Online Stock Trading Tips

This post I would like to share my insights on how to trade stocks using support and resistance rule. Before we can trade using this rule, let me define “support” and “resistance” first:

“Support“- is when the price is low and at this point there are more buyers than sellers. This is the price at which buying volume will start to pick up because most of the traders agree that the level is low.

“Resistance“- is when the price is high and at this point there are more sellers than buyers. This is the price at which selling volume will start to pick up because most of the traders agree that this level is high.

Trading with support and resistance does not need mathematics but more of a common sense. This is my most favorite method in trading because you cannot go wrong here and is a very simple but reliable method. The only thing that will go wrong is your analysis. But support and resistance of prices will always be there, you just missed to spot it correctly.

Also you have to take note the behavior of support and resistance. This is because:

Rule #1: Once the support level is breached, which means prices continue to go downward, that support level will now become the new resistance level.

Rule #2: Once the resistance level is breached, which means prices continue to go upward, that resistance level will now become the new support level.

Lets analyze these two rules using a sample chart below:

The graph is a typical long term trading. It is because the x-axis are incremented with almost per year basis. These stock charts are very important because just looking at the graphs without the need of complex mathematical analysis, you can identify the areas of “support” and “resistance” (more…)

So you wanna be a stock trader? Below are the important terms and definitions you need to know when it comes to stock trading online:

a. Stock- this is company that is trading on exchanges. There are several US stock market exchange such as New York stock exchange, Chicago mercantile exchange, and others.Stock are commonly represented by symbols. For example GOOG, is a stock symbol for Google.com.

b. Quote- this is the price of the stock at a certain date. It is changing and it fluctuates depends on the market conditions.

c. Bear – this is falling trend of stock market prices. In stock trading, I advised not to trade with a bear market because it is very risky and it best to trade only when the market is bullish. However in futures trading, one can profit for both bearish and bullish markets.

d. Bull – this is an increasing trend of stock market prices. In stock trading, this signifies a growth of stock value, also fundamentalist view this as a sign of company success. Like Google before it starts with a very cheap stock price, but in 2008, Google is trading around 433 dollars. Investors buying shares at at those very low prices before where Google is almost unknown to everyone are now very rich today if they trade Google stocks.

e. Portfolio- this is list of stocks you would like to trade. The summation of all profits of all stocks results to overall portfolio profit. Or the summation of all losses of all stocks results to overall portfolio losses.

f.Stock Broker- this is someone representing your trading account, and is responsible for providing you advices to make your trading successful, or is someone in between YOU as a trader and the EXCHANGE.

g. Support- the price level at which it starts to happen when there are many buyers than sellers.

h. Resistance- the price level at which it starts to happen when there are now many sellers than buyers.

i. Moving average- the average of the prices in an “x” number of days. So a 200 day moving average is the average of past 200 days.

h. Trending market- it is either be an increasing (bullish) trend or a decreasing (bearish) trend.

i. Trading range- not in trending markets.

j. Stop loss- this is the price below your entry price that you would like to quit to avoid losing further.

k. Entry price- this is the price you decide to enter trading based on your trading plan.

l. Exit price- this is the price at which you leave trading to get profits based on your trading plan.

m. Trading plan- a complete set of trading rules regarding when to entry, exit and managing your trading.

n. Money management- a plan on how you will deal with losses while maintaining a profitable trading positions.

o. Expectancy- a measurement of your trading system profitability. If it is positive, your system produces profit,otherwise you will lose money when you continue trading with negative expectancy.

Mathematically it is expressed as: Expectancy = (Probability of Win * Average Win) + (Probability of Loss * Average Loss)

p. %Win- the probability of winning, number of winning trade over total trading.

q. %Loss- the probability of losing, number of losing trade over total trading.

r. Average win- how much is your average win in dollars per winning trade.

s. Average loss- how much is your average loss in dollars per losing trade.

t. Technical analysis- a method that all trading decisions are solely based on technical analysis data regarding stocks and could be represented by any methods such as moving average, support-resistance analysis or trending analysis.

u. Fundamental analysis- a method that all trading decisions are solely based on the performance of the company such as their marketability, how the people in the company are performing, the quality of their products, looking at how the company are earning at the moment and their future plans.

v. Shares- quantity of stocks traded. This is the measurement of how much you have traded in stocks. For example, I trade 500 shares of xyz company stocks at 2 dollars per share. The total value that I bought is around 500 x 2 = 1000 dollars worth of stocks.

w. Long- synonymous term for being “bullish” or increasing stock market value. In futures trading, it means buying at a low price and selling at higher index value.

x. Short- means sell first and buying later.