Stocks Trading

The Dow Theory

Dow Theory is a creation of Charles H. Dow, founder and editor of The Wall Street Journal. After his death, Dow Theory has been represented by William Hamilton, Robert Rhea and E. George Schaefer.

The Basics of Dow Theory

Dow Theory is a method of analyzing and explaining stock market trends and long-term cycles. According to the Dow Theory, there are three market forces determining every stock-market movement:

(1) Master Trends

(2) Secondary Reactions

(3) Daily Fluctuations

Short analysis of these three (3) forces:

(1) Primary Trends

The Primary, or else Master Trend, reflects the long-term trend of the market which is either bullish or bearish. The bullish trends usually last longer (7-8 years) and the bearish trends are more intense (last 1-2 years).

(2) Secondary Reactions or Medium-Swings

For limited periods, the market can move away from its primary direction. These movements are called Secondary Directions. These ‘reactions’ of the market usually last from a couple of weeks to 3 months. A secondary reaction generally retraces from 1/3 to 2/3 of the primary price change since the previous secondary reaction.

(i) In case of a bearish market, a secondary reaction is called a ‘bear-market rally’

(ii) In the case of a bull market, a secondary reaction is called a ‘bull-market correction’

(3) Daily Fluctuations or Short-Swing

Daily fluctuations correspond to chaotic daily market movements which may last from a couple of hours to several days. These fluctuations are chaotic and thus they are unpredictable.

The Dow Theory Basic Mechanisms

The Dow Theory aims to signal changes in the primary market direction, and in order to achieve that mission, it uses two popular stock-market averages, DJIA (Dow Jones Industrial) and DJTA (Dow Jones Transportation).

(i) If one of these two indices changes its master trend, then this movement is evaluated as a secondary trend.

(ii) If both indices change their master trend, then the master trend of the market is considered as changed.

How can we define the Change of the Primary Trend?

There are many methods that can be used in order to distinguish a Bull from a Bear market. For example, many analysts use the 200-day Moving Average. If the market is above its 200-day MA then it is considered bullish, and if it trades below its 200-day MA it is considered bearish. Numerous other methods can be applied.

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Trading Technology Stocks

Technology as a business sector has been traditionally one of the best stock-market performers in a Global scale. The stocks of companies like Microsoft, Google and recently Facebook and Samsung have delivered enormous returns to their shareholders in a couple of years. What really distinguishes the technology sector from classic business sectors are the great growth opportunities deriving from new emerging technologies.

What Characterizes the Technology Sector?

1) Unique growth opportunities (up to 30% annual industry growth)

2) The technology sector interacts with all other sectors of the economy

3) Need for investment capital in a huge scale (that is why all great players are listed)

4) Fast cycles of product obsolescence which create new demand after a couple of years

5) Weak strategic positions for most companies (empires can be created and destroyed in a couple of years)

Defining the Technology Sector

In general the technology sector contains hundreds of sub-sectors. Some of these sub-sectors are found in a primitive level (i.e. nanotechnology) other sectors are found already in maturity (i.e. computer hardware). Actually we could divide the technology sector in two main general categories:

(i) Sectors that involve companies which create sales, cash-flows and earnings today (Computer Hardware, Mobile Manufacturers, Networking etc)

(ii) Sectors that involve companies which are expected to create sales, cash-flows and earnings in the future (advanced robotics, nanotechnology, artificial intelligence etc)

Common investors should focus entirely on the category (i) and that means companies that generate today sales, earnings, cash-flows and probably they distribute dividends. It is very difficult to analyze, to evaluate and sometimes even to understand companies of the category (ii).

Technology and Sub-Sectors

From the grand total of hundreds of technology sub-sectors we can distinguish the four major:

(1) Semiconductors

(2) Hardware

(3) Software

(4) Internet Technology

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Trading Penny Stocks Basic Guide

What are Penny Stocks?

In general, Penny Stocks are stocks that trade below $5.0 per share. Penny Stocks are characterized by high price fluctuations in very short time periods. Trading Penny Stocks is very risky and it considered as the ‘Wild West’ of stocks investing. When a Penny Stock trades below $0.30 it is called as a Sub-Penny Stock.

Penny Stocks Characteristics

Here are the main characteristics of trading Penny Stocks:

(1) Priced below $5.0

(2) Trading in OTC Markets and not regulated by Securities and Exchange Commission (SEC)

(3) High Price Fluctuations in Short-Periods

(4) Low Daily Volumes

(5) High Distance between Buyers and Sellers

(6) High Risk / High Returns

(7) Not Suitable for Large Investors

(8) Low Reporting Requirements (increased risk of misbehavior)

(9) Can be used as ‘vehicles’ for not listed companies (in this case the price usually booms)

(10) The price of a penny stock can be easily manipulated by individual investors or a lobby.

Penny Stocks Orders

There are two major order types when placing a trade:

(1) Market Orders

You can use a market order to buy/sell a Penny Stock Share at the closer Ask / Bid price. The advantage of this order type is fast execution and the disadvantage is that you may fill your order in a much higher (when you buy) or in a much lower (when you sell) price that the current Market Price. Market orders can cause you great problems and they are suitable only when you are trading important news.

(2) Limit Orders

This order type can limit the price level that you will buy or sell a stock. The advantage of this order type is that you can be sure about the price that you trade will be executed. The disadvantage is the speed of execution. If you place your limit order in a high distance than the current market price, your order may need days or even weeks to be filled.

Wise investors are trading 95% using Limit Orders and 5% using Market Orders.

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NASDAQ Teck Stocks 

NASDAQ was founded in 1971 and began trading on February 8, 1971, it was the world's first electronic stock market. NASDAQ was also the first stock market in the United States to start trading online.

The Nasdaq Stock Exchange is the second-largest exchange in the world by market capitalization, behind only the New York Stock Exchange. The exchange platform is owned by Nasdaq, Inc. which also owns the Nasdaq Nordic (formerly known as OMX) and Nasdaq Baltic stock market network and several other US stock and options exchanges.

NASDAQ is owned and operated today by the NASDAQ OMX Group. Many important technology stocks are listed in the NASDAQ Stock Market, here is a full list.

Nasdaq Website: http://www.nasdaq.com/symbol/ndxt/interactive-chart

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