A lesson on how to trade the Bullish and Bearish Engulfing Candlestick Chart Patterns for active traders and investors using technical analysis in the stock, futures, and forex markets.
As with the Hammer and as with most one candle patterns most traders will wait for confirmation that selling pressure has in fact taken hold by watching for a lower open on the next candle. Traders will also place additional significance on the pattern when there is an increase in volume during the period the Hanging Man forms as well as when there is a longer wick.
The close of the third candle needs to be at least half way down the body of the first candle and as with the Morning Star most traders will not wait for confirmation from the 4th period's candle to consider the pattern valid. Traders will look for increased volume on the third period's candle for confirmation, the larger the black and white candles are and the further the black candle moves down the body of the white candle the more powerful the reversal is expected to be.
Trading the Gold Silver Ratio :
For the hard-asset enthusiast, the gold-silver ratio is part of common parlance, but for the average investor, this arcane metric
is anything but well-known. This is unfortunate because there's great
profit potential using a number of well-established strategies that rely
on this ratio.
In a nutshell, the gold-silver
ratio represents the number of silver ounces it takes to buy a single
ounce of gold. It sounds simple, but this ratio is more useful than you
might think. Read on to find out how you can benefit from this ratio.
How the Ratio Works
When gold trades at $500 per ounce and silver at $5, traders refer
to a gold-silver ratio of 100. Today the ratio floats, as gold and
silver are valued daily by market forces, but this wasn't always the
case. The ratio has been permanently set at different times in history -
and in different places - by governments seeking monetary stability.
Here's a thumbnail overview of that history:
How to Trade the Gold-Silver Ratio
First off, trading the gold-silver ratio is an activity primarily undertaken by hard-asset enthusiasts like "gold bugs". Why? Because the trade is predicated on accumulating greater quantities of the metal and not on increasing dollar-value profits. Sound confusing? Let's look at an example.The
essence of trading the gold-silver ratio is to switch holdings when the
ratio swings to historically determined "extremes." So, as an example:
For those worried about devaluation, deflation,
currency replacement - and even war - the strategy makes sense.
Precious metals have a proven record of maintaining their value in the
face of any contingency that might threaten the worth of a nation's fiat currency.
Drawbacks of the Trade
The obvious difficulty with the trade is correctly identifying
those "extreme" relative valuations between the metals. If the ratio
hits 100 and you sell your gold for silver, then the ratio continues to
expand, hovering for the next five years between 120 and 150, you're
stuck. A new trading precedent has apparently been set, and to trade
back into gold during that period would mean a contraction in your metal holdings.
What is there to do in that case? One could always continue to add
to one's silver holdings and wait for a contraction in the ratio, but
nothing is certain. This is the essential risk to those trading the
ratio. It also points out the need to successfully monitor ratio changes
over the short and medium term in order to catch the more likely
"extremes" as they emerge.
There's an entire world of investing permutations available to the
gold-silver ratio trader. What's most important is to know one's own
trading personality and risk profile. For the hard-asset investor
concerned with the ongoing value of his or her nation's fiat currency,
the gold-silver ratio trade offers the security of knowing, at the very
least, that he or she always possesses the metal.
As with the Inverted Hammer most traders will see a longer wick as a sign of a greater potential reversal and like to see an increase in volume on the day the Shooting Star forms.
34. Why Most Traders Lose Money and The Solution
A lesson on the importance of money management in trading and how most traders of the stock, futures, and forex markets ignore money management because they do not consider it important and therefore loose money trading.
Why the Majority of Traders Fail
In our last lesson we finished up our series on Candlestick Chart Patterns with a look at the Inverted Hammer and the Shooting Star Candlestick Chart Patterns. In today's lesson we are going to start a new series on money management, the most important concept in trading and the reason why most traders fail.
Over the last several years working in financial services I have watched hundreds if not thousands of traders trade, and over and over again I see smart people who have been intelligent enough to accumulate large sums of money in their non trading careers open a trading account and loose huge sums of money making what you would think are easily avoidable mistakes that one would think even the dumbest traders would avoid.
Those same traders are the ones that consider themselves too good or smart to make the same mistakes that so many others make, and that will skip over this section to get to what they feel is the "real meat" of trading, strategies for picking entry points. What these traders and so many others fail to realize is that what separates the winners from the losers in trading is not how good someone is at picking their entry points, but how well they factor in what they are going to do after they are in a trade into their trade entries and how well they stick to their trade management plan once they are in the trade.
For the few who do get that money management is far and away the most important aspect of trading, the large majority of these people don't understand the large role that psychology plays in money management or consider themselves above having to work on channeling their emotions correctly when trading.
