Category: Financial News

In this category, Latest Financial News visitors can find everything that Traders-Paradise finds it is related to the educational material existing here. As the name suggests it is news but ONLY related to Traders-Paradise’s tutorials, courses, guides about trading, and investing.

Here the readers can find posts and articles about recession and how to overcome it. Many trading or investing strategies are explained here. For example, why to use open interest strategy when investing, or growth stock investing strategy.
Here, our experts and journalist are taking examples from the real-life. it is usually breaking news, and use them to explain what is the best solution for traders and investors over a given time or related to the particular event.
Also in Latest Financial News readers can find an explanation of, for example, ratios useful to measure the particular market conditions.

Also, Traders-Paradise gives you some clues on how to react to changes in the markets, no matter if it is the stock market, the Forex market, or any other.
The main aim of the Latest Financial Market News is to connect the real events with the theory. Traders-Paradise uses real-life examples to explain the theoretical rules of investing and trading.
Also, when some breaking out news appear Traders-paradise will write about it but at the same time, the visitors will have a comprehensive analysis of what caused that event and how to overcome it.
Traders-Paradise hopes that this category will be very useful for its visitors and that they will find it helpful.

What needs to happen for Crypto market to crash
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By Guy Avtalyon
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Many economist say there’s nothing with value in Bitcoin and other crypto’s.

They also suggest the fact that once there will be a tax on carbon, the crypto value will turn into negative and the price will drop.

But how can you apply a tax for a decentralized system? A system that lets any person who wants, no matter who he is and where he’s from, to mine crypto on his own computer?

And people aren’t doing this for free. No, it’s not free. Since they behave as a 3rd party, there’s a complex yet flawless commission system, that takes a small commission out of any transaction and passes it to the miner, and to prevent an inflation in crypto value, the system also halves the commissions the miner gets every 4 years. So if just a few years back you would get several Bitcoins commission for every verifying transaction, now it’s only a small portion of a bitcoin for same commission, and it will keep splitting every 4 years for more than 100 years from now.

Click here to learn more

Governments and treasure departments all over the world are worried with Crypto’s market.

But why?

Mainly fear. You fear what you don’t understand. They also worry about all the unregulated, dirty money, coming into the system, making criminals and terrorists thrive.

They are not wrong. Crypto does let you send anonymously funds around the world without any 3rd party (such as bank a involved). In crypto the people are the 3rd party and that’s why it’s not likely anyone can hack its system. It’s simply a decentralized system, with copies spread all over the world.

What it means is if I send some $100 worth of bitcoin, this action will always be inside the system log (the chainblocks), and in all the copies out there in the world. If, say this person would like to try and scam me and manipulate the logs to send himself other amount than I sent him – he will not be able to do so, because they’re too many copies out there that state the truth (that I sent exactly $100 to this person).

It’s similar to the fact that we have 8 billion people in the world. If one person will have his DNA manipulated by any reason or way – the rest of the world population’s DNA will remain the same. So that’s why crypto cannot be hacked.

Another incredible feature is the anonymity.

Sure, it can cause a lot of headache to governments, but the fact is the anyone in the world can have their funds managed, without any tyranny or corrupt government that can decide who has access to bank account and who isn’t.

In that matter – I think we’re not yet understanding the potential of crypto’s anonymity on many non-democratic countries.

Creates the option to easily send funds across the globe.

If you’ve ever wanted to send money to someone in another country you found it’s expensive and frustrating if you get lucky and simply impossible in many other times.
For example, if you want to send money to someone in China, you most likely will not succeed as most of them don’t have access to western banking systems and they all use WeChat app to send money inside China. Hard to transfer money = bad for business = bad for the little people.

Crypto does just that! You can send funds to anyone in the world, no matter where he is, what’s his government rules, what his bank decides, and simply in one word: EASY.

And probably the best advantage is that this fund cannot be inflated.

In general, there isn’t anything in the world that cannot be inflated. Regular everyday money can be printed by governments, that’s obvious.
But also Gold can be inflated too. If a new technology to locate and extract gold from the ground will be invented, or chemists will find a hypothetically way to generate gold in a lab – Gold’s value will be inflated.

Yes, I know it’s not something to happen anytime soon, but just for the sake of argument.

Crypto cannot be inflated. Once it’s generated in the first place, it has an unchangeable number of total crypto to be in the system. It can never be more and no one can add more into the system.

So the 3 main reasons that if any of them happens – the crypto market will crash are:
1. If it will turn out to be hackable. If you can hack it – it doesn’t worth anything anymore.
2. If somehow it will not be anonymous anymore
3. If a way to generate more crypto than should will come up
15th February 2021
How to buy Cryptocurrency

Buying Cryptos has never been easier. All you need is a Wallet and a credit card. That’s it.

By Guy Avtalyon

The first thing you want to do is create a wallet.

This wallet acts as it’s your bank, since all your funds will be in there. When you hear about people who lost bitcoin worth of million $ it’s because they lost access to their wallet, so be sure to remember all your passwords.

I use Coinbase as my wallet service, and after you create an account it should look like this:

With $0 of course.

Once we have our “bank account” set up, all we need to do now is buying funds.

For that you can find many websites that give you this opportunity to buy crypto with them, I use lobstr. I don’t know why them in particular but I did test them and they do send me the funds and they’re not a scam, so I keep using their service.

Click on “Buy other crypto”

Choose from the list your desired crypto and the amount of money you want to buy. I buy Bitcoin Cash in this example.

After clicking “buy”, you get this page that asks you for your wallet information. Remember our wallet from above?

We go back to our wallet (my is Coinbase) and search for the exact asset you want to buy. You cannot send different asset id’s (like sending Bitcoin to Ripple address.

Now we click on the Wallet tab, and Receive to get our wallet address

This is the address, all this letters together. Click on Copy

Go back to Lobstr’s purchase menu and Paste your address

Now simply Click on the Buy Now

At this point they might ask you to provide them with some personal ID documentations.
After ending all your docs, you wait until a check mark appears on Crypto Delivered.

Go to your wallet and you’ll see the funds in there. Please note this process can take up to few hours, so be patient. It should look like this:

You might get different amount than you intended (like in this example, I bought $3000 worth crypto and got only about $2900 worth.). It is because the price volatility and the time it took to approve my request. It doesn’t matter because I’m in this for years to come.

That is it!

Buying cryptos has never been easier!

Please feel free to add a comment below or send me a personal message on Facebook.

14th February 2021
Are we in an overpriced market?

By Guy Avtalyon

As part of my research work, I come across numerus websites that show (in a very convincing way) that the market is overvalued and over-priced.

