Welcome to Week 6 of the Baker/Ten Electronic Trading Course.
Over the past five lessons, we've covered what we think will give you a solid foundation in electronic trading. We've covered ECNs, how to place orders and how to choose a broker. In addition, we showed you how to spot
momentum stocks and how we go about finding tradable setups. We demonstrated how we spot the early moves in both intraday and intermediate-term setups as well. Finally, we stressed the importance of sound money
management and covered how smart traders can minimize their risk levels.
Well, now it's test time, and we would like you to give it your best shot and see how much you've learned.
Remember, as you go forward, the first step to becoming a skilled trader is to test your system with practice money.
1. True or False:
An ADX reading above 35 means the stock is in an strong uptrend.The correct answer is: False.
ADX, Average Directional Movement Index, only tells the strength of a trend. An ADX reading above 35 tells you that the trend is strong, but it does not tell whether the trend is up or down.
2.
Let's look at the following chart:What do you see in this chart and how will you react to the stock's move.
After making a new 2-month high (A), the stock started to pull back (B). The stock then formed a bullish flag pattern after a one-day reversal (C).
Aggressive traders will use a breakout above the flag channel (D) as long entry, while more conservative traders will wait until a breakout above the highest point of the flag (E) for entry.
3.
On this day (last bar of the chart), we get a "retouches 50-day Moving Average" alert from our TradersWire applet:As a subscriber to the TradersWire, what should you look for to profit from this alert?
As we mentioned in Week 2 of the course, 50-day MA is a key technical indicator. The fact that this stock has closed above its 50-day MA two out of last three sessions, after trading under it for over a month, is very bullish.
What's even more bullish and indicating that this recent uptrend is likely to continue is that the last bar on the chart (from the question page) is an outside day which closed almost at the high.
Traders should watch for a breakout above the recent highs (A) for a long entry. In fact, the stock did break out the next day (B).
4.
Let's check out this chart:The stock has made a new 2-month high on double average volume. Is it the time to buy? How can a trader profit from this information?
Most investors and traders love to buy stocks making new highs on heavy volume as it indicates that the stock is in demand. Fellow traders should take advantage of this by looking for any sign of continuation, as the stock takes out previous day's high (A), to enter the stock.
5. True or False:
Placing an order at market guarantees that you get the last price that printed?It´s false. While we all wish that we filled exactly at the best bid or best offer, the reality is that many times there will be a fast market, and traders will not fill at the best available price.
6. True or False:
There is no volume restriction on SOES orders.The correct answer is: False.The volume for a SOES order cannot exceed 1000 shares at a time.
7.
Which type of buy order should I use if I want to buy a stock only when the stock traded at a price that is above current bid and ask?a) Stop b) Limit c) Market
d) None of the above
The correct answer is: a) Stop
When your buy price target is above the stock's current trading price, you should use stop buy order.
Use Limit order to buy if you want to buy the stock at a lower price than the market.
Market buy orders will attempt to get you filled at the current ask.
8.
True or False: You should always add to your long positions as prices fall.False. It is not always good to add to losing positions, as you may be catching a falling knife. You must determine the technical and fundamental status of your stock before deciding to buy more. Sometimes, its better to cut a loser and move your money elsewhere.
9.
True or False?
If you have a lot of money, you do not need to worry about diversifying, because you can afford to take a loss.False. A good trader will diversify, no matter how much money he has. Things out of our control occur all the time, and it is necessary to diversify for protection. Diversity leads to reduced volatility as well.
Conclusion
So how did you do? Are you ready to jump into the big game with real money?
We suggest that you spend some time paper-trading before entering the markets with real money. Remember, everything changes when the money is on the table.
We want to thank you for taking our course. We hope that you have learned from our experience.