Online Trading
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Trend spotters

June  2010

Jana Schilder
The Toronto Star

Whether you’re an online investor, a swing or position trader that dips into the markets for weeks or months, first you need to know how to spot trends in the markets.

“Picking stocks versus picking trends” was the topic of a 90-minute free seminar held in Toronto recently by A.J. Monte and Rick Swope, collectively known as The Market Guys. In Canada, The Market Guys are sponsored by Scotia iTrade.

One hundred and fifty people, the vast majority of them new to online trading, gave up a Saturday morning to learn more about the actual mechanics of online trading as opposed to online investing.

Technical glitches aside (the hall’s audio-video technician showed up 90 minutes late), Monte and Swope delivered their material the old-fashioned way — skipped the PowerPoint altogether.



Here are six trends that you need to learn to spot to improve your online trading:

1- Follow the money. This works for investigative journalism and for online trading, too. “There is an old saying: the trend is your friend, so put your money with the money,” says A.J. Monte.

Realize that online traders love volatility; online investors prefer more market stability. “The markets are up 50% since the mortgage meltdown of 2008,” says Monte. A lot of people have made a lot of money trading, not investing.

2- Be careful of financial analysts’ recommendations. “Ever notice how financial analysts always recommend buying a certain stock? Too bad that they rarely tell you when to sell that stock,” says Rick Swope.

As an online trader, you have to decide when to take your profits and how much profit is enough.

3- Always know who is in charge: the buyers or the sellers. Trend analysis is the study of price charts and patterns to determine where money is flowing. Generally, if a stock is going up in price, the buyers are in charge; if a stock is going down, the sellers are in charge.

4- Volume is an indicator of conviction. Strong volume on the buy side means the buyers are in control. When volume start to drop while the stock is going up, this tells us the buying pressure is starting to ease. But strong volume in a downtrend means the sellers are very much in control.

“When upward volume starts to thin out, the buyers are losing steam. Anticipate sellers taking over. When volume increases on the way down, the sellers are definitely in charge,” says Monte.

5- Learn about “support,” “resistance,” and “pivot points” on price charts. Every stock and every commodity (such as oil and gold) have historically established support and resistance points. Learn what those are for each individual stock or commodity you want to trade.

“A support point, once broken, often turns to resistance or when the buyers lose momentum,” says Swope. “Both these scenarios are signals to be careful. That stock or commodity is likely going down even further.”

6- Wait for the “pivot point” before hitting the “buy” key. Monte advises that if you want to buy that particular stock or commodity, wait for what’s called in trend analysis a “pivot point.”



Translation: Before you even think about buying, wait for the buyers to move back in and push prices back up. Then buy. The point at which the price reverses from a downtrend to an uptrend is the pivot point.




The Toronto Star


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