Spencer Li

How to Draw Support and Resistance Levels

support resistance

So far, we’ve covered the importance of market timing and the need to trade according to the current trend. But when exactly should you be buying or selling a security? This brings us to the topic of support and resistance zones.

Support and resistance zones are like invisible lines on a price chart which prices and traders react to. They signal a great opportunity to either enter or exit a trade. These zones usually correspond with the pattern by which a particular security has moved in the past. For instance, let’s say a stock reaches a certain price level before declining, it goes down for about a year before hitting its bottom and turning back up again.

The next time that stock approaches, the price at which it first began to decline, some investors will start to sell it off, anticipating that it will decline once again. This is how a resistance zone is created. On the other hand, when that stock approaches the price at which at last turned around, many investors will step in and buy it, creating a support zone. Securities sit in these zones temporarily, while buyers and sellers try to figure out whether to jump in or jump out of the market. The key is to watch carefully how prices react in the support or resistance zone because eventually, one of two things will happen.

The zone will either hold and the price will reverse direction or the security will break through and continue on its trajectory. It’s important to note that breakthroughs have the tendency to recalibrate a security support and resistance zones. For example, often times when a security breaks through a resistance zone that same level becomes its support zone during the next cycle. That’s because of all the investors who missed the chance to benefit last time around and are looking to either buy the security for cheap or sell it before it declines.

As a trader, it’s important to learn how to identify the support and resistance zones for a particular security once you’ve figured out where those zones are, you should then make your buying and selling decisions near those zones. That will provide you with a market edge, allowing you to achieve greater success over the short and long term.

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Spencer Li

Testimonials: “Great Course for Both Seasoned and New Traders”

2015-03-23 14.06.13

“Great course for both seasoned and new traders.” – Goh Jun Xian

Thank you Jun Xian for your kind testimonial, and we wish you all the best in your trading!

Here at Synapse Trading, our goal is not to sell you some magical blackbox software, but to impart real professional trading skills which can stand the test of time and work under all market conditions. Our head trainer, Spencer Li, has traded professionally at private equity and proprietary funds, and is an internationally certified CFTe under the IFTA.

Every quarter, we accept only one selective batch of new aspiring traders, and share with them the secrets of behavioral analysis and how professional traders time the market! And so far, we have 100% positive reviews and a strong YES! when asked if they would recommend their friends and family.

 

DSC_0021

Would you like a taste of success too?

The next intake will only be in June 2015, but we allow advanced reservations, so email us before the limited slots get filled up to avoid disappointment! See you at the top! 😀
Email: info@synapsetrading.com

To see more testimonials, please visit https://synapsetrading.com/testimonials/
To find out more about our training program, please visit https://synapsetrading.com/the-synapse-program/
For program dates in 2015, click here.

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Spencer Li

The 2% Money Management Rule for Trade Position-Sizing

MG 9839

What is the one rule that all professional traders use, but many retail traders forget, or are simply unaware of?

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We all know that the goal of trading is to make money, and as long as you have an edge in the market, you will be profitable in the long-run.

So the next question is, how do you maximize your profitability without blowing up your account?

The answer lies in the 2% money management rule.

Let’s use a hypothetical example where you start betting with $10,000. In this scenario, you have hitrate (winning chance) of 60%, and you either win double of what you bet, or lose the whole sum of what you bet. How much would you bet each time?

If you bet the whole $10,000, you have a 60% chance of doubling your money, but you also have a 40% chance of losing everything. That is exciting for a gambler, but not ideal if you want to remain profitable in the long-run.

What if you split your $10,000 into 2 bets of $5000 each? Your probability of losing 2 bets in a row is only 16% (40%*40%), which means your chances of losing everything is much less. Sounds good? What if you take it one step further, and split your $10,000 into 10 bets of $1000 each? The odds of losing everything drops to just 0.01%.

In trading, the secret of money management is not to focus on making the most money, but rather to ensure that you do not lose your capital.

