Candlestick Trading Blog

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Why do we need to use multiple time frame trading?

The answer is simple - it will improve the efficiency of our stock market investing strategy. We tend see the predominant trend using a higher time frame than what we intend to use to select positions, and we tend to use a lower time frame to actually enter the trade, hence the term “multiple time frame trading”.

For example, you may want to use the daily stock chart patterns to decide on a particular trade, but you use weekly charts to see the major trend. Suppose you see an uptrend in the weekly chart. In this case your tendency is to only trade long positions. Therefore you will use entries in the daily charts to enter long positions only. If the candlestick patterns indicate sell signals, you will just exit your long positions. In other words, you don’t short sell.

Suppose, on the other hand, you see a downtrend in weekly Japanese candlestick charts. In this case your tendency is to only trade short positions. Therefore you will use entries in the daily charts to enter short positions only. If candlestick buy signals are seen, you will just exit your short positions. In other words, you don’t buy long positions.

In using both the daily and weekly candlestick pattern formations in the above examples, you would be utilizing multiple time frame trading with two time frames. Now comes the issue of timing the entries into trades. You may begin using the hourly charts to time your entries. Suppose the daily and weekly charts are in an uptrend. We will enter a long position or add a long position when the hourly chart gives us a candlestick buy signal. Suppose the daily and weekly charts are in a downtrend. We will enter a short position or add a short position when hourly charts give us candlestick sell signals. This time frame would be used solely to improve the timing for entries and not be used to exit trades. For exits the signals generated in the daily charts would be used.

So how would you incorporate multiple time frame trading into your basic knowledge of stock investing concepts? Take three charts of the same security, the weekly chart, the daily chart, and the hourly chart. The daily chart would be used to trade and the weekly chart would be used to see the weekly trend. Assuming the weekly trend is up, the information will be used only to trade long positions in the daily chart. The daily chart can be used to look for buy opportunities and the hourly chart can be used to find the desired entry points. For entering additional positions, buy opportunities in the hourly chart can be used. We would exit based on the daily chart only, because we were trading based on the daily chart.

In the same way, trading short may be preferred when the weekly chart is in a downward trend and the daily chart generates a sell opportunity. Additional positions are entered whenever sell opportunities are seen on the hourly charts.

For stock market daytrading, the 5-minute, 15-minute, and hourly charts can be used when trading the 15-minute chart. Or the 3-minute, 5-minute, and 15-minute charts can be used when trading the 5-minute charts.

Hopefully, the tips given above will greatly enhance your multiple time frame trading techniques and improve your overall stock market timing strategies.

What exactly is hedge fund investing?

A hedge fund is a managed pool of capital for wealthy individual investors or institutions that employs one of various trading strategies in bonds, equities, or derivatives, attempting to gain from market inefficiencies and, to some extent hedge underlying risks using fundamental and technical analysis.

Hedge funds are usually loosely regulated and often are much less transparent than traditional investment funds. That allows them to trade a little more "under the radar". Typically funds have minimum investments periods, and charge fees based both on performance and funds under management.

According to many experts, it is a mistake to classify hedge funds as an asset class, rather the industry embraces a collection of trading strategies. The right choice of hedging strategy for a particular investor depends mostly on its existing portfolio and money management techniques; if for example, it is heavily invested in equities, it might seek a hedging strategy to offset equity risk. Because of this, discussion of relative returns between hedge-funds strategies can be misleading.

Hedge fund investing uses stock investing concepts that are not usually allowed for more traditional funds, including "short selling: stock - that is borrowing shares to sell them in the hope of buying them back later at a lower price - and using big leverage through borrowing.

Stock market strategies tend to change. In the past the hedge-fund industry seems to have been equity driven but currently in 2006 there is less long/short. Lately, the picture has been more diverse with less of a concentrated exposure format.

