Lagging Indicator Definition: Day Trading Terminology

This is an economic statistical indicator known to shift after macro economic conditions have shifted too. It also refers to a measurable indicator which has been found to change only after the economy itself has started to shift and follow a particular trend. According to financial experts, lagging indicators are technical factors known to trail the price action of an underlying security.

It is commonly used by traders with the purpose of generating transactional signals or even to confirm the strength of a given pattern. That is why a significant shift in the market occurs just before the indicator provides a signal.

A lagging indicator is beneficial when it comes to confirming long term trends but sadly, it does not predict them. Furthermore, it helps financial experts and business people to understand the economy and factors that shape it. That is why paying attention to lagging indicators gives one ideas on the direction of the economy allowing you to plan your finances or career beforehand.

Examples of lagging indicators
i. Unemployment rate
ii. Corporate profits
iii. Labor cost per unit
iv. Interest rates
v. Consumer price index

Unemployment Rate

Let’s face it; majority of nations around the world are faced with high unemployment rates. Graduates are leaving college and university for the job market only to find that no opportunities are available. Those that are available pay meager earnings which can be difficult to meet monthly needs like rent, food and student loan repayment.

One thing you need to note is that unemployment is used by economic experts to measure how many people are searching for work. That is why for an economy to be rated as healthy, the unemployment rate should be around 3% to 5%. This is not so in many nations.

The higher the unemployment rate, the less money people have to spend which in turn affects businesses like retail stores. The problem further affects housing markets, stocks and the GDP among others. While it’s a great indicator, unemployment rate can also be misleading. This is because it only reflects the unemployed who have sought jobs within the past four weeks.

Corporate Profits

It is a common practice for companies to announce their pre-tax and post-tax profits at the end of every financial year. This is so for publicly traded companies. The reason for doing so is to reveal to the shareholders how the company has performed.

Corporate profits are synonymous with the rise in GDP especially when they are strong. This helps to reflect an increase in sales finally encouraging job growth. Despite the good news above, corporate profits don’t reflect a healthy economy.

In 2008, nations around the world experienced economic decline as a result of recession. No one had predicted this outcome because several companies had experienced increased profits due to outsourcing and downsizing. The result was more jobs were taken out of the economy which shows that this economic indicator displayed the wrong outcome.

Labor Cost Per Unit

In the manufacturing sector, direct labor costs are determined by how quickly and efficiently factories are able to produce complete items. The costs do vary with every production run but to ensure efficiency, they have to remain within the same variance range. With the labor per cost unit, one can be able to identify why the actual costs are higher or lower.

As a lagging indicator, labor cost per unit has been found to increase when manufacturing companies produce less per employee. This has been attributed to slower orders. As a result, companies will begin to lay-off workers in order to survive. This will result in higher unemployment rates. Factories may also opt to produce more which may result in a surplus.

Interest rates

In the financial world, lending is a common phenomenon. It allows individuals and businesses to seek financial help which can be used to start a new business or expand the existing one. While financial help is readily offered, there is a catch…interest rates. This is the cost of borrowing money.

It is based on the federal funds rate and represents the rate at which funds are lent from one bank to another. The rate is normally determined by the Federal Open Market Committee.

What you need to know is that the rates do change as a result of economic and market events. If the federal funds rate rises, lenders and financial institutions will pay higher interest rates. This cost will definitely be passed down to the borrowers. As a result, borrowers will be discouraged to borrow resulting in the stagnation of the GDP growth.

Low interest rates can lead to inflation which distorts the economy and currency value. That is why interest rates are vital economic indicators.

Consumer Price Index

This is a factor that measures the weighted average of prices of consumer goods and services. Some of them include food, medical care, shelter, clothing, electronics and transportation among others. Financial experts calculate the index by considering the price changes of every item in the predetermined basket and averaging them. As a result, the changes are used to indicate the cost of living.

