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Gap Trading

by Admin 4. October 2015 22:01

 Gap trading is a very popular term among traders and many professional traders use gap trading for swift profits. It has gained popularity in the markets solely because of the fact that plenty of gaps are created on charts and when identified and traded correctly they bring quick profits.

But what exactly is a gap?

In simple terms, a gap is that area on the chart where no trade has occurred. In other words, there is a big difference between the price of the previous day’s close and the next day’s open. This is caused by a sudden interest that has developed in the instrument after the price closed for the day. This could be any positive or negative news related to that instrument causing the masses to place buy or sell orders after market hours.

Hence, when the market opens, the price zooms up causing a gap on the upside or it falls down drastically causing a gap on the downside.

Besides the opening gap there are three other kind of gaps:

  1. Runaway gaps
  2. Breakaway gaps
  3. Exhaustion gaps

Runaway gaps usually occur in a strong trend and are considered bullish in an uptrend and bearish in a downtrend.

Breakaway gaps usually occur after long periods of consolidation and could result in a continuation of the trend or show strong reversal.

Exhaustion gaps usually occur at the end of an existing trend as a sign that the same is about to end.

A gap may occur naturally or may be created by professionals. News about a particular instrument may cause a gap to occur naturally due to the excited buying and selling sentiments of the investors. However professional buying is done to create gaps only to trap the novice and amateur traders.

Trading gaps requires a special skill set to identify and differentiate between a natural gap and a professional gap. It should only be attempted by traders after attaining a thorough understanding of the same.

Gap trading can however be extremely fruitful and result in very quick gains as a gap trader more often than not trades ahead of the crowd.

Copyright  Pathfinders Training / 9022330009

Trading System - Key To Success In Stock Market

by Admin 24. September 2015 20:19

 Fear and greed are the two basic emotions which drive the markets. Fear causes the markets to fall whereas greed pushes the markets up. The very fact that 90% of traders consistently lose money into the markets points to the fact that markets are driven primarily by emotions.

What causes these emotions and the pain of losses thereafter?

A faulty trading system, non-adherence to a good trading system or the absence of a trading system completely.

A faulty trading system prevents one from entering the trade at the most opportune time. A late entry causes one to miss out on a sizable amount of profit.

Not adhering to a trading system compels one to continue staying in a trade way past it’s time thereby giving back to the market a sizable amount of profit which could have been locked otherwise.

Not having a trading system is like gambling with a no limit account.

Thus, it is extremely important to formulate a trading strategy and see it through to the very end of the trade, irrespective of the outcome. Once the trading system is tried and tested and found to fulfil all the required criteria, it should be strictly adhered to.

A good trading system is one which allows an early entry and the latest possible exit. Besides this, it also has a strict point of exit with a minimum loss should the trade not go in the desired direction (stop loss). A good system allows one to lock profits at regular intervals without getting stopped out. It also allows room for re-entering the trade should one get stopped out.

Trading systematically results in minimizing losses and maximizing profits and a good trader is one who always puts the potential loss before the potential gain.

By thus trading correctly with a good system, one is able to overcome both greed and fear and becomes a part of those 10% who actually earn consistent profits from the markets.

Copyright Pathfinders Trainings / 9022330009

Stock Market - The Emotional Ball Game

by Admin 21. September 2015 08:10

 Emotional control is the key to success in the market says the market wizard. Control your emotions and half the battle is won says another. Trade with your mind not your heart chants another. And so on and so forth. So what exactly is this emotional ball game? How is it played? What are the rules of this game?

To understand this let us study a few hypothetical examples.

A novice, let’s call him ‘A’ who has never traded before puts in his first trade (everybody had a first time!).The trade ends in a loss. Not the one to accept defeat he puts in another trade which ends in a loss too. Angry and frustrated he tries yet again but lady luck refuses to smile at him and yet again the trade ends in a loss. At this point the traders account size has diminished considerably and is almost negligible. Most of his trading capital has been wiped out. What will be his emotional state? What goes through him? Anger, frustration, dejection, defeat, low self esteem and a sense that the world has come to an end.

At another place another novice, let’s call him ‘B’ who has also never traded before puts in his first trade. The trade is successful and results in a reasonable amount of profit. His confidence boosted he puts in another trade which is an even bigger success. Elated, he puts in another trade which too is profitable. His trading capital has multiplied considerably and ‘B’ is smiling ear to ear with all his teeth visible. What will be his emotional state and what goes through him? Euphoria, confidence, a bloated ego and the question he is asking himself is “Am I God?”

At this stage a third novice, let’s call him ‘C’ comes in and wishes to seek advice about the markets and approaches ‘A’ and ‘B’. It is no matter of surprise that trader ‘A’ will advise him to stay away from the markets as it is a dangerous place where one can get hurt and trader ‘B’ would inform him that it is the best place in the world and that he is wasting his time doing anything else but trading. None the wiser ‘C’ decides to wait and watch for a little while.

After the initial badgering ‘A’ has regained control of himself, taken formal training on the subject, studied a few more techniques and is now ready to try the market again. He places a trade after deep study and contemplation and this time it goes in his favour. He makes a killing and all his earlier losses have been recovered. His trading account also shows a small profit. How does he feel now? All his negative emotions have disappeared and ‘A’ now feels cheerful, confident and completely satisfied with himself and the market.

On the other hand ‘B’ puts in his next trade which is a complete disaster. He has incurred a huge loss so much so that all his earlier gains have now been wiped out and his trading account has become negative. He is flabbergasted and looks at his charts with utter disbelief. How could this have happened to me? How could I be wrong? He is not as concerned about his financial loss as he is about the fact that he was wrong and the market turned against him. Infuriated and with a crushed ego he decides to take a sabbatical from trading and tries to understand what happened.

At this stage if ‘C’ were to approach them for advice ‘A’ would be presenting a different point of view and ‘B’ would probably not be available for comments.

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