Improving Chart Analysis

[barney]

Some good comments on this thread so far and looks like Barney is moving in a positive direction.

Cheers.[/QUOTE]

Thanks Les, I hope you're right ............. I think I need continual "wake up calls" from the many experienced folks here (I read between the lines Mag, thank you) ...........This trading is an interesting exercise in personal phsycological analysis of "yourself"................ I admit to being a bit "impulsive/impatient" etc. , but think that, long term, I (might) go OK??? Many have said that it is easy ............... It probably is (in a Bull Market!!) When the market is contrary and hard to "read" ............ That is when the ones who "understand" what is "going on" will benefit .................. and then I ask myself .............. What importance does this have in the overall scheme of things ............... ie Life/ Family/Happiness etc............. OK Its Saturday night and I'm getting Philosophical, but in the final wash up, Its all a game (I love the game!!) but the important facets of life should never be overlooked ................ I'm starting to ramble on (couple of beers) , so I'll sign off......... Cheers, Barney.

 

[wavepicker]

Hopefully this will illustrate the entry question well.

This is a trade which is one which is public here on tech trader.

http://lightning.he.net/cgi-bin/suid/~reefcap/ultimatebb.cgi?ubb=get_topic;f=74;t=000029;p=3

Hi Tech, Thanks for the charts, and congrats on a fine trade.

May I offer some suggestions however based on my own experience. In the chart you posted the 180EMA (which is actually one of the lowest lag filters togtehr with a WMA) is always well below the price action. Obviously this is a very strong trend, which typifies the runup a lot of stocks have had since march 2003. If your methodology scans stocks and looks for these sorts of stocks then fine.

I also used similar lagging indicators at one stage only to get whipsawed everytime price broke under the MA, and then continue it's uptrend.
Something that was very simple and that helped me a lot was rather than using an MA, I used fib price levels. Just 1 of them!!

I'll demontrate. In the first chart of the 2 you posted, you had an initial upswing starting from the left of the chart. It was a thrust that took 8 days. The subsequent countertrend also 8 days duration, it was struggle down in comparision. It retraced 50% of the initial leg up. The market is finding it easier to go up than go down. If the retracement had put in a close under the 75% fibo mark ( I stress close) I probably would have been bearish. Following the retracement you had another small thrust up and a retest of that thrust up (a double bottom). Double bottoms in uptrends are bullish.

Moving along the mext swing up, it was also followed by a retracement, that could not close below 75% of the swing up. Hence you stay in the market. If you looking like closing at a level below the 75% level you exit. It does not mean it's the end of the trend, but acts as warning, and the market will probably sink to a lower level.

This chart you posted does not do the method much justice because it was such a strong trend. But you get my drift.

If you were forced to exit because of a close beneath the 75%, use the same strategy but in reverse, ie on the downward swings to renter a continuous bull.

Now this does not always work, but can be very useful, especially when used with ATR, and RSI. Will leave that for another time though. I use it at varying degress of trend especially in the FX markets.

Just something to think about regarding both entries and exits. Especially when making entries after breaking to new highs. Something as simple as this and you maybe able to finetune those entries a little more and make a few extra buckaroos!

Cheers

 

[tech/a]

Wave.

Thanks,what a great and simple Idea.

Ill have to code it up and have a test on it.
Even so I do like the idea.
Ill read over your post again when I have more time---just about to nip out for dinner.

Thanks again.
Even OLD DUCKS can be taught new tricks.

 

[Porper]

Some good comments on this thread so far and looks like Barney is moving in a positive direction.

Totally agree Barney, excellent thread, not too advanced that us "beginners" can't get a grasp of things.It takes a while for it to sink in for all of us but the fact is you can be the best at analysing a chart, but if you let your losers run and take profits too quickly you will be one of the statistics in the 90 odd % that fail.

 

[barney]

Totally agree Barney, excellent thread, not too advanced that us "beginners" can't get a grasp of things.It takes a while for it to sink in for all of us but the fact is you can be the best at analysing a chart, but if you let your losers run and take profits too quickly you will be one of the statistics in the 90 odd % that fail.

Amen Porper, I think Trading is a cross between Knowledge and Discipline .............. and from my point of view, you need a lot of both, .............................and if you have lots of either, without the other, you are bound to have problems at some stage ............ (That is a "novice" point of view, but even "novices" can be correct sometimes ) ............. PS I'm tired of being a novice, but I can live with it ............PPS How do I know when I get past the novice stage??

