Investing from charts is a common technique used by traders
and private investors to locate trends and new stocks to research and analyse.
Level 2 gives you real-time access to the stock market order book. It gives you a view of active prices as trades are placed and enables you to make an informed choice on how you think these trades will change the price.
How to read Level 2 order books, what to mark 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 fundamental tenets of the technical approach is to rate the past. Many trading theories works on the basis that, history repeats itself, and that market price movement discounts everything. Looking at past price action on an asset can give clues as to how the price would perform in the future. Human behavior can, to a certain extent, be predictable given a certain set of circumstances.
This is how the technical idea can work.
Market forces dictate price supply and demand. Price is driven by people just like you and me who fall to the same human emotions of hope, greed and fear as anyone else. Seeing where past 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. Investors could work out a number of strategies using -what if- scenarios.
Money management is a key element to a trader’s general profitability. The pressure to take a profit as soon as you see it sees many traders end up losing money in the long run.
Why is that you may well ask? Well, investors tend to cover their stop losses until they are executed but they do not do the same thing when they are making a profit.
Investors generally see a small gain and they take it. If you work on the basis that you are right on 50% of investments done, then you will never make any money.
When putting on a trade I always think, set on worst case scenario, how much money am I prepared to lose on this trade? Starting at $1 a point a $100 loss will let me a 100 point move versus my position after I get stopped out. If it is $100 I’m willing to lose then I should be looking to get between $200 and $300 profit. That would 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 each one element of risk, I must be looking to make at least double that on the profit side. It’s all about practicing discipline if things are running well, as well as if they are running badly. And make no mistake, they will go badly from time to time.
One more way to lose money is the setting of nonrealistic stop loss and profit levels on unsuitable markets. A 100 point stop loss on GBPUSD for example is quite realistic, but totally useless on something like a penny share. Use the price ranges of the last few days, and months, as a measure when placing stop loss levels.
data is far more deep than Level 1 data. It gives entry to all the data given by Level 1 data, and also displays the full depth of the market that is important for an active investor. It additionally helps traders to gain a better opinion 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 show important clues about the long and short term supply and demand of a particular stock, while Level 2 offers important clues about the spreading of buy and sell orders at different price points as the market moves up and down. Level 2 is particularly effective in showing the short term distribution of supply and demand, when charting offers insight into the historical price curve and its basic levels.
We will takes you through some of the most frequently used strategies that people apply to find potentially winning investments.