35. Why Traders Hold On to Losing Positions
A lesson on how the ability and willingness to take losses when trading the forex, futures, or stock markets is one of the key factors that differentiates successful traders from unsuccessful ones.
In our last lesson we introduced the concept that money management and the psychology of money management as the most overlooked but most important component of trading success. In today's lesson we will begin to look at one of the most important components of the psychology of money management: a willingness to be wrong.
Humans in general grow up being taught by their environment of the importance of always being right. Those who are right are envied as the winners in society and those who are wrong are cast aside as losers. A fear of being wrong and the need to always be right will hold you back in general, but will be deadly in your trading.
With this in mind lets say that you have been watching my videos and feel that I am an intelligent trader, so you want me to give you a method to trade. I say fine and give you a method and tell you that the method will trade 100 times a year with an average profit of 100 points for winning trades and an average loss of 20 points for loosing trades. You say great and take the system home to give it a try.
A few days later the first trade comes and quickly hits its profit target of 80 points. Great you say and call a bunch of your friends to tell them about the great system you've found. Then a few days later the next trade comes but quickly takes a loss. You hold tight however and then the next trade comes, and the next trade etc until the trade has hit 5 losers in a row and amounting to 100 points in loses on the losers so you are now down 20 points overall, and all your trader buddy's who started following the system after the first trade are now down 100 points.
Successful traders realize that situations such as the above occur constantly in the market and that one of the main things that separates successful traders from unsuccessful ones is their ability to accept this, stick to their strategy, accept that loosing trades are a part of trading, and move onto the next trade when the market does not move in their favor.
In order to trade successfully people need a trading plan which is
designed before entering a trade and becoming part of the crowd so they
can fall back on their plan when the emotions which are associated with
being part of a crowd inevitably arise. Successful traders must also
realize that there is a time to run with the crowd and a time to leave
the crowd, a decision which must be made by a well thought out trading
plan designed before entering a trade.
CONSUMER PRICE INDEX
The CPI measures the changes in retail prices for goods and services. In
the US, it is considered the number one indicator for inflation, and it
is one of the main economic reports the Fed uses when determining when
to change interest rates.
The consumer price index measures a weighted basket of about 200
commonly purchased goods and services. Each month, the BLS determines
the retail prices for these items and compares them to the prices from
the previous month to gauge the change in the average cost of living.
The data is then grouped into 2 separate indexes.
CPI (W) category is for for wage earners, and clerical workers.
The CPI (U) is for all Urban workers.
data most economists pay attention to, the main statistics reported in
the media, and the information used in this video come from the CPI(U)
CPI (W) report for wage earners category, covers about 1/3 of
the working population, and is used for things like cost of living
adjustments in social security payments.
For each category, an index
number is provided that is an ongoing, continuous percent of change in
prices from an original start date. For the main categories, this date
is 1982 to 1984. In other words, every month they compare prices to what
the average prices were in 1982 to 1984, and then add to, or subtract
from, the total percentage of change since then.
So again, they add
up the prices in the basket of goods, compare it to the prices from 1982
to 1984, generate an index number, and then compare it to the previous
They take the difference between these two numbers, and then divide it by the previous month index number.
The CPI report is issued monthly about 3 weeks after the month being reported.
report contains one main table, A, and several follow up tables. There
are also several short summaries of the data for table A that contain
the most important statistics.
The two main statistics reported in
the media are the seasonally adjusted percent change for the total index
from the previous month, and the non-seasonally adjusted 12 month
percent change of the total index.
The first is the one month total
change in prices for goods and services throughout the country, adjusted
for seasonal factors such as weather conditions. This is the seasonally
adjusted inflation rate for one month.
The second is the total
change in prices for goods and services for an entire year. This change
is not adjusted for seasonal factors, so it more accurately reflects the
total change of prices consumers pay. In other words, this is the total
inflation rate for a whole year.
In addition, perhaps equally
important, is the seasonally adjusted rate of change for all items less
food and energy. In this section, items relating to food and energy are
removed. Because of the volatility of prices of items in these two
categories, some economists feel that by removing these items, one gets a
more accurate view of inflation. This category is often referred to as
As I mentioned before, there are several follow up tables
at the end of the report. The first table is the change of prices for
the entire basket of goods broken down into detail which shows the
change of price for individual sections, sectors and commodities.
The 2nd table is the same thing, only the prices and index numbers have been seasonally adjusted.
The third table is the change of prices broken down by different areas.
table worth mentioning is table 7- the chained consumer price index.
This report attempts to take into account substitutions consumers make
when prices change in the regular CPI basket of goods ...
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