Brain Snappers and Other Wall Street NonsenseWritten by Al Thomas
Brain Snappers and Other Wall Street Nonsense by Al Thomas The last time you spoke with your broker did he use any of following words? Diversification, Price-to-earnings ratios, discretionary trading, lifting a leg (he’s talking to you not your dog), leverage, divergence, fee-based compensation, escalator clause, tactical asset allocation and other mesmerizing words to place you in stupefying shock. Brokers do that to let you know that you don’t know anything about market and you must allow them to make decisions for you. You don’t know language. You are just too dumb. Another mushroom. Wadda ya’ mean mushroom? Didn’t you know? Most customers are considered mushrooms. A mushroom is grown in dark and fed horse manure. Now you understand why they treat you that way. Then try to get him to explain commission structures of mutual funds. Oh, you’re not allowed to ask that. You might want to read page 35 in January 31, 2005 issue of Newsweek magazine for an excellent breakdown of this Wall Street scam. Maybe you better not. You will get mad at your broker. Another one of those big words they don’t want to discuss is redemption fees. This is an extra charge of as much as 2% of amount that is deducted from your check if you sell within a certain period of time. Brokerage companies tell
| | Trading the GapWritten by Bill Morrison
There are a number of common theories and misconceptions about opening gaps and how to trade them. Trader Jack himself has always maintained that it is wise to 'mind gap', and strongly recommends not dashing madly after a market powering away unless you REALLY know what you are doing. We therefore felt it might be useful to investigate common gap trading ideas and comment on them for our readers at www.traders101.com .Here are results of a study on Nasdaq, including every gap in last 15 years. At first glance, Trader Jack rule 'never chase gap' looks like a good rule - over 70% of gaps get filled on day they occur, i.e. the market falls back to previous day's close before end of session. Also worth noting - average size of a gap on Naz (both long and short) is just over 1.16%. As you might expect, small gaps get filled more often than big gaps - there is 'less work to do' for market to reverse a small gap. Larger gaps have a tendency to stay open more than small gaps - for example, a gap that is twice as large as average gap (2.33%) will typically remain open over 60% during session (although they may get closed again next day). Likewise, a gap 3 times size of an average gap will remain open almost 65% of time on day. At top of scale, gaps that are 3.5% larger than an average gap remain unfilled almost 90% of time on day they occur. They may only get filled 21% of time during week, too! This data tends to suggest that a reasonable gap trading strategy might involve trading against (or 'fading') small and average sized gaps, and to 'go with' a large gap. So how does one implement such a system? Let's take a closer look.
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