Newbie Lessons - All your questions answered

[Craton]

I'm going to contrast the above two statements. I'n not picking on you Craton, I merely wish to demonstrate a mindset.

Look at the language in Wysiwig's comment...propose a possible direction vs Craton's use of the word predict. This is important (it may seem I'm harping on) because of the definition of financial risk. Financial risk is about expectation. If my expectation is that JBH will be between $50 and $8 in the next 12 months I have minuscule financial risk because the probability that the SP will be outside of that range is extremely low. However I cannot make money with such a wide range or wide expectation of SP movement. I must choose a direction for price movement (go sideways is also a price direction). If I expect that JBH will be at $50 in 12 months time, and it falls to $8, significant financial risk has already occurred, because the result is vastly different from my expectation.

We cannot predict anything with 100% certainty. There are simply too many variables that can occur over time. All we can do is anticipate a price direction, act accordingly and act to limit what happens if/when our expectation is proved incorrect. This is the importance of stop losses, both as a method of preserving profit and as a method of limiting losses.


Getting to the other comments shortly.

Cheers
Sir O

All good Sir O, pick away as no umbrage taken on my part, as stated here to learn.

Must say I've have always found it interesting that the choice of a word or words can have such an impact. Not surprising really that the word predict in relation to a possible stock or market movement is an inappropriate word to use as I'd reckon, if a financial planner/adviser/broker used that word there could very well be legal implications and grounds for the word sue being used.

So, duly noted that one cannot predict but can anticipate a certain direction. Just this alone, not predicting, lowers the emotive pressure/connection but increases the awareness of risk which, has got to be a good thing for the decision making process and helps in identifying the reason/s for (or against) executing a particular trade.

To reinforce what you have already stated, if one predicts a certain direction and the direction is opposite to the prediction, one may not act to minimize losses because the assumption would be that one is right and the market is wrong. The would be a very bad mindset to be in.

Also want to reinforce again too the importance of stop losses. As you rightly point out, this an important method to lock in profits and to minimize losses. Also a subject that needs further discussion as stop loss is linked to ones exit strategy.

 

[Craton]

So how significant would it be if the horizontal support you have identified is broken? What would your actions (and anticipation) be if this were to occur? Conversely if the descending line in the chart were broken, how significant would this be and what would be your actions/anticipation?

If support (or resistance) was broken I'd probably wait to see that a confirmation of trend was in place. After the move up I'd anticipate the SP to retract to the old resistance line then move up again and it would be around here I'd enter the trade.

On a downward trend I'd look at short selling.

Whilst sideways can be a trend (as I said there have been opportunities to make profit from the "bumpy" price movement since my exit), trend moves either upwards or downwards. We can only anticipate and act accordingly.

So higher risk due to leverage (among other things), what actions will I take to offset this additional risk that was not present in the pure equity transaction?

Cheers

Sir O

Hmmm, that last question had me stumped because I thought I didn't understand the question but again, short selling and placing tighter stop losses are my best guesses. Perhaps a straddle would work too.

 

[Craton]

I want to add that like burglar, derivatives are frontier land for me too although are something I've been study more and more about of late.

I never thought I'd tackle T/A either but thanks to tech/a (and the many others here on ASF like yourself, thank you all) this is an area that fascinates and excites me. Whether I'll ever become a trader is another matter because as my tag says, I am mostly passive, contrarian.

Must say though, my objectives I set out to do via the stock market all those years ago, small as they were, have mostly come to fruition and as such, I suspect now is the time to take the next step in my financial evolution.

 

[Sir Osisofliver]

So Tech,

Are we getting your once-over on JBH?

Sir O

 

[tech/a]

So Tech,

Are we getting your once-over on JBH?

Sir O

I pulled up 5 charts last night( Various aspects of the JBH Chart)
and had a knock
on the door from the neighbours.
That Kyboshed that!

Ill get them posted before it goes to Zero or makes a new high!

In particular I'm looking at the 2 consolidations
(1) The first which breaks out higher---the characteristics in that---which are very clear and common to most that do the same.
(2) The second in which it is in now.---Different in structure and characteristics.
Right now Support is being tested so at a very interesting point. I'm confident it will hold for now. (Infact if you trade ranges (Not you personally) Yesterday was a low risk entry in my view.)

More to come but it takes time as you know.
At latest the weekend.---out tonight.

