Introduction to Alessio Rastani
Now, due to the newness of this blog I have not yet had the chance to discuss Alessio Rastani. Personally, if you will forgive the language, I really jive with his approach. If you haven’t heard who he is, check out this 3.5min video of him on BBC talking about the economy.
This video has now been seen more than 2 million times and has really propelled him and his website to whole new groups of people. In fact, this is how I first heard of him. However, unlike what seemed to be the media response of berating the guy for telling the truth, I really appreciated the truth and agreed with him. As such, up until the past few weeks I have only traded long term trends, particularly precious metals and commodities. With his help from his FREE blog I have been able to effectively increase certain stocks by trading in the short term while looking to the long term. But that is a different topic for a different day.
The Absolute Beginner’s Guide to Trading
The topic of today is to introduce you to Alessio and review his recent, free, webinar titled The Absolute Beginner’s Guide to Trading. In short, it was well worth the time. I had to take the day off of work due to timing issues, but again it was utterly worth it as I think it will have a positive impact on my future finances; much more so than the cost of spending those hard earned vacation hours on something besides vacation.
Keep in mind that this review is not intended to give out all the pertinent information from the webinar, but rather a broad overview interspersed with my comments and thoughts. A review. If I were to give out all the pertinent parts, well my name would be Alessio and not John.
So let’s get to what he talked about and what I found interesting, useful, or wrong even (okay, well there wasn’t a whole lot of that).
In the beginning he emphasized some mindset issues. I probably don’t need to go into mindset much as I’ve recently done a couple posts on that with the recent SilverCorp allegations as well as a post on a different way to look at your wealth. But in short, Alessio details how trading is NOT easy, it is hard work, it requires effort, it requires mental exertion and expansion. It’s psychological.
He talks for a bit about some of the BS (Baloney Sandwhichs, ie: nonesense) that is currently available on the internet and goes through a few of the styles you’ll see. In fact, yesterday Alessio posted a video from that webinar that details just that. Check it out below.
Technicals Versus Fundementals
Alessio is a Technical trader. He states that quite clearly, and he isn’t so fond of Fundementals. While I know more about fundamentals (easier to grasp initially), I do think Technicals are extremely important. First, the difference between the two.
Technicals examine charts for trends & patterns. I’m sure you’ve seen a few charts. Here is a chart from Alessio’s facebook page (as of 11/5/2011) for an example, click on it for a larger view. Now, in general I haven’t really liked technical analysis in the past because I never really understood it that much, besides the basics of trends and forecasting. However, Alessio’s reasoning behind the Technicals makes complete sense and I am now working hard on adding Techincal trading as an influential aspect of my finances. His reasoning for being a Technical trader is that the Markets represent an aggregate of all that one can know about the Market. The billions of interactions with it everyday by people around the world with all their varied sets of pertinent information cause it to be the best source of information. As an avid free-marketer, that rings true with me. Prices are one of the bases for social cooperation; it allows for an immediate understanding about value with pertinent risk/profit potential.
To borrow from Investopedia: Fundamentalists trade companies based on fundamental analysis, which examines things like corporate events such as actual or anticipated earnings reports, stock splits, reorganizations or acquisitions.
My comments on Fundamental analysis is that I think it is also an important part of investing. Not of trading. Technical analysis seems much better suited to short term trading; but Fundamental analysis seems well suited for assisting in longer term speculation. Fundamentals are great for finding undervalued companies that you think will become overvalued if a certain speculation plays out. Like buying Mining stocks if you think certain commodities will substantially increase in price.
Now in this next section which comprised a very decent part of the webinar the discussion turns to Stock analysis, what to look for, what to watch out for, how to mitigate your risk, tools and indicators to use and other important and useful information.
What makes a good stock?:
So what composes a good stock to trade? How to choose; and their are quite a few choices – ever tried to pick a random stock?!. A few suggestions he makes to look at to narrow your search.
http://www.marketwatch.com/tools/industry/ for examining what the highest performing indices are over given period. You can adjust the period to your own liking, Alessio recommends 3 months.
Alessio then discusses what he considers to be the four pillars of sound analysis: Price, Volume, Momentum, & Risk. Useful information on all of those.