The consumer price index is reported on a monthly basis by the US Bureau of Labor Statistics. Two types are reported:
i. CPI-W
ii. CPI-U

CPI-W is used to determine consumer price index for urban wage earners and clerical workers. CPI-U is for urban consumers. A higher cost of living results in inflation which in turn erodes the value of the currency. This has been found to decrease the purchasing power, job growth and GDP. In case of deflation, the results could be an economic depression.

Final Thoughts

A healthy economy creates a suitable environment for businesses to thrive. Not only will new start-ups be opened but more people will be employed, borrowers will experience moderate interest rates and the cost of living will be favorable.

To determine the health of an economy, it’s wise to use lagging indicators. They include unemployment rate, corporate earnings, labor cost per unit, interest rates and consumer price index.

Let The Next Five Minutes Save Your Trading Career

 As a beginner trader, one the most important concepts to understand is all about psychology. The sooner we figure this out, the faster we’ll get the desired results. There are so many great books about this matter that I recommend you reading (my favorite one is “Trade Mindfully” by Gary Dayton) that go further in detail on describing how complex we’re built as human beings when it comes to mind balance.

In particular, dealing with losses is by far the biggest issue among traders (read more about it in my previous blog post here). From the newbie to the most veteran of all, every single one of us will experience getting stopped out of a trade, realizing a loss. Especially for day traders, from this point on the strongest desire is to immediately make it all back. The problem is now that the emotional composure can be in real trouble causing the ability to get good decisions about the next trade to be seriously compromised.

In fact, I personally believe that the capability to promptly bounce back and recover from a loss is one of the hardest to achieve when it’s much easier to jump into another trade and, next thing you know, to get into even deeper holes. If you’ve ever found yourself in this situation, here are my own four practical instructions to deal with it.

Add these four practical steps to the trading routine

Right after a losing trade (more importantly, in case this is the first trade of the day) I highly recommend to:

1. Stop Trading for 5 minutes: take a deep breath and start the countdown timer. Until it doesn’t reach zero, do not take any more trades. Until then, focus on the next two steps.
2. Write down your emotional state: always keep a pen and a sheet of paper nearby the trading station. Whether is anger, frustration or anything else it doesn’t really matter. Writing down how you feel is an effective way to start letting it go.
3. Have a short walk: this will allow your mind and body to “physically” get rid of that sensation and, also, you can take advantage of this time to mentally post-process the trade. Did you respect the trading plan? Remembering that losses are part of the game always help.
4. Wait until the next “A” quality setup: get back to the trading station, make sure that the countdown has finished and start hunting for the net “A” quality setup to present itself knowing that now, after only five minutes, you may have recovered the proper psychological state to start trading again.

Of course, this time-span is arbitrary and can be readjusted to fit your own personality. A great approach can be to lower this countdown time as experience grows. The main point remains that discipline, perseverance and patience will make a trader being successful in the long run.

“Use the losses and failures of the past as a reason for action, not inaction.” -Charles J. Givens

See you in chat-room!

Trade safe,

Roberto Barbaro

The Ultimate Answer For Questions About Freedom

When I decided to radically change my life and to focus entirely on trading (read more about it in my previous article here), of course I did not know exactly what was lying ahead for me. But luckily, I decided to look at the mystery behind that state of uncertainty more as a stimulus than a hurdle that would have prevented me to move on. I’ve just had enough of the 9-6 office habit that I was willing to sacrifice the level of comfort I had gained and got prepared to start completely new.

During this phase of my life, I started digging deeply within myself with the only goal of working for something I was really passionate about. I quickly realized I wanted to learn how to trade mainly because I’m literally in love with the process of doing that (and, yes, I’ve done another article about this you can read here). With that said, I also love doing many other things, including a profound passion for traveling the world.

In fact, one of the greatest benefits about trading that has always been fascinating to me is the possibility to do it from potentially anywhere in the world. In my opinion, this is by any means, the ultimate definition of freedom. And I was in desperate need of that! But, that’s another story, because here I want to give you my best possible pieces of advice about trading “on the go”.

