All Entries in the "Technical Analysis" Category
Storing Watch Lists in Worden’s TeleChart
January 24, 2008 at 1:47 pm
I have discussed watch list management before and how it’s an important responsibility for active traders. I store my watch lists in my charting program, which is TeleChart Platinum from Worden, and it’s nice knowing that at any time I can pull up a group of stocks with tradable charts. Watch lists truly are at the core of my swing trading method, and the constant review of daily charts is where I locate new trading opportunities and update important levels on my existing trades.
Storing my watch lists in TeleChart has a number of benefits, but here are several reasons why I do it:
Backup Watch Lists
Technology is great and it is the driving force at any trader’s desk, BUT it only takes one hard drive failure to send all of your hard work right out the window! I have dual hard drives in my desktop PC’s, along with external backup drives running at regular intervals to ensure that my data is recoverable in the event my primary technology fails. (I encourage you to do the same)! However, some of my watch lists have slowly been compiled across years of trading. TeleChart allows me to upload all of my chart settings (watch lists, trend lines, notes, etc.) to the Worden server, giving me added redundancy with my important chart data. Furthermore, when I edit settings on one of my PC’s, I can download the new settings straight from the Worden server to sync up all of my computers. This is huge when I am traveling and working on my laptop.
Store Multiple Watch Lists
The organization of your trading ideas is what will enable you to act quickly and decisively when the time comes to place trades. This can be as simple as separating long from short ideas, or as complicated as dividing up market sectors or even indicator-based scans. I particularly like this feature of TeleChart, because I don’t have to try to mentally separate certain ideas from others. The ability to create and label new lists helps me to compartmentalize my trade setups according to direction, timeframes, industry, or anything else I may specify.
Copy All or Selected Stocks Across Watch Lists
This is a major part of my daily routine, as I will manually screen several watch lists each evening in search of setups for the following day. The “flag” feature of TeleChart lets me hit the ‘F’ key to flag or unflag a stock, allowing me to mark stocks of interest as I go along. So for example, while working my way through a list of 500 stocks, I can hit ‘F’ anytime I see a stock which interests me and be able to pull those needles out of the haystack once I’ve completed the list by viewing these flagged items. Even better, I can copy only those flagged symbols to another list, or even remove them from a list altogether.
Another aspect of the “copy all or selected stocks” choice is that I can sort a list to separate only those stocks which fit my criteria, and then copy those symbols to a list. So for example, say I want to review a master watch list but I only care about stocks which had volume today of 500k. I can sort the list by 1-day volume, flag those symbols, and then copy them to another list. This is an excellent way to filter out only the stocks you want to review closer, cutting down the work load considerably.
At the end of the day, you need a system of some kind to keep your trading ideas organized. Having the right setups at the ready is a major part of a well-formulated game plan for your trading, and it’s much more difficult to act with speed or precision otherwise. Determine a way to keep locating new setups in the charts, and decide to stay organized with your trading ideas. It will keep you a step ahead of the pack.
Trade well today,
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
Deciding if a Stock is Trade-Worthy
October 31, 2007 at 9:58 am
I’ve noted before that I review many charts every night in my preparation for the following trading day, and I will probably always do so. I think there are numerous benefits to it, including keeping a streamlined watch list of trading ideas at your disposal, which greatly aid in my trading.
Since I’ve already reviewed my charting routine, I’m hoping it will help you out to explain a bit just how to go about deciding if a stock is actually “trade-worthy.” There are several things I check for as I flip through the charts, so let’s go through 5 of them and see if there’s some particular aspect of my process which can help you in yours!
Does the stock have a pattern?
I trade from the chart patterns, and the main reason why is that I know where to get into and out of trades. Every trader needs to have some kind of method for determining entries and exits, and for me this comes from the charts. Chart patterns can assist all sorts of trading methods, from short selling to playing uptrends or looking for reversals from support and resistance levels. Regardless of your method, watching the charts closely and having some familiarity with the patterns will help you often in knowing whether a particular stock should be on your trading list.
Does the stock meet your price & volume requirements?
Asking yourself these things when you run across an interesting chart will help you to quickly determine whether you’ll be able to get into or out of the stock smoothly, as well as whether there’s some potential for movement once you’re in. Illiquid stocks won’t have sufficient trading volume, showing an absence of buyers and sellers. That’s never a good thing, because your buy and sell orders need to be fulfilled by other sellers and buyers. The stock’s price can also have an impact on whether you’ll want to trade it, as some expensive stocks can carry a wide spread and move too far for your comfort. At the same time, a cheap stock may not offer up enough opportunity for price fluctuations if you take the trade.
Does the stock have earnings on the near horizon?
