Intepreting Stocks - 2nd June 2010

NIFTY EOD Analysis as on 2nd June 2010

Green candlestick with normal volumes showing buying pressure. It traded about the channel line.
CMF is showing +ve bias compared to yesterday(+) showing accumulation.
Stochastics is showing -ve bias(-).
EMA3 is kissing EMA13 (~). EMA3 resistance at 5010(+). EMA 13 resistance at 5010(~).
Slope of EMA 13 is flat.(~) Close was around EMA 13(~)

Answers for Yesterday
A Positive day, but still the range of today was inside yesterday's candle. In my opinon, we will have to cross 5100 and close above it for bullish momentum to continue.

Questions
What's going to happen next? Let's wait and watch.

Important Points that I learned from Come Into My Trading Room by Alexander Elder - Part 3

Important Points that I learned from the book – Come Into My Trading Room by Alexander Elder

Trading

1)      SYSTEM Testing :- Your trading plans must include certain absolute rules, most of them concerning money management. As long as you stay within those rules, you have much freedom in trading the markets. Your growing levels of knowledge, maturity, judgment, and skill are much more important assets than any computerized testing.

2)      PAPER Trading :- To paper trade your system, download your data at the end of each day. Apply your tools and techniques, reach trading decisions, calculate stops and profit targets, and write them down for tomorrow. Do not place your orders with a broker, but check whether they would have been triggered and write down those fills. Enter paper trades in your spreadsheet and your trading diary. If you have the willpower to repeat this process daily for several months, then you have the discipline for successful trading with real money.

3)      What is a trading system? What’s the difference between a method, a system, and a technique?

·        A method is a general philosophy of trading. For example; trade with the trend, buy when the trend is up, and sell after it tops out. Or—buy undervalued markets, go long near historical support levels, and sell after resistance zones have been reached.

·        A system is a set of rules for implementing a method. For example, if our method is to follow trends, then the system may buy when a multi-week moving average turns up and sell when a daily moving average turns down (get in slow, get out fast). Or—buy when the weekly MACD-Histogram ticks up and sell after it ticks down.

·        A technique is a specific rule for entering or exiting trades. For example, when a system gives a buy signal, the technique could be to buy when prices exceed the high of the previous day or if prices make a new low during the day but close near the high.

4)      The idea is to trade well, not to trade often.

5)      The purpose of any business is to make money. A well-run business also gratifies many of its owners’ and employees’ psychological needs, but money is the pivot of the enterprise.

6)      Do you have a written business plan? How much money will you trade? In what markets? How will you choose entries and exits? How will you manage risks, use stops, and allocate capital? Do not go near day-trading without a written plan. Be sure to keep separate records for day-trading and position trading.

7)      What markets should you day-trade? In stocks, look at those that show up on the list of the most active issues of the day. That’s where the action is. These stocks’ liquidity is very high, and their volatility tends to be good. Explore the list of top gainers and losers for the day. When the same name shows up on that list day in and day out, it is clearly among the most volatile issues, with great day-trading potential.

8)      Your trading day should start before the opening. Give yourself at least half an hour to assemble and analyze overnight data. Watch the first half hour of trading with no interruptions, not even phone calls. If you put on a trade, then manage it.

9)      THE IMPULSE SYSTEM

10)  Whenever you enter a trade, three factors must be crystal clear in your mind—where to get in, where to take profits, and where to bail out in case of an emergency.

11)  Entries are easy because any clown can buy a lottery ticket, but exits separate winners from losers.

12)  A trader who doesn’t use stops will eventually take the mother of all losses. Spectacular disasters hit brilliant individuals who believe that their general sharpness and great systems override the need for stops. A careless trader can get away with no stops for a while, but if he trades long enough the market will kill him.

13)  The SafeZone Stop

14)  The Chandelier Exit

CHOOSING WHAT TO TRADE

1)      An anxious trader is a troubled trader. It is better to buy only what you can afford, polish your skills, and the money will follow.

2)      A beginner should start with one or two groups, an intermediate trader can go up to four or five, and an expert knows how many he can handle. Chances are, he sticks to the few groups he knows well. Begin by choosing a group that you think has a great future or one in which you have a personal interest. For example, you may decide to concentrate on biotechnology because of its promise or the hospitality industry because that’s where you work.

3)      Whenever the market goes into a choppy stage, switch to low-TRO stocks and trade their swings. TRO can help you switch between aggressive and defensive positions.

4)      The SafeZone stops, which work so well for swings, are much too tight for big trends. While riding a tide, you must expect the waves to swing against you and still hold your position.

5)      Swing trading means buying normalcy and selling mania (buy near the rising moving average, sell near the upper channel line) or shorting normalcy and covering depression (sell short near the falling moving average and cover at the lower channel line). The best swing-trading candidates are among the most active stocks and blue chips that tend to rock, more or less regularly, within their channels.