Becoming a better trader by using a stock trading journal spreadsheet

By Trade Analyzer

What is a stock trading spreadsheet?
A stock trading spreadsheet is a tool that helps traders keep track of their performance. The goal is to determine which trading strategies have been successful in the past, and which have not, and why. Many stock trading spreadsheets are based on widely-used programs like Excel and are customizable for different kinds of products, such as stocks, options, futures, Forex, ETFs and equities. Stock trading spreadsheets allow users to keep abreast of market trends, plan and track trades, print data reports and make use of financial reference tools. Performance data can be used to identify stock patterns, trader “errors” and trader “strengths.”

What does it do?
Stock trading spreadsheet programs can backtest trading strategies to show whether or not they’re likely to produce a profit. Traders can avoid making a costly guess; they can move forward based on data rather than hope. For example, if a trader believes that a stock or group of stocks will perform a certain way under certain market conditions, he can test his guess to see if it’s performed that way in the past before he commits his money. Some stock trading spreadsheet programs also calculate the odds of a trader making or losing money at any given time based on factors such as the amount of money invested, the risks assumed, and the number of trades, among others. Some programs provide trading flags to alert traders to risk or opportunity. Others offer analysis based on data entered. Spreadsheet programs may also help traders stick to their chosen strategies when they’re tempted to trade on emotion, especially if the data shows that trading on emotion didn’t work out in the past.

What are the advantages?
The main benefit of a stock trading spreadsheet program is that it tells traders how well, or how poorly, they’re doing in the stock market. It may keep some traders from throwing good money after bad, or inspire them to study the market more before committing their money to trades. The program may prompt traders to think about why they’re making trades, and to base those decisions based on facts rather than feelings. The standard disclaimer, “past performance is not an indicator of future results” still holds true, but a stock trading spreadsheet program may force some inexperienced traders to analyze risk and the odds of success before plunging into the market.

Download MyTradeAnalyzer's free trial and try the stock trading spreadsheet risk-free today.

Technical Analysis of Sensex using Oscillators and Elliott Wave Theory

SENSEX is a shortened term given to the 'Bombay Stock Exchange Sensitive 30 Index'. The index is a broad based, weighted average composition of the share price of 30 large capitalization companies within the exchange. This index is considered one of the Bombay Stock Exchange's key metrics of market performance and has been in existence since 1986.

Since exchange indexes measure performance of stock baskets, analyzing SENSEX using technical methods can assist with trading tactics and strategy. Two such technical measures are oscillators and the Elliot wave theory. The remainder of this article will discuss how these two methods of technical analysis can be applied to SENSEX.

Oscillator technical analysis

Simply put, oscillators measure buying and selling opportunities at the high and low ends of market pricing. Several oscillators exist including 1) the Stochastic Oscillator, 2) Percentage Price Oscillator and 3) the Money Flow Index (investopedia.com), however other commonly used and referred to oscillators also exist. Each oscillator indicates different values based on varying underlying conditions for which a security price may be more apt to move in a certain direction.

To illustrate the above point, the Money Flow Index (MFI) measures volume of capital moving into a security. When the MFI value moves higher, it means the increase in capital inflow is rising, however, if the value is too high, it means the capital inflow has been taking place for a while and a price trend reversal may occur.

Elliot Wave Theory analysis

The essential basics of Elliot Wave Theory is that it makes use of 1) stock price movement graphical 'waves' and 2) impulsive or corrective trend analysis of those waves. What this means is that when the zigzag pattern of stock price movements on a graph are illustrated, a pre-determined wave theory i.e. Elliot Wave Theory is applied to the patterns.

These patterns are simply two consecutive patterns of zig zag waves of 5 then 3 movements or 3 then 5 movements. Specifically, if the price trend moves downward with 1 down movement followed by an up then down movement, and is subsequently followed by the same pattern in the other direction, i.e. up, then the Elliot Wave principle applies. After the down or up sequence, the Elliot Wave Theory indicates the probability of the trend continuing as previously is higher than had the trend not existed.

Applying oscillator and Elliot Wave Theory to Sensex

The next step in applying both oscillators and the Elliot Wave Principle involves obtaining the price chart for the SENSEX for a given period of time. These charts can be obtained from financial websites and the Bombay Stock Exchange website itself. Once a chart and price history values are obtained, the oscillators for the preferred point of time can be calculated and the Elliot Wave patterns can be looked for. Some financial websites search for wave patterns and/or calculate oscillators for the investor, trader or analyst to save them time in identifying, calculating and applying the oscillator formulas and wave trends.

