Welcome to this website that
will help you take your stock trading skills to a higher level. You
may be already familiar with Fundamental analysis of stocks (EPS, P/E
Ratios, Top down Analysis from Economy to Industry to Individuals stocks,
etc.). Chances are you are also familiar with Technical analysis of
stocks- a discipline that attempts to predict stock prices based on
historical stock price charts.
What I am going to show you
here is a unique approach to stock trading. Prices have more information
than we need to trade stocks profitably. I am going to show you how
simple it is to read between the lines when you are looking at the four
daily prices of the last few days.
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The
simple premise of PROFIT
FROM PRICES Stock Trading Strategy is that everybody
knows something about something, but the market is the only one who
knows everything about everything. The market is the sum
total of all the players. For any stock, it knows at any point in time
every piece of news- public or private, every expectation held by every
individual as well as every trade executed in that stock. However, this
enormous amount of information held by market is available in one simple
number- the current stock price. Prices reflect every bit of information
- public or private --, and the impact of every trading action of every
market participant. So it is foolish to think that the price of a stock
is some useless number; actually it is the most comprehensive indicator
of the aggregate/consensus view held by all the market participants
at a given point in time. Prices is the only thing that reflects complete
picture of what all participants-- day traders, specialists, market
makers, hedge funds, insiders, foreigners, individuals or institutions-
are collectively thinking and how they are acting as of the moment!
As such, any market
is a battleground where a war is constantly being fought between current,
as well as prospective, buyers and sellers; and to decide who is winning,
we just need to look at how the prices are moving as of that moment.
By paying attention to price fluctuations, we can determine who, buyers
or sellers, is gaining control and what is the magnitude of the control.
Based on this insight, there are moments when we can predict with pretty
much confidence in which direction the stock prices are likely to go.
Once we know in which direction prices are heading, we can make profitable
trades! Most of you might doubt: Is it really possible to trade stocks
just by looking at prices? Yes. It is and this is what PROFIT FROM
PRICES Stock Trading Strategy is about. By learning some simple
techniques, you also can profit from prices.
In this PROFIT
FROM PRICES Stock Trading Strategy book, I will teach you how
to unlock tremendously valuable information for trading stocks just
by looking at the four daily prices and how to use it in trading stocks.
The secrets I am going to reveal in this book are simple and logical.
Not only that, they are very powerful and time-efficient for trading
stocks. My exhaustive study of prices, and charts to some extent, reveal
consistent patterns that can be profitably used for trading stocks or
Futures contracts. Besides prices, I have used various other trading
methods, tools and indicators. However what I have found is that the
four daily prices, OPEN, HIGH, LOW and CLOSE, give us much more than
what we need to identify which stock to buy and when. They tell us of
a change on the very same day it takes place. Profit From Prices (PFP)
signals can be used as a stand-alone trading system; or if you have
some strategy/system that currently works for you, these PFP signals
will prove to be a great supplement.
As such, the Open,
High, Low and Close prices for a day are just plain figures/numbers.
Most people are unable to extract any useful information from them so
it is not surprising to see them paying attention only to the Closing
prices. For most people, the Open price is a totally useless number
and so are High and Low prices often times. As I will show you in next
few chapters, the four daily/weekly prices and trading volume numbers
contain tremendous amount of information and it is not a complex science
or math to extract it and use it for trading stocks. Four daily prices
tell us one very important thing: How the demand/supply curves for any
stock are changing and how we can predict future stock prices in certain
situations.
In this PROFIT
FROM PRICES Stock Trading Strategy book, I am going to show
you how simple it is to read between the lines when you are looking
at the four daily prices and trading volume for a stock. Though modern
investment world has started ignoring Open price, it is a very important
number when one compares it to previous day/week's Closing price or
with the current day/week's Closing price.
In this book, I will often refer to two primary tests that form the
heart of the Profit From Prices theory. The
first test is to capture changes in sentiment.
By sentiment, I mean psychology and expectations. With this first test,
I attempt to capture net changes in perceptions, outlook and feeling
about a stock by market participants. The second
test is to summarize the actual trading activities during a session
and to capture net changes in aggregate Demand and aggregate Supply.
In the first test, I try to measure changes in sentiment and in the
second test, I want to see how people are actually acting or behaving.
Emotions/opinion/sentiment has no value unless a person actually acts
on it. My two basic tests do just that: they try to capture changes
in how market-participants are thinking, and how they are acting.
Then I have some additional tests to quantify strengths of such changes
and to determine what implications they hold for future price movement.
- What
happened while the market was closed, or when the stock was not trading?
To answer this question, I compare Today's Open price (TDO) to the
Previous Day's Close (PDC) price. If Today's Open price is higher
than Previous Day's Close price, it tells me that there is a change
in investor sentiment, and the change is for the better. Whatever
happened overnight, while the market was closed, it has resulted in
positive implications for the stock today: It has caused Demand to
increase and/or Supply to dwindle. Why would buyers pay higher prices
today for the same thing that was available previous day for less?
No one in the market system likes to pay a penny more for the same
thing. This is even more true for stock market. This happens only
when someone is convinced of a bigger profit down the road than the
additional amount he is paying in terms higher price. For this reason,
I take Strong Open as an indication of improvement in investors' sentiment
towards it. (The reverse is true when Today's Open price is lower
than Previous Day's Close price. Such Weak Open means deterioration
of investor sentiments).
There is one caveat: Only a strong Open is not sufficient reason to
buy any stock. It does indicate improved sentiment but it is only
half of the story. Improved sentiment has to result in higher demand
and hence higher prices. This can be confirmed only after watching
the full day's trading. So for this, this is my second test.
- The second test
is: What happened today during the entire
market session?
As an answer to this question, I compare a day's Open price to the
Closing price of the same day. If Today's Close (TDC) is higher than
Today's Open (TDO), I conclude that, during the entire session today,
buying in the stock has been more powerful than selling. The sentiment
at the close was at a level higher than where it was when the market
opened or the stock started trading today. A comparison between the
Open and the Close price for any day gives us the net summary of the
war in the marketplace between buyers and sellers. If the stock closed
at a price lower than where it opened at the start of the market session,
it means that the sentiment in the stock deteriorated during the session.
As I said earlier,
these two tests though they provide useful information are not sufficient
for entering into any trading position. So I have few more tests to
augment the strength of my signals. When I explain various signals in
the following chapters, I will show you these supplementary tests/conditions
that take us few steps further and give us some quantitative information:
how significant is the change in sentiment, how long it is likely to
last, and what we should do to take advantage of it.
Welcome one more time to the wonderful
world of stock prices! If
you are in a hurry, click here to look at one of my favorite signals-
a
strong Trend Reversal stock trading signal- U-TURN.
U-TURN
TURN-AROUND FULL-STOP
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