 

[Porper]

How do I know when I get past the novice stage??

How many people do you think there are on other forums who think what we discuss here is absolute rubbish ?

I was one of those people just over 2 years ago.I soon realised that trading on tips, gossip and lack of knowledge was going to make me broke.So like you I changed and listened.

So, as far as I am concerned you are past "novice" Barney.

The beginners cycle takes a long time especially when we all need a "life" outside trading, then there is work, family etc.

I sometimes think I am getting past beginner, then there are posts where I have no idea what is going on.I suspect we will never stop learning, but that is good if you enjoy it.

 

[MichaelD]

PPS How do I know when I get past the novice stage??

You are past the novice stage already, Barney.

When you start to trade with a stop your trading paradigm changes irrevocably - you change focus from entry to exit. That is the end of the beginning and the beginning of the next part of your journey. The light bulb has suddenly turned on.

90% of traders never get this far.
90% of traders lose.

Porper put it very well - "How many people do you think there are on other forums who think what we discuss here is absolute rubbish ?" - lots, in a raging bull market. It's one of the ways of very quickly telling who actually knows what they are talking about.

Winning traders may disagree on many points as can be seen in this thread, but the central tenets of winning trading behaviour remain constant.

 

[barney]

You are past the novice stage already, Barney.

When you start to trade with a stop your trading paradigm changes irrevocably - you change focus from entry to exit. That is the end of the beginning and the beginning of the next part of your journey. The light bulb has suddenly turned on.

90% of traders never get this far.
90% of traders lose.

Porper put it very well - "How many people do you think there are on other forums who think what we discuss here is absolute rubbish ?" - lots, in a raging bull market. It's one of the ways of very quickly telling who actually knows what they are talking about.

Winning traders may disagree on many points as can be seen in this thread, but the central tenets of winning trading behaviour remain constant.

Thank you Michael and Porper for the "moral" support, Bottom line is, I feel like a novice (compared to many here), and will no doubt do many things wrong in the future, yet, at the same time, feel strangely "more in control" than before, due to education I am aquiring ............. Funny, Up until a couple of weeks or so ago I thought to be a good trader you had to be a chart guru/mathematical wizard etc. and be able to "spout" off about the whys and wherefors of all things technical, but now I realise that the technical aspects are only part of the battle.

Hindsight is a "cheap" commodity, but if I had taken the time to learn to the basic level I am at now, I would be a much wealthier person atm .............. Not by what I would have aquired, but by what I wouldn't have lost !!! , and that is by far the most valuable lesson I've had so far. My "schooling" was expensive, but hopefully I live long enough to turn that around. For me, it is less about money now and more about personal achievement ............ Hopefully my mistakes will save others making the same mistakes ........ that would be a good thing ............ Barney. (PS I'd like to make some money as well

 

[Magdoran]

Ongoing Light Crude Example.


Crude found support on the 12th which tends to confirm the cycle we have been using may well remain valid.

From the price action we could expect 2-4 days counter trend to the bearish drive in the daily chart.

Last night’s price bar could be a small false break of sorts, and could see a continuation from here. I suspect this is what will happen, but a counter trend is possible too.

There is an outside chance the low on the 12th was a false break low, and could see a bullish counter trend to the bearish drive in the daily chart, which is also supported by a “mini” 5 wave structure down, so could be a completion of sorts.

Also, the 12th was also a potential end of the weaker cycle shown in the third chart below. The second chart is a similar alternative cycle, but is not currently dominant like the first chart.

But overall this still looks bearish to me, but we have to be aware of the possibility of being wrong, and pre think what a bullish reversal might look like, so we can recognise it early so we can take action as the trade unfolds.

The downward momentum for crude has slowed currently, but this may be temporary, or maybe this is the rate it will continue at, until support comes in.

Currently we still have the October 30th time point as the as the exit objective, and the half exit point still stands.


Regards


Magdoran

P.S. For those who haven’t been following this on this thread, please refer to the previous posts on Crude and Brent oil futures. Mag.

 

[tech/a]

"How many people do you think there are on other forums who think what we discuss here is absolute rubbish ?"

Hell there are many right here on ASF.

