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Abandoned Baby Candlestick Pattern - 04-12-2008
Abandoned baby is a rare but reliable candlestick pattern which indicates a trend reversal. This is a three candlestick pattern formed of three different candlesticks, a bearish candlestick, a bullish candlestick and a doji candlestick; the shadow of doji candlestick is gapped away from other two. There are two types of abandoned baby candlestick patters, bullish abandoned baby candlestick pattern and bearish abandoned baby candlestick pattern.
Bullish abandoned baby candlestick formation occurs after a significant downtrend and indicates the beginning of an uptrend. On first day there is a black (colored/bearish) candlestick maintaining the bearish trend. On second day there is a doji star which gap bottom to first day candlestick indicating high uncertainty in market. On third day there is a white (colorless/bullish) candlestick indicating the beginning of an uptrend.
Bearish abandoned baby candlestick formation occurs after a significant uptrend and it indicates the beginning of a downtrend. First day is a bullish day characterized by a colorless candlestick. On second day there is a doji star which gap above to the first day candlestick indicating high uncertainty. Third day is a bearish day characterized by a colored candlestick which indicates the beginning of a downtrend.
Abandoned baby candlestick patters are considered as a highly reliable trading pattern. Reliability increases with increase in gapping and trading volume. Confirmation is suggested, which can be bullish (for bullish abandoned baby) or bearish (for bearish abandoned baby) candlestick on fourth day.
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Capital Preservation Strategy - 03-12-2008
Capital preservation strategy is a portfolio management and investing strategy which aims at preservation of capital over maximization of return. The strategy is widely followed by many investors especially by persons nearing retirement.
Capital preservation strategy is a long-term strategy which includes investing in low-risk low-profit instruments like bonds, certificate of deposits, money market funds and other fixed-income instruments. Although extreme capital preservation strategies do not include investing in stocks or similar risky investments, most allocate a fixed portion of their portfolio (usually no more than 40%) to invest in stocks, preferably blue-chips, similar large-cap stocks and ETFs.
The advantages of capital preservation strategy include- Lower risk of capital loss.
- Steady increase in portfolio value.
- More capital to re-invest.
- Suitable for long-term capital growth.
- Less-active monitoring of portfolio demanding lesser time for investment management.
- Less return compared to capital growth strategies.
- Not so suitable for traders/investors having good investment knowledge.
- Demand strict use of stop-losses and similar risk-minimizing tools.
- Not suitable for achieving short-term profit goals.
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ETF Dollar Cost Averaging - 02-12-2008
Dollar cost averaging (DCA) or systematic investment plan is one of the most popular investing strategies followed by many investors, especially small-scale investors who frequently invest small amounts. Know more about dollar cost averaging. Exchange traded funds (ETFs) are also good instruments to DCA but there are two factors to be concerned, expense ratio and trading costs.
Low expense ratios make ETFs suitable for dollar cost averaging; even the low-cost mutual funds (which are considered ideal for DCA) have high expense ratios than most ETFs. The expense ratio is a fixed-rate percentage. For example if the expense ratio of an ETF is 10 basic points, the expense ratio cost will be $0.1 for $100 investment and $1 for $1000 investment. Also ETFs do not have any sales charges, low-balance fee or purchase fees, which some mutual funds include.
As ETFs are traded just like stocks, they include trading brokerage fees, which can be of per trade or per share basis. For keeping the effect of trading costs minimum, the investor should trade ETFs in larger amounts less frequently preferably through a discount broker offering low charges. For example, if the flat fee of trading is $10 per trade, investing $100 in ETF monthly will result in 10% disappearance of money ($100 - $10) and after a year the portfolio value should be $1080 (90%); if the value of ETF stays same. But if the investment is done tri-monthly basis ($300 per trade) then the portfolio value after a year should be $1160 ($290 x 4).
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Weekly Stock Market Letter, 1 December 2008 - 01-12-2008
The Week Ahead: The volatility pendulum has swung to the positive side as a five day winning streak left equities with the best week in 34 years and an 18.5% gain since November 21. Reports to watch include: construction spending and ISM Manufacturing on Monday, auto sales on Tuesday, Q3 productivity along with the Fed's Beige Book of economic activity on Wednesday, factory orders, chain store sales, and jobless claims on Thursday, and finally the all important November Employment Report on Friday.
