Sunday, September 6, 2009

J200, End of the day chart

Let’s take a look at daily charts - J200 or Top 40:

First one is from February 2009 till Friday, September 4th, 2009. It is easy to notice that there is strong and obvious trend upwards from low that was made on March 3rd, 2009. Two black lines are parallel, making channel that was tested twice at the bottom and twice at the top. Also, we can see as well that there are some negative divergences that were developed before recent drop which was 7 days long with 6 red days and 1 green day. In the mean-time some hidden divergences developed on Stochastic and RSI. (Hidden divergences are when indicator makes lower low and price makes lower high.) Both of them are shown with green lines, with one that was on August 17th, 2009 and another that was very recent. These hidden divergences usually point towards another upswing on Top40 in weeks to come.

The other chart shows bigger picture for Top40. Starting from mid 2005, we see strong move up; then strong move down which is followed with trend that started in March 2009. This chart is telling us why market is so reluctant to go higher: There is a massive resistance around 22700-23000 (thick red line) which was tested 11-12 times from bottom and top (from December 2006) and it is coming into play again.

Looking as first chart, it is clear that area around mentioned line was tested so many times in last few days.

Of course, the most important is to see if that trend line gets broken. If it does, market will go up strongly and get to 24500-25000 area fast. However, if market decides not to go over resistance, then we will have big pull back that can take us all the way down to 21000.

In both cases, J200 will resume its direction shortly.

Trade with trend!

Tuesday, September 1, 2009

Long term success

From a very young age, we are ingrained with a powerful short-term reward system. We are incentivized to eat on day one with the reward of satisfying our hunger. Such immediate gratification teaches us to always eat when we are hungry. As we began with our education, we were rewarded to learn with grades in mind. And grades, we soon realized, yielded the reward of approval (and love, I suspect) from parents, teachers, and peers. We would study non-stop for days to take an exam, with the assurance that we will receive a grade within a week. As we entered the job-market, a day's work was rewarded with a monthly salary. In many cases, an immediate commission was rewarded for each sale - or aggregated into a bonus at the end of the year.

So, how all of this reflects on trading?

Very small percentage of people makes it in trading and my personal opinion is that most of the people who were bumped out of this game have placed short term rewards in front of the long term goals. Most of the people will take small profits instead of letting them go, just to be satisfied with their short term reward. They will keep losers for much longer then they should because they will not be rewarded if they close them early, so they chose to hope that positions will probably swing back to positive territory. This approach is absolutely wrong as in trading one must keep winners as long as he/she can and cut losers very fast. Only by doing this one has a chance to make it in this game. Problem is that there are just a few people who understand this and that is the reason why we have so many losers in trading game. But, I guess, this doesn’t apply only to trading – it applies to everything around us. Only few people make it in big league, starting alone simply because they were not satisfied with their salaries at the end of every month. So, they took bigger risks and started their own companies.

Trader who is just starting with trading should encounter many setbacks during which he/she must always keep long term goals in his/hers head. Short term reward will be so tempting (at the beginning) to take profit and to break system rules when you are in good trade. That’s when your mind must work towards achieving long term goals by following/respecting trading system, money management and trading discipline as long lasting success will simply wait at the far end of this endeavour.

Trade with trend!