There are hundreds of technical indicators available which are used by traders according to their style of trading and securities to be traded. This article focuses on a few important technical indicators specific to options trading. (Confused? If you are not sure that technical trading or options is for you, check out or tutorial, Introduction to Stock Trader Types, to decide your preferred style.)
This article assumes familiarity of the reader with options terminology and calculations involved in technical indicators.
How option trading is different
Usually, technical indicators are used for short term trading. Compared to a typical stock trader, an option trader looks for additional aspects of trading:
- Range of movement (How much — volatility),
- Direction of the move (Which way) and
- Duration of the move (How long — time)
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Now that the fourth quarter is here, it’s worth taking a final look at how the rest of the year is likely to develop. With three months left to go, it still makes sense to review your portfolio to make sure you’re prepared for what’s likely in store for the remainder of the year.
So, what exactly do I foresee for this final quarter of 2014? Certainly, the world is awash in geopolitical uncertainty and this is likely to continue. But good news on the U.S. economic front should help temper worsening geopolitical tensions and slowing growth in Europe.
Of course, a strengthening U.S. economy may have a downside. If the Federal Reserve (Fed) increases interest rates too soon or by too much, markets could be rattled. Another trend to watch: diverging growth. Europe and Japan are still struggling, while the U.S. continues to evidence signs of strength. read more →
Warren Buffett is synonymous with wealth. Some misinformed souls may think he was merely lucky. If you ask people who have studied his process over the years, however, they will tell you Buffett’s success is wholly earned and the product of several factors, from his native intelligence to his single-minded pursuit of value. At the core of his investing philosophy one basic principle – elementary probability – has been the north star of his strategy.
Warren Buffett began applying probability to analysis as a boy. He devised a tip sheet called “stable-boy selections” that he sold for 25 cents a sheet. The sheet contained historical information about horses, racetracks, weather on race day, and instructions on how to analyze the data. For example, if a horse had won four out of five races on a certain racetrack on sunny days, and if a race was going to be held on the same race track on a sunny day, then the historical chance of the horse winning the race would be 80%.
The Evolution of Warren Buffett
As a young man, Buffett used quantitative probability analysis along with «scuttlebutt investing,» or «the business grapevine» method that he learned from one of his mentors Philip Fisher, to gather information on possible investments. Buffett used this method in 1963 to decide whether he should put money into American Express (AXP). The stock had been beaten down by news AmEx would have to cover fraudulent loans taken out against AmEx credit using salad oil supplies as collateral. (For more on the American Express salad oil scandal, see: What is the salad oil scandal?) read more →
Choosing the right financial adviser for your unique situation is not an easy task. Recommendations from a friend or business colleague can be a good source, but remember the right adviser for one person may not be a good fit for your needs. Here are seven steps to take in evaluating either a new financial adviser or one with whom you’ve been working for a while. (For more, see: Shopping for a Financial Advisor.)
Understand How Your Adviser is Paid
While adviser compensation may not be as important as their competence, it’s imperative that you understand all forms of compensation that your adviser would receive as a result of working with you as a client. There are several forms of adviser compensation including various types of sales commissions from the sale of financial products and various types of fees.
Commissions can include commissions paid on the front-end, commissions paid if your sell the product during a period of years known as the surrender period, and ongoing trailing fees. Know that in all cases the costs of these commissions are born by you the investor and they serve to reduce your returns.
Other financial advisers charge fees. These fees may be hourly, calculated as a percentage of the assets invested, or a flat ongoing fee. Some advisers are fee-only; others are paid via fees and commissions.
In all cases the cost of advice from your financial adviser should be spelled out and fully disclosed to you. (For more, see: Paying Your Advisor: Fees or Commissions?)
Understand Any Conflicts of Interest read more →