Here are some of the more common strategies:

Market neutral: In this hedge fund investing strategy, equal amounts of capital are invested long and short in the market, attempting to neutralize risk by taking short positions in overvalued securities and purchasing undervalued securities, otherwise known as "value stock investing".

Fund of funds: In this hedge fund investing strategy, investments are made in an assortment of hedge funds to enhance risk reward ratios. Some funds of funds pursue multiple strategies and others focus on single strategies. An added layer of fees is a characteristic of these funds.

Convertible arbitrage: This strategy involves going long in the convertible securities, usually bonds or shares, that are exchangeable for a certain number of another form (usually common shares) at a preset price, and simultaneously shorting the underlying equities. Stop loss strategies were often incorporated into the process. Although previously this strategy was considered a very effective a standard, it now seems to have lost effectiveness and crowd favor.

Global Macro: This strategy involves hedge fund investing in shifts between global economies, usually using derivatives to speculate on currency trading or interest rate moves.

Emerging markets: This strategy involves hedge fund investing in securities of companies in the ever emerging economies through the purchase of corporate or sovereign shares and/or debt.

As demonstrated here, you can see the terminology in dealing with hedge fund investing is both ever changing and confusing, even to successful traders.

You should be familiar with both the stock investing concepts and the language to make intelligent rather than confused choices in your investments.

Keep in mind that it will be you and not your advisor or broker that will pay the costs of negligent investment planning and comprehension.

Financial markets are where the purchase, exchange, or sale of financial instruments takes place. People who are looking to engage in currency trading, sell or purchase commodities, stock, bonds, or any other related instruments find financial markets to be the ideal place to make this happen.

Several of the primary functions in an economic market include reducing the operation expenses incurred by the participants in the financial market, guaranteeing liquidity, and forming assets prices within the established proposition.

What you do in a financial market, whether you are investing long term or trading short term, financial markets can provide you with many rewards for finding the best stock picks. Listed below are some general guidelines you need to think about while making a sale or purchase of financial instruments:

While learning to invest in the stock market, be fully aware of your weaknesses as well as your strengths. By weaknesses and strengths, we mean that every person has a specific structure in which he or she operates depending on his or her experience, education, time and many other factors. Therefore, before any investments are made in the market, each investor or trader needs to decide how much time will be available to operate, how to make his or her own trading and investing decisions, what you can trade successfully, and how you will control greed and fear.

After the first step above has been completed, it is now time to learn about the "Price to Earnings ratio (P/E ratio)". P/E ratio is considered as an important tool which helps one to appraise a company. The determination of whether a company is overvalued or undervalued can be discovered using the  P/E ratio.

Closer research into the company's history, including the current situation of the company and its desired future position, is the next step. This can mostly be determined through graphs and technical analysis tools. The charts provide a graphical representation of the stocks volume and activity over a definite time period.

These are some of the central points one should consider as part of your overall stock market investing education. Until you are comfortable with your knowledge of investing, it is also recommended to consult with an experienced financial advisor before you make any investments. This reduces the risk in investing in a company which does return enough profit to you.

In a nutshell, rather than rushing into trades and ill-conceived investments that haven’t been researched, be disciplined in trying to make informed decisions, get to know your investment areas, and set yourself goals and limits as you develop your best stock market strategies.

Check out our Stop Loss Strategies & Techniques Training Video!

A 'stop loss' is a pre-defined point at which you will get out of a position in a stock based on the idea that it is not moving in the direction that you had anticipated. Every successful and experienced trader utilizing the basics of stock market investing will tell you that establishing and adhering to a reasonable stop loss is extremely important if you are going to make profits in the long run.