Should the need to calculate the oscillators arise, the individual oscillator formula should be acquired then utilized for the correct value. Similarly, for the Elliot Wave theory, the wave patterns should be manually looked for and identified individually rather than via a technical analysis software or financial website feature. Several financial websites and/or technical analysis websites exist that either provide or specialize in technical analysis tool and software.

1. http://www.stockta.com
2. http://www.stockcharts.com
3. http://www.investorprofit.com
4. http://finance.yahoo.com
5. http://www.google.com/finance

Summary

The SENSEX is a metric that indicates performance of companies within the Bombay Stock Exchange. This index is similar to the Dow Jones Industrial Average in the U.S. however is comprised of 30 large Indian corporations weighted in the index by their equity capitalization values.

In studying the SENSEX, both oscillators and the Elliot Wave Theory can be applied for the purpose of technical trend analysis. Both these indicators are used to forecast future price movements either up or down based on previous trends in securities pricing.

To apply oscillator tools and the Elliot Wave Theory to the SENSEX involves obtaining a time period for which price trends can be illustrated and searching for and/or calculating the oscillator values at the time of interest and/or the wave pattern positioning for the same.

If the oscillator value is above a certain point, it may be a downward trend could occur and if the Elliot Wave pattern sequence is evident, the possibility of the security's market price following this pattern either up or down is forecasted.

Neither oscillators or the Elliot Wave Theory are absolute indicators meaning there is room for error and the technical analysis is not 100 percent accurate. Rather, oscillators and waves can be used to estimate price trends and movements based on pre-derived mathematical and/or statistical relationships and patterns.

Sources:

1. http://www.bseindia.com/about/abindices/bse30.asp
2. http://www.bloomberg.com/apps/quote?ticker=SENSEX:IND
3. http://www.investopedia.com/terms/o/oscillator.asp
4. http://www.elliottwave.com/introduction/wave_theory.aspx

What is the Zero Line Cross Trading System?

The Zero Line Cross Trading System is mostly simply used as a 'price momentum indicator'. Indicators such as this are statistically based and are not a guarantee that a desired and/or indicated change will occur but rather an indication that a change has occurred and may lead to future changes in a specific direction.

In other words, the zero line cross indicator is what day traders call a technical indicator and is used in technical analysis of financial securities such as stocks. The time frame for which this indicator is used in is quick, lasting as little as a few minutes and it may switch indications several times in a single day.

Why the Zero Line Cross trading system is useful

The ZLC is useful because like other technical indicators that measure price momentum, it demonstrates a potential movement trend in the price of a stock. Day traders may use this indicator in determining when they should buy in or sell out of a stock position.

How the Zero Line Cross works

The mathematics behind the ZLC can be distracting and abstract as it is used in tandem with another technical indicator called the commodity channel index (CCI) which is used in market timing of price cycles. The CCI uses a scale of 0-100, but also uses a scale of 0 -(-100). The zero line of the CCI scale is used in the zero line cross trading system along with another technical indicator called the moving average which is literally the moving average of a price over time.

When the price of a stock or commodity crosses the zero line of two long term commodity channel index lines i.e. price momentum as calculated using different time frames, a trader is signaled a buy may be in order. The indicator is stronger if the moving average is also broken by the stock or commodity price.

Many computer software programs perform the mathematical calculations needed to determine when the zero line is crossed in the appropriate way and do so in the form of a graphical representation or chart overlay. A few of the important aspects of the zero line cross trading system are the following:

• Price passes through both long term commodity channel index zero lines.
• The price of the stock or commodity also breaks through the moving average.
• The zero line has not been significantly surpassed

Calculating the Zero Line Cross Indicator:

To better understand the dynamics of the zero line cross indicator it can be helpful to understand the mathematics behind the calculation but is not always necessary. Three equations are used in the zero line system.

1. Price moving average
2. Commodity Channel Index (time scale A: Ex. 30 days)
3. Commodity Channel Index (time scale B: Ex. 60 days)

There are several ways to calculate a moving average such as simple moving average, typical moving average and exponential moving average with increasing accuracy in the same order.

