Market Psychology Flashcards
understand the basics of the market and the psychology behind it.
What is price action?
Price action refers to the movement of a security’s price and is encompassed in technical analysis.
_____________is the most direct and easily accessible method of seeing overall supply/demand relationships.
the price action
There may be fundamental news not known to the general public, but you can expect it is already in the price. Those who have advance knowledge of some market-moving event will most likely buy or sell until current prices reflect their information.
In market terms, what is a ‘Bull’?
A bull is an investor who thinks the market, a specific security or an industry is poised to rise. Investors who adopt a bull approach purchase securities under the assumption that they can sell them later at a higher price. Bulls are optimistic investors who are attempting to profit from the upward movement of stocks.
In Market terms, what is a Bear?
A bear is an investor who believes that a particular security or market is headed downward and attempts to profit from a decline in stock prices. Bears are typically pessimistic about the state of a given market. For example, if an investor were bearish on the Standard & Poor’s (S&P) 500, that investor would attempt to profit from a decline in the broad market index.
The daily opening prices tend to show:
the amateurs’ opinion of the value, since they are often acting in the morning before going to work.
The days closing prices reflect the decisions of :
professional traders.
If closing prices (professionals) are higher than the opening prices (amatuers), this means that
professionals are probably more bullish than amateurs, and if c
The high of each bar reflects the maximum power of
Bulls
the low of each bar displays the maximum power of .
bears
the distances between the highs and lows reflect
the intensity of the conflict between bulls and bears. If you want to estimate activity in the market, it’s this distance you’ll need to pay attention to.
An average-sized distance between high and Low prices (B) in a bar represents
a cool market
a distance between high and low price of a bar half the average size (C) indicates
a sleepy market
a bar with distance between high and low that is double the average size (A) marks an ….
overheating market.
What is slippage?
Slippage refers to the difference between the order (expected) price of a trade and the price at which the trade is actually filled (executed).
Slippage often occurs during periods of higher volatility when market orders are used, and also when large orders are executed when there may not be enough interest at the desired price level to maintain the expected price of trade.
Slippage is normally lower in quiet markets, so avoid getting into the market when …..
there is a huge discrepancy between high and low prices, a clear indicator that the market is overheating.
there are two more elements that a bar chart reveals, elements that will help you grasp the mood of a market. They are….
Support and resistance levels
When buying is so strong that it reverses or interrupts a downward price trend, we’re witnessing
support. You can imagine support as the floor that you bounce a basketball on. Every time the ball hits the floor, it bounces back up.
A support level exists, because people in the market have
memories. If the price of a stock was falling and stopped at a certain level and then increased, traders would remember this low level and be likely to buy when prices approach it again.
When selling is so strong that it reverses or interrupts an uptrend, the market is demonstrating ……
resistance. Imagine a ball being tossed up, hitting the ceiling and dropping down. In this example the ceiling would be the resistance level. Using chart analysis you can find resistance levels by connecting two or more highs in a chart with a horizontal line
Essentially, you should begin selling when you hit the…. and buy at the …..
resistance level – before prices go down – support level – when prices are at their lowest. In fact, many traders usually buy at support and sell at resistance zones, which also helps entrench and reinforce these levels even further.
No matter what you choose to trade, there are always two criteria they should meet:
liquidity and volatility. Liquidity is the average daily volume of traded shares. The higher the liquidity, the more shares are available for sale, and the easier it will be to trade at your desired order price.
To ensure you never find yourself in without enough buyers when it’s time to sell, screen only for stocks that are traded at a rate above ….. .
a million shares per day (safe), 500k per day (moderate safe), less than 100k per day (more risk of being stuck with shares for longer periods of time and being subject to market moves).
Volatility is …. The higher the volatility, the more opportunities there is to …..
average short-term movement in the price of the stock. make money – and lose it
We can measure volatility with _____________ , which compares the volatility of a certain stock to
a beta
its benchmark, a general figure, such as a market index, that reflects the health of the market.
if you have a beta with a value of two, that means that if the benchmark rises five percent, stock is likely to rise ….
ten percent, and vice versa when the benchmark falls. It’s advisable for beginners to focus on low betas, as this limits the amount you could lose when trading.
Use two simple rules to minimize your risk. No matter how great your profits are in trading, without proper risk management, all your capital could disappear in minutes. If you want to be secure, you’ll need to follow two key rules.
The first of these is the 2% rule.
second rule you need to implement is the 6% rule
the 2% rule or risk management.
This prohibits you from risking more than 2 percent of your trading account balance, or trading equity, on a single trade.
An important tool in risk management is a stop order. A stop order means that……
when the price of the stock falls to a given amount, the stock is automatically sold.
Journaling can prevent
emotional trading, as you’ll see for yourself how much feel-good trading costs you. what’s more, you’re bound to find a pre-existing template online that suits you!
