Two Different Types of Entry Signals

Here are two types of buy signals that traders can use. Swing traders have difficulty understanding how momentum traders like assets at higher prices and momentum traders don’t want to buy something that is not moving straight in one direction. I hope this sheds some light on two different kinds of traders.

Momentum Signals:

  1. This is buying into price strength.
  2. You buy high trying to sell higher or sell short low trying to cover even lower.
  3. You are buying a breakout of a range with the possibility that the break out level you bought becomes the new support.
  4. You are trading a trend of higher highs or lower lows.
  5. You are trading an asset under accumulation and the price is rising higher and higher as a trend continues.

Buying Support:

  1. You are buying weakness on the possibility that the low is in.
  2. You are buying oversold levels and believe that a snap back is imminent.
  3. You are buying pullbacks to key support levels in an uptrend.
  4. You are buying fear looking to sell it higher when an asset reverts to the mean.
  5. You are buying at technical levels that history shows presents a great risk/reward ratio and limited downside.

Money can be made buying dips and buying break outs. The keys to profitability lie in the winning percentage and the risk/reward ratio.

$SPY Chart Facts – 2/22/15

SPYForumExample_02_22_15

 

  1.  All time highs have been held through all the Greece headlines, this is bullish so far.
  2. The old all time high at $209 will be our first level of support as people that missed the breakout will likely be waiting there for a second chance to get in.
  3. The previous all time at $207 could provide the next line of support.
  4. Last week was a great week for price consolidation with the $208.75 support and $211.33 resistance levels forming a trading range. This type of action helps build a price base for the uptrend to continue.
  5. With a 2.77% year to date return $SPY is hardly in a parabolic or over extended move this year. It has room to lock in more gains.
  6. The MACD is still giving a bullish momentum signal.
  7. RSI at 65.13 gives spy room for more upside before being overbought.
  8. Friday had healthy volume on the move up.
  9. The $SPY had little trouble shaking off bad news and all the Greek fears over the past week. This is bullish.
  10. My positions since the break over the 50 day has been $SPXL $TQQQ $TNA and $SPY my stop is a close below the previous days low to show me a sign of a loss of accumulation in my time frame. I will be looking to take profits over the 70 RSI as my target.

Trading: Predictions vs. Expectations

 

 

This guest post is from: Christopher Ebert @OptionScientist

There are two VERY DIFFERENT terms to consider when it comes to trading: 1) Prediction and 2) expectation (or confidence) surrounding the prediction.

Placing a trade involves making a prediction. It is not possible to place a trade without making a prediction, and that is true even for trades that might or might not execute, such as those placed using a stop order or limit order, for example.

Every trader who places a trade does so because the trader believes there is some chance, greater than 0%, that the trade will be beneficial, perhaps based on historical probability (back testing) perhaps based on intuition (years of trading experience) perhaps based on hopes and prayers or possibly based on nothing more than a need to gamble. Whatever the basis, there must be SOME chance to benefit or else the trader would not entertain it. The trader predicts he or she will benefit, or else the trader does not enter a trade order.

No matter what the prediction may be, so long as the EXPECTATIONS for the prediction are based in reality, there is nothing inherently wrong with making a prediction. As long as a trader accepts a 30% win rate, for example, and makes allowances accordingly, there is nothing wrong with taking such a trade. The same is true for trades with 50/50 odds, as long as the trader properly predicts, expects, and is prepared for 50% failures; which is why it is possible to flip a coin and still be successful.

Many successful traders may say they never predict, when what they may really mean is that they never EXPECT their prediction to come true. Thus they may say things like “I only react” when more accurately they are reacting… to a failed prediction. For, it is virtually impossible to trade without predicting. So, I say to all you new traders out there “Don’t be afraid to predict. Just know how likely it is that you’ll be wrong, and know what to do when your prediction fails!” – Christopher Ebert

The Short Squeeze Explained

 

This is a guest post by Helyn Bolanis: Founder,CEO,& Chief Investment Officer Corp.

You Don’t have to be an Investment Geek to Make Money with this Idea

Ever wonder why a stock or the market just takes off like a rocket, with no apparent rhyme or reason?
Me too.
Sometimes you get why it’s going up, like if an announcement was released that was favorable, the Fed’s are adding more liquidity, or that the worry over Ebola or a Middle East war has been adverted.
That makes sense.
But what about when it happens and it doesn’t make sense?

Ever hear of the term ‘Short Squeeze’?
To understand it fully, you need to understand what it means to “short a stock”.
Simply put, you make money when the stock goes down. It’s the opposite of what you usually think about when you invest in the stock market, which is that you make money when the stock goes up.
Think of Sept. 11, 2001, when the terrorists shorted the airline stocks, especially United Airlines and American Airlines. Those were the two companies whose planes where used in the cowardly act of killing innocent people.
The terrorists knew that the stock would decline, which it did (about 43% and 39% respectively). So they made money instead of losing it.

They knew the stock would decline in price, so they made money when the stock plunged. A short squeeze is a situation in which a heavily shorted stock (stock that has been declining and many people have been betting that it will continue to decline) moves sharply higher. In order not to lose everything, it forces the short sellers to close out their positions. This means they must buy the stock. The stock market is an auction, so they compete to buy which puts pressure to pay higher prices (because remember, they must buy the stock, it’s not optional). This snowballs and adds to the upward pressure on the stock. The term “short squeeze” implies that short sellers are being squeezed out of their short positions, usually at a loss.  In other words, squeeze is synonymous with forced. So the investors who have shorted the stock are forced to buy the stock, and when there is a lot of them, they run the stock up!
Each one trying to get out with as little damage as possible. A short squeeze is generally triggered by a positive development that suggests the stock may be embarking on a turnaround. Although the turnaround in the stock’s fortunes may only prove to be temporary, few of the short sellers can afford to risk runaway losses on their positions and may prefer to close them out even if it means taking a substantial loss. After all, who knows how high the stock will go.

There’s that Warren Buffet again. Contrarian investors (those type of investors that look to do the opposite of everyone else, like Warren Buffet) look for stocks with heavy short interest specifically because of this short-squeeze risk/return. To them, they know at some point in time, the stock will turn around. And when it does… look out. The pushing and shoving to buy the stock can make a mint for them, sometimes in just one day! These investors begin buying as the stock has declined a certain percentage. Of course, they are looking for good companies that are just having a setback, not a company that may be going out of business. Their risk is limited to the price paid for it, while the profit potential is unlimited.
This is diametrically opposite to the risk-reward profile of the short seller, who bears the risk of theoretically unlimited losses if the stock spikes higher on a short squeeze.

Interesting, wouldn’t you say.
I hope this helps you better understand a short squeeze.
Good luck!
Helyn