Monday 9 April 2018
Wednesday 4 April 2018
The 10 Must-Watch Movies For Finance Professionals
April 04, 2018
-
5 comments
The financial world, in all its incarnations, makes for great cinema; tragedy, comedy, ingenuity, catastrophe and redemption; are all present in the many finance films that Hollywood has produced over the years. While most of the movies portray financial professionals in a less than flattering light, the unbelievable stories of excess, risk taking, and of course greed make for compelling cinema, and are required viewing for anyone thinking of or already working in the biz.
10. The Big Short
Based on the nonfiction book The Big Short: Inside the Doomsday Machine by Michael Lewis, this movie follows a few savvy X as they become aware of the housing bubble that triggered the financial crisis in 2007-2008, before anyone else. It's known for its clever way to break down sophisticated financial instruments by, for example, having Selena Gomez explain what synthetic CDOs are at a poker table, or having Margot Robbie explain mortgage-backed bonds in a tub with champagne.
9. Barbarians at the Gates
A largely forgotten 1993 TV movie centered on the leveraged buyout (LBO) of RJR Nabisco. While the movie does take some creative liberties in portraying this real-life event, audiences will be shocked and amused at the incompetence and greed of Nabisco’s CEO, F. Ross Johnson and the behind-the-scenes negotiations and skullduggery around this famous LBO.
8. American Psycho
A violent and thought-provoking thriller set in the back drop of finance, Christian Bale plays a wealthy investment banker with a dark secret. While there is very little actual finance in this movie, American Psycho does shed light on the surreal world inhabited by finance’s elite class, and the utter disconnect they have among themselves and with reality.
7. Glengarry Glen Ross
An acclaimed big screen adaptation of a David Mamet play, this infinitely quotable movie focuses on a team of downtrodden real estate salesmen whose morals have been utterly eroded after years of working for their unscrupulous company. This movie showcases the greed and underhanded tactics that sales positions may be exposed to, as well as the pressure exerted on sales people by their superiors. While the entire cast is top notch, Alec Baldwin’s “motivational speech” steals the whole movie, and brings to light the absolute best and worst faces of working under enormous pressure.
6. Rogue Trader
This movie tells the story of Nick Leeson, a trader who single-handedly caused the insolvency of Barings Bank, the world’s second oldest merchant bank. A rising star on the Singapore trading floor, Leeson blew up as quickly as he rose, hiding enormous losses from his superiors in carefully hidden accounts, eventually leading to the mother of all failed trades on a short straddle position on the Nikkei, which ends up experiencing a large sigma move. While the movie itself is decently entertaining, Leeson’s story makes for a great lesson in risk management and financial oversight.
5. Trading Places
This modern day take on The Prince and Pauper features Eddie Murphy as a streetwise con artist who gets tricked into becoming the manager of a commodities trading firm, while unwittingly replacing his successor, a blueblooded executive played by Dan Aykroyd. Although actual trading takes a backseat to the characters transitioning into their new circumstances, the final 15 minutes of the movie has a very accurate depiction of a frenzied trading session in the orange juice futures pits. Without revealing the details, this scene alone is worth the price of admission, but the supporting cast, the 80s nostalgia and great acting from the leads makes this a must-watch.
4. The Wolf of Wall Street
If you haven’t seen this Scorsese-helmed biopic chronicling the rise and fall of famous stock scammer, Jordan Belfort, then you are missing out on some of the best performances of Leonardo DiCaprio and Jonah Hill’s careers. Just like Barbarians' pump and dump,The Wolf of Wall Street is based on real life events (though again with a large parsing of dramatics), around the infamous Stratton Oakmont, an over-the-counter brokerage firm, and a pump and dump scheme that helped IPO several large public companies during the late 80s and 90s.
3. Boiler Room
While Barbarians at the Gates takes place in the glitz and glamor of a corporate boardroom, Boiler Room is set in the absolute lowest rung of the financial ladder: the pump and dump scheme. While Boiler Room is a work of fiction, pump and dump firms are very real, as are the pain and suffering they inflict upon their victims. Boiler Roomserves as a warning for those starting to invest in the stock market, to stick to transparent, solid companies based on sound fundamentals, and to always follow the adage: “If it sounds too good to be true, it probably is.”
