Day 8: Moving Average Convergence Divergence

Today I learned about MACD (Moving Average Convergence Divergence). This is a momentum and trend-following indicator. Now since we are talking about spotting trends, I thought this would be something very helpful. It is built on two moving averages, a fast one and a slow one. The MACD line is created by subtracting the the 26-period EMA fromthe 12-period EMA> Then a 9-period EMA of that line -- called the Signal line -- is spot changes in direction. Now to read MACD, when the MACD line crosses above the Signal line, it can be a sign for momentum moving upward. When it crosses below the signal line, it means that the momentum is fading. You can use the MACD histogram to show the different between the Signal and MACD line.

What I Practiced

I started off by adding the MACD line to some charts on TradingView and looked for crossovers. What I noticed was that when the MACD line crossed above the Signal line right after price broke out of a pattern, it added confidence to the trade. I also checked out MACD divergence (when price makes a higher high but MACD makes a lower high.

What I learned

I learned that MACD is great for confirming trends especially on longer timeframes. It is most useful after after periods of sideways movement. It is a great tool to add another layer to your analysis and it help you time entries and exits better.

Day 9: Risk Management

Since we have learned about strategies to get more money from stocks but I thought we should know that about how to save my money. This is called Risk Management. This is the system behind the scenes that make sure that you dont blow up your bank account and make smarter decisions to stay in the game long- term. Some core principles that I learned include to never risk more than 1-2% of your account on a single trade. Your max loss on one trade should be $10 - $100. This can help you make many trades wiothut getting wiped out by a signle trade. Also make sure to always set a stop-loss before entering a trade to make sure you exit at the right time. Risk/reward ratio matters and I learned to only take trades where the potential reward is at least 2x the risk.

What I Practiced

I used a position size calculator to figure out how many shares I should buy based on my stop-loss and account-size. I made sure to realize how important it was to plan my trade before I enter. To sum it up, I just tried out placing a stop-loss on my trades and I only invested 2% of my account on my trade.

What I learned

I learned that even if you only have a 50% win rate, if you keep small losses but score big wins, you could still grow your account. Ignoring risk and having no stops could be really risky as one bad trade could destroy weeks of progress. Focusing more on defense rather than offense is nessecary in order to be a successful trader

Day 10: Journaling

I just realized something that I should have done way before this and this is something that most beginners including me skip and have skipped. This is keeping a trade journal. I am not going to use this to write down my feelings, however I am going to use this to track what works and what doesn't. Trading is about making decisions and journaling helps you learn from them. What I want to add into my journal goes as follows: Explanation on why I took the trade, Entry & exit price, size, stop-loss, Outcome, Screenshot, and What I did well/What I could improve on.

What I Practiced

I made a simple spreadsheet with columns including all the info from above. I also wrote a little sentence after each mock trade explaining what I was thinking. I wanted to write a paragraph but I didn't really think that much before each trade so I thought a sentence was enough. I did notice that I hesitated before a few trades even when the setup was good. Journaling is great for helping you understand your behavior.

What I learned

Journaling is great for tracking your actions and turning every bad thing you do into a lesson that you can use to make you into a better trader.

Day 11: Sector Rotation

Sector Rotation is the idea that money flows between differnet parts of the market (sectors) and this depends on how the investor feels and the economic cycle. Big institutions dont just invest in individual stocks but they vary their stocks and invest seperately into different sectors like tech, healthcare, energy, etc. Different sectors perform better at different stages in the economic In early bull markets: Tech, and Industrials. In late bull markets: Energy and Materials. In bear markets: Utilities, Healthcare, and Consumer Staples. WHen you understand which sectors perform best in which stage, you can align your trades and make profit.

What I Practiced

I used a sector performance tool on TradingView to see which sectors were performing well over the past month. I then used that to compare charts of sector ETFS like XLK (Tech), XLF (Tech), XLE (energy) and XLV (Healthcare).

What I learned

Trading using just the strongest sector can give you an edge instead of just trading the most popular stock. Looking at the top sectors made me focus on the most important stocks rather than looking at random stocks all over the place. This also ties back to concepts I learned before like breakouts and pullbacks.

Day 12: ETFs

Today, I explored ETFs which are Exchange-Traded-Funds. This are great for giving you exposure to entire sectors, various strategies, and themes without having to manually pick a individual stock. These are basically baskets of stock that trade like a single stock kind of like a combo pack. ETFs are designed to track a specific index, sector, or theme. XLK is for Technology stocks and XLF is for financial stocks. These are the main ones. VTI is the total U.S. stock market ETF. QQQ tracks the Nasdaq-100 which are mostly made up of tech growth stocks. Buying one ETF can give you access to dozens or even hundreds of companies. This is really useful because if a sector is leading, you can buy an ETF and invest in that entire sector. This is lower risk than single stocks because even if one company is struggling with a loss, the others will balance it out. Many long-term investors use ETFs like VOO and VTI which give great passive growth.

What I Practiced

I pulled up the stock charts of ETFs like SPY, QQQ, and XLK on TradingView. I saw how they were doing and which ones were easier to get into, etc. I also used ETF.com and Finviz to look up ETF holdings so that I can see what stocks were found inside each ETF and how heavy they were.

What I learned

I learned that when you are trading, you dont need to pool all your money into the next big company, however you could just ride the wave of one whole sector and still make more money with less risk.

Day 13: Stock Screeners

Today, I learned how to use a stock screener, These are one of the most underrated tools for any investor and what these do is they let you search through thousands of stocks and ETFs based on filters like market cap, volume, sector, fundamentals, price patterns, and more. I can use these filters to narrow the stocks down into ones that I think are worth my time. Some of the best free screeners I saw were Finviz.com (simple and powerful), TradingView Screener (Great for technical indicators) and Yahoo Finance Screener (Great for basic filters). You can use these to screen by technical indicators (RSI, SMA, breakouts), fundamentals (P/E, EPS growth), volume votality, and more.

What I Practiced

I set up a simple screener on Finviz for stocks that were: In the technology sector, Had average volume >1M, Were trading above their 50-day moving average, and had relative volume above 1.5. I found a list of about 30 stocks.

What I learned

Screeners can save you lots of time spent digging through stocks and no matter what type of investment you are looking for, you can use screeners to make the market more manageable.

Day 14: Fundamentals

Now I talked about how you could use a stock screener to screen for fundamentals yesterday but I realized that I never actually learned what fundamentals are so I wanted to end of week 2 with a good lesson. This is the financial and business data that show how strong or weak a company really is. This is what long-term investors use a lot but even if you are only into short-term investing, you can still use this to make smarter decisions and avoid garbage stocks.

What I Practiced

I pulled up different companies like Apple and AMD and I looked into some key metrics like Earnings Per Share (EPS), Revenue (Total income a company brings in), Profit Margin (How much of that revenue turns into profit), Debt-to-Equity (How much debt a compeny has/what it owns), P/E Ratio (Price of the stock divided by earnings), and ROE (How well a company is using investor money).

What I learned

I saw that learning fundmentals can help you answer lots of important questions like "Is the company profitable" "Is the compant growing?" "Is the company in way too much debt" "Is it trading at a good value". This can help you better hold a stock long term.