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59. How the Fed Changes Interest Rates
Produced By:
InformedTrades
on 19 Feb 2008
Tags: howtotradetradingeconomy(more...)fedfederalreservedaytradeinvestingbusinessforexfuturesstockmarket
informedtrades(less)
Description: http://www.informedtrades.com/
A lesson (more...) on open market operations and how the federal reserve increases and decreases the money supply in order to move interest rates and what this means for traders of the stock, futures, and foreign exchange markets.
In our last lesson we looked at the structure of the Federal Reserve and the components of the FOMC, the portion responsible for implementing Monetary Policy. Now that we have an understanding of this, we can look further into exactly how monetary policy is facilitated and what happens to markets under differing scenarios.
Monetary Policy very simply is anything which relates to action by the Federal Reserve to influence the amount of money and credit available in the economy. To understand exactly what this means, one first must understand the concept of fiat monetary systems.
Fiat Monetary Systems: The United States, like most major economies, has what is known as a fiat monetary system. A Fiat Monetary system very simply is any system which uses a monetary unit (in this case the US Dollar) which is not convertible to some commodity, in general a precious metal such as gold.
Fiat money, is money that is backed by the credit of some entity, normally a government, and the value for which is derived from its relative scarcity and the faith placed in it by the population which uses it.
This is important to us as traders because the fact that the Dollar is not convertible to a commodity such as gold gives the Federal Reserve the ability to increase or decrease the money supply as it sees fit, or in other words to enact Monetary Policy.
With this in mind the 3 tools available to the Fed for enacting monetary policy are:
• Open Market Operations
• The Discount Rate
• Reserve Requirements
The most common tool that the Fed uses, and therefore the one that we will cover, is Open Market Operations. Once we have an understanding of this and how increases or decreases in the supply of money affect demand and prices, the other two less commonly used tools will be more easily understood.
Through something which is known as the Open Market Committee, the Fed increases and decreases the supply of money by buying and selling US Government securities.
When The Fed wishes to reduce interest rates they will increase the supply of money by buying government securities using money that was not available in circulation before they made their purchase. As with anything, when additional supply is added and everything else remains constant, price normally falls. In this case the price that we are referring to is the cost of borrowing money or interest rates.
Conversely, when the fed wishes to increase interest rates they will instruct the open market committee to sell government securities thereby taking the money they earn on the proceeds of those sales out of circulation and reducing the money supply. (less)
50. How to Set Trade Position Size for Maximum Profits
Produced By:
InformedTrades
on 25 Jan 2008
Tags: howtotradetradingposition(more...)sizingdaytradeinvestingmoneyfinancebusinessforexfutures
stockmarketinformedtrades(less)
Description: http://www.informedtrades.com/
A leIn (more...) yesterday's lesson we talked about the martingale and anti martingale methods of trading which are the two categories which position sizing methodologies fall into. In today's lesson we are going to talk about one of the most basic anti martingale strategies, which is discussed in Dr. Van K. Tharp's book Trade Your Way to Financial Freedom, the Percent Risk Model.
The first step in determining your position size using this method is to decide how much you are going to risk on each trade in terms of a percentage of your trading capital. As we have discussed in our previous lessons on setting stop losses, studies have proven that over the long term traders who risk more than 2% of their capital on any one trade normally are not successful over the long term. Another factor to consider here when setting this percentage are things such as the win rate (how many winning trades) your system is expected to have versus the number of losing trades as well as other components which we will discuss in future lessons.
Once this loss in percentage terms has been determined, setting your stop then becomes a function of knowing how large a position can be traded while still being below your maximum risk level.
As an example lets say you have $100,000 in trading capital and you have determined from analyzing your strategy that 2% or $2000 (2%*$100,000) of your trading capital is an appropriate amount to risk per trade. When analyzing the Crude Oil Futures market you spot an opportunity to sell crude at $90 a barrel at which point you feel there is a good chance it will trade down to at least $88 a barrel. You have also spotted a strong resistance point at just below $91 a barrel and feel that 91 is a good level to place your stop and also gives you a reward to risk ratio of 2 to 1.
