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In our previous post about gaps, we looked at market behavior around opening-gaps and would generally happen during that same trading session. But nothing spectacular came out, an opening-gap basically meant nothing for further price action that day. Also, the average size of an opening-gap turned out to be a few factors smaller than average daily volatility, so those margins were easily absorbed regardless of whether there was an opening gap or not.
Now suppose the opening-gap does not get closed during the same trading day. How does affect the market in the next couple of days? Does price gravitate back towards such a gap, as if it wants to pull in price or doesn't it have any significant meaning as we saw in the opening-gaps analysis? Let's dive in.
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After part 3, we move on to part 4 of this series of 'Market gurus and their predictions'. If you're new to this, you may want to start with the first part for some additional explanation.
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If you have a losing trade that was stopped out, and maybe a string of losing trades, this might upset and frustrate you as a trader. You start to wonder how you ended up on the wrong side of the market each and every time.
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Investing in gold has been on every front page in the last two, three years. The financial crisis has scared a lot of investors who lost faith in everything but gold. Many investors buy gold in some form, in paper or physical gold. Investing in gold is not something from the last couple of years, but has been around for many years. It's just that the last couple of years, gold has every characteristic of being a bubble. Gold investors sometimes seem to lose all good sense of judgment and logic. Buying gold has almost become a sort of religion.
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As a trader or investor, you certainly have noticed the tons of analysts and self-proclaimed gurus out there who all give their opinion about what will likely happen next in the markets. But are they any good?
This is part 1 of a series. Also, make sure to check out part 2 and part 3.
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It's been over a year now since we've witnessed the so-called flash crash. On May 6th, 2010, within minutes the markets dropped several percent, then bounced and recovered a large part of the losses. To relive those exciting moments, here are some video clips. If you know of any other clip that should be here, please send me an email. This post with video clips is mostly fun, but it's also showing us panic, anxiety, greed, and fear. Besides crash flash videos, there are some other clips that show the emotions that sometimes come with trading.
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We have all heard of the famous experiment by the Russian physiologist Ivan Pavlov where dogs have been conditioned to expect food following a particular event. The Pavlov dogs have experienced the same sequence of events so often, at some point they know what's coming next without really thinking about it. They start to show emotions 'in advance', and salivate even before their food is served. This is one form of conditioning.
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Many traders read all the news, rumors, and gossip they can get their hands on. And there's always more to read. Then they start convincing each other on chat forums that the market has to go in a certain direction based on that news. In the end, they all agree, but we know what happens with crowd consensus.... it's not going to happen.
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In this article, I would like to discuss the subject of overconfidence. Maybe in some way, overconfidence can be looked at as the exact opposite of perfectionism. Neither emotions serve a trader well as they do not take the market (movement) for what it really is.
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Some say in trading the true character of a person comes forward with all its strengths and weaknesses. Suppose a trader has a tendency to be perfect, to perform each and every little task in perfection. For people with perfectionism, it may not be that hard to function in everyday life, maybe with a little struggle here and there. But it's very hard to combine perfectionism with trading.
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Before taking a trade, you should have done your analysis. If the analysis shows that the trade has a high probability of being successful, you enter it and see what happens. Now suppose the market moves away and your position is getting worse. No real problem, there is never any guarantee the analysis will work.
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When I think about trading rules, the first thing that comes to mind in less than 0,047 seconds is: always to use a stop loss. Everyone knows this saying 'Cut your losses and let your profits run'. That is, of course, easier said than done and this article is not about that. This article is essentially about accepting a loss.
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Everybody knows this feeling and also knows it is a false feeling. You're in a casino, and the roulette hits red. Then again and again. After three, four maybe five times red in a row, you start to think it's time for the roulette to hit black. Now, in this simple case, you know that's not true.