Common Cents Investment Group. October 15 th 2012. Agenda. FX on Investopedia Today in the market Technical Analysis – Part II Pick a stock!. FX on Investopedia. Our apologies, FX is not trading in our simulator
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Common Cents Investment Group October 15th 2012
Agenda • FX on Investopedia • Today in the market • Technical Analysis – Part II • Pick a stock!
FX on Investopedia • Our apologies, FX is not trading in our simulator • ETFs that follow FX indices • FXKing on Investopedia… • 100k • 100:1 leverage • http://fxtrader.investopedia.com/
Today in the Market • How does the stock market impact the presidential election • If the market is good…the incumbent has the upper hand & vice versa • How does the presidential election impact the stock market
Today in the Market • How the presidential election can affect the stock market: http://seekingalpha.com/article/598671-the-presidential-election-cycle-and-its-effect-on-stock-markets
Useful Definition • Entry Level: The price at which you buy the security • Stop Loss: A trade entered that limits the potential loss of value in a security • Support: Price level at which demand is thought to be strong enough to prevent the price from declining further • Resistance: Price level at which selling is thought to be strong enough to prevent the price from rising further
Technical Analysis Recap • Not an exact science • Based on the assumption that all market information is reflected in the price • Three simples steps • Determine market bias • Pick a trading strategy based on bias • Use technical indicators to capture best entry point
Determine Bias • Uptrend: Markets that continuously make higher highs and higher lows. • Look for a buying opportunity at the supports
Determine Bias • Downtrend: Markets that continuously make lower highs and lower lows. • Look for a selling opportunity at the resistance
Determine Bias • Range Trade: Markets that are not in an uptrend or downtrend • Look for a selling opportunity at the resistance and buying opportunity at the supports
Trading Approach • Choose between Long or Short • Downtrends => Go Short • Uptrends => Go Long • Entry points can be at either the Resistance (Short) or Support (Long) for simplicity • Further indicators are used to create a trading strategy
Trading Approach • Indicators are used to determine: • Entry levels • Stop Loss levels • Profit taking (Limit) levels • Organization is half the battle!
Technical Indicators • Trend Line: A straight line connecting consecutive higher lows and consecutive lower lows • These are highly watched by most traders and corporations • Good basis to use with or without other indicators to find good entry point
Technical Indicators • Phychological Numbers: Price levels that are considered important by the markets • These numbers are generally round numbers like 10, 20, 25, 50, 100, etc. • A number of traders place orders at round numbers, thus providing support or resistance to price movements • Use to identify an entry point
Technical Indicators • Relative Strength Indicator (RSI): An oscillating indicator • Can have values from 0 – 100 • 0 – 30 => Oversold markets (undervalued) • 70 – 100 => Overbought markets (overvalued) • Place trades on a confirmed move out of a certain condition • RS = Average number of days with ‘up’ closes divided by average number of days with ‘down’ closes RSI = 100-100/(1+RS)
Technical Indicators • Prepare to sell short once RSI moves above 70 and goes into downtrend • Book profits when RSI touches oversold levels (~30) http://www.investopedia.com/video/play/relative-strength-index-rsi/#axzz29NXSCnOO
Technical Indicators • Moving Averages: Calculated by averaging the closing prices of the market over a specified time • Simple Moving Average (SMA): Places equal weight on every price point over time • Exponential Moving Average (EMA): Places higher weight on more recent price points • Commonly over 200 days, 100 days, 10 days
Technical Indicators • Bollinger Bands: use a simple moving average of a price standard deviation around that moving average to generate trading signals • Usually a 20 period moving average and a 2 standard deviation band around the moving average
Technical Indicators • Moving Average Convergence Divergence (MACD): uses a combination of moving averages to generate a trading signal • Plots the difference between 12 period & 24 period EMA (called the MACD) • Plots a 9 period EMA of the MACD (called the MACD signal) • Look at the crossovers of the MACD and MACD signal lines to sell/buy
Technical Indicators • Stochastic: Another oscillating indicator that takes values of 0 – 100 • 0 – 20 => Oversold markets • 80 – 100 => Overbought markets • C = most recent closing price • L14 = the low over the last 14 trading sessions • H14 = the high over the last 14 trading sessions %K = 100[(C-L14)/(H14-L14)]
Technical Indicators • The transaction signal occurs when %K crosses through the %D %D = 3 Period moving average of %K
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