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Trendlines, not to be confused with Trend Channels

Terminology is an important part of communicating an idea to another effectively. It is with this in mind that I would like to elaborate some on the above.

As most people familiar with technical stock market analysis know a trendline is a line connecting two or more high points or low points in price together. That line, once constructed, can be projected out in time, continuing at the same angle of ascent or descent for an indeterminate period. Depending on the time scale of a chart the trendline can extend for minutes, days, weeks, months or years.

A trendline channel was originally constructed to define an upper and lower range of price activity. Trendline channels historically serve as simple directional indicators with an understood overbought/oversold condition attached at their extremes.

This channel it was observed frequently served as a kind of funnel into which price was projected for a period of time. It was, also, observed that when price reached or neared the top of this trendline channel price would often retreat from there, as well, when price reached the bottom of this trendline that it often served as a turnaround point for price.

Trendlines, as I prefer to exercise their use, reflect many symptoms of the current market condition by gauging price activity. It is pricing activity that helps us to determine whether a market is trending upwards, sideways, or downwards. This directional guidance we achieve by using Trendlines gives us much of what we need to know to help us gauge the condition of a stock or market.

I regularly construct trendlines that define areas of price intersection weeks or months in advance that prove to be important areas of price response. I seldom know exactly where and most importantly when this price response will occur along the trendline but given the range of price activity in a given stock or market we can often begin to gauge substantially in advance when price is likely to intersect these trendlines. It is the market activity up to that point in time and price that helps give us clues as to whether price will penetrate a trendline and indicate a change in direction or whether it will indicate a continuation of direction along its indicated path.

For trendlines to have value they must be indicative of probability. To enjoy the value of this probability it is important to know some basics of chart interpretation. (Read my other articles on trendlines for more information) A stock or market that is making higher highs and higher lows increases the probability that trendline breakouts to the upside will be valid and have positive outcomes. The same holds true for falling markets. Sideways or stagnant markets are the most difficult for people to read generally. Trending markets tell a story of advance or decline and give direction to their followers. Sideways markets tell of confusion and frequently trap traders in its activity. Where would you rather be, on board with some direction or on board with no clear indication of direction which essentially wastes your time and return on investment.

The market is like a living breathing creature ever evolving, expressing price, time and volume as a part of its growth. Mathematicians have devised many complex algorithms to express their theories about market activity. If the equations they have used to express the market are incorrect it will give back incorrect values. I prefer to let the mathematical structure of the stock or market I am following be my guide as its values are the ones that will provide true and accurate clues.

In keeping with the KISS philosophy I have found that Trendlines used to intersect high and low points along a line of price activity greatly increases my ability to accurately time market turning points. When I am wrong it is because I was attempting to force an outcome rather than let it dictate its own timing. Trendlines do not tell me how far a market is going to run up or down unless I have other supporting information regarding the possible projection of price. We can project price along a plane and create many possible price intersections but only time will tell us if we are accurate.

Think of time, price movement and volume as the DNA of a stock or market. Giving us many telling clues about its characteristic traits its strengths and weaknesses. Trendlines can be used to dissect time and price movements using the mathematical relationship already expressed within a given stock or market. A Trendline helps to correlate the markers or traits within time and price activity that give us clues to its possible evolution as price and time going forward.

It is wise to have other trusted indicators pointing to a shift in price or direction. There are no indicators, though, that help you to dissect price or time using chart patterns as trendlines do.

For more on Trendlines and how they can help you in your investing goals please visit:
http://www.trendlinebreakout.com/Newsletter%20Sign%20Up%20.html

The best way to catch pips quickly is by scalping. Scalping is available for all traders in the Forex market.

If you don’t want to sit in front of your computer all the day watching the chart, then scalping can put smile on your face. Lazy traders use this.

Now back to the story: What Is Scalping?

Scalping is a focused technique that involves making a minuscle trade to generate profits within short period of time. This method of trading the Forex market is high probability trades which extremely small risk stops and predefined profit objectives.

It is also a means of taking million trades to make a million dollars.