Stocks to Watch: Retail stocks are showing mixed results heading into the Christmas season with Family Dollar Stores (FDO) outperforming most on a relative basis. Panasonic Corp. (PC) cut its fiscal year 09' earnings and sales forecast as the stock sunk to levels not seen since 03'. Frontline Limited (FRO), the Norwegian shipping company, cut its quarterly dividend to .50 from 1.50 but the stock recovered from its low despite this news. Dun & Bradstreet (DNB) will be added to the S&P 500 and Thoratec Corp. (THOR) to the Mid-Cap 400 on Monday.
Special Note: Despite the markets recent sprint, November ended its worst month in 8 years led by financials and information technology. The last time the market closed higher 5 straight days with white candlesticks was July 2007 which incidentally marked a top and a month long swoon in stocks. The way the 4th quarter has gone so far a continuation of the worst quarter in recent memory should not surprise investors. Near term resistance remains near 9000 on the Dow Industrials with strong resistance at 9600.
Commentary provided by Barry Ward, Registered Principal, NobleTrading.com, Inc.
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Class A and Class B stocks - 26-11-2008
Class A and class B are two different classes of stocks, known as classified stocks, which are issued publicly. Although most companies issue only one type of stock to public (known a common stock) having same voting and dividend rights, some companies issue more than one type of stock (class A, B, C...) to achieve some specific goals. The goals can be- For retaining of company control by the founders
- To offer fixed (higher) dividend to some shareholders, or
- To offer shares for higher/lower prices than existing
The practice of issuing different classes of stocks started in 1996, when Berkshire Hathaway of which 40% shares are owned by Warren Buffett at that time issued a new class B stock to public having one-thirtieth price and voting right of their existing class A stocks. Class A stock (ticker symbol: BRKa or BRK.A) holders can exchange their stocks for 30 class B stocks (ticker symbol: BRKb or BRK.B), but no exchange in opposite direction was allowed.
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Weekly Market Newsletter, 24 November 2008 - 25-11-2008
The Week Ahead: The appointment of Timothy Geithner as the new Treasury Secretary in 2009 helped to lift the market sharply on Friday after a breakdown in the major indexes earlier in the week. The S&P 500 reached levels not seen since 1997. Existing home sales are due out on Monday. The preliminary GDP numbers for Q3 are released Tuesday along with consumer confidence and the Case Shiller Home Price Index. Wednesday brings the durable goods report and personal income & spending. The market is closed Thursday for Thanksgiving with a shortened trading session on Friday.
Stocks to Watch: Celanese (CE) warned that the 4th quarter and 2008 profits will miss analysts estimates. The stock dropped 41% to new all time lows. Anglogold (AU) secured a $1 billion bridge loan to refinance expiring convertible bonds and helped rocket the stock 43%. Other gold stocks rose sharply as well including Kinross Gold (KGC) which broke through its 50 day moving average. Alpha Natural Resources (ANR) received an upgrade from a major brokerage which helped lift the stock from a deep low.
Special Note: Yet another bailout is in store this time for Citigroup, one of the largest money center banks in the country. The Treasury will inject $20 billion from the congressionally approved TARP funds and receive an 8% preferred stock. In addition a $306 billion backstop will be provided against a pool of Citi's troubled assets. The deleveraging process of all assets classes will likely continue despite this news making it tough for the market to make any headway. There are still no technical signs of a bottom in place.
Commentary provided by Barry Ward, Registered Principal, NobleTrading.com, Inc.
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Forex Market Jargon & Nicknames - 24-11-2008
World forex market has its own language. There are nicknames to currencies and currency pairs and there are some interesting terminologies. Knowing them is important is for a forex trader as it will help him in better understanding of news, reports and commentaries. Here are some of them with some interesting explanations.
Nicknames of Currencies- US Dollar (USD) ? Greenback and buck. The name buck came from ?buckskins? which were used for trading in late 1700s, when there was no paper money.
- British Pound (GBP) ? Cable, Pound and Sterling. The name cable probably came from the trans-Atlantic cable between US and Britain.
