Trading

What is the Advance Decline Line?

What is the Advance Decline Line?

The most appropriate definition of the Advance/Decline Line is that it is a technical indicator chart which presents the changes in the value of the advance-decline index over a certain period of time. The points plotted on the chart are evaluated by calculating the difference between the number of advancing/declining issues and then summing up the result with that of the previous values.

The formula of the A/D line is as follows:

A/D Line = (# of Advancing Stocks – # of Declining Stocks) + Previous Period’s A/D Line Value

The previous periods A/D line value can also be the values of the day before. Therefore the equation can be rewritten as:

A/D Line = (# of Advancing Stocks – # of Declining Stocks) + Yesterday’s A/D Line Value

The equation above is used by people monitoring the market to predict the likelihood of a reversal. When the points obtained are plotted, the chart is read by identifying the slope. If the slope is facing downward, it is an indication of losses in the market. This also means that the market is preparing to move in the opposite direction, which means a reversal is about to occur. Similarly if the slope is facing upward, the market trend is moving toward profits and it is a healthy sign for the market.

Uses of the A/D Line

  • The A/D line is one of the simplest breadth indicators one can use to monitor the trends of the market. To understand how to use it, consider the chart shown below:

From a single glance at the chart, anyone can point out that toward the last data period the advances are greater than the declines. So this chart can indicate the advances and declines in the market.

  • Secondly, it can be used to identify the divergence.

The blue line in the top chart is drawn to connect the two subsequent highs of the market, while the blue line in the lower chart shows that there is no high. This is the divergence showing a reversal of the trend.

  • Lastly, the A/D line can be used to determine the A/D % line.

Strength of Divergence

When there is no divergence in the trend of the chart, it means that the market trend is continuing. The market is moving in a constant trend, which means that the market is strong. When there are critical markets with huge activities the people monitoring find it much easier to keep an eye on the trend. This is because when it is constant, things are mostly moving well. It is quite easy to study the chart and understand.

Weakness of Divergence

The weakness of divergence is that it is very hard to identify. Additionally most of the times, even when the market is moving upwards, the A/D line show a decline. This becomes quite confusing. The concept of reversal sometimes seems too confusing and most beginners at Forex find it tough to use the A/D line indicator.

Confusion with A/D line

To understand why the A/D line becomes confusing, let us consider the example of the NASDAQ. They had a full blown Bearish in the market, and about 70 or more stocks had moved the index higher.  Contrary to this the charts were showing declines everyday. This was because the stocks were “weighted”. This means that some of the stock had more worth than others, and made an impact on the index and was not represented on the chart.

Similarly let us consider, Microsoft which is a heavyweight technical company. They are what we call the “market cap: weighted stock, because they have huge amounts of stock in the market. For such giants, when they make a move upward, even if it is by a single point, the NASDAQ recognizes it as several points.

Therefore the changes in trends on the A/D line charts become a bit confusing for most readers. One may not always be able to detect the change in trends. However, in most cases involving smaller stocks the A/D line is very helpful.

Image credit


The History of the Stock Exchange

The History of the Stock Exchange

Today the stock market is an integral part of our economy, and it is hard to imagine a time when it didn’t exist. That time was over 300 years ago. But, towards the end of the 17th century, when trading started in Jonathan’s Coffee House, situated near the Exchange Alley in the city of London, things began to change. In 1698 businessman and coffee drinker John Castaing issued a document called The Course of the Exchange and other things‘ which was essentially a list of goods which could be bought or sold. Of course, people have always traded goods for thousands of years but this is first official record we have of any sort of organised and premeditated buying and selling.

The word spread fast and soon people were flocking to Jonathan’s Coffee House to do business. This carried on for a few years until men were regularly being thrown out for fighting and so the trading filtered down into many other coffee shops in the city. By the end of the 17th century there were over one hundred companies buying and selling stocks in the city of London with more popping up at an alarming rate. John Castaing, who was a Huguenot broker, was now publishing his document on a Tuesday and Friday and this was used for pricing and exchange rates. Coffee shops and traders relied on this for years and he became the industry leader, possibly due to his connections with the shipping trade.

