Print Trading Group Trading 101 LEARN THE BASICS SUPPORT - The price level at which there is enough demand to stop the price from dropping further is known as support. The rationale behind this is that buyers have a stronger tendency to buy and sellers have a weaker tendency to sell as the price declines towards support, becoming cheaper. The implication of the price reaching support level is that the supply will be overcome by demand and this would impede the price from going below support. RESISTANCE - The price level at which there is enough selling to stop the price from increasing further is known as resistance. The rationale behind this is that sellers have a stronger tendency to sell and buyers have a weaker tendency to buy as the price rises towards resistance, becoming more expensive. The implication of the price reaching resistance level is that the demand will be overcome by supply and this would impede the price from rising above resistance. TREND LINE - A line drawn above pivot highs or below pivot lows showing the current direction of a price is referred to as a trend line. Trend lines can be used as a tool to visually represent resistance and support in a particular time span. These indicate the speed at which a price is changing and the direction it is moving in. Along with this, they provide descriptions of patterns during intervals of price contraction. Applying a single trend line to a chart depicts the trend clearly. Applying trend lines to the pivot highs and the pivot lows creates a channel. Trend lines are helpful to technical analysis as they are useful in the determination of the current direction in market prices. For technical analysis, the trend is of immense importance, and the first step towards making a beneficial trade is to identify this trend. S&P 500 - It can be useful to have a tool that allows the tracking of the stocks of 500 large-cap US companies. The S&P 500 is a stock market index that does exactly this. It indicates the performance of the stock market by outlining the risks and returns of the largest businesses. It is used by investors as the benchmark of the overall market, and all other investments are contrasted to it. NASDAQ - Nasdaq is the name of a worldwide electronic marketplace where securities are bought and sold. It began operating on February 8, 1971, and it was developed by the National Association of Securities Dealers. It was created to provide investors with a fast, transparent, and computerized system for trading securities. The word “Nasdaq” also refers to the Nasdaq Composite, which is an index of more than three thousand stocks listed on the Nasdaq exchange, including global tech giants such as Google, Oracle, Apple, Amazon, Microsoft, and Intel. Dow Jones - The DJIA (Dow Jones Industrial Average, also called the Dow 30) is a stock market index that keeps a track of 30 sizeable, publicly-owned blue-chip companies that are traded on the NASDAQ and the NYSE (New York Stock Exchange). It derives its name from its creator, Charles Dow. It was created by him alongside his partner in business, Edward Jones, in 1896. In common parlance, whenever reporters use the phrase “The market is up today,” it is generally the Dow that is being referred to. It is one of the oldest market indices in the US, second only to the Dow Jones Transportation Average. By design, the DJIA serves as a proxy surrogate for the broader US economy’s health. Fractional Shares - A fragment of one share of stock is called a fractional share. Fractional shares are the consequences of a company’s financial choices or actions. For instance, if an investor possesses an odd number of stocks, stock splits might lead to fractional shares. In cases of mergers of companies, stocks are usually combined using a ratio that is agreed on by all parties. This might result in fractional shares. Reinvestment of dividends through a dividend reinvestment plan may give you fractions of a share. Generally, it is not possible to trade fractional shares on the market. However, a brokerage firm is able to group several fractional shares to result in a full share, sell you a portion to complete your share, or break up IPO - The process of a private company beginning to sell stock to external full shares to sell their fractions to fresh investors. Always be cautious investors, thus transforming into a public company, is referred to as an about trading fees and remember that each investment has a certain risk Initial Public Offering (IPO). After an IPO, the company can sell shares to associated with it. procure the capital it requires, however it is required to be in compliance with the SEC’s (Securities and Exchange Commission) stringent guidelines for reporting. IPOs are useful as they give companies the opportunity to raise capital by selling shares via the primary market. They can also be viewed as exit strategies for early investors and founders of the company ETF - Exchange Traded Funds (ETFs) are a kind of security that are by letting them earn the full profit of their private investment. comprised of a collection of securities – for instance, stocks – that usually track underlying indices, although they are able to invest in a variety of industry sectors or use different strategies. ETFs can be compared to mutual funds, but the difference is that they have listings on exchanges, and shares of ETFs can be purchased and sold the same way ordinary stock is. A popular example of an ETF is the SPDR S&P 500 ETF (SPY) that keeps a track of the S&P 500 Index. Various types of investments can be contained in ETFs, including commodities, bonds, stocks, or a combination of different types. An ETF is a marketable security. This means that it is associated with a price that enables it to be conveniently traded. EMA - An exponential moving average refers to a calculation of average price over a particular span of time. An EMA places more emphasis on the price data that is the most recent. As a consequence, it reacts much quicker to changes in price. Despite being a very old indicator of trade, it is still in widespread use by a number of traders today. Day traders integrate EMAs into charts in order to assist with the determination of trend, direction, and strength. Moving averages are basically measures of the mean prices of securities that are derived by calculating the average of the prices over a specific span of time. They are often used by traders when gauging market trends so as to increase their likelihood of success and trade in the direction the market is going in. Difference between EMA and SMA - There are similarities between the exponential moving average and simple moving average, mainly that both of them are based on the same principles and both are used to gauge trends and smooth price fluctuations. Nevertheless, there exist some important distinctions between them. ✦ A major distinction between EMA and SMA is that SMA is the calculation of the SMA - A simple moving average is the computation of the mean price mean price data of the whole timespan whereas EMA is a weighted calculation of a stock over a specific period of time. It is simply the sum of past that places greater emphasis on recent data of a period of trading. As a result, EMA is able to move quicker and change direction before the SMA can. closing prices over a particular time span divided by the number of price or data points. Thus, it results in the stock’s mean price over ✦ SMAs indicate a true average of the prices over an entire period of time. Thus, SMAs might be more useful in the identification of levels of support or that time span. resistance as opposed to EMAs which have quicker reactions to changes in price that are recent. ✦ SMAs let you remain in trades longer in cases of inconsistent behavior or temporary movements in price, whereas EMAs begin to turn down as soon as price retraces lower during a rally and they indicate a direction change prematurely. ✦ SMAs also generally have greater lag as compared to EMAs. RSI (Relative Strength Index) - The Relative Strength Index VWAP - The Volume Weighted Average Price indicates the (RSI) was created by J. Welles Wilder. It is a momentum average closing prices over a given period of time. oscillator that calculates the speed and change of price Simultaneously, it emphasizes the periods of greater movements. It ranges from 0 to 100. Generally, when the volume. Thus, the VWAP is a lagging indicator, as it hinges RSI is over 70, it is regarded as overbought, and when it is on previous data. If the price rises above the VWAP lower than 30, it is considered oversold. By searching for indicator, it signals that the bullish move has great instances of divergence and failure swings, we can generate strength. The strength is so high that the price has broken signals. Another use of the RSI is the identification of the from its average value on the chart. Thus, it gives us a long general trend. signal. It is similar in cases of bearish breakouts, although those are in the opposite direction. MACD - The Moving Average Convergence/Divergence Indicator is a momentum oscillator with the main purpose of tracking trends in trade. Even though it’s an oscillator, it is not generally used to determine if an asset is overbought or oversold.