Types of Charts
The webinar spends a bit of time detailing out how to read Bar Charts and Candle Stick charts. Both are quite common. The picture I gave above from Alessio’s Facebook page is an example of a Bar Chart. Alessio suggests picking one style and sticking with it. The more you use one the easier it is to read it, interpret it and make decisions.
Support and Resistance
So here is where he really gets into some serious meat. Excellent actionable advice from here to the end of the webinar. Now don’t get me wrong, the early parts are very important as I’ve discussed, but once you got that down; you need the meat to continue otherwise you may be left wandering down a path of lost riches. 🙂
Here are a few key points on Support and Resistance: Support and Resistance may often look like lines on a chart, but they are never lines. They are always Areas. Areas of support, areas of resistance. The webinar goes on to discuss how to look for Support/Resistance areas which include Highest Highs, Lowest Lows, major tops or bottoms, …
He gives a time frame to look for as well. I found this very useful as it gives an immediate bit of assistance on initially setting up a chart.
Trends vs Oscillations
Trends are upward or downward moving stocks. Oscillations are generally stocks that oscillate around a given line. As beginning traders Alessio advised us to avoid oscillating stocks and go with existing trends. Oscillations are easy ways to get your wealth slaughtered. Hmm, I’m second guessing myself here, Alessio may have advised against using Moving Averages on Oscillations and not against Oscillations in general. I can’t recall, but he did state that attempting to trade with Moving Average indicators on an oscillating stock will lose you money.
This was one of the key parts for me. I know how to read charts, but what indicators due I use?! Moving Averages are simple and powerful. It only takes basic math to understand moving averages. He brings in an example of a John W Henry, who made so much money on Moving Average indicators that he now owns the Red Sox. Powerful stuff. In this part of the webinar Alessio details how to use them, and how to use multiple moving averages to give you definite buy and sell signals. I am now personally watching a few stocks I already own and waiting for a sell signal so I can sell off 1/3 to 1/2 of those holdings and hopefully buy them back plus extra when it next details out a good time to buy.
To better utilize Moving Averages and Trends, Alessio gives out another indicator, called ADX (Average Directional Index) which he uses to determine whether a stock is trending, or oscillating. Important stuff if you are looking to not lose money given the warning I mentioned above about trying to use Moving Averages in an oscillating (sideways) market.
Side note: Somewhere in this part of the webinar Alessio stated the following quote which I found great:
“Do not listen to your ego. Do not listen to anybody except the market”
Chart Patterns, or Important Reversal Patterns
Here are a few of the Patterns Alessio points out, explains, and gives examples from actual stocks.
- Double Bottom
- Head and Shoulders
- Cup & Handle
- Bearish Reversal Double Top
- Triangle Pattern
Volume and MACD
Volume: “The trend is your friend, until the end; but the trend reversal is your sweetheart.” Volume can help you determine the trend reversal. He describes it as the “fuel” that drives the market. The Volume indicator measures the distribution of shares between buyers and sellers. Increasing Volume indicates increasing commitment.
MACD: Moving Average Convergence Divergence. The MACD measures the speed, and force of a trend. Useful for helping you look at if a stock may start oscillating soon, or enter a reversal.
You can’t take your profits until you sell. So how does one sell to maximize your gain while minimizing your risk? Alessio states Three things. It depends on your strategy, what you see on the chart, and the behavior of the chart. He also describes how to use Stop Losses for your benefit as well as where to put them.
Note that the above statement on maximizing gain and minimizing risk is different then just trying to maximize your gain – which will undoubtedly come with a lot of risk.
Suggested Online Brokers & Charting Systems
At the end of the webinar Alessio went into a few commonly used trading systems. He discusses them each a little with a few pros/cons of each but recommends the one he uses. Obviously, if he didn’t like it the most why use it? His platform of choice is Trade Station and you can find some contact information as well as the ability to try them free for 60 days on Alessio’s site.
I’d like to thank Alessio for hosting this webinar. I found it useful and immediately actionable which is never a guarantee when doing these kinds of things. I appreciate the time and effort he put into supplying a free webinar. I look forward to future webinars and will gladly take the day off of work again to participate.