Techniques
There are six common basic strategies by which day traders attempt to make a profit: Trend following, playing news events, range trading, scalping, technical trading, and covering spreads.
1. Trend following
Trend following, a strategy used in all trading time frames, assumes that stocks which have been rising steadily will continue to rise, and vice versa. The trend follower buys a stock which has been rising, or short-sells a falling stock, in the expectation that the trend will continue.
2. Playing News
Playing news is primarily the realm of the day trader. The basic strategy is to buy a stock which has just announced good news, or short-sell on bad news. Such events provide enormous volatility in a stock and therefore the greatest chance for quick profits (or losses).
3. Range Trading
A range trader watches a stock that has been rising off a support price and falling off a resistance price. That is, every time the stock hits a high, it falls back to the low, and vice versa. Such a stock is said to be “trading in a range”. The range trader therefore buys the stock at or near the low price, and sells (and possibly short sells) at the high.
4. Scalping
Scalping originally referred to spread trading. Today it has come to mean any extremely quick trade for a small profit.
5. Technical analysis
A method of evaluating securities, stocks, bonds, forex, futures, options, indexes, currencies and commodities. or any item that has a price and a market by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts to identify patterns that can suggest future activity.
Technical analysts believe that the historical performance of stocks and markets are indications of future performance.
In a shopping mall, a fundamental analyst would go to each store, study the product that was being sold, and then decide whether to buy it or not. By contrast, a technical analyst would sit on a bench in the mall and watch people go into the stores. Disregarding the intrinsic value of the products in the store, his or her decision would be based on the patterns or activity of people going into each store.
- Introduction
The methods used to analyze and predict the performance of a company’s stock fall into two broad categories: fundamental and technical analysis. Those who use technical analysis look for peaks, bottoms, trends, patterns and other factors affecting a stocks,bonds, forex, futures, options, indexes, currencies and commodities price movement and then make buy/sell decisions based on those factors. It is a technique many people attempt, but few are truly successful at it.
The world of technical analysis is huge today. There are literally hundreds of different patterns and indicators that investors and traders claim to have success with. There are various technical analysis tools available to
investors.
- Technical Analysis – What Is Technical Analysis?
Technical analysis is a method of evaluating the markets value by analyzing statistics generated by market activity, past prices and volume. Technical analysts do not attempt to measure a vehicle’s intrinsic value; instead they look at charts for patterns and indicators that will determine future performance.
Technical analysis has become increasingly popular over the past several years, as more and more people believe that the historical performance is a strong indication of future performance. The use of past performance should come as no surprise. People using fundamental analysis have always looked at the past performance of companies by comparing fiscal data from previous quarters and years to determine future growth. The difference lies in the technical analyst’s belief that securities move according to very predictable trends and patterns. These trends continue until something happens to change the trend, and until this change occurs, price levels are predictable.
There are many instances of investors successfully trading a security using only their knowledge of the security’s chart, without even understanding what the company does. However, although technical analysis is a terrific tool, most agree it is much more effective when used in combination with proper money management.
Technical analysis or formula traders use mathematical formulae to decide when a stock is going to rise or fall. Most traders use technical indicators, although more experienced traders tend to use fewer of them. (In fact, some very long-time veterans do not even use charts, but buy and sell just from “reading the tape”, that is, watching the bid, ask, trade, and volume numbers from a Level II screen.)
6. Covering Spreads
Playing the spread involves buying at the Bid price and selling at the Ask price. The numerical difference between these two prices is known as the spread. The bigger the spread, the more inefficient the market for that particular stock, and the more potential for profit. This spread is the mechanism that some large firms use to make most of their money (as opposed to trade commissions) since the advent of online discount brokerages.
To make the spread means to simply buy at the Bid price and sell at the Ask price. This procedure allows for profit even when the bid and ask don’t move at all.
About 75% of all trades are to the upside — that is, the trader buys an issue hoping its price will rise — because of the stock market’s historical tendency to rise and because there are no technical limitations on it. About 25% of equity trades, however, are short sales. The trader borrows stock from his broker and sells the borrowed stock, hoping that the price will fall and he will be able to purchase the shares at a lower price. There are several technical problems with short sales: the broker may not have shares to lend in a specific issue, some short sales can only be made if the stock price or bid has just risen (known as an “uptick”), and the broker can call for return of its shares at any time.
When the typical online investor places a market order to buy a stock, his broker submits this order to a market maker (MM), who then fulfills the order at the Ask price. In other words, the Ask price is the price the MM is asking for the stock. When the typical online investor places a market order to sell a stock, the broker submits the order to a MM and sells at the Bid price, i.e. what the MM is bidding for the stock.
Due to the liquidity of the modern market, orders are constantly flowing. Many times, a MM will buy a stock just to turn around and sell it to a particular broker. In fact, one of the primary purposes of the MM is to maintain liquidity in the market (among other things). Through this transaction, the MM will profit anywhere from a few cents to a whole dollar per share, in average circumstances. Over the course of a single day, a MM may fill orders for hundreds of thousands or millions of shares.
Is this the problem you face always?
you buy a stock and after that you find the stock price goes down.
what is the way out for this problem?
You sell and immediately the price rises. you feel bad.
Three solutions Ream more
1. ENTRY
ALWAYS BUY AT SUPPORT. WHERE IS THE SUPPORT? WATCH THE TRENDLINE. IT IS THE SUPPORT.
Dont know trendline? Learn it.
2. EXIT
In case of profits, you got two options
exit at a preplanned target price ,stay as long as price is above trendline.
OR
exit, for major gains, when price breaks below trendline by 2 to 5%
3. STOP LOSS
Exit when price falls below trendline. 2 TO 5% BELOW SUPPORT TRENDLINE OR YOUR BUYING PRICE
If the price went down against you, the market is telling you that you made a wrong decision. listen, accept loss, exit with minimum loss It is better to have small losses. big wins are must
Remember when you buy at support level, you can run away with minimum loss if a problem of market going against you happens
HAPPY TRADING
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