I was involved in discussion on PMH last week pointed it out as a blowoff top in the Outlier thread.
Went to the trouble of posting charts and started discussion from my experience in trading these. Everytime it fell from highs there was interest even questions. Everytime it tested the high,I was and still am apparently showing people exactly how "They shouldn't be trading".

I've really come to the decision why bother,most arent interested in learning,success,to them should be treated with contempt. Frankly one of the reasons why I havent continued the Outlier thread---I now realise they would have no interest and wouldnt understand it anyway.

If you'd like an education in the pull and push of Fear and greed then read that and MOX thread.
https://www.aussiestockforums.com/forums/showthread.php?p=80784#post80784

Its a pleasure to be involved in a thread where all seem to be genuine in passing on knowledge and respectful of varying veiws and methods.
Ive picked up some hints--thanks
.

 

[MichaelD]

Frankly one of the reasons why I havent continued the Outlier thread---I now realise they would have no interest and wouldnt understand it anyway.

I'm interested (VERY interested) and I'd understand.

Its a pleasure to be involved in a thread where all seem to be genuine in passing on knowledge and respectful of varying veiws and methods.
Ive picked up some hints--thanks.

100% agree. It's these outlier threads that make it all worthwhile.

 

[nizar]

I'm interested (VERY interested) and I'd understand.

so am i tech/a
please continue

 

[barney]

I'm interested (VERY interested) and I'd understand.

100% agree. It's these outlier threads that make it all worthwhile.

Even if I don't understand ........ I'm still very interested

 

[It's Snake Pliskin]

Tech,
An outlier is something far from normal. Taking that meaning and relying on outliers for CONSISTENT profits seems a little challenging. Do you rely only on outliers, and are they included in your stats for expectancy etc?

What timeframe allows the consistent outliers to eventuate in your case? Much like the charts posted before I would imagine.

You may see the paradox: consistent outliers are not outliers, merely consistent returns.

From my experience you ask questions that don't look like a newbie in awe and nothing.

Hell there are many right here on ASF.

I was involved in discussion on PMH last week pointed it out as a blowoff top in the Outlier thread.
Went to the trouble of posting charts and started discussion from my experience in trading these. Everytime it fell from highs there was interest even questions. Everytime it tested the high,I was and still am apparently showing people exactly how "They shouldn't be trading".

I've really come to the decision why bother,most arent interested in learning,success,to them should be treated with contempt. Frankly one of the reasons why I havent continued the Outlier thread---I now realise they would have no interest and wouldnt understand it anyway.

If you'd like an education in the pull and push of Fear and greed then read that and MOX thread.
https://www.aussiestockforums.com/fo...80784#post80784

Its a pleasure to be involved in a thread where all seem to be genuine in passing on knowledge and respectful of varying veiws and methods.
Ive picked up some hints--thanks

I am interested in the inclusion/exclusion of outliers in collecting and calculating trading results.

 

[tech/a]

Snake as you know normally the few highest winners and largest losers are excluded from results.
Personally I look for those on the winning side to see if they skew the return.

More common in longer term trading methods.

 

[It's Snake Pliskin]

Snake as you know normally the few highest winners and largest losers are excluded from results.
Personally I look for those on the winning side to see if they skew the return.

More common in longer term trading methods.

Yes naturally Tech. Thanks for the answer.

 

[Magdoran]

Mag,

when does an initial stop loss become a trailing one for you? as in, when do u start moving up your stop to protect increasing levels of profit?
are most of your exits from the stock hitting your stop or from some other exit criteria?

i used to think that the only reason traders would sell is if a stock hit their stop. ie. they wanna keep hold of a winning position as long as the trend allows, and consequently the stop should be placed in a position which would indicate that

Hello Nizar,


Your question is deceptively simple, but the answer is very involved.

Ok, simple answers: I tend to aim to trade the main trend, and exit where I think an impulse is at risk (this is usually a half exit, but sometimes a full exit). Once the trend resumes or near where I think it will resume I look to re-enter the position.

I also sometimes play the counter trends looking for sharp gains with puts (I did this a lot with BHP and RIO as they pulled back during this last bull run from 2003 – very dangerous though, you really need to know what you are doing here and be very nimble. Need to know your option theory too if using them.). If trading long options (puts or calls), you need to sell on strength (“McLaren-ism”).