As Warren Buffet once said, the number one rule of his is to not lose money.

How does this apply to your trading?

According to the 2% rule, when we take a trade, we will only risk 2% of our capital on each trade, meaning for a $10,000 account, we will only be risking $200 per trade, and that is the maximum amount that we can lose for each trade. (Risk is calculated as the difference between the entry price and stoploss price, multiplied by the quantity traded.)

With this 2% money management rule, the only way to lose all your trading capital is to lose 50 times in a row, and the probability of that happening is less than 0.000000000000000001%.

We have most likely heard horror stories of traders blowing up their account, and that happens when they break this rule. If you stick to this 2% money management rule, it is almost impossible for you to blow up your account, and you will see a marked improvement in your trading results.

And this is what separates the professionals from the average trader.
Which one are you today? 😀

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Spencer Li

Testimonials: “Very Informative and Provided Many Insights to Trading”

2015-03-23 14.05.57

“It was very informative and provided many insights to trading.” – Ong Chin Hock

Thank you Chin Hock for your kind testimonial, and we wish you all the best in your trading!

Here at Synapse Trading, our goal is not to sell you some magical blackbox software, but to impart real professional trading skills which can stand the test of time and work under all market conditions. Our head trainer, Spencer Li, has traded professionally at private equity and proprietary funds, and is an internationally certified CFTe under the IFTA.

Every quarter, we accept only one selective batch of new aspiring traders, and share with them the secrets of behavioral analysis and how professional traders time the market! And so far, we have 100% positive reviews and a strong YES! when asked if they would recommend their friends and family.

 

DSC_0021

Would you like a taste of success too?

The next intake will only be in June 2015, but we allow advanced reservations, so email us before the limited slots get filled up to avoid disappointment! See you at the top! 😀
Email: info@synapsetrading.com

To see more testimonials, please visit https://synapsetrading.com/testimonials/
To find out more about our training program, please visit https://synapsetrading.com/the-synapse-program/
For program dates in 2015, click here.

0 Comments/by
Spencer Li

Techniques for Identifying Market Trends

identifying market trends

If you want to make money by timing the stock market you need to follow the trends.

Buying and selling creates its own momentum and a market that’s moving up or down is likely to keep moving in that direction for a certain period of time.

What this means is that you should avoid trading against the current trend.

For example, when the market is bearish and heading down, don’t try to predict which stocks have hit bottom, that would be like trying to catch a falling knife.

Instead, find an objective way to both identify the current trend and decipher when that trend has changed too, because just like the saying goes, “the trend is your friend, except at the end”.

So, let’s explore two simple techniques for identifying market trends.

The most common ways to look at the nature of a trend’s movement. As a stock moves up or down, it rarely does so in a straight line, rather it zigzags forming a series of highs and lows.

If the highs keep getting higher and the lows keep getting higher that stock is in an uptrend. If the highs get lower and the lows get lower, you’re looking at a downtrend. And if the highs and lows are consistent over a certain period, it’s in a sideways trend.

Another way to identify the market trend is to look beyond the daily price fluctuations and determine the general direction of a stock.

You do this by calculating an average. For example, a 20-day simple moving average or an SMA, is an average of the past 20 days of closing prices, which moves or updates on a daily basis by incorporating the latest prices.

If the SMA is sloping upwards, that’s an uptrend; sloping down downtrend and sideways, means flat.

A 20-day SMA gives a good picture of the short-term trend but you can also use other periods like the 50-day SMA and the 200-day SMA for the long-term trend. Those aren’t the only moving averages, however, there’s the exponential moving average or EMA, and the weighted moving average or WMA, which gives more weight to recent prices.

As a trader, you can use any of these techniques individually, but for the most accurate picture of market trends, you should use them all.

Because when it comes to behavioral analysis, the best way to increase your chances of success, is to consider as much data as possible.

So that’s market timing! Next, let’s cover support and resistance zones.

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