Since joining Twitter, I've had a number of conversations with Trade Report members who also use twitter. I've found a common mistake between twitter users, and that is over-trading and not understanding time frames.
Yesterday, a member told me he had entered one of my focus list stocks. I asked him why, since it was not near the entry point that I had suggested. He said somebody that he follows on twitter has suggested that same stock and had taken a position.
The stock is down over $1.50 today and is now near entry level. Meanwhile, the trader report member who entered is down 5 percent on the trade and needs to exit before support levels, or the loss could get too big for his account.
I did a little research on the "tweets" that suggested the stock, and it turns out that the person who suggested the trade is a daytrader. He would have been stopped out of the trade long ago for a minimal loss, and was looking at support levels mean for a daytrader, not swing trader.
The loss the guy on twitter took was perfectly acceptable, but only on his own time frame and trading style. However, the Trade Report member, who traded it as a swing trade, made a major blunder. He traded the stock without a plan and under the wrong time frame.
This is a common mistake amongst traders. Make sure when you follow a recommendation on twitter or anywhere else, that you know the trading style of the person recommending a stock. Then do your *own* analysis and see if the trade fits your trading style, risk and trade management principles.
Another common mistake that is prevalent with twitter users is becoming trigger happy after reading about what other traders are doing. There are a lot of great tools out there (when used properly), but one must stay disciplined and stick to their own, effective trading style.
Showing posts with label time frames. Show all posts
Showing posts with label time frames. Show all posts
Monday, June 15, 2009
Sunday, April 19, 2009
Monday's Game Plan
Here is the report I have sent to subscribers laying out my plan for Monday:
Market Notes:
Let's go over the state of the market on different time frames.
The long term trend is bearish. We are still in a bear market. While I have not posted a long term chart, notice that the 200 day moving average (which comes into the chart in the top right corner and is red) is still sloped downward. The slope of a moving average is an easy way to identify trend.
In the intermediate term, the market has reversed and is bullish. There are three clues that identify this time frame as bullish. First, the strength of the recent price trend. During this trend volume has been positive, which signals strong accumulation. Finally, the 50 day moving average is no longer sloped down and looks like it's about to turn upward.
On the short time frame, the market is slightly overbought. The stochastic readings are 80 and 74, which signal overbought markets. However, in strong uptrends I look for a stronger reading for shorts.
How do we use this information?
Since I do not trade on the long term time frame, I pretty much ignore this information (though I do use it for my longer term portfolio). I am focused on the intermediate and short term trends. With a bullish intermediate term trend, but an overbought short term trend, I wait to initiate shorts. I look for a pullback to support and moving averages. For shorts, I wait for extreme overbought readings to initiate shorts.
Bollinger Bands and Extremes:
I don't post bollinger bands on most charts because they tend to confuse many of my readers. The reason for this is much of the published material on Bollinger Bands contend that touches of the bottom or top of the bands should be used for reversal trades. I disagree with this. Bollinger Bands are very complex and act different in different markets. In a strong trend, a touch of the Bollinger Band can signal continuation of trend. We only need to look at the band from February to March to see this.
I use the band for "extreme" reversal trades. In trending markets, I only use Bollinger Bands for reversal trades when the band is strongly pierced (rather than just touched). My own backtests have shown a 15-20 percent increase in win rate when using this method (though trade frequency decreases, and identifying trend for this trade is subjective).
Right now, we are moving along the upper band but it has not been pierced A strong move to the $90 range would not only likely pierce the bollinger band, it would also create an extreme stochastic reading and move right into strong resistance. This would be an excellent shorting area.
The bollinger band can also be used as an entry for trend pullbacks. The BB mid-point is the 20 day moving average, which many traders look to for support. A pullback to the $82-83 range would provide a good entry level.
Game Plan:
Short strength, Long on pullback.
Trade Tracker:
I have no open trades.
Focus List:
Since we are not near any long entries, I am not putting any charts up tonight, though I am posting the entire focus list. The only charts are for short entries.
Longs:
Financials, residentials, industrials, metals (not including silver and gold), retail and select tech all show strong relative stength, price and accumulation patterns. Stochastic readings are included in the list below. I'll narrow the list as we get closer to entry points.
Shorts:
Setup: Triangle Breakdown-Pullback. Enter on pullback to the top of the breakdown bar, which also corresponds with moving average resistance.
Disclaimer: All information and opinions expressed in this report are to be used for entertainment purposes only. The author of this report is not an investment adviser and does not give buy, sell or hold recommendations. Trading stocks is a risky undertaking, and due diligence is required before making a trade. Consult an investment professional before making a trade. The information in this report is not verified and may be incorrect. The author of this report may or may not hold a position in stocks mentioned in this report.
Let's go over the state of the market on different time frames.
The long term trend is bearish. We are still in a bear market. While I have not posted a long term chart, notice that the 200 day moving average (which comes into the chart in the top right corner and is red) is still sloped downward. The slope of a moving average is an easy way to identify trend.
