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Stock Market Charts: Head and Shoulders Pattern

November 29th, 2012

What is the Head and Shoulders Reversal Pattern?

  • The stock bounces off of the support line three times, making a head and shoulders pattern
  • On the first shoulder, the volume is high
  • The volume is lower on the uptrend that creates the head
  • People are not voting for the stock to go up. This low volume creates the head
  • Important to understand: If the stock bounces and hits the support line again (after the last shoulder), the line becomes a resistance line. You want to make sure it doesn't bounce down again because that would mean the stock is going below the resistance line.
  • A three month pattern is healthier than a two day chart pattern

How to Trade on the Pattern

  • Typically, people wait to trade until the stock breaks the neck line region and they trade on the down side (if there is enough volume)

Stock Chart Patterns Explained: Double Bottom

November 28th, 2012

The double bottom reversal pattern is similar to the double top reversal pattern, but it goes in the opposite direction.

What Is the Double Bottom Reversal Pattern?

  • It's a reversal pattern or bullish pattern
  • Begins with a downward pattern and typically ends with an upward pattern
  • There can be double tops or triple tops between the double bottom
  • Double bottoms take longer to develop than double tops
  • Even if there  is a double top between the double bottom, it is more important that there is a double bottom because it spans a longer period of time than the double top

How to Trade a Double Bottom Reversal Pattern

  • Enter the stock somewhere off the second bottom
  • Ideally, you should enter it after it crosses the resistance line (from the two tops that occurred earlier)

The Basics of Calls and Puts

November 27th, 2012

Call v. Put

Call

  • Allows you to buy stock
  • If you have one call that means you are able to buy that stock at your set price
  • It has to reach the set price on or before your contract's expiration
  • If it doesn't reach the set price, your contract deteriorates in value and you lose your option premium
  • You buy it in hopes of stock going up
  • As the stock price goes up, the call increases in value
  • Similar to going long within stocks

Put

  • Allows you to sell stock (it gives you the right, but not the obligation)
  • For example: you own 100 shares of Microsoft at $25 and you own a put of Microsoft at $20
  • If the stock declines to $10/share and you have the put for that year, you can put somebody the stock at the $20 range
  • You buy it in hopes of stock going down
  • As the stock price goes down, the put increases in value
  • You are hoping to sell the contract later at higher value
  • Similar to short-selling

Stock Trading Mistake: Trying to Avoid Missed Opportunities

November 26th, 2012

Rushing trades can destroy your account, especially if you're making this mistake often.

Example

  • If a stock goes up and down several times and you've missed opportunities to sell when it peaked, you may get "ants in your pants"
  • This can cause you to buy before the stock begins to ascend again, and it may actually decrease instead
  • You'll take a loss simply because you were rushing
  • The past doesn't always equal the future and patterns don't always repeat themselves
  • Wait for volume confirmations: for it to gain volume or to drop and break the support line
  • Be disciplined and patient in order to avoid this mistake

Stock Fundamental Analysis: Two Methods

November 23rd, 2012

There are two ways to evaluate the fundamental analysis: top-down and bottom-up.

Fundamental Analysis Breakdown

  1. Health of Economy
  2. Industry
  3. Earnings

Top-Down Analysis

  • Checking the health of the economy, followed by the industry, followed by company earnings. If the company earnings are good, this is when you may decide to buy the stock.

Bottom-Up Analysis

  • Checking the earnings, followed by the industry, followed by the health of the economy.

Stock Market Chart Patterns: Channels

November 21st, 2012

Types of Channels

  • Horizontal
  • Ascending
  • Descending
  • They don't have to be symmetrical
  • You want to enter when the stock breaks the channel marker (either up or down)
  • You want to wait for volume confirmation
  • The longer the stock stays in a channel, the healthier it is

IPO Basics: What is an IPO (Intial Public Offering) Definition

November 19th, 2012

Do your research before investing in IPO stocks to avoid getting in at the wrong time.

IPO (Initial Public Offering)

  • The first time the stock is released to the public and is available for purchase

The Problem With IPOs

  • The stock market is based on future expected growth
  • IPOs need time to set up
  • Preferred shareholders typically sell their shares as soon as the IPO comes out, which causes the stock to go down
  • Sometimes preferred shareholders are required to hold their shares for 60-90 days, the stock can decrease at this time instead of dropping  initially.
  • As time go on, more shareholders can sell their stock. You need to read the find print to find out when this happens.
  • Let the charts set up, give them time and do not hurry
  • Don't jump into things too quickly, IPOs should be avoided initially
  • Understand why you are buying the stock. Don't just purchase it because it's a company you use (e.g. Zynga or Groupon)
  • A better time to get in is after the stock has decreased over a period of time and begins to go back up. You don't need to get in right away.

Example

  • Facebook (FB)
  • Everyone expected FB to go way up, but it went very low because preferred shareholders sold their shares right away

What is a Stock Split and Why Do Stocks Split?

November 16th, 2012

Stock Splits Simplified

  • # of shares before split = 100 at $50/share
  • Split = 2/1
  • # of shares after split =  200 at $25/share
  • In order to own the same portion of the company, the stock price goes down to $25/share
  • 100 shares at $50/share = 200 shares at $25/share
  • The value is the same, only the share price changes
  • Splits can come in different denominations (e.g. 2/1, 3/1, 5/1, 3/2, etc.)

Why do Companies Do This?

  • To allow new investors to come in at a lower stock price
  • To re-balance their shares

Stock Market Daily Recap Nov 15, 2012

November 15th, 2012

The stock market today again dipped down. The last few weeks have not been the greatest for the stock market - today was no different. The Dow-30 dropped another -29 points. closing at 12,540. It was a pretty calm day in my opinion.

Read More  

Quick Thoughts on the Market Nov 14, 2012

November 14th, 2012

The market is looking tired. The different indexes are breaking down and looking weak. Keep an eye on it. Here are my thoughts as of 10.50 AM. Watch for lower prices or a change in action and sentiment. It takes time for charts and peoples mentality to set back up properly.

I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More

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