In 1748 Jonathans was burnt down by a huge fire which swept through Change Alley, burning down many of the coffeee shops which hosted stock trading. The stockbrokers, now with no where to go to trade, funded the rebuild of numerous coffee houses including Jonathans which was aptly renamed The Stock Exchange.

Meanwhile in America, which was, surprisingly, slightly slower than us to catch on, was waking up and smelling the coffee literally. The first stock exchange was the Philadelphia Stock Exchange but when the New York Stock exchange opened it quickly superceeded Philadelphia and soon became the most powerful in the world. By this point trading was spreading like wildfire and in 1801 what was formally Jonathan’s Coffee Shop, where it all began, started a membership scheme and, unless you were a member you couldn’t offically trade.

By 1836 the stock market was already an integral part of the worlds economy with several exchanges in American and England. At this time a rule book was also written up and more and more stockbrokers were trading officially within an exchange. After WW1, the economy was becoming stronger and stronger and business with foreign countries was becoming more and more frequent. Measures were put in place so that dealing with overseas clients was easier and countries such as Brazil and Chile were trading with the UK daily.

However, with this new emerging foreign market comes the possiblity of fraud and over the last fifty years foreign exchange fraud has become rife. It works by scammers convincing traders that they can make a fortune by trading in the foreign exchange market. There are many many schemes but they all work in a similar way; traders are promised a huge return for an initial investment of normally between $5,000 – $10,000. They happily stump up the cash but never see the returns. By this point the scammers are away with their money.

With trading becoming more and more sophisticated as the years go by, and organisations attempting to whittle out fraud, the stock market is stronger than ever and will continue to be one of the most important aspects of the modern world.


The Best Investments You Wish You’d Spotted

The Best Investments You Wish You’d Spotted

The best investments you wish you’d spotted may have got away from you because you didn’t realise how the world would change over time.

With hindsight, shares in Ford, Coca Cola, McDonalds, Disney and Tesco would have been good buys, if a little left field, in their early days.

Technology is the Golden Goose

Technology stocks are perceived as big money earners. Facebook’s 2012 flotation may be a ticket to fortune, but some pundits believe it’s past its prime, as is the way with technology: things move fast.

Microsoft was one some didn’t believe would last. $21 shares in March 1986 would be worth around $8000 today. Although it has been higher, a $10,000 stake then is worth about $3 million today.

Apple is even more impressive. If instead of buying an iPod when they were released in October 2001 you’d invested the $400 in Apple stock, today you would be holding an investment return of over $16,000, almost 4000%.

The same test with other Apple products produces stunning results. The iMac G5, cost $1300 in August 04 (that would be now worth $27,000); the MacMini, 2005, $500 now worth $5500; and the iPhone in June 07 at $400 on a 2 year contract, now worth over $1100 (193% return).

Even the $500 for the 2010 iPad would have increased share value to $750 (50% and rising). If you had spotted the brilliance of James Dyson’s bagless vacuum cleaner in the early 1970s, you’d be worth millions. He himself is worth over £2 billion according to Forbes.

Fine Living

Gold (£200 per oz in 2003, now around £1100), rare stamps (1856 British Guyana 1 cent black on red, last auctioned in 1980 for almost $1m) and wine (1787 bottle of Bordeaux Chateau Lafite, last sold 1985 for £105,000 now almost beyond price as collectible, not drink) are among luxuries you wish you’d spotted.

If you know what you like in art – Paul Cezanne’s 1892 Card Players, worth a few pounds originally, sold in 2011 for $250 million. To buy a Lucien Freud or a David Hockney today is beyond the pockets of many investors. The trick is to spot emerging artists before others do, while they’re still relatively cheap.

You might even wish you’d invested in a lottery ticket. The highest win on a single ticket was $177 million in Feb 2006 on the US Powerball game, claimed by a syndicate of eight. The largest UK winner for a £1 ticket was an anonymous person in EuroMillions, October 10, with £113 million.


Gaining Investment From The Private Equity Market

Private equity refers to all equity in businesses that are not publicly traded The cumulative value of this equity is known as the private equity market.

