In this issue:
Main Article
Social Trading the Dow
Contributed by eToro
"The Dow Jones Reaches a New Record High" - This headline is hardly news anymore, due to US stocks reaching new all-time highs approximately twice a week, since the beginning of 2013. Nowadays the media is more likely to consider a week without record highs for the Dow as breaking news.
With that said, many analysts and traders remain skeptical about the reasons behind these dramatic moves. The US economy is certainly not performing better than ever before, and although data releases indicate recover (albeit a slow one), there are still plenty of reasons for investors to be concerned.
At the same time, Wall Street investors are singing an old and merry song, which goes something like this:
Money is cheap and credit is loose, time to invest, give the economy a boost.
What can we buy or what can we sell, when bond yields are low and real estate is stale.
Corporations will grow long term and short, so equity shares are the best to report.
We can see the strong sentiment very clearly by glancing at this chart.
You don’t need any lines to see the clear upward trend, but when will it end? And what can you do to prepare for it?
Social trading offers an interesting solution for dealing with bubbles such as this. As long as the bubble keeps inflating, it makes sense to take advantage of the upward momentum, however, if you know the downfall is imminent you also have to hedge your positions in the opposite direction.
This is where social trading comes in.
Social trading links traders from all over the world into one big network. It empowers traders to use each other’s skills and collective wisdom to trade smarter together.
Across a broad social investment network there will be traders on both sides of the fence and some who are sitting on the fence.
For example;
Robysms61 from Switzerland has a moderate following of almost 10,000 traders. Currently 3,705 of them are copying his trades with their real money accounts. He strongly believes this entire rise is a big bubble and is holding short positions on the Dow Jones and S&P 500. His Dow Jones target is currently at 13,000 just around that big gap from New Year’s weekend. (Here are Robysms61's results.)
On the other there is Schultieboy, a new trader from Holland. In just 2 short months this trader has managed to quadruple his initial investment and is currently holding some very green long trades on several different stock indices. (Here are Schultieboy's results.)
A wise investor knows diversification is key so, by copying both these traders, we should be able to profit from both points of view and trading timeframes.
Another cool advantage of investing socially is being able to gauge the overall sentiment, or the "Wisdom of the Crowd."
Since the beginning of the year, the social sentiment on the eToro network has been growing increasingly negative when it comes to the stock market. Point in fact: at the moment, 96% of our top traders are selling the S&P 500.
The following chart demonstrates the overall bearish exposure on the S&P of all the traders in the eToro network on a weekly basis since January 2013.
The black line is the monthly moving average, where we can see the bearish trend starting to emerge.
In the words of John Maynard Keynes, a very famous economist,"the markets can stay irrational longer than you can remain solvent."
As long as the markets remain irrational, the only rational thing to do is to spread your investment to cover all possible scenarios. This is the number one reason to diversify as much as possible.
You can achieve maximum diversification by copying diverse investors who are in turn diversifying their own portfolios. This way, whatever happens in the world your exposure will be spread out and much safer.
To learn more about social trading, visit www.etoro.com.
About the Author:
eToro is the first global market place for people to trade currencies, commodities and indices online in a simple, transparent and more enjoyable way.
eToro’s vision is to become a global market place for all people to invest and manage their funds in a simple and transparent way.
eToro is committed to maintain the world’s largest and most trusted investment network, designed to financially empower individual investors through a simple, innovative trading platform and an active social trading community.
Today, eToro empowers over 2.75 million users in more than 140 countries worldwide to manage their funds through their innovative online investment platforms and active trading community, with thousands of new accounts created every day.
For more information on eToro, please visit their website.
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Support Tip
How do I control how an indicator is scaled?
Contributed by MetaStock Support
Adding indicators to charts in MetaStock is as simple as dragging and dropping. But what about scaling for the indicator? When you add an indicator to an inner window or copy or move an indicator to another inner window, it is likely that the other inner window's y-axis scale will not be compatible. If this is the case, MetaStock displays the Scaling Options dialog so that you can choose how to handle the scaling when the plot is overlaid.
For this example, we will use a chart of Apple and a Stochastic Oscillator for the indicator.
Let's take a look at the available options:
For any indicator scaling you want to execute, you must do the following steps regardless of which scale you choose.
- After opening a chart in MetaStock, drag and drop the indicator anywhere on the chart. You will know the indicator is going to be applied in the chart when the price bars turn pink.
- After setting the parameters of your indicator, select "OK." You will be asked what you want your scaling options to be. Here are the scaling options and how to apply them.
1) Display New Scale on Left
- For this example, we select "Display new scale on left."
- After selecting "New scale on left" and clicking "OK" the indicator will appear over the prices on the chart. Notice the new scale on the left side of your chart. This scale is directly related to the plotted indicator. Since the Stochastic Oscillator is based on a scale of 0 - 100, you will notice this is the scaling used on the left with blue overbought and oversold lines at 20 and 80.
2) Display New Scale on Right
- For this example, we select "Display new scale on right."
- After selecting "New scale on right" and clicking "OK" the indicator will appear over the prices on the chart. Notice the new scale on the right side of your chart. This Stochastic Oscillator scale has replaced the pricing scale. Since the Stochastic Oscillator is based on a scale of 0 - 100, you will notice this is the scaling used on the right with blue overbought and oversold lines at 20 and 80.
3) Merge with Scale on Right
- For this example, we select "Merge with scale on right."
*** If you have a scale on the left side that appears with every chart you open, you can follow the same steps to merge with that scale. If you do not, the "Merge with scale on left" will remain grayed out.
