Monday, October 3, 2011
Sunday, October 2, 2011
| Another Way to Use Bollinger Bands | |
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| These examples show the power and accuracy of Bollinger bands as a trend indicator perhaps best used to confirm or validate trade ideas in all markets and time frames. John Bollinger delivered a terrific keynote address this past weekend at the Futures & Forex Expo. Watch the keynote address here. (If you didn’t make it to that event, you cannot miss the Las Vegas Traders Expo this November. It’s the absolute best place to talk trading strategy with fellow traders from around the country. You’ll learn more in four days that you have all year. Do yourself and your trading account a favor and register now to attend.) It got us thinking about how we use Bollinger bands in our own daily analysis. At Online Trading Academy, we focus on price action as our most important indication as to when and where to take trades. Even though price is the most critical part, we still can (and do) use some technical indicators to assist in our trading decisions. One such indicator that is very useful and versatile is the Bollinger band. Bollinger bands are created by drawing a line two standard deviations from a moving average. The theory behind this is that price is elastic; it will often stretch away from the average to extremes and then snap back to that average. Deviation of price tells us how far prices should move away from that average and is a function of volatility. Two standard deviations should include roughly 96% of all closings. If we do close outside of that line, we are unlikely to continue to do so without retracing back to the average first. See related: Bollinger Discusses Bollinger Bands A simple use of the Bollinger bands is as a trend indicator. In an uptrend, the price will move between the midpoint of the bands, which happens to be the 20-period exponential moving average (EMA) and the upper band. If the trend is strong, you will see this occurring. You would have an opportunity to buy into the strong trend when prices retrace back to the 20-period EMA and a demand level. Your target would be supply and a touch of the upper band.  Click to Enlarge If the trend is to turn negative, you will first notice lower highs and lower lows. Should the downtrend become strong, then price will bounce between the 20-period EMA and the lower band.  Click to Enlarge Remember to focus on supply and demand to anchor your trading decisions. Use technical tools as they are intended to be used. They are decision-support tools that offer a different perspective on price action. Always trade with the highest probability and with managed risk. By Brandon Wendell of Online Trading Academy |
NEW YORK (AP) -- Just how turbulent is the stock market? More than half a
trillion dollars in paper gains were made and lost within just two weeks in
September. The S&P 500 jumped 5 percent in the week ending Sep. 16, the
second best week this year. The next week it plunged 6 percent, the second worst
week this year.
The wild swings have made many wary of putting money in the stock market. "It's like an elevator with only two buttons," said Jeffrey Sica, president of Sica Wealth Management. "If you see one button says `surge' and the other says `plunge,' you're not going to get on the elevator."
In market-speak, it's called volatility: Large jumps followed by deep dives, within the course of a week or sometimes the same day. The surge in volatility since early August has been blamed for preventing companies from going public and scaring people out of stocks. Some think that even if Europe resolves its debt crisis, large price swings are here to stay.
In August, many put part of the blame for that month's volatility on the summer vacation season. Come September, they said, more people will be at their desks buying and selling, making it harder for large orders to rattle the market when trading volumes are thin. That turned out to be half right: Trading volume has picked up since Labor Day, but the stock market looks far from calm.
"What was wrong with the vacation idea is that Europe didn't get any better when people got back to work," said Nick Colas, chief market strategist at BNY ConvergEx Group. "People are still focused on the same clear and present dangers."
To get an idea how volatile the market has been, consider:
-- The Dow Jones industrial average has gained or lost more than 200 points in a trading day 16 times since the start of August. Six of those days came in September. In the first seven months of the year, that happened just four times.
-- The long-term trend is toward more volatility. Judging by the number of times in a year the S&P 500 swung 2 percent or more in a single day, markets are much more likely to have large leaps up or dives down, according to S&P's equity research group. Swings of 2 percent occurred an average of five times a year from 1950 to 1999. It's already happened 20 times this year, with three months left to go.
The heavy turbulence that started in August is the main reason why no company has managed to pull off an initial public offering since the Chinese online video website Todou Holdings went public Aug. 16. The backlog of companies waiting to debut in an IPO has never been larger.
"All the volatility has made for an unfavorable IPO environment," said Claude Courbois, managing economist at Nasdaq OMX's research department. "An IPO is your coming out party, a chance to tell your story. You don't want an enormous amount of uncertainty surrounding it."
Analysts say it's also the chief reason Americans are fleeing the stock market as if it's 2008 all over again. Retail investors pulled $36 billion out of U.S. stock funds in August, according to preliminary data from the Investment Company Institute. That's second only to the $47 billion withdrawn from U.S. stock funds at the height of the financial crisis in October 2008.
"The swings themselves have eroded the confidence of investors," said Jeff Kleintop, chief market strategist at LPL Financial. "It's the sign of a market and an economy not on sound footing."
Sica, the wealth manager, told his clients to leave no more than 10 percent of their savings in stocks at the end of May on the belief that markets would slide as the Federal Reserve's efforts to help the economy came to an end in June. The stock market's drop since then has failed to lure Sica and his clients back in. In fact, he's told his clients to get the rest of their money out.
In the past, a rally like the 5 percent one in the week ending Sep. 16 would be enough to cause Sica's phone to ring with calls from clients wanting to shift more money into stocks. "They'd have the sense their missing out on something," Sica said. In recent weeks, stock market surges are followed by clients calling to say "`Please keep me out,'" he said.
