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Binary Options: In finance, binary option (also called fixed return option, all or nothing or digital option)is a type of option where the payoff is either some fixed amount of some asset or nothing at all.[1] Binary options have been available since the middle of 2008. Binary options are trading options that pay out a pre-set and fixed amount if the underlying asset on which the option is based reaches the trader’s selected ‘direction’ (up or down compared with advertised value at the time of purchasing that option) at expiry time.[2]
The Binary Option is a prediction on which way the price of a stock, commodity, index or foreign currency will move by a designated expiration time. Traders can never purchase or own the asset, they can only predict the direction that the asset will go. There are only two possible outcomes and the price of the asset does not matter, all that matters is if the prediction was correct or incorrect.
Runaway Gaps
Runaway gaps are also called measuring gaps, and are best described as gaps that are caused by increased interest in the stock. For runaway gaps to the upside, it usually represents traders who did not get in during the initial move of the up trend and while waiting for a retracement in price, decided it was not going to happen. Increased buying interest happens all of a sudden, and the price gaps above the previous day's close. This type of runaway gap represents an almost panic state in traders. Also, a good uptrend can have runaway gaps caused by significant news events that cause new interest in the stock. In the chart below, note the significant increase in volume during and after the runaway gap.
Ford Motor Co. (F) Runaway Gap example chart from StockCharts.com
Runaway gaps can also happen in downtrends. This usually represents increased liquidation of that stock by traders and buyers who are standing on the sidelines. These can become very serious as those who are holding onto the stock will eventually panic and sell – but sell to whom? The price has to continue to drop and gap down to find buyers. Not a good situation.
The term measuring gap is also used for runaway gaps. This is an interpretation that is hard to find examples for, but it is a way of helping one decide how much longer a trend will last. The theory is that the measuring gap will occur in the middle of, or half way through, the move.
Sometimes, the futures market will have runaway gaps that are caused by trading limits imposed by the exchanges. Getting caught on the wrong side of the trend when you have these limit moves in futures can be horrifying. The good news is that you can also be on the right side of them. These are not common occurrences in the futures market despite all the wrong information being touted by those who do not understand it, and are only repeating something they read from an uninformed reporter.
Internal Trend Lines
Sometimes there appears to be the possibility for drawing a trend line, but the exact points do not match up cleanly. The highs or lows might be out of whack, the angle might be too steep or the points might be too close together. If one or two points could be ignored, then a fitted trend line could be formed. With the volatility present in the market, prices can over-react, and produce spikes that distort the highs and lows. One method for dealing with over-reactions is to draw internal trend lines. Even though an internal trend line ignores price spikes, the ignoring should be within reason.
The long-term trend line for the S
Pictorial Price History
Even if you are a tried and true fundamental analyst, a price chart can offer plenty of valuable information. The price chart is an easy to read historical account of a security's price movement over a period of time. Charts are much easier to read than a table of numbers. On most stock charts, volume bars are displayed at the bottom. With this historical picture, it is easy to identify the following:
Reactions prior to and after important events.
Past and present volatility.
Historical volume or trading levels.
Relative strength of a stock versus the overall market.
Inflationary Relationships
The intermarket relationships depend on the forces of inflation or deflation. In a "normal" inflationary environment, stocks and bonds are positively correlated. This means they both move in the same direction. The world was in an inflationary environment from the 1970's to the late 1990's. These are the key intermarket relationships in a inflationary environment:
A POSITIVE relationship between bonds and stocks
An INVERSE relationship between interest rates and stocks
Bonds usually change direction ahead of stocks
An INVERSE relationship between commodities and bonds
A POSITIVE relationship between commodities and interest rates
A POSITIVE relationship between stocks and commodities
Commodities usually change direction after stocks
An INVERSE relationship between the US Dollar and commodities
POSITIVE: When one goes up, the other goes up also. INVERSE: When one goes up, the other goes down. Interest rates move up when bonds move down
In an inflationary environment, stocks react positively to falling interest rates (rising bond prices). Low interest rates stimulate economic activity and boost corporate profits. As interest rates fall and the economy strengthens, demand for commodities increases and commodity prices rise. Keep in mind that an "inflationary environment" does not mean runaway inflation. It simply means that the inflationary forces are stronger than the deflationary forces.
After each bounce off support, the stock traded all the way up to resistance. Resistance was first established by the September support break at 42.5. After a support level is broken, it can turn into a resistance level. From the October lows, the stock advanced to the new support-turned-resistance level around 42.5. When the stock failed to advance past 42.5, the resistance level was confirmed. The stock subsequently traded up to 42.5 two more times after that and failed to surpass resistance both times.
