price

All posts tagged price

Indicators summarize price action

Posted by BMoreTrader on May 6, 2016
Posted in: Trading Beliefs. Tagged: , , . Leave a Comment

Belief:

Indicators summarize price action.

What this means to me:

Prices change over time. Indicators collect the price data over time, perform some mathematical functions with that data, and provide a new number that attempts to describe the price action.

What this belief gets me into:

Learning about indicators.
Collecting data.
Exploring which indicators fit my beliefs about the markets.
Building systems using indicators.
Relying on indicators instead of being in the now.
Having more criteria to follow for an entry or exit.
Being confused by conflicting indicators.
Considering how the indicator influences or reflects the psychology of the market.

What this belief gets me out of:

Making decisions by gut feel.
Taking total responsibility for my actions. (e.g. The indicator said go long.)
I don’t have to look just at price.
Looking at previous price action.

Limitations of this belief:

Price action can change faster than an indicator can adapt. Using indicators requires understanding not only what the indicator does but what it tries to say about the price action and the market psychology. Indicators can offer conflicting viewpoints.

Utility of this belief:

This seems to be a useful belief for the further study of indicators. It is simple, clear, and promotes further learning.

Conclusions:

Indicators are a tool for the trading tool box. They need to be studied, understood, and tested to determine how they fit my trading beliefs and style. Some will be useful for the work I wish to do, others will not. Trying to use too many tools at once will make the job harder. Selecting the proper tools and using them properly will make the job easier.

Fundamental news can move the market

Posted by BMoreTrader on April 20, 2016
Posted in: Trading Beliefs. Tagged: , , . Leave a Comment

Belief:

Fundamental news can move the market.

What this means to me:

While price is prime, there are factors from the day to day operation of a business that can change the price.

What this belief gets me into:

I need to have some level of awareness about the underlying business for a stock trade.
Studying fundamental evaluations of a business.
I need to pay attention to earnings announcements (at least their timing).
Looking at the big picture – general economic and business trends.
It could lead me to try to pick stocks with huge potential upcoming moves.
Looking for reasons behind price action.
Listening to mainstream media and following the crowd.
Holding a position until a news event (regardless of price action)

What this belief gets me out of:

Stocks in industries I don’t understand (where dramatic fundamental shifts happen).
It can keep me out of stocks with expected fundamental news events.
Being reliant solely on price.
Honoring my stops (letting a loss grow if price blows through a stop).
Considering the psychological side of trading (mine and the market).
It can keep me from building price based trading systems.

Limitations of this belief:

Looking only at fundamental news can hamper my ability to follow price based stops. It does not capture the psychological side of trading or the market.

Utility of this belief:

Being aware of fundamental news events and trends is useful to choose (or avoid) markets to trade. While markets are engines of psychology, some of the psychology is opinion about the fundamental status of a business.

Conclusions:

I need to be aware of fundamental considerations and events, but can not make this the sole criteria for trading. Any price based trading system needs to also account for potential fundamental news events.

Price is Prime

Posted by BMoreTrader on April 18, 2016
Posted in: Trading Beliefs. Tagged: , . Leave a Comment

Belief:

Price is prime.

What this means to me:

The efficient market hypothesis is based upon the idea that all current relevant information is reflected in the price. Prices change for fundamental business reasons but also for the psychological reasons of investors. The only way to capture both the fundamental and psychological dynamics of the market is through the trade price.

What this belief gets me into:

This belief allows me to build trading systems based upon price action.
I can use indicators based on price to determine markets to trade.
I can use price indicators to determine when to enter a trade.
I can used price indicators to determine when to exit a trade.
I can use price action to determine my reward:risk ratio for a trade.
I can limit my losses according to price.
This will allow me to build mechanical systems that can be automated to execute trades for me.
I can trade many different markets.

What this belief gets me out of:

I am not required to analyze business balance sheets.
I do not need to pay as much attention to fundamental news.
I don’t need to spend hours on fundamental research to pick the right stock.
I may not need to know anything about the business itself at all.
I don’t need to find a reason why prices move.
Looking at the big picture.

Limitations of this belief:

Fundamental news can drastically alter the price of a stock (think pharmaceutical and bio-tech companies and drug approvals).
If I only look at price, I could miss important news announcements (earnings).
Bad price prints could force me out of (or into) a trade prematurely.
Relying only on price could lead to curve-fitting when backtesting.
I could miss out on stocks that represent extreme value (from a fundamental perspective).
Price relationships could be identified that do not make logical sense.

Utility of this belief:

By placing price first, it enables me to screen for markets meeting certain conditions, establish trade parameters for entry, exit and reward:risk, and simplifies (automates?) the decision making process. Combined with a healthy awareness of the big picture and fundamental news events, this is an extremely useful belief for me.

Conclusions:

Price reflects both fundamental and psychological opinion of the apparent value of an investment. Building a trading system around price movement allows for the creation of clear systematic rules to follow (or program). Profits and losses result from changes in the price after a position is entered. Trading is only a possible income source if prices change.