"This is the first time in 20 years that I'm totally out of stocks, unfortunately. Just because something declines, it doesn't mean it will ever come back."
The wild swings have made many wary of putting money in the stock market. "It's like an elevator with only two buttons," said Jeffrey Sica, president of Sica Wealth Management. "If you see one button says `surge' and the other says `plunge,' you're not going to get on the elevator."
In market-speak, it's called volatility: Large jumps followed by deep dives, within the course of a week or sometimes the same day. The surge in volatility since early August has been blamed for preventing companies from going public and scaring people out of stocks. Some think that even if Europe resolves its debt crisis, large price swings are here to stay.
In August, many put part of the blame for that month's volatility on the summer vacation season. Come September, they said, more people will be at their desks buying and selling, making it harder for large orders to rattle the market when trading volumes are thin. That turned out to be half right: Trading volume has picked up since Labor Day, but the stock market looks far from calm.
"What was wrong with the vacation idea is that Europe didn't get any better when people got back to work," said Nick Colas, chief market strategist at BNY ConvergEx Group. "People are still focused on the same clear and present dangers."
To get an idea how volatile the market has been, consider:
-- The Dow Jones industrial average has gained or lost more than 200 points in a trading day 16 times since the start of August. Six of those days came in September. In the first seven months of the year, that happened just four times.
-- The long-term trend is toward more volatility. Judging by the number of times in a year the S&P 500 swung 2 percent or more in a single day, markets are much more likely to have large leaps up or dives down, according to S&P's equity research group. Swings of 2 percent occurred an average of five times a year from 1950 to 1999. It's already happened 20 times this year, with three months left to go.
The heavy turbulence that started in August is the main reason why no company has managed to pull off an initial public offering since the Chinese online video website Todou Holdings went public Aug. 16. The backlog of companies waiting to debut in an IPO has never been larger.
"All the volatility has made for an unfavorable IPO environment," said Claude Courbois, managing economist at Nasdaq OMX's research department. "An IPO is your coming out party, a chance to tell your story. You don't want an enormous amount of uncertainty surrounding it."
Analysts say it's also the chief reason Americans are fleeing the stock market as if it's 2008 all over again. Retail investors pulled $36 billion out of U.S. stock funds in August, according to preliminary data from the Investment Company Institute. That's second only to the $47 billion withdrawn from U.S. stock funds at the height of the financial crisis in October 2008.
"The swings themselves have eroded the confidence of investors," said Jeff Kleintop, chief market strategist at LPL Financial. "It's the sign of a market and an economy not on sound footing."
Sica, the wealth manager, told his clients to leave no more than 10 percent of their savings in stocks at the end of May on the belief that markets would slide as the Federal Reserve's efforts to help the economy came to an end in June. The stock market's drop since then has failed to lure Sica and his clients back in. In fact, he's told his clients to get the rest of their money out.
In the past, a rally like the 5 percent one in the week ending Sep. 16 would be enough to cause Sica's phone to ring with calls from clients wanting to shift more money into stocks. "They'd have the sense their missing out on something," Sica said. In recent weeks, stock market surges are followed by clients calling to say "`Please keep me out,'" he said.
"This is the first time in 20 years that I'm totally out of stocks, unfortunately. Just because something declines, it doesn't mean it will ever come back."
One way to trade the market is pattern recognition.
Once you've been in the market for quite a while you can start building your own understanding about the market's movement.
And from there you can start forming your own ideas.
Your confidence starts to build up and you will not be carried anymore by the noise.
But that will take lots of time (possibly years), that's why patience and commitment in learning is essential.
Trading is simple but not easy, reading the minds of the market is the most important one.
The market is composed of human emotions and learning the psychology of the market participants takes a lot of studies.
How you react and how you respond is where you can exploit the market opportunities.
But its easy to narrate but hard to implement.
That's why practicing trading ideas in real time is the way to be a good trader.
As studies has shown, it takes 10,000 hours of practicing your skills to master your craft.
That same in any endeavor even in trading.
Once you've been in the market for quite a while you can start building your own understanding about the market's movement.
And from there you can start forming your own ideas.
Your confidence starts to build up and you will not be carried anymore by the noise.
But that will take lots of time (possibly years), that's why patience and commitment in learning is essential.
Trading is simple but not easy, reading the minds of the market is the most important one.
The market is composed of human emotions and learning the psychology of the market participants takes a lot of studies.
How you react and how you respond is where you can exploit the market opportunities.
But its easy to narrate but hard to implement.
That's why practicing trading ideas in real time is the way to be a good trader.
As studies has shown, it takes 10,000 hours of practicing your skills to master your craft.
That same in any endeavor even in trading.
This daily chart from the market (YM) doesn't show any bullish traction unless there will be a big news coming from Europe before the market opens late today.
Last Friday's market was a big drop and there is a big chance it will continue that way.
But the way I can see from there a bounce is most likely.
The market is still on the trading range with the support at 10500 and resistance at 11500.
Monday's market will be a volatile trading as usual, while the most profitable to trade the market is the TWTh days. Friday is usually a choppy range.
Let's see the overnight range what the market brings.
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