- Canadian Dollar (CAD) ? Loonie and Little dollar. Loonie is the bird depicted on the Canadian coin.
- Euro (EUR) ? Fiber.
- Australian Dollar (AUD) ? Aussie or Ozzie. Aussie is the word now-a-days used to denote anything having an origin in Australia.
- Swiss Franc (CHF) ? Swissie.
- New Zealand Dollar (NZD) ? Kiwi, named after the non-flying bird found there.
- EUR/JPY ? Euppy or Yuppy.
- EUR/GBP ? Chunnel, as a tunnel connect Britain and France (the European continent).
- GBP/JPY ? Gopher.
- USD/JPY ? Ninja.
- Yard ? is a billion unit of a currency.
- Figure ? is a term denoting a round term. Eg: 1.2000 and 2.400
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Factors to Consider When Using Moving Average - 17-11-2008
Moving average is one of the most widely used indicators for trading all types of financial instruments, especially forex currencies. It is simple and is easy to interpret and can be used in any style of trading. But there are many factors which are to be considered when you using moving average for trading instruments.- Market data used: most often closing price of a day is used for moving average calculation, but you can also use daily highs or lows, opening prices or medians to calculate moving averages.
- Time periods used: 30 day and 50 day moving averages help position traders and investors to finding enter and exit points, and also stop losses. But day traders and similar active traders should use intraday (1 hour, 30 minutes, etc) moving averages.
- Market trends: Most trading strategies based on moving averages work well when market is on a move (either upward or downward). They are less effective in sidewise moving markets. Also in a sidewise market trading systems often generate too much wrong signals.
- Your Trading Objective: Are you an aggressive trader having high risk tolerance? Or you are a conservative trader looking for preserve your capital? You should find buy and sell signals and stop-loss points based on your objective.
- High volatility: Traders using short-term moving averages to enter a trade before a large move often get wrong signals when prices are rapidly going up and down.
- Lagging indicator: moving average respond to current and past trends and can not be used widely to predict trends. Many times a trader following moving average enter a trade when the opportunity diminishes.
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What are Certificated or Certified Stocks? - 14-11-2008
Certificated stocks or certified stocks or deliverable stocks are (stored) stocks of commodities (do not misunderstand with stocks of companies) which are certified to meet the basis grade set by exchanges. The commodities are tested for both quality and quantity at a designated location and are used as delivery against futures contracts.
Certification of commodity is done by an authorized representative of futures trading exchange; after that only the product is considered as acceptable for delivery. The process is widely used for agricultural and food products especially grains, where certified stock is known as ?stocks in deliverable position?.
In futures trading, there are many advantages of this certification process.- The quality and quantity of underlying commodity is assured.
- Sellers get a clear idea about what they are selling and buyers will be clear about what they are buying.
- Trading of commodities which do not meet the requirements is reduced.
- Helps in developing a warm relationship among the producer, the market and the buyer; and assures smooth functioning of market.
- Create competition among producers to produce more quality products; today there are many producers who easily exceed the standards set by different markets.
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Doji Tri-Star Candlestick Pattern - 13-11-2008
As the name suggest tri-star pattern is a rare candlestick pattern, which is composed of three consecutive doji candlesticks. The pattern indicates market reversal when they are formed after a prolonged trend. There are both bullish and bearish doji tri-star candlestick patterns.
Bullish Doji Tri-Star: Indicate the end of a downtrend and beginning of uptrend. The requirements of this pattern include- It should be formed after a significant downtrend.
- There should be three consecutive doji candlesticks.
- The second doji candlestick should be gapped below to other two candlesticks (not necessary in forex trading).
- It should be formed after a significant uptrend.
- There should be three consecutive doji candlesticks.
- The middle doji candlestick should be gapped above to other two candlesticks (except in forex charts).
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Bellwether or Barometer Stocks - 12-11-2008
Bellwether or Barometer stocks are stocks which are considered as the indicators of overall market or market sector. These are stocks of big companies which are the leaders of particular industries, and ups and downs of which produce corresponding changes on that and related industries. Some very good examples of bellwether stocks include General Motors ? automobile industry, Microsoft ? software sector, Wal-Mart ? retail sector, etc.
