Market Trend

For a Trader or investor it is extremely very important to understand the market trend .You may have heard the famous saying that the Trend is the friend. Lack of knowledge of market trend often leads to bad entry into the market and loss of capital.

We can note that the market behaves in three ways. First, it can go up. Second is it can take a downward trend. The third is it may travel in a sideways which means a consolidation phase

In addition to this, we also come across 1. Short-term trend, which indicates the market trend is short lived. 2. Intermediate term market trend, which is normally followed by upswing or downswing. 3. Long term market trend, which indicates that the market is continuing its course in either way

How can we use these trends for trading stocks

For buying  one has to confirm that If the long term trend (seen on monthly charts) is up. Then, wait for the intermediate term trend (seen on weekly charts) to break up out of a long running consolidation. Then check for first short term (seen on daily charts) drop turns up. This could be a comfortable entry point

For selling the hidings one should look for the long term trend (seen on monthly charts) of the market is down. Then wait till the intermediate term trend (seen on weekly charts) of the market to break down out of a long running consolidation Upon confirmation of this condition the trader can initiate selling after the first short term (seen on daily charts) rally turns down.

Low Volatility Entry

Here we take into consideration of Gann’s rule of buying based upon the market making new highs on the monthly and weekly charts. We make use of daily short-term reactions and take up positions. Since the market is trending upwards, the risk involved is not too much. This type of entry can sometimes return big profits.

When assessing the market trend we can conclude safely that the trend is strong when the Long term, Intermediate term and the Short term are all pointing up and in the same direction.

Charts play an important role in deciding the Market trend. To be specific a Monthly chart give us an idea about a long term market trend. A weekly chart tells us the Intermediate market trend and the Daily chart indicates the short-term market trend

Before entering the market it is better to look for market activity that can tell us something about the market trend. The market is likely to have low activity at the bottom and abnormally high activity at the top. The average daily, weekly or monthly range will indicate if the market is near a top or bottom. 

When the market trend is likely to change, the number of days of a reaction will increase. This is the first indication of an upcoming change of trend in a market. One has to pay attention to the number of days reaction in both calendar and trading days. When calendar days are counted all days must be taken into consideration. 

To count the trading days some points must be noted. When the current trading day’s high and low are inside the previous day’s high and low it is not counted. The market must have two days of consecutive newer highs or lows. If there is break in the rally, it is better to halt the counting and begin a new count.

Understanding the market trend gives the share trader a basic knowledge of important trends, which in turn helps him to make safer decisions

Trading Psycolology

Everyone is interested in making money in the share market. They enter the share market with high expectations, looking forward to make money with share trading. But in reality about 90 percent of the share trader often experience loss of money. Very small percentage of trader manages to win and stay in the share market. In this article we will be looking at. some prominent reasons why traders lose money in the share market. 

Greed and fear is the number one cause that damages a share trader.

Lack of knowledge of the share market and its functioning becomes the second most common reason.

Taking advantage of exposure or margins provided by the share   brokers, without considering the market trends

Ignoring the news related to the share markets, particularly individual share that is mostly under scanner or widely discussed.

Ignoring the risk management 

Ignoring the money management rules

All the above said causes are interlinked to one another. Let us take the first cause. Most of the traders who get affected are due to greed and fear. Traders who buy a share wait till the share  price begin to climb and sell it to take some profits. When the same share keeps on making new high, the same trader who sold it earlier tend to buy it and seek more profit. But this time the trader gets into trouble. The share price that was on the run slows down and begins to come down. The trader eventually sells the same share this time losing some money. What could be the reason?  In this case the trader had little or no knowledge about the share that he has traded. He had traded without any knowledge of the share s support and resistance levels.

The fear factor which comes next is another thing which takes away the capital of many traders. When a share is bought the price of the share starts to declines. When it is sold the price begins to climb high. This is a very common occurrence in share market with which many day traders are familiar. Why should a trader gets exited and buys or sells and still realize loss of money? 