There are different types of traders:Position traders, Day traders and Scalpers. A position trader would engage in trades that are intended to last for multiple days or month with huge pips target of hundreds to thousands. A day trader could typically engage in trades that might last for less than a day aiming for targets of 20 to 100pips while Scalper often engages in trades that might last for few minutes and the minimum targets could be 5 pips plus.

Now pick you calculator and calculate 5 pips on 2. 00 standard lots of 5 days trades per day for 20 trading days. Your answer will be $10, 000 monthly if all the scalping technique is adhered to. Are you saying it’s not possible! Just demo trade this for a month and see what I am saying.

A Scalper normally trades higher lots size or volume depending on your account size and risk acceptance for the fact that this technique requires a minimum stop loss of 20 pips, you must also maintain a good equity management principle.

As a scalper, you could rake in more profits to your bank account without stress compared to day or position traders.

That’s all about scalping. Happy Trading.

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When a company announces their earnings, it usually affects the price of the company’s stock, but not always as one would expect. Earnings season takes place during the weeks after the end of the quarter when companies announce their most recent earnings performance. Earnings announcements can have dramatic impact on the price of the company’s stock. Typically, if a company’s earnings exceed expectations the stock has an excellent chance to go up. However, if it meets or worse, misses expectations then the price of the company’s stock will drop precipitously. Also, what if a company tries to lower expectations and then beats those lower expectations? And do companies manipulate their earnings? What should an investor do during this turbulent time? Before we answer these questions, let’s look at an example. I am using Intel, a large and well run company that has a good reputation in the market and among investors for being open and complete in their communications with investors and analysts.

Intel’s Earnings Punished Their Shareholders Intel’s shareholders were punished on January 18, 2006 when the company announced its Fourth Quarter Earnings Report and the stock plunged 2.90 points or 11.4%. If you have access to a stock charting service you might want to look at the chart to gain a better understanding of the dramatic drop in share value. Needless to say, many investors were caught off guard. Since that date, those that are still holding Intel stock have continued to experience further losses. Not a pleasant experience.

The reason I choose Intel for this example is it is widely held, a quality company with excellent management and they have a very nice way to demonstrate the problem that can take place during earnings season. Please do not misconstrue my comments on Intel to mean that their management was trying to hide information from investors and analysts. They were not.

Intel releases their Revenue Announcements and Earnings Releases after the market closes on the day indicated. The market reacts to these announcements the next day it is open (some after market trading takes place, however, most of the volume is experienced the next day).

Let’s look at the events before and after this earnings announcement. On December 8, 2005 Intel provided the following release regarding their revenue expectations for the 4th quarter:

Intel Fourth-Quarter Business Consistent With Expectations SANTA CLARA, Calif., Dec. 8, 2005 - Intel Corporation expects revenue for the fourth quarter to be between $10.4 billion and $10.6 billion, as compared to the previous range of $10.2 billion to $10.8 billion.

The fourth-quarter gross margin percentage expectation has been narrowed to 63 percent, plus or minus a point, and is expected to be slightly above the midpoint of the new range. The previous expectation was 63 percent, plus or minus a couple of points. Capital spending is expected to be below the midpoint of the previous expectation of $5.9 billion, plus or minus $200 million. All other expectations are unchanged.

Now let’s look at the part of the earnings release after the market closed on January 17, 2006, keeping in mind the revenue announcement above:

Intel Fourth-Quarter Revenue $10.2 Billion; EPS 40 Cents

• Record quarterly and annual revenue and operating income
• Record quarterly unit shipments of mobile, desktop and server microprocessors

SANTA CLARA, Calif., Jan. 17, 2006 - Intel Corporation today announced fourth-quarter revenue of $10.2 billion, operating income of $3.3 billion, net income of $2.5 billion and earnings per share (EPS) of 40 cents. Revenue was below the company’s updated expectation of $10.4 billion to $10.6 billion primarily due to lower than expected desktop processor unit shipments and prices. . . .

Financial Review

Fourth-quarter gross margin was 61.8 percent, slightly below the company’s updated expectation of 63 percent, plus or minus a point, primarily due to lower than expected revenue, a slight shift in the overall product mix to non-microprocessor products, and some inventory valuation adjustments to reflect lower unit costs.