Bellwether is a term which denotes the sheep with a bell which leads rest of the flock. Finding and keeping track with bellwethers is vital from an investment point of view as most other stocks of the industry tend to follow them; whenever bellwether go upward, others too go up and vice versa. Most of the barometer stocks are blue-chip stocks with high market capitalization and investing in them offer high-return and low-risk; and is a major tactics followed by growth investors and CANSLIM investors.
Bellwether stocks also produce a profound effect of a nation?s economy. For example any news which related to General Motors not only influence automobile industry but also steel and other metal industries, financial sector, oil and energy industries, retail industry and so on; there for the saying ?What good for GM, is good for America?. There can be more than one barometer stock available for one industry/sector; and also it is not necessary that trends of all other stocks of the industry follow that of the barometer stock of its industry.
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Weekly Stock Trader Newsletter, 10 November 2008 - 11-11-2008
The Week Ahead: With unemployment numbers up ten consecutive months, momentum appears to be gaining as August and September figures were revised upward. Markets will key in on President Elect Barrack Obama's choices for economic positions in his administration. Bond markets are closed Tuesday for Veterans Day. Watch for further increases in the jobless claims numbers on Thursday as well as the trade balance. An important retail sales report for October is due Friday along with business inventories.
Stocks to Watch: Fluor Corp. (FLR) surprised traders by nearly doubling earnings for Q3 and beating estimates. The stock could be near resistance. The CEO of Autonation, Inc. (AN) is showing confidence in his business making more space for foreign vehicles, cutting debt, and meeting loan covenants. OSI Pharmaceuticals (OSI) had a late stage trial of Tarceva improve the survival rate in lung cancer patients as the stock gapped up from a recent low. Delta Petroleum (DPTR) declined significantly after Tracinda Corp. withdrew its tender offer.
Special Note: Dividend yields on many blue chip stocks have recently become more attractive relative to the recent past. The Dow Industrials and S&P 500 were down as much as 45% from their 2007 highs and reached a 3.7% dividend yield. This appears to be a good yield, but historically this level was considered low during most of the 1900's and near market tops. Since 1995 though yields reached the low 1% area indicating an extreme overvaluation in stocks. The average bear market bottom on the DJIA historically yields 6.5%.
Commentary provided by Barry Ward, Registered Principal, NobleTrading.com, Inc.
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Forward Premium and Forward Discount - 10-11-2008
If the difference between forward exchange rate and spot exchange rate of one currency is a positive value, it is known as forward premium and if it is a negative value it is known as forward discount. In other words if the spot ?futures exchange rate? is higher than the spot exchange rate then it is known as forward premium and if it is lower than spot exchange rate then it is known as forward discount.
Forward exchange rate of domestic currency (DC) with regard to a foreign currency (FC) for one year is derived by the formula,Forward Rate = Spot Rate of FC x (1 + Interest Rate of FC)
(1+ Interest Rate of DC)
If the sport rate of Canadian dollar (CAD) is 0.7870, one year interest rate of Canada is 3.5% and that of US is 3% then the forward rate of USD with regard to CAD will be,
1 USD = 0.7870 x (1 + 3.5) / (1 + 3) = 0.8853
Which is 0.0983 (98.3 swap points) higher than the current spot price of CAD, thus USD trades at a forward premium against CAD and CAD trades at a forward discount against USD.
If the exchange rate after one year is still at or around 0.7870 in the above example, a trader can benefit from the arbitrate opportunity of converting low interest rate currency to high interest rate currency and depositing it for one year, and simultaneously buying an one year forward contract for low interest rate currency to hedge risk.
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Factors That Affect EFT Liquidity - 07-11-2008
Exchange traded funds (ETFs) are considered among most liquid trading instruments, especially when compared against mutual funds. But different ETFs have different levels of liquidity. Below are some factors that affect the liquidity of these funds.- Underlying Asset: ETFs which have less liquid equities as there underlying assets are usually less liquid than those have liquid equities as underlying asset.
- Diversification: ETFs which invest in broad diversified market indexes are usually more liquid than which invest in specific sectors.
- Market Capitalization: ETFs which invest in large-cap stocks are usually more liquid than mid-cap and small-cap tracking ETFs.
