Trading from charts is a popular approach used by traders
and private investors to find trends and new stocks to research and analyse.
Level 2 gives you real-time pass to the stock market order book. It gives you a view of flowing prices as orders to buy or sell are placed and enables you to make an informed choice on how you think these trades will affect the price.
How to read Level 2 order books, what to look at and how you can use this information to assist support your trading strategies? Please note that this is an introductory guide only from “Investor’s Guide to Technical Analysis” written by Company EYE.
One of the basic tenets of the technical approach is to grade the past. Many investment theories works on the premise that, history repeats itself, and that market price action discounts all. Looking at past price action on an asset can give an idea as to how the price will perform in the future. Human behavior can, to a certain extent, be predictable given a satisfied set of circumstances.
This is how the technical concept can work.
Market forces rule price supply and demand. Price is driven by people just like you and me who succumb to the same human tone of hope, greed and fear as anyone else. Seeing where earlier highs and lows have occurred in the past and how the market has behaved when at these levels can give clues as to what might happen next. Traders can draft a number of strategies using -what if- scenarios.
Money management is a fundamental element to an investor’s overall profitability. The passion to take a profit as soon as you see it sees many investors end up losing money in the long run.
Why is that you may well ask? Well, investors have a tendency to run their stop losses until they are executed but they do not do the same thing when they are making a profit.
Traders frequently see a small gain and they take it. If you work on the ground that you are right on 50% of trades executed, then you will never make any profit.
When putting on an investment I always think, based on worst case scenario, how much money am I ready to lose on this investment? Starting at $1 a point a $100 loss will allow me a 100 point move against my position before I get stopped out. If it is $100 I’m able to lose then I should be looking to earn between $200 and $300 profit. That will then mean I need a 200-300 point move in my favor. This way, based on a 50% success rate I will be making money.
For every element of risk, I should be looking to take in at least double that on the profit side. It’s all about maintaining discipline when things are running well, as well as when they are going badly. And make no mistake, they will go badly from time to time.
Different way to lose money is the placing of impossible stop loss and profit levels on unsuitable markets. A 100 pips stop loss on GBPUSD for example is quite realistic, but totally useless on something like a penny stock. Use the price ranges of the last few days, and months, as a reference point when setting stop loss levels.
data is far more complete than Level 1 data. It gives access to all the information given by Level 1 data, and also displays the wide depth of the market which is fundamental for an active trader. It also helps investors to realize a better understanding of the current trends in a security and which technical factors may be influencing the price.
Charting and Level 2
are important tools for the serious trader. Using charting can present important clues about the long and short term supply and demand of a particular asset, while Level 2 offers important an ideas about the spread of buy and sell orders at different price points as the market moves up and down. Level 2 is especially beneficial in showing the short term distribution of supply and demand, when charting offers insight into the historical price trend and its vital levels.
We will takes you through some of the most commonly used strategies that traders employ to find potentially winning investments.