First, note that the revenue Intel reported for the fourth quarter was below the ranges they had indicated in their Dec 8, 2005 announcement ($10.2 billion vs. a range of $10.4 to $10.6 billion). Also, their gross margin was below what they indicated in their Dec 8, 2005 announcement (61.2% vs. 63%, plus or minus a point).

As shown by the chart the market reacted positively to the revenue announcement on Dec 8, 2005. The price of the stock rose for several days, and then pulled back before rising again. Each rise stopped short of the previous high. If you believe in technical analysis, this indicates weakness, at least short term.

On Jan 18, 2006 the price of Intel’s stock dropped 2.9 points of 11.4%. The price continued to fall for several days. Obviously, investors were not satisfied with Intel’s actual revenues and gross margin. They were also concerned that the market for Intel’s products was weak and experiencing significant competition. Advanced Micro Devices, a competitor of Intel’s has been able to capture some market share from Intel as well.

Next let’s look at their revenue announcement for first quarter 2006 on March 3, 2006:

Intel First-Quarter Revenue Below Expectations SANTA CLARA, Calif., March 3, 2006 - Intel Corporation today announced that first-quarter revenue is expected to be between $8.7 billion and $9.1 billion, as compared to the previous expectation of between $9.1 billion and $9.7 billion, primarily due to weaker than expected demand and a slight market segment share loss.

The company expects the first-quarter gross margin percentage to be adversely impacted by the change in revenue. Expenses (R&D plus MG&A) are expected to be lower than previously forecast due to lower revenue- and profit-related spending.

And now Intel’s first quarter earnings release:Intel First-Quarter Revenue $8.9 Billion

• Operating income $1.7 billion ($2.1 billion excluding share-based compensation)
• EPS 23 cents (27 cents excluding share-based compensation)
• $585 million in cash dividends

• $2.9 billion used to repurchase 138.5 million shares SANTA CLARA, Calif., April 19, 2006 - Intel Corporation today announced first-quarter revenue of $8.9 billion, operating income of $1.7 billion, net income of $1.3 billion and earnings per share (EPS) of 23 cents. Excluding the effects of share-based compensation, the company posted operating income of $2.1 billion, net income of $1.6 billion and EPS of 27 cents.

This time actual revenue was within the pre-announced range. And notice that price of Intel’s stock did not react in any dramatic way. It did move lower in May due to the overall market and the NASDAQ falling.

So what are we to make of this sample of earnings releases?

Trading Online Markets’ Approach As a trader who holds a stock days or weeks, I have a rule that I will not hold a stock into its earnings announcement. To often the price of stock falls immediately after earnings are announced. This discipline has protected me from incurring losses when a company announced its earnings. It saved me substantial money a number of times. If I am trading short term, I still follow this rule. I document the next earnings date on my Watch List, just to remind me to be aware of when earnings will be announced.

At Trading Online Market’s I am willing to hold through earnings if the company’s fundamentals remain strong and the stock chart does not indicate any potential problems. First, I recommend everyone read the article by Herb Greenberg, Don’t Get Blindsided, available at http://www.marketwatch.com/news/story/Story.aspx?guid=%7bE99E0285-7FBB-41D3-AD7D-C4077119D7BE%7d&siteid= which addresses some of the problems that need to be explored. Herb always takes a critical look at companies and presents a good perspective. In this article he comments on what are some of the issues investors should watch for before earnings are announced. Definitely worth the read.

The companies on my watch list and in the portfolios are those that I believe the market has undervalued and are fundamentally strong. These stocks present buying opportunities at deflated prices. Usually they have pulled back due to overall market conditions, or the sector is out of favor. They may have even experienced some bad news that is temporary. As such I generally hold these stocks through their earnings announcements. In fact, often these companies will experience good earnings and beat expectations.

You should monitor quarterly earnings announcements to be sure the fundamentals are still intact. Should the price pull back to a support level, then it might be a good opportunity to make a strategic buy. If part of the announcement changes your view of the fundamentals of the company, then it is time to sell. If the news is worse than you expected, then it is best to get of the stock, since bad news seems to follow bad news. Every stock is updated shortly before earnings are announced and then again after they are released with my opinion of what to do regarding the stock.