Why private equity?

The private equity market has been growing since the 1970’s and continues to do so despite the difficult economic conditions globally Tens of millions of pounds in private equity is invested each year, and significantly more equity is generated from private investors than from venture capital businesses Private investors are becoming a more viable option to businesses of all types and sizes, capitalising on the wariness of the banks to lend money against the currently volatile economic backdrop.

What will private investors look for?

Private investors are looking for a return on their money As simple as that sounds, and as easy as it may be to assure investors you have a winning business which can potentially make millions, there is more to it than that.

Investors in the private equity market are generally looking to make longer term investments and will typically expect to see a return on their investment within three to seven years from the initial cash injection There are a number of factors potential investors will consider before taking a final decision of whether to invest in a business or not.

The key to any business is its ability to generate revenue consistently In addition to this crucial consideration, investors in the private equity market will also be looking at potential ways to create additional value for the business in order to generate growth Private investors sometimes invest in smaller businesses as part of a bigger picture, perhaps then raising cash through mergers to create add on opportunities elsewhere Private equity firms will also rigorously assess the suitability of the management team in place at a business before proceeding with any investment It is not unusual for businesses to undergo wholesale management changes either before, or immediately after, private equity investment is secured.

Finally, investors are looking for a smooth exit strategy Private equity investors must be clear before any investment a businesses proposal for the end of the investment period and how this will be cleanly managed to ensure there is no negative financial consequences.

Find out more

There are some superb online resources available to those looking for investment, looking to invest or those who want to find out more Dealmarket offers the very best in this field, enabling you to communicate with private equity experts as well as find great value private equity deals from around the world Make use of this superb resource now so you can comprehensively consider your options before deciding on private equity.


4 Reasons Why You Should Invest in the Stock Market

4 Reasons Why You Should Invest in the Stock Market

A lot of people think that investing in the stock market is risky. And it is – if you don’t know what you are doing. Because the truth is anything is risky if you don’t know what you are doing. With the world wide recession going on today the stock market is seen as an even greater risk. Stock prices have been fluctuating like crazy. Companies are going bankrupt left and right. Why put your money at risk? The bank is safer, right? Wrong. Despite the craziness that has been going for quite sometime now, the stock market is still a very good investment vehicle. Here are 5 reasons why you should invest in the stock market.

The stock market has good interest rates. I have nothing against banks – except their low interest rates. You only get about 2% tops if you put your money in the bank. Time deposit gives you around 6 or 7%. The stock market, on the other hand, has an average interest rate of 18% per annum. Now that’s a lot better than 6 or 7%, don’t you think?

Leverage. When you invest in the stock market you get to make use of the most powerful form of leverage in the word – compounded interest. Compounded interest is when the interest is added on the principal amount and it starts earning as well. In a way, your money starts earning you more money.

Diversification. The stock market allows you to diversify. A good investor knows better than to put all his eggs in one basket. You never know what’s going to happen. So play safe and invest in several good companies. Of course, don’t diversify too much or you won’t be able to enjoy good returns. Invest in good stable companies and you can be sure that you will end up with a comfortable nest egg to retire on.

You can grow your wealth slowly but surely. Investing is not like winning the lottery. It’s a process that takes time and effort. The revenue your get from your stock investments can increase over time. The market may fluctuate and there may be times when you hit negative, but as long as the companies you have invested in are good companies they’ll rise back up.

When it comes to investing in the stock market, time is your greatest ally. The earlier you start the better. However you should also watch the companies you invest in. The current market conditions make investing in the stock market a bit risky – especially if you don’t know what you are doing. So the best thing to do is to study the market so you can take calculated risks.

Amy C. is an interior decoration aficionado and online marketer.  Aside from being an avid reader, she also likes testing and trying new home and office decorating themes.  In addition to being an interior decoration hobbyist, she enjoys designing accent tables and candle lanterns.


