Stock Index TradingOne means of trading the stock market is by stock index trading through an exchange traded fund (ETF). Stock index trading is similar in many respects to trading stocks except that the gstock h is a fund. These funds track the S&P 500, the Russell 3000, and the like. Stocks in the fund are periodically bought and sold in order to balance the fund portfolio to match the index it is tracking. Exchange traded funds are investment funds listed on a stock exchange. They trade at roughly the same price as the collective stock price of their underlying stocks.
In stock index trading traders are buying and selling a mini representation of the stock market. For long term investing the argument is that these funds outperform mutual funds by roughly the overhead cost of the fund. During times of economic expansion these funds are a good way to profit from the general progress of the stock market. When there are stock market crashes these funds lose assets roughly in proportion to the losses in the market. A day trader using technical analysis tools such as Candlestick patterns can profit from both appreciation and loss in stock index trading. Learning stock index trading is possible through online training webinars. Learning the nuts and bolts of Candlestick analysis is possible at Candlestick Forum Boot Camp.
Much of the popularity of ETF comes from the belief that the long term investor need put little thought into fundamental analysis of individual stocks. Likewise the long term investor, during good economic times, will give little thought to technical analysis of the fund itself. However, market trends go up and then there is a market reversal. In the recent market crash many long term investors lost heavily because they did not follow their ETF with technical trading tools such as Candlestick chart formations. These time honored, and easy to read, signals help the trader predict changes in the direction of stock prices and help produce profits from well executed trades.
The way ETF stock index trading works is that only gauthorized participants such as large institutional investors buy and sell ETF shares. This is the primary market. They purchase or sell in so called creation units which are block of shares numbering in the tens of thousands. The trader will trade on the secondary market through his stock broker. Stock index trading is largely about trading the advances and retreats of the economy or the specific market sectors represented by the ETF.
As with all trading the technical factors are what drive prices in the here and now. Fundamental information is disseminated quickly so that it is market reaction that the trader seeks to anticipate by following Candlestick stock charts (or ETF charts in this case). By diligent analysis of evolving price patterns the trader can use Candlestick trading tactics to profit from ETF price changes. With ETFfs any fundamental analysis will be general and focused on general economic factors or factors related to the specific market sector followed by the ETF.
Market Direction: Taking profits! This is one of the difficult processes most investors find to master. The fear factor becomes a giant hurdle when it comes to taking profits. The old "what if" makes it difficult for most investors to take profits in an orderly manner. "What if" I sell this position at $12 and it runs to $16. Boy, would I look stupid! This is the biggest fear most investors have to contend with. The solution usually is ugly. The position is held too long and a good portion of the profits are given back. This discussion has come up in the chat room today. GGAL has produced the scenario of whether it is time to take profits or not.
The main criteria for deciding when it is appropriate to take profits is usually from the formation of a candlestick sell signal. However, sometimes the sell signal involves giving back some of the profits. There are other indicators that can produce some evidence that it is time to take profits or that a candlestick sell signal may be appearing in the very near future. For example, GGAL price today experienced a gap up in the overbought condition. This is time to start watching for a sell signal. Next, wave one starting in late August and ending in late September equated to a $2.50 price move. Wave three starting in the $10 area is getting relatively close to the $12.50 area, a likely target to start watching for sell signals.
Taking profits effectively is just as important as entering a trade effectively. Some simple trading common sense can help a trader get over the fear of closing out a position too early. When other indicators start showing the possibility of a top of a trend, but no actual candlestick sell signal has appeared, the investor can be a little more nimble in closing some of the position at levels that appear to be potential tops. Today's trading did not reveal any sell signals in GGAL. However, it did gap up in the overbought area. Anything that might illustrate a sell signal to be forming can be acted upon immediately. A gap up in price has simple exit strategies. A lower open, potentially forming a bearish Harami, has different exit strategies. If a trade has produce profits and is in an area that would be considered a high-risk situation, there is nothing wrong with taking a quarter, a third, or a half of the position off. This at least puts money in your pocket and still maintains a position that has not yet shown a candlestick sell signal.
The same scenario is true for our recent recommendation of SOHU. It has moved up significantly in just a matter of two or three trading days. Most investors are tickled pink if they can make 10% a year on a position. If you have made 17% on a position after just a few days, take part of the position as profits. The Japanese Rice traders say you should be selling your last bag of rice after the reversal signal.
Entry and exit strategy scenarios will be explored in great detail in the upcoming Mini training on November 2. This is election night. Plan on spending a couple hours learning how to effectively enter a trade and exit a trade without involving any emotions.
Chat session tonight at 8 PM ET.
Fall 2010 E-Learning Online Training Schedule
Options Training Course
November 6 & 7, 2010
November 20 & 21, 2010