This article explores charts used during technical analysis. We discuss chart styles and the components within a price chart. Indicators and patterns are also covered.
Bar Chart – displayed as a single, narrow vertical line, with the top point as the highest price for the period and the bottom as the lowest point. (Figure 11-1 is a daily bar chart, for example.) The opening price is shown as a small horizontal line that extends left and the closing price is a small horizontal bar extending right
Candlestick – displayed as a thick, vertical bar representing the gap between opening and closing prices; if the price range extends beyond that gap, then there can be an upper and/or lower shadow, which is a narrow vertical line that extends above or below the bar. If the closing price is higher than the opening price, the "stick" is one color (typically blue or black); if it is lower, then it is displayed as a different color (typically red).
|Indicators and Patterns|
There is a wide variety of tools that traders can use when analyzing charts. The most popular include the following:
Indicators use crossovers, convergence and divergence to signal entry and exit signals. A crossover occurs when the indicator moves through an important level or average. A divergence occurs when the direction of the price trend moves opposite the direction of the indicator. Convergence occurs when two indicators move towards each other.
Symmetrical – the convergence of a rising trend line that touches a series of sequentially higher troughs and a falling trend line that touches a series of sequentially lower peaks. When a price breaks out a sharp movement in that direction is usually expected.
Ascending – the price movement should continue in a bullish (upward) direction. Two trend lines form a horizontal upper side along a resistance level and an ascending lower side of the triangle along a series of rising troughs. Figure 11-5 shows this type of pattern.
Descending – the price movement should continue in a bearish (downward) direction. Two trend lines form a descending upper side along a series of falling peaks and a horizontal lower side along a support level.
The other option is to pursue a career that provides trading activities on behalf of clients. In order to qualify for this type of work, a college degree in finance is required and, for most high-level occupations, registration with the National Futures Association is necessary. This career path typically involves working for a futures commission merchant, though licensed individuals are not required to be employed by an FCM. Often a trader starts as an Associated Person for the brokerage house. Another opportunity is to become an Introducing Broker that has one of two relationship styles with the FCM:
· Guaranteed IB – The FCM will guarantee or vouch for the activities of the IB. The FCM manages the client's funds and trading functions; in exchange for the guarantee, the IB must maintain an exclusive relationship with the FCM. By guaranteeing the IB, the FCM is not guaranteeing results but endorsing the IB's character and trading abilities.
· Independent IB – The IB can maintain relationships with multiple FCMs; however, he must maintain capital requirements with each FCM (in some cases over $25,000) for the privilege of being independent. The independent IB can negotiate with various FCMs for the best commission rate when placing trades
The AP can choose to become a Branch Manager for an FCM. By passing additional testing, a BM can oversee other APs and manage the day-to-day operations of the brokerage house branch. For a trader seeking to gain a percentage of the profits made on behalf of their clients, the position of Commodity Trading Advisor allows him to manage a client's account. Under a managed account, the CTA has explicit authority to make trades in exchange for a proportionally smallmanagement fee (usually one to five percent of assets being managed) and an incentive fee based upon the profits he attains. The incentive fee can range from 15% to 40% of the profits per year. The CTA position requires you to pass additional tests and usually requires several years of trading experience.
|Licensing &Testing Requirements|
· Customer evaluation
· Providing investment information
· Handling customer accounts and placing orders
· Understanding and explaining the securities' market organizations and participants
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