I’m not going to argue if it’s true or not, because every noob trader knows that a price isn’t high or low, but it’s simply what all other traders agree on.

So when it’s an over-priced situation, just like we can see in this image for example:
(Image from currentmarketvaluation.com)

Then everyone worry that we’re in a bubble.

You can also see in this image of fear and greed (found here)

The general feeling at the moment is more Greed than fear.

I do not know if we’re in a bubble or not, but to my impression we’re not there yet.

First, if we look at past crashes, we can see that each of them happened from a reason (Dot Com bubble in the 00′ and fin crash in 08′), in most cases the regulators closed any option for it to happen again.

Yes, we should except a crash in the future, and yes it will be because of a reason that yet been closed or discovered – but I don’t think it’s the case now.

Secondly, if we take into consideration the global pandemic (Corona virus) and the market’s reactions (starting in panic in March 20′ that resulted in drops, but just in few months got back to previous price and even exceeded it) – we can definitely see that there’s major confidence in the markets from traders’ and investors’ point of view.

What we should expect in the near future?

First we’re in all time’s high (or close to it) in many verticals and index prices.

I, personally, don’t like to trade on all time highs (or even a current time [weeks, months] high). It doesn’t mean it’s wrong, but due to regression towards the mean principle – statistically there’s more chance for price to drop than there’s to rise.

So the most likely event to happen in the next few months are price corrections.

Is student loans going to be the next market crash reason?

An example to a possible reason for market crash can be found in student loans.

As you can see in this image:

“In 2020, the amount of student loan debt that is delinquent or in default is almost equal to the size of the entire student loan market from only 17 years ago. How much longer can this chart increase? Federal student loans are not even cleared in bankruptcy, and so this escalating mountain of debt – including the delinquent/default debt – will carry on as a burden for much of the adult life of the borrower. This debt burden is already becoming a national crisis, and combined with economic downturn and high unemployment, we are setting up for generations of Americans to be trapped under a nearly inescapable mountain of debt, unable to build wealth.” (From currentmarketvaluation.com)

(Image from currentmarketvaluation.com)

What the image and the quote are trying to show us is that many students (more than ever) are taking loans without being able to return it resulting in a struggling to keep his head above the water borrower.

My agenda is just the other way around:

The best thing that can happen in any economy is education, research, learning and sharing information, and more. This can only happen if someone isn’t worried about how he will feed himself or where will he sleep tonight. The economy in general and the individuals in particular need to be open for creativity, inspirations, and mainly – make mistakes and learn from them. For that reason I choose to look at the blue line (and not the red) and look at them as the future of the economy. Some of them are working, as you read these lines, on the next Facebook, next TikTok and the next Netflix and Tesla, and it’s good for the economy.

What is overvalued market anyways?

Overvalued and overpriced market appears when the full potential of the market is exceeded. This is not a real formula you can calculate as it’s mainly the average opinion of ALL players in the market.

But, since the global economy isn’t close to its full potential and more than 40% of the world’s population doesn’t have access to internet yet(!!). That’s billions of people with buying power that still isn’t in action.Yes, it will take many years for the vast majority of the population to have internet, but that’s also what’s exciting about it.

Another thing is, usually, you can spot overvaluation in hindsight.

Bottom line

Market might crash soon, and indicators all over the place are screaming overvalue, but the fact is no one can predict the future.

The only thing that has 99.99% to happen is if the market do crashes, it will eventually return to its pre-crash value and even exceed it. Might take months or years, but this is the only thing that is almost certain to happen.

My personal predication is unless there’s a loophole we can’t still that is risking major parts of the market, we should expect to see mainly market corrections due the overpriced stocks and traders monetizing their gains.

13th February 2021
Shapes of Recession and Recovery – Recognize them

Recession and recovery come in different shapes, some are severe, but some are easier to survive. The examples below aren’t about the current economic situation, they are an explanation of forms in the financial charts.

By Gorica Gligorijevic

What are the shapes of the recession and recovery? Since no one can predict when and how the recession will occur it is important to know what can indicate it is coming. Economists have various metrics to conclude whether a recession is expected soon or it is already here. So, we can say there are several indicators that, when they happen together, might indicate that recession is possible. The same comes to the recovery since these graphs and charts can illustrate both the recession and the recovery. That is normal because each recession is followed by the recovery.

For example, some indicators such as unemployment rates can confirm changes. Also, drops in the stock markets, fewer house sellings, or a drop in GDP may indicate that recession is going to appear.

But, what are the shapes of the recession and recovery? To explain this. Shapes of the recession and recovery are a concept that economists use to define different kinds of recessions and recovery. The most common shapes are U-shape, V-shape, W-shape, and L-shape.

Let’s explain each of them.

What are the V-Shapes of recession and recovery?

V-shapes of recession and recovery are one of the forms a recession and recovery graph could take. These graphs are economic metrics that measure the strength of the economy, meaning employment rates, GDP, and industrial production.

When we notice these V-shapes in the graphs we know that the economy has a sharp decline, but the good news is detected too. Analysts know that after that sharp decline a sharp and quick recovery will come. Moreover, when this kind of shape occurs, the recovery will be strong. The consumers’ demand will increase, people will spend more, so the overall economy will be driven by those shifts.

Let’s examine one example. It was 1953 in the US. The time of recession occurred after great progress in the early 1950s. But economists expected inflation and the Federal Reserve boosted interest rates. This action turned the economy into a recession. In the 3rd quarter of 1953 growth started to slow but one year later it was back at a speed a lot above the trend.
Hence, the chart for this type of recession and recovery represents a V-shape.

U-shape of the recession and recovery

U shapes of the recession and recovery mean that a recession starts with a gradual drop but then rests at that seat for a long time before bounces and moves higher again. This type of economic recession mirrors a U shape in the graphs. A U-shaped recession and recovery express the shape of the graph of the same financial measures, as we mentioned above, for example, employment, GDP, and industrial production.

The U shapes of recession and recovery are similar to V shapes but the economy doesn’t have a sharp rebounding. When the economy has a decline in all metrics and spends more time seating at the bottom it is recognized as a U-shaped recession and recovery. Hence, in U-shaped, the economy will experience stagnation. When the economy enters this kind of recession the sides are glazed and slipping is possible. The bottom is like a wet bathtub and the economy could stay in that bathtub for a long time.

For example, the recession from 1971 to 1978, during the seven years, with a deep bottom from 1973 to 1975, unemployment and inflation were high, growth was very low. The economy started to climb back in 1975 and it took 2 years until it was fully recovered. That is a U-shaped recession.

