When a contract is initiated between two participants it adds to the open interest. Both parties agree to a certain type of transaction say, A agrees to buy 100 shares of stock at a certain price while B agrees to sell the same at that price. If both parties are closing the existing agreement then open interest will decline so many contracts.

When a contract is traded the participant changes but the open interest remains the same. What is important for a stock trader is the change in open interest on any given day. If open interest is increasing it indicates that participants are willing to commit more money in the market. That means the current trend can continue whether it is up or down or range trading.

On the other hand decreasing open interest indicates winding up of positions/contracts. That means the current trend is nearing its end for the near term. For example, if the current trend is down, then the contracts will of the type short and unwinding of these contracts means short covering. That indicates rally in the stock for the time being.

As volume is an important parameter in confirming a breakout in a stock, similarly open interest change can confirm the trend in a stock. If open interest rises while the stock is rising, it means that many long contracts are initiated and the stock is in uptrend. Any pullback can be used as opportunity to buy the stock.

If open interest rises while the stock is falling, it means that many short contracts are initiated and the stock is in down trend. Any rally will be later used for getting out of the stock for a better price.

If open interest falls while the stock is rising, it means lot of short covering and tells that it is a bear market with temporary rally. Here also stock can be sold for a good price.

If open interest falls while the stock also falls, then it means that trend is nearing its end and the next bull market may start soon.

Knowing open interest is beneficial in trading stocks but it itself not the complete indicator. Proper sense must be applied when taking decisions. For example, the quantity to buy or sell must be decided based whether stock is at its all time high or low or depending the risk/reward ratio along with inferring direction from open interest.

But I haven't tried anything to acquire this speed. Moreover I used to practice on these softwares before but never observed a substantial improvement in my typing speed.

I think many people will agree on that. I do not blame any software. But what is important our dedication in learning to type faster that matters most in increasing the speed. If one does this with dedication no matter whether you use a typing tutor or directly typing text, you will be surprised with the results within a fortnight.

Let me tell what I have done before my typing speed increased. I started sending emails to my friends everyday regularly at the same time. At the time we were working at different locations and the only way to contact regularly was through emails.

I used to type paragraphs of thoughts without hesitation. I used to type as though I was telling them something. In fact as it became difficult to find words in English I started typing in regional language but with English transliteration.

As I had started doing that without any intent on increasing speed I concentrated only on typing what I have to.

Slowly I was able to put my fingers at the right letter without looking at the keyboard. That increased my speed within a fortnight.

Let me tell you how this works. When you dedicate yourself to type a lot of text, you should concentrate on imagining the characters of each word in sequence before typing them. Initially look at the keyboard and not screen to put in the characters that are coming to your mind in sequence.

Initially you will be able to type characters faster. After some time you will also learn to type certain words without imagining their characters.

So it is a type of pattern recognition and human response. We increase our response speed by imagining the character sequence as we type them.

There is nothing magical that happens in a fortnight. It is only our ability to think, concentrate and dedicate ourselves to typing.

The candlestick that plays a major role before negative turn of a stock is the "hammer down" pattern. It looks like a hammer only but an inverted hammer. It looks as shown in the picture below. The closing price is lesser than opening price.

But this one stick is not enough for a good sell decision. The stock must have run up quite significant compared to past month or so. This is the reason why we need to have a look at its candlesticks on previous days for one or two weeks. Those sticks must look like these:

The last candlestick which looks like an inverted hammer is the one that gives a signal. This is typical of all momentum stocks. The next day the stock may open higher than previous close but it will surely fall down as this stick forms only when the big bulls have ran out of steam and bears start short selling.

Having applied this pattern to my own stock trading I had finally concluded that of all different candlestick patterns this one holds good with the highest probability and virtually all of the time. This is highly useful for swing traders who do not have problems with initiating positions but only with exiting positions.

Many Stocks make their biggest moves in a short period of time

Many stocks make their biggest changes in a really short period of time. If you invest exactly or even approximately around that time there will unimaginable gains for the investor. That too in a short period of time. When you invest again in another stock in a similar condition, the gains will compound. Over time the returns will be unimaginable. The thought of that simply tempts anyone to attempt once. But few people understand why that is only imaginable and not real. Definitely this short term thing won't pay better. Some one may wonder why this is like this.

Then short time should be much better

Even though stocks may make big moves within a short period of time, there is less certainty about when they will make that move. Rather there is high certainty of ending in losses before making any profits. We cannot and should chase stocks. That is the reason why many consultants appeared from nowhere to guide the individual investors rather than investing by themselves.

Problem with short term

There are two problems with this. One is that you cannot really invest huge amount of money in a single stock without becoming a promoter of the company. So the consultants target individuals rather than mutual funds. Another is that there is less certainty of big moves in stocks. So the consultants do not want to take that risk. They rather put it on the individuals. Many individuals so that they make lot more as fees accumulate.

