After starting my own business from home, I started looking for ways to get the money I brought in. I knew I wanted to manage my portfolio looks to invest, but I had no idea how to do this. A year ago I could not even tell the difference between a bear and a bull market. With this premise, I realized I need something very simple and therefore not the time I worked with my business was necessary. A family member near a guru of some would consider> Stock Exchange suggested that I see the mixture is ground. Although he has used his portfolio (he says he has not done enough), he thought it was something that could soon could be learned.

The process begins with participation in a live online free introductory workshop to be held weekly. During these two hours, the basic technique is explained. Only a very brief overview is provided, but is an important part of the process for beginnersInvestors. The workshop is expected to call the bases covered and how helpful to you with this technique, and ends with a testimony of success and satisfied customers.

An option other than "Covered Call mentioned, is how someone in the store to rent a property you own. If you own a stock and sell an option, the option gives the buyer the right but not the obligation to buy today, the stock at a specified price up to a certain extent. For For example, if you own shares of GE, you could sell an eighth of August 30 $ par. In short, the option buyer, you pay a premium (for rent), which will allow them to share, depending on your purchase of GE shares at the end of August 2008, the $ 30 option.

If the stock of at least $ 30, the buyer of the option, the purchase of shares. If it is below $ 30, not bought, you must register and maintain the entire sale is a further invitation to> Archives of next month. This is not a means to invest get rich quickly, but the founders boasts that the technology is actually used to generate its customers with a consistent 3-6% per month, regardless of the direction of market development. Since the average mutual fund earns a lot less per month, is the promise of 3-6% per month, many people are learning this technique.

The compound gains Commons technique has very specific rules about what stocks to buy, when to buyshe and the special options should be sold for these stocks. These rules are to keep a person away because they continued to make bad decisions, or they lose money or earn less than the 3-6% per month. But, as every investor knows, no matter how careful you are when you select your stocks, you are obliged to, bombs, soon after you choose to buy it. CSE has shown that the specific techniques designed to maintain a position or unprofitable to continueGenerate income until the stock to recover.

All this information is condensed into a weekend. Most would say they could never learn a technique well enough for their money after only one weekend of risk. One of my favorite things about CES is that once you pay the fee prior to participation in the seminar, you can freely visit as many times as you want for free. Classes are offered once a month at various locations in or near major cities. Although thesemay not work well for some, if you want to live near a big city, you may very well learn CSE. If you do attend class, you will find that most of these are repeat participants.

Over the past nine months I have been using the CSE techniques. I visited four times a class and learn something new every time. Before the fall of the market, as it did recently, I was earning profits that were the program guidelines. Unfortunately, it isis more difficult to prevent, reduce profits now that I have several stocks that have lost considerable value for money. But with the help of some of the CSE techniques are still able to generate revenue per month, while I wait for my stocks to recover. If I had to make a buy and hold approach as many, I would have no income while I waited. compound stock earnings, although not so easy to say, as some often is a reasonable option for those whowould like more hands to be with their investments in the techniques of low-risk trading.

Stocks and future supporters of technical analysis believe that the study "the pattern, as price changes have occurred in the past, you can predict how the price change in the future.

Proponents of technical analysis can be divided into two categories:

Those who believe that technical analysis works because it is still valid.
Who does the technical analysis, because it creates self-fulfilling prophecies do. "

WhatI think technical analysis is valid in themselves to believe that through the investigation of the pricing models of a title, it is possible, everything about the special security requirements. They believe that mainly reflects the current price of everything. Regardless of current events that are happening or may arise have been considered in the current price.

Consider some of the factors that influence market direction. There are natural events such as droughts, floods and freezes. Usare political events like wars, treaties and sanctions. There are psychological influences, correctly or incorrectly, that move the market. There are many factors affecting supply and demand, which can quickly overwhelming for most of us can influence.

For example, if the dollar falls in value, many people may decide to buy precious metals. If war is imminent in the Middle East, then the crude oil can be purchased by many individuals or companies. Sometimes justthe widespread expectation of an event, to move the market. Technical analysts do not care about those expectations, because they believe that all relevant information is already reflected in current price. Believe that it is not necessary to know why a market may move down or to trade successfully.

Many investors who are not in the intrinsic merits of technical analysis believe still be very useful. They believe that it is useful, as wellmany other people believein that faith collective technical analysis "true believers" leads to a self-fulfilling prophecy. Their reasoning is as follows:

"If people just believe that indicates a specific pattern of price increase is a title to show when a security price that is patterns of true believers in technical analysis hurry to buy security. As a result of rising stock price is."

Market prices are the result of a large number ofindividual operators. Faith is the mass of traders ultimately determines prices. This can be authentic mass merchants human psychology. Technical analysts believe that this is what actually analyzed in a price chart.

Technical analysis is based on the premise that history repeats itself is founded. Traders noted that if the prices quoted on a graphic pattern occur. Some of these models have a strong tendency to recur. Learning to read and interpret this model, the price isThe primary technical analyst.