From trading crude oil you know that a 1 cent or 1 point move in the market equals $10 per contract. So analyzing further to determine your position size you would multiply $10 times the number of points your stop is away from your entry price (in this case 100) and you would come up with $1000 in risk per contract. Lastly you divide the total dollar amount you are willing to risk by your total risk per contract ($2000 total risk/$1000 risk per contract) to get the number of contracts which you can place on this trade (in this case 2 contracts)
As Dr. Van K. Tharp Points out in his book Trade Your Way to Financial Freedom, the advantages of this style of position sizing are that it allows both large and small accounts to grow steadily and that it equalizes the performance in the portfolio by the actual risk. As he also points out the disadvantages of this system are that it will require you to reject some trades because they are too risky (ie you will not have enough money in your account to trade the minimum contract size while staying under your maximum risk level) and that there is no way to know for sure what the actual amount you are risking will be because of slippage which can result in dramatic differences in performance when trading larger positions or using tight stops.
That completes our lesson for today. In tommorow's lesson we will look at another position sizing model which is known as the Percent Volatility Method.
sson on the % Risk Model of setting position sizes for active traders of the forex, futures, and stock markets. (less)
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Comments: 0
Duration: 05:42
48. Why Fixed Position Sizing Is Not the Best Way to Trade
Produced By:
InformedTrades
on 23 Jan 2008
Tags: howtotradepositionsizing(more...)daytradeinvestingmoneyfinancebusinessforexfuturesstockmarket
informedtrades(less)
Description: http://www.informedtrades.com/
A lesson (more...) on how using a standard amount per trade when trading the stock, futures, or forex markets is not the best way to go.
In yesterday's lesson we introduced another important yet often overlooked aspect of trading and money management which is position sizing. In today's lesson we are going to begin to look at some of the strategies that many successful traders use to determine their position sizes.
As we discussed briefly in the last lesson many traders make the mistake of choosing an arbitrary number such as 1 contract or 100 shares of stock to trade when they first enter the market. In addition to the fact that this does not consider the amount of capital a trader has at his disposal, it also does not take into account the fact that the Dollar value as well as the volatility characteristics of one contract or 100 shares of stock is going to very greatly. Like a poker player who bets the same amount on every hand, this also does not allow a trader the flexibility to trade bigger on trades with a higher probability of success and smaller on trades with a lower probability of success.
As you can see from the picture below, a trader trading 100 shares of a $20 stock which fluctuates 5% a day and a second position of 100 shares of a $30 stock which fluctuates 1% a day does not present the risk/reward picture that many traders would expect it would. In this example the smaller position actually has a greater potential risk and reward because of the greater volatility of the first stock in the example.
Chart Example
The next level of sophistication up from the above, is trading a standard trade size such as 1 contract or 100 shares of stock for every fixed amount of money. As Dr. Van K. Tharp points out however in his book Trade Your Way to Financial Freedom, there are several distinct disadvantages to using this method which are:
1. Not all Investments are Alike (100 shares of a $10 stock which moves 5% a day is not going to be the same as trading 100 Shares of a $10 stock that moves 1% a day)
2. It does not allow you to increase your exposure rapidly with small amounts of money
3. You will always take a position even when the risk is too high.
As you can hopefully see from the above information, while the fixed position size per dollar amount is better than simply picking a number of thin air, there are many disadvantages to this method. In tomorrow's lesson we will begin to look at some different ways of overcoming these disadvantages starting with a discussion of the martingale and anti martingale position sizing strategies so we hope to see you in that lesson.
As always if you have any questions or comments please feel free to leave them in the comments section below so we can all learn to trade together, and good luck with your trading. (less)
Views: 2
Comments: 0
Duration: 06:48
How to Embed a List of YouTube Videos on MySpace
Produced By:
ocollier
on 19 Jan 2008
Tags: MySpacecommentsYouTubevideos(more...)embedmarketingbeauty(less)
Description: http://www.otiscollier.com
In this (more...) video, I learned a neat little trick to embed multiple YouTube videos on your MySpace friends comments section.
http://www.youtube.com/sharing
ow do I link to a list of YouTube videos?
