TRADING TIPS AND CHEAT SHEET FOR BEGINNERS, Appunti di Matematica Finanziaria

Scarica TRADING TIPS AND CHEAT SHEET FOR BEGINNERS e più Appunti in PDF di Matematica Finanziaria solo su Docsity! TRADING TIPS AND CHEAT SHEET FOR BEGINNERS Disclaimer: Trading and investing involves risk. You alone are responsible for any losses that may occur. It is highly suggested that you learn the material, study and paper trade first. DO NOT live trade until you feel that you are ready and have an understanding of the market. I am not responsible for the actions that YOU take. Trade responsibly and NEVER risk what you cannot afford to lose!!!! Chart Indicators RSI (Relative Strength Index) – This is a momentum indicator that compares the magnitude of gains and losses over a period of time. Although the RSI can be used for conformation in various chart patterns, the primary function is to determine if a stock is Overbought or Oversold. The RSI ranges from 0-100. If the RSI is at or above 70, it is considered to be Overbought, and shows that a bearish reversal may be coming. Holders of a stock that is overbought will begin to sell off their stock and take profit. Shorts will begin to move into position. If the RSI is at or below 30, it is considered to be oversold and may indicate that a bullish reversal is coming. Shorts will have to cover their positions and buyers will begin getting into position for a buy. Although the RSI is a great tool for determining oversold and overbought, do not rely on RSI alone. A stock could remain on either side for a long period of time. See Chart On Next Page For RSI Example: On the first blue line you see a textbook oversold pattern. The RSI hits 30 (30 being oversold), and begins the bullish reversal. The Second blue line you see, the RSI falls below 30, begins to pull back, but then hits oversold again. On the second bounce, the bulls take over and the price moves up. This is a perfect example on why you don’t rely just the RSI. On the red line you see the RSI falling towards oversold but does not quite reach it. However, other signals indicate a bullish reversal and the price goes up. You will learn these other bullish signals later on. below the Zero Line. Now if you compare that with the RSI, you see that it is Overbought. This signals confirm each other and the bears take control. Now look at the other blue lines I drew on the chart and begin to compare the indicators with the chart. You should now start to see the patterns and reversal points. Start going through charts on your own and put this to practice. Paper trade on this and write down your results. Chart and Candlestick Patterns Support levels – Area of the chart where the stock bottoms before moving back up. Resistance levels – Area of the chart where stock peaks before turning back down. It is important to identify your support and resistance levels so you can begin to watch for entry and exit points. Always confirm your support and resistance with other signals such as the RSI and MACD. If one of the levels is broken, the other level then takes over. If support is broken, it now becomes resistance. If resistance is broken, it now becomes support. Wait for conformation before you determine if the levels are broken. When to enter a trade - So you have identified a stock that is showing a bullish reversal. You read your RSI and MACD indicators and the signal is strong. It is important to wait for conformation on the signal. We are not trying to capture the full run, only part of the run. Remember, the goal is 5-10% gain on a swing trade. On a swing you are only holding 1-4 days. You keep your stop losses at a 3% loss. Not every trade you make will be a success. If you stick to this basic rule, you will prevent yourself from hitting those huge losses. How to confirm your entry – Looking on a 1 day chart, you see a bullish candle after a previous bearish trend. You are waiting for the next days candle to open above the previous days close. That is your conformation to buy. This is known as the “Candle Over Candle.” If you enter and do have to take a stop loss, don’t sweat it. You can always re- enter if the stock does continue to trend up. OR, rinse, repeat and move onto the next stock. If you stick to the 3% loss and 5-10% gain rule, you only need to be correct 60% of the time to profit. Our goal is 79% success. Candlestick Patterns REMEMBER Do not rely on one indicator. The Patterns you see below are a great starting point, just like the RSI and MACD. When you see a signal, you want to compare it to the other indicators to see if you in fact have a strong buy signal. Confirm your entry and make your decisions. Basic Doji Candlestick A Doji represents a struggle between the bulls and bears. The market opens and closes at or near the same point. The Doji looks like a cross, inverted cross, plus sign, or a “T”. The shadows can vary in length. This could indicate both a continuation signal or a reversal signal. Morning Star Doji: This is one of my favorite set ups. I have made several winning trades off this and in my opinion is second best to the Abandoned Baby pattern. This is usually a good indication of a bullish reversal. There will be an obvious down trend, followed by a Doji. The next day’s candle should close above the candle before the Doji. How to Trade This: There are a couple options for entry on this trade. The safest way and recommended way is to buy in at the next day candle, following the Morning Star set up (as you see illustrated above by the blue lines). Option 2 is set up a test entry, buying in at half of what you would normally buy. Your test entry should be above the open of the candle before the Doji. This is when you see the set up of the Morning Star in progress and you want to catch an early run up. If you test enter and the stock does run up, you can add to your position by filling the other half of your buy. Evening Star Doji: This is the exact same thing as the Morning Star Doji, except it is a bearish reversal. Take the Morning Star Doji chart, flip it upside down and you got the Evening Star Doji. How to Trad This: Here you are looking to take profit. If you entered earlier in the uptrend, now is your time to sell. Again, you have a couple options. You can sell all and secure your profit. The other is, sell half and if the set up fails you can let the other half continue to ride up. If the set up is successful you sell the other half for your total profit. The safe and recommended way is to sell and secure your profit. Gravestone Doji (AKA Reverse Dragonfly) This usually indicates a bearish reversal or can be used to determine the continuation of a downtrend. The upper shadow is long in length and the body opens and closes at or near the same point. If a chart is showing bullish reversal signals but you see a Gravestone Doji, it is important to wait to make sure the bears don’t still have control. How to Trade This: You WAIT! On the left you see what typically happens with a Gravestone Doji. The Bulls fight hard and drive the price way up, but in the end the bears conquer and continue the bearish trend. On the right you see the bulls ultimately come out on top. Wait for your signals to line up, look for a candle over candle, then get ready for the buy. If you see the Gravestone Doji after an uptrend, it may be a good time to take profit and sell. That ends the basic Doji patterns. Next, I will show you Short Body Candles. Short Body Candles: Evening Star This is just like the Evening start set up in the Doji patterns, except is has a short body. This is the same reversal set up. Refer to the Doji Evening Star on how to trade it. Morning Star Again, this plays just like the Morning Star Doji. The only difference it the Doji v the Short body. Refer to the Morning Star Doji on how to trade it. Same set up and play.