INTELLECTUAL TRADING

  Definition:  Butterfly Spread Option, also called butterfly option, is a neutral option strategy that has limited risk. The option strategy involves a combination of various bull spreads and bear spreads. A holder combines four option contracts having the same expiry date at three strike price points, which can create a perfect range of prices and make some profit for the holder. A trader buys two option contracts – one at a higher strike price and one at a lower strike price and sells two option contracts at a strike price in between, wherein the difference between the high and low strike prices is equal to the middle strike price. Both Calls and Puts can be used for a butterfly spread. Any butterfly option strategy involves the following: 1) Buying or selling of Call/Put options 2) Same underlying asset 3) Combining four option contracts 4) Different strike prices, with two contracts at same strike price 5) Same expiry date Description:  The Butterfly Spread Option strategy works b

PCR - PUT CALL Ratio It is a way to measure whether traders are feeling bullish or bearish about the market. To calculate it, you just need to divide the open interest of PUT options by that of CALL options. PCR is a market sentiment indicator and is used as a contrarian indicator by many traders Analysing PCR PCR > 1 is Bullish PCR = 1 is Neutral PCR < 1 is Bearish Above 1.5 and Below 0.5 are extreme zones and are likely places where on-going trend can halt or reverse

  What is Kaufman’s Adaptive Moving Average (KAMA)? Kaufman’s Adaptive Moving Average (KAMA) was developed by American quantitative financial theorist Perry J. Kaufman in 1998. The technique began in 1972 but Kaufman officially presented it to the public much later through his book, “Trading Systems and Methods.” Unlike other moving averages, Kaufman’s Adaptive Moving Average accounts not only for price action but also for market volatility . The Kaufman Advantage When market volatility is low, Kaufman’s Adaptive Moving Average remains near the current market price, but when volatility increases, it will lag behind. What the KAMA indicator aims to do is filter out “market noise” – insignificant, temporary surges in price action. One of the primary weaknesses of traditional moving averages is that when used for trading signals, they tend to generate many false signals. The KAMA indicator seeks to lessen this tendency – generate fewer false signals – by not responding to short-term, insi

 Have you ever thought about this - Are good traders born that way or can someone be trained to become one? During 1983, Richard Dennis - a successful & popular trader had an argument with his friend William Eckhardt about this subject - whether great traders are born or made Richard: We can teach and create good traders Eckhardt: No, there are certain aspects which cannot be taught They decided to do an experiment. They published an advertisement in the newspaper that they will train a group of people in their proprietary system & also give them the capital to trade the system. Interested candidates can apply, experience in market was not necessary. They got over 1,000 applications and 13 were finalized.    They were from different backgrounds. They were train

 Donchian channels were invented by Richard Donchian. He is known as a father of trend following trading. He was founder of world’s first managed fund in 1949 Donchian was born in 1905, he got interested in trading after learning abt story of Jesse Livermore. Donchian started relatively at young age but wasn’t successful initially in the market. He lost significant money in 1929 crash. Bt managed to come back & started practicing again He was a self-taught chartist and technician. He created strategies using charts and indicators and also studied company’s underlying fundamental characteristics. He also wrote technical newsletters for over two decades for well-known firms. Donchian was popular and doing good but he was not managing significant size even after being

  Range of any candle is a difference between its High and Low price. J. Welles Wilder introduced a concept called True Range. Formula of True Range: Maximum of (Current High – Current Low, Current High – Prev Close, Current Low – Prev Close).   The average price of true range over last several candles is known as Average True Range. 14-day period suggested by Wilder is popular and widely used parameter for ATR. ATR indicator is used to measure volatility. It is also used by traders while determining the stop-loss.   But if I want to compare current ATR wit

  Chester W. Keltner (1909-1998) was a Chicago grain trader. He worked with successful traders who back-tested trading systems. He talked about Ten-Day Moving average trading rule in his book 'How to Make Money in Commodities' in 1960.   He did not claim that he invented the strategy so origin of this idea is uncertain. But people started referring it as Keltner channel after the book. There are two versions of Keltner channel. First is explained by Keltner in his book, and the other one is a modified version. I will use 10-day period to explain the indicator. It can be calculated using any other period. First format: There are three parts of Keltner channel explained by Keltner in his book: 1-ATP 2-Range 3-Channel  

    Heikin-Ashi charts are said to have been developed by Munehisa Homma in 18th century by a Japanese rise trader. Hence, it is another old Japanese charting method. Heikin-Ashi candles are built from candlestick chart. A candle in candlestick chart is made of four prices OHLC.   A Heikin-Ashi (HA) candle is also made of four prices (OHLC) but calculated using the candlestick chart data. It is calculated in this sequence: OCHL (Open, Close, High, Low). So, we have two types of candle data every day : Candlestick data and Heikin-ashi candlestick data. To avoid confusion, lets call Candlestick char