Stock Market Following and Stock Trading Tips

 The Secret of Making Money in the Stock Market

Market Following and Stock Trading Tip 1 - The Stock Market:  Have you ever wondered why some people seem to know the secret of making money in the stock market? They are no smarter than you. They do not work any harder and neither are they lucky than you. But, unlike you, they never seem to worry about having money. You see most people miss the big idea here. They think it takes a lot of money to make a lot of money. But that is not how it is done. The idea is to make pennies consistently and to use them to build vast personal fortunes. The stock market is a proven wealth builder and can and should benefit all participants. It is only right that everyone should be entitled to a piece of the action. Having said that we now set out to show how the  ordinary 'none-smart money' traders can benefit from this. We assume the reader has the basics of stock trading, otherwise read the book How to Trade in Stocks.

Market Following and Stock Trading Tip 2 - Supply and Demand:  The Stock Market moves in a price path of uptrend and downtrend which are governed by complex dynamics of news, economic growth reports, manipulation, fear and greed. When the uptrend has won, the market will continue being bullish until cumulative market dynamics are provided in sufficient quantity for the supply and demand to go past the equilibrium line, otherwise the market will continue with the uptrend. The opposite is also true of the downtrend.

Market Following and Stock Trading Tip 3 - Vibrations:  For the price to move it must vibrate. These vibrations are waves that are repetitive in form but are not necessarily repetitive in time, amplitude and neither are the axis fixed. Since these vibrations are of such complex nature and determined by ever changing real time news, economic growth reports, manipulation, fear and greed, it is therefore difficult to solve the waves equation as we would in the science of Physics and Mathematics without imposing sizeable assumptions. And because our brains are lazy, to proceed we shall make this assumption: that the movement of stock market price, which  is a vibrations of waves that are repetitive in time and amplitude, is linear (even though we know very well it is not linear). Having made that assumption we now can proceed and use our basic understanding of Physics and  Mathematics, and as you will see we shall beat everyone else hands down.

Market Following and Stock Trading Tip 4 - The Nature of Waves:  The motion of a pendulum or the motion of a child on a see-saw are a wavelike phenomena. A wave has a crest and trough and travels from one location to another. One crest is often followed by a second crest which is followed by a third crest and so on. Every crest is separated by a trough to create an alternating pattern of crest and troughs.

Market Following and Stock Trading Tip 5 - Interference of Waves:  Wave interference is the phenomenon which occurs when two waves meet while traveling along the same medium. If two crests meet up with one another the resultant net effect is of enhanced crest. This interference is known as constructive interference. If a crest and a trough meet up with one another the two pulses will try to cancel each other's effect and the resultant net effect will tend toward zero or  the equilibrium position. This interference is known as destructive interference. Ever wondered why carpenters saw the wood in the directions of the grains rather than up against the grains? - The bundles are sliced clearly leaving a smooth surface with minimum defects.

Market Following and Stock Trading Tip 6 - The Standard Deviation: In probability and statistics, the Standard Deviation of a population of price values is a measure of how  prices deviate from their arithmetic mean. This really is a measure of the stock's properties and vary from stock to stock. Standard deviation was introduced by Mathematician Karl Pearson in 1893 although the idea was by then nearly a century old. This is the single most important idea that should explains all those mysteries you hear of in stock market. Rather than use planets in signs of the zodiac and or financial astrology, or imagining of the latest rumors, invest that time in the study of probability and statistics. Every decision you make in the market should always have sound mathematical logic, be quantifiable and nothing else.

Market Following and Stock Trading Tip 7 - Quantifying Strength and Weakness:  Contrary to the belief that determining the security's trend is easy, in real time this is very difficulty and you can not have a probability of 100%. Strength or uptrend is identified by a series of crests where each crest exceeds the highest point of the previous crest. The decline, between crests, ends above the lowest point of the previous decline. Weakness or downtrend is identified by a series of troughs where each trough goes lower than the lowest point of the previous trough. The incline, between trough, ends below the highest point of the previous incline.

Fig. 1

Fig.2

Whilst higher crests and lower troughs are one of the best measure of strength and weakness respectively, this method has serious drawbacks. It is only varied only if you are to compare troughs and crests of the same degree.  Identification of troughs and crest of the same degree in real time is difficult for our lazy brains to visualize.  If you look in figure 1 above it may look easy to compare troughs to troughs and crests to crests, but even then it would be difficulty in real time to tell if the trough or a crest has ended to start the comparison. Figure 2 is the same as figure 1 but it is in finer prints. Here you will notice that there are small wiggles in between the bigger troughs/crests and identifying which one should be grouped together in real life is an impossible intellectual challenge, leave alone being able to see and isolate them.