This is a big one every 3 months, as a slew of earnings reports begin to roll in about 2 weeks after the end of the quarter. These scheduled news releases are company-specific, and trying to trade them is a complete gamble. A good plan is to simply do your charting homework and then check the earnings calendar from a site like Yahoo Finance to be sure an entry in a stock won’t coincide with the news, particularly since they usually mean significant price gaps.
Does the stock have a history of making tradable moves?
A stock’s character, particularly in recent weeks and months, will play a major role in how (or even if) it should be traded. Watching at recent history to see if a stock tends to make good multi-day moves in a trending fashion, or if instead it typically makes quick one-day splashes followed by indecision will go a long way in helping you determine your strategy in trading it. Some stocks make habits of trending smoothly, while others gap frequently or may simply ignore indicators you rely on in your trading method, and each of these factors should be weighed before an entry is considered. Every stock has a personality, and the key to good trading lies in finding stocks whose personalities match your trading style.
Is the stock approaching key resistance or support?
Some stocks will have every important variable in place, but the only potential impediment to a lasting move could be major resistance or support (for a short sale). These levels will appear as congestion areas on the chart, and will often slow down a stock on its way higher (or lower). Anytime I see these virtual speed bumps on the horizon, I will not consider swing trading the stock but will instead just take it for a day trade to grab a quick move.
No matter which trading method you prefer or timeframe you trade on, make it a point to add some consistency to your preparation process. Having some well-defined qualifications for stocks you’re considering placing trades in will keep you disciplined and will no doubt add a layer of confidence to your approach, which will help you get back on track when you need it and stay there.
Trade well today!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
How Pullbacks Help Build New Chart Patterns
October 29, 2007 at 7:10 am
The recent market pullback may or may not be finished, but it brings up an important subject which is why pullbacks within trends are good and healthy. Whether we’re talking about an uptrend like the one the market is currently in or a downtrend like we’ve seen before, prices don’t move nonstop in the same direction without taking some breathers along the way. Call them pullbacks or retracements or dips or whatever, but the fact remains that contra-trend moves certainly help to produce new chart patterns for potential new entries as the trend continues.
In the current market uptrend, pullbacks help to shake up the charts and allow them to reset. This creates new base-building opportunities for stocks which had previously gotten too extended to chase. As a stock goes parabolic and keeps climbing higher without a rest or dip, new buys become very high-risk.
I never want to buy a downtrending stock, but I do get excited when I see pullbacks come along. Even just 1 or 2 bars of downside within an uptrend can lay the foundation for a new base or chart pattern to build. Let’s look at an example and I’ll show you what I mean (click the thumbnails to see the full-size images).
The Uptrend
HANS has been trending higher at a rapid pace, hardly slowing down for new entries. Here’s a look at the run:
(Click for full-size image, courtesy of TeleChart)
The Pullback
A week ago, HANS sold off hard with a pair of downside spikes coming right off the highs, shaking up the overall appearance of the chart and signaling a temporary end to the nonstop run. Although traders who held the stock during the decline no doubt felt some pain, this kind of shakeup is exactly what can bring opportunity. The pullback itself doesn’t make a new base, but it does create the framework for a new base to mature from. Here’s a look at HANS post-pullback:
(Click for full-size image, courtesy of TeleChart)
The Rebuilding Phase
Since the dip, HANS has bounced again and currently is back near the highs. This allows us to draw two trend lines, one along the recent lows and the other along the recent highs, creating a bullish ascending triangle pattern. This hypothetical example shown below needs more time to mature and really develop fully before it would be a trade I’d take, but I’ve drawn in yellow bars to show how price might cooperate in order to allow this pattern to be complete. Some additional horizontal price action within the blue triangle would create a solid base from which a new advance could build on, while simultaneously providing a tighter natural stop-loss level as the triangle narrows. Here’s a look at one way in which this pattern might progress:
(Click for full-size image, courtesy of TeleChart)
I like the HANS setup and would consider taking it for a trade if it develops the way I’ve hypothesized, but the example should help to show you the kinds of things to look for after seeing a dip in the market or a particular stock which you’ve noticed climbing nonstop. The initial dip sets the base-building process in motion, and that’s always a good thing. Pullbacks should be a welcomed sight for any technical trader, and now you have one example of something to watch for in the charts the next time a dip comes along.
Trade well today!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
Trading With Indicators
October 2, 2007 at 6:32 am
I’m often asked why I don’t always apply stochastics or MACD or moving averages to my charts. To that question, there’s a simple and a complicated answer. The simple answer is that I prefer to focus on price and volume. My charts are cleaner and I can focus on the real buying and selling forces that are at work in a market without confusion or obscuring the most important indicator – price. The complicated answer requires a closer look at indicators.