 

[Sir Osisofliver]

I pulled up 5 charts last night( Various aspects of the JBH Chart)
and had a knock
on the door from the neighbours.
That Kyboshed that!

Ill get them posted before it goes to Zero or makes a new high!

In particular I'm looking at the 2 consolidations
(1) The first which breaks out higher---the characteristics in that---which are very clear and common to most that do the same.
(2) The second in which it is in now.---Different in structure and characteristics.
Right now Support is being tested so at a very interesting point. I'm confident it will hold for now. (In fact if you trade ranges (Not you personally) Yesterday was a low risk entry in my view.)

More to come but it takes time as you know.
At latest the weekend.---out tonight.

Sounds good Tech will look forward to seeing your views and I'm sure the newbs will as well.

I am in frontier territory when discussing derivatives.

options_trailing_stop_loss

By proposed transaction, I am assuming an option on either side of the transaction.

If there is a trailing stop on both options, one will stop out on a big move, the other would trail the move until retracement of a predetermined amount. I think if volatility was high, that predetermined amount would be difficult to calculate.

I have to ask the somewhat philosophical question, that price action moves in three directions, Up, Down and sideways. If we limit ourselves to only going long, that means we have limited ourselves to one third of the possible trend movements...so how do we expand this?

More about shorting for the newbs

By necessity if you are going short to take advantage of a perceived downwards trend, you are going to be using a derivative of some kind, be it an option or a CFD, (I've spoken previously about going short needing a helpful full service broker as well and the need for the stock to be on the approved list).

If sideways is the direction, (ranging between horizontal support and resistance), what can we do to make profit? As you can see in the price action after my exit the stock is "bumpy" or simply more volatile. It is in this space that traders who are knowledgeable in Options have a significant advantage as they can structure strategies that will limit downside risk.

If you are interested in these kinds of strategies I will point you in the direction of WayneL, who hangs out in the derivatives section of this forum. He's made numerous threads on options and explains things in a concise and clear manner and I will not be re-inventing the wheel. Link

Cheers
Sir O

 

[Craton]

If we limit ourselves to only going long, that means we have limited ourselves to one third of the possible trend movements...so how do we expand this?

So much to learn... am assuming that going long is in anticipation of an uptrend. Please do tell on how to manage the other 2/3.

If sideways is the direction, (ranging between horizontal support and resistance), what can we do to make profit? As you can see in the price action after my exit the stock is "bumpy" or simply more volatile. It is in this space that traders who are knowledgeable in Options have a significant advantage as they can structure strategies that will limit downside risk.

If you are interested in these kinds of strategies I will point you in the direction of WayneL, who hangs out in the derivatives section of this forum. He's made numerous threads on options and explains things in a concise and clear manner and I will not be re-inventing the wheel. Link

Cheers
Sir O

Thanks for the link. Now I know where the expression, it's all greek to me, came from...

So for a newb that doesn't understand too much about derivatives, wouldn't conditional orders like Falling and Trailing Buy, Rising and Trailing Sells be well suited to trading the range and with less risk?

Looking forward to Tech's chart analysis also.

 

[Sir Osisofliver]

So much to learn... am assuming that going long is in anticipation of an uptrend. Please do tell on how to manage the other 2/3.

Yes "going Long" means an anticipation of an upwardly trending share price.

"Going short" means an anticipation of a downwardly trending share price.

If the share price direction is sideways, ranging between and upper an lower resistance and support, there are various options strategies that involve placing both a short and long position on either side of the current share price with a view to closing the losing position and allowing the winning position to turn a profit. Trailing sells and buys can be incorporated into the process to lower risk. This is a simplified example, the importance of the Greeks and the impact on the relative value of the option employed can be critical and I encourage you to learn more.

Thanks for the link. Now I know where the expression, it's all greek to me, came from...

So for a newb that doesn't understand too much about derivatives, wouldn't conditional orders like Falling and Trailing Buy, Rising and Trailing Sells be well suited to trading the range and with less risk?

Looking forward to Tech's chart analysis also.

Indeed that is how you lower risk, but refer to my previous comment about the importance of understanding the impact of the Greeks.

Cheers

Sir O

 

[Wysiwyg]

I have to ask the somewhat philosophical question, that price action moves in three directions, Up, Down and sideways. If we limit ourselves to only going long, that means we have limited ourselves to one third of the possible trend movements...so how do we expand this?