Why long term

Then the only choice seems to long term investing. In fact you can recover your losses you could have made with the short term decision if only you decide for the long term. Moreover the uncertainty can be eliminated by expanding the time window. Within a long period of time, that short period of time where the biggest moves occur will be definitely located somewhere to reduce the uncertainty. And if you invest real money you will realize that the gains you made are real and worth the long term. Because in the short term you will chase and with less certainty accumulate real losses. So in reality long term pays much better.

Conclusion

Long term investing covers the short term as well to give the profits you can imagine. But the other advantage is that you will avoid short term losses. With short term there is less chance of tapping a big move but rather there is a high chance for accumulating losses. If you see that a stock you purchased does not seem to make big move over time you end up selling for a loss. Unimaginable profits cannot be made in reality unless you invest for the long term.

Stocks slide because...

When stocks slide it means something went wrong with bulls. And bears have taken over. These are stock market terms. In simple terms, investors who buy for the long term have stopped buying but many investors started selling stocks either due to fear or to book some profits. There are many clear reasons why stocks are falling. One is for example, inflation is at a high rate or the stocks are overbought. It means that after some time they will come into control and stocks will stop falling. So it is better to assess the extent of problem before selling in panic. Sell it if you are the first to sell but not after many have started selling.

Why you should not sell

Depending on the problem you can wait for the time or sell immediately before many investors sell. Selling in panic happens rapidly. So even if you decide to sell before anyone does, there is less time for that. So it is not advisable. Rather be prepared to add some money to average the bought price.

One thing that consistently happens when a stock slides is its retracement or rebounce.

If a stock is just consolidating gains it will rebounce. This is when people sell in panic and burn their fingers only to see the stock recover quickly.

When stock is falling due to strong fundamental reasons and it will take while before things get corrected, there is a consistent chance for retracement over time repeatedly. So if you decide to sell wait for retracement and sell to reduce the losses to some extent. If you have bought before upward retracement then you can eliminate losses or even make profits. But if only you sell otherwise the stock will again fall for some more time. Then you have to wait for a long time to relish the gains.

In fact, what happens in the market is that those who have waited all the time and even more time for it to reverse up make more money than anybody else. Those who wait for some time only to lose control and sell sadly definitely make big mistake. Because the accumulated sentiment that they get will be detrimental for their investment decisions in the future. Those who sell during retracement generally tend to neglect that stock when it reverse due to good fundamentals. They lose the rally.

Conclusion

Stocks have retracements and rebounds. So never sell in panic or during stock sliding. Even central banks take care of that to control investor sentiment. Follow proven strategy of averaging the stock price to reduce the bought price and waiting for its fundamentals to correct. You will be glad you did this when you realize what would have happened otherwise.

How the email starts

I am going to give one example that I came across in one email. The author starts speaking about instant success with reduced losses in the market. And of course he also includes some testimonies, I do not know if they are fake or not. Then he starts speaking about the Fibonacci numbers. He shows them like this:

0,1,1,2,3,5,8,13,21,34,55,89,144…

By now anybody will be surprised with the suspense he is going to create. Many people who already trade stocks think of this series in dollars and start thinking that stocks grow in this series. This is first thing to lure people.

Then he tells that it has something in relation to stocks only few people know and it requires expertise to find that out. So he says he found that and explaining to others through this ebook. He gives a list of benefits that you get. Then few people really buy it without even thinking that the author would have used those tricks for himself instead selling as ebooks to make more money.

Story behind the email

The Fibonacci numbers or some kind of theory they often use has no relevance in the stock market. Nor is it a coincidence. Surely the Fibonacci numbers approach a ratio of 1.618 if you divide two consecutive numbers. But he shows some stocks whose variation has some relation to this ratio or inversion of this ratio.

These numbers are not arbitrary but are some type of basis for many numbers. I mean you can show that any number can be shown to be approximately related to this number by manipulating in some way. The fact is that all changes in stock market do not coincide with this number. The example they give are selected such that they are close to these numbers. And the tips they give ultimately puts you another uncertain situation unable to find out which manipulation of this ratio will presently relate to the stock.

They give so many tables and different manipulations this ratio to arrive at a stock price change and the time duration. Now it is your luck that may help you succeed with those numbers. If you select one wrong number you will end up losing. But after that you will find that if only you had used a different number belonging to the table you would have succeeded. But there is no certainty before to particularly select that number. What this means is that they have simply transferred the problem from one domain to another domain wherein the variables are interesting to you and put you in illusion to think that your problem is solved now. But the problem is still there simply under a different clothing.

The best way to make money in the stock market is to strategically invest based on fundamental principles of economy and business and not some tips or tricks. Tips and tricks may seem to work for some people once in a while only to fool you. The simple idea of investing is to buy low and sell high which means buy any stock which is at its lowest price in the year wide range and wait for it to rebounce. Of course the fundamentals of the company should not be worse. Over a period of time you will see gains which otherwise would not have been obtained. You will atleast think over time that you have done like this and be satisfied with what you got. Remember failures do not do what they don't like but whoever does that only succeeds in whatever field you see.