In the intermediate term, the market has reversed and is bullish. There are three clues that identify this time frame as bullish. First, the strength of the recent price trend. During this trend volume has been positive, which signals strong accumulation. Finally, the 50 day moving average is no longer sloped down and looks like it's about to turn upward.
On the short time frame, the market is slightly overbought. The stochastic readings are 80 and 74, which signal overbought markets. However, in strong uptrends I look for a stronger reading for shorts.
How do we use this information?
Since I do not trade on the long term time frame, I pretty much ignore this information (though I do use it for my longer term portfolio). I am focused on the intermediate and short term trends. With a bullish intermediate term trend, but an overbought short term trend, I wait to initiate shorts. I look for a pullback to support and moving averages. For shorts, I wait for extreme overbought readings to initiate shorts.
Bollinger Bands and Extremes:
I don't post bollinger bands on most charts because they tend to confuse many of my readers. The reason for this is much of the published material on Bollinger Bands contend that touches of the bottom or top of the bands should be used for reversal trades. I disagree with this. Bollinger Bands are very complex and act different in different markets. In a strong trend, a touch of the Bollinger Band can signal continuation of trend. We only need to look at the band from February to March to see this.
I use the band for "extreme" reversal trades. In trending markets, I only use Bollinger Bands for reversal trades when the band is strongly pierced (rather than just touched). My own backtests have shown a 15-20 percent increase in win rate when using this method (though trade frequency decreases, and identifying trend for this trade is subjective).
Right now, we are moving along the upper band but it has not been pierced A strong move to the $90 range would not only likely pierce the bollinger band, it would also create an extreme stochastic reading and move right into strong resistance. This would be an excellent shorting area.
The bollinger band can also be used as an entry for trend pullbacks. The BB mid-point is the 20 day moving average, which many traders look to for support. A pullback to the $82-83 range would provide a good entry level.
Game Plan:
Short strength, Long on pullback.
Trade Tracker:
I have no open trades.
Focus List:
Since we are not near any long entries, I am not putting any charts up tonight, though I am posting the entire focus list. The only charts are for short entries.
Longs:
Financials, residentials, industrials, metals (not including silver and gold), retail and select tech all show strong relative stength, price and accumulation patterns. Stochastic readings are included in the list below. I'll narrow the list as we get closer to entry points.
Shorts:
Setup: Triangle Breakdown-Pullback. Enter on pullback to the top of the breakdown bar, which also corresponds with moving average resistance.
Disclaimer: All information and opinions expressed in this report are to be used for entertainment purposes only. The author of this report is not an investment adviser and does not give buy, sell or hold recommendations. Trading stocks is a risky undertaking, and due diligence is required before making a trade. Consult an investment professional before making a trade. The information in this report is not verified and may be incorrect. The author of this report may or may not hold a position in stocks mentioned in this report.
Sunday, August 19, 2007
The Housing Stock Conundrum: Analyzing TOL
Housing stocks have made a windfall for those bright minded speculators who have traded the obvious short entry signals over the past year (I am not in that prestigious group). While the trend is still negative, there are signs that we may see a bottom forming. Today I analyze Toll Brothers, one of the "go to" housing plays that has been on my short watchlist for what seems like ages.
First, let's dissect the weekly chart:
The first thing I always take note of is the major support and resistance levels. Here, we see support where the bottom seems to be forming, in the $22 range. Overhead resistance is in the $27-28 range. If I were to play the bounce, I would buy right now at support, and sell once the stock nears resistance. Also take note of the RSI and stochastic ranges. I would not buy at the top of the range.
Now let's move to the daily chart:
The first thing I notice on the daily chart is the "double bottom" that looks to be forming. Accompanying the double bottom is a positive volume pattern showing strong buying. This type of volume behavior is a must for buying a bottom.
While the double bottom pattern is a positive, TOL is a tough buy with the 50 day moving average looming under 2 points away. I would probably wait for a breakout over the moving average, with a target of $27-28.
It is clear that, in the near term, I am looking to play the long side of this stock. If I play the short side, it will only be on strength, using either the 50 day or price-by volume ranges as resistance. I will not short the current level.
First, let's dissect the weekly chart:
The first thing I always take note of is the major support and resistance levels. Here, we see support where the bottom seems to be forming, in the $22 range. Overhead resistance is in the $27-28 range. If I were to play the bounce, I would buy right now at support, and sell once the stock nears resistance. Also take note of the RSI and stochastic ranges. I would not buy at the top of the range.
Now let's move to the daily chart:
The first thing I notice on the daily chart is the "double bottom" that looks to be forming. Accompanying the double bottom is a positive volume pattern showing strong buying. This type of volume behavior is a must for buying a bottom. While the double bottom pattern is a positive, TOL is a tough buy with the 50 day moving average looming under 2 points away. I would probably wait for a breakout over the moving average, with a target of $27-28.
It is clear that, in the near term, I am looking to play the long side of this stock. If I play the short side, it will only be on strength, using either the 50 day or price-by volume ranges as resistance. I will not short the current level.
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