W-shaped recession and recovery

A W-shape of recession and recovery points to an economic cycle of both that mirrors the letter W in charts. All metrics we already mentioned are covered in the charts.
This kind of shape means a sharp decline in all these metrics after which the sharp rise occurs, and a sharp decline again ending with rising. In the middle of the chart, the central part of the W letter, the bear market rally may occur. Also, recovery can happen but it could last short and might be choked by the further financial crisis. This W-shaped recession is also called a double-dip recession.

It is characterized by falling into a recession, short recovery with some modest growth for a short time, followed by another fall and eventually recovering. This pattern matches the letter W. The early 1980s recession in the US is a great example of a W-shaped recession. In January 1980 the US economy fell into a recession that persisted to November 1982. In less than two years there were 2 declines and 2 recoveries before the US economy entered the decade of robust growth.

The other good example of W-shape is the European debt crisis from 2011 to 2013. Uniting several uncertain circumstances caused this recession, for example, the global economy was very weak after the Great Recession ended two years earlier. The prices of energy were high, investments low, interest rates were high, consumer spending was also low. This recession hit the majority of Eurozone countries.

L-shaped recession

L-shapes of recession and recovery are recognized by a slow rate of recovery. It occurs when we have a sharp decline in the economy but without recovering with the same strength. The economic growth is stagnating, unemployment is rising. When looking at the charts, all indicators form the shape of the letter L.

In an L-shaped period of economy, there is an abrupt decline made by falling economic growth. In the chart, this represents the line with a sharp decline without the visible possibility of a return to the trend line growth. It is accompanied by a shallow upward incline which means that a long period of stagnation in economic growth is present. In such a situation the recovery can take several years to reach a higher level.

The main problem with these kinds of shapes of recession and recovery is that no one can know when the economy will rebound, if ever. Economists consider this shape of recession as the most severe since during these periods the overall underperformance is present. The collapse of the economy, lack of progress back to full employment after a recession, are the main characteristics of this period. Workers might stay unemployed for a long time or forever, the economy is unable to recover and provide them new jobs, the whole industry could be inactive or underused for a long time.

What shape of the recession will be due to the Coronavirus pandemic?

Interestingly, almost all economists predict a recession to come. And it is possible to happen because millions of people lost their jobs, markets have been down, factories all over the world have closed. But how long will it last? The answer to this question we can get from the charts but not yet. We can complete the charts only after the end of the economic changes. Will it be bad? No one knows how bad it could be. This pandemic caused a lot of problems, from healthcare and the economy at the whole to the kindergartens.

The true answer lies in one of these four letters: V, U, W, and L. Which one will appear to the charts no one knows, it’s too early to say because there is no clear shape yet. For now, all we have is a declining line in the graphs. There are several possible scenarios of how it will end. But there is no dilemma will the recession happens. It is obvious even for the most optimistic people.
We aim to show you those four letters and what they could mean in case of an economic recovery with hope that we’ll never see a letter L.

As we can see, the shapes of the recession and recovery could appear in four forms in the charts. What isn’t visible in them are our lives, our feelings, fears, and worries. But it’s individual and each of us has to find an individual way to fight with this uncertainty. Also, that is not the subject of this article.
The main purpose of this article is to introduce the shapes of recession and recovery and how you can find them in the charts. And, keep in mind, every single recession is followed by the recovery. That’s good to know.

22nd May 2020
The CUSIP Number For Stocks, Bonds, Mutual Funds

This nine-digit code is in use for over 50 years but not all investors recognize the benefits of using it.

What is the CUSIP number? It is a code that consists of nine characters. These characters are numbers and letters together. A CUSIP number is giving investors a sure way of recognizing investment security, for example, stock, bond, or mutual fund.

A ticker symbol and a CUSIP number both identify publicly traded securities. The ticker symbol originates from the 1800s with the beginning of the New York Stock Exchange. The original name was and still is, stock symbol, but it was used for sending the prices and trades to investors and brokers info by teletype. The teletype was also called ticker.

Another important information about stock, bonds, or mutual funds could be found in the CUSIP number. CUSIP is an abbreviation for Committee on Uniform Securities Identification Procedures.

It is a code

This 9-characters code is a kind of DNA for the assets traded in the markets. It shows the name of the company or issuer of the security and what kind of security the asset is. Each character explains something. The first six characters are assigned by the alphabet and they identify the issuer. The 7th and 8th characters could be numerical or alphabetical but both will display the type of security. The last character is a digit and serves as a check digit.

They look like this:

Facebook: 30303M102
Microsoft: 594918104
Apple: 037833100
Coca-Cola: 191216AZ3
Johnson & Johnson: 478160104
Walmart: 931142103
Amazon: 023135106

So we explained how CUSIP looks like and let’s see what a CUSIP number is, how to use it, and why it is important.

What is the CUSIP number else?

CUSIP number helps to ease procedures, for example, settlements and transactions trades. It is a numeric detector better adapted to computer users.

The CUSIP number is excellent when you need to identify assets registered to be sold publicly. This standardized “language” for all participants in the stock markets is a great help because the whole clearing process and transactions are more efficient thanks to it. For private investments, this CUSIP number means nothing since they don’t have public transactions or clearing. It is important for the publicly traded assets only.

As we mentioned, it identifies all publicly-traded companies, assets, and all government and community bonds. Using CUSIP you can easily identify preferred stocks, certificates of deposit, loans, and listed options in the US and Canada. But what is the CUSIP number more, how can you use it else?

It is very helpful for investors to track security but also it is a helpful aid in managing trade clearance and settlement processes. Moreover, if you use CUSIP you can easily eliminate any mistakes that might happen when you use the ticker symbols only, for example.

How to use CUSIP?

Computers use the CUSIP number to recognize particular assets traded in stock markets. By using CUSIP you’ll have access to all market information such as trade data, or other information regarding securities and issuers. The CUSIP number is a great mechanism to easily and quickly locate all that data.

When you have an investment’s CUSIP number, it is easy to examine all information about it on financial sites. It is very important to have as much as possible information before you decide to buy or sell the investment and these numbers are great to help. We are sure you already have heard how useful they are when used to identify municipal bonds, but investors can use them for other investments also.

So, you can use the CUSIP number to identify, sell, or buy some investment. As always, savvy investors will double-check this number and examine if it matches the name of the investment. Of course, if it is visible, sometimes it isn’t and that could be a problem. Anyway, the bigger problem is that people aren’t as much concerned as they should be when it comes to examining investments. The common mistake is a mistyped name of the company or security. Try to do this precisely or you’ll end up putting your money in the wrong company. That could hurt you a lot.

Is it easy to find a CUSIP number?