There are many reasons why traders will not sell shares when a loss is imminent. This is problematic because there will be many occasions when a trade they enter does not head in the right direction. At times, it is difficult to adhere to the rule of 'cutting your losses' when it obviously the right thing to do. This is often done by traders who feel a strong sense of greed and fear, or an unearned feeling of self-confidence, and may find it difficult to close the trade because, in doing so, it acknowledges the fact that they got the trade wrong in their minds. This may be a bitter pill to swallow so the easier option is to keep the trade open in the hopes that their ego will not be adversely affected. Yet, they will be violating one of the most important trading rules there are. To most traders, the idea of not closing a trade at a loss means that they haven't had a loss despite the fact that they may have a larger loss down the road.

A detailed plan that guides successful traders when to close positions is one of the things that separates them from the majority of the stock market community. For them, this is a necessity. It is fair to say that a lot of traders don't have a clue about what conditions would warrant closing a trade. It is also fair to say that the majority of market participants routinely adopt a 'buy and hold' approach.

While a stock market investing strategy will always require decision making, there are no more important decisions you have to make than when to sell shares. This part of trading is often overlooked its importance is frequently underestimated. The act of buying simply puts one in a position where money can be made. It's the act of selling a position that is directly related to whether or not any money is made from the trade.

When it comes to considering your stock market investing strategy for exiting, what is important is not the manner in which you decide to exit, but the fact that you have a plan in place to advise you when to exit. What is also important is that you remain consistent in whatever approach to exiting you adopt.

Selling shares is probably the most complex money management decision you will face but, as a rule, it is the most important. The decision is especially difficult when you are faced with a loss and all you want to do is wait for the shares to return to your buying price. When the shares move away from you, making your loss even greater than you would have ever imagined, it makes the situation even more difficult.

Regrettably for many traders, they cannot bring themselves to set stop losses. If they do, they abandon them when the pressure is turned on. To make money investing in stock, cutting your losses is one of the most important trading rules there is. If you fail to do that, you are most likely going to be worse off for it.

To learn FOREX trading, it is essential to know exactly what it is. FOREX trading is defined as direct access trading of dissimilar types of foreign currencies. In the past, currency trading was mostly limited to large banks and institutional traders. Recent technological advancements in internet stock trading have enabled small traders to also take advantage of the various benefits from FOREX trading by using many technical analysis sites and technical analysis tools.

FOREX markets have unique characteristics which present an unmatched potential to learn FOREX trading and achieve profitable trading within any market or any stage of the business cycle. First, FOREX trading utilizes a 24-hour market, allowing traders the ability to take advantage of lucrative market conditions at any time. Secondly, the FOREX market is the most liquid market in the world. FOREX traders can enter the market or exit the market whenever they want, during almost any market condition. Additionally, there are minimal execution barriers or risk and no daily trading limits.

However, even with all of the advantages of the FOREX market, there is one important difficulty. The FOREX market is considered as unregulated although the trading operations of major dealers, like commercial banks and money centers, are regulated under the banking laws. The day by day operations of retail FOREX brokerage firms are not regulated under any laws or regulations specific to the FOREX market. Many of these organizations in the U.S. don't even report to the I.R.S. To learn FOREX trading and get the greatest benefit from its explosive potential, traders should adhere to these rules.

1. Determine the quality of the broker institution you choose. Unlike equity brokers, FOREX brokers are usually an agent of large banks or lending establishments because of the large amounts of capital that are required. FOREX brokers should be registered with the Futures Commission Merchant (FCM) as well as regulated by the Commodity Future Trading Commission (CFTC).

2. Ask for a free trial. Before you commit to a particular broker, ask for free trials so that you can test their diverse trading platforms. Brokers usually provide fundamental and technical analysis commentaries, economic calendars and other research to help with investing. Basically, a quality broker will give you everything you need to determine your best investment of funds to achieve success.

3. Monitor two financial meetings to provide insight into the upcoming FOREX market. Two important meetings FOREX traders should become familiar with are the federal Open Market Committee and the Humphrey Hawkins Hearings. By perusing the reports and analyzing the commentary, FOREX fundamental analysts can get a better understanding about any and all long-term market trends and it also gives short-term traders the ability to profit from extraordinary occurrences.