Knowledge is Power
Indicators can be useful, but the trader must know when to apply them in order to get something useful from them. Applying the wrong indicator will only cause confusion, and trading is hard enough without adding more doubt to the picture! I have witnessed a number of traders frustrated with getting stopped out of trades when trying to buy moving average crossovers during a choppy, range-bound market. Taking trading signals from indicators must be done with the proper market conditions for which those indicators were created.
For example, a stock may be about to penetrate a key moving average, but if the stock isn’t trending then most likely you’re taking a false signal, as moving averages are rarely helpful in a non-trending environment. By definition, a moving average measures something on the move. Therefore, they are best used in a trending market. On the contrary, a stock with momentum may have an overbought reading according to oscillators, but oscillators are rarely helpful in a trending market, as they can stay overbought or oversold for long periods of time. Oscillators are subsequently best used for range-bound stocks and markets.
Selecting Your Settings
When in doubt, I will on occasion look at a trending stock and apply a moving average. However, a quick look through any trading magazine will show you that there are very few moving average periods with a wide following. For this reason, I place little weight in arbitrary numbers like 25 or 40 period moving averages which a great many number of traders supposedly follow. A stroll through any trading floor will show you the wide variety of time periods being sampled for moving averages, all of which produce different values. The 50-day and the 200-day moving averages are probably the most widely watched, but they trail price so far that most of the time a stock is some distance from either of these two moving averages, diminishing the usefulness of either for a short-term trade on most occasions. When I want to see a moving average, I prefer to apply a faster one of 10-20 days(2-4 weeks), which will often give me a better glimpse of where a stock may find recent support or resistance.
A range-bound stock will generally ignore moving averages though, which is the time to apply an oscillator such as stochastics. Oscillators help identify reversal opportunities, and are therefore better applied to stocks or markets which are stuck in trading ranges for a fade play. Anticipating reversals within trading ranges or channels is a trading style which can benefit from overbought or oversold levels as measured by oscillators, so consider these tools the next time you are contemplating an entry in such a trade.
Keep The Main Thing The Main Thing
At the end of the day, price is the most important element in any trade, and no indicator is the magic bullet that your trading has been lacking. Price is the sole indicator which is telling you right now whether you are right (profitable) or wrong (losing), and it doesn’t get any simpler than that. When you need a little extra help determining entries or exits, be sure to consider which indicator best fits the price action in question before you apply all that are available to a chart. Only then will you find value rather than confusion in the additional information that indicators can provide.
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
Finding Short Sale Candidates
June 12, 2007 at 5:12 pm
Last week’s market pullback after a very long upside run might have been a change of character. In fact, with Friday’s bounce now having failed, the charts are suggesting some further downside may be in store. When considering the psychological changes that can come with a sudden, sharp correction after such a steady uptrend, there just might be a shift to a more defensive posture by the longer-term players. Bulls with nice gains to protect sometimes view subsequent bounces as second-chance selling opportunities, which can certainly have a slowing effect on the advance, and Tuesday’s turnaround is in line with that. Further, the bears who have been waiting so patiently might now begin to view this recent market weakness as an opportunity.
I’m no perma-bull or bear, I simply let the charts be my guide when it comes to trading the long or short side of the market. However, there are a few things I’ll point out when it comes to finding short sale candidates after a big advance like we’ve had.
It’s important to note that although trading the short side is technically just the reverse order of a long-side trade (with a short sale you sell first and buy back later), in practice it can play out very differently. We’ve already discussed how to get short, but let’s examine 4 related and important characteristics when locating high-probability short selling candidates, just in case this market is undergoing a change of character.
Volume. Trading the short side presents a completely different animal than the long side when it comes to trading volume. To move higher, a stock needs strong volume with new buyers entering the picture to produce greater demand on the shares, so long-sided trades should show improved relative volume. On the flip side, stocks don’t need high volume to move lower. In a skittish market, buyers who are bidding for shares may simply cancel their orders. That means that volume can actually diminish while the supply vs. demand relationship changes. The “heavy” supply in relation to the lighter demand is what leads to the phrase, “stocks can fall of their own weight.”
Chart Patterns. There are a number of bearish chart patterns which represent the psychology of buyers and sellers, helping to provide an edge on the short side when they surface. Being able to locate and correctly diagnose these patterns will help you locate higher-probability trades than arbitrarily deciding that a given stock “looks expensive.”
Failing Bounces. The description speaks for itself, but a failing bounce occurs when a stock has corrected, is trying to recover or “bounce”, and it becomes apparent that the upside momentum will fall short of reaching the previous peak. Initiating a short sale into a failing bounce can present a clear-cut exit (buy to cover at the previous high) as well as a nice entry for when the next wave of selling hits the stock.
