investment_matters

Articles on Investment Matters:

Keys to Trading Success: Know Thyself

This past weekend, I spent several hours perusing some older trading texts and noticed that there were several chapters that applied more today than when they were written decades ago. Those were the chapters dealing with the psychology of trading and the traits make one successful.

Successful trading hinges on your psychology and the bottom line is that if you don't know who you are, nobody else does either. The chances of you becoming a successful trader are pretty remote.

Trading is an occupation where you must be a realist. Dreamers need not apply.

The list of traits that make up a successful trader isn't very long but it is complete. Think about the traders you know. Which ones are successful? Which ones aren't?

The traits that make up successful traders are:

1. They are rugged individualists. I'm not talking about Grizzly Adams here. What I'm talking about here the type of person who stands on their own 2 feet. They don't need a support group behind them giving their self-esteem a boost. 2. They are determined. Successful traders have a strong will. Trading is a difficult business and has a lot of ups and downs. People who lack the will to succeed won't. You must stick it out through the good and the inevitable bad times. 3. They are loners. What I mean by this is that the successful trader doesn't ask for a lot, especially favors. Quiet contemplation is a key to success. They have a job to do and they get it done. Not a lot of fanfare - that type of stuff. 4. Successful traders are avid readers (to a fault). They read everything that they can get their hands on related to trading, investing and current affairs. It doesn't stop there - they also read in a lot of unrelated fields as well. 5. Successful traders are adept analysts. Not in the fundamental or technical sense. They have the ability to step back and analyze their actions. What's going right and wrong? How can I improve? This kind of thinking allows a trader to be pro-active instead of re-active. 6. In the same vein, successful traders are meticulous record keepers. The keep daily trade sheets, daily journals and post trade books. The ability to study past trades (both good and bad) can't be overstated. 7. Successful traders aren't bashful about asking others for their opinions. Gathering information from other sources allows you see the other side of the coin. Perspective matters. In the end, the only opinion that matters is the one belonging to our trader. The decision to make the trade (or not) rests with them and only them. 8. When it comes to talking about trading, successful traders are pretty tight lipped. If they talk about it at all, it's to gain insight into what went wrong and how to fix the problem. I like to pick the brains of other traders. What's working for them? Have they ever encountered what I did wrong and if so, how did they fix it? 9. The final trait that all successful traders have is that the buck stops with them. They accept total responsibility for everything that they do and they never make excuses.

In my lifetime, I've never met a natural born trader. I have met natural born gamblers, but that's a topic for another day. All of the traits that a trader needs to be successful can be learned and acquired with a little effort.

In the end, successful trading is about knowing yourself, pursuing the truth and expecting the best.

R.A. Christy
22 Nov 2006

R.A. Christy is a professional stock trader and recognized authority on technical analysis. His web sites (http://www.long-short-trader.com and http://www.christyinvestments.com) contain a wealth of information, articles and resources on everything you'll ever need to know about trading stocks. If you're really serious about making money in the stock market, you need to learn to trade the way the "pros" do.

Technical Analysis: How to use Technical Indicators (Part 1)

There are dozens of technical indicators, how to choose good stock indicators? Technical indicators are used to know when to enter or exit a trade. If you know how to enter and exit a trade, you can easily make profits. That is why choosing good stock indicators are important.

Some of stock market indicators are more common and useful than others. Also you need a few of them to trade not all off them.

In this article I try to describe three oscillators:

Momentum and Rate of Change (ROC)
Moving Average Convergence/Divergence (MACD)
Relative Strength Index (RSI)

What are oscillators?
Oscillators are indicators that are usually computed from prices and that tends to cycle or "oscillate" within a fixed or limited range.

Momentum and Rate of Change (ROC)
Momentum is an oscillator designed to measure the rate of price change, not the actual price level. This oscillator consists of the net difference between the current closing price and the oldest closing price from predetermined period.

The formula is:

Momentum (M) = CCP - OCP

Where: CCP is Current Closing Price and OCP is Old Closing Price

Momentum is simply the difference, and the ROC is a ratio expressed in percentage. Momentum and Rate of Change (ROC) are simple indicators showing the difference between today's price and the close N days ago. Momentum in general term means strongly movement of prices in a given direction.

Moving Average Convergence/Divergence (MACD)
MACD is computed by subtracting a longer moving average from a shorter moving average. MACD is used with a signal or trigger line, which is a moving average of MACD. If MACD and trigger line cross, then this indicate that a change in the trend is likely. MACD developed by Gerald Appel.

The MACD smoothes data, as does a moving average; but it also removes some of the trend, highlighting cycles and sometimes moving in coincidence with the market .

Relative Strength Index (RSI)
RSI measures the relative changes between up-moves or down-moves and scales its output to a fixed range, 0 to 100. RSI is an oscillator and Welles Wilder devised it.

The formula for calculating RSI is:

RSI = 100 - [100/ (1+RS)]

Where: RS is average of N days up closes, divided by average of N days down closes and N is predetermined number of days that usually chosen 14.

RSI can use as an overbought/oversold indicator. A buy signal is when the RSI moves below a threshold, into oversold territory, and then crosses back above that threshold, usually 30 is taken for oversold threshold. A sell is signaled when the RSI moves above another threshold, into overbought territory, and then crosses below that threshold, usually 70 is taken for overbought threshold.

Conclusion
Oscillators are used as an overbought/oversold indicator. A buy is signaled when the oscillator moves below some threshold, and then crosses back above that threshold. A sell is signaled when the oscillator moves above another threshold, and then crosses below that threshold.

Oscillators have the potential to provide good entry and exit points. So they have the potential to provide a high percentage of wining trade. Also they have some weaknesses; some of them can easily become stuck at one of their extremes, or don't capture some trends.

By Mostafa Soleimanzadeh.
22 Nov 2006

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