market.

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    The 3-Step Method That Predicts a Change in Trend 80% of the Time

    The 3-Step Method That Predicts a Change in Trend 80% of the Time

    In the book, Trader Vic - Methods of a Wall Street Master, Victor Sperandeo gives three steps for identifying a change in trend.

    This three-step method will help you avoid losing trades and find great trading opportunities. It correctly predicts a trend change 60 to 80% of the time.

    The three steps are:
    1. A trendline is broken.
    2. There is a retest and failure.
    3. Price falls below the prior low

    These three steps define a stock that has moved from an uptrend to a downtrend. Learn these three steps and you will never trade on the wrong side of the trend again.

    Let's take these one at a time:

    Step 1. A trendline is broken



    This chart shows that the trendline has been broken. The trend has not changed yet. Stocks will often break a trendline and then continue to move in the direction of the prevailing trend. At this point we are concerned about the trend - but we do not know if the trend will change.

    Step 2. There is a retest and failure



    We know that a stock in an uptrend makes higher highs and higher lows. When a stock fails to do this, we should be begin to question the trend. This stock has now tested that prior high - and failed. So, this stock is no longer making higher highs. But, it is not making lower lows either!

    So far, there is no confirmation that the trend has changed.

    Step 3. Price falls below the prior low



    This stock has now fallen below the previous swing low. We now have confirmation that the trend has changed. Why? Because this stock is now making lower highs and lower lows. And that is the definition of a downtrend!

    This trend change example shows a stock moving from an uptrend to a downtrend. What about a stock that moves from a downtrend to an uptrend?

    It's reversed:



    It's official. This stock is now in an uptrend because it is making higher highs and higher lows.

    How does this help you as a swing trader?

    First, you want to be cautious of swing trading stocks after a trendline break. You can still trade them but watch carefully to see what happens next. If there is a retest and failure, the trend might change. If the trend does change, then you might consider trading it in the opposite direction.

    Second, you want to trade stocks that are at the beginning of the trend because these stocks have the most potential for explosive moves.

    How do you find these stocks?

    You can use a moving average crossover scan to help you find stocks that are at the beginning of a trend. Here is an example:



    The 10 period moving average has just crossed down through the 30 period moving average. This stock has the potential to change from an uptrend to a downtrend. But, we won't have confirmation until we see if it falls below that prior low (rule 3).

    Using Trader Vic's 3-step method will help you find winning trades and avoid losing ones.

    Memorize it, and you will be able to spot trend changes instantly just by glancing at a stock chart.

    Master it, and you'll be able to jump onto a trend...long before the crowd does.

  4. #4
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    10 Reading - Bull Market in Stocks Is Well, Your Brain on Money, China’s Gold Stash, Top 100 Highest Grossing Restaurants, and more

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    • The Bull Market in Stocks Is Alive and Well (Barron’s)
    • The Mystery of China’s Gold Stash May Soon Be Solved (Bloomberg)
    • This is what legalized pot looks like in New York (Crains)
    • This Is Your Brain on Money: How Investors Trip Themselves Up (WSJ) but see Mom-and-Pop Traders Went on a Buying Binge During Friday’s Market Plunge (Bloomberg)
    • Is T.J. Maxx the best retail store in the land? (Fortune)
    • The Top 100 Highest Grossing Restaurants In America (Celebrity Net Worth)
    • Data Is the New Middle Manager: Startups are keeping head counts low, replacing them with a surprising substitute for leaders and decision-makers: Data. (WSJ)
    • The end of Moore’s law (The Economist)
    • 11 images that capture the incredible vastness of space (Vox) see also Astronomy: The Size of Stuff (Astronomy Central)
    • Every snide joke you’ve told about Ringo is wrong: The least-celebrated Beatle is finally getting the respect he deserves (Salon)

    What are you reading?

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    Weekend Reading - enigma of Satoshi Nakamoto, Silicon Valley is a big fat lie, can civilisation reboot, and more

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    • Here’s How to Make Millions as an Art Forger (Bloomberg)
    • Decoding the Enigma of Satoshi Nakamoto and the Birth of Bitcoin (NYT)
    • Can Algorithms Form Price-Fixing Cartels? (New Yorker)
    • Silicon Valley Is a Big Fat Lie, veering toward fall-of-Rome territory. (GQ) see also VCs Take the Media (The Baffler)
    • The Robots Are Winning! (NY Review of Books)
    • The Untold Story of Industrial Light & Magic (ILM), a Titan That Forever Changed Film (Wired)
    • The US has space experts worried about an extra-terrestrial land grab (Quartz) see also The Democratization of Space: New Actors Need New Rules (Foreign Affairs)
    • Why Ken Jennings’s ‘Jeopardy!’ Streak Is Nearly Impossible To Break (FiveThirtyEight)
    • Doomsday vault: the seeds that could save a post-apocalyptic world (The Guardian) see also Can civilisation reboot without fossil fuels? (Aeon)
    • How Indie Rock Changed the World: The influence of geeks with guitars on culture, from DIY to social media (The Atlantic)