Want to show off more than one of your own YouTube videos, or specifically tagged videos, on your website? Below are a few options!
Option 1: Displaying a window of your own YouTube videos
By placing a small snippet of HTML code in your webpage, you can pull up a list of all your YouTube videos in a neat, little window. As a result, a small box with your videos will be rendered. (less)
Views: 2
Comments: 0
Duration: 04:44
41. How to Use the Average True Range (ATR) To Set Stops
Produced By:
InformedTrades
on 11 Jan 2008
Tags: howtotradeAveragetruerangeATR(more...)daytradeinvestingmoneyfinancebusinessforexfuturesstock
marketinformedtrades(less)
Description: http://www.informedtrades.com/
A lesson (more...) on how to include volatility in setting for traders of the stock, futures, and forex markets.
In our last lesson we looked at determining how much you are willing to risk on any one trade as the first step in developing a successful money management strategy. Now that we have established this, in today's lesson we are going to look at some of the different ways that you can then set your stop, which fit within this initial criteria.
As we learned in last lesson, risking more than 2% of total trading capital on any one trade is a major reason for the high failure rate of most traders. Does this mean that when setting a stop we should simply figure out how many points away from our entry represents 2% of our account balance and set the stop there? Well, traders could obviously do this and to be honest it would probably be a lot better than most of the other money management strategies I have seen, but there better ways.
Although many traders will look at other things in conjunction, having an idea of the historical volatility of the instrument you are trading is always a good idea when thinking about your stop loss level. If for instance you are trading a $100 stock which moves $5 vs. a $100 stock that moves $1 a day on average, then this is going to tell you something about where you should place your stop. As it is probably already clear here, all else being equal, if you put a stop $5 away on both stocks, you are going to be much more likely to be stopped out on the stock which moves on average $5 a day than you are with the stock that moves on average $1 a day.
While I have seen successful traders who get to know a list of the things they are trading well enough to have a good idea of what their average daily ranges are, many traders will instead use an indicator which was designed to give an overview of this, which is known as the Average True Range (ATR)
Developed by J. Welles Wilder the ATR is designed to give traders a feel for what the historical volatility is for an instrument, or very simply how much it moves. Financial instruments that exhibit high volatility move a lot, and traders can there fore make or lose a lot of money in a short period of time. Conversely, financial instruments with low volatility move a relatively small amount so it takes longer to make or lose money in them all else being equal.
As with many of the other indicators we have studied in previous lessons, Wilder uses a moving average to smooth out the True Range numbers. When plotted on a graph it looks as follows:
What you are basically seeing here is a representation of the daily movement of the EUR/USD. As you can see when the candles are longer (which represents large trading ranges and volatility) the ATR moves up and when the candles are smaller (representing smaller trading ranges and volatility) it moves down.
So with this in mind, the most basic way that traders use the ATR in setting their stops is to place their stop a set number of ATR's away from their entry price so they have less of a chance of being knocked out of the market by "market noise".
That's our lesson for today. In tomorrow's lesson we are going to look at how you can use volatility based stops in conjunction with another method traders use for setting stops based on technical levels so we hope to see you in that lesson.
As always if you have any questions or comments please leave them in the comments section below so we can all learn together and good luck with your trading! (less)
38. Profit Expectations: What Millionaire Traders Know
Produced By:
InformedTrades
on 08 Jan 2008
Tags: howtotradepsychologyof(more...)tradingdaytradeinvestingmoneyfinancebusinessforexfuturesstock
marketinformedtrades(less)
Description: http://www.informedtrades.com/
A (more...) lesson on how most traders have unrealistic profit expectations which cause them to lose all their money and what realistic profit expectations are when trading the stock, futures or forex markets.
