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Candlestick patterns can signal a trend continuation or reversal. Many traders and investors know how to benefit from candlesticks analysis. As a rule, a simple chart analysis is used that requires analysts to remember and correctly interpret, at least, typical candlestick patterns. However, the number of possible different candlestick shapes and their combinations in a row can be huge. Besides, some patterns interpretations might be considered as contradictory or doubtful.

Fortunately, statistical methods combined with computer power can be a good solution to make the candlestick patterns recognition works less time-consuming and more effective. These days, Neural Network (NN) can help to automate a candlestick patterns recognition task. NN should be properly trained in order to be able to predict the next candlestick parameters with the highest probability. One of the obvious problems of implementing a candlestick pattern NN predicting system is a formalization of inputs.

Addaptron Software released a new version of Fundamental-Technical Analyzer FTA-2. Now it has a new module which enables using Neural Network to decode candlesticks patterns. A predicted candlestick can consist of one or many trading days. Also the module performs comparative forecast analysis for many symbols. Welcome to download software for free trial.





Is it possible to find and use the best universal principles and systems in stock trading? The second question - is it possible to make money using methods, systems, or ideas that are employed by many? It seems collective actions can be beneficial. If there is an uptrend - many would join the movement and add more pushing power up. Although a crowd behavior could be useful, sometimes, it can lead to unexpected results.

As example, many thought that February could be a good month to invest because institutional funds' managers could increase their portfolios in March. Many converted cash into stocks in February pushing market up. Then when buying power exhausted and funds were unable to support the trend - the stock market collapsed. Another examples, several years ago October was a low month but since too many talked about this annual cycle, it is not the case anymore - everybody buys in October and pushes the market higher.

In other words, if a group of people read the same book, for example, "How to Find Mushrooms" and all go to one forest - then there would be more chances to find mushrooms in the places that are not recommended in this book. The conclusion - stock trading can be successful also in case of using something new or something that is used by limited number of traders.

© Alex Shmatov. Published with permission of the copyright owner. Further reproduction prohibited without permission.




When Trend Might Not Be Your Friend

Everything is possible in a short-term. Within only one day stock price can drop or rise even 10%. Such sudden moves are hard to predict and use to benefit for most non-intraday traders. However, statistically for some periods in a well-balanced environment, the principle “trend is your friend” may work well, especially, in a pure Bull or Bear Market. The chart below shows that this principle is right in 5 of 6 cases for relatively small periods:



If we consider bigger periods, the trend principle may work with ratio 1:1 – in other words, no benefit of using it. This is what we had for the last one-and-half decade for the stock market. The chart below looks similar to S&P-500 index for period from 1997 to 2010. Evidently, a multi-year green uptrend changes to a red downtrend and then vise versa:





Slower Growth Is Not a Recession

S&P-500 index continues a downtrend that started in April and still remains downward in general. However, currently there are technical and fundamental reasons that may force sliding down index to reverse to an uptrend. Corporate profits were surprisingly strong in the first two quarters of 2010. Americans are spending about 5% more than a year ago and credit card debt is improving. The US government reported that the economy has grown for three straight quarters.

...continue reading July 2010 Stock Investing News


Nothing in this piece or blog should be construed as investment advice in any way. Always do your own research or/and consult a qualified investment advisor. It is wise to analyze data from multiple sources and draw your own conclusions based on the soundest principles. Be aware of the risks involved in stock investments.





Successful investing in an individual stock requires a good knowledge of a broad stock market. As a rule, a huge number of stocks (for example, presented in S&P-500 index) obey statistical laws better than an individual stock. Different statistics help investors to extract meaningful information.

Statistically June is more often bearish than bullish month of the year. However, due to this May correction, no significant changes in fundamental area, and no bad news (so far), this June may be a bullish one. Technical indicators show some volatility up until the middle of the June but it is possible that the market may eventually bounce back. Some additional inputs can be found in the blog post S&P-500 Forecast for June 2010

Nothing in this piece or blog should be construed as investment advice in any way. Always do our own research or/and consult a qualified investment advisor. It is wise to analyze data from multiple sources and draw your own conclusions based on the soundest principles. Be aware of the risks involved in stock investments




May 2010 Stock Investing News

While companies' reports do not look so bad, the US unemployment remains one of the major obstructions to an economical recovery. The unemployment rate increased to 9.9% in April. Many consider that unemployment rate will stay at this high level even with better signs of recovery. The reason is that some jobs have disappeared forever due to outsourcing.