- Fixed Income Securities: ETFs which have fixed income securities like treasury bonds, corporate bonds, etc as underlying instruments are more volatile and is also less risky.
- Economy: ETFs which track indexes of emerging world economies are usually considered less liquid than that of developed world economies. Also ETFs investing in domestic securities are more liquid than foreign ones.
- Trade Volume: Although not a major factor, increase in trading volume of ETF positively contributes to the liquidity of it.
- Trading volume of underlying stocks: The more the underlying stocks are traded the higher the liquidity of ETF.
- Time, News and Market Forces: These ever changing factors affect the liquidity of all the traded instruments including ETFs.
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Bearish Evening Doji Star Pattern - 06-11-2008
Bearish evening Doji star pattern is one of the most reliable Japanese candlestick patterns which indicate a possible trend reversal. This candlestick pattern includes three candlesticks; often formed at the top of an uptrend and indicate a possible downtrend. Evening Doji star pattern is widely followed by all types of traders trading all types of financial instruments.
The requirements of a bearish evening doji star pattern include,- It should be formed after a significant uptrend.
- First day is should be bullish characterized by a long white (colorless/bullish) candlestick.
- Second day is the day of uncertainty which result in formation of a doji star (where opening and closing prices are almost equal).
- Third day should be bearish characterized by a black (colored/bearish) candlestick, ideally which closes below the mid-point of first day candlestick.
With evening doji star pattern, there is always chance of formation of more than one doji star candlestick. Even though it is a highly reliable pattern, confirmation is still suggested which can be a bearish candlestick or gap on fourth day. The gapping of doji candlestick is not a necessary requirement, especially for forex traders as the market is continuous.
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What are Related Trade Orders? - 05-11-2008
Related Trade Orders, sometimes known as Contingent Trade Orders, are complex trading orders which are created by combining two or more orders. They comes handy when trader want to execute or not to execute the orders (the second or third order) when a specific condition is met. There are mainly three types of related trade orders.- IF DONE Orders: Also known as slave orders. These are orders in which the second order or slave becomes only active when the first order is executed. Eg: first order to buy a stock on reaching a price level and the slave order to sell it on reaching another price level.
- OCO (One Cancels Other) Orders: These are related trade orders in which execution of one order automatically cancels the other. Usually an OCO order contains both stop loss and limit order, only one of which is executed.
- 3-Way Related Orders: This is the combination of IF DONE and OCO orders. The first order is a slave order, execution of which automatically triggers the execution of second order, which is an OCO order.
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Weekly Stock Market Letter, 3 November 2008 - 04-11-2008
The Week Ahead: A continuation of the see-saw action in stock prices is likely as November trading begins. One positive for consumers despite record low sentiment numbers is the rapid decline in oil prices and therefore gasoline at the pump. All eyes are on Election Day this Tuesday. Any surprises will only help to create more up and down volatility. Factory orders will also be out on Tuesday. On Thursday chain store sales will hint at any consumer vitality. Finally, by Friday, another potentially problematic employment report is released.
Stocks to Watch: Wynn Resorts Ltd. (WYNN) beat earnings estimates for Q3 even though they were lower than a year ago, but the stock has already more than doubled its recent low from just 5 days ago. Carnival Corp. (CCL) cut its 2009 dividend in order to build up cash reserves so that it would not have to tap the weak capital markets. Jm Smucker (SJM) will close on the spin-off of Folgers from Procter and Gamble on Wednesday after which its stock will be added to the S&P 500 Index.
Special Note: As this weeks Presidential Election unfolds, a triangle or flag pattern appears to be developing on the Dow Industrials and S&P 500 Index. The entire trading range since the October 10 low and October 14 high has been between these two price points. With each successive lower high and higher low the market makes from here the triangle will reach its pinnacle point. The direction from there is usually the final move of the trend that preceded it which in this case is down to new lows. A move above 9795 on the DOW or 1045 on the S&P 500 would negate this pattern.
Commentary provided by Barry Ward, Registered Principal, NobleTrading.com, Inc.
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Non-Deliverable Swap or NDS - 03-11-2008
Like Non-Deliverable Forward (NDF), Non-Deliverable Swap (NDS) is cash settled contracts which do not involve delivery of underlying instrument. The only difference is that the cash settlement is done through a major (fully convertible) currency like U.S. Dollar. Similar to NDF, NDS also involves two currencies, usually one major currency and one restricted currency.