Trend Lines
Trend LinesTechnical analysis is built on the assumption that prices trend. Trend Lines are an important tool in technical analysis for both trend identification and confirmation. A trend line is a straight line that connects two or more price points and then extends into the future to act as a line of support or resistance. Many of the principles applicable to support and resistance levels can be applied to trend lines as well. It is important that you understand all of the concepts presented in our Support and Resistance article before you continue.
Central Bank: Central banks play a key role in the currency markets because of their power over monetary policy. They have a direct influence over money supply, which in turn affects demand and price of the currency. Through the use of different policies, central banks can try to manipulate the markets so that they can keep their currency at specific levels. Some countries and their central banks try to peg their currency to that of another currency or basket of currencies (for example, China to the U.S.).
The central bank can participate in the forex market by buying and selling their currency at the spot market in order to keep it from changing too much. Another motivation for central banks is to keep the local currency at a specific price in order to make their local economy more attractive for international trade. If a country’s currency appreciates too quickly, it could actually make it less appealing to importers.
Remember that many transactions have to use the local currency. Thus, if currency that is needed rises too quickly, it effectively makes goods more expensive to foreigners, which in turn, hurts trade. To counter this, the central bank may intervene in the market by selling its currency and buying up other major currencies. This in effect, weakens the local currency so as to make it more appealing to foreign importers.
While the exact value of what percentage such central bank transactions take up isn’t known, take note that because these are the banks of national governments, such interventions can have a much larger impact on the market than any single commercial bank.
Industrial metals and bonds rise for different reasons. Metals move when the economy is growing and/or when inflationary pressures are building. Bonds decline under these circumstances and rise when the economy is weak and/or deflationary pressures are building. A ratio of the two can provide further insights into economic strength/weakness or inflation/deflation. The ratio of industrial metal prices to bond prices will rise when economic strength and inflation are prevalent. This ratio will decline when the economic weakness and deflation are dominant.
Disparity Index: The disparity index is a percentage measurement for the position of the current closing price of an asset relative to that asset's moving average. Traders commonly attribute this measurement to Steve Nison, based on his book Beyond Candlesticks.
The disparity index can take either a positive or a negative value. A positive value indicates that the asset's price is rapidly increasing, while a negative value indicates that the price is rapidly decreasing. A value of zero means that the asset's current price is exactly consistent with its moving average.
The disparity index crossing the zero line reflects an extremely rapid change in the trend of a given asset, and is therefore a strong early-warning indicator of the asset's increasing momentum.
Nison's book suggests that the disparity index can indicate whether an asset is overbought (in the case of a positive value) or oversold (in the case of a negative.) Since overbought and oversold assets are very vulnerable to rapid price reversals, the disparity index is a good indicator of when following the trend of a given asset might be a dangerous proposition.
Building Permits - Canada: Release Schedule : 8:30 AM (EST); monthly, on the first week of the reporting month
Revision Schedule: The report following next month
Source of Report : Statistics Canada
Web Address : http://www.statcan.ca/start.html
Address of Release : http://www.statcan.ca/english/Release/index.htm
Bretton Woods Agreement of 1944: The Bretton Woods Agreement is a pact that was made all the way back in the 1940's by the economic powers at that time to stabilize currencies. What it did was establish a fixed exchange rate for currencies in terms of gold to make trade among nations easier. This kind of exchange rate system lasted until 1971, before the US finally decided to end the convertibility of the dollar to gold.
Definition of 'Death Cross'
A crossover resulting from a security's long-term moving average breaking above its short-term moving average or support level.
Read more: http://www.investopedia.com/terms/d/deathcross.asp#ixzz26ev7vRbs
How to Pick a Time Frame
The time frame used for forming a chart depends on the compression of the data: intraday, daily, weekly, monthly, quarterly or annual data. The less compressed the data is, the more detail is displayed.
Daily data is made up of intraday data that has been compressed to show each day as a single data point, or period. Weekly data is made up of daily data that has been compressed to show each week as a single data point. The difference in detail can be seen with the daily and weekly chart comparison above. 100 data points (or periods) on the daily chart is equal to the last 5 months of the weekly chart, which is shown by the data marked in the rectangle. The more the data is compressed, the longer the time frame possible for displaying the data. If the chart can display 100 data points, a weekly chart will hold 100 weeks (almost 2 years). A daily chart that displays 100 days would represent about 5 months. There are about 20 trading days in a month and about 252 trading days in a year. The choice of data compression and time frame depends on the data available and your trading or investing style.
Bank of England (BOE) Rate Decision: Release schedule : 11:00 AM GMT (about 7:00 AM EST); Monthly in the first or second week.