2. Margin Call
Perhaps the most financially accurate movie on the list, Margin Call takes place over the span of 24 hours in the life of a Wall Street firm on the brink of disaster (modeled closely after some of the large bulge brackets). Margin Call does little to hide its contempt for the reckless risk taking by some of the largest banks in the run up to the 2008 financial crisis, such as trading complex derivative instruments they themselves barely understood. An incredibly poignant scene in the movie features two main characters talking among themselves about the impending catastrophe that will soon be unleashed upon their bank and the unsuspecting financial landscape, while a janitor stands between them, completely oblivious to what is going on.
1. Wall Street
Surprise, surprise: the number one finance movie very professional must see is the Oliver Stone classic that got thousands of college graduates to utter the immortal phrase “Blue Horseshoe loves Anacott Steel” as they rushed to their Series 7s. Originally crafted to show the excess and hedonism associated with finance, Wall Street still wields incredible power as a recruiting tool for traders, brokers, analysts and bankers nearly 30 years after it was made. Though the movie serves to warn us about the dangers of insider trading, let’s face it, who wouldn’t want to be Bud Fox or even Gordon Gekko (legitimately of course) and indulge a bit in our greedy side; after all, as Gekko would say, “Greed is good.”
Tuesday 3 April 2018
CANDLESTICK PATTERNS WITH A MOVING AVERAGE
April 03, 2018
-
No comments
TRADING RULES FOR CANDLESTICK WITH MOVING AVERAGE
LONG TRADING SETUP
- A pullback down to the 20 EMA
- A bullish candlestick pattern overlapping with the 20 EMA
- Buy as price breaks above the high of the last bar of the candlestick pattern
SHORT TRADING SETUP
- A pullback up to the 20 EMA
- A bearish candlestick pattern overlapping with the 20 EMA
- Buy as price breaks below the low of the last bar of the candlestick pattern
CANDLESTICK PATTERNS WITH MOVING AVERAGE TRADE EXAMPLES
WINNING TRADE – BEARISH ENGULFING
This is a candlestick chart of EUR/USD forex. We looked out for candlestick patterns with a moving average.
A trade setup came as a bearish engulfing candlestick pattern formed at the 20-period EMA. The next day was a strong bear trend bar. It triggered our sell order at the low of the pattern. This trade followed through quickly.
Look at the top of the chart. After a test of the previous trend high, prices reversed down with strong momentum.
The pullback upwards tested the 20-period EMA and the low of a prior trading range (the blue horizontal line). The bearish engulfing pattern showed strong rejection by these resistances. This trade had the potential to catch the beginning of a new downwards trend.
When trading candlestick patterns with a moving average, you can use the distance between the candlesticks and the EMA to judge the momentum. In this case, the large gap between the candlesticks and the EMA showed the bearish momentum.
LOSING TRADE – BULLISH HARAMI
This is a daily chart of Marshall & Ilsley Corporation. We saw a bullish harami right on the 20-period EMA. The next day broke the high of the inside bar. We went long but the trade went against us.
A key candlestick principle is to wait for confirmation. Many traders wait for one more candlestick after the pattern for confirmation.
However, waiting for confirmation indiscriminately is not a good idea. This is why my trading rules are to enter upon break of the high or low of the pattern. Of course, for the weaker trading setups, waiting for confirmation is prudent.
Here, we saw clear downwards momentum. Prices also closed below the EMA with ease. Given such strong momentum downwards, it was wiser to wait for bullish confirmation.
The confirmation never came. Hence, an astute trader could have avoided this trade by demanding some signs of returning bulls.
REVIEW – TRADING CANDLESTICK PATTERNS WITH A MOVING AVERAGE
Candlestick patterns are well-defined pieces of price action with clear underlying market concepts. Beginners will find candlestick patterns useful for picking up price action.
Using candlestick patterns with a moving average helps to clarify the trend. It also helps us assess the candlestick patterns better. Hence, combining candlestick patterns with a moving average is a simple yet effective trading approach.
However, candlestick patterns are for clarifying price action.
Do not use them to force rigid interpretation on price bars, give them mystical names, and expect predictable results. Focus on the context, understand the nuances within each pattern, and be flexible when trading them.
For more information on trading candlestick patterns with a moving average, take a look at the following:
- An experienced trader shares how he trades using candlestick patterns with a moving average.
- Profitable Candlestick Trading: Pinpointing Market Opportunities to Maximize Profits (Wiley Trading) by Stephen Bigalow, a widely cited candlesticks expert.
9/30 TRADING SETUP
April 03, 2018
-
No comments
TRADING RULES – 9/30 TRADING SETUPS
This trading setup uses two moving averages: the 9-period exponential moving average (EMA) and the 30-period weighted moving average (WMA).
LONG SETUP
- 9 EMA above 30 WMA
- Close below 9 EMA (More conservatively, entire bar below 9 EMA)
- Place buy stop order above the high of the bar that closes below 9 EMA
SHORT SETUP
- 9 EMA below the 30 WMA
- Close above 9 EMA (More conservatively, entire bar above 9 EMA)
- Place sell stop order below the low of the bar that closes above 9 EMA
9/30 TRADING EXAMPLES
WINNING TRADE – LONG 9/30
The chart above shows the daily prices of CBRE Group Inc (NYSE). The 9 EMA is orange, and the 30 WMA is red.
Price pulled back and closed below the 9 EMA for a 9/30 trading setup at the bar before the highlighted bar.
However, the buy order above the high of the bar was not triggered. The next bar went entirely under the 9 EMA, setting up a conservative 9/30 setup. The buy order at the high of this bar was triggered, and the price shot up over 20% in the next two months.
The long bottom tails at the 30 WMA showed clear buying, but the signal bar was a doji with a small bear body. Hence, the conservative trader could wait to enter on the next test of the 30 WMA which occurred four bars later.
LOSING TRADE – LONG 9/30
In a different daily chart of CBRE Group Inc, we saw the marked bar close above the 9 EMA. Hence, we placed a sell order below its low. The order was triggered, but prices moved up right after our short entry and never looked back.
TradingNaked stated that the “most reliable entry occur the first time there is a crossover of the moving averages.” This trade was exactly the first one after a moving average crossover, but it failed. Possible reasons included the prior upwards trend and the rather bullish signal bar (the marked bar).
REVIEW – 9/30 TRADING SETUP
The strength of the 9/30 trading setup is its simplicity. It is simple to understand and gives the trader more time to observe the price action. TradingNaked also mentioned that “those who focus their decisions almost exclusively on price bars should find it helpful”.
The conservative trade with a higher probability of success requires the entire bar to be below the 9 EMA, highlighting the importance of extent of the pullback in a trend. The greater the pullback, the more likely that the trend resumption is imminent. However, if the pullback is overdone (as a guide: more than 70% of the previous move), the trend may have ended.
Traders should use this trading setup for retracements rather than reversals unless there are compelling reasons to consider a trend change.
3 USEFUL TIPS FOR INTRADAY PRICE ACTION TRADING
April 03, 2018
-
1 comment
Price action trading is especially useful for day traders. This is because in day trading, timing is crucial. By timing your entries with market tipping points, it is possible to profit from swift trades.
Price action offers the natural tool for timing market entries. Even when we are wrong, well-timed entries help to limit our losses. Thus, bar patterns and candlestick patterns are getting more popular among intraday traders.
However, an astute price action trader’s ability extends far beyond price patterns.
Here are three price action trading tips for intraday traders.
1. AVOID TIGHT CONGESTION
Avoid trading when the market is showing a tight congestion. A tight congestion area hardly offers any high probability trades with solid reward-to-risk ratio.
