Trading Fundamentals

Here is a summary of things I learnt from the book titled " A Beginner's Guide to Day Trading Online" by Toni Turner.

Below are the key times periods of a typical trading day, in EST, as found true by the author during her experience as a day trader:

- 9:30 am - market opens
- 9:50 am - 10:10 am - first reversal period
- 10:25 am - slightly milder reversal
- 11:20 am - beginning of lunchtime moody blues
- 1:30 pm - lunchtime moody blues begin to cheer and clear - some stocks start to edge up
- 2:30 pm - stocks break out (or down) in a more definitive manner
- 3:00 pm - Treasury bonds stop trading; market breathes a sigh of relief, possible reversal
- 3:30 pm - mild reversal possible
- 4:00 pm - market closes


At around 1:10 am, strong stocks that have pulled back slightly on a bullish day will again turn up. Bearish stocks on a negative day resume their growling. If one buys a stock before 10: 00 am, and it soars through the first reversal period, do not asusme that it is clear sailing for the rest of the morning. Chances are that the stock will top out around 10:25 am and then pull back and retrace price movement back toward opening price of last support area (come-in) before it begins its next move. On a bearish day, the author has found the weaker stocks to fall hard at lunch time. Experienced traders avoid entering positions at lunchtime as the stock movements can be erratic at this time.

In the evening around 3:30 pm the reversals can get initiated and one can know about this possible reversal by watching the leading indicators line S&P futures, the TICK, and the TRIN. Most stocks follow their lead.


Charting Techniques:
Traders generally use three types of following charts while day-trading.
1) Line Charts: these are drawn from the closing prices each day, and form a line across the chart. Line charts can be helpful in seeing the big picture when they are overlayed on top of each other. Compared to the line charts, the bar charts and the candlestick charts offer more information for day-traders.

2) Bar Charts: On this chart, the vertical bars show the price range the stock has traded in during that day. The protruding horizontal bar on the left designates the opening price and the horizontal bar on the right indicates the closing price.


3) Candlestick charts:Its black and white colors make it reading quicker and clearer than the bar charts.  They interpret the stock movements in detail and give more signals about possible future movements. Like bar charts, candlesticks use bar forms to designate price range. Then they fatten the bar with a vertical rectangle to indicate opening and closing price comparisons. A clear/white body color indicates the closing price was higher than the opening price. A black body color means the closing price was lower than the opening price. 





The shadow above the real body is called the upper shadow. The shadow below is called the lower shadow.

If the stock opens at its low and stays above it, the white body will have no lower shadow and is referred to as a shaven bottom. If it closes at the high, and has no upper shadow, its referred to as a shaven head.

If  a stock's price range remains the same, and it opens and closes at the same price, then the real body is reduced to a line and such a stock's representation is called a doji.

Hammer and Hanging Man:

- The real bodies are at the top of the day's trading range, the lower shadow should be twice the height of the read body, and it should have a shaven head.
- A hanging man appears at the top of an uptrend. A hammer appears at the bottom of a down trend.
- Their appearance during a downtrend or uptrend signals the prior move may be broken.
- The real body can be white or black, but it is slightly more bullish if the hammer is white and slightly more bearish if the hanging man is black.

Engulfing patterns use two candlesticks to prophesy a major trend reversal. A bullish engulfing pattern reverses a downtrend, and a bearish engulfing pattern reverses an uptrend. The bearish engulfing pattern can be viewed as a total solar eclipse blocking out the entire sun and it covers the entire white body.
- The stock has to be in a definite uptrend or downtrend, even if short term.
- The second real body should be the opposite color of the prior real body.
- The second real body has to engulf the first real body although it need not engulf the shadows. The pattern becomes even more accurate when the first real body is quite small, and the second very long.
- If the second real body engulfs an additional body, the signal grows stronger.

Dark cloud cover:
it is a bearish reversal pattern and appears when an uptrend has run out of steam, or at the conclusion of a congestion move. This pattern uses two candlesticks:
- First candlestick is a strong white body.
- Second candlestick's price gaps open above the top of the white body and its top shadow, if any.
- By the end of the move, though, the second body closes well into the white body and near its own low. The more the second, black body moves into the lower part of the first, white body, the higher probability that the bears are taking control and the uptrend is broken.
- If a long, white reald body closes above the highs of either the dark cloud cover or the bearish engulfing pattern, it suggests the start of another rally.

Bullish Piercing pattern
Its the reverse of the dark cloud cover and forecasts the reversal of a downtrend.
- The first real body is a blak body in a falling trent.
- The second is a white real body, in which the stock gaps open lower than the previous candlestick's low.
- Then the price rises higher, and the real body closes more than midway into the prior black real body. Now the bulls have wrested control from the bears, and the downtrend is broken.
- If the real body does not close at least halfway or more into the black body, it negates the signal and indicates the downtrend may continue.

Key Reversal Day
If the white real body opens lower than the previous day's low and closes higher than the previous day's high, its called a key reversal day.

STARS: evening star, morning star, doji evening/morning stars. These patterns are created by three candlesticks.

- In each case, the star itself can appear as black or white.
- The star must gap away from the preceding candlestick, meaning the star's real body must not overlap the previous real body.
- The star's real body is small, indicating that a stock that's had a strong surge up or down is now slowing , and the bulls and bears are deadlocked in battle.

Evening Star:
- The first two candlesticks are composed of a long, white real body, followed by a star with a small body, which can be white or black. The star suggests the top of the uptrend.
- The third candlestick is a black real body that drops low into the range of the first, white candlestick. Now the bears are in control, and the uptrend is broken.

Morning Star:
- The first two candlesticks are composed of one, long black body, followed by a candlestick with a small body, which can be white or black. The candlestick gaps open lower that the previous real body's close, then the price rises. This move indicates buying pressure has begun.
- The third candlestick is a white real body that moves into the price range of the first, black real body. Now the bulls have taken control, and the downtrend is broken.