Plan for Losses: The Key to Sound Trading

Plan for Losses: The Key to Sound Trading

Risk lies at the very core of trading. Without risk profit would not be possible. On the flip side of the coin, because of that risk there is the danger of big losses befalling you. However, as necessary as taking risks is if you’re to turn a profit, by using stop losses intelligently, you can protect yourself from the nasty surprises that compromise an unavoidable part of trading.

Indeed, employing stop loss orders properly is a function of having the right mental attitude to be a successful trader; knowing that you cannot and will not win every time. Putting on a seatbelt when you step into a car isn’t something you do because you are expecting to crash, or because you doubt your own abilities as a driver. You do it (aside from the fact that it’s illegal not to) because you are acknowledging that out there on the roads there are forces which are simply beyond your control.

Give Yourself a Safety Net

By using stop loss orders cautiously and tightening them when things look uncertain you can make sure your losses are minimised. Furthermore by using a stop loss order, ahead of time you reduce the chances that you will succumb to the trader’s great enemy; hope. Whilst hope could cause you to keep a losing position open longer than necessary, a stop loss order can act as a signpost definitively telling you when to get out.

This has a double benefit, in that big losses hurt you not just financially but psychologically, which can lead to more problems further down the line. Making money trading is about consistency, not making one off miracle trades. However, if you have big losses to make up you are much more likely to be drawn into bigger gambles or “revenge trades” where you try and get your own back on your misfortune.

The core of a good trade plan is to pick your exit point at the same time as you decide on an entry point that you’re happy with. Stop loss orders help you stick to such a plan. This may sound limiting given how fast markets can move, but using a trailing stop loss order, you can automatically have your exit point move up behind the price as it rises (assuming that it does!).

Exceptions Prove the Rule

Of course, there are some trades where you may have a decent reason to leave a stop loss out your strategy. If for example you’d picked up an extremely volatile stock due to a conviction that it would, overall, go up in price over a period of years, you’re going to be ignoring month by month fluctuations in price, even if they do take a considerable tumble. In this scenario, given the risk you’ve taken on, a stop loss is unlikely to be much use to you.

However, unless this is your mindset from the very outset, before you even by the stock, you shouldn’t adopt such a tactic. Don’t babysit a bad trade out of pride or frustration at the way prices are going in the vain hope that the situation will soon be reversed.

One of the most important mental attributes a good trader needs is the ability to take a (preferably minimal) loss, learn from it and move on. Stop losses can help you do just this, by alerting you early on to a trade that just isn’t working out.


4 Indicators That Predict Rising Gold Prices

4 Indicators That Predict Rising Gold Prices

Over the last few years, gold has experienced a sudden price spike, similar to what occurred in the 1980’s. As of today (Nov 3, 2011), gold sits at $1762 an ounce, which is down $134 from an all time high of $1896 (on September 2011). Experts are mixed as to whether gold is teetering on the edge of a bubble, or if it will continue to gain value in the long term. If we look at past events which contribute to increases and decreases in the price of gold, we may be able to determine its future value by examining these “predictors”.

Predictors of Gold and Precious Metal Prices

Inflation – Stimulus programs are currently propping up the economy and have been introduced in many other countries to fight the global recession. As more money is printed, paper currencies tend to be worth less. The inflation of currency makes commodities like gold and silver, real estate worth much more valuable. In this case, commodities can be seen as a hedge against the loss of value in paper currencies. The more gold becomes seen as a safe investment, the more its price will inherently rise.

Not all experts agree with the concept that inflation rates and gold prices are linked. From the 70’s to the year 2000, gold prices and inflation rates followed each other quite closely. But, during the last 10 years, the rate of inflation and gold have diverged.

Demand – Demand is growing due to higher wages in developing countries like China and India. In 2009 East Asia, India, and The Middle East accounted for over 70% of the world’s gold demand. These countries along with China are experiencing a boom in wages and changes which will lead to increased demand. The Chinese government also encourages their citizens to invest in gold and has begun allowing the import of gold from foreign markets. The high demand for gold from China and the rest of the world market, exceeds the available supply.

Discovery – Gold is not being discovered through mining at the rate that it once was. The rate of discovery of new gold has consistently failed to hit expectations in recent years. Some experts believe in the theory of “peak gold”, which predicts that the rate of discovery will continue to fall as the worlds gold supplies are depleted. If discovery rates decline, prices will continue to rise.