Now if you are a longer term investor, earnings announcements may not present the same risk to the price of a company’s stock. As long as the fundamentals of the company remain strong and the price has not reached or approached the target exit price, you may be willing to hold through earnings announcement. It is important to review the fundamentals of a company before they announce earnings, looking for signs of potential problems.

Earnings Manipulation So do companies manipulate their earnings? Well, I found this study interesting. A University of Illinois economist who analyzed thousands of forecasts of publicly owned companies between 1989 and 1998 found that there was a significantly higher probability for a company to beat the consensus forecast if the forecast was lowered two weeks prior to the announcement. “We document empirically that many firms apparently have ways of lowering the forecasts as the earnings announcement date approaches,” said Dan Bernhardt, the UI economist who conducted the study with Murillo Campello, an economist at Michigan State University.

Bernhardt theorized that less experienced analysts were more likely to make late forecasts and were more likely to revise their forecasts than analysts who had covered a company for a longer period. Also there is sometimes a legitimate reason for management to lower expectations, or create “slack.” Especially in fast-growing companies, earnings may change dramatically in the weeks or even days before a quarter ends.

Early in my career I worked in the Finance department of a large bank preparing the performance reports for senior management and the Board of Directors. As you may know it is quite easy for banks to manipulate their earnings in addition to estimating taxes owed. Each quarter a bank estimates their loan losses that they will write off as an expense. Estimating this expense is part estimating what real losses and part what the CEO wants the earnings to be. Usually the CEO sought to even out earnings growth by increasing or decreasing the total amount of loan losses written. This allowed the bank to meet and usually beat expectations.

Is this earnings manipulation? Possibly. Like so many things in life some definitely do manipulate their earnings and some are quite honest. Unfortunately accounting allows a fair amount of leeway in the interpretation of rules. Also, management tries to present the company in its best light. So, as investors we need to read the earnings release with a critical eye, looking for issues that may indicate problems.

All this tells me that companies do adjust their earnings to try to exceed expectations. Most also try to stay within the accounting rules. However, I believe that the market is usually aware these efforts. As a result when they finally announce earnings that either meet or slightly exceed expectations, the stock is punished. A company must dramatically beat expectations before the price will jump up.

Conclusion In conclusion, earnings season presents each investor with new challenges. Do the earnings of the company match up to expectations. Is the chart of the company indicating any potential problems? Do I hold through earnings announcements? Do I take advantage of any announcements and buy? The best way answer these questions is do your homework and to follow your discipline. It will keep you aligned with the best opportunities.

Hans E. Wagner
Hans runs a very successful investing site at http://www.tradingonlinemarkets.com that offers a number of articles to help people learn to grow and manage their wealth. The site also includes several sample portfolios that substantially beat all the market averages.

Many traders believe that to be successful you need mountains of indicators that give you some kind of “edge” over the market. I am here to say that trading as a means of consistent income does not have to be painful or difficult. That less is certainly more when it comes to trading. I’ve met traders with every indicator under the sun on their charts, with years of training under their belts having spent thousands of $$$’s and STILL not making a consistent income….

Why? Because Indicators are liars! Sure sometimes you might pull of a trade or 2 but in the end you always get spanked….Why? Because not everyone uses a MACD with your settings, not everyone uses the Stochastic or the RSI. I believe to be an effective trader you have to look at what the majority of traders look at…So what do most traders look at? Support and Resistance! Almost every system out there uses Support and Resistance to some extent. Support and Resistance is our number 1 indicator. So why not make Support and Resistance your system?! Mark up some levels on a chart using time frames from 1hr and above (this is what the big boys who move the market watch, so no lower please) and see what happens! Use other info that the majority of traders watch ONLY as confluence, Market Profile levels, Pivots and Fibs.