Most of the traders especially the day traders take advantage of exposures or margins as popularly known, provided by the share brokers. Share brokers usually allow 10 times exposure of the cash deposited by the traders. ( in Forex market the margins allowed are several times higher) The traders take these exposures as an advantage and take full benefit out of this. The result is when there is a price rise, good profits may come in but if the correction sets in, the trader loses a lot of money. Fearing the erosion of the capital, the traders take quick decisions to close the positions they hold. So here we understand the power of fear. Margins offered by brokers can be utilized only with proper knowledge of the price movement of share the trader is trading. If not it will only be beneficial to the share brokers in the form of brokerage charges.

Lack of knowledge is one of the most important factors which could be widely observed. In our day to day life we meet many professionals. They have become professionals after proper education in the fields they have chosen. Similarly the traders too must devote considerable time and energy to study the share markets. There are some must learn subjects like Dow Theory, Gann Theory and Elliot wave Theory. Knowledge in one or more of these theories can maximize the winning percentage of trades. 

Market news is something that a trader should be always be aware of. Changes in policy decisions, news related to share markets, and also international happenings can increase the volatility of share market. To be on the right side of the market the trader should make it a point to pay attention to all share market news.

Risk is a word associated with any type of business. The share market too carries a great amount of risk.  Risk management is a very special talent that requires the full concentration of the trader. Proper risk management helps the trader to cut loss early and preserve capital. 

Another important factor is Money Management. The trader should have a trading plan. He should not put all his eggs in one basket. He should learn to diversify. There is a rule that requires only 10 % of the capital be invested in one share . The trader is also required to have some money as reserve. He should only deploy the surplus money set aside for investing. No borrowed money should be used for trading. Trading with very strict discipline can help a trader in the long run.

Can trading be a full time business? There is no definite answer to this question. Trading can be profitable and a full time business only for those who can mobilize large money and reserve capital. For others it cannot be a full time business. There are good reasons for this statement. The main reason is the share market has its own ups and downs. The downtrends can last for months leaving little or no room for a small time trader to make money. Therefore unless he has another source of income he may face difficulties to manage his living.

Trading in share market can be interesting if a person acquires the necessary qualities to be a share trader. Trading can be highly rewarding if carried out in the way it is supposed to be done.

Amibroker AFL for Daily, Weekly and Montly Pivot levels

Today I am posting a small but very essential Amibroker AFL. By deploying this Amibroker AFL utility, the user can get sufficient knowledge of Daily, Weekly and Monthly Pivot. The calculations are based upon standard classic pivot levels. A monthly pivot normally gives us a vision of what the trend is all about. A weekly pivot shows us the market behavior in the last week. The day pivot gives us some information of the current trend. When we anticipate a trend, it will be helpful how the stock behaved itself in the weekly and monthly mode. Price movements do follow the pivot levels in most of the trading period, which is why pivot levels are important to a trader as a tool of technical analysis.

The Guppy trading system AFL for Amibroker with Buy Sell signal

This trading system was developed by Australian trader Daryl Guppy and named after him. He had used a set of twelve exponentially-weighted moving averages.  He had selected 3, 5, 8, 10, 12, and 18 period exponentially-weighted moving averages ( EMA)  as short-term and 30, 35, 40, 45, 50, and 60 as long term EMA. This helps a trader to analyze the stock from different levels.

There are many ways to deploy this system, but rather than seeing this system as a cross over trading system we should view it as a trend momentum identifier. What has been suggested by Guppy is to take the sum of six short-term EMAs against the sum of the six long-term EMAs and look for trading signals.

The Foundation AFL for Amibroker

 The Foundation by Southwind

 Today I am posting an AFL which looks colorful and interesting. I am not the creator of this AFL. This is known as The Foundation AFL by a Bangladeshi coder with a nick name of SouthWind. The SouthWind as the coder calls himself has attempted to incorporate many indicators into one AFL.