Occurs when a pattern on a price chart that is recognized by a technical analyst develops the expectation is that after the price action is similar to that of the past. Psychology of people do not change much from year to year.

To summarize:

Market prices shown in the table reflect the opinions of the individual operator to all relevant information available. The price performance of action, forms of reaction, and tendAgain, again and again. The technical analyst is simply trying to read patterns and understand what will happen next based on what has happened in recent times and the times.

The way stocks react to significant price shocks is important for finding good entry and exit points. A common question traders and investors ask themselves is whether to purchase after a stock takes a big fall on a bad earnings report, for example.

If we’re to believe the efficient market hypothesis then the shocked stocks price is reflective of all new information so wouldn’t warrant a purchase (based solely on the price shock.) However, if there are exceptions to the EMH, or if it takes time for the price to reach it’s EMH point, then there is value in studying reactions to price shocks.

In this article we’ll study how stocks recover from various levels of price drops in one day. This will help us understand if there is any advantage to purchasing directly after one of these events.

Analysis Setup

The data was based off a group of randomly selected days from the years 2004, 2005 and 2006. The next few days afterwards were then analyzed to build the statistics below.

Stock price was restricted to those above $1. This was done because penny stocks are very volatile and could skew the data. Studying penny stocks is very interesting as well, but a separate concern.

Stock volume was restricted to those above 25,000 on a daily basis. Again, this was done to prevent skews in the data. Low-volume stocks behave differently than larger volume ones.

Buckets were created for easier representation and analysis, based on the amount of the initial price shock. The buckets were chosen as 1-5% drop, 5-10%, 10-20%, and an extra one for all stocks as a comparison.

Note: The selection of the years 2004, 2005 and 2006 as the period for the test has implications we should expect up-front. The market during this period was generally considered bullish we should expect somewhat different results were we to analyze a bearish period.

Tracking price high after the drop

The first part of the analysis was to examine the price highs achieved several days after a significant downward price shock. We’ll check the performance of the stocks in each bucket for several days after the drop.

Here are the average price highs achieved by each bucket 1, 2, 3, 4 and 5 days after the initial drop compared to the close on the drop day:

• All stocks: 2%, 1.5%, 1.0%, 1.4%, 1.5%
• 1-5% drop: 2.1%, 1.9%, 1.5%, 1.6%, 1.8%
• 5-10% drop: 3.8%, 3.2%, 2.3%, 2.4%, 2.5%
• 10-20% drop: 4.2%, 3.5%, 7.1%, 6.8%, 9.4%

Analysis

First of all, there are no negative values because we’re looking at the highs. It would be very rare for a stocks highest trade price to never reach it’s close on the previous day, especially during a generally bullish market.

The stark contrast between the 10-20% bucket vs. the others is very surprising. All other categories have a negatively-sloped line but 10-20% has a significant positive slope. If we carried this out further than 5 days we can assume it would achieve a similar slope to the other categories.

Why the swift partial recovery for 10-20%? One point to note is that of all the stocks found in this category their average drop on that initial day was about 12%. We then see them reach an average daily price high of about 9.5% higher than the close on the day of the drop, so that’s about an 80% recovery. One explanation is that often after a large downwards price shock the value investors will come in and start buying at the lower price.

Now, it’s definitely debatable whether analyzing the daily price highs is representative of the true recovery of a stock, so we’ll look at the daily closes next. The highs may be more applicable to active traders, rather than investors.

Tracking price close after the drop

Here are the average price closes by each bucket 1, 2, 3, 4 and 5 days after the initial drop compared to the close on the drop day:

• All stocks: 0.2%, -0.2%, -0.5%, 0.0%, 0.1%
• 1-5% drop: 0.15%, -0.1%, -0.5%, -0.15%, 0.0%
• 5-10% drop: 0.1%, -0.5%, -0.9%, -0.7%, -0.7%
• 10-20% drop: -0.4%, -0.7%, 2.6%, 2.5%, 5.9%

Analysis

The only surprise here is that the 5-10% group dropped more than the 1-5% group. This is a bit counter-intuitive since naturally the 5-10% group has more room for recovery. However, it’s definitely feasible that the reasons for the price drops in the different categories would be different. This would obviously affect how willing investors are to pick up the stock after the drop.

Conclusion

The apparently significant ability for a stocks price to recover after a large downward price shock could be a useful addition to the selection process. Keep it in mind when a strong stock takes a bit hit as the market may be emotionally over-reacting to bad news.

Since the price highs, rather than closes, rebounded much more for the 5-10% and 10-20% drop buckets, compared to all stocks, active investors or traders would probably be more likely to take advantage than the average person.

Neil Thier – http://www.marketfilters.com

Neil is a founding member of MarketFilters.com, an innovative technical analysis tool. We offer easy and powerful scanning and filtering of stocks, back-testing, watch lists, and other tools.