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Dow theory : 3 phases of major trends.

There are 3 phases of Dow Theory major trends: 1-  Accumulation phase :- If the previous trend was down then this is the phase where ...

Monday, March 02, 2020

Dow theory : 3 phases of major trends.

There are 3 phases of Dow Theory major trends:


1- Accumulation phase:- If the previous trend was down then this is the phase where buying starts by most of the biggest investors in the world , recognizing as most of the " bad news " was assimilated at this point.
2 - Public Participation Phase :- This is the phase where the most of the people who follow technical analysis began to participate. It occurs when price moves rapidly and business news improves .
3 - Distribution Phase :- This phase takes place when newspapers begin to print increasingly bullish stories and when economic news is better than ever and when volume and public participation increases.
I hope this information will really help you in your trading in forex or stocks.

Tuesday, August 30, 2016

Adjusting your Stop Loss Orders using Moving Average

Adjusting your Stop Loss Orders using Moving Average

Adjust your stop loss orders, after some time, toward the pattern being traded: 

- In an up-trend move your stop loss up to underneath or below the Low of the latest trough. 

- In a down-trend move your stop loss down to over or above the High of the last top/peak. 

Just a break in the pattern/trend (or large correction) will stop you out. 

Utilizing Moving Averages 

An alternative  approach, that may keep you from being shaken out of a pattern too soon, is to utilize a long-term moving average in conjunction with the above. Stan Weinstein (Secrets for Profiting in Bull and Bear Markets) proposes utilizing a 30-week moving average. This is reasonable for speculators following the primary trend, adjust the length of the moving average if trading in a shorter time allotment. 

In an up-trend, move your stop loss to below: 

- the Low of the latest trough, or 

- the moving average, whichever is lower. 

In a down-trend, move your stop loss to above: 

- the High of the latest top, or 

- the moving average, whichever is higher. 


Johnson and Johnson is graphed with a blue 63-day exponential moving average. Stop loss order levels are delineated by yellow horizontal trendlines. 

Adjusting Stop Loss Orders
Adjusting your Stop-Loss Order

1. Go long [L]. The sign is taken when price regards the moving average. A stop loss order is put at [S1], below the Low of the latest trough or below the moving average, whichever is lower (appeared by the begin of the trend line). 

2. At [S2] move the stop loss up to beneath the moving average at the following trough. 

3. At [S3] move the stop loss to beneath the Low at the following trough (this is lower than the moving average). 

4. At [S4] move the stop loss to beneath the moving average at the following trough. 

5. The stop loss order is actuated [X] when the following correction falls underneath the previous trough. 

Ranging Market 

In a ranging market, adjust your stop loss in view of the cycle in one-time frame shorter than the cycle being exchanged. For example, if trading an intermediate (in a ranging market), move your stop loss orders up or down as per the short cycle.

Tuesday, August 23, 2016

Setting Up Stop Loss Orders

Setting Up Stop Loss Orders

Stop loss order levels should be in fact consistent, else they will cost you money. Self-assertive levels are liable to be initiated by the ordinary cycle. 

Base your stop losses on specialized levels, for example, 


This example represents the use of 2 diverse specialized levels for stop losses: 

The primary stop loss is set just below the level of the latest trough. 

The second stop-loss is put below the support line (on a reversal signal above the support line). 


Backing and Resistance Levels 

Avoid from setting your stop loss precisely at the support or resistance level for two reasons: 

1. Trends regularly switch at these levels and you might be stopped out superfluously; 

2. A large number of stops might be set at the support or resistance level, particularly where it has framed at a round number. 

Rather set your stop loss one or two ticks below a support level or one or two ticks above a resistance level. For instance: If a support level has shaped at $20.00, set the stop loss at $19.90 so that you are only stopped out if the support level is penetrated.

Saturday, August 20, 2016

Stop Loss Orders

Stop-loss orders or "stops" are the limitation set by traders at which they will naturally enter or leave a trade - a request to buy or sell is put in the market if price achieves a predefined limit.

The principal discipline that any trader ought to master is to limit your losses.

A stop-loss order will set to limit a trader's potential loss. The stop loss is set below the present price (to ensure a long position) or above the present price (to secure a short position).

As a principle: Avoid markets with low liquidity where extreme price fluctuations are possible.

Stop Loss Order Types: 

Market Stop Orders 

This is a traditional stop loss order - the stop initiates a market request to sell(or buy) at the common market price.

Limit Stop Orders 

The limit stop activate an order to sell at the present market price yet not underneath a predetermined farthest point (or buy at the prevailing price up to a predefined limit).

Fixed Price Stop Orders 

The stop loss activates an order at a fixed price. A few trades refer to these as a limit stop orders so watch that you are utilizing the right stop loss order.

Limit stop order is prescribed for entering a trade. They have a more prominent possibility of success than fixed price orders yet are not as open-ended as market orders (where your order will be executed regardless of what the market price is).