Conclusion

As always the certainty is the key to solve any problem so we search some certainty related to stock markets. But the fact is that there are only few certainties which are clearly known to everybody but are often neglected due to simple but strong reasons. Any certainty claimed is only uncertainty represented in another way. Follow what the legends like Warren Buffet say and forget about short term thinking. The fact is that nobody really makes a lot of money in the market. You can only squeeze as much is possible in reality but not as your imagination shows seeing the stock price variations.

The company?s assets or the means to run the company is equal to the obligations to be paid by the company, equity and retained earnings. The tangible assets can be calculated in terms of money while intangible assets cannot be. Tangible assets are machines, buildings, land and other physical things. While non-tangible assets are the good will of the company, copyright or patents and brand name.

Long term liabilities and short term liabilities will change the financial statement. Long term liabilities enter as debts + interest for that year, while the short term liabilities enter as total debt payable for a period. Equity is the initial money invested in the business.

The most important thing to look for in the balance sheet is the debt to equity ratio. If debt is more than equity it means that if the company does well then the shareholder gets rewarded well and otherwise vice versa. It is like risk vs. return trade-off. So, one needs make sure that the company is doing well in clearing its long term debts over a period of time. It means the debts and interests it pays from year to year are decreasing. Otherwise it is a bad sign. If the company has lesser debts compared to equity then it is a balanced company. The returns can be less but it will be stable.

It does not mean that one need to do all the work the analysts do to make a judgment about the scandal and its impact on the company. If the scandal is because of person having a high position in the company, it will impact the most. Whereas an average employee might be involved for the sake of small gains, only to slightly or not impact the whole company.

The company?s future may be affected by a scandal. But if the impact can be large then it is better to leave the stock than to hold. The bigger things will always be clear before they can hit you. As an investor you have an advantage to take the avoid losses before the company does. If it is clear that the scandal is small and it does not affect in the long term then it is better to grab the opportunity to enter into the stock as some investors would have already started selling the stock. If the company has insurance it can help the investors.

The book value is easy and quick to calculate. With the availability of online finance related websites like Yahoo Finance one can find the balance sheet, assets and share capital of a company. From this information one can find the book value of a stock by subtracting the debt to be paid to debt holders, tax and preferred shareholders? pie from the accounting value of company?s assets. By dividing this value by the total number of outstanding shares, one can get the book value per share.

The book value per share can also be supplemented with the P/E ratio when comparing two companies. Some times the company?s financial are so good that the book value per share is larger than the market price at which it is trading. Then the stock is undervalued. As we know from the world?s famous investor of all time, Warren Buffet, that we need to buy fundamentally sound stocks at the cheapest possible price. Some times reverse can happen. But at any time the share price will be higher than book value per share. But if it is too high and the company?s future growth is not as predictable then it is better to leave the stock.

Short selling means selling stocks which you currently do not own. This can be done if you are registered with your broker to do margin trading. Having certain balance in the trading account allows you to sell some shares which are not in your account. You will buy the shares after the shares have come down. It is similar to buying initially and selling later. To make profits we need to make sure that we buy at low price and sell at high price.

There are several reasons why a stock can fall. Knowing that and confirming the downtrend will help short a stock at appropriate time and make profit. The following paragraphs will let you know the different reasons for a stock?s fall.

When a stock is in down trend for quite some time, the long term investors will try to give support by buying at the 200 or 150 day moving average values. If that support is not observed and the stock falls below the 200 day moving average, then it is highly probable that the stock is in its long term downtrend and can go down further for quite some time.

Just before quarter results are announced there exits a chance to short sell a stock. When it is little bit clear that the company?s performance might not be as good as the previous quarter then many investors slowly start selling the stocks. After company announces the results, stock analysts will take some time to give their analysis. It is during this time that if the results are not better than previous quarter results, the short selling can be done. After analysts? announcement, depending upon positive or negative, one can decide to buy the stocks immediately or later.

At the year end many investors sell stocks which are in downtrend for quite some time to book losses. This will help them to get some tax rebate.

When insiders are selling stocks it could be due to their personal reasons. But many insiders start selling means that something is wrong with the company and we can short sell its stock.

If the company?s fundamentals are degrading day by day, it means that it will lose over long term. If the company is increasing inventory without increase in demand of its products, it is definitely going to face problems. It might sell its products at cheaper rates and this will lead to losses. If an industrial sector is fundamentally weak, then many stocks in that sector are going to be hit hard. Those companies which do not have a long term plan will lose more.

All these things can help find the appropriate time to short a stock. Always remember the basic principle of investing: buy low and sell high. No matter which is earlier.