Non-deliverable swaps allow emerging market companies operating with minor currencies to hedge against currency risks. In NDS, the interest rate of the restricted currency is fixed at that of the other is kept fixed or floating. Interest rate payments are done on quarterly, semi-annual or annual basis and principal amount is paid on maturity of the contract. Any payments which include the restricted currency are done through major currency based on prevailing sport exchange rate.
For example, two companies enter into a non-deliverable currency swap for $1 million, which involve exchange of USD and a restricted currency (eg: South Korean Won, KRW). If after 3 months the one company has to pay KRW worth 1,000,000 to the other company, and the prevailing spot exchange rate is 1300 KRW for $1, then the company pays $769.23 (1,000,000/1,300).
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What is Indicative Net Asset Value or iNAV? - 31-10-2008
Indicative Net Asset Value or iNAV or simply indicative value is the measure of net asset value of a fund or instrument according to the change in price of underlying instrument. iNAV is a powerful trading indicator especially for ETF traders and investors, as it indicate almost the price at which the ETF is trading. By definition, it is the intraday measure of per share value of an instrument based on the asset it holding and the liabilities it has.
Indicative net asset value is a more useful trading tool than Net Asset Value or NAV. With NAV or book value, the per share value of a fund is calculated based on the closing price of the underlying instrument, and it is published on morning of next trading day. But indicative value is published in more real-time, updated usually with every 15 seconds based on last transacted price of underlying instrument.
The trading price of exchange traded funds (ETFs) usually falls close to iNAV (often within a 2% range in either direction). Indicative net asset value is not so suitable indicator for mutual fund traders as there are many other costs involved in active mutual fund management.
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Bullish Morning Doji Star Pattern - 30-10-2008
Bullish morning doji start pattern is one of the most reliable market reversal candlestick patterns which indicate a possible upward trend. The pattern is widely followed by all types of traders trading all financial instruments. Morning doji star formation is a three candlestick pattern, usually found at bottom of a downtrend.
The requirements of a bullish morning doji star pattern include,- The pattern should be formed after a significant downtrend.
- The first day is a bearish day characterized by a long bearish (colored or black) candlestick.
- The second day is a doji, ideally gapped away from previous day?s candlestick.
- The third day is a bullish day characterized by a bullish (colorless or white) candlestick, ideally closing above the midpoint of first day candlestick.
Note: The gapping of doji candlestick is not a necessary requirement, especially for forex traders; as the forex market is continuous, the chance for gap formation is very rare.
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What are Matching Systems? - 29-10-2008
Matching systems are alternative trading systems which automatically match bids and offers to execute trades. They are widely owned by institutional traders, market makers, banks, money managers and other financial firms to create an alternative trading environment. Instead of continuous order execution, as in major exchanges, matching systems often follow periodic execution sessions.
Most matching systems allow traders to place their orders anonymously through specific protocols. The system will evaluate the order and route that to appropriate cross-matching engine, which handle order executions of specific symbols. If matching counterpart order is there, the orders are executed instantaneously. If no matching order, then the ask/bid order is displayed to all traders involved to place matching orders. Orders are usually executed on a time-priority basis.
Matching systems are often less susceptible for price manipulations 1) as trades are done anonymously and 2) as trades are done purely in a quote-driven environment. All trades are done electronically usually without broker involvement. Usually there will be minimum order size requirements (eg: 10,000 shares). Most matching systems derive ask and bid prices passively from NBBO (National Best Bid and Offer).
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Weekly Market Newsletter, 27 October 2008 - 28-10-2008
The Week Ahead: U.S. stock markets are at 5 year lows coming into this week and experiencing one of the worst months on record. Buying is still on low volume suggesting that rallies are bear market traps. The Federal Reserve meets this week on Tuesday and Wednesday with a 1/2 point rate cut expected. A 3/4 point cut may help turn markets around. Other reports include: new home sales on Monday, consumer confidence on Tuesday, a widely anticipated Q3 advanced GDP number on Thursday, and personal income and spending on Friday.
