Archive for the ‘Important Announcements’ Category

A Japanese Candlestick’s Panorama

Friday, August 10th, 2012

In the Tokugawa era, a man named Munehisa Homma, a rice merchant from Sakata, was said to had first incited the idea of Japanese Candlestick which is now used for futures market analysis. It was then used to predict the price of rice in the Ojima Rice market in Osaka.

Later on a man named Steve Nison, a technical analyst, made a study on it which also pave to its graphical representation.

The Japanese Candlestick chart is made up of individual candlesticks that connotes certain actions that the trend may take. Each candlestick is molded up by 4 attributes namely; Open price, Close price, Low price, and lastly High price. A candlestick is made up of a real body and shadow.

The candlesticks comes in different sizes of the body and the shadows that accompanies it. Each type indicates unique behaviors of the market.

Long Body – long body but with a short shadow

Short Body – short body with a short shadow

Marubozu – candlestick without a shadow. It gives a good confirmation signal of an upward or downward trend

Doji – a candlestick that almost have no body. It is a result of the equal opening and closing price.

Long legged doji – a subtype of doji that have a long shadow of the same length. It shows the strength of the bull and bear are equal and a new trend will soon emerge.

Dragonfly doji – another subtype of doji with a long lower shadow that denotes that there is an impending down falling trend.

Grave stone doji – looks like an inverted dragonfly doji that makes an opposite remark – an evident uptrend may soon occur.

Spinning top – a type of doji that posses a long shadow that signifies that uncertainty encompasses the market. The longer the shadow is, the higher the possibility of a new trend formation.

Hammer or Hanging man – also another type of doji whose name depends on the trend that it belongs. It has a medium size body accompanied by a long lower shadow.

Inverted Hammer or Shooting star – the opposite of hammer and hanging man.

There are certain patterns that may be observed when 2 or 3 candlesticks are merged.

Stephen Stevenson

Hunting with Williams’s Alligator

Saturday, August 4th, 2012

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In Bill Williams’s book, New Trading Dimension: How to Profit from Chaos in Stocks, Bonds, and Commodities, the Alligator was first mentioned. It is a type of strategy based on smoothed moving averages (SMMA) that assist in determining the presence or absence of the trend and as well as its direction.

The Alligator is composed of 3 SMMA:

Alligator’s Jaw’s (blue line) – the longest period line with 13-period smoothed moving average built at the median price (High + Low)/2, then moved into the future by 8 bars.

Alligator’s Teeth (red line) – the middle period line with 8-period smoothed moving average built at the median price (High + Low)/2, then moved into the future by 5 bars.

Alligator’s Lips (green line) – the shortest period line with 5-period smoothed moving average built at the median price (High + Low)/2, then moved into the future by 2 bars.

[SinglePic not found]Hunting with this creature is dangerous if you’re not careful with it. It could snap you off easily if your analysis did not conform with its  behavior. So the first thing you have to know is how the Alligator behaves.

If all 3 lines (Jaw, Teeth, Lips) are intertwined with each other, then the Alligator is sleeping. The longer it sleeps, the hungrier it gets. But always remember that you shouldn’t bother it when it sleeps, so do not open any trade. When it starts to hunt, that’s the time that you had to make your move.

If the Jaws (blue) are at the bottom, then the Teeth (red) is at the middle, then followed up by the Lips (green)  at the top, it signifies that the trend is going on an upward direction. On the other hand, if the positions are reversed wherein the Jaws (blue) are at the top followed by the Teeth (red) at the middle and Lips (green) is at the bottom then the movement of the trend is downward.

After feeding, the Alligator sleeps again and you have to wait until it wakes up and feed again. Elliot wave traders can work best with the Alligator because it helps to identify the impulse and corrective waves. If the price trades outside the Alligator’s mouth then impulse waves are forming but when it is on the Alligator’s mouth, the corrective waves are forming.

Stephen Stevenson

Understanding the Fundamentals – Money Supply

Thursday, July 26th, 2012

Money supply is basically the total amount of currency circulating in an economy at a specific time. It involves issued paper money, coins, and other liquid instruments such as funds on checking and savings accounts in the bank.

The value of Money supply is an important macroeconomic indicator because it may impact the economy through price level of goods and services, inflation, and the business cycle. The government or the central bank releases the information annually.

Analyst from both public and private sector carefully monitors it because of its possible effect on the economy. It is controlled through policies, born from careful analysis of economists, regarding interest rates and increase or decrease of the volume of money currently circulating the economy.

The increase of supply most probably lowers the interest rates thus attracting investments, generating jobs in the process, that would most probably land on the hands of the consumers. The more money in the hands of a consumer, the greater the urge to spend. Businesses would then react to this by increasing the rate of production which would walk hand-in-hand with the increase in the demand of labor.