The top 4 tips for trading “on the go”

I always like to give my contribution to traders in the best possible way to truly help anybody that would find himself in the same situation. Personally, this is the first time I’m actually traveling and trading away from my main trading station. So here is what I’ve in store for you that I’m learning from trading and traveling:

• Make sure your laptop has every tool and is set up with everything needed for your trading activity and test your traveling environment for at least one full trading day while still being at home;
• Trade with lower size than usual, especially at your first experience. I’d suggest to not go over 50% of the normal sizing. You don’t want to get overexposed in a non-familiar environment;
• You’ll never have the exact same setup or layout that you have in your main trading station at home and that’s ok. As traders, we always need to adapt to the surrounding circumstances, this is a great chance to prove yourself you can readjust to them. I’ve started trading with as little as one laptop and an iPad used as an external display and I can tell that’s enough to make money, as long as we’ve brought the skills to do so;
• Prepare a checklist that contains everything you need when packing the next time. This will allow to have everything you need to perform the trading activity once you have a stable internet connection. And remember to keep updating it as your needs evolve.

“Man cannot discover new oceans unless he has the courage to lose sight of the shore.” – Andre Gide

See you in chat-room.

Trade safe,

Roberto Barbaro

Grinding Out A Challenging Month As A Day Trader

Hey all, JohnL10 here!

Now that April is over, I can put some of my thoughts on paper about why I think it was a challenging month for both long and short biased small-cap traders.

From my perspective, there hasn’t been much follow-through on positive corporate news from the companies that we focus on, and it seems like we’re on the tail end of a lot of hype from earlier this year. Contrary to Q1 of 2017, where I have already made more than a 6-figure salary in 3 months, Q2 is starting to be much more challenging.

Here’s the run down:

Many of the stocks that we’ve traded in Q1 have raised a lot of capital, even back during Q3-Q4 of 2016. During that time, stock that was sold to private investors gets locked up and is restricted from trading. Most lock ups are anywhere from 3 to 6 to 12 months long.

I feel like for the entire month of April, maybe those shares are now unlocked, and those investors are selling at any price, thus what is making stocks that gap up on positive news, make new lows and go red on the day, sometimes often making a new low right before market close. Something like that, isn’t short-biased traders pounding a stock down, it’s financers selling their unlocked shares all day long, taking easy profit off the table.

That’s not anything new if you have experience in the capital markets, or know anything about how these companies are financed. Debt, or worse, toxic debt is sometimes the only way for these companies to raise money and keep the lights on. Now of course, short sellers take advantage of the opportunity and take a small piece out for themselves, but from what I have been seeing, it hasn’t been easy for shorts either.

The market is crowded and every newbie trader wants to short, making many trades difficult. This also is making borrowing very hard for the more experienced traders. They are left with only the hardest and most expensive borrows, which makes their trades quite limited. It got so bad I have even seen short biased traders tell new people to go long! They want people off their playground.

It’s quite simple, if traders see stocks keep going up, like the shipping mania for example, everyone wants to go long. Then a trend-shift, traders see stocks giving back almost all their gains or more, they want to go short. For me, I stick to what I am good at. I go long, and the only difference in this kind of market is how long I go long for.

The reality is there’s a finite amount of borrows out there, and if enough people want to go short, there won’t be any supply. So what happens then?

The market usually corrects itself and punishes naïve traders via a short squeeze.

The market gives and it takes, but when it takes, you must hold on for dear life. In the screen shot below of my trading P&L for April, I make an analogy about walking into traffic. You don’t want to stay out there for too long or you will get killed.

That’s how April was as a long-biased trader. If you overstayed your welcome in a trade, you were killed. If you stepped out at the wrong time, you were killed. If you stepped out in front of the wrong trade even if you timed it right, you were killed, if you tried to make any bias about corporate news, you were killed. There was only 1 way to live, and if you figured it out soon enough, you might have done well. If you didn’t, you learned something about yourself and will become a better trader.

