Wednesday, March 31, 2010

Technical Analysis

I put a blog performance monitoring setup on the blog here and just looking over the numbers it looks as though a large percentage of readers are interested in the market comments and charts.  So, if that is what most are interested in, give ‘em what they want I say.  I will put some charts here on the home page today in order to show some of the chart setups I use. Click "Read More" for the full monty

First in these market conditions anyone trading anything long term is “playing with fire” IMHO.  Of course if you jumped back in the markets in a big way back in March a year ago you have likely done just fine.  But after the devastation in ’08 I would doubt that many actually had the foresight or gut to go “all in” at the beginning of this run.  And, we have had a good run without question.  Most retail traders (mostly those who manage their own accounts) likely didn’t get aboard until July or so of last year, after the dip.  Even then you would have done well.  Many waited even later.  Unsophisticated investors and the truly clueless often subscribe to various services and trade or invest according to the recommendations of some “Guru” who was likely recommended to them by “a friend” who professes wild success after signing up.   Well, good luck to you I hope it all works out well. 

I have some experience with this because I practically got wiped out in 07 into 08 doing just that.  There is no need to rant about it and call names but only say that at the end of the day it is your money invested, and you can only hold yourself responsible for bonehead investment decisions.  In my case I just kept holding when I should have sold, while my guru said stay the course.  This is when I started to study the markets and technical analysis in earnest.   I have come a long way in the past 3 years because I did not know a candle from a wick.  

Since I have retired 3 years ago I would say that I have spent an average of 10 hours a day devoted to this field.  To say I have over 7,000 hours of “screen time” would be a modest guess.  You can’t learn this stuff in a few months.  Not many will have the opportunity, or become obsessed as I did after 2007. I wish the technology existed years ago because I could have really enjoyed being a part of the development. 

I have used several charting services and there are some good ones out there.  Worden brothers TC2000 and TCNet is a good service but you will pay.  Then there are many online brokers and other setups one can use like Tradestation and such.  For my purposes here I use TOS or Think or Swim.  These folks under the guidance of Tom Sosnoff one of the founders, have produced one hell of a product and focus on investor education in addition to being just an average online brokerage.  I may from time to time use other charts but most everything you see here will be from TOS. 

I had TOS for a while but did not know how powerful it was until David Elliott the leader of the FW club on TCNet started a group on TOS and I followed him there.  In the beginning none of us TC users had a clue how to get or manipulate the data to get chart indicators like we were using.  There are some talented computer guys in the group and we all learned to write the code in thinkscript, the term TOS uses for its user code.  I played some small part in this transition learning and writing code for my own use which we all shared freely with each other.  The end product you may see here is from the efforts of many different people and are shared freely among the group.  These are unique indicators and not copyrighted nor can you buy them.  Over the last couple of years there must be over 100 of these on my computer. 

I firmly believe that in this business you can have TOO much information.  When making trade decisions especially day trading you can become confused because the more indicators you have the more conflicting information you will see and then the decisions are not clear.  I generally only have two or three indicators at the most visible at any time.   The reason for having so many available is that certain stocks or futures obey certain indicators.  What works on the QQQQ may not work on AAPL.  I have found that it is best to find an indicator or MA that the stock you are trading obeys and only use that indicator with that investment. 
David teaches a course and method that uses some of his proprietary methods and indicators but the basic stuff if freely shared. 

There are many really good technicians who teach their special brand of trading.  Ken Woods teaches the use of the CCI or Commodity Channel Index with his special settings.  Alexander Elder teaches another method and Price Headly has yet another setup.  They all work to some degree, the thing is to use what works where and have the ability to recognize this.   Going forward, I will try to show some of the setups as examples of how I use some of these. 

Just so you know, because I put up a chart and say what I think the market is about to do, does not mean my opinion was formed from that chart alone.  Nor does that mean I am correct.  This is for sharing information and is not in any way a trade recommendation.  What you do with your money is your business, and you alone are responsible for any trade decisions. 

All the stuff I use here is fractal in nature.  That is the patterns and movements that show up on a daily chart can be seen doing exactly the same thing on a 5 minute chart.  Although I usually only have a couple of indicators onscreen at a time, I do monitor multiple time frames at all times.  With a little experience and screen time anyone can see these price movements as they ripple through the time frames.  Price move of any significance will start on the lower TIC levels and roll through the 5 minute the 30 minute, hourly and so on.  Identifying these moves and acting quickly with confidence is the key to trading with some degree of success and takes patience.  If one becomes too focused on short term moves you can begin to whipsaw and overtrade.  This is very common with novice traders and causes increase is slippage due to the commissions it generates.  I will talk about slippage in some future post.

The charts I have been posting have the same indicators.  Today I will put up a little different setup. 
A lot of people have trouble understanding and visualizing what the indicators tell us.  In the chat club we had a lot of new people trying to learn David’s methodology and that’s a lot to absorb.  In an effort to sort of fool proof the process some came up with this dashboard idea.  (Dashboard is the bottom indicator with the colorful lights or dots)I fooled with it in the beginning and it has had several life spans with different authors.  Basically what we all wanted was something to put on the screen to take up less space.   This Dashboard has incorporated in it several major indicators in one place.  It tells the condition of the indicator by red is negative or sell and green is good or long.  It shows price in relation to above or below the 50 SMA, the 20 SMA. It shows if the price is above or below Bollinger bands using our settings. And it also shows four parameters of the CCI of interest.  Basically what we ended up with is and almost no-brainer set of lights that flicker on and off turn various colors and generally look cool and dazzle the viewer.  Basically, if the lights are majority green you are long, if they are red, you are short. Click on the chart to see expanded view

Now below,  here's the same chart setup but on the 512 Tick time frame.  Ticks, unlike the time charts represent candles by volume.  In other words on a time setting say, 5 minutes a candle will print on the chart every 5 minutes regardless of how many contracts traded.  In the Tick view like this 512t setting a candle will print after 512 tickets are turned in on the floor.  So what we get is a more accurate representation of what is actually going on NOW. Anyone can see an easy 5 point could have been made on the failure that occurred right around 2:15 this afternoon, all you had to do was respond to that CCI falling and failure of the 20, 50 and 150 period SMA. The dashboard confirms this and keeps you in the trade until the worm turns about an hour later around 15:15PM (times are EDT).  That's another thing I always use Eastern US time to avoid confusion.  The TOS charts can be set up for any time you wish and I communicate with traders during the day from Israel all the way to Hong Kong so we all need to be on the same page when talking about the charts.

To those new at this the S and P E-mini trades in .25 cent increments.  They are worth $12.50 per contract, so 1 ES point is worth $50 USD per point per contract.  a person trading a modest account of around $60,000 can work about 10 contracts on margin.  While this may seem risky it really is not if you control you loss limits with stops and use sound risk management rules.  This particular trade is 10 contracts is worth a profit of $2,500.  Or 4% profit for one trading day on an account of $60K.  Do some math and you can see this is a powerful wealth builder if you can do this type trade on a regular basis.  Of course you will get stopped out on occasion but with a sound trading plan and discipline it is certainly doable.

No comments:

Post a Comment