The typical moving average is calculated by taking a number of days or periods stock price high, low and close values and dividing it by three and then adding each days typical price average and dividing that by the total number of periods. Symbolically it looks like this:

TMA=(H1+L1+C1/3)+(H2+L2+C2/3)+(H3+L3+C3/3)../N where N=number of periods and TMA=Typical Moving Average. And (H1+L1+C1/3)=TP or typical price.

Both the commodity Channel Index values are calculated in an ongoing manner using the same method for different time periods. The long term time periods allow the mathematician or software program to determine a 200 point index range from -100 to +100 and the calculation is as follows:

CCI=(average price of the stocks high, low and closing values-moving average price)/ .015 * mean deviation).

The mean deviation is calculated by determining the average dispersion of a time periods stock price about the mean. Symbolically the mean deviation is calculated as follows:

1. Calculate TMA for each day of the time period to be measured Ex.30 days using the above formula.

2. Subtract each days Typical price from the Typical Moving average for that day.

3. Add the new values up and divide by 30.

Summary

The Zero line cross trading system is a price momentum indicator that is usually used in an on going basis for short term trading while using long term values in its calculation. A range between -100 through +100 is determined by calculating the commodity channel index for a number of days in the past thereby establishing a zero line. This zero line becomes the indicator device through which the trader can better determine if a price trend shift is occurring. If the zero line and the moving average lines are broken this suggests to the trader a positive change in momentum in a securities price could occur.

Source(s):

1. http://daytrading.about.com/od/tradingsystems/ss/ZeroLineCross.htm
2. http://tinyurl.com/26s9rh
3. http://regentsprep.org/regents/math/absvalue/Labsolute.htm
4. http://www.answers.com/topic/mean-deviation?cat=technology

Understanding Day Trading Charts

Day trading charts are graphical representations of stock price movements and their derivative calculations and statistics. There are many different types of charts a day trader may refer to in any given day to assess, calculate, time and determine when and what to trade in. A few of the more common charts are listed below:

Stock price history and volume chart

The stock price history chart is the most basic of day trading charts and shows the movement of a stocks value over time periods selected by the day trader. These charts are often accompanied by a volume overlay or separate chart just below the stock price chart that indicates how many shares of the stock are traded and to what extent. These charts can be viewed as either lines, candlesticks or bars, each of which highlights a different aspect of the nature and behavior of price movements.

Stock options chart

A stock options chart is used by options traders to determine what price, and expiration date a stock option will be purchased at. These charts are not used by day traders alone, but also investment firms and investors. The stock options chart is divided into two sections puts and calls. The put section is for traders who are attempting to lock into a sell price on or before a certain date. The call section is for traders who are attempting to lock into a buy price on or before a certain date. Both the puts and the calls are divided further into month charts that extend several months into the future.

Technical analysis charts

Technical analysis charts allow day traders to view many different forms of analysis all at once. These tools are called indicators and are either overlayed onto a basic stock price history chart or take the place of the basic stock price history chart. The trader can refer to the price of the stock in his or her analysis. Some examples of commonly used technical indicators and overlays are moving averages, candlesticks, and Bollinger bands. Each of these helps a trader infer patterns in price movement and volume with the intent of predicting future price movement.

The technical analysis charts can become quite complex and include several other indicators such as commodity channel index, on balance volume, and rate of change/momentum. The purpose of these and other indicators is to help signal the following trends to a trader:

• Daily patterns in a stocks price and volume.

• Price floors and ceilings.
• Support and resistance levels in stock prices
• Changes in trends
• Stock price volatility

Stock charts are one of the day traders most important tools as they are the platform from which a technical trader performs a stock analysis. Each chart indicator and overlay presents price and volume related information that may or may not be contradictory. It is the responsibility of the day trader to interpret the signals based on his or her experience and know how.

The charts are useful tools but are not a guarantee of trading success. This is because the information presented in day trading charts is based on a wide variety of variables and not a controlled amount of factors as in scientific analysis. Nevertheless, day trading charts organize a large amount of data and analysis in to well presented graphical representation of what is going on. These representations most commonly take the form of graphs and sometimes numerical charts as in the case of options traders.

Sources:
1. http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis
2. http://www.thebulltrader.com/