Itech lecture 10 Flashcards
Trading a security can be based off of 3 things, name them
1) performance
2) catching large trends
3) diversification
What are some costs associated with trading (TA)
-time consumption
-opportunity costs
-trading losses from learning curve
-setup costs
-commission
-slippage
-missing orders
When you start trading, what kind of market should you go into
A “slower” market or lower risks
What sort of volume must be present to have high liquidity
heavy volume
What are the 3 types of trading for different time horizons?
1) scalping
2) day trading
3) swing trading
What is scalping?
Taking very small profits between bid-ask spreads and accumulating liquidity credits
What does scalping need to have in order to be profitable?
Time, excellent order entry system and experience
How quick is scalping
Very fast paced (minutes)
What is day trading?
Starting the day with no positions and ending the day with no positions
How short is day trading?
Very short term, minute and hour bars are used
What is swing trading?
Catching small trends or counter trends over several days or weeks
How experience might an investor be in order to make swing trading profitable?
Less experience compared to day trading
What are the two approaches in to select investments?
Top down
Bottom up
What is the sequence of events in a top down selection
market -> country -> industry -> security
What is the sequence of events in a bottom up selection
Security -> industry -> country
What does Canslim stock selection focus on?
Focuses on “leading” growth stock
How are stocks ranked in CANSLIM
12 month relative price strength, with 3 month price strength weighted more heavily in percentiles from 0-99, 99 being the strongest
What is the stop loss in CANSLIM
7-8% strict stop loss rule
When do you hold the position in CANSLIM
Hold position if stock rises greater than 20% within 1-3 weeks
What are the 3 patterns used in CANSLIM
1) cup and handle
2) Flat base
3) double bottom
When is the best time to buy in CANSLIM
when breakout from a pattern with at least 50% increase in volume
What does the C in CANSLIM represent + describe
Current Quarterly Earnings
+25 % or more in recent quarter
Look for stocks with string current results as well as string history of solid earnings growth
What does the A in CANSLIM represent + describe
Annual earning
+25% for more for the past 3 years (year over year)
What does the N in CANSLIM represent + describe
New product, Management, Highs
Biggest stock winners had new products, new management or new conditions in an industry that propelled the company to astounding height
What does the S in CANSLIM represent + describe
Supply & demand
Strong demand for a limited supply of available shares will push a stock’s price up
What does the L in CANSLIM represent + describe
Leaders: choosing to win
Steer clear of stocks that are laggards
What does the I in CANSLIM represent + describe
Institutional sponsorships
Big institutional investors, managers of the company investing their ow money into stock of the company
What does the M in CANSLIM represent + describe
Market direction
Don’t buy against the trend
What are the retracement levels in Fibonnaci sequence
38.2%, 50%, 61.8%, 100%
What do the retracement levels mean in Fibonnaci sequence
Spots where prices can find a resistance or support
When can Fibonacci retracements be used? (3)
1) To place entry orders
2) determine stop-loss levels
3) set price targets
In Eliott wave theory (EWT), how are stock prices governed
By irregular cycles founded upon the Fibonacci series (1-2-3-5-8-12-21…)
In EWT how do impulse waves and corrective waves move
Impulsive waves move with the trend and corrective waves move against the trend
Draw EWT in a bull market, identify the impulse, retracement and the corrective waves
Draw EWT in a bear market, identify the impulse, retracement and the corrective waves
In a bull market in EWT how many waves go up and how many waves go down
5 waves up, 3 waves down
In a bear market in EWT how many waves go down and how many waves go up
5 waves down, 3 waves up
In EWT, each larger wave is comprised of what?
Even smaller waves
What are the 3 types of corrective waves?
1) zig zag
2) flats
3) triangles
Draw a zig zag corrective wave
Draw a flat corrective wave
Draw a triangle corrective wave
**What are the 3 rules of EWT that cannot be broken?
1) wave 2 must not break below wave 1 (original wave)
2) Wave 3 is never shorter than wave 1 and 5
3) Wave 4 cannot overlap the termination of wave 1
What are some EWT guidelines (don’t always have to be followed)
-Alternation
-Equality
-Truncation
What is alternation as EWT guidelines
Type of corrective wave in wave 2 and 4 alternate (a flat is followed by a zig-zag, or triangle)
What is equality as EWT guidelines
Waves 1 and 5 are usually equal in length
What is truncation as EWT guidelines
Occasionally the fifth wave fails to exceed the third wave and gets “truncated”
