Newspaper Stock Tips

Investing Online - Stock Market for Beginners - Share Tips

Investing for Dummies

The FTSE is down around 125 points at the moment - the DOW, Nasdaq and S&P futures are down and the S&P looks likely to fall to around 740 today. Citigroup has been to all intents purposes nationalized because it's too big to fail - Ivanka Trump thinks CEOs are not paid enough and people should get off their backs and give the guys a break - "we need to pay the best people ludicrous amounts of money otherwise they will go somewhere else" - what best guys ? I haven't seen any recently - GM is bankrupt, Ford is not far off, Chrysler too, practically all the banks are slowly sinking into the mire - who are these highly talented individuals who need billions just to get out of bed in the morning - it's all nonsense !

The DOW may well see 6000 in the not too distant future by the way so hold on to your hats - learn to read the stock charts - and for the time being save your cash or short something if you're very confident - shorting the S&P seems fairly saf at the moment - but that isn't a tip or advice so don't blame me if they discover 10 trillion dollars under Superman's mattress.

For basic information on investing online and on the stock market for beginners see stock charts for dummies


Stock Market McClellan Indicator

Investing Online - Stock Market for Beginners - The McClellan Oscillator

What is the McClellan Oscillator?

The McClellan Oscillator indicator is used in technical analysis by stock market analysts, technical analysts and chartists. It is a "market breadth indicator" overlaid onto stock market charts which indicates the rate of money entering or leaving the market thus indicating when there is an overbought or oversold condition. It was devised back in 1969 by Sherman and Marian McClellan, and is calculated using the exponential moving average (EMA) of the "daily ordinal difference of advancing issues" (stocks which have risen in value) from "declining issues" (stocks which have fallen) over periods of 19 and 39 trading days. The formula used to plot the Oscillator is:

Oscillator = (19-day EMA of Advances minus Declines) - (39-day EMA of Advances minus Declines)

Each day, there are stocks that close higher (advances) and stocks that close lower (declines). The gap between these advance/decline numbers is referred to as the daily breadth. The cumulative total is referred to as the Daily Advance-Decline Line.

This number is important because it correlates closely with stock market movements and gives another way of quantifying market movements.

When a bull market comes to an end for example, there is the possibility that a small number of stocks will make significant gains which will propel the index higher, but in fact there are a lot more decliners than advancers. This indicates that the market is starting to turn.

The converse is true at the end of a bear market. A few stocks may take the index down although a lot of stocks are in fact rising. This can indicate that the trend is changing.

If the McClellan Oscillator is in the area of -70 to -100 indicating an oversold situation and then turns up a buy signal is generated. Sell signals are generated when the oscillator rises to +70 to +100, indicating an overbought situation, and then turns down.

If the oscillator goes beyond these zones (i.e. above +100 or below -100), this indicates that the market is extremely overbought or oversold. These extreme readings are, however, contrary to expectations, usually a sign that the trend in place will continue.

For example - the oscillator falls to -90 and turns up, thus generating a buy signal. If however, the oscillator falls below -100, the market will probably continue to fall over the next 2 to 3 weeks. Buying should be delayed until the oscillator forms a series of rising bottoms or the market regains strength.

Related post : online stock trading for beginners

Home : How to Trade Stocks Online


Stock Charts for Beginners

Stock Market Charts for Beginners - Investing in Stocks Online

Investing in Stocks for Beginners and Stock Charts

For beginners to stock trading looking to invest in stocks, it is important to understand at least the basics of stock charting and technical analysis.

What is Technical Analysis ? Technical analysis on the stock market is basically looking at past prices of stocks, indexes, commodities in the form of charts. Stock charts show where the stock price has been in the past and the trend, either up or down, in the belief that it is possible to predict where the stock price will be in the future based on the trend and various signals which can be seen in the charts.

This is not as strange as it may seem, as the way a stock price moves up or down is the result of decisions taken by a large number of humans and so the stock chart shows the result of human behaviour in graphic form.