Market stop orders ought to be utilized to leave trades: to guarantee that the order has the best ideal possibility of execution. Never clutch securities if price falls forcefully - with the expectation that they will recover. Edwin Lefevre wholes up the quandary in Reminiscences of a Stock Operator :

"It was the same with all. They would not take a small loss at first but had held on, in the hope of a recovery that would "let them out even." And prices had sunk and sunk until the loss was so great it seemed only proper to hold on, if need be a year, for sooner or later prices must come back. But the break "shook them out," and prices just went so much lower because so many people had to sell, whether they would or not."

Assessment of Stop Losses 

Stop loss orders don't generally work splendidly. If a major support level is breached, a large number of stops may be activated at the same time. Sellers will far surpass buyers, making price to fall forcefully and leaving sell orders unfilled. In compelling cases there might be no buyers at all for a security - not at any price.

Defective as they seem to be, stops are still a viable system for restricting danger and securing capital.

In the event that stops are not acknowledged in a market, set your own particular breaking points and put in buy and sell orders when the price is already reached.

Self-discipline is required to execute stops decisively.

Steps Required 

1. In the first place, decide your gmaximum acceptable loss;

2. Set stop loss order levels taking into account sound specialized levels;

3. Modify your stop loss levels after some time to secure profits;

4. Use trailing stops to time your entrance and exit from the market.

Monday, August 15, 2016

Risk Management: The 2 Percent Rule

Risk Management: The 2 Percent Rule

 2 Percent Rule

The 2 percent rule is a fundamental precept of risk management (I incline toward the expressions "risk management" or "capital protection" as they are more engaging than "money management"). Regardless of the fact that the chances are stacked to favor you, it is imprudent to risk a vast amount of your capital on a solitary trade.

Mr. Larry Hite, in Jack Schwager's Market Wizards (1989), notice two lessons gained from a companion: 

  1. Don't bet your way of life - never chance an extensive piece of your capital on a solitary trade; and 
  2. Always recognize what the worst result is.

Hite goes on depict his 1 percent rule which he applies to an extensive variety of business sectors. This has subsequent to been adjusted by traders and brokers as the 2 percent rule

The 2 Percent Rule: "Never risk your money more than 2 percent of your whole capital on only one stock."

This implies that 10 consecutive losses would only consume 20% of your capital. It doesn't imply that you have to trade 50 different stocks - your capital at danger is typically far not exactly the price of the stock. 

Applying the 2 Percent Rule:

1. Compute 2% of your trading capital: your Capital at Risk 

2. Deduct the brokerage fee during buy and sell to go at your Maximum Permissible Risk 

3. Compute your Risk per Share:
    Deduct your stop-loss from the buy price and  add an arrangement for slippage (not all stops are executed at as far as possible). For a short trade, the methodology is reversed: deduct the buy price from the stop-loss before adding slippage. 

4. The Maximum Number of Shares is then computed by dividing your Maximum Permissible Risk by the Risk per Share


Think that your total trading capital is 20,000 pesos and your brokerage fees are fixed at 50 pesos per one trade. 

1. Your Capital at Risk is: 20,000 pesos * 2 % = 400 pesos per trade. 

2. Deduct brokerage fee, on the buy and sell, and your Maximum Permissible Risk is: 400 pesos - (2 * 50 pesos) = 300 pesos. 

3. Compute your Risk per Share

If the price of a stock is estimated at 10.00 pesos and you need to put a stop-loss at 9.50 pesos, then your risk is 50 cents per share. 

Add slippage of say 25 cents and your Risk per Share increments to 75 cents per share. 

4. The Maximum Number of Shares that you can buy is: 

300 pesos / 0.75 cents = 400 shares (at an expense of 4000 pesos)


Your capital is $20,000 and brokerage fee is lessened to $20 per trade. What number of shares of $10.00 would you be able to buy if you have stop-loss at $9.25? 

Apply the 2 percent rule. 

NOTE: Remember to take for a brokerage fee, on the buy and sell, and slippage (of say 25 cents/share). 

Answer: 360 shares (at an expense of $3600). 

Capital at Risk: $20,000 * 2 percent = $400 

Deduct brokerage fee: $400 - (2 * $20) = $360 

Risk per Share = $10.00 - $9.25 + $0.25 slippage = $1.00 per offer 

Most Number of Shares = $360/$1 = 360 shares


A general rule for stock or currency markets is to never risk more than 2 percent of your capital on any one stock. This guideline may not be appropriate for long-term traders who appreciate higher risk reward proportions yet bring down success rates. The guideline ought to likewise not be applied in isolation: your greatest risk is the market risk where most stocks move as one. To ensure against this we ought to restrain our capital at risk in any one area furthermore our capital at risk in the whole market at any one time.