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

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.

How George Soros Became So Legendary

There are few investors on this planet that have not heard of George Soros at all. He is a lightening rod of controversy for some and admiration for others. There is basically no in between. This is largely because of the interesting ways in which he has made his money and also because of the political actions he takes with that money.

George Soros made one of the most famous trades ever back in 1992 when he made a huge bet against the British Pound which netted him $1 billion in profit in just 24 hours. It was probably the quickest billion dollars anyone has ever made and one of the most famous trades ever taken, which later became known as “breaking the Bank of England”.

At the same time, it was a huge bet which just as easily could have gone against him but if you want to make the big bucks you have to risk big bucks. It was definitely a gambler’s move, and not something that would be recommended for just your casual investor. Despite this, Soros made out like a bandit and has only continued to grow his net worth averaging over 26% for the past 41 years. In fact, if you would have invested $10,000 with Soros back when he started in 1969, it would be worth over $143 million!

Why Is Soros So Controversial?

George Soros certainly draws enough criticism from the public. This happens as a result of his liberal political outlook and the fact that he backs liberal causes all throughout the world with large amounts of money. Most recently, George Soros was involved with giving $25 million dollars to the Hillary Clinton for President campaign as well as other Democrats running for office in this most recent election. This particular investment did not pay off, but Soros drew ire from the political Right regardless.

The billionaire has also been active in working on the Syrian refugee crisis. He has tried to work with European countries and others to resettle those who are escaping the brutal civil war in Syria. He considers this a humanitarian crisis and wants to do what he can to prevent people from suffering more than they have to. Of course, even this is something that draws scorn from some people who disagree with such actions.

In Retirement But Still Picking Stocks

Soros has officially declared that he is retired from the day to day stock picking that he once did for his funds. He has more than enough money to last the rest of his lifetime as well as the lives of his children and their children and their children and so on. As a result, he spends more of his time working on the political and charity causes.

The fund still continues to select investments and gather new investor’s money for its operations. Some recent changes to the fund included purchasing up Tivo shares and massively reducing shares of Dish Network. This could be indicative of a move that goes to show that Soros and his investment funds believe that the world of technology is moving towards a different way of how we use our technology.

The fund has sold out of a lot of its gold positions, but Amazon is getting a lot of love from them. It is great to see because all of this information is available to even people who are not invested in the Soros funds. The information is a little delayed compared to when the trades are actually made, but it is still valuable insight nonetheless.

Although his ways may be controversial to some, there is no question that George Soros is one of the savviest investors in the history of the world. He knows what he is doing, and his results speak for themselves.

3 Reason Why Investing In Trading Education Is Important

Let’s begin with an intimidating, though very real, truth: trading did not get to be such a lucrative endeavor by being a straightforward practice. While the concept itself is easy to understand, the millions of intricacies involved in smart, successful trades aren’t something that can be casually picked up.

Trading isn’t a paint-by-numbers undertaking, either – there’s no such thing as a ‘one true way’ when it comes to trading. The best way to approach it as a newcomer, or even as an experienced trader looking to hone their skills, is to absorb research and listen to several expert opinions as part of that research.

Still not sure where to start? Here are the three core concepts for trading education that seasoned, consistent traders follow to stay on top market fluctuations.

Get a Mentor

The best asset to your trading is having a knowledgeable mentor in your corner. Even the most well-written book or well-structured online trading course can only cover so many contingencies! When you run into a unique scenario and money -your money – is on the line, why gamble when you could ask someone more experience for help?

A mentor can ensure that your trading practices get off on the right foot, as well. If you develop bad habits or emotional triggers early on in your trading career, it’s going to be that much harder to “shake” them later on. Remember: your mentor has likely had the same fears, the same apprehensions and the same mistakes under their belt – learn from their mistakes and the student might even surpass the teacher, in time.

Understand What You’re Doing

We’re all guilty of coasting somewhere in life – getting the “gist” of something and just letting inertia carry you to a result. Trading, however, is not a High School literature test – it’s an important structure of rules, probabilities and information that could make you a lot of money. It’s not enough to know that cause A affects company B, you’ll need to know why that affect changes things in order to be a knowledgeable trader.Are industry trading magazines, blogs and corporate research efforts a little dry at times? They certainly can be. That doesn’t mean they aren’t important as part of a holistic trading approach. Taking online trading courses may come with an upfront cost, but what they offer in structure and support is priceless. In addition to the course materials, you’ll get access to a community of fellow traders, which will allow you to clarify ideas and discuss strategies with other traders at your level.

When it comes to pre-made trading blueprints, following – not blindly following or copying, but keeping an eye on – certain systems will help keep concepts fresh in your mind and promote understanding. That brings us to our final point…

Forge Your Own Trading Path

The beginning trader could throw a stone and hit a dozen sources that claim they’ve “cracked the code” for 100% successful trading. Not only is that statistically improbable, it’s made to appeal to lazy traders that aren’t willing to put in the work to succeed. No matter how “foolproof” a trading system seems, always filter it through your mentor and your own trading research to ensure it’s worth pursuing.

An old saying also holds true, here: don’t count your chickens before they’re hatched. While it’s important to get comfortable with risk in trading, don’t bet the farm when you’re still learning the ropes. As you practice your trades and build confidence in your methods, success will follow naturally.

Pursuing a Gap-and-Go Trading Strategy at the Opening Bell

Drawing on the knowledge of experienced Wall Street swing and day traders, Warrior Trading enables investors to consistently take advantage of market fluctuations. The active professionals at Warrior Trading employ diverse strategies, including momentum, reversal, and gap and go.

A disciplined approach to shorting stocks, gap trading involves actively seeking out those stocks displaying a significant price gap from the previous close. Warrior’s gap-and-go strategy employs Trade-Ideas scanners in identifying gappers. This is followed by a look into the catalyst for the gap. Pre-market highs are marked, with an emphasis on finding stocks that hold the upper end of the gap and are not being sold off prior to the opening bell. 

An order is prepared for stocks that meet specific criterion, aligned to pre-market highs. During the first minute, opening-range breakout (or candle) gappers are purchased, with stops placed on the low of the candle. 

Reasons for this strategy being successful, with an opening bell squeeze occurring despite previous gapping, has to do with the event catalyst that has often just occurred. Retail traders are anxious to jump onto a stock that is already trending upward, secure in the knowledge that further gains can often be realized in the first half hour of trading.