Heiken Ashi type of candles have been used instead of the normal candlestick charts. Weekly, Short term, Medium term and Long term trends have been included.

Besides the general market trend all major indicators like RSI, MACD Stochastic, T3 have been covered. Volume, price spread is indicated. Support and resistance lines are drawn on the charts. Many other features can be enabled with the help of properties window.I have removed or disabled many features as they were more confusing than informative.

This AFL can be used for general study purpose, but for deep observation we need to be more focused on individual index charts.However this work of The Southwind must be appreciated for the effort put together.

The most important thing about this AFL is that the requirement of two other files needed to run the code in Amibroker. They are T3_include.afl and JurikLib.dll and kpami.dll. The T3_include afl must be copied and pasted in the folder Include. The other two plug in dll files must be copied and pasted into Plugins folder under Amibroker. I have uploaded the files in my 4shared folder for which I have included the links. For the AFL to run properly the correct placement of these files are important. 

Once these copy past job is done the Foundation AFL for Amibroker is ready for charting. The code it self is too large to be posted here. I therefore have uploaded in my 4shared folder. Kindly download the same from links given here.

T3_Include  - in include folder

 kpami.dll     in plugin folder

JurikLib.dll  in plugin folder

The_Foundation Afl in custom formula folder

Best of Luck

Amibroker AFL for Intraday with Buy Sell -2

Today I am posting another AFL that can be used both for Intraday and on EOD basis. I found this in internet and I am not the creator of this AFL. This AFL seems to have an Indonesian origin, which I am not sure.Anyway the interesting thing is it can be used for trading.

The background color can be changed using the properties window. It also has a magnified market view for viewing convenience.
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I request the readers to do some back-testing, before they arrive at decision to deploy this tool in intraday trading. I would like to suggest the use of other indicators for confirmation.

Amibroker AFL for Identifying Candlestick chart patterns

Candlestick pattern Identification

Candlestick patterns invented by the early Japanese rice traders are becoming more and more popular among technical analysts. The art of identifying a chart pattern is something every share trader must learn. Candlestick chart reading can be like Greek for beginners because of the peculiar terms involved in interpreting the patterns. But with little involvement, the interpretation of candlestick charts can be very interesting. 

I am posting another AFL today. This AFL will identify the candlestick patterns in a chart and print it on the screen. This afl covers all major candlestick patterns. Each pattern has been allocated a number for easy identification. I have listed the allocated number to each pattern below. Wherever the mouse is clicked and a pattern is selected the name of the pattern is displayed at the top left corner of the chart window.

NearDoji  -1, BlackCandle – 2LongBlackCandle -3SmallBlackCandle  -4/ WhiteCandle  -5, LongWhiteCandle - 6 SmallWhiteCandle - 7 BlackMaubozu – 8 WhiteMaubozu – 9, BlackClosingMarubozu - 10, WhiteClosingMarubozu - 11, BlackOpeningMarubozu - 12, WhiteOpeningMarubozu  - 13, HangingMan - 14, Hammer - 15, InvertedHammer - 16, ShootingStar – 17, BlackSpinningTop -18, WhiteSpinningTop - 19, BearishAbandonedBaby - 20, DarkCloudCover - 21, BearishEngulfing - 22, ThreeOutsideDownPattern – 23, BullishAbandonedBaby - 24,BullishMorningDojiStar - 25BullishEngulfing - 26, ThreeOutsideUpPattern - 27BullishHarami – 28ThreeInsideUpPattern - 29/PiercingLine - 30, BearishHarami - 31, ThreeInsideDownPattern - 32,ThreeWhiteSoldiers -33, DarkCloudCover - 34,  ThreeBlackCrows  -35, doji - 36, GapUp - 37, GapDown - 38, BigGapUp - 39, BigGapDown - 40, HugeGapUp - 41HugeGapDown - 42, DoubleGapUp - 43, DoubleGapDown - 44 

I hope this afl will be of some help to beginners who would like to learn the technical aspects of a candlestick pattern chart.