Support and Resistance levels are considered high probability areas for market “reversal”, offering retracements of 0.75 points to in some cases 50+ points. In many instances historically referenced Support and Resistance levels can help traders catch markets tops/ bottoms to the very tick! Why? Because Support and Resistance levels are the most widely used trading tool! Everyone from Hedge funds and banks to the small time trader at home use Support and Resistance levels

For many it may be difficult to leave the system you are using now so why not use Support and Resistance levels as a guide alongside set ups defined by the system/strategy that you are implementing. Using Support and Resistance levels obtained from the 1hr, 4hr and daily timeframes offers the highest odds Support and Resistance levels. All levels should have historical significance and thus will be considered high probability trading areas. Throughout the trading day these numbers can become areas of Support AND Resistance.

We believe that using Support and Resistance as your CORE trading methodology can reap great rewards for traders.

To find a methodology that really works and receive FREE Support and Resistance levels please visit us at http://www.supportandresistancetrading.com/

Day trading can be a thrilling way to make money. But it’s more challenging than most beginners think. Here are some day trading tips that can help the new trader as well as the more advanced trader to achieve your goals faster.

First: Be careful not to over trade. The majority of the time the market is a random walk - meaning that it’s moving without any rhyme or reason. Amateur traders taking small positions in the market are behind these unpredictable movements.

These amateurs do not affect the long-term movement of the market. The professionals, with their large volume and their willingness to hold positions longer, are the ones who create sustainable moves in the market that can provide meaningful profits.

Many people are drawn to day trading because of the excitement of the business and the potential for big, fast profits. This attitude sets up the trader for failure. Day trading does not have the frantic energy of a video game. Most successful day traders sit by the sidelines for long periods of time simply waiting for a high-probability setup to occur. The pros trade much less frequently than the amateurs think.

Second: The trend is your friend … sometimes.

The truth is that the trend is a fair weather friend!

It is your friend early on. But trends get run out of steam.

Therefore there are 2 times to trade when you can put statistics on your side:

When a new trend is just starting.

When a trend has run its course.

Trading only at these 2 times allows you to put the statistics of the “edge” of the bell curve on your side. Trading in the middle of a trend, puts you solidly in the middle of the bell curve where anything can happen.

Third: Join free trading rooms for day trading tips but do exactly the opposite of what you hear!

I’ve participated in many chat rooms over the years, and have received a tremendous benefit from them. But the benefit did not come from listening to the teacher. It came from watching the comments of the participants as they shared what they were doing at any given time in the market.

The vast majority of the time they were dead wrong in their approach.

They reveal the mind of the unprofitable retail traders. It’s almost eerie how the amateurs think alike when it comes to trading the markets. If you listen to them long enough in the trading rooms you’ll start to notice the patterns of the things they do consistently. Do the opposite and win.

As an example, one of the most common problems amateur traders have, is resisting the urge to fight the trend. You’ll often hear comments such as: “The market can’t go any higher than this.” “This market just has to turn around at this point.” “The market is definitely way over-extended now.”

It is absolutely amazing to see how amateurs habitually trade against the trend in an effort to find tops and bottoms. They are constantly looking for the market to turn around. As is always the case, you can profit tremendously by taking the other side of their trades.

Day trading can be extremely rewarding, but to be successful you must stand aside from the masses and avoid the herd instinct that drives so many. These 3 day trading tips can help you be among the minority who succeeds.

Dr. Barry Burns is the owner of Top Dog Trading and writes a Day Trading Blog. He offers a 5-day free video trading course which provides more day trading tips to help traders become successful.

He started his study of the markets under the direction of his father, Patrick F. Burns, who became independently wealthy through trading and had over 70 years of trading experience before passing away in 2005.

He has been the featured speaker at DayTradersUSA, and developed a 5 Day Course for WorldWideTrders.

Dr. Burns has been a headlining guest speaker for the Market Analysts of Southern California, given seminars around the country at many Wealth Expos as well as many Traders Expos, been interviewed on the Robin Dayne “Elite Masters of Trading” Radio Show, and is the former moderator of the FuturesTalk chat room.

He has a doctorate in Hypnotherapy and is a certified NLP practitioner, and therefore able to help people with the psychology of trading.

Many forex traders attempt to trade using the very short term 1 minute and 5 minute charts, but most of these traders will inevitably end up losing money. So why is this, and why is short-term trading so difficult to make consistent profits from?