I am not sitting here all high and mighty, trading is a very difficult. Emotions are not easy to overcome, as they keep changing and becoming more complex as you evolve as a trader. The emotions you had when you started to trade are long gone and now suddenly, you have much more different emotions. It’s a constant struggle with ones self.

The reality is from 4/12 to 4/28 I was almost red every other day. Being up 4-figures, and then a small 3-figure profit. Then being up 4-figures again, and then up only 3-figures. Those 3 figure days I barely got out alive. I was probably even red on most of those days and somehow came back to green.

So what’s the end result? I still grossed $21K on the month, averaging about $1.1K per day for the month of April. A $21K month is $250k+ a year in just capital gains. I am cool with that; especially considering that I have other businesses that provide income! The most important thing I had to realize was, I really needed to not have a big red day, as I knew, if we never saw a good trade for the rest of the month, it would be hard to recover.

The strategy I trade is very similar to what Ross trades day to day and what he teaches in Warrior Pro course. Although Ross himself had somewhat of a difficult month, he also has additional pressure of being the head moderator who voluntarily reports his entire trade history daily. That’s a lot of stress that I don’t have. I don’t know any traders that do daily video recaps, showing their P&L like he does throughout the good and the bad, only to have people judge you. So you have to give a certain amount of respect for that, it’s not as easy as it seems to lead, trade and teach, all at the same time.

So that about wraps up what I wanted to say. Many traders can trade the same strategy and have wildly different results, and I think April is a good example of that.

Keep it up, and see you in chat.

Why Do I Want To Day Trade?

People often ask me, “Ross, what made you want to start trading”.  My path to becoming a full-time Day Trader was far from direct.  Although I’ve always had an interest in the stock market, growing up in Vermont and living in the country led me to believe a career on Wall Street would never be in the cards for me.  Through my years in school I decided to study fine art & environmental science by taking classes focused on environmentally sustainable architecture.

From Working In NYC To Day Trading

In my final years of college I began looking for an internship at a design firm.  I was hired at an interior architecture studio in Manhattan, first for a 3 month internship, then as a full-time employee.  During my time working there I managed construction budgets, filed our projects with the Department of Buildings, and assisted with design development and material sections.  Since I was working at small firm I was able to do a little bit of everything.  In those years I would work 12hr days and I was making less than $50k/year before taxes.  Eventually I got burned out of living in NYC and working such long hours.  I think there were probably dozens of people lined up after me to go work the same position in hopes of it being their foot in the door to something bigger.  It was a good resume builder, but I didn’t feel the upward potential was there to justify continuing to work there.

I Was Sick Of The 9-5 Grind

I had lost my passion for architecture.  I wanted more from life than working 12hrs/day on thankless tasks.  Once I realized I couldn’t do it another day, I put in my 2 weeks notice and moved back to Vermont.  This was before I even knew that Day Trading would be my future.  All I knew was that I couldn’t keep punching the clock.  In the first few weeks after quitting I felt such a huge weight lifted off my shoulders.  I told myself I was now going to take control of my future!  The only question was what would my future contain?  As I looked for work and began to realize prospects were slim, I stumbled back onto the idea of being a trader.  I decided specifically to research day trading.

Becoming A Full-Time Day Trader

With the boom in online day trading that started in the late 90’s, it was now common place for people to make a living trading the markets from the comfort of their own home.  After some preliminary research, my goal was to make $200/day as a day trader.  That income would fully replace my salary from working in NYC, could be achieved from the comfort of my own home, and ideally, would only require 2-3hrs of work/day.  This was the beginning of my journey that has lead to me where I am today.  Little did I know making $200/day is easier said than done!  In my first 18 months I made zero profit.  Through trial and error, I lost over $30,000.00 testing different strategies and I spent the majority of my life savings keeping myself afloat.  But I was hooked!  I knew the potential if I was able to succeed and I refused to quit.  Eventually I discovered a pattern in the market that led to the creation of my momentum trading strategy.  That strategy is now the basis of the Day Trading Courses we teach beginner traders every day.