The first step in understanding and building a solid money management plan, the key component in successful trading, is setting realistic profit expectations. All too often I see people open trading accounts with balances of $10,000 or under expecting to make enough money to support themselves from their trading profits within a short period of time. After seeing all of the hype that is out there surrounding most trading education, trading signal services, etc it is no wonder that people think this is a reasonable goal, but that does not make it a realistic one.
As most any truly successful trader will tell you, the stock market has averaged somewhere in the neighborhood of 10% a year over the last 100 years. What this basically means is that if you would have invested in the 30 stocks that make up the Dow Jones Industrial Average, the index which is designed to represent the overall market, you would have earned about 10% on your money on average over the last 100 years. With this in mind, what most any truly successful trader will also tell you, is that if you can consistently double that return, on average, over the long term, then you will be considered among the best traders out there. (less)
Views: 2
Comments: 0
Duration: 05:58
Introduction to Clickbank - Part One
Produced By:
ocollier
on 06 Jan 2008
Tags: clickbankaffiliatehoplinkcj(more...)commissionjuntion(less)
Description: http://www.otiscollier.com
Yesterday I (more...) shared with you both of my checks from Clickbank. In this video I want to share with you some basic information about Clickbank.
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Views: 2
Comments: 0
Duration: 07:53
34. Why Most Traders Lose Money and The Solution
Produced By:
InformedTrades
on 03 Jan 2008
Tags: howtotrademoneymanagementloosingmoney(more...)daytradeinvestingmoneyfinanceforexfuturesstockmarket
informedtrades(less)
Description: http://www.informedtrades.com/
A (more...) lesson on the importance of money management in trading and how most traders of the stock, futures, and forex markets ignore money management because they do not consider it important and therefore loose money trading.
Why the Majority of Traders Fail
In our last lesson we finished up our series on Candlestick Chart Patterns with a look at the Inverted Hammer and the Shooting Star Candlestick Chart Patterns. In today's lesson we are going to start a new series on money management, the most important concept in trading and the reason why most traders fail.
Over the last several years working in financial services I have watched hundreds if not thousands of traders trade, and over and over again I see smart people who have been intelligent enough to accumulate large sums of money in their non trading careers open a trading account and loose huge sums of money making what you would think are easily avoidable mistakes that one would think even the dumbest traders would avoid.
Those same traders are the ones that consider themselves too good or smart to make the same mistakes that so many others make, and that will skip over this section to get to what they feel is the "real meat" of trading, strategies for picking entry points. What these traders and so many others fail to realize is that what separates the winners from the losers in trading is not how good someone is at picking their entry points, but how well they factor in what they are going to do after they are in a trade into their trade entries and how well they stick to their trade management plan once they are in the trade.
For the few who do get that money management is far and away the most important aspect of trading, the large majority of these people don't understand the large role that psychology plays in money management or consider themselves above having to work on channeling their emotions correctly when trading.
So in this series of lessons we are going to first start with a look at the psychology of money management and the role that this plays in causing so many traders to loose their shirts and then move on to ways of managing this before finishing up with specific strategies for managing trades once you are in them.
While not the most exciting part of trading, I assure you that if you don't understand and work on the concepts presented in this section you are pretty much doomed to failure as a trader no matter how well you understand the other aspects of trading. Having said this I also assure you that if you do understand and work to expand your knowledge of the concepts presented in this series you will be well on your way to becoming a successful trader. (less)
33. How to Trade the Inverted Hammer/Shooting Star Patterns
Produced By:
InformedTrades
on 02 Jan 2008
Tags: howtotradeshootingstarinvertedhammer(more...)candlestickdaytradeinvestingmoneyforexfuturesstock
marketinformedtrades(less)
Description: http://www.informedtrades.com/
A (more...) lesson on how to trade the Inverted Hammer and Shooting Star Candlestick Chart Patterns for active traders and investors using technical analysis in the stock, futures, and forex markets.
In our last lesson we learned about the Morning and Evening Star Candlestick Patterns. In today's lesson we are going to wrap up our series on candlestick patterns with a look at the Inverted Hammer and the Shooting Star candlestick patterns.