Source of report : Bank of England Monetary Policy Committee
Web Address : http://www.bankofengland.co.uk
Address of release : http://www.bankofengland.co.uk/monetarypolicy/decisions.htm
What is a stock split and a reverse stock split?
A stock split is an increase in the number of outstanding shares of a stock. The price of the stock is immediately adjusted so that the total equity remains the same. For instance, if a $100/share stock splits 2 for 1, there will be twice as many shares but they only be worth $50 each now. This is usually done to make the stock more affordable to the public.
A reverse stock split is a decrease in the number of shares. This is usually done to raise the price per share to meet stock exchange requirements or simply to look more "healthy."
Biflation: Biflation is a phenomenon where both inflation and deflation occur at the same time. This term was coined by Dr. Osborne Brown, a Senior Financial Analyst for the Phoenix Investment group.
During biflation, the prices of commodities and earnings-based assets (equities) rise while the prices of debt-based assets (bonds) fall
Two Dominant Groups
Two basic tenets of technical analysis are that prices trend and that history repeats itself. An uptrend indicates that the forces of demand (bulls) are in control and a downtrend that the forces of supply (bears) are in control. However, prices do not trend forever and as the balance of power shifts, a chart pattern begins to emerge. Certain patterns, such as a parallel channel, denote a strong trend. However, the vast majority of chart patterns fall into two main groups: reversal and continuation. Reversal patterns indicate a change of trend and can be broken down into top and bottom formations. Continuation patterns indicate a pause in trend and indicate that the previous direction will resume after a period of time.
Microsoft Corp. (MSFT) chart patterns example chart from StockCharts.com
Microsoft (MSFT)[Msft]
Just because a pattern forms after a significant advance or decline does not mean it is a reversal pattern. Many patterns, such as a rectangle, can be classified as either reversal or continuation. Much depends on the previous price action, volume and other indicators as the pattern evolves. This is where the science of technical analysis becomes the art of technical analysis.
Banking Institutions: Banking institutions cater to both the majority of commercial turnover and large amounts of speculative trading every day. The set of forex products offered by various banking institutions vary depending on their size. Some banks offer only spot exchange and currency forwards while the larger institutions offer currency options, currency swaps, currency futures, and option-dated currency forwards.
A large bank could trade billions of dollars daily, much of which is undertaken on behalf of customers, but some is conducted by proprietary desks, in other words: trading for the bank's own account.
A study by Greenwich Associates reveals that the top foreign exchange dealers are dominated by banking institutions such as Deutsche Bank, UBS, Citigroup, Barclays, and the Royal Bank of Scotland. The exact percentage of the daily global forex turnover accountable to banking institutions is not known but Deutsche Bank and UBS each comprise more than 10% of the market share. What’s for certain is that a sizeable part of daily forex trading is concentrated among the world’s top 10 foreign exchange banks. Around 90% of all foreign currency transactions are done by banks, companies, and individual traders.
Chart Basics
A price chart is a sequence of prices plotted over a specific time frame. In statistical terms, charts are referred to as time series plots.
On the chart, the y-axis (vertical axis) represents the price scale and the x-axis (horizontal axis) represents the time scale. Prices are plotted from left to right across the x-axis with the most recent plot being the furthest right. The price plot for IBM extends from January 1, 1999 to March 13, 2000.
Technicians, technical analysts and chartists use charts to analyze a wide array of securities and forecast future price movements. The word "securities" refers to any tradable financial instrument or quantifiable index such as stocks, bonds, commodities, futures or market indices. Any security with price data over a period of time can be used to form a chart for analysis.
Ascending Triangle: An Ascending Triangle is a price action formation signal based on continuation pattern theory.
Continuation patterns also include symmetrical triangles, descending triangles, wedges, flags, rectangles and pennants and are essentially technical patterns that are expected to lead to the continuation of an existing trend. Continuation patterns are considered a powerful trading tool as they usually result in extremely low risk trading opportunities and spectacular returns.
An ascending triangle demonstrated within a chart pattern is recognized as having a bullish position and occurs as a result of price highs and price lows that have begun to converge so that they, in effect, form a point. If a line is drawn above and below the pattern the top line will appear straight whilst the bottom will slope upwards at an angle.
Ascending triangles are considered to be at their most reliable when occurring during an uptrend, and a buy order should be placed on a break above the upper resistance area of the triangle. If however, the pattern is proved to be false, or if the ascending triangle pattern should fail, then it is advisable to sell when the market breaks out and below the triangle.
What is a mutual fund?
