Stocks for 2014

As Gold´s price keeps declining, investors move more and more their money into stocks. That is why it is a good time to make some stock picks for 2014.

Since AAPL suffered the biggest price decline in 2012 it seems that it is now in a steady trend making higher highs and lows.  Analyst speculate it to climb to 700 in the next 12 to 18 months. There is also a rumor that the company will be launching "wearable technology", something similar to Samsungs products. 

At the beginning of November Wall Marts (WMT) Stock price broke out of a bullish flag formation reaching an all-time high of 81,37. After that the stock consolidated to 77,80 which is significant and offers a great point to place the stop. So now we are waiting for a breakout over the A-TH.

Let´s wait that Nokia´s (NOK1V) stock will break over 6,0. Analysts are estimating Nokia to give out a dividend of 0,4 euros. 

Observing A Trend From A Market Technicians Viewpoint

There are many books about technical analysis out there, that are full of chart setups and candle stick analyses, but what they usually don´t have, is the explanation of traders behavior in a specific market situation. A successful daytrader, knows where the majority of traders have placed their stop orders and limit orders. That information is enough to make a successful trade, since where the orders are placed there will usually emerge a larger movement.

Lets have a look at the SP500 daily chart.

The blue dotline indicates the way of the trend. In general, trendfollowers usually set their stops above or below the last high or low, depending on the position of course. So if we look at the first 1,2,3 formation, we can see that when the price hits the significant high 2 the price breaks out. So the price reached above the last high and triggered stop orders from those who were positioned short. So short sellers have to buy the security and sometimes they even turn their position, which means they have to buy twice as much. And also many traders have their buy orders placed above the line.That is why often, but definitely not always, there comes movement into the market when crossing a significant high or low.  

That explains also why a breakout of a triangle formation has so much volume. The price oscillates up and down, but not making higher highs or lower lows. As the range of the movement gets smaller and smaller, eventually the price breaks out of the formation skyrocketing or falling. The traders move their sell and buy orders outside of the triangle and when the price breaks the formation, it triggers the bundle of orders. 

S&P 500 in a massive correction movement

The S&P 500 is clearly correcting now it´s rally trough October. My estimated target would be 1700, and would place my stops trailing on the daily time frame. The index broke already yesterday a significant level of 1751. In mid December, we can speculate for an year-end rally.

S&P 500 still bullish despite US Federal Government shutdown

The S&P 500 seems to be still bullish despite the US government is shutting down. The index is currently trading in historical highs and keeps being bullish as long as previous lows will not be broken and new highs will be reached.

The red lines indicate where the stops should be placed.

A little bit about goal setting ..

I think it is essential for every trader to set goals in life. I read recently the popular book "Think And Grow Rich" written by Napoleon Hill. Napoleon Hill was given the task to examine the most successful people, by that time the most wealthy man Andrew Carnegie. The reason Andrew gave Napoleon the task, was that he had one of the qualities that successful people have, "do more than people expect from you". That means that in every task, he works harder than he is paid for. The books title does not refer only to accumulate materialistic riches, but also how to get a life with love, friends, no fear of failure, living healthy and being confident.

The basic principles to success are:

1. Set one main goal in life
2. Set secondary goals that lead to the main goal
3. Program yourself into success mode

The principle is to program your subconscious mind in accepting yourself as a success. You have to dream every day about your main goal and imagine yourself as you are when you have obtained it. If you want to be a professional mutual fund manager, going every day to work in a suit driving a Mercedes, you have to imagine yourself every day as you would already live like that. Surround yourself with successful persons not with pessimists. And also create your own master mind group, with people that have similar goals and want to succeed. Share your knowledge with them and in exchange you will get knowledge from them.

One of my favorite motivational speakers: Brian Tracy

Donchian Price Channels

As I discovered the technical analysis of the financial markets for the first time, I read a book about a position trading strategy with the Donchian price channels. The price channel was developed by the famous commodity trader Richard Donchian. It simply indicates the highest and lowest points of n periods of the price.

This strategy used two periods a 55-day and 20-day price channel. The 55-day channel was used to enter positions and 20 for exiting them. In addition to that the strategy has a few enhancements: Exiting positions if the Average Directional Index of a 14 period shows a peak over 70 points. Positions are also closed if after breakout the price does not close over the breakout level within five days. This strategy was developed a few decades ago, so I was interested if the strategy was still valid, so I did a strategy test on the EURO/DOLLAR with Excel.  

The first thing I noticed, when I entered the trades into Excel, was that this strategy carries an enormous amount of risk. Already in the first trades there is a loss of 1000 Euros, which is a 20% draw down! As the cumulative amount of money compounds, the losses and profits get bigger. If there would have been five losing trades in the beginning, the virtual account would have been gone.

The worst losing trade happened on the 27.07.2010 with – 8140,15 € and the best trade was opened just before the worst trade on the 22.4.2010 with a profit of 15 737,78 €. As the capital accumulates, the profits and losses get more volatile. 

So in conclusion to this strategy testing, I could say this could be a good strategy for those who are looking for a position trading strategy in forex. Later on I will run the same test on commodities and some equity indexes. With a 5000 Euro start capital the return over a 10 year period is high but also the risk. We don´t know if this strategy worked only in the past but not in the future. Markets are changing. The rapid change in the variance of the returns can be a result of the markets becoming more structured with automated trading. 

THIS BLOG

is a sort of a diary for myself  in which I will share my future investments and sentiments. I believe that there are not so many blogs written by rookie traders, so this will also be a good place for those who are at the same point regarding trading.

First a little of myself: I am a 21-year old student from Helsinki, Finland. I currently study BBA as an exchange student in Vienna, Austria. My goal  in ten years is to be a financially independent trader. I have been trading Forex and making long term investments in stocks, now I have discovered the unlimited potential of derivatives. So my plan is to start trading with them.