The Inverted Hammer
As its name implies, the inverted Hammer looks like an upside down version of the Hammer pattern which we learned about several lessons ago. Like the Hammer Pattern, the Inverted Hammer is comprised of one candle and when found in a downtrend is considered a potential reversal pattern.
The pattern is made up of a candle with a small lower body and a long upper wick which is at least two times as large as the short lower body. The body of the candle should be at the low end of the trading range and there should be little or no lower wick in the candle.
What the pattern is basically telling us is that although sellers ended up driving price down to close near to where it opened, buyers had significant control of the market at some point during the period which formed the long upper wick. This buying pressure during the downtrend calls the trend into question which is why the candle is considered a potential reversal pattern. Like the other one candle patterns we have learned about however, most traders will wait for a higher open on the next trading period before taking any action based on the pattern.
Most traders will also look at a longer wick as a sign of a greater potential reversal and like to see an increase in volume on the day the Inverted Hammer Forms.
The Shooting Star
pic
The Shooting Star looks exactly the same as the Inverted Hammer, but instead of being found in a downtrend it is found in an uptrend and thus has different implications. Like the Inverted Hammer it is made up of a candle with a small lower body, little or no lower wick, and a long upper wick that is at least two times the size of the lower body.
The long upper wick of the pattern indicates that the buyers drove prices up at some point during the period in which the candle was formed but encountered selling pressure which drove prices back down for the period to close near to where they opened. As this occurred in an uptrend the selling pressure is seen as a potential reversal sign. When encountering this pattern traders will look for a lower open on the next period before considering the pattern valid.
As with the Inverted Hammer most traders will see a longer wick as a sign of a greater potential reversal and like to see an increase in volume on the day the Shooting Star forms.
Chart
That completes this lesson and wraps up our series on candlestick chart patterns. In our next lesson we are going to start a new series with a look at Money Management and how this applies to profitable trading so we hope to see you in that lesson. (less)
Views: 2
Comments: 0
Duration: 05:07
32.How to Trade the Morning/Evening Star Candlestick Pattern
Produced By:
InformedTrades
on 28 Dec 2007
Tags: howtotradecandlestickmorningstar(more...)eveningstardaytradeinvestingmoneyforexfuturesstockmarket
informedtrades(less)
Description: http://www.informedtrades.com/
A (more...) lesson on how to trade the morning and evening star candlestick chart patterns for active traders and investors using technical analysis in the stock, futures, and forex markets.
In our last lesson we looked at the Hammer and Hanging Man Candlestick Chart Patterns. In today's lesson we are going to look at two more reversal candlestick patterns which are known as the Morning and Evening Star.
The Morning Star
Pic
The Morning Start Candlestick Pattern is made up of 3 candles normally a long black candle, followed by a short white or black candle, which is then followed by a long white candle. In order to have a valid Morning Start formation most traders will look for a close of the third candle that is at least half way up the body of the first candle in the pattern. When found in a downtrend, this pattern can be a powerful reversal pattern.
What this represents from a supply demand situation is a lot of selling into the downtrend in the period which forms the first black candle, then a period of lower trading but with a reduced range which forms the second period and then a period of trading indicating that indecision in the market, which is then followed by a large up candle representing buyers taking control of the market.
Unlike the Hammer and Hanging Man which we learned about in our last lesson, as the Morning Star is a 3 candle pattern traders often times will not wait for confirmation from the 4th candle before entering the trade. Like those patterns however traders will look to volume on the third day for confirmation. In addition traders will look to the size of the size of the candles for indication on how big the reversal potential is. The larger the white and black candle and the further that the white candle moves up into the black candle the larger the reversal potential.
Chart
The Evening Star
The Evening Star Candlestick Pattern is a mirror image of the Morning Star, and is a reversal pattern when seen as part of an uptrend. The pattern is made up of three candles the first being a long white candle representing buyers driving the prices up, then a short white or black second candle representing indecision in the market, which is followed by a third black candle down which represents sellers taking control of the market.