If specialising in long only then one could expand their trading universe into other markets as there is always an up trend for trading waiting somewhere. There is an art to short and range trading too.

 

[burglar]

... If we limit ourselves to only going long, that means we have limited ourselves to one third of the possible trend movements...so how do we expand this? ...

I had to get my head around the squeeze (uptrend).
Now, I am in shorts (downtrend).

I had not ever forgotten that third direction (sideways is sideways).

Is there one instrument that can deal with three directions simultaneously?

 

[Sir Osisofliver]

If specialising in long only then one could expand their trading universe into other markets as there is always an up trend for trading waiting somewhere. There is an art to short and range trading too.

Oh yeah I don't disagree with this...there are always opportunities...if you can find them...but tell me honestly Wysiwyg, unless you were a pure technician like Tech/A and actually used fundamental information, how many different stocks do you think you could get adequately follow?

In broking world, analysts usually only cover about 5-6 stocks close enough to write a research report. Since money is at stake...how much due diligence is enough?

IMO when we look at transacting in all three directions over a generally pretty limited number of potential stocks that we follow, we can be smarter with our trading positions.

Cheers

Sir O

 

[Sir Osisofliver]

I had to get my head around the squeeze (uptrend).
Now, I am in shorts (downtrend).

I had not ever forgotten that third direction (sideways is sideways).

Is there one instrument that can deal with three directions simultaneously?

Not for what I want to try and do, but experienced options traders will tell you that they can.

Think about this however....

I entered the second JBH trade at the beginning of October 2012 and exited near the end of November 2013. An option has an expiry....and I had no idea how long the trend was going to continue, (no one has 100% certainty).

Cheers

Sir O

 

[burglar]

Not for what I want to try and do, but experienced options traders will tell you that they can ...

Just had to ask.

... An option has an expiry ...

CFD's have more leverage than Options (no premium) and don't expire.
So now, with this new information in my arsenal, I'd like to suggest CFD to short.
But I am told that a CFD goes in one direction.
Then:

Options trades can also be used to hedge CFD trades.

Link:
http://boombustblog.com/blog/item/6227-contributions-from-my-constiuency-cfd-vs-options-trading

But I am still assuming a breakout on downtrend, insuring against an uptrend and ignoring Mr. Sideways.

 

[Gus Fring]

Hello all. First post, hoping to build my share empire.

Know virtually nothing but looking to change that of course. Have a decent risk appetite and part of my strategy is to make LT plays on high risk high upside junior miners where I think the stock is undervalued. Problem is I don't have a scientific bone in my body and have no idea how to interpret drilling reports.

I had a little look to try and get my head around intercepts and strike lengths and work out if higher grades at deepers levels is better etc., but that and all the different measurements used (ore being measured in tons, grading in grams but spot price in ounces really confused me, as did recovery rates and different terms of gold -- saleable gold versus gold concentrate etc.) Anyway, I know I need to change all that, so to cut a long story short, where can an absolute newb like me learn not just how to read these reports but learn more about the commodities market in general. Is that any books that you'd recommend etc.?

Thanks in advance.

 

[burglar]

... Interesting. What does this emergent pattern mean to you? ...

Patterns are the study of the net effect of a diverse group under certain pressures, right?
So what are people doing that makes this pattern, what it is?
And what are they doing in the following cases:
a.) breakout above resistance?
b.) breakout below support?
c.) ranging?

 

[burglar]

... no idea how to interpret drilling reports.

Hi Gus Fring,
Welcome to ASF

All that you need to know is hereabouts.
Trouble is, its not in one place.
I'll do a search for you and get you started.


Try this:
https://www.aussiestockforums.com/forums/showthread.php?t=22486

https://www.aussiestockforums.com/forums/showthread.php?t=9561

 

[Gus Fring]

Thanks for the welcome Burglar, and also for the links. Definitely have my reading for the night!

 

[burglar]

Thanks for the welcome Burglar, and also for the links. Definitely have my reading for the night!

Your welcome!

When you're ready for something light and breezy visit here:
Smooth Banter Radio
https://www.aussiestockforums.com/forums/showthread.php?t=28797

 

[Sir Osisofliver]

If you ever come across a drilling term you don't recognise try here

 

[burglar]

... ore being measured in tons, grading in grams but spot price in ounces ...

If the conversion is from troy ounces (for precious metals, gold etc.), it is 31.1034768 grams.

Source:OuncesToGramsConversion