Confirming a Trade

By Darlene Powell



Many students could avoid getting involved in unsuccessful trades if they conduct better evaluation. Here are some steps they may consider before entering a new trade or exiting an existing trade.
  1. 1. Look at both Micro and Macro (short-term and long-term) views of the stock. Sometimes it really makes a big difference to get out of the intra-day chart (micro-view) and go look at the bigger picture. Look at one month or longer chart (macro-view) to see the longer term trend. For some reason in the heat of the decision we you can feel so pressured that we you tend to forget to look at the big picture. It is hard to see the forest from the trees so if you are looking at intra-day charts, so do yourself a favor and check what the actual trend is by looking at the daily charts too.

  2. 2. Confirm a trading decision with other indicators. For an intra-day view consider using the TRIN and the TICK. For NASDAQ stocks, the $NASTRIN and $NASTICK, which can provide important information: .

    TRIN: It is a short term trading indicator. Essentially this indicator is achieved by taking the advances to declines spread and dividing that by the volume of advances to declines*.
    $1 or higher BEARISH
    $.80 to $1 NEUTRAL, meaning it means nothing to me
    $.80 or Lower BULLISH

    *If you are a technically minded person you can calculate this indicator. It is a ratio calculated as follows. Using Nasdaq Index, complete this formula: ((# of advancing issues / # of declining issues) / (Total up volume / Total down volume)).
    TICK: Gives me an idea if we are heading up or down in the short term*.
    200+ BULLISH
    + 200 to - 200 NEUTRAL ZONE
    200- BEARISH

    *If you are a technically minded person you can calculate the TICK indicator by subtracting the number of stocks heading down from the number of stocks heading up.
    COMPARE TRIN & TICK: At first look, notice that the two indicators are contrarians of each other. Which means that to be Bullish the TRIN will be moving lower and the TICK will be moving higher. To be Bearish the TRIN will be moving higher and the TICK will be moving lower.

    On the TICK I like to draw support and resistance & look at it like a stock to see if the indicator is heading down or up at a given moment. It is the movement and direction of the movement that indicates the strength of the direction.



  3. 3. Look at the market that the stock follows and confirm that the market is doing what the stock is doing (both are headed up, or down). The only exception is if news is causing my stock to go opposite of the market, then you may consider discounting I discount the market direction.

    To find out what market your stock actually follows overlay the market you think it follows on your stock (in the same chart). Some stocks do not follow the market they are in. For example KKD used to follow the opposite of the NASDAQ but not the NYSE (if the NASDAQ was going up KKD would be moving down). MSFT is listed on both the DOW JONES 30 and the NASDAQ 100 but it tends to follow the NASDAQ more.

  4. 4. Look back at the micro view to confirm your decision before jumping in or out of a trade. It is always a good idea to check the news too. And always know the earnings date of your stock before you enter a trade.