Unfortunately, not. The American Bankers Association owns and forms these numbers. To have access to these numbers you’ll have to pay a fee to some service with access to the database. For example, S&P Global Ratings.

However, there are some other ways. You can find this stock symbol on the company’s website, it is often displayed there. Also, you can get access to these numbers by the EMMA system (Electronic Municipal Market Access) or you can find them on confirmations of purchase or periodic financial statements. Another way is via securities dealers.

Maybe the simplest way to access the CUSIP numbers is the quote search on some investments website. For example, the Fidelity Investments website. All you have to do is to add the company’s name and the CUSIP number will be displayed. These numbers can be found on trade confirmation, account statement, the official statement. Also, your broker can provide it for you.

Why would you need this number?

Well, it can help you in many ways. For example, to search the stock. Yes, it will provide you a shortcut to getting a full examination on a company or stock issuer. Also, the process of filling out financial forms after you bought stocks or any other asset is easier if you know the CUSIP number.

A CUSIP number warrants a precise categorization of your stock buying since it can accurately identify publicly-traded stocks. So it is easier to find and document it. That secures your stock trades to be processed, cleared, and settled precisely. By using this stock symbol with nine digits you can identify who the stock owners are.

Alternatives to this symbol

The CUSIP number isn’t the most convenient way to point to investment, to say honestly. It isn’t easy to memorize nine digits, moreover, it isn’t always easy for investors to recognize it. Sometimes it is easier to use some other identifier.

For example for stocks, it is far easier to use the ticker symbol. They are more recognizable because you can find them in the media, most financial websites, etc. You will use the ticker symbol not CUSIP when you want to examine some stock or to invest. But examining using the CUSIP will give you more comprehensive information and more details about the stock. A ticker symbol is a great tool and broadly used but the CUSIP number is more accurately identifying the investment.

How to discover the CUSIP number?

In the past, it’s been hard for ordinary investors to obtain the CUSIP number. However, this digital world provides easy access to it. Almost all financial web-based platforms offer that. Also, almost all companies that are traded on the major exchanges have their CUSIP number on their web locations. You can find it usually on investor-relations pages, mostly under the “Questions and Answers” category.

Bottom line

The CUSIP number is a kind of bar code for publicly-traded securities. It provides the precise classification, record-keeping, and documentation of trading data.

That makes CUSIP priceless to investors. By using it they have access to any security immediately and get trading information, security identification, and secure financial documentation they could need to make a proper investment decision. That is to say, investors’ life and decision-making processes are easier thanks to CUSIP.

19th May 2020
Growth Stock Investing Strategy

Growth investing strategy can be a great way to get high returns, but the key is to understand what growth stocks are. Your time horizon and risk tolerance are major factors.

By Guy Avtalyon

This is all about the growth stock investing strategy. It is the art of science implemented in investing. Investing requires significant research. But to create the growth stock investing strategy you’ll need a really good understanding and knowledge about growth stocks and underlying business.

Why did we say it is the art of science?

Well, buying a stock is the art itself. Growth stocks are elite stocks because they are what could make a lot of money for you. So, you will need a great growth stock investing strategy to ensure the great gains they are able to provide. Growth stock’s value can be boosted and some careless traders could be faced with its decreased price with no warnings. To avoid losses you’ll need a stable growth stock investing strategy.

What is growth stock investing strategy?

Growth stocks are a popular investment. The reason is quite clear: If some investors can make money by investing in them, why shouldn’t you? But if you want that, you’ll need knowledge, system, growth stock investing strategy to know when and how to react when the right time comes.

To recognize the right time for investing in the growth stocks the essential part is to know when some company can grow. It could happen due to organic growth, expansion, and in case of an acquisition. But keep in mind, not all growth is a good one.

Let’s make clear all of these cases of growth.

When the company improves its operations and capabilities from year to year we can talk about organic growth. But organic growth can shift negative if circumstances change. So, since it is changeable it is still good but not the best growth.

The growth caused by the expansion of the company means the company is reinvesting. It is actually expanding its operations. For example, the company may invest in its equipment, facilities, new branches, etc. As a result, you’ll notice low or no EPS and a high debt ratio. Sometimes both are visible. Of course, you can ignore low EPS if it is caused due to the company’s development and you see the company is reinvesting.

We are talking about acquisition and growth caused by that when one company buys the other one. For example, two companies have had a problem with organic and expansionary growth for many years. To solve the problem they bought smaller companies to increase revenue and earnings. This type of growth is very good for dividend investors.

But is it good for growth stock investors? We are afraid it isn’t. Growth stock investors prefer expansionary growth. That may give them high returns. That is exactly happening, for example, with companies that started as small but with the potential to expand a big.

How to develop a growth stock investing strategy

Growth investing is an investment strategy directed on capital appreciation. Investors who implement this style are recognized as growth investors. But how to get in the race? How to know when is the right time? For that, you’ll need a growth stock investing strategy.

First of all, you have to be able to make a difference between the normal market and the situation when the market is not normal. The worst growth stock investing strategy is to jump into the market and make a mess and losses. You will need time to build knowledge when the market is normal. Hence, you’ll need the practice to know when the market is normal to be able to recognize when it isn’t.

Why is it so important to know when the market isn’t normal? What are you supposed to do in the markets that are not normal? This part may sound like nonsense but the periods when the markets are not normal are the best time to buy or sell stocks. That’s all wisdom.

So, you have to maintain your trading journal. That may include everything you read and learn about investing and trading. For example, you can follow economic data for determined periods. No matter if they are weeks or months. Also, your journal should include the market’s movements and investment decisions.

Do it effortlessly. You have to know what’s happening in the market, you need to watch how the stocks on your watchlists are performing.

That will arm you against the emotional risks of trading and making bad trades. Also, that will give you a chance to build an objective, repeatable trading strategy, so your portfolio will perform better.

You have to understand how the market movements are driven. For example, the market movements are handled by fundamental conditions which are long term, economics which is midterm but also the news which is short term. Economic and fundamental conditions are crucial for growth stocks. What do you mean, how the company can grow if the fundamental or economic conditions are against its progress? It’s impossible.

How to select stock for growth investing

Choosing stocks is not the way you may become rich. That is a mistake and don’t fall into that. You are not just picking a stock, you are choosing it after you estimate it well. In other words, you have to be familiar with stock. So, that to say, choosing stock is a very good way to obtain more education. When you get good knowledge about the market, you’ll be in harmony with the market.

Being in harmony with the market will provide you to know when is the right time to enter or exit the position. With this fine-tuned sense of market movements, you will know why the market is doing what it is doing, why it is better to buy or sell, why some stock is going up or dropping down.

While you are picking stocks, you are actually creating your watch list. Of course, you’ll add only the stocks you are interested in, meaning they meet your investment criteria.

Making a watch list can improve your growth stock investing strategy. Selected stocks are what you want to know more about, nothing else matters.

Of course, it is absolutely okay if you have more than one watch list. You can create it depending on types of stocks, investing style, etc. Also, you can find growth stocks in almost every industry or sector, so you can make a watch list for each sector, for instance, and update them after the earnings cycles end.

Indicators important for growth stock investing strategy

That to say, it is always better to follow the trend, not the other investors. Sometimes you’ll need to be patient with your watch list and pay attention constantly. You have to follow the prices’ changes, also the news, and to wait. Always keep in mind that growth stocks are impressive and exciting. Media makes a big noise sometimes about growth companies publishing good information and avoiding bad. That could lead to the stock’s price to rise because the fresh money is coming. But try to avoid following the masses. If you follow the crowd you will never get a favorable price.

Wait for the right time to pull the trigger. Sometimes the hardest part of growth stock investing is to recognize when it is the right time to buy. During hype, the prices will go up. But everything will be changed when bad news is on the scene. They will cause the stock price to go down.

The growth stocks are flying higher by optimism, desires, and exaltation. Well, investing isn’t based on current earnings. It is based on future earnings.

For a successful growth stock investing strategy is a more important report that suggests the changes in the future outlook. As a growth investor, you would like to see that the market can reset its expectations. If there is confirmation of such changes you’ll know that the price will drop, sometimes very quick and sharp. That’s the moment when you are going to buy the stock because the price is low. Oh, yes! The reward will come later.

Using indicators

Just use technical analysis. You have literally thousands of techniques to analyze the market by using technical analysis. The most important is the trend, support, and resistance levels. If these levels are not clear enough, check the trading volume. It is maybe the best indicator of the direction of a stock price.

When the volume is rising along with the increasing prices it represents the expanding demand and a high possibility the trend will remain to rise. The big secret of growth investing in comparison to the value investing is that growth will win each time.

Other indicators for growth stock investing are stochastic and MACD. MACD measures the momentum of a stock’s move by the convergence and divergence of two moving averages. Stochastics believe that daily price movement is random inside a general trend.

A drop in stock prices inside the uptrend that is supported by bullish signals in MACD and stochastic is one of the most powerful technical entry signals.

Is growth investing strategy hard?

It may seem difficult to create a growth stock investing strategy but it is quite simple. The goal is to discover and invest in growth stocks. Buying them is easy but selling can be the trickier part. Until you sell the stock you’ll not earn money. That’s a simple rule. At least it should be simple unless your emotions are involved. It can be hard to sell the stock that makes a profit. Don’t be greedy. Do it in the peaks. Never think you can do more because in most cases you never do.

Take profit when you can. Set the take profit point and stop-loss point.

At the end of the day, all that matters is profit.

Be patient with your growth stock Investing strategy. It is key. Never hunt the higher prices, you can lose money. When you enter a position, wait for prices to go higher. When you notice a selling opportunity, always take the possibility to profit.

14th April 2020
Open Interest Strategy And How To Use It

Open interest strategy is based on indicators that traders use to confirm trends and trend reversals for the stock futures and stock options markets.

Do you use an open interest strategy in trading options? What? No? Maybe that is the reason behind your losses. Well, you are not alone, to be honest. Many traders don’t use open interest strategy while trading options. Yes, if you want to be a profitable trader you have to analyze open interest. It is a very important momentum indicator. So, let’s see how you could have better chances to reach profitable trading by using an open interest strategy in trading options. But first, we have to understand open interest.

What is the open interest?

Open interest represents the number of active contracts. It shows how many contracts for options and futures are for the given market. This important indicator shows the strength of the market and measures how actively traded the market is. Someone could say we have the volume for that estimation. Wait! It isn’t the same as volume. There are some differences.

You can notice this data along with current prices, volume, and volatility. But still, so many options traders overlook active contracts, so that can lead to shocking results. They are losing too much money and have too many lost trades.

So, open interest shows the cumulative number of options or futures contracts that are currently traded but not yet cashed by an exercise, offsetting trade or assignment.

How to calculate?

There is simple math to do that when running an open interest strategy. The calculation is: add all contracts connected with opening trades and subtract all contracts connected with closing trades. For example, let’s assume we have 3 traders. Okay, we will give them the names: Anna, Bob, and Connie.

Assume they are trading the same futures contract, in our case study. When Anna buys one contract and enters the long trade, open interest will increase by 1. When Bob buys 5 contracts and goes long too, the open interest will increase to 6. Connie picks to short the market and decides to sell 4 contracts, open interest will increase to ten. Open interest will stay the same until one of them or all exit their positions. In such a case open interest will decline. For example, Anna sold 1 contract and open interest declined to 9. Also, Bob decided to exit his position, he buys back his five contracts, so open interest will be down to 4 and will remain at 4 until Connie decides to sell her 4 contracts.

Volume and open interest

And here is where the volume is different from open interest. While the volume counts all contracts traded, open interest shows how many contracts stay open in the market. So, we can say they are related concepts but different in what is taken into account. Open interest also shows how much money is in the futures or options market. When open interest rises, more money is flowing and when open interest decreases money is going out of the options or futures contracts.

It can be more complicated since the traders are buying or selling from other traders who are selling or buying. You will find that both sides can open their trades and increase open interest. If both sides close their trades, open interest will drop. But if one side of traders is opening the trades and the other is closing that will have no influence on open interest.

That is another difference from the volume. The volume will increase caused by both entries or exits, open interest will increase caused by entries and decrease caused by exits.

Analyze open interest strategy

Open Interest is relevant for both stock futures traders and stock options traders. It displays you where the traders are allocating their money. Therefore, you must have an open interest strategy. To be able to create an open interest strategy you have to analyze the open interest data. We can find a lot of option sellers in the market. It is due to the time decay of the premium of stock options.

Their profit is maximum the premium value of the sold option, but the possibility of losing is extremely big. The option sellers are generally very agile and ready to close their positions quickly in case of any unfavorable change. In the market, we can see the bullish traders selling their put options since they get premium if the price doesn’t run under the strike price. In the same sense, the bearish traders are selling their call options since they get premium if the price doesn’t run over the strike price.

If we notice a high open interest in any stock’s strike price of calls and puts, we should understand these levels as support or resistance areas. It will depend on if the option is put or call.

So, the open interest will confirm the strength of a trend. Rising open interest is a confirmation of the trend. On the other side, reducing open interest can be a signal of a failing trend. Traders are supporting the trend when they enter the market and that raises the open interest. Hence, when traders don’t believe or when they lose confidence in the trend open interest will decrease.

The importance of reports

At the end of each trading day, the open interest data report is published. This report includes all details about open interest from all market players, are they holding long or short positions. These reports provide important info about what all players are doing in the market for futures and options contracts. Traders use open interest strategy to support their decisions. For example, if a trader notices a big move in the open interest he or she knows that particular market players are entering or leaving the position. That may give hints to market direction.

Using open interest strategy

In trading futures, for example, the initial stage of a trend, post-breakout, is not started by trend followers. It is driven by traders who had to liquidate their positions because they were on the wrong side and had to catch the direction of the old trend. The more traders on the wrong side mean the more violent the move post-breakout. Well, you have to understand, if open interest increases during a range-bound action, the transit post-breakout in any direction will be violent. So, if the open interest falls at the start of a new trend, that is the sign that losers are covering their positions.

For example, the price is moving inside the 6 months average levels, but you notice that operating loss has started growing massively. What’s going on? Is the price still in the range? Oh, yes. Let’s examine this more. For example, the company’s average operating loss per share was $5, last week it reached $8 but the price is still in the same range. How is this possible? It is possible by creating new positions but buyers and sellers are in balance, there is no pressure from one or the other side. That’s how the price stays in the same range. For every long trade, there has to be one short trade. What will happen if the price breaks out on the upside?

Short-side traders will hurry to cover their short trades and start the rally. Before long-side traders start the rally. When uptrend is created, comes the trend-followers.

Bottom line

Indicators are important. They tell you what other market players are doing and can provide you to create your trading strategy. An open interest strategy can be used to recognize trading possibilities you might miss. It allows you quickly to enter and exit a trade at the best price. Many traders don’t use this profitable strategy because when they are looking at the whole open interest of an option, they cannot know if the option is sold or bought.

But they fail to catch really valuable information.

Trading means to have all the valuable data before you enter or exit the position. It isn’t gambling. There are some trading patterns and more about some profitable you can read in the “Two Fold Formula” book. Our suggestion is – test it with the our preferred trading platform.

6th April 2020
How Long Will The Bear Market Last?

Stock markets over the world experienced great losses from the beginning of this year due to a massive sell-off caused by the COVID-19.

How long will the bear market last? We believe not forever. In fact, the bear markets are much shorter than bull markets. Especially when they are driven by some event. Coronavirus outbreak is such an event. like this one is. But if we take a look at historical data we may conclude that the question of how long will the bear market last, pretty naive. How is that? Well, this kind of bear market recovers very fast.

How can we be so sure?

Let us explain. If we want to put different types of a bear market into categories, we will see we can put them into 3 key categories based on the type of drivers.

The first type of bear market is caused by the business cycle. That is when growth leads to inflation, interest rates increase too fast, the yield curve inverts, demand decreases, loan activity decreases, etc. They are so-called cyclical bear markets.

The second type is caused by market bubbles, much more leverage, turbulences, and disruptions on the credit markets. In other words, this structural type of bear market occurs when we have structural asymmetries in the market or economy. So, we are pointing to another type of bear market, the so-called structural bear market. We already saw it in the 2008-2009 market downturn.

But also, we can recognize a bear market driven by some event which is this one, caused by a coronavirus outbreak and global pandemic. Of course, this kind of bear market can be triggered by some crises, wars, political instabilities, etc.

How long will the bear market last?

This month can be an important test for stock-market investors. Everyone is looking for hints that the worst of this stock market massacre is ended. But the coronavirus outbreak moves on and demands at least short-term economic distress. In the next several weeks we will be faced with more and more bad news as a pandemic is spreading. That may cause further sellings. Bad news has such an influence on the stock market. Also, a surge of business failures can occur.

The experts sound pretty sure that the stock market’s bounceback last week is a good sign even though all markets are volatile. The stock market was dropping with great speed into the bear market. But yet, there is a hope that March lows for main indexes may be kept from further declines. That is just our opinion, based on the reaction of central banks.

Well, this bear market isn’t easy for any investor. Even the most optimistic investors claim that further decline is possible before the stocks find the bottom. That is true especially if we know that sharp rebounds are possible before retesting new lows. But as we said, there is a logical chance that recent lows can be the last we saw and rebounds can be better than in former significant selloffs.

Predictions for the stock market

Robert J. Shiller, a Nobel laureate is exactly certain about the stock market in the long run. His concerns are about how long will the bear market last, where the stock market is heading.

He wrote for The New York Times:

“It is too simple to assume that with its steep decline, the market has already discounted epidemiologists’ forecasts for COVID-19. By this logic, the stock market would fall further only if the virus turns out to be worse than forecast.”

Yes, but we are dealing with an entirely unknown situation. We never have had before such a massive lockdown of everything companies, whole industries, millions of people, the numerous countries. This is a totally unique event.

But Robert J. Shiller added in his column:

“People are seeking reassurance from homespun investment advice, like the old nostrum that the percentage of stocks in your portfolio should be equal to 100 minus your age, come what may. If you are 60, for example, you should hold 40 percent stocks, under this rule.”

And also admitted that “this advice isn’t grounded in any scientific truth about financial markets.”

Well, this advice isn’t bad, it is good advice. It isn’t against common sense. While people are doing something, taking action they may feel better. That is from a psychological point of view. Also, it is a quite reasonable decision to risk less in such a market downturn but yet inspires you to take action.

Shiller advises further “buying just enough to restore the stock balance after market declines.”

Bear markets rule a short time

Maybe this is the answer to the question of how long will the bear market last. Bear markets rule for a short time. What we can expect is the market data will be weak in the weeks ahead. The problem is what are we expecting.

Stocks in March entered a bear market with record speed. After March 23 they were bouncing sharply. But DJIA has the biggest first-quarter decline of -1.68% on record with a 23.2% fall. The S&P 500 Index had a decline of -1.51% on a 20% first-quarter fall this year. It is the biggest since 2008. After March 23 both indexes had a rebound and for example, DJIA had its biggest three-day gain, which had been seen last time in 1931.

Let’s see how long this bear could market last?

As we said we can recognize three main types of bear markets: caused by the business cycle, caused by some event (like this one) and a structural bear market.

The most severe is the structural bear market because it is the result of problems in the financial system and capital markets.

A cyclical bear market is bad also but tends to fix itself over a short time and sufficient policy answers.

And last but not the least, the bear market caused by some event. According to historical data, this kind of bear market was shorter, less critical on the downside. Such a market took less time to recover. It is quite logical. Before the market was hit with a drastic event such as a coronavirus outbreak, the markets all over the world were in good condition. And you see, that’s why we think that it does not take as long for the economy to recover once the shock of this event disappears. It’s true that so many people lost jobs in the early stage of the pandemic, the companies are faced with shutdowns and limitations. But when this kind of problem disappears, everything can return in normal pretty quickly.

Bottom line

How long will the bear market last? There is no way to predict that, honestly. Who can predict when the market will bottom? From what we know, the bear market will end even before bad news stops coming up to us. For investors, the main point is to be ready for that first day of recovery, they have to adjust their positions for that to join the rebound when it happens. We believe it can happen sooner than many investors expect or predict.

In the meantime, we recommend investors wait for it calmly. Stay focused on long-term investments and don’t let your emotions take control of your decisions. Use this period to learn something new and expend your horizons.

5th April 2020
Coronavirus Is Crashing The Global Markets

COVID-19 is crashing the global markets but history has shown that the markets bounce back again and again over time.

Coronavirus is crashing the global markets but investors are returning to China. It looks like the appetite for Chinese shares is rising again. For example, Pinebridge Investments from New York. According to CNBC this firm “had total assets under management of $101.3 billion as of the end of last year, including $25.5 billion in stocks and $64.3 billion in fixed income.”

Despite the fact that the novel coronavirus is crashing the global markets fund managers start buying Chinese assets again. And all Asian markets rise moderately.

Major markets in Asia were up nearly 1% yesterday (Tuesday, March, 30) and Hong Kong and South Korean shares rose about 1.5%.

Fund managers have recently boosted China A-shares. It was “a small single-digit” starting position and now is “a low double-digit weighting.” So we can conclude the Far East, led by China, is already showing recovery.

China President Xi Jinping presented strong growth signals. Goldman Sachs reported the Chinese policy is concentrating on demand. Also, the government’s concern is to sustain employment, financial markets, trade, and foreign capital.

Russian financial market

On the other hand, the Russian economy has been shaken by the coronavirus pandemic. The main impact on the Russian economy came from the breakdown of the production pact between Russia and Saudi Arabia. This was a shock for traders all over the world. The consequence was intense volatility on the Russian stock markets which dropped around 20%. The value of the ruble also is down around 20% from the beginning of this year.

The price of oil futures is rising

Coronavirus is crashing the global markets but recently the analysts showed some optimism toward financial markets.

Oil futures surged on Tuesday after dropping to their lowest levels since 2002. Maybe the oil prices allow the best check of how investors anticipate the economy to function. The rising price of oil futures is probably a weak sign because on the other side we have gold as a standard safe-haven investment but the price of gold dropped significantly in trading on March 30.

When coronavirus is crashing the global markets it looks like there is no safe place to put money. Another safe place was longer-term U.S. Treasury bonds, also known as T- bills, but it dropped also.

Investors’ worries have not gone away yet. The stock market is still volatile. The VIX index is still at historically high levels. It fell a bit two days ago but this level still shows an extreme stock market volatility.

Coronavirus is crashing the global markets – what investors should do?

Here is what investors should do while the coronavirus is crashing the global markets. First of all, every single investor must understand the value of the overall portfolios is lower. But it is a paper loss, why would you transfer it in true loss? That is exactly what you would do in case you try to sell. So, sit back and do nothing. Don’t check your portfolio every single day. Put away your desktop or laptop computer and turn off notifications on your phone. The time for your reaction has passed anyway. You can’t do anything now. Just try to stay calm and avoid stress. As a serious investor, you should be prepared for market volatility. Even for this extreme one, that we have now.

Market volatility is a good time to start investing

If you can’t sit in peace, start small and not frequently. For example, buy a small chunk of stock per week. And repeat it until you buy what you want. Diversify your investments across major asset classes, don’t buy from the single one.

This period when the coronavirus is crashing the global markets is a good time to enter the market. The stock prices are low, you don’t need too much money to buy them and you can start with small parts buying from time to time. This is a great time to estimate your personal risk tolerance. But you have to follow some rules.

The rules to follow when the markets are down

As we pointed before, invest gradually. This means you have to invest a predetermined amount into the same asset over a long time. In this way, you’ll be able to buy more chunks at lower prices (we suppose you want to buy stocks when the price is low, that’s the rule of investing – buy low, sell high, right?) Thus this method will allow you to buy less when the price is high. So, even if you are a total novice in the stock market by doing this you’ll implement one of the most efficient strategies – a dollar-cost averaging.

When you estimate where to invest try to find and pick the stock for long-term investment. That’s the reason you shouldn’t start investing if you don’t have saved and put aside cash equal to at least three months’ salary. You will need that money for rainy days. You can invest the rest of your money.

Compound interest and diversification

Keep in mind the advantage of compound interest. That’s when you earn interest on the interest you receive, but you must have an investing plan and stick to it. And the mother of all investments, diversify.

Diversification will give you more exposure to a wide range of stocks.

Remember, the current market drop can give you a very good opportunity for young and new investors who can play for a long time. All researches highlighted the young people who invested systematically during market corrections and during the market downturns done better than the others who withdrew.

The existing investors should hold their investments tight. Remember, this period when coronavirus is crashing the global markets is just a stress test. Nothing more. Don’t let your emotions lead you, don’t sell your shares in a panic. Sell only if you have some urgent need for cash.

It’s impossible to pick the market bottom. Resist those thoughts. If you want to trade the stocks you can learn more in the “Two Fold Formula” book. Also, you can check it with our preferred trading platform.

Bottom line

Coronavirus is crashing the global markets, that’s the reaction of the market to the spreading of a pandemic. From some point of view, it was expected. A virus outbreak can cause many problems. From day-to-day individual activity to global productivity. This new COVID-19 virus changes the economic outputs since it is progressing in almost every part of the globe.

The investors are reasonably worried. The broad disruption to global trade could have a large influence on global growth. Along with these fears in the financial markets, the fears for individual safety is due to the threat of the virus itself. This level of fear may cause even the most rational investors to play by emotions. As negative news appeared the investors with lower risk tolerance started to sell in panic. And as it was expected, they caused a market correction. Just keep in mind, the market corrections are normal even in a bull market. The market needs to neutralize bad behavior. For example, FOMO. But the market will move forward despite anything. The markets will bounce back again. Also, it will be more sustainable. It just needs some time to catch a breath.

31st March 2020
A Dead Cat Bounce – How To Trade It

Dead cat bounce appears when the markets are in free fall. Is it possible to profit from it?