Some analysts consider that decreasing stock prices with the drop in trading volume is a good sign from the technical point of view. So that the recent stock market correction that started from May 3 can complete in several days. Other technical indicators show a possible uptrend by the end of May.

...continue reading May 2010 Stock Investing News


Nothing in this piece or blog should be construed as investment advice in any way. Always do your own research or/and consult a qualified investment advisor. It is wise to analyze data from multiple sources and draw your own conclusions based on the soundest principles. Be aware of the risks involved in stock investments.





Investors often use the portfolio strategies that help to make the stock portfolio performance more stable under different economic conditions. One of such portfolio strategies is a diversification. The main purpose of diversification is to reduce the risk in a portfolio. In case of stock investing, a simple diversification is a combination of stocks that have different behavior. So that in most cases, if some stocks move up, other stocks move down.

Stocks in well-diversified portfolio are unlikely to all move in the same direction. In other words, they are non-correlated by nature. There is a more comprehensive approach in portfolio management to maximize Return On Investment (ROI) and reduce risk. It is a combination of weighted diversification with forecast. The idea can be explained using the following example. US stock market divided into 12 sectors. Let's consider the diversification among these different sectors since according to a classical portfolio management theory, investing in more than 10 non-correlated groups of stocks are considered as a good diversification.

We can assign different weight to each sector accordingly to predicted performance. As example, we can consider using three-month forecast of stocks from different sectors by Investment Analyzer Inv-An-4. In the chart below, the sectors have three-month performance rating, starting from 1.54 to 16.29. So we can use these number as weights to invest proportionally in different sectors.



Latest Technical Analysis' date is 2010-04-22 (yyyy-mm-dd)
Latest historical quotes' date is 2010-04-22 (yyyy-mm-dd)
 
No.      Sector             Composit   Fundam  Technic   Timing
 
  1         Basic Materials     9.14     7.25    14.38    12.66
  2           Capital Goods     5.19     3.17    13.83     4.31
  3            Conglomerats     6.01     4.51    14.41    -4.46
  4       Consumer Cyclical     3.92     1.42    15.07    10.99
  5   Consumer Non-cyclical     7.71     7.16    14.93     0.51
  6                  Energy     3.72     1.35    14.11     9.04
  7              Financials    15.82    13.40    13.93     9.69
  8              Healthcare    16.29     9.73    15.11     3.61
  9                Services     8.95     7.22    13.96     5.93
 10              Technology    12.85    10.07    14.19    14.98
 11          Transportation     1.54     0.00    14.65    -3.20
 12               Utilities     5.62     3.78    14.10     6.35


In conclusion, using the combination of diversification and prediction in portfolio design helps to minimize the volatility and maximize performance. Normally, such built portfolio should be regularly re-adjusted accordingly to updated forecast.



Nothing in this piece or in this blog should be construed as investment advice in any way. Always do your own research or/and consult a qualified investment advisor. It is wise to analyze data from multiple sources and draw your own conclusions based on the soundest principles. Be aware of the risks involved in stock investments.





Everybody follows some investing principles and rules. The question is: if almost all investors use the same principles, do they win? Probably not. For example, let's consider the "sell in May and go away" strategy that built on the historical under-performance of stocks from May to October in relation to November to April.

The chart below is 2000-2010 statistics for SP-500 performance that indicates the May-to-September weakness and strength from February to May (the result by Stock Market Analyzer-Predictor SMAP-3):



Firstly, this seasonal pattern is built on averages and it does not work perfectly all the time. Secondly, if most investors expect that others would do the same, they try to dump stocks earlier; prices go down and the rest of investors would not have a real benefit.

The more people know and use a particular principle, the less this principle may work. So that it is quite possible that even a time-tested strategy may not work. Will a seasonal strategy keep working in the future? Probably yes. At least in cases when the majority of investors get disappointed and stops using this strategy. Also that is why it is wise to use unique approaches that work well but not used by most stock market participants.