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    10 Weekend Reading - An interview with Google’s head of Streams, Photos and Sharing, Art Garfunkel, and more

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    • From the Frontlines to Finance: How the Marines Shaped Our Investment Philosophy (Alpha Architect)
    • Wall Street Is Using the Power of Dodd-Frank Against Itself (NYT Mag)
    • How Things Break (The Iowa Review)
    • We need to ditch generational labels (Aeon)
    • How a Graduate Student Reluctantly Uncovered a Huge Scientific Fraud: The Case of the Amazing Gay-Marriage Data (scienceofus)
    • Bradley Horowitz: An interview with Google’s head of Streams, Photos and Sharing (Medium)
    • How Comedians Became Public Intellectuals: People look to Amy Schumer and her fellow jokers not just to make fun of the world, but to make sense of it. And maybe even to help fix it. (The Atlantic)
    • Star Wars: The Force Awakens Is on the Cover of Vanity Fair (Vanity Fair)
    • How America Overdosed on Drug Courts: After 25 years, the verdict is in: Drug courts embolden judges to practice medicine without a license—and they put lives in danger. (Pacific Standard) see also What Percentage of Your Country Smokes Marijuana? (Priceonomics)
    • Art Garfunkel on Paul Simon: ‘How I created a monster’ (Telegraph)

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    Credit Suisse - 'The Chinese equity market should therefore be closely monitored this summer'

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    Whether China shares are in a bubble depends on which data bit catches the fancy, but the market has outstripped its fundamentals and is 23 percent overbought, Credit Suisse said.

    "Margins, profitability and value creation continue declining as productivity growth lags real wage growth and product selling prices are eroded," Credit Suisse said in a note Friday.

    "Moreover, equity market price momentum has decoupled away from earnings revisions which remain deeply embedded in negative territory."

    Its models indicate the market is 23 percent overbought and has potential downside of 15 percent in U.S. dollar terms by year-end.

    Whether China shares are in a bubble depends on which data bit catches the fancy, but the market has outstripped its fundamentals and is 23 percent overbought, Credit Suisse said.

    "Margins, profitability and value creation continue declining as productivity growth lags real wage growth and product selling prices are eroded," Credit Suisse said in a note Friday.

    "Moreover, equity market price momentum has decoupled away from earnings revisions which remain deeply embedded in negative territory."

    Its models indicate the market is 23 percent overbought and has potential downside of 15 percent in U.S. dollar terms by year-end.

    Read More China's see-saw ride? Don't sweat it.

    The mainland's shares have rallied sharply this year, despite a brief drop into correction territory last week. The Shanghai Composite is up around 50 percent year-to-date, even after last week's one-day 6.5 percent plunge. The Shenzhen Composite is up around 111 percent year-to-date.

    Credit Suisse attributes the rally to factors including the People's Bank of China injecting liquidity through its easing measures, retail investors re-allocating assets to stocks and away from bank savings, wealth management products and property. Apart from some restrictions on margin trading, the securities regulator also appears to be letting the rally ride, the bank noted.

    "Looking at the market cap to GDP (gross domestic product) ratio as a measure of risk in equity markets, it now seems to us that the recent sharp rise in the Chinese market is the first sign of a bubble without the support of fundamentals," Societe Generale said in a note Monday. The ratio grew by 124 percent over the past 12 months, similar to the climb in 2006-2007, it noted.

    "The Chinese equity market should therefore be closely monitored this summer," it said.