Economic Uncertainty – Currently, the United Sates and many other countries are struggling to recover from a double dip recession. The global economy has been hit hard and the EURO is teetering on the verge of collapse. This confusion and uncertainty about the economy means investors will look to gold as a safe place to store their money. If this uncertainty remains, prices will remain high.

Crisis And Precious Metal Prices

In addition to financial difficulties, conflict continues to rage across the globe. The “Arab Spring” has changed the political landscape in the Middle East. The world is still waiting to see if the outcome will be positive or lead to more conflict. An increase in the price of oil has contributed to higher gold prices in the past. A new political order in this region will affect prices.

As the price of gold sits at $1762 an ounce, it mirrors a situation in the 1980’s where gold prices hit the equivalent of what would be $2000 an ounce today. A similar spike occured due to dramatic oil price increases, a gas shortage, unrest in the middle east, and a change of leadership in the oil producing country of Iran.

Summary

The rate at which gold prices increase or decrease, depends on a variety of factors including: the state of the world economy, the wages in countries that have the highest demand for gold, volatility and conflict in the world, and the rate of discovery of new gold. Currently the price of this precious metal has experienced a spike which does not seem sustainable. But, in the long term, all the ingredients that are necessary for increasing gold prices to exist. After a correction in the over-valuation of gold takes place, it will be seen as a safe place for investors to store their money. Due to this fact, i believe that gold will continue to maintain its value even if the economy becomes more prosperous.


Martingale Strategy in Forex

If forex traders were told that there exists a 100% profitable trading strategy, most of them would treat this information quite skeptically. However, such kind of strategy really exists, and it is called martingale. It was devised for gambling chiefly. As far as gambling is concerned, martingale refers to any gambling system in which the stakes are raised, usually doubled, after each loss. However, you would be surprised to hear that this strategy can be applied in forex trading as well. And it doesn’t have any shady flavor at all, but it is quite adventurous, though.

However, one important point about the martingale strategy must be mentioned – it is only possible in case the trader is very well-funded. And. What is more, one missed trade can sweep away the whole trading account. In addition, the amount of risk is far greater than the prospective gain. In other respects, in case of a winning transaction, the profits can be enormous.

If the forex traders are not scared off by the potential risks involved in martingale strategy and ready to read further, here are the basics. Martingale strategy was devised in the 18th century by Paul Pierre Levy, a French mathematician and developed further by an American mathematician Joseph Leo Doob who wanted to discredit the possibility of 100% profit. The essence of a martingale strategy lies in the fact that every time the bet loses the wager is doubled. One winning trade could exceed all the preceding losses. As for gambling, it resulted in just two possible outcomes of the bet: either wining or losing. As a result, in order to diversify the gambling process, to make it not so straightforward and, what is more, to reduce the efficacy of the martingale strategy to minimum, 0 and 00 were introduced on the roulette.

As far as forex trading is concerned, it is important to remember that currencies are likely to trend and these trends can last very long. When martingale strategy is applied, the trader’s average entry price is lowered considerably due to “doubling down”.

In fact, martingale strategy is quite popular in the forex market, since currencies go to zero very seldom, in contrast to stocks, for example. It means that a currency can depreciate, but not to a zero. One more possibility that a martingale strategy provides for the forex market is that while trading currency pairs, a trader can buy a currency with a high interest rate and sell a currency with a low interest rate. If the amount of traded lots is large, the interest income can be quite sufficient.

However, it should be mentioned that forex traders willing to practice martingale trading strategy have to be very careful, despite its attractiveness. The underlying danger of this strategy is that it cam blow up the whole trading account in a single trade before bringing profit, actually. That’s why many forex traders consider martingale strategy to be very risky.

Article was written by Collins Alexander. Who is a founder of ForexEAsystems – vendor of forex trading systems that work. If you want to make extra money on Forex, join their forex affiliate program. Also follow them on Twitter and Facebook.


