Think Financial Markets - Excellence In Trading Financial Markets

Think Financial Markets - Excellence In Trading Financial Markets

Market Sentiment

It is essential that we have a general feeling of which direction our market may trade on any given day.

To achieve this it is necessary to be aware of how global markets have performed on the previous day as well as during the night.

We measure this sentiment by allocating points to certain global indicies to measure their strength or weakness.

We look firstly to The Dow Jones Index. This index is one of the world’s most influential and as such rates very highly in determining the daily sentiment.

We allocate between 2 pts plus or minus if the overnight movement is less than 50pts or 4pts if over 50pts

The next most important indicator is the SPI200 which is the futures contract covering the Australian markets top 200 stocks and trades almost 24hours per day.

We also allocate between 2 and 4 pts as per the Dow.

Then we add both the Nasdaq and the S&P 500 indicies from the U.S they are allocated points as follows

Nasdaq above /below 30 ,plus or minus 2pts or less than 30, 1pt

S&P 500 above /below 15, plus or minus 2pts or less than 15, 1pt

Next we add the FTSE 100 results from England and the NIKKEI 250 from Japan which are allocated 1pt for a plus or minus result.

The maximum points on our table are 14 and variations of this will gauge bullish or bearish sentiment.

Other very important overnight markets to be taken into consideration when trading the Australian market are firstly the strength or weakness in the Aussie dollar versus the US dollar and we rarely have a good day if the commodity markets have been sold down during the night.


Friday, June 8, 2007

Calculating a Stop Loss

A quick calculation that may help protect your capital in the market.

If you trade or invest always use a stop loss.

Calculating a stop loss - loss limit $400

Example: purchased 1000 FXJ at $4.70 Cost $4700
Maximum loss limit $400
$4700 less $400 = $4300 divided by 1000 shares = a stock price of $4.30.

If FXJ's stock price falls to $4.30 your loss limit has been reached.

Your stop loss would go at $4.30 (excludes brokerage costs)
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2 comments:

gazlou said...

Anthony is there a calculation or best method used for setting your stop to break even once you are in a position and the trend is in your favour particually in the early part of a trade

June 9, 2007 at 8:32 PM
Anthony - CEO Think Financial said...

Hi, No real calculation, you would need to consider the daily trading range, for example if the range was 8c you wouldn't want a stop 6c away from the action. So if the daily range was clear of your breakeven price then move to breakeven.
There is an indicator called Average True Range (ATR) that could be used to guage stop positions, I tend to use the low 2 to 3 days back as stop depending on the daily range.

Another concept is to take your $400 limit off the high made each day and use the new calculation as the stop. Use this only until you reach breakeven. EG purchase price FXJ 1000 shares $4.70, $400 limit, first stop $4.30, new high made $4.76, new stop $4.36. You would not want to stay $400 away as the trend developed

June 9, 2007 at 10:13 PM

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