Even the risk quotient for trading is high and you have to involve into many trades so as to generate a decent earning. If you are interested in very quick small margins, you can trade by working on the immediate rise and fall of prices, which is solely based on tips, analysis and instincts. At the initial stages, speculating could be riskier. If you are more interested in quick but high margins, you can speculate by understanding the trend of a stock and sell it as soon as you see a close high. If you plan to invest then you have to analyse the company. Ramesh: Can you please elaborate on the pros and cons of the three methods? The risk quotient remains higher in trading. It yields lesser returns and has to be performed multiple times. The third method is by trading, which is a very short term process. Speculating is a short term process and is riskier. The second method is by speculating- where we invest in the smaller price fluctuation of stocks and earn between the margins. The first method is by investing, in which we buy stocks of promising companies and keep them for long term and sell them years later after the value of stocks largely increases. There are three methods in which one can generate earnings based on the convenience and risk capacity. This value depends on various economic factors. Suresh: The price of these stocks vary from time to time depending on the value of the company. Ramesh: But how does buying or selling stocks generate earnings? People often buy and sell them to generate earnings. These stocks represent the ownership claims on businesses. Suresh: Yes sure! To start with, the stock market is a market place with buyers and sellers present in the form of a loose network of economic transactions, to deal in stocks (shares). Will you help me in understanding these basics of the stock market? I would also like to invest in it. Ramesh: Really! I’ve just been thinking about it in a wrong way since long. Moreover, it is not at all difficult, there are just a few basic tips once you understand them and start reading the latest updates you could soon be a pro. It is a risky investment I agree, but the risk could be minimized by proper analysis and people like me have really earned well out of it. Suresh: I feel you have got the information about the stock market from very wrong sources. Also, I have heard it is a very risky investment and people often end up losing money. Ramesh: Oh! I have never thought that stock market could yield such good returns. But yes, I have got good returns out of my simple investments in the stock market. I bought a new house, but I haven’t got any lottery, neither an ancestral fortune nor a new high paying job. If you want to trade ABCD patterns, as well as many other profitable patterns, live with our team, join us in the Investors Underground chat room.Ramesh: Hi Suresh! I’ve heard you bought a new house and you are soon going to buy a car.Congratulations! Did you win a lottery? Or is itan ancestral fortune? If you want to learn more about the ABCD pattern, check out Textbook Trading and Tandem Trader. ABCD Chart Pattern Clip from Tandem Trader Once the stock breaks above point A, the trade plan has proven to be successful and we consider taking profits at point D. Essentially, we are planning for the stock to break above point A for an intraday breakout, and managing our risk accordingly. Once this higher low is established (C), we begin planning our trade with a risk at B. At this point, we are looking for the stock to show strength by setting a higher low (above point B) on the next dip. Once buyers overpower sellers, an intraday low is established (B). This spike is followed by a healthy pullback as profit takers inevitably begin to sell their shares. The pattern is characterized by an initial spike (A), during which the stock price reaches the high-of-day. We generally use this pattern intraday, however, it can be applied to different timeframes. ![]() ![]() The ABCD pattern is a chart pattern we use in chat to identify potential long trade setups. The ABCD pattern is discussed in detail on the Textbook Trading and Tandem Trader DVD’s, however, this blog post will cover the basics. This chart pattern allows you to enter a trade with a set risk and, most importantly, a solid plan. We’ve been using the ABCD chart pattern at Investors Underground for a long time to nail long trades with minimal risk and maximum reward.
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