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  8. #8
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    10 Sunday Reads - Jobs Report in 12 Charts, Some Dude In Los Lobos, American coal industry is collapsing, and more

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    • Does Contrarian Investing Make Money? (Jeff Macke)
    • The May Jobs Report in 12 Charts (Real Time Economics) see also Economists React to the May Jobs Report: ‘Unambiguously Positive’ (Real Time Economics)
    • The High Cost of Investing Like a Daredevil (NYT)
    • The Lawsuit Machine Going After Student Debtors: “This is robosigning 2.0” (Bloomberg)
    • The value of land: A Leveraged Bet On House Prices? (Pieria)
    • The Political Roots of Widening Inequality: The key to understanding the rise in inequality isn’t technology or globalization. It’s the power of the moneyed interests to shape the underlying rules of the market. (Prospect)
    • The American coal industry is collapsing (Fusion) but see EPA Study of Fracking Finds ‘No Widespread, Systemic’ Pollution (Bloomberg)
    • Congress tries to hide a submarine: Inside the fight to take a $90 billion submarine off the books. (Politico)
    • David Byrne Does Paul Simon (“The World’s Biggest Prick” According To Some Dude In Los Lobos) (Stereogum)
    • The most valuable car collection ever to be auctioned is coming this year, and it’s pretty incredible (The Verge)
    What are you reading?


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  9. #9
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    Friday Reading - Ornette Coleman Dies at 85, Market for 'Lemons', U.S. Economy Did Not Shrink This Year, and more

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    • China, the world’s worst investment bubble will burst soon (Marketwatch)
    • The Market for 'Lemons': A Lesson for Dividend Investors (RAFI)
    • Twitter’s CEO is stepping down. Here’s why the company’s in trouble. (Vox) see also For Twitter, Future Means Here and Now (NYT)
    • Apparently, the U.S. Economy Did Not Shrink This Year After All (Bloomberg)
    • Reagan and Thatcher Would Mock Today’s Pessimists (RealClearMarkets)
    • The Inside Story of How the iPhone Crippled BlackBerry (WSJ)
    • The Dalai Lama’s Daily Routine and Information Diet (Brain Pickings)
    • No, The Moon Is Not To Blame (fivethirtyeight)
    • Ornette Coleman Dies at 85; Composer and Saxophonist Reshaped Jazz (NY Times)
    • The Jaguar F-Type S Coupe Is the Best Car Jaguar Makes for the Money (Bloomberg)

    What are you reading?

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    Senior Member mql5's Avatar
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    Saudi Arabia Opens Stock Market To Foreign Investment - The country’s Capital Markets Authority finalized the rules for direct foreign investment

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    Saudi Arabia officially opened its stock market to foreign investment on Monday, in what’s being billed as a potential game changer for emerging markets investors. The country’s Capital Markets Authority finalized the rules for direct foreign investment in early May, although plans had been in the works for quite some time. Summarizing, qualified foreign investors (QFIs) are defined as institutions with at least $5 billion in AUM and five years of experience, no QFI can hold more than 5% of a single issue and no consortium of QFIs can hold 20% or more in a single stock.

    Saudi Arabia hopes the liberalization of its stock market will pave the way for MSCI EM benchmark inclusion, a process which in all likelihood will take at least two years. Here’s a look at how the Saudi market stacks up in terms of both daily trading volumes and relative size...

    "King Salman has clearly signaled the priorities for his administration since succeeding from King Abdullah in January. All indications have been that the Kingdom will stay the course on oil policy, protecting market share and not intervening to support global oil prices. For Saudi, this means having to deal with the consequences of significantly lower oil prices — Citi’s forecast is for Brent to average US$54 per barrel in 2015. At this price, we expect total Saudi government revenues to fall by some 41% in 2015. We believe that as a result it is highly likely that Saudi will cut expenditure sharply next year. According to our calculations, if Saudi Arabia were to maintain the same level of spending this year as it did last year, the budget deficit would balloon to US$130bn, or 22% of GDP. This would be unsustainable, in our view, with fiscal reserves covering just three years of such levels of expenditure. It would also be three times the level of deficit the government has budgeted for. We therefore think it is likely that total expenditure will shrink by around 20%, bringing the overall deficit to 13% of GDP."

    "The sharp decline in oil prices since last summer has had an immediate and significant impact on the country’s fiscal position. Last year’s budget included the first deficit in 12 years at 65.5 billion Saudi riyals (minus 2.3 per cent of the GDP), and the deficit is likely to have widened this year to about 12 per cent. The decision to open the Saudi equity market to direct foreign investment looks timely. Saudi Arabia has run a current-account surplus ... mainly because of oil revenue. The current-account surplus narrowed ... last year ... both because of lower oil revenue and a higher deficit on the services balance, and looks like it will fall into deficit this year. An increase in portfolio investment after the opening of the equity market, while by no means necessary, would help to offset the decline in the current account, which in the absence of other inward investment would have put additional pressure on official foreign exchange reserves and reduced manoeuvrability on the balance sheet."

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