Well forex trading overall is quite difficult, but I’ve personally always found short-term trading using 1 minute and 5 minute charts to be even more difficult. The trouble you have is that you can have the best system in place that will find a perfect high probability trade for you, but then the pair may only move 5-10 points in your favour at most before reversing again.

So you can make a winning call a lot of the time, but because you’re trading over such a short time frame, the movements will often be very small. You also have the spread to contend with because with a spread of 3 or 4 points on a lot of pairs, you need a decent sized move just to break even, let alone make a profit. Plus there’s also the fact that a lot of forex brokers do not like scalpers and will often ban traders who do this.

If, however, you use a longer time frame you could use the very same system to trade the 1 hour or 4 hour charts, for example, to make a lot more points profit because the moves would be a lot bigger.

It’s also of course a lot less stressful trading the longer time frames because you have more time to analyze the markets and plan your entries and exits. If you’re trading lots of intraday positions it can be very stressful because you have very little time to think and react to situations. You also have instances of requotes and broker downtime which can destroy an intraday position, whereas these things won’t have as big an impact if you are trading the longer term charts.

Of course there are traders who make money from very short-term trading, but they are few and far between. The majority will eventually be wiped out not matter how effective a particular trading system may initially appear.

In my opinion you’re better off looking at 1 hour charts at the very least because the longer time frame you use for your charts, the more reliable your chosen technical indicators will prove to be in general. You can still be a profitable daytrader trading several times a day using 1 hour and 4 hour charts, and the moves will generally be a lot bigger as well, so there really is little point, in my opinion, in basing your main forex trading strategy on the 1 minute and 5 minute charts.

Click here to read James Woolley’s review of ZuluTrade and to discover all the latest forex tips and strategies.

There is a free Forex signal which you can create on any charting package which is extremely powerful and yet often overlooked.

What is it?

Intra week highs and lows!

Why are these such powerful signals?

Just think what is going on in the market place. Thousands of traders and institutions the world over are engaging in the Forex market buying and selling currencies at certain levels.

The highest or lowest point a currency pair reached in the course of a 24 hour period is therefore a significant level. To get past that point the next day there has to be some momentum.

Often price will come to the previous day’s high or low and pull back. It may later continue in that direction but so often it stalls at this level.

For those interested in scalping this presents a free Forex signal. It is often easy to grab 5, 10 or 15 pips from the market as price stalls at the previous day’s high or low, or a high or low from the day before, or 2 or 3 days before.

This is not to suggest a trader can just wildly enter trades every time price approaches a previous high or low. Careful analysis is still important.

For example, does a Fibonacci calculation or a pivot point coincide with a previous high or low? Then it becomes a stronger level or support or resistance.

What is the candle formation around that level? Is there a hammer, a hanging man or doji candle indicating price exhaustion? Has price attempted to penetrate this level before and failed? If so, how many times?

These questions help the trader to analyze this free Forex signal and determine whether the level is likely to hold allowing for a high probability trade.

How To Use This Free Forex Signal

Depending on your charting software, mark each 24 hour period. Some charting packages include a demarcation option which shows each 24 hour period in a different shade vertically.

If your charting package does not have this facility it is still easy to do. Simply use the vertical line tool and put a vertical line at 12 midnight and another vertical line at the next 12 midnight.

Now identify the highest candle in that vertical section and the lowest candle and put short horizontal lines at each point. You can now see clearly the previous day’s high and low.

The next day, leave the lines in place that you have already drawn, and now insert new vertical and horizontal lines for the last 24 hour period marking the high and low.

As the days progress you will eventually have highs and lows marked for the last week or so.

Then you can simply remove the oldest as the days progress depending on how many days you want to show with the highs and lows.

Now when studying your charts at the beginning of each trading session, the eye can easily pick up this free Forex signal and identify key levels of support and resistance and where price has already made attempts in the last few days to break through a previous high or low.

You can now apply your other technical indicators and determine where and how you will trade.

The Simpler The Better

While there are many sophisticated technical indicators and systems in the Forex world, the simplest are often the most effective.

Just examining previous highs and lows can be a very powerful free Forex signal often overlooked by newer traders.

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