A dead cat bounce is a phenomenon that occurs when a stock gap is lower by a remarkable percentage. For example, 5% represents that phenomenon. When the stock is always volatile within a continued period of downside this gap is over 5%. But when the stock isn’t volatile this gap of 5% must be taken into consideration.
The pattern occurs during bearish moves and it is visible on the charts. A dead cat bounce pattern is an expected correction of a bearish trend.

To put this simple

Assume we have a stock that is in a strong downtrend. When it happens we can notice a lot of short-sellers in that stock. But not all are short selling. Some traders will believe that the stock has touched its cheapest possible price, it reached the bottom. So, they would like to close their short trades but some will hold the position longer. And what we have here is increasing buying pressure. The consequence is that such a stock will find its bottom and a short bounce will occur. But the stock proceeds in the direction of its initial trend and that will lead to a quick sell-off.

So, we can say, a dead cat bounce is a short recovery of the stock price from a long dropping. But it is followed by the increase of the downtrend. This recovery in stock price is a short-living one. If you take a close look at such a stock’s chart, you will notice that the downtrend is broken by short periods of recovery. They are very small rallies and the stock price can rise for a short time.

Why is this phenomenon called a dead cat bounce? Well, there is a belief that even a dead cat would bounce if it falls fast and far sufficient.

How to identify a dead cat bounce pattern?

First of all, it is a price pattern and often a repeating pattern. Don’t be naive and think it is a reversal of the current trend because this first bounce will stop and the prior downtrend will continue so the stock price will continue to drop. It is important to understand that a dead cat bounce isn’t a reversal. It appears after a stock price drops below its previous low. When the price of such volatile stock temporarily rises you’ll see it as short periods of recovery. That is due to traders’ short-sellings, they are closing out short positions or maybe buying on the hope that the stock touched the bottom.

The problem is that we cannot identify this price action before it happens. We can recognize a dead cat bounce as a pattern after it occurs. We can try to predict if the recovery will be temporary by using some analytical tools as analysts do but there are no guarantees. Identifying the exact pattern before it happens is difficult even for experienced traders. We can see a dead cat bounce in the stock price for individual stock or for the group of stocks. Moreover, it can occur for the economy in general, for example, during the recession.

A real-life example of this pattern

We have it now, these days. The indexes had the greatest drops last week, three days in a row. The biggest drops after the Great Recession. Last month, February marked several days when the market has grown, but it fell under the pressure. The investors sold some of their positions when they noticed the market has risen after a long decrease. And they unloaded. But the downtrend continued so we have a typical dead cat bounce. During the first four days of last week, for example, Dow Jones declined by almost 18%. The indexes, in general, are oversold. The overall trend indicates further losses in the stock market. Coronavirus caused so much uncertainty.

The stock price fell, short traders started to look for a point to take profits. Some others started to buy at a discount. And the buying pressure occurred since both groups pushed the price back up. Well, buying pressure isn’t able to maintain the stock price at the current rate. When we have too many short selling in the market and no one left to buy, the downtrend is going to continue. The stock prices are going to drop more. This unbalanced relation in supply and demand causes a dead cat bounce.

How to recognize a dead cat bounce

First of all, a dead cat bounce is a retracement, it isn’t a reversal. So the rebound is short and unstable. Traders can notice in their chart the existence of intent bias coming amid a clear period of failing. That should help to identify a pattern. By using fundamental and technical analysis traders are able to discover if they are set for a leg lower or a broader recovery. This is an important issue for traders. Is a rebound going to form a significant bottom or it will be a short-living rebound? After a short rebound, the stock price will continue to decrease. As we said, if traders notice a sign of rapid selling and it lasts for a longer time, there will not be a bottom. It is a dead cat bounce.

How to trade a dead cat bounce?

A dead cat bounce is the reverse of a buy the dip thinking. While “buy the dip” means the traders are sure that the full uptrend is going to come back into play notwithstanding current losses, a dead cat bounce is different.
For example, your chart highlights the run-up to $100 and each fall is met by buyers. Well, they are taking advantage of drop thinking that history can repeat and produce further highs.

But markets recognize each leg lower as being a forerunner to further losses. Periods of selling are longer, the rebounds are short, they may not last. The use of Fibonacci retracement levels can give us a tool. A shallower retracement is characteristic of a market that is prepared for added dead cat bounce.
The sharp declines show that the market in free fall will see shallow retracements every time where there isn’t enough trust in any rebound. To notice a dead cat bounce, it is important to look for a breakthrough in the previous swing low, hence a continued downtrend.

Where to place a stop-loss order?

Traders can look onto these shallow retracements as a method to start risk-to-reward trades. Your stop loss should be sized smaller. That could provide you a greater chance for a high risk-to-reward profile. Timing is extremely important when you trade this pattern. You need to stick to the trading rules of this pattern. Otherwise, you are at risk to lose everything. So, as we said, short the stock only when the price move breaks the last bottom formed.

Use the previous swing low as an entry point to ensure the trade is opened upon verification that a dead cat bounce has happened. Then look at the dead cat bounce for a lead on where to place your stop loss. Stop-loss should be proportionately small due to the shallow nature of that rebound. Don’t place a stop loss at the peak of a dead cat bounce. It’s better to place it above. You will need a higher high to neutralize the bearish appearance.

If you don’t use a stop-loss order you’ll end up in pain. What if the pattern you think you notice isn’t a dead cat bounce pattern? Are you short selling a stock, which reached a significant bottom? So it was ready to make a big move higher. This means you made the wrong decision.

Don’t trade on margin and always set a protective stop-loss order when you want to trade this pattern.

Timing is important

When you see this pattern, you should intend for a minimum price move equal to the prior trend movement. Simply, if the price starts falling quickly and you verify a pattern, you should assume the price to fall at least with the same size. There you should take your profit.

It is important to highlight that timing is essential when trading this pattern. If you don’t enter the market at the right time, there is a big chance that you’ll miss an important part of the bearish move. You have to be sure you short the stock exactly at the moment when you notice a candle closing below the last low of the stock.

Bottom line

When the stock drops more than 5% from the prior closing price but soon the price is back close where it opened, and the price then falls again, we have a dead cat bounce. It isn’t a bargain at discount. But you can make money on it
The fundamental level in a dead cat bounce trade is near the open price of the initial gap down day. Usually, the price will retest this level during the same day. That will give traders the possibility to go short. This level will stay notable for days or weeks in the future. If you go short and the stock price falls more after that, the price can come back a week later again to test the same level. That would be a second dead cat bounce.

One single gap may have three cat bounce trades. It is risky to trade this pattern but may give you a high profit.

29th March 2020