The types of money and its value on the Money supply are categorized in “M”s:

M0 – is the total cash resource circulating the country.

M1 – All the tangible money, such as coins and currency, and the most liquid resources such as demand deposit and traveler’s cheques. M0 + checkable deposits.

M2 – The combination of the previous type and all time-related deposits; savings deposits, and non-institutional money-market funds. M1 + time deposits ( less than $100,000) and other highly liquid savings.

M3 – The broadest measurement of the money. It includes M2 plus time deposits exceeding $100,000, institutional money-market funds, short-terms repurchase agreements, and other larger liquid assets. M2 + large time deposits and deposits above $100,000.

M4 – the sum of all the preceding types.

The degree of importance of these indicators vary from country to country. There are countries like the United States that pay more attention to M2 while M3 outweighs the other types in most European countries. The Great Britain gives more significance to M4.

Stephen Stevenson

Knowing the Fundamentals – Understanding GDP

Friday, July 20th, 2012

A weak currency is the sign of a weak economy, and a weak economy leads to a weak nation.
- Ross Perot

The main protagonist in the fundamental play of economics. The Gross Domestic Product report or more popularly known as GDP, assumes the lead role in a country’s economy. It is the measurement of the status of the state as a whole and is usually released at 8:30 am EST during the final day of each quarter and reflects the preceding quarter. It is an aggregated monetary value of all the goods and services, excluding international activities, provided by the entire economy during a quarter.

The GDP growth rate is the main indicator on how well the state performed during the period. It reflects the manufactured goods within its territory on a specified period but it doesn’t include the cost to produce those goods.

An average of 2.5-3% growth per year is healthy and sustainable. But difficulty arises when the GDP is above that rate, it is highly unsustainable and may lead to a high inflation. Before an ‘overheated’ economy occurs, governments usually takes preliminary measures to slow down the growth.

On the other hand, a growth below that rate would usually lead to an increase in unemployment and decrease in spending.

Each initial GDP report is revised twice. The “advance” report is followed by the “preliminary” report with a month later and then followed by a final report a month after that. It is reported in two forms: Current dollar and Constant dollar.

From the name itself, it could be figured out that the Current dollar GDP is calculated using the current dollar and provides comparison between time periods. It is the most recent calculation of the GDP in terms of the current year’s dollar and it doesn’t account for changes in the rate of inflation from one period to another.

The Constant dollar GDP converts the current information into some standard era dollar. In the process, it factors out the effects of inflation and allows an easy comparison between periods.

GDP is sometimes confused with GNP or Gross National Product. The GDP only includes the goods and services produced within the territory while GNP includes those goods and services produced by companies operating outside the country’s boundary.

Stephen Stevenson.

Final step toward success – Automatic Trading

Friday, July 13th, 2012

Effort only fully releases its reward after a person refuses to quit.” -Napoleon Hill

After devising a strategy from a trader’s granary of knowledge and experience. One final step is only needed for a trader to attain financial stability, Automatic Trading System.

It is a program code intended to apply the devised strategy in a manner that it would run the trade automatically. It is often used with Indicators and Expert Advisors to assist in performing the intended task. To create such system, skills in both trading and programming is required. A trader must first convert his strategy into a set of rules that the computer would understand. After doing so, the computer would run it through your trading software which would then seek trades that would fit to the rules.

Formulating the algorithm and its automation could really be a challenge and thus should be carefully tested to make necessary corrections. But once finished, the reward greatly compensates the author. It would provide a continuous source of money for a long time unless the market demands such changes. Like any other system, it also has 2 sides. The good and the bad one.

Advantages

1. A trader doesn’t need to monitor all the time. It gives the trader the chance to concentrate and exert more effort in improving the strategy and money management rules.
2. The human factors are dispensed. The emotions and human error that lead us to abdicable results would be taken out of the formula.
3. Executions of orders are maximized since it would only need a signal to perform the task.
4. It provides more potential profit because it could run continuously.
5. The strategy would be strictly followed. Unlike humans, it wouldn’t hesitate its course.
6. The already gained profit is more secured

Disadvantages

1. The loss may go out of hand if the algorithm is not properly coded and tested.
2. Certain rules are impossible to code thus making it difficult to create the automated system.
3. It is not flexible. Unlike an experience trader that may react once a perceived potential to profit is seen, this kind of system would strictly follow its course, thus losing the potential profit that could be gained.

If you’re wondering if all the troubles is worth it – I would definitely say yes. There maybe times wherein we may wear from trading but with this kind of system it would save us from the supposedly deficit in our profit. Plus the benefit of acquiring the leisure of time to spend in more important matters really gives a favorable vantage.

Stephen Stevenson.