It is because of these challenges that we made the assumption that the movement of stock market price, which is a vibrations of waves that are repetitive in time and amplitude, is linear (even though we know very well it is not linear).

Market Following and Stock Trading Tip 8 - Moving Averages:  The real forces that move the markets are the moving averages. They are a measure of accumulation of strength and weakness over time due to news, economic growth reports, manipulation, fear and greed. There are many moving averages just as there are different types of traders. It is through the dynamics of the moving averages that there are crests and troughs. Every day the bulls and the bears are continuously in a see-saw of moving averages trying to take advantage of the next motion of the see-saw so created. The day traders are in it losing sight that at distance there are weekly, monthly, quarterly and yearly traders on the same see-saw, the swing traders are at it losing sight of all the others, and so on and so forth.

At any one time there is a moving average that form the equilibrium line between winning bulls and winning bears. For example: a stock can exhibit the characteristic that anytime the price is above say the moving averages of less than 40 days the bulls win, and when the price is below, the bears win. Unfortunately this does not last forever because the properties of the stock changes. These properties is the standard deviation which the market  call volatility. The other major drawback with the moving averages is the time lag. This explain why many traders make very little profit because they are unknowingly buying  to open at the tops of crest and selling to close at the bottom of troughs.

Market Following and Stock Trading Tip 9 - Multiple Timeframe:  Moving averages are a measure of waves (crests and troughs). If two crests of different degree moves in the same direction up with one another the resultant net effect is of enhanced crest. This interference is known as constructive interference. If a crest and a trough of different degree move in one direction with one another the two pulses will try to cancel each other's effect and the resultant net effect will tend toward zero or the equilibrium position. This therefore means that markets move against the trend of one greater degree only with a seeming struggle. Resistance from the larger trend will prevent the shorter trend that carry your money from developing full strength or weakness resulting in loses to your money. This struggle between the two oppositely trending degrees generally makes visualizing well defined troughs and crest impossible. This really is like trying to saw the wood up against the grains - it's tedious and the bundles are not sliced clearly leaving a rough surface with lots of defects.

One of the most successful trading tool since time immemorial is multiple moving averages crossover, and the change in all averages are either positive in all averages or negative in all averages that you are using. If the change in averages is positive, you go long, and if the change is negative, you go short. This really is multiple time frame where you trade using the shorter trend but only if the longer trend supports it.

Market Following and Stock Trading Tip 10 - Just because you failed to get out of your trades using the stop losses provided, it is human nature to try and impose your will in favour of your open trades. You do not have to listen to anybody, news, think in favour of your open trades or try to impose your will on the market. The charts and only charts will always tell you what the market is doing. The secret is to wait for the market to talk before trading and continue to listen in case it changes its mind.

And then the question is usually asked: do traders follow the charts because the charts work or the charts work because traders follow them? Whatever the case, price action on the charts is the way to go rather than try to imagine you can see certain geometrical shapes in the price - if truly you want to see geometrical shapes in the price line, then you will see many that will support what you want to see.

Following Market Direction with Precision
In view of the above we have considered only proven mathematical logics. We now shall intermarry all these logics and follow profitable market directions that will beat everyone else hands down.

Continued next page

And should you have a question you need to ask, feel free to ask for you will be answered. It is through asking that we have been able to have what we have. We provide this information to help beginners and average traders who might be inexperienced in the complexity of stock market movements make money in the stock market.  And if you will, we can be sending to you FREE analysis of Nasdaq Composite Index, SP500, Dow, Russell 3000 and NYSE as we trade them. In addition, we can also upon request be sending to you analysis on Exchange Traded Funds of Nasdaq, SP500, Dow, Russell 3000 and NYSE. We prefer trading Exchange Traded Funds because they spread risks across other stocks, pay dividends, are less noisy, not very prone to rumors and or manipulations, their Options are spread at workable intervals for spread strategies, and above all, ETFs trades are easily predictable by using the broad market indices of Nasdaq, SP500, Dow, Russell 3000 and NYSE. Every time we get the critical high or low that are prerequisite for initiating or exiting a position, we will dispatch the corresponding analysis of the below listed ETFs for you to have. You will get this in your inbox several hours before the market open the next day. Just provide your name and email address below.