Some day traders are anxious to make money. Hence, they often aim for unrealistic profits. This behaviour is exceptionally damaging when the market is congesting.
If you try to squeeze a 10-tick profit from a 5-tick trading range, you are wasting your time on the impossible. You end up clocking up more losses. Scalping for a couple of points might make sense but is a tedious trading strategy. Moreover, scalping is definitely not for beginners. Hence, do yourself a favour and take a break when the market is in a tight congestion.
How do we know when a market is in a tight congestion?
Each trading session has a volatility pattern. The market tends to show wilder movements at certain times of the day and tends to move in a subdued manner at other times. This volatility pattern provides a guide to the low volatility hours when congestions are more likely to occur.
Usually, a trading session starts and ends with high volatility. Towards the middle of each session, the market might enter into a congestion phase.
The chart shows 10-minute bars in the ES futures market.
- The trading session started with nice long swings.
- Towards midday, the market started to congest with small candle bodies. It was unwise to look for trading setups here.
- After a clear break-out like this bullish thrust, we could look to buy again.
- The market continued to drift upwards without further congestion.
The example above shows a typical intraday volatility pattern. The volatility pattern might differ among markets. The best way to grasp the volatility pattern is to measure the average range of an hourly (or half-hourly) price bar. For forex traders, there are several free tools online that calculates the hourly range of different currency pairs.
The clear-headed price action trader can also recognise congestion price patterns as they form. Congestion patterns occur when the market fails to close higher (lower) for at least three consecutive price bars.
Once you find that the market is in a congestion phase, stop trading.
2. USE NARROW RANGE BARS TO LIMIT RISK
Narrow range bars are windows of opportunities. They offer efficient trades that risk little and are likely to produce quick profits.
(Limit your risk with the NR4/ID and NR7 trading strategies.)
There is an important exception to this price action tip. Do not trade narrow range bars within a tight congestion. Narrow range bars are characteristic of tight trading ranges which are not conducive for trading. Hence, do not trade narrow range bars indiscriminately.
This example shows a NR7 trading setup.
- The trading session started with a minor congestion. Narrow range bars here were not ideal signal bars.
- However, the market quickly emerged out of the congestion.
- A bullish pullback ended with a NR7 bar.
- Even with a conservative target placed at the last extreme low, this NR7 trading setup offered a healthy reward-to-risk ratio.
3. DO NOT GO AGAINST PRICE MOMENTUM
One of the worst behavior of a day trader is to trade against a trend day.
A trend day is one that opens near one extreme of the trading session and ends near the other extreme. A bullish trend day opens near its low and closes near its high. A bearish one opens near its high and closes near its low.
In a trading session that does nothing but rises, shorting again and again is the worst trading strategy. Yet many intraday traders do just that. There are two reasons underlying such destructive behaviour.
First, these traders refuse to accept the fact that they might be wrong. They think that the market must be going down. They cannot be wrong. So they short again and again.
Second, they are tempted by the prospect of selling at the top of the trading session. For some reason, they want to be dramatic heroes and not rich winners.
To avoid fighting such losing battles, look for price momentum. The definition of momentum is the rate of change of price when used in technical indicators. Here, I use “momentum” as a loose term for the strength of a market swing.
To recognise price momentum, pay attention to how the market reacts as it hits the last swing high or swing low.
This example shows a bull trend day.
- This bar cleared above the last swing high with strength.
- The potential for a trend day was apparent as these bearish bars generated little interest.
- The strongest bear thrust of the trading session could not even push past the last swing low.
These are signs of bullish momentum. They are crystal clear to price action traders. It was not a day for short positions.
Do not trade against price momentum.
STAY OUT OF TROUBLE WITH THESE INTRADAY PRICE ACTION TRADING TIPS
Two out of the three tips above are about staying out of trouble.
Do not trade when the market is in a tight congestion. Do not trade against the market momentum.
For intraday trading, it is often more important to minimise the number of bad trades than trying to catch the trade of your lifetime. Focus on trading only when the market conditions are ideal.
Subscribe to:
Posts (Atom)