Convergent trading strategies look for prices to revert back to a mean. This can mean that two assets that are extended away from their historical correlation will eventually regain their past relationship. Convergent can also describe a trading style of selling short an overbought asset or buying an oversold asset believing that the price is […]
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Options are interchangeable financial contracts that give the buyer the right to call or put a stock or commodity on someone based on the strike price and the underlier. Options contracts are are not assets like bonds that own debt or stocks that are ownership of equity in a company. they are more bets on
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The hammer is the name used for a single candlestick chart pattern that is a bullish reversal signal. Its name comes from the fact that it visually looks like a hammer. As the short body of the candle is on top of a long wick (shadow). Many traders believe for it to be valid the
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Backtesting is the process of applying entry and exit signals to time periods of past historical price data to quantify through an equity curve whether the system would have lead to overall profits in the past. A backtest is a look back at how a quantified trading system would have performed in the past. While
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In options trading, a debit spread or net debit spread play is created when a trader both buys an option with a higher premium and sells an option with a premium that is lower in price at the same time. The debit spread option play is when the value of options bought is greater than
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A hanging man is one kind of bearish reversal candlestick pattern. The hanging man is the name of a signal candle that is located inside an uptrend of higher highs and higher lows in price on a chart. The hanging man candle has a lower wick (shadow) that is longer than the body which is
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The fear and greed index was created by CNNMoney as an indicator to quantify the degree of emotions that investors are feeling about buying stocks in the current moment. This index tries to give a measurement of the market sentiment on a scale of fear and greed. Fear generally takes place during downtrends and market
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A trailing stop loss is a risk management tool for locking in profits on a winning trade. While a trade may start out with a stop loss after the initial entry to exit if the trade does not go in the right direction but instead goes low enough to show that a trade is wrong.
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This is a guest post by Beatrix Potter. Every Must-Read Psychology Book Every Trader Needs to Read At Least Once Whether you’re just starting out as a trader in the financial world, or you’ve been in the industry for some time, and you’re trying to figure out how to enhance your mindset and keep your
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A candlestick is a type of chart used in trading as a visual representation of past and current price action in specified timeframes. Depending on the timeframe of the chart each candlestick consists of each minute, day, week, or month trading range represented in a single candle. A candlestick consists of the ‘body’ with an
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The three white soldiers is a very bullish chart pattern that is created with candlesticks when there are three big candles formed in a row with higher highs and higher lows in a row. This pattern needs three data points across a timeframe to signal momentum and a high probability that a market will shift
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This is a Guest Post by Jake @TrendSpider. In this blog post, make sure to check out the top 5 TrendSpider charts posted this week on social media as well as the weekend video going over the broad markets and case studies from last week! Tune for “Coffee and Charts” Saturday morning at 11:00 AM
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A pivot point is a specific price level calculated and then used as a technical analysis indicator and trend filter in a chart’s time frame. A charts pivot point level is the average of the high prices, low prices, and closing prices from the last trading day. Price trading above a pivot point signals a
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Charts are visual representations of the prices where buyers and sellers agreed to trade over at different periods of time in the past. In markets there is a buyer and seller for every trade execution, a stock quote is the price where the buyer and seller agreed and made a transaction. Buyers and sellers are
A reverse conversion option play is a type of arbitrage trade used to make money from selling the option premium of a put option that is priced too high but is structured in a way that profits regardless of the following price action of the underlying stock. This option play is created by opening three
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A bearish credit spread refers to an option play constructed so the value of the spread position increases if the price of the underlying stock falls. A bearish credit spread is constructed with two call options. A bear call spread or credit call spread is an option play that is one kind of vertical spread. A bear call spread
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In trading Delta hedging is a way to structure an option play to decrease or even eliminate the directional risk exposure of a stock holding or other option contracts. Stocks and options have directional exposure to a move in the market price, this is called Delta which is reflected by how much money a position
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A put option contract gives the buyer of the contract the right to sell the underlying asset at the strike price of the put on the day of expiration and assignment. When writing a put option you create a ‘sell to open’ order with your option broker. This is how you sell put options short
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This is a guest post by Jake @TrendSpider. In this blog post, make sure to check out the top 5 TrendSpider charts posted this week on social media as well as the weekend video going over the broad markets and case studies from last week! Happy Memorial Day!
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The profit factor for a trader or trading system is determined by taking the gross profit of winning trades and dividing it by the gross losses from the trades that lost money for a chosen sample size. This formula considers the cost of slippage, fees, and any commissions paid. The profit factor can be defined
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