All Entries in the "Technical Analysis" Category
Slow Movers Can Be Steady
January 22, 2007 at 12:22 pm
Every stock moves differently than the next, and a big part of trading well includes matching your personality with the personalities of the stocks you trade.
After all, if you’re an impatient type-A person, you’re probably not trading MSFT because the thing moves so slowly. On the other hand, you may like the slow and steady type of stock because it fits your trading timeframe.
If the latter describes you and you’re a patient trader, check out IACI. It’s been in a steady uptrend for many months now, and it’s just now trying to break out of a bullish ascending triangle pattern. That should spell upside continuation for the stock if the pattern is confirmed. I see an earnings date set for 2/8/07, and I would be out of this trade by then as that could have a big impact on this stock one way or another. Here’s a look at the chart:
(Click for full size.) Chart Courtesy of TeleChart.Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
Trend Lines Often Need Adjustments
January 17, 2007 at 1:41 pm
Technical analysis offers a number or tools and indicators to apply to charts in order to better determine buy and sell areas. Some traders have hard-and-fast rules regarding their analysis tools (and I’m a big proponent of having trading rules in place), but there are parts of technical analysis which do require some ongoing flexibility.
Trend lines are the tool I use the most in my trading and charting, and they definitely require keeping an open mind. Drawing trend lines and trading effectively with them is certainly more of an art than a science, because they can morph over time. While a trend line can be defined as a straight line connecting at least two relative highs or relative lows, what’s often left off of the description is that they frequently need to be refined.
The first time I draw a trend line, I usually consider it to be a rough draft. That means I’m willing to adjust it slightly as the chart pattern begins to mature and time goes by. The more times that price bars touch a trend line, the more valid it becomes. However, not every break of a trend line leads to another meaningful move in price. Therefore, if price pierces the trend line slightly but there’s no change of character in the underlying stock (or index or futures), that’s my signal that the break is of less significance and I’ll likely need to adjust my trend lines.
My aim is not to be perfect the first time I set a trend line. What I want is to have something valid I can trade from, as that will not only increase my confidence in the trade but also my profitability over time.
Technical analysis tools exist to help us, not bind us as traders! Trend lines are usually a work in progress and therefore rarely set in stone. Keep this in mind if you use them in your trading, and try to be sure that something meaningful is occurring when you see a trend line being broken. If the volume is up or the momentum is building, you can take the trade with much greater confidence.
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
Multiple Timeframe Charting
October 23, 2006 at 8:15 am
I often run across a stock with a tradable pattern, but a second look will often change my mind.
This week I ran across SVU, a stock which has been rallying steadily since August. More recently, it had a breakaway gap to the upside and has since consolidated to create a very nice bull flag pattern. Here’s the chart:
(Click for full size.) Chart Courtesy of TeleChart.Ordinarily, I would be a buyer of a stock like this upon an upside breakout from this tight pattern at $33.25. However, zooming out to a longer timeframe reveals quite a bit of resistance from the past 2 years in the $34-35 range which could make a breakout somewhat short-lived as the stock encounters overhead. Here’s a longer-range chart:
(Click for full size). Chart Courtesy of TeleChart.Previous highs mark places where sellers are lurking, and staying aware of such zones can often help you select better trades to take.
There are a lot of stocks out there to trade, so there’s no need to be married to any particular one of them. At TheStockBandit.com, we do the heavy lifting for you by reviewing hundreds & hundreds of stocks every night to cherry-pick the best setups. If you want to save some time locating the highest-quality chart patterns, come trade with us!
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
By the way, subscribing to this RSS feed will mean you won’t ever miss a post!
Hidden Benefits of a Large Watch List
September 18, 2006 at 11:28 am
Bring wide eyes to your watch lists!
I’ve written before about my homework and the process I go through nightly to locate trading setups, but there’s a hidden benefit to my process that I feel greatly adds to my trading results.
Every afternoon after the market closes, I run my TeleChart scans and I end up with a ton of stocks in one big watch list. This big list is where I locate my trading candidates. Although I’ve seen software that offers to locate chart patterns and provide me with a potential shortcut, I feel strongly that a trained eye is better at picking up subtle nuances of a chart that may be extremely hard to mathematically define for a chart recognition software program. That is the primary reason why I flip through so many charts every night, but there is a huge added benefit I’ve noticed from taking the longer road – getting a feel for the overall market.
While I do take a close look at the market indexes every night in my newsletter (incidentally, every Sunday night you can get a look at my index charts on the free Market View page), there is an understated value in looking at a large watch list of individual stocks. Although it’s not too difficult to pick up on developing trends or trading ranges in the index charts, flipping through 2000 stocks manually tends to give me a much more complete view of how many stocks are setting up bullish patterns or if too many are getting extended. This in turn helps me to gauge how aggressive I should be the following day with adding new positions or paring back those which I am already in.
Flipping through such a long watch list takes me a little over an hour each afternoon, but I’ve found it’s time well spent for me. I started small with more like 50 stocks in my watch list, but as time has evolved, I’ve added more stocks to my tradable universe and my eyes have also become better trained to quickly locate the kinds of patterns I tend to trade. This has allowed me to look through many more charts in the same amount of time it used to require to examine those first 50. Making it a nightly habit will do the same for you!
By the way, subscribing to this RSS feed will mean you won’t ever miss a post!