A mutual fund is a fund created by an investment company which combines money from many investors and invests it in a group of stocks, bonds, or other investment vehicles. The investment company actively manages the portfolio to meet a desired goal, such as long-term growth or steady dividends. One major benefit is diversification. Many mutual funds also charge a fee when someone buys or sells shares.
When someone buys shares of a mutual fund, they are not directly buying shares of the underlying companies. Instead, they are entitled to a proportional amount of the fund's profits, which are usually distributed two or three times per year.
Descending Trendline: Descending trendlines are a variety of trendlines, one of the most fundamental tools for technical analysis. Descending trendlines are simply trendlines with a negative slope, indicating falling prices. There are two types of descending trendlines: descending top trendlines, in which the high prices for an asset are falling, and descending bottom trendlines, in which the low prices for the asset are falling.
The rules for trading using descending trendlines are the same as the rules for trading with trendlines in general. A descending top trendline is a measure of the resistance to an asset's price, and traders consider a break in price through the descending top to be buy signal for the asset. A descending bottom trendline is a measure of the support in an asset's price, and traders consider a break in price through the descending bottom to be a sell signal for the asset. Many traders consider it necessary for additional signals to appear on the chart before a broken descending trendline is confirmed, and before those traders will take the appropriate market action.
Exhaustion Gaps
Exhaustion gaps are those that happen near the end of a good up- or downtrend. They are many times the first signal of the end of that move. They are identified by high volume and large price difference between the previous day's close and the new opening price. They can easily be mistaken for runaway gaps if one does not notice the exceptionally high volume.
It is almost a state of panic if the gap appears during a long down move where pessimism has set in. Selling all positions to liquidate holdings in the market is not uncommon. Exhaustion gaps are quickly filled as prices reverse their trend. Likewise, if they happen during a bull move, some bullish euphoria overcomes trades, and buyers cannot get enough of that stock. The prices gap up with huge volume; then, there is great profit taking and the demand for the stock totally dries up. Prices drop, and a significant change in trend occurs. Exhaustion gaps are probably the easiest to trade and profit from. In the chart, notice that there was one more day of trading to the upside before the stock plunged. The high volume was the giveaway that this was going to be, either, an exhaustion gap or a runaway gap. Because of the size of the gap and the near doubling of volume, an exhaustion gap was in the making here.
Delta Air Lines (DAL) Exhaustion Gap example chart from StockCharts.com
Narrow Within the Group
Once the industry group is chosen, an investor would need to narrow the list of companies before proceeding to a more detailed analysis. Investors are usually interested in finding the leaders and the innovators within a group. The first task is to identify the current business and competitive environment within a group as well as the future trends. How do the companies rank according to market share, product position and competitive advantage? Who is the current leader and how will changes within the sector affect the current balance of power? What are the barriers to entry? Success depends on an edge, be it marketing, technology, market share or innovation. A comparative analysis of the competition within a sector will help identify those companies with an edge, and those most likely to keep it.
Double Top: Any chart pattern similar to the one show below is known as a ‘Double Top’ and it is arguably one of the most widely recognized and compelling technical signals known amongst the forex trading community. It is considered a reliable test of a previous high or low.
The double top formation is identified as a distinctive chart pattern revealing a rally to new high followed by a moderate retreat which is then in turn followed by a second rally in which to test the new high.
The double top chart pattern classically reveals itself by occurring in the shape of the letter ‘M’. A third rally added to this would result in the occurrence of a triple top resulting in three peaks.
A double top is considered a bearish and is generally thought to be stronger when the equal points are further apart and the price objective usually occurs at an equal distance beyond the correction low.
Spacing of Points
The lows used to form an uptrend line and the highs used to form a downtrend line should not be too far apart, or too close together. The most suitable distance apart will depend on the time frame, the degree of price movement, and personal preferences. If the lows (highs) are too close together, the validity of the reaction low (high) may be in question. If the lows are too far apart, the relationship between the two points could be suspect. An ideal trend line is made up of relatively evenly spaced lows (or highs). The trend line in the above MSFT example represents well-spaced low points.
On the Wal-Mart (WMT) example, the second high point appears to be too close to the first high point for a valid trend line; however, it would be feasible to draw a trend line beginning at point 2 and extending down to the February reaction high.
Dark Cloud Cover: A bearish reversal pattern that continues the uptrend with a long white body. The next candle opens at a new high then closes below the midpoint of the body of the first candle. The pattern is more signficant if the second candle's body is below the center of the previous body. The pattern is casting a “dark cloud” over the bullish trend that preceded it. Confirmation of the pattern is achieved when another black candle, of smaller size, forms after the second candle
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