The Correct Way to Add Indicators to Your Charts

I saw an interesting chart over the weekend and want to share it with you so I recreated it. There are Bollinger Bands, moving averages, trend lines, stochastics, RSI and MACD. I think the chart is saying to buy but it’s not easy to tell. This chart is clearly an example of too many indicators. In fact, all three of the indicators at the bottom use the same information and will almost always give the same signals. We can confirm that with another chart. In the chart above, all three indicators have been scaled to show the same range. They all generally ...
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Four Safe Stocks of Summer

We are still in the seasonally bearish worst six months, the time of year characterized by the popular saying to “sell in May and go away.” We’ve seen that the six months from the beginning of May through the end of October is a period of below average returns. Assuming you held stocks only during the best six months, from November through April, your average annual gain would be 5.2%, equal to all of the Dow’s gains over the past 116 years. Over the worst six months, the Dow Jones Industrial Average lost an average of 0.3% a year. Losses ...
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How to Benefit From Trends

Many successful traders have read a book written in 1923 called Reminiscences of a Stock Operator. This book, by Edwin Lefèvre, is based on the life of Jesse Livermore, one of the greatest traders of all time. Livermore was a colorful character who was able to trade quickly and at times he would be trading too fast for the old-style ticker tape machine to keep up with him. While Livermore loved to trade, he also loved to think about trading and that old book contains some of the most important ideas about trading ever written down. One of the best pieces ...
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Three Great Buys Amid the Ruins of Brexit

By now, almost every investor is familiar with Brexit, the decision by voters in Great Britain to leave the European Union. As the votes were being counted last Thursday night, traders seemed to realize the politicians who organized the campaign to leave weren’t discussing their plans. Leaders almost seemed surprised by the victory and the lack of a clear roadmap for negotiations sent markets around the world sharply lower. The chart below shows us what we need to know from a trading perspective, which is that the initial selloff was clearly an overreaction. Brexit provided a demonstration of the efficient market ...
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Managing Risk in Volatile Markets

A little more than 17 million voters in Great Britain created turmoil in global markets when they voted to leave the European Union. According to analysts at Standard & Poor’s, the vote led to $2 trillion in losses for investors around the world. These short-term losses reminded investors that markets are always volatile. Volatility is also defined as risk and is often explained in academic terms. From an investor’s perspective, stripping away the academic jargon, risk is the  amount of money you can lose on an investment. Risk is unavoidable and arguably risks are highest for passive investment strategies, the ones ...
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How to Invest $1,400 (or less) At the Point of Maximum Pessimism

Many great investors have explained the idea of maximum pessimism as one of the keys to investment success. Warren Buffett sums up this thought as being greedy when everyone else is fearful and being fearful when everyone is greedy. A member of the wealthy Rothschild family, owners of Europe’s largest bank and greatest fortune in the nineteenth century, supposedly said the time to buy is when there is blood in the streets. Less eloquent investors have simply express the idea as “buy low, sell high.” This advice is all useful but vague. Many of us wish we could invest like Buffett ...
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Sentiment Indicators Can Help You Trade Against the Crowd

Many financial news web sites have adopted the local television news mentality, which is "if it bleeds, it leads.” News shows and news sites have two purposes – they hope to provide useful information but they must create an audience large enough to interest advertisers. To get viewers on television or clicks on the web, news sites often try to shock readers with bad news that will hold a consumer’s attention long enough to allow for ads to be presented. Ultimately, most news sites exist to deliver ads and the news is just a way to get the ads to ...
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Five Value Stocks Under $10

Warren Buffett has famously said “value is what you get, price is what you pay.” Applying this principle means investors can succeed by finding value and ignoring price. If a stock is undervalued, it should be a buy no matter what the price is. But this ignores a reality investors other than Buffett face – resources are limited and they need to get the most “bang for the buck” on their investments. This leads many investors to favor low-priced stocks. Low-priced stocks tend to deliver bigger percentage gains than higher-priced stocks. For example, a $10 move in a stock priced at ...
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