Online Trading Services That Are Worth a Try

Online Trading Services That Are Worth a Try

There are number of online trading services available on the web today. A beginner investor is therefore often confused about which tool and service is best to use. I am presenting some of the tools and services I use and have proven to be very helpful to me.

Virtual Trading for Beginners

First tool I would like to recommend to beginners is to set up a virtual trading account, where they can paper trade and this way examine different trading strategies and ideas without risking real money. You can set up such account for FREE at WallStreetSurvivor.com. Not only you can learn trading for free, you can even win prizes while doing it.

Understanding the Market Moves

If you would like to be in the 1% group of those traders and investors who actually understand market moves, consider joining the Elliot Wave International, world largest market forecasting firm. You can join the Club EWI for free and get access to their library and exclusive trading tutorials and market reports.

Buy, Sell or Hold

Did you ever wanted to have a tool, where you could enter a symbol and after clicking the button you would receive back a short, medium and long-term idea what to do with this stock? I bet you do. Such a trend analyzing tool can be useful before you enter new position and for examining the existing positions in your portfolio. Join the market club today and start enjoying all the benefits for members.

Going Active: Follow the Pros

As you can imagine, the more you shorten your trading period, the more dangerous the stock trading game becomes. Short term trading often involves trading on margin account in order to earn out the market’s volatility, breaking news have a much more powerful short-term effect on stock markets than on long-term, and fear and greed can also be more extreme on short-term. That is why it is often better to follow experts in active trading, especially if you are not experienced enough and your head is not cooled. Mike at MPtrader.com has great statistics with trading ETFs and stocks for the last few years. He had 162 winning trades out of 260 in 2010, resulting in +125% yields (sum of trades).

Real-Time Data for Serious Traders

Serious traders cannot be successful in today’s environment without real-time data and news feed and advanced trading platforms. It is like a pilot without a plane, or an architect without AutoCAD. Yes, these things cost something, but look at this cost as an investment on your way to financial freedom. Without sufficient tools, chances are you will end your trading or investing carrier loosing part or whole of your capital. Try real-time tools provided by EquityFeed for one month FREE.

Written by Goran Dolenc, author of Stock Market for Beginners Guide to Investing, where you can learn how to build a perfect investment portfolio: from stock market basics to advanced stock trading strategies.


How to get the stock market right 6 months in a row

Imagine receiving a letter at the start of the month predicting that the stock market will rise. Just another cold sell so you bin it and probably won’t recall it when the market does indeed rise. Then the next month a similar letter is received but this time it says the market will fall. This time when it falls maybe you will remember the letter? Now lets say that this continues every month. A letter arrives and correctly predicts the direction of the stock market. Would you not start to think that there was someone very clever behind these letters? And how many months would need to go by before you gave him your money to invest?

However after you have invested and your money is largely gone and lost you sit down and ask how could I be so wrong? The answer is that you fell victim to ignoring the silent witnesses. This is how it works.

Take the names and addresses of 10,000 people. Mail 5,000 saying the market will rise and 5,000 saying the market will fall. Next month repeat the 50/50 split but only mail those who got the letter which made the correct prediction in the previous mailing. Repeat monthly until you have a much reduced list of people who have always received the correct forecast. Basically when you sit down having received the correct forecast for the last 6 months then out of the 10,000 which were mailed initially there are now 312 who like you are thinking they are onto something good. The other 9,688 are the silent witnesses. They all received a letter where the forecast was wrong but you don’t know about them. They are the silent witnesses.

This problem also goes under the name of the survivorship bias and was highlighted by Nassim Nicholas Taleb in his highly provocative book “The Black Swan”.

So where else does this crop up in life? Well in his book he argues that this is one of the main drivers which brings the problem of Black Swans and unexpected disasters into our lives. But on a more mundane level he also suggests that this lack of insight, so that we only see what we want to see, also impacts on areas as diverse as the nature v nuture debate and the illusion of skills in many professions.

These are powerful arguments and we will investigate them in further blogs.

Written exclusively for financewand by Mike Holly. Mike lives and works in Northumberland, United Kingdom. Referring you my friend’s site on  Currency trading strategy


%d bloggers like this: