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Shorting Stocks

Most people know that you buy stocks and wait for a price appreciation to take place in order to make a capital gain. Can you make a capital gain when there is price depreciation in your stocks? Many beginning investors get confused when they realize that it is possible to make money when the stock falls in price. In practice, shorting a stock is as easy as buying stocks once you get hang of it. When the market is falling, investors sell short a stock with the goal of profiting from the fall in the price of that stock.

Short selling is confusing for new traders. It shouldn’t be. It is simple. The difference between the selling price and the buying price in case the price goes down is your profit. You borrow a stock from your broker and sell it with the intention of buying it back at a lower price in the near term future and returning it to your broker when you short a stock.

When the price of a stock goes down, you make profit. You are anticipating further fall in the price of the stock when you short a stock. However, if the price of the stock instead of going down starts to go up, you get a loss.

So shorting a stock without proper risk and money management is not wise. Theoretically a stock price can go up and up making your loss as big as infinity. However, before that happens most probably you will receive a margin call from your broker that leads to a forced sale before your losses reach unmanageable proportions.

Some people are against the strategy of shorting stocks. In the stock market crash of 2008, many financial companies went bankrupt due to the short selling of their shares by the speculators. A temporary ban was put on shorting for sometime during that period.

Swing trading is all about looking for making a quick profit by riding the trend in the market for a few days to a few weeks. In swing trading, we are simply looking to profit from the ups and downs of stock prices. When the price of a stock goes down, short selling is the best swing trading strategy. However, the goal of short selling is not to drive the price of a stock to zero and put the company out of business.

One reason why swing traders love short selling is due to the velocity of the moves! Negative news like poor earning, credit rating downgrade or a poor product launch can bring down a stock price in a matter of minutes and wipe out the steady gains made in months.

Short selling is an integral part of options writing. Short selling is also used in portfolio risk management. Shot selling can be a good hedging strategy for long term investors too. So if you a long term investor, you can lessen the impact of the sharp price drop on your portfolio by using a short selling hedging strategy. Swing traders always look for big winners and this brings them to the short side of the market. When the price of a stock starts to fall, chances are it will fall more before the market stabilizes and the price starts to rise again.

Mr. Ahmad Hassam is a Harvard University Graduate. Try This Cash Printing Forex Signal Service From Heaven! Learn Swing Trading! Grab a totally unique version of this article from the Uber Article Directory

Autotrading Exposed

Autotrading is common in the currency trading. Many hedge funds and other entities that manage money through forex trading use some form of autotrading in their daily activities.

Previously these autotrading programs also known as Expert Advisors or Forex Robots were expensive costing like thousands of dollars and only wealthy individuals or big institutions like hedge funds could afford them.

However, the recent advancement in computer programming has made it possible for professional forex traders to team up with a software expert to develop their own autotrading systems. Many private individual traders have also begun to adopt autotrading to execute their thoroughly backtested and highly optimized forex trading strategies.

The recent advancement in computer programming has made these Expert Advisors cheap. The price of these Expert Advisors has come down to around a few hundreds that can be easily purchased by ordinary investors like you and me. Metatrader platform makes it real easy to program such type of Expert Advisors.

So what is autotrading? You must have heard or read a lot about the benefits or advantages of autotrading. Recent advancements in computer programming has led to the development of trading platforms that allow an API ( Application Programming Interface) which connects the trader’s system to the dealer’s trade execution structure through the trading platform.

The trading system needs to be ruled based and mechanical in nature with clear cut entry and exit rules. Once all of the trading rules and criteria are determined by the trader, programming an API can be relatively straight forward for anyone with programming experience. APIs requires programming skills on the part of either the trader or a programmer hired by the trader. After the specific trading rules and criteria are determined, the trading strategy is backtested with positive results.

The development of an autotrading system depends more on your trading skills as compared to your programming skills. When this occurs not only trades entered when predetermined technical criteria is met but trade exits in the form of stop loss and take profit rules can also be programmed into the API. Autotrading is almost as simple as flipping a switch to begin the trading process.

However, an autotrading system should be thoroughly backtested and forward tested to make sure the likely success of the autotrading system before being put on live trading. This creates an entirely self contained autotrading system. So autotrading can actually execute real trades on current real time market prices. When a predetermined signal emerges, the software actually places a trade automatically.

Any nondiscretionary technical trading strategy that has clear cut, unambiguous rules is a good candidate for autotrading. In fact, if the trader has optimized and perfected this type of black and white trading strategy that runs devoid of human judgment, autotrading is perhaps the best way to achieve it. Autotrading effectively eliminates all human biases, errors and emotions in the trading process.

There are a number of successful autotrading systems now available in the market for the ordinary retail investors. The best two are FAPT and Ivy Bot.

Mr. Ahmad Hassam is a Harvard University Graduate. Try This Cash Printing Forex Signal Service From Heaven! First practice on your Forex Demo Account! Grab a totally unique version of this article from the Uber Article Directory

Backtesting Explained (Part II)

The first was doing automated Backtesting. Automated Backtesting is easy. The second method of Backtesting is performed manually and visually by the trader. The trader would take the historical data and scroll back in time on a chart and manually apply the trading strategy as if it was in a real time environment.

One of the major drawbacks with manual Backtesting is hindsight. How to eliminate the hindsight factor while doing manual Backtesting? The trader would advance the chart bar by bar in order to refrain from seeing price action subsequent to the trade at hand. This eliminates trading in hindsight that is detrimental to an objective backtest.

Manual Backtesting is complicated and difficult. It requires a lot of patience on part of the trader. The major disadvantage of Backtesting as compared to automated testing is the significant potential for human error in executing simulated trades and recording performance results.

Emotions are your enemy in trading. When you do manual Backtesting, these emotions can cause problems for your Backtesting results. The normal range of human emotions and biases that often interfere with actual trading can be a detrimental factor in achieving objective backtest results. Furthermore, it takes a great deal of work and discipline to simulate trades manually over a large data set without straying from the strict rules of the trading strategy.

These were some real disadvantages of manual Backtesting. However, this provides valuable trading experience although simulated but still a valuable trading experience that no automated backtest could possibly provide. Backtesting manually can provide the trader with the real feel for actually trading the strategy.

Backtesting can save traders a great deal of time and money that might otherwise had been wasted on trading unprofitable strategies. Backtesting whether done manually or automatically can be one of the most important elements of building a solid trading strategy.

Any mechanical trading system can be backtested. This leads us to the important question of autotrading. Autotrading is the latest fad especially in forex where the number of major currency pairs is only six and this makes programming autotrading easy. These autotrading systems are popularly known as Expert Advisors or Forex Robots.

The US Stock Market has got more than 50,000 stocks listed with them as compared to the forex market where there are not more than six major currency pairs. This makes programming a stock trading robot a bit complicated. However, during the past decade major breakthrough in computer programming has been made.

An autotrading system needs to be thoroughly tested before being put to live test. The only way to do this is through Backtesting. Backtesting is one of the most important components of testing an autotrading system. Big institutions like banks, corporations and hedge funds have always been taking benefit of these autotrading systems.

What type of trading strategies can be backtested and autotraded? These types of strategies are primarily technical in nature, and they must necessarily have rules and criteria that are unambiguous. Backtesting and autotrading are two important components of implementing trading strategies that generally do not rely upon the trader’s judgments or discretion.

Backtesting gives you the benefit of testing your trading system on a large historical dataset. Backtesting allows the trader to determine if a given strategy would have been profitable using past price data, which is an indication of how it might potentially perform in the future. In contrast, autotrading actually executes real trades automatically according to a pre – programmed set of instructions that sets trade entries, stop losses, and profit limits.

Mr. Ahmad Hassam has done Masters from Harvard University. Try This Cash Printing Forex Signal Service From Heaven! First practice on your Forex Demo Account! This and other unique content ‘forex’ articles are available with free reprint rights.

Point & Figure Trading (Part II)

The second most important variable for a point and figure chart is the reversal threshold. The most common amount of reversal threshold is three boxes or three points. A new column is only added when a reversal in an existing column exceeds the reversal threshold.

What should be the reversal threshold or the reversal amount before a new column is added? The reversal amount in pips is 30 pips if the box size is set at 10 pips and the reversal amount is set at three boxes. So in case of a rising X column, price would need to turn back by at least 30 pips before a new O column would be added.