Lower Highs. Failing bounces lead to lower highs on the charts, so having a few already in place should mean a downtrend is being established. Each time a stock attempts to recover, it comes under selling pressure again as weak holders unload shares in an effort to raise cash. Lower highs increase the odds of success when trading the short side, implying that the stock has already “topped out.”
Trading the short side can provide you with some nice profits when done properly, and also can be a nice natural hedge against long positions when corrections come. The market isn’t always in bull mode, so keep an open mind to the short side and one of these days you may be glad you did!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
Gauging Urgency in Chart Patterns
May 24, 2007 at 7:51 pm
As a chart pattern trader, it’s all about the price action for me. My research isn’t based on company fundamentals or what some analyst is predicting for the next year – it’s based solely on supply and demand as reflected in the chart.
I trade common patterns like flags, pennants and triangles, all of which provide continuation plays within uptrends like we’re seeing right now. The patterns themselves present clear-cut entry and exit levels for my trades, so identifying them is certainly a key part of my method.
However, once I’ve identified a technical setup that I like, my focus then turns to the price action within the pattern. Doing this gives me a much better indication of just how antsy the stock is getting. Watching support and resistance levels within the pattern gives me these clues. A stock which is itching to break out is going to be perking up to test resistance, while one which is acting sluggish will generally be hovering at support.
An example of this can be seen in AMZN, a stock we just closed out Wednesday at TheStockBandit.com. We caught 5% at the first target on the first day, and 11% at the final target on the 3rd day. It was a great pop, but let’s look at how the setup developed.
I first listed AMZN in the Bandit Broadcast stock newsletter on May 3rd as it started to create a nice base following the run it made on the earnings announcement. This implied another wave of buying, so I set it up as a swing trading candidate for members. Here’s the chart I showed that night:
(Click for full-size image, courtesy of TeleChart)
The stock didn’t break out for a few days so I highlighted it again to provide an update on how it was progressing. Again I stressed waiting for the buy point before entering, which serves as our confirmation that the stock is headed in the anticipated direction. Here’s the chart I showed May 7th:
(Click for full-size image, courtesy of TeleChart)
A week later, AMZN was trading in a channel pattern, which would ultimately serve as a nice launching pad for another upside move if resistance could be cleared. Here’s the chart from May 14th:
(Click for full-size image, courtesy of TeleChart)
The final indication came when AMZN started to turn up late last week, and you’ll see in the chart below how it moved to the top end of the channel before finally breaking out on Monday when we got our buy signal as AMZN finally hit our trigger price at $63.85. We took partial profits on Monday into the initial move, held it 2 nights and took the rest Wednesday at $71.00 (11%). Pretty nice for a 3-day trade. Here’s the chart at the time of our exit, looking a bit short-term extended and due for a rest:
(Click for full-size image, courtesy of TeleChart)
So the next time you spot a nice chart pattern, remember to measure how well the stock is acting within the pattern. It might indicate that more patience is required before your buy signal is triggered, but once it perks up you’ll know the time is getting close.
And patience pays!
Jeff White
President, The Stock Bandit, Inc.
Take the Money and Run!
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
When To Use Line Charts
January 25, 2007 at 9:57 am
Most of us use bar charts or candlestick charts, but you don’t see a lot of line charts these days. The reason why is that a line chart is generally drawn using only the closing level of a stock, so it paints the end result and leaves out a lot of the “noise” along the way.
Line charts do have their place in trading, and I’ll give you a good example of a time when I use them. I look through a ton of charts every night, and you might too. What you find when you do that is that you’ll run across stocks which just give you the feeling that they’re about to move a certain way. Typically, I’ll draw trend lines and look for well-defined chart patterns to provide entry and exit levels for new trades. However, some charts just aren’t clean enough to do that effectively, so I’ll switch over from a bar chart to a line chart.
Let’s look at an example of this.
MVIS is in an uptrend, and one look at this bar chart does show higher lows along the way. The problem is, the past 15 bars or so are in sort of a messy area, making it hard to determine a precise entry and exit level without giving the stock too much room. (Click the chart below for full size)
So MVIS looks good for some upside, but we can’t find an exact entry. Switch over to a line chart format and it’s amazing how much cleaner the stock looks now. We have a nice base here with this descending channel pattern, giving us a well-defined entry level and exit level (above and below the channel, respectively). (Click the chart below for full size)
The next time you have that gut feel that a stock might be gearing up for a move but you can’t pick a good spot to structure your trade, try a line chart. You’ll find the levels will often be much cleaner, and you’ll trade more effectively because of it.
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