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
[tags]Stocks, Investing, Stock Trading, Trading, Stock Watch List, Chart Patterns[/tags]
Stop It!
September 6, 2006 at 9:56 am
We all know what happens after the stop!
I used to think that the most successful traders just knew how to locate the big winning trades and that was the key to their profitability.
Not anymore – I’m past that, and thankful that I finally realized it. It took some time, probably because of the irony of it all. Who would have thought that the best traders’ real key to consistent profits in the market all boils down to humility and their ability to get out of trades when they need to the most? What happened to bravado and having the guts to take the plunge and go big when you really feel you’re right? Is that not how the best traders do it?
Occasionally that approach might give you a windfall profit, but what happens when you’re wrong (and you WILL be)? If you don’t have an exit plan, you’re gonna be toast. It’ll be Hammer Time for your account, and it won’t be pretty or fun!
If you don’t respect the market, it will force you to respect it.
I’m a huge advocate of using stop loss orders, regardless of your operating timeframe. There are plenty of reasons to sell your stock, but the most basic premise is that once your trade stops behaving as you expected, it’s time to consider kicking it out the door.
Gotta Love Second Chances
August 7, 2006 at 4:42 pm
Second chances are so nice to get, even if we don’t deserve them! If you pay attention in this choppy market environment, you’ll often find that you get multiple chances to get into a trade (and profit).
This could be viewed as frustrating, as a stock breaks down or breaks out, only to quickly return to the support or resistance level. However, it can be great if you get caught snoozing on the first move!
Last night in my stock newsletter, I highlighted NTRI as a potential short. NTRI had broken down a couple of weeks ago and since then had formed a bear pennant pattern. A break below $51.00 at the lower trend line was the trigger for my short sale.
(Click image for full size) NTRI was primed and ready to break down from this bear pennant pattern, with the trigger being a break of the lower trend line at $51.00. NTRI triggered soon after the open today and I was able to short sell it as it broke through the $51.00 level (thank you ARCA market sell/short!). Had I missed the first entry, I would have had another shot at getting in the trade by offering into the first bounce which carried it right back up to the $51.00 level (funny how that works!).
(Click image for full size) NTRI broke the $51.00 level right off the open, but the bounce which followed provided another shot at entering this trade. Gotta love those second chances! Fortunately, NTRI drifted lower throughout the day, providing a nice trade whether you caught the first or second entry. In fact, if you don’t like to trade breakouts/breakdowns, you may actually prefer to bid into pullbacks or offer into bounces in order to establish a position – if so, this is an excellent market for you. Be on the lookout for second chance entries in these choppy conditions, and you’re sure to find some second chances to profit!
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
By the way, subscribing to this RSS feed will mean you won’t ever miss a post!
[tags]Stocks, Investing, Stock Trading, Short Sell, Trading[/tags]
Too Thin to Win
March 27, 2006 at 8:07 am
Although I’m a big proponent of trading with the use of chart patterns, a stock’s volume simply cannot be ignored.
I run across literally thousands of stocks every day in search of not only the best technical setups, but also the proper conditions under which to trade those stocks. I ultimately locate the cream of the crop for subscribers of my stock newsletter, and it results in consistently profitable trading.
There are many stocks which come through the scans with “the right look” to them, but a closer examination reveals some glaring reasons to avoid the stock as a potential trade. The most common reason pertains to volume, and particularly the risks associated with low volume.
Volume is the total number of shares traded for a given timeframe. It is a measure of liquidity for a stock, because it represents participation. High volume makes for a more competitive market with narrower spreads and more consistent price action. Low volume, however, is a warning sign to move on to the next trading idea.
Low volume stocks should not be trusted for several reasons:
Low volume means low participation. If very few people are active in a stock, then what appeal does the stock have? If participation remains low, that stock may simply sit idle while you have your cash parked in it, leaving you with fewer opportunities for profits.
Additionally, a stock with very low volume will often trade with a wide spread, which increases slippage when entering and exiting trades. Trading is hard enough without handicapping yourself with more difficult executions!
It is also far more difficult to accurately read the price action in a stock which might only trade every 10 to 15 minutes during the day. When a stock only trades 25,000 shares a day, what defines a big seller? 2000 shares? What defines momentum? A 20-cent move? It isn’t worth it.
And finally, a low-volume stock can be awfully hard to get out of if the tide turns against you and you need to get out. When the music stops and you need a chair, it’s going to be extremely competitive to get a good price when you go to sell your stock, which makes your losing trade even worse.
Let’s look at an example. PCYO showed up this weekend on my scans as having “the right look” to it. However, one glance at volume was all it took to see that this stock is too thinly traded for my liking. This stock averages fewer than 25,000 shares a day, which is entirely too light no matter how good the pattern might be.
PCYO looks great, but the low volume says to me, “stay away!”PCYO has a very nice bullish consolidation which can easily be seen with the converging trend lines on the chart shown above, but this stock has hardly anyone trading it! This stock may take off and run higher, but the risk associated with the low volume of this stock tells me I would be far better off finding something else to trade.
When you screen for chart patterns, be sure to include volume in your requirements for potential trades. Just because the chart looks pretty doesn’t mean that stock should be traded. With literally thousands of stocks out there to trade, be strict with your criteria and put the odds in your favor every chance you get. Or, become a member at TheStockBandit.com and let us do the work for you!
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
