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How Volatility Can Help Your Trading

Hundreds of indicators are available to help traders analyze price action. Moving averages, stochastics, MACD, RSI and other less well-known indicators help identify the trend or warn of a possible trend reversal. While the details of how to calculate each indicator varies, they are all using closing prices as their primary input. A moving average sums the closing prices while the stochastics formula places the closing price within context of the recent price action by including the recent high and low prices in its calculation. All of these indicators have been developed to find a tradable edge that can produce ...
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Another Look at the Cheapest Stocks in the Dow

In a recent article, we looked at the traditional approach to a trading strategy known as the Dogs of the Dow. Several readers have questioned how a simple strategy like the Dogs can work. In this article, we will explain why the Dogs of the Dow can work and look at a variation of the strategy that can be implemented at a relatively low cost.A common question among investors is how a strategy can work when a large number of investors already know about it. Researchers have shown that if a strategy is based on sound investing principles, it ...
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Cheap Stocks That Could Beat the Market Next Year

It’s finally January and now could be the time for traders to take positions intended to benefit from the January Effect.Investment managers and the academic community have long recognized that stocks do well in the first month of the new year. They called this tendency “the January Effect” and defined it as “a seasonal increase in stock prices during the month of January. Analysts generally attribute this rally to an increase in buying, which follows the drop in price that typically happens in December when investors, engaging in tax-loss harvesting to offset realized capital gains, prompt a sell-off.”Understanding the cause ...
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Investing Lessons From Last Year’s Winners

At the end of the year, many investors look backwards, wishing they had invested in the previous year’s biggest winners. This behavior isn’t unique to investors. Many individuals take time as the new year approaches to consider their mistakes of the past year. This can be an important exercise, if you learn lessons from a review of the past. For investors, it seems few learn lessons because they repeat the process year after year, almost always looking in the rear view mirror at the stock or ETF they didn’t buy.We want to take some time to do things differently. We ...
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Will a Strong Dollar Doom the Stock Market?

Several unexpected events have happened since the election of Donald Trump as President. Among the most surprising for investors has been the fact that the dollar has become significantly stronger. Below is a chart of the US Dollar Index, a trade-weighted index that consists mostly of the euro and yen given the importance of trade completed in these two currencies. The Chinese renminbi is not represented in the index, which dates back to 1973 when China was not a significant player in the global economy. Some investors might consider this to be a weakness of the index, but no index ...
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Dogs of the Dow Picks for 2017

Sometimes, it seems as if there aren’t really any new ideas in the stock market. The Dogs of the Dow is an example of this. The Dogs is an investment strategy that is remarkably simple to implement. It requires trading once a year and has a long-term track record many active investment managers and hedge fund pros would envy. The roots of this idea can be traced back at least 60 years, a relatively old idea which means it has withstood the test of time.The Dogs strategy has a simple buy rule. At the end of the year, sort the ...
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The Best Trades for January

Traders have long understood the importance of seasonal tendencies. Hundreds of years ago, grain trading revolved the seasons. Seasonal trends also impacted shipping as some voyages were best made at certain times of the year and would be almost impossible at some times of the year. While this may seem to be limited to physical markets, we often see seasonal tendencies in financial markets. To be fair, some of these tendencies were based on requirements of physical markets like agriculture.As one example, throughout history, financial markets in the United States have shown a tendency to crash in the fall. Many ...
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Which Chart Is Best?

Traders often turn to charts when deciding whether it is time to buy or sell. Over the years, they have developed a wide array of charting techniques in pursuit of increased profits. Some traders believe candle stick charts provide them with an edge over traders while others turn to point and figure charts and some remain loyal to traditional bar charts. No matter what type of chart they use, traders invariably face another decision which is whether the chart should be scaled arithmetically or logarithmically. This decision, whether to use arithmetic or logarithmic scaling, can actually lead to emotional debates ...
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