The close of the third candle needs to be at least half way down the body of the first candle and as with the Morning Star most traders will not wait for confirmation from the 4th period's candle to consider the pattern valid. Traders will look for increased volume on the third period's candle for confirmation, the larger the black and white candles are and the further the black candle moves down the body of the white candle the more powerful the reversal is expected to be.
Chart Example
That's our lesson for today. In our next lesson we are going to finish up our series on Candlestick patterns with a look at the Shooting Star and Inverted Hammer Candlestick Patterns. (less)
Views: 2
Comments: 0
Duration: 05:28
19. How toTrade Moving Averages Like a Pro Part 2
Produced By:
InformedTrades
on 14 Dec 2007
Tags: howtodaytradeinvestingtrading(more...)forexmarketstockmarketfuturesmarkettechnicalanalysis
informedtrades(less)
Description: http://www.informedtrades.com/tags/index.php/moving-average/
In (more...) our last lesson we looked at the two main types of moving averages, the simple moving average and the exponential moving average. In this lesson we are going to look at some of the ways that traders use moving averages to pick their entry and exit points in the currency, commodities, and equities market.
As moving averages are lagging indicators they tend to work well in identifying and following a trend and not to work well in ranging or trend less markets. Because of this traders will often use them to trade with the trend as well as to identify potential areas of support or resistance which may result in a continuation or reversal of a trend.
Lets look at some examples:
The most basic way that traders will use moving averages is to identify and then trade with the trend of a particular instrument. Although most traders will probably want to use the moving average in conjunction with some of the things that we have learned so far and some of the things we will learn in future lessons, the most basic way to trade using just the moving average is to buy when the price of a financial instrument breaks above the moving average line and sell when the financial instrument breaks below the moving average line. For confirmation traders will often wait for a full bar to close above the moving average line before entering long and a full bar to close below the moving average line before entering a short position.
Example of Trend Following Using Moving Averages:
A second way that traders use moving averages is to identify areas of support or resistance and then trade the break of these levels, looking for a potential reversal of the trend. When a financial instrument has shown a particular moving average level to be significant from a support or resistance standpoint in the past by testing the moving average line several times, and then breaks that level, traders will often see this as a warning sign that the trend is reversing and position themselves accordingly.
Example of Trading Support and Resistance Breaks Using Moving Averages:
The last way that traders will using moving averages is by plotting a longer term moving average and a shorter term moving average on a chart and trading the cross over. The idea here is that the shorter term moving average will be faster in identifying changes in the trend and therefore traders will look to get long when the shorter term moving average crosses above the longer term moving average and short when the shorter term moving average crosses below the longer term moving average.
Example of Moving Average Crossovers:
That completes this lesson. You should now have a good understanding of how many traders trade moving averages. As always if you have any questions or concerns please feel free to post them in the comments section below, and have a great day! (less)
5. Day Trading Lesson 5: Support and Resistance
Produced By:
InformedTrades
on 28 Nov 2007
Tags: daytradeforexstocksfututres(more...)tradinginvestingmoneybusinessfinanceinformedtrades(less)
Description: http://www.informedtrades.com/
The (more...) fifth lesson in a series on technical analysis for active traders of the forex, futures, and stock markets.
Just as anything where market forces are at play, the price of a financial instrument in the stock, futures or forex markets is ultimately determined by supply and demand. Very simply, if demand is increasing in relation to supply then price will rise, and if demand is decreasing in relation to supply then price will fall.
As we have learned in previous lessons, what you are basically looking at when you see an uptrend on a chart is an extended period of time where demand has continued to increase in relation to supply. Similarly when looking at a downtrend you are seeing an extended period of time where demand has decreased in relation to supply for an extended period of time, causing price to fall. Similarly, in a downtrend, demand is continuously falling in relation to supply which causes the price of an instrument in the stock, futures or forex market to fall.
In this lesson we are going to look at something known as support and resistance which are price levels where the supply demand equation is expected to change, and price is then expected to stop moving in the direction it was moving previously, or reverse direction. (less)