Stocks to Watch: Sony Corp. (SNE) cut its full year profit guidance from $2.9 to $1.5 billion as the stock reached a 15 year low and continues in oversold territory. Timken Co. (TKR) maker of power transmission and friction management products fell to 7 year lows despite beating earnings estimates because it expects a significant drop in earnings for Q4. Hartford Financial Services Group (HIG) moved up on hopes insurance companies may be included in the $700 billion rescue plan and could be forming a double bottom.
Special Note: The lock limit down on the futures market for the Dow Industrials and S&P 500 on Friday, the first since 1997, are hinting that the major averages are preparing to break the lows set earlier this month as the Nasdaq Composite already has. Also, the Dow has yet to reach the 20 year moving average near 7700 while the S&P 500 and Nasdaq already have. A final capitulation in selling pressure that many traders desire along with lower lows probably into November could be lower than most expect. A move below 7197 on the Dow set in 2002 would mean a continuation of the bear market earlier this decade.
Commentary provided by Barry Ward, Registered Principal, NobleTrading.com, Inc.
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What is Interest Rate Parity? - 27-10-2008
Interest rate parity is one of the major applications of the Law of One Price and plays a major role in forex trading markets. It links the short-term interest rates, spot exchange rates and forward exchange rates of two or more different currencies. It is a non arbitrage condition according to which the returns obtained from borrowing in a particular currency, exchanging that currency for another and investing in interest-carrying instruments in the second currency, and at the same time buying futures contracts to convert the currency back by the end of the investment period, will be equal to the returns one gets by buying and holding similar interest bearing instruments of the first currency. Whenever the theory is violated, an arbitrage opportunity is created.
There are two versions of interest rate parity known as covered interest rate parity and uncovered interest rate parity.
Covered Interest Rate Parity is also known as Interest Parity Condition. It assumes that the ?interest rate return from different currencies will be the same if one covers against currency changes.? That is, the returns will be the same when you invest USD in US deposits and the same dollar amount in a foreign currency, and protect that investment using a forward on the foreign currency.
Uncovered Interest Rate Parity is a condition that assumes that ?the difference between the interest rate of two currencies will be equal to the expected depreciation of a currency.? That is, a 10% depreciation of the USD against any foreign currency is to be compensated by a 10% rise in the interest rate of the dollar.
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Advantages of Futures Spread Trading - 24-10-2008
There are many advantages of trading futures spreads over trading naked futures (taking simple long or short futures positions).- More profit opportunities and flexibility ? trading futures spreads offer more opportunities as they are less volatile (compared to simple contracts), predictable and usually they follow trends.
- Less risk ? As spread trading involves taking both long and short positions, traders have almost hedged their downside risk.
- Lower margin requirements ? Most brokers offer reduced margin requirements for trading futures spreads. This allows futures traders to open larger positions with smaller accounts.
- There are many commodities (mostly agricultural commodities) which exhibit well defined seasonal trends. Futures spread trading offer better opportunity to profit from these trends.
- Low time requirements ? As you are trading spreads, there is less requirement of following market in real-time. Spreads are better traded with end-of-the-day data.
- Offer better opportunities to limiting risks.
- Suitable for both experienced and novice traders.
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Star Candlestick Patterns - 23-10-2008
Stars are one of the most trusted market reversal patterns. Candlesticks stars are colored (dark or bearish) or clear (white or bullish) candlesticks which fulfill following requirements.- They have small real bodies.
- They are preceded by long bodied bullish or bearish candlesticks.
- They gap away from previous candlesticks.
- Their real-body does not over lap the previous candlesticks? real-body.
There are different types of star candlesticks, which are named according to the position at which they are formed and the real-body length.- Morning Star candlestick: It is bearish in nature indicating an upward trend reversal. Morning star is formed at the end of a downtrend having a long bearish (colored) candle preceding and a long bullish (colorless) candle following it.
- Evening Star candlestick: It is bullish in nature indicating a downward trend reversal. Evening star candlestick is formed at the end of an uptrend having a long bullish candle preceding and a long bearish candle following it.
- Doji Star candlestick: It is a star candlestick that lack real-body. They can be bullish (evening doji star) or bearish (morning doji star). They are considered as one of the most reliable and easily recognizable candlestick formations.
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