© Alex Shmatov. Published with permission of the copyright owner. Further reproduction strictly prohibited without permission.






History evidences the different cases, when an investor started with a small amount of money and eventually became very rich, or on the contrary, when a millionaire lost all investments on the stock market and became poor. Decades ago, investing in the stock market was one of the most profitable kind of investments. In recent years, an average profit from stock market gradually decayed and stock investing became very risky. The recession decreased the number of investors. Now most investors are very cautious and reluctant to invest because their expectations are low. As a result, the volume of flowing cash in the stock market diminishes.

A classical investor and trader are both aim at gaining money. What is the most important quality that separates the winners from the losers on the stock market? The answer is simple - it is knowledge in investing, either that is based on collected wisdom by other investors or gained through making own mistakes. Anyway, the following basic principles could be useful to remember:
  1. Never invest all your money in the stock market, especially, if you are a beginner. Common recommended portion of invested money in stocks is from 25% to 50% of your total budget.

  2. Never invest all money in one stock - always diversify among several stocks in different sectors.

  3. Always watch closely general market conditions, especially, when bear market is about to start. Be prepared by selling most holdings in advance.

  4. Never rush with investment solution. Carefully watch financial quarterly reports, news, and macroeconomics trends before making any decision.

  5. Never let your emotions prevail over a rational disciplined approach.

  6. To improve return/risk ratio, use reliable software tools that embody the investors' concentrated wisdom.

  7. All stocks are volatile without exception. There will be always a certain probability that something suddenly will go wrong with any stock. Even the best stocks can depreciate.


Not everyone is able to succeed in investing. Most losses in investing happen because of lack of knowledge, over-confidence, impatience, greed, fear, and different delusions. An experienced investor knows that there is a direct proportion between time spent to increase investing skills and return on investment.

It is hard in investing to make a right decision every time. There are too many unknown factors and limited control. It is important to learn from others how to be successful in investing and always make your own conclusions. Learn from your own mistakes. If your plan is to make money in investing - stick to your plan, do your proper research, invest in quality companies, and sell in time.

© Alex Shmatov. Published with permission of the copyright owner. Further reproduction strictly prohibited without permission.






About Cash Reserve in Investing

Usually favorable time for buying lasts not so long as favorable time for selling. Since the best time period for buying is shorter than for selling, keeping enough cash reserve allows using sudden opportunities. Often after buying a stock which price almost does not change (sometimes for long), it then suddenly drops at the time of market correction. Dropping in price happens faster than advancing, as many explain because the fear factor is stronger than the greed factor for investors.

Cash reserve calculation can be based on the idea of undervalued-overvalued market approach similar to Robert Lichello's cash reserve calculation ["How to Make $1,000,000 in the Stock Market Automatically!" by Robert Lichello]. The current price deviation from a certain mean can be a good indicator of the future price behavior, especially, for correctly chosen fundamentally healthy group of stocks.

One of computer programs, Investment Analyzer InvAn-3/4, calculates the recommended percentage of cash reserve depending on the current condition of the stocks in its database. It calculates cash reserve value using deviation between the price of all stocks in the database and two average weighted components - linear regression model and exponential moving average integral. It can change within 0..100%. Values close to 0% mean that it is time to invest, values that approaching 100% mean it is time to sell most holdings and take profits. The percentage of the reserve could be applied to a whole investment fund or its portion.



InvAn-3/4 is one of the best modern advanced software tools that helps investors pick the right stocks for their portfolio and determine optimum investment timing. It makes most necessary calculations for investors and improves profitability. It is a comprehensive system with user-friendly interfaces that is easy to use. This software is intended for investors with a basic knowledge in stock investing.




About Stock Investing

Expected performance of a stock depends on quality of the company, market evaluation of its stock, and macroeconomic environment. Also general market conditions and news are significant contributing factors in stocks performance. That is why, a good investing decision should be based on a multi-dimensional consideration of many criteria. Consequently, one of the optimal solutions is to use fundamental, technical, and timing analyses together...

read more about Stock Investing



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