Category: Enhanced Trading

Enhanced Trading: My style of trading.

A Simple Candlestick Chart Guide

I have made a simple tutorial for people unfamiliar with candlestick charts and candlestick trading techniques. I primarily use candlestick charts whenever I view stock charts. The benefits of candlesticks are numerous.

What are candlesticks?

Candlesticks are a gift from Japanese rice traders. The traders developed them to predict future rice demand, in order to take full advantage of the fluctuation of rice prices. The rice traders wanted to buy low and sell high, which is our same goal.

The picture below outlines the major characteristics of candlesticks.

A Simple Candlestick Guide

Each candlestick represents 4 pieces of data:

  • The opening price at the start of the trading session.
  • The closing price at the end of the trading day.
  • The day’s high price.
  • The day’s low price.

Candlesticks also show if the price went up (white candlestick body) or down (black candlestick body).

Some candlesticks have long bodies and others have very short bodies and look like a cross. The size of the body means a lot in candlestick trading. Candlestick patterns and various candlestick trading strategies use the size of candlestick bodies to determine when you should buy and when you should sell. Those topics are for a later date.

My belief is that using candlesticks, with 4 pieces of stock price information and many useful patterns and strategies, gives me a trading advatange.

Stock Trading Software I Use

I use a variety of stock trading software to assist my research, chart viewing, and trading. I have programmed and developed some of the software myself. I also use open source and other freely available software packages. Some of the tools I use are included with my broker, Ameritrade.

Software a trader must have:

  • charting software with technical analysis charts
  • a stock market screener – set your search parameters and find stocks that fit your criteria, such as price ranges, volume scans, and technical analysis indicator signals
  • watchlist generation software – list of stocks that fit my criteria
  • that I want to watch carefully
  • real time news feed – real time news is a must have for a serious stock trader
  • execution of orders – a good interface for buying and selling quickly and efficiently

Software I use:

Charting software:

Screener:

  • I wrote my own screener to find analysis criteria I am interested in. My screener was designed for my personal tastes and features some trader friends have asked for. Check out my Enhanced Stock Screener.
  • Another free stock screener is the Yahoo! Finance Stock Screener

Watchlists:

  • I also generate my own watchlists from my screens. These watchlists contain the results of my screener narrowed down further by specific things I look for in trades and stocks. One thing I look for his the previous 5 day charts and price history. Sometimes I look for certain patterns in the ticker’s 5 day history.
  • You can use the results from your screener to form your watchlist. Some screener results will return many stocks that fit loose criteria, but you can refine your searches to keep narrowing down the list. Then, during trading you can watch this list real time, looking for good trading action.

Real Time News:

  • I use Ameritrade’s real time news application since it is included with Ameritrade Apex accounts.
  • I also watch CNBC throughout the trading day and as a recap of the top business and financial news, with updates and alerts. I highly recommend watching CNBC.
  • I constantly read RSS feeds and online news websites, such as Google Business News, Yahoo! Finance news, and Newsvine

Order Execution Efficiency:

  • I have been somewhat satisfied with Ameritrades order system. It has been good to me, but I have some trading friends that dislike it. One complaint is that it takes too long to buy or too long to sell using the interface. Ameritrade recently overhauled their website and order placing, saved order preferences, and interface have improved immensely.
  • I have been thinking about opening an InteractiveBrokers account because they have the ability for programmers to interface with their trading system directly. Then I can write my software to place orders in a way that would be most efficiently for me.

Open Source Software:

I use a variety of open source software to assist my research and enhance my trading capabilities. Here’s some of the software I like, and some projects I contribute to:

On Saving Money

I’m always telling my family and friends they need to put part of each paycheck into trading accounts and 401k plans, or some kind of market account where they’ll earn more interest than a savings account.

They stare at me blankly.

So I tell them a joke: “The quickest way to a man’s heart is with Chuck Norris’ fist.”

Most people I know burn through their money faster than they get it. I’m sure part of the problem is lack of financial education especially on the part of the middle class. We’re taught how to be great consumers, but not how to save and plan our financial future. We also have to constantly pay off debts such as mortgages, credit cards, and that new 15mpg SUV.

It’s hard to save money when next month’s paycheck is paying off last month’s bills.

I think the rich get richer because they know how to get rich. By saving money. By investing in stocks, bonds, currencies, and real estate. By learning the financial game.

It may be easier to make money once you have money, but we all need to take the first financial step to building our empire: learning basic finance and starting to save money.

“Life is full of uncertainties. Future investment earnings and interest and inflation rates are not known to anybody. However, I can guarantee you one thing.. those who put an investment program in place will have a lot more money when they come to retire than those who never get around to it.” – Noel Whittaker, regarding long term investing.

How to make successful trades

I wish I knew.

What I do know: There are many strategies, formulas, indicators, and many other factors that can help you make more successful trades.

The #1 rule for any stock trader or investor is: Do your Due Diligence (DD).

The Ultimate Success Formula, as described by Anthony Robbins, is:

1. Know your outcome.
2. Take massive action.
3. Notice what is working and what is not.
4. Change your actions as required to achieve your outcome.

I had never heard of this formula or Tony Robbins until I had been
browsing some business blogs.

Tony Robbins’ formula is the same formula I have been using to make
trades, but for me it never had a name.

My thoughts on applying the Ultimate Success Formula to stock trading:

1. Know your outcome: Before you buy a stock, decide when you are going to sell the stock. Set a minimum amount you will lose if the stock declines and set a stop-loss at that price. Set a minimum amount you are looking to gain. When I hit my minimum, I raise my stop-loss to that price. Use trailing stops to keep raising and locking in your profits.

2. Take massive action: For me, this is doing your Due Diligence. Before you decide to buy you need to do massive research on the company, the stock history, news, and any other information you can find. The more you know about the company, the better judgements you can make when you trade it. “Knowledge is power.”

3. Notice what is working and what is not: Analyze your past trades and your portfolio’s growth. Which stocks worked for your portfolio and which did not? Are there any similarities or characteristics that set your winning trades apart from your losing trades? I keep a notepad around and mark different ideas, goals, or what I’m thinking when I make trades. Not only does it help me determine what trading strategies are working and what is not, it also helps with the fourth part of the fomula, changing my actions as required to achieve my outcome.

4. Change your actions as required to achieve your outcome: The chaotic nature of the stock market dictates when and how you need to change your trading strategies. It seems like some traders only use a single formula, technical analysis indicator, or chart pattern to make trades. Their unwillingness to adapt means they may miss out on more profits, or they may be making more losing trades. When the market changes, I change my strategy.

Why I trade.

There are many reasons why I trade. Here are my top 4 reasons:

Excitement For me, trading is never boring. Each day brings new factors, new news, new stocks to choose from. Each trading day is different. To trade you must be active and alert, eliminating the possibility of being bored. Each day I trade is fresh and new which I think is part of the appeal of trading for me.

No Coworkers or Bosses No need to rely on others. No need to hear their bitching and moaning. No need to pull extra loads because someone called in sick. No boss can tell you they need you to come in on Saturday – the market’s are closed!

Choice All decisions are ultimately ours as traders to make. We do the research, find the stocks, execute the trades, and determine our own strategies. The power to succeed lies in our hands and how much work we put in. We see the results of our work instantly – either our portfolio goes down and we learn from that trade, or our portfolio goes up and we working on imporiving our strategies. The choice is ours.

Money Money money money. More money. I think this reason is self-explanatory.