- After selecting "Merge with scale on right" and clicking "OK" the indicator is “merged” with the current right scale. Notice the scale on the right side of your chart now displays from -50 to 750 so that it can display both the pricing for Apple as well as the range for the Stochastic Oscillator. So you’re now able to see Apple and the Stochastic Oscillator in the same chart.
4) Overlay without Scale
- For this example, we select "Overlay without Scale."
- After selecting "Overlay without Scale" and clicking "OK" the indicator scale will use the price scale on the chart to plot the Stochastic Oscillator (in this example.) Notice the pricing scale on the right side of your chart is unchanged with the addition of the Stochastic Oscillator. The Stochastic Oscillator is still based on a scale of 0 - 100 with blue overbought and oversold lines at 20 and 80. However, for this example it is using pricing values rather than the 0 - 100 scale. This is useful if you are only concerned with comparing relative movments between the plots.
Please note: You can change the scaling of any indicator already in your chart by right clicking on the indicator and selecting "Scaling." This will display the Scaling Options dialog and allow you to select the desired method.
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Slauson's Slant on Trading
A Stop for All Seasons
Contributed by John Slauson
A lot of traders focus on perfecting the perfect entry signal. The thinking is "If I can time my entry well, then a profit is a natural by-product." However, anyone who has traded knows this could not be further from the truth.
I believe many systems could be improved with effective stop losses. It would not surprise me if a monkey throwing darts at a stock chart could generate entry signals that turned consistent profits IF an effective stop loss were used for exits.
A little-known indicator in MetaStock is the IntelliStop. I developed this indicator about 10 years ago to be used as a universal exit signal. It is essentially a trailing stop with a unique twist; it automatically tightens and loosens based on directional volatility.
Volatility (as measured by standard deviation) is non-directional - meaning a sharp upward move has the same impact on the volatility value as a sharp downward move. Intellistops separate upside volatility from downside volatility. Why?
Upside volatility is considered a positive condition for long positions; whereas downside volatility is a negative condition. High upside volatility will cause Sell IntelliStops to tighten in anticipation of a return to normal volatility thereby locking in gains. A sharp downside pullback counteracts the temporary increase in volatility generated by a sharp upside move.
IntelliStops were created with the following principles in mind: let losses die quickly (play defense first), let profits live long, and strive for average profits that outpace average losses by a factor of two. Are IntelliStops the perfect application of this principle? No. But they can be effective.
The following chart shows the Adaptick IntelliStop indicator (Level 2 setting) overlaid on the QQQ. Note that an IntelliStop only resets when it is hit, as illustrated below. This is standard trailing stop behavior. The circled bar penetrated the active stop value, causing it to reset/recalculate on the current bar's low.
To plot the Adaptick IntelliStop indicator on a chart, simply drag and drop the indicator named "zAdaptick - IntelliStop Buy (1,2,3,4, or 5)" or "zAdaptick - IntelliStop Short (1,2,3,4, or 5)" from the Indicator Quicklist and drop it on top of the price plot.
An intellistop should be used the same way you would use any other stop. Using the chart above as a reference, here is an example: Let's say I purchased the QQQ at $68.50 using the monkey's dart and the current price is $73.03. I want to lock in my unrealized gains of $4.53 with an IntelliStop. The current value of the IntelliStop is $71.34. I could place a Good-til-Canceled (GTC) Sell Stop Loss order as shown below (This is Fidelity's order ticket; yours should be similar).
After placing a Stop Loss, you will need to monitor the IntelliStop closely in MetaStock in order to adjust it as necessary. Of course, the stop will never go down in the case of long positions, or up in short positions.
So take a look at IntelliStops. They may improve the performance of your trading systems.
But remember, trading isn't monkey business.
About John Slauson
John Slauson began his career with MetaStock in 1988. In 2000, he left and started Adaptick, a company that provided training and developed popular MetaStock add-ons ICE, FIRE and PowerStrike. Over the years, he's worked closely with industry experts like John Bollinger, Steve Nison, John Murphy, and Greg Morris. In 2008 he returned to MetaStock as a Product Manager.
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MetaStock Power User Tip
Bollinger Bands - Part 2
Contributed by Breakaway Training Solutions
In this second video of a three part video series on using Bollinger Bands, Kevin Nelson shows you how to create your own custom indicator to help determine when your Bollinger Bands are narrowing. This could be used to help find stocks going through periods of congestion.
http://youtu.be/0nsI-3y1jYc
For more MetaStock training, make sure to visit Breakaway Training Solutions at www.learnmetastock.com or email Breakaway Training Solutions at admin@breakawayts.com.
About Kevin Nelson
Kevin Nelson is the founder of Breakaway Training Solutions, Inc. He has spent the last 17 years becoming an expert on MetaStock software and a serious student of technical analysis while working for MetaStock. Prior to joining MetaStock in 1993, Kevin was a stockbroker for a well-known NYSE firm. In his role as Sales Manager at MetaStock, Kevin interacted extensively with MetaStock customers via phone, webinars, and public appearances. His experiences while working at MetaStock have enabled him to gain a keen understanding of the needs of technical analysts worldwide. While with MetaStock, Mr. Nelson was a featured presenter for four years. During this time, he traveled the U.S. introducing the MetaStock program to thousands of people and teaching them how to use its many features. His easy-to-understand approach is considered by many to be the best in the industry.
©Breakaway Training Solutions, Inc. 2013
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