Finding Your Passion

Having gone through years of grinding a 9-5, and years of struggling to learn how to trade, the biggest lesson I’ve learned is that you have to follow your heart!  You need to have a passion in life.  Once you find your passion, and for me it’s been day trading, you’ll become 100% dedicated to making it work.  Today I am living my dream life, and I’m teaching other beginner traders everything I did to be a success.  Our Warrior Pro trading course is designed to teach beginner traders the exact same strategies I use to trade the markets everyday.  Even though I’m back to working 12hrs/day, I enjoy every minute of it.  I wish everyone could have the same level of excitement I feel every morning when I wake up.  This is the joy of doing what you love & loving the life you live.

4 Technical Indicators That Every Day Trader Should Know

Trading is one of the most complex, challenging and intimidating professions in the world. On the one hand, you have so many sources of information available that it is impossible to absorb it all.

On the other hand, even with all this information available to you, every single trade you make will still contain an element of uncertainty.

Fortunately there are a few key sources of information that are always relevant for any trade that you make. Here are 4 top technical indicators that will help you to make smarter trades every single time.

Relative Volume

Relative volume compares the current trading volume to the average volume for the same time of day. It is displayed as a ratio. For example, if a stock is currently trading at 5 times its average volume for that time of day, then the relative volume would be 5.

Relative volume is an indicator of how much action a stock has seen so far that day. A score of less than 1 means that the stock is moving slowly compared to most other days, which indicates that it is not a great candidate for trading on that day.

A score of 2 or more indicates a lot of interest, and means that there is a good chance for a significant price move which is what day trader want. You can also use relative volume to help you determine the size of your position.

The higher the relative volume, the more “in-play” a stock is and the greater the chance of a significant move.

Time & Sales

Time and sales is an indicator that displays all the trades that have been executed, along with the time and size of each trade. A green print indicates a trade executing on the ask price, and a red print indicates a trade executing at the bid price. White prints are for trades that cleared between the bid and ask.

Time and sales shows the number of shares being executed at which price, which offers insight into the current aggressiveness of traders. This indicator is excellent for helping you to choose entry and exit points for each trade and identifying likely pivots in price.

You will often notice a swift acceleration of trading volumes as you approach likely pivot points, which means that there is a good chance that prices will quickly reverse.

It takes a bit of practice to get a feel for using the time and sales indicator, but it is an essential component of any informed trade.

Volume Weighted Average Price

Volume weighted average price, or VWAP, is a technical indicator calculated by finding the total value of all shares bought in a day (each share traded multiplied by the price of the trade), and then dividing that number by the total number of shares traded that day. The result is an average price based on the weight of volumes traded at different prices.

This indicator is ideal for identifying good prices to enter and exit a position. The opening and closing prices of a stock may be a poor indicator of the true demand and supply for that security.

VWAP helps to bring additional context to a stock’s price by showing the average price where significant trades are actually being made.

Level 2

Level 1 indicators is the current bid/ask quote for a stock. Going one step further, Level 2 displays price quotes at each price level and the name of the market maker that is holding the order.

It is crucial to remember that every disappearing order does not indicate that it was necessarily filled. Market makers can pull their orders at any time, and Level 2 just displays open orders.

The information that Level 2 provides is very important for every trade. This information allows you to identify points of significant price support that the simple bid/ask spread provides no indication of.

In essence, Level 2 allows a preview of the kind of trade volume that you can expect at different prices as the bid/ask spread moves into that price region.

3 Ways To Tell If  Stock Is Bottoming

Traders and investors well versed with the business know that it’s better to purchase assets (stocks, options and ETFs) after they decline rather than when they have risen. Buying assets when they are priced low may seem like a wise strategy because you think profits are just around the corner.

