Forex and Stocks Trading: Baby Bird Capital

 The Dow theory was developed in the late 19th century by Charles H. Dow. The theory expresses his ideas on price action in the stock market. Charles also invented the famous stock market index known as the Dow Jones Industrial Average (also known as the Dow). The Dow is price weighted and its value is affected by the performance of the most prominent companies listed in the stock exchanges in the United States as well as macroeconomic factors. Most methods and indicators used in technical analysis are based on the Dow Theory.  The Dow theory is made up of six principles: The averages discount everything  This principle states that all the fundamental factors, economic, political, technological factors, future events and other important factors affecting price have already been factored in and priced into the market except for natural calamities such as earthquakes. The only remaining influence on the stock price is human emotion.  The market has three major trends A...

Introduction Richard D. Wyckoff was a very famous stock market trader. He is considered one of the five titans of technical analysis along with Dow, Gann, Elliott and Merrill. Wyckoff proposed a method to help traders understand price movements in markets. This method is called the Wyckoff method. Wycoff advised traders to try to understand the market and play the market game as the Composite man. The fluctuations in the market in all the various stocks should be studied as if they were the result of one man`s operations. Let us call him the composite man, who, in theory, sits behind the scenes and manipulates the stocks to your disadvantage if you do not understand the game as he plays it; and to your great profit if you do understand it    ~R.D Wyckoff   A composite man is a highly skilled and better informed investor who has the ability to shape the market and control the price. He carefully plans, executes and concludes his campaigns. His aim is to gather as...

What is a trend? It is the general direction which a financial market develops. There are three types of trend within the market: primary, secondary and minor. The primary trend is the major trend lasting at least six months. The Dow Theory describes the secondary trend as a market movement lasting from three weeks to three months. Minor trends have a short life span stretching from minutes to several hours. In financial markets, price tends to move in a series of zigzags forming waves. These waves constitute a market trend. Trending markets are easy to identify, do not try to complicate things. You do not need indicators to determine if the market is bullish or bearish in nature.  Remember to always trade with the trend.  If the market is bullish, then look for buying opportunities and if the market is bearish then look for selling opportunities. " Buy things that are going up. Sell things that are going down. And when they stop, get out! "  – Rob Smith The ...

In order for a person to reach their goals there are certain steps that they need to take. To reach the top of the mountain, you need to climb the mountain one step at a time. Similarly, to become a good forex trader you need to focus on making a dollar first, then focus on making ten dollars, then a hundred dollars and so on. A trading journal has proven to be an effective performance and confidence booster when executing trades. Trading without a diary is like shaving without a mirror.   ~Dr. Alexander Elder, Author of Trading for a Living. What is a trading journal? A trading journal is a record of observations, experiences, ideas, or reflections kept regularly for tracking progress and for future reference. Why do you need a trading journal? Tracking progress When you keep detailed records on your profits and losses it becomes easier to study mistakes made when entering or exiting trades Enhances performance Psychology and mental state plays a big ro...

A candlestick is a Japanese price chart that is formed by the following elements: Open: refers to the open price Real body: refers to the filled part of the candlestick  Upper and lower shadows: the lines above and below the real body. High: refers to the top of the upper shadow Low: refers to the bottom of the lower shadow. Close: refers to the close price. There are two types of Candlesticks: Bullish candlesticks and Bearish candlesticks. If the close price is above the open price this means that the candlestick is bullish. However, if the close is below the open, it means that the candlestick is bearish. Advantages of Japanese Candlestick Charts They provide a visual representation of what is going on in the market They accurately indicate a market trend, i.e. whether the market is going up or down. They can be used alone or with other technical analysis tools such as trend lines, moving averages or the elliott wave theory Types of candlestick chart patterns Hammer A hammer i...

The Elliott wave theory was discovered by Ralph Nelson Elliott.  According to the Elliott wave principle, market prices follow some recurrent cycles called waves.  Waves are patterns of directional movement. Prices change their dynamics based on crowd behaviour. The Elliott wave principle is predictive in nature. It gives some insight about the probable future direction of the market.  Elliott suggests that there is a five wave pattern. This five wave pattern consists of impulse waves and corrective waves.  There are three impulse waves going alongside the major trend and two corrective waves going against the major trend. Elliott wave guidelines • Wave 1, wave 3 and wave 5 determine the direction of the market • Wave 2 and wave 4 are counter waves to wave 1, wave 3 and wave 5 • Wave two never retraces more than 100% of wave one. • Wave 3 is usually the largest and most powerful • Wave four does not overlap with the price territory of wave one.  Elli...

A motive wave is a price movement in the direction of the main trend.  Motive waves always subdivide into five smaller waves. Guidelines for identifying Motive waves correctly • Wave two never retraces more than 100% of wave one • Wave four never retraces more than 100% of wave three • Wave three is often the longest and most powerful wave • Wave three always travels beyond the end of wave one Sub waves of Motive waves are always denoted by numbers There are two types of motive waves: Impulse and Diagonal waves Impulse waves This is the most common type of motive wave and they are easy to identify In this type of wave, wave four never enters wave one`s price territory. The primary objective is to propel the market to move in a certain direction, hence, wave 1, 3 and 5 are the motive waves and sub wave 3 is specifically an impulse wave. Wave Extensions Most impulse waves contain Extensions An extension is usually present in only one of the three impulse waves 1, 3 and 5. Ex...

There are twenty one corrective a, b, c patterns. These patterns are made up of three formations: Zigzag formation, the Flat formation and the Triangle formation. The Zigzag formation A single zigzag pattern is a simple three wave pattern labelled A-B-C. The sub waves of a zigzag follow a 5-3-5 pattern Wave B never retraces more than 100% of wave Correction patterns can sometimes have wave extensions. When the Zigzag pattern is extended it can form a double zigzag or a triple zigzag.  These patterns are separated by a 3 wave pattern.  A zigzag pattern is usually found in wave two. The Flat formation The difference between a flat formation and a zigzag is that the sub wave sequence of a flat is 3-3-5. Wave B usually retraces up to the start of wave A and wave C does not move beyond the end of wave A.  Flats are more common in fourth waves. A flat wave extension may result in the formation of a double flat. Triangles Triangles contain 5 waves that are labelled a-b-c-d-e. T...