The significance of these two variables, the box size and the reversal threshold should be clearly understood. These two variables make the point and figure chart so effective at representing only the most major market moves disregarding all minor fluctuations known as noise.

One of the best trading strategies in most common use with the point and figure charts is breakout trading since point and figure charts outline support and resistance so well. The point and figure charts are excellent indicators of both trend and support/resistance.

A double top is a potential bearish reversal signal in bar and candlestick charts. Now you must understand that there is a notable distinction between the bar and candlestick charts and the point and figure charts in the interpretation of double and triple tops and bottoms.

Are you familiar with the chart patterns like the double and triple tops and bottoms? They are taken as important reversal signals in the trend. However, a double top is a resistance point where traders should be looking for a bullish break to the upside on the point and figure charts. The same difference holds for the double bottoms as well as triple tops and bottoms.

Charts patterns like triangles are prevalent as well. Like the horizontal support and resistances levels on these charts, the main method of trading trendlines and pattern on the point and figure charts is through breakouts. Point and figure charts also have their own versions of diagonal trend lines which are drawn at 45 degrees.

Point and figure charts give a very clear view of the market movements. Price action is the most important aspect of technical trading. The point and figure charts focus exclusively on the price action.

Point and figure charts had originated in the’th century. Point and figure charts are still popular with traders today as an increasingly relevant analytical tool for forex traders. It is because of this clarity in viewing and interpreting the price movements that the point and figure charts have withstood the test of time.

Point and figure charts excel at representing clear evidence of such important technical characteristics as trend, support/resistance and breakout without the extraneous elements to clutter the picture.

Other data that is readily available on the bar and candlestick charts like time, period opens/closes are generally excluded on the point and figure charts. This leaves only the uncluttered purity of price action. Some may characterize point and figure trading as based upon pure price action.

Mr. Ahmad Hassam is a Harvard University Graduate. Try This Cash Printing Forex Signal Service From Heaven! First practice on your Forex Demo Account! Grab a totally unique version of this article from the Uber Article Directory

Point & Figure Trading (Part I)

Point and figure trading in many ways is similar to the support and resistance breakout trading on bar or candlestick charts. The main difference is the look and functionality of the price charts themselves!

Many forex charting platforms provide the option of point and figure charts. Point and figure charts represent price in a radically different manner from the more familiar bar and candlestick charts.

Point and figure charts do not show any timeframe. This may confuse you in the beginning. Point and figure charts are a pure price action play because these charts generally exclude all other elements like time, volume and open/close other than price. Point and figure trading is based exclusively on price action.

Technical analysis is the study of price action. Technical analysis is used to predict or confirm an uptrend or downtrend or a consolidation in the market. Point and figure charts represent clear evidence of such important technical characteristics like trend, support/resistance and breakouts. Thus a point and figure chart focuses on the behavior of price action which is the most important factor from the technical analysis point of view.

A point and figure chart is constructed with a column of boxes alternately labeled with Xs and Os. An X column means that the price has risen in that column. Conversely, an O column means that the price has declined in that column.

So there is no concept of time in a point and figure chart. Only when price moves a significant amount regardless of time will an existing column grow or a new column is created. A new column is created going in the opposite direction when a reversal occurs on any column. So there is no time, volume, opens and close on point and figure charts.

Two variables can alter the way the point and figure charts look and act. The first variable is the box size. This is the minimum amount that the price is supposed to move before a new box in the existing column is created.

X is equal to fixed price increase. Each X denotes a rising trend. For example, if a column of Xs has 10 boxes, price would need to move an additional amount equal to the preset box size before another X would be added to the top of the column.

Suppose, you are using the point and figure chart. You set the box size on the point and figure chart to be equal to 10 pips on the point and figure charting software.

Now the price would have to move another 10 pips above each X box before another X could be added on top of that X. On the other hand, price would have to move 10 pips lower than the each box in O column to add another O box on the bottom of the column.

How do you decide to add another column to the point and figure chart? The second important variable is the reversal amount. This is the amount of pips the price needs to reverse before a new column is created.

Mr. Ahmad Hassam is a Harvard University Graduate. Try This Cash Printing Forex Signal Service From Heaven! First practice on your Forex Demo Account! Get a totally unique version of this article from our article submission service