One thing you need to remember when buying low is to be cautious. If you buy a stock after it has experienced substantial decline and believe the present conditions will lead to its decline further, abort the trade.

Bottom in day trading refers to the lowest price reached by a commodity or index within a given period of time. The time frame can be a year, month or intraday. In order to determine the future price of a stock, option or index, analysts usually determine the bottom of a particular security.

The history of a stock’s price movement and trading volume is used to know future prices of securities. Analysts believe that price movements are trends and not random occurrences. Dozens of price patterns help to decide if a stock should be bought or sold.

Here are the technical aspects of a stock bottoming.

Look For Increased Volume

As an investor or trader, there are clues you can use to determine if a stock is nearing a point bottom. Majority of analysts’ reason that stock prices and relative volume are the two most important indicators. According to analysts, securities tend to bottom when few sellers are available for a particular stock. When few sellers exist, more buyers remain and if the buyers will be willing to pay a higher price, it means the price bottom will have formed.

What you need to know is that stock volume adds credibility to stock prices and price direction. This means that the higher the volume of stock bottom, the stock will not experience lower prices in the near future. For stocks to bottom, they have reached the inflection point.

The inflection point refers to an event that changes the progress of a company, economy or geopolitical situation. It is the turning point after a dramatic change where positive and negative results are expected. Inflection points are significant and its effects are well known and widespread.

It is also where the direction of a curve deflects as a result of an event. So, if fewer sellers exist selling at lower prices, people will be looking to sell high and if buyers remain, the prices of the securities will rise.

Look For Prices To Reclaim Moving Averages

Moving averages help to smooth out price data forming trend following indicators. They don’t predict price direction. They define current direction with a lag. Despite the phenomenon of lag, moving averages help to smooth out price and filter our noises. There are two popular types of moving averages.

a. Simple moving average
b .Exponential moving average

Simple moving average is usually formed when the computing average price of a stock is over a number of periods. Since simple moving average is based on closing prices, a 5 day simple moving average is calculated as the sum of five days divided by five.

Exponential moving average is formulated to reduce the lag. It achieves this by applying more weight on recent prices. Three steps are involved when it comes to calculating EMA. The calculation begins with the simple moving average which should be in the previous period as the EMA. The calculation proceeds with weighting multiplier finally concluding with EMA calculation.

As said earlier, identifying trends is a key factor of moving averages. It is used by most traders who want to make the trend their friend. When it comes to stock bottoming, traders have a higher chance of success by considering prices to sell high. One way of doing so is by using short term moving averages of 9 to 20 EMAs.

Confirm With Major Indicators

The Moving Average Convergence/Divergence oscillator or MACD was developed by Gerald Appel in the late seventies. It is one of the simplest and most effective momentum indicators. It helps turn two trend following indicators into a momentum oscillator. MACD achieves this by subtracting the longer moving average from the shorter moving average. This means MACD ends up providing the best of both worlds: trend following and momentum.

When it comes to stock bottoming, MACD and RSI are great indicators. MACD is known to fluctuate above and below the zero line. Relative Strength Index (RSI) is an indicator developed by Welles Wilder. It helps to compare the magnitude of recent gains and losses. Using both indicators, traders can turn from oversold conditions and start heading up.

Look For a Higher Low

In trading, there is no crystal ball to reveal to you when the prices are right to buy or sell. The only way to ensure that traders have made wise decisions is by implementing sound strategies. One of those strategies is putting in a higher low from previous low when it comes to stock bottoming. This will help to avoid buying into securities that are falling. Going against the grain is a strategy many traders feel works well when it comes to stock bottoming. As a trader or investor, it’s worth your time to read the signs and get to avoid losses.

Bottom line

Every investor wants to know when prices are about to make major changes in any direction that is top or bottom. By looking for major indicators like MACD and RSI or for increased stock volume, traders and investors alike can determine stock bottoming clearly. Furthermore, it will make you a more successful trader or investor.