It is
absolutely mandatory that you treat every trade you place like a business
transaction and not just a simple bet. If the latter is your choice and
mentality, you might as well stop now. A change of attitude and mindset is what
makes an efficient spread better and also what separates a good trader from a
mere “Punter”. Just remember that every penny counts!!
So, what do
you look for?
Daily
Bar Charts
Daily
charts are one of the first steps of analysing market trends. They offer you
the opportunity to look for patterns within the market and give you a vague
understanding of where the market is moving. The two most common charts are the
bar chart and the candlestick chart.
Candlestick
Charts
A typical
candle represents one day’s action. The top indicates the highest price for the
day whilst the lower part of the stick shows the lowest price achieved on the
day. The width of the charts however indicates the range of the price on the
given day. A white candle stick indicates that the security closed higher than
the open and vice versa.
The above chart shows 3 months of
daily bars for the mining stock “Lonmin”. The chart is a typically very easy to
follow and learn, as to the plain eyes it shows a security going through a
sharp decline in price and a very sharp down trend.
Moving
Averages
This is
another tool that offers indications as to where the market is pulling towards.
An uptrend can be spotted when
Prices being above the Moving Average (MA)
The Moving average is upward sloping
When a shorter MA is above the longer term
Moving Average e.g. 50 days above a 100 day Moving average
The reversal of the above criteria
can also be used when looking at a downtrend.
Once a possible trend has been
detected, you then start considering ways of getting into the market.
Data as of November 25, 2008
The above
chart shows Lonmin’s 3 month market numbers, with a fifty day Moving average
added, notice that the moving average points downwards and that prices stay
well below it. The resistance to the moving average would have been the best
time to enter the market.
Relative
Strength Index (RSI)
This simply
shows how an instrument has been performing relative to another. Let’s say a
stock has been underperforming an index by 20% to 30% over a 3 months period,
while it is not guaranteed that the instrument is in a downtrend, it gives you
a possible indication of where the trend lies.
Attention
to Market
Keeping a close
eye to daily market news is a key part of being a successful spread better. The
current climate hovering around the market means that any good or bad news in
the market moves very fast and triggers a whole wave of sell off or sudden up
turn in the market. So you want to be in a position where you can
capitalize on any climate you find yourself.
A typical
candle represents one day’s action. The top indicates the highest price for the
day whilst the lower part of the stick shows the lowest price achieved on the
day. The width of the charts however indicates the range of the price on the
given day. A white candle stick indicates that the security closed higher than
the open and vice versa. 