It is also claimed that charts are capable of showing things that an actual analysis of the company's financial information will not show. As people who really do know what is happening with a company's financial situation trade the shares before everyone else, thus establishing a trend while everyone else wonders why the share price is moving up or down on no news. It is very useful for online stock trades to understand what the charts are saying.

A basic 20 Year Chart of Barclays

Even a beginner can see that this stock chart shows that Barclays reached a peak around 750p and then dropped like a stone. It is also claimed that close analysis of this chart before Barclays plummeted would have shown that the right course of action was to sell or avoid Barclays.
Stock charts or even charts in other areas of trading, such as in forex charting, are analysed in a number of different ways using a variety of technical indicators. The most common indicators used are moving averages. Moving averages are merely the average share price over a given number of days, for example the 20 day moving average or the 50 day moving average.

Barclays 3 Year Chart with 20 Day (Red) and 50 Day (Green) Moving Averages

Note that before the peak in early 2007 the share price was above the 20 day and 50 day moving averages, then moved below both the 20 day and the 50 day moving averages and has stayed there more or less ever since.

If the share price falls below a particular moving average this is usually seen as a sign that the stock price will fall further. A very important moving average is the 200 day moving average, if a stock falls below its 200 day moving average this is seen as being particularly negative as it often indicates the beginning of a long-term downward trend.

2 Year Barclays Chart with 200 Day Moving Average in Black

In this chart we see that Barclays share price moved below its 200 day moving average in mid-2007 and has stayed below it ever since, for an unusually long time in fact. At the time of writing it is still far below its 200 day moving average. [UPDATE - This chart is updating automatically and it can be seen that Barclays moved back above its 200 day moving average at the end of March after bottoming out around 50p]

6 Month Barclays Chart

The share price is still well below the 200 day moving average. When the share price moves above the 200 day moving average this would be considered to be significant for the long-term trend. [Update : Barclays is now down to 93p - so even further away from that 200 day moving average - on bad banking results in the UK and the continuation of the mess and more evidence of snouts in the trough] [UPDATE : the 20 day moving average (red) crossed over the 50 day moving average (green) back in March which is generally seen as a bullish signal]

This belief in the significance of moving averages reveals the main reason why stock charts are so important and why they can tell a stock trader and also stock market beginners, so much. Stock charts become self-fulfilling prophecies. As in the above example if a stock price falls below the 200 day moving average it is seen as negative, therefore a lot of experienced stock traders will sell when this happens, thus causing the stock price to fall further and thus fulfilling what the charts predicted i.e. because a lot of people believe it will happen, they in fact make it happen.

Similarly when a stock price moves above its 200 day moving average it is seen as a long-term positive move. It is significant in these terms of financial turmoil (2009) that a lot of banking and financial stocks moved below their 200 day moving averages a long time ago and so far do not show any sign of getting back above them.

In online stock trading for beginners investing in stocks, using stock charts to decide on stock trading strategies means that you do not have to know a company's financial fundamentals or understand how to read a balance sheet, you leave that to everybody else, all you neeed to understand is charts and indicators and what they mean or imply and most importantly what everybody else thinks they mean, as you as an individual stock trader will very much be a tiny cog in a very big wheel, so it is extremely important to understand what they very big cogs are thinking, and this can be seen in the charts.

There are three indicators that are very important to understand and study - Moving Average Crossovers, when one moving average crosses over another moving average (usually when both are heading in the same direction) - see 2 Year Chart above.

Stochastics which is an oscillator, and can shown when a stock has moved too high, too fast and is thus overvalued, or has moved too low, too fast and is thus undervalued.

Volume, i.e. the number of shares traded, in general it is considered a positive sign, for those who want the share price to go up, when there is high volume on days when the stock price is moving up and low volumes on days when the stock price is moving down.
If you are interested in investing online whether a beginner or an experienced trader then you really need to get to grips with technical analysis

Top : Investing in Stocks for Beginners

Home : How to Trade Stocks