Now, let’s examine this in more detail since this is not as straight forward as it looks. As for stop losses, these are usually driven by failure criteria, time and often by discretionary exits if it looks wrong to me oddly enough. I do often have a technical stop too, but this is carefully placed – I try to imagine what I would do if I was on the opposite side trying to take stops out, and place my stop accordingly – in a not very obvious place.

But behind this, we’re really talking about money management issues and developing a trading plan to suit your approach/system, so this is very much horses for courses. As you can imagine there are quite a few variables involved, based on what market you trade, what instrument you use (shares, options, CFDs, futures, warrants, bonds, and other derivatives such as structured financial notes etc), your risk profile, and your timeframe, not to mention your trading style.

If we’re talking Stop losses specifically, my approach varies depending on a range of these variables. Don’t forget that timeframe and instrument should play a big part in how you structure your trading plan and money management approach. But the core inputs are:

• Technical Exit – profit, loss, and partial exit (to lock in profit).
• Time: set a time target for exit - especially if using options.
• Discretionary: pattern invalidation/failure or some kind of reason that puts the trade at risk.
• Position size
• Instrument
• Market


“Cut the losers” – how tight should your stop really be?

Think about situations like the one Daffy (tech) describes in post 357. After you’ve entered long on a pull back (expecting a resumption of a bull trend), the stock goes flying down hard – in these situations many people jump out while the professional players shove the price down to shake out longs with stops set too tightly.

Then once enough stops are taken out, the strong buying continues all the way up, then they sell it down again to take their profits. Look at the bar on Daffy’s “Ouch” day. This is pretty much the way I read that bar. Gapped down at open, moved back up strongly, then was sold off towards the close. Classic bar.

Snake was spot on in drawing attention to this. If you had set a stop loss too tightly, you would have been taken out, only to see the underlying rally all the way back in the direction you thought it would go. There are times to use tight stops, and times not to. Time frame is a critical element as is the position size involved. Sometimes it makes sense to trade for longer periods, and reduce position size to allow a wider stop. Fully agree with Snake’s observations here.


Money Management:

This in my view revolves around two key concepts – 1) Risk and Reward, and 2) Probabilities. In my view, you need to be aware of how much you are actually risking, and what the likely rewards are. Then I also believe that you need to assess the probability of a range of possible outcomes to the best of your ability, and what the net effect would be to your position. But this is just my view, some choose to ignore one or both or these concerns (at their peril).

A key element in money management is position size. I keep reading these ridiculous comments about only risking 1% of capital because someone has set a stop loss at a specific price. Hogwash. If you put up $10,000 into a share purchase, you are actually risking $10,000. If for some reason a trading halt is called, and the stock goes into liquidation, it is possible for you to lose the entire capital staked. This can happen. Sure, it is not probable, but it is possible. Think about this.

Also, it is highly possible for a stock to gap down way below a “stop loss” and keep going. In a panic move, it may not be possible to exit until the stock has hit a price way over the fabled 1% stop loss. In my view this is really a misnomer about stop losses. Of course I’m assuming a long share type position here, the reverse of course applies to short positions (if short and the underlying gaps up), and leveraged instruments also can behave differently depending on the instrument used.

This is where probability estimation comes in. It’s a bit like an insurance actuary assigning risk and examining the reward for doing so. This is essential in my view to determine which trades to avoid, as much as identifying the ones to take.


“Let the winners Run” – the important half of the story!

Another sloppy mantra that is chanted ad nauseum is the concept of “letting the winners run” – what a dangerous notion this is if it is not combined with Mark Douglas’ gem: “I pay myself as the market makes money available to me”. What he’s saying lines up with McLaren’s wonderful story of learning “how to take a profit”. I’m sick to death of people putting this kind of “truism” up without explaining the important half - Knowing when to get out and not overstay the position.

I remember being really bullish on a banking stock a few years ago, got the entry spot on and saw my options double overnight, and continue for 2 more trading days, didn’t take my profits, then saw the stock plummet and take over a month to get back to the same level, resulting in a loss because I didn’t believe it was going down. Hence I learned my lesson, and now set technical partial profit exits (ala McLaren), or if unsure of the technical exit identify doubling my position as an exit half target. Then I also set failure criteria and profit stops for the remaining half.


Playing the Market:

People seem to forget that this is a highly competitive arena where the big guys have huge $$$ targets to achieve, and are out to take your money. They have deployed considerable resources to the sole pursuit of taking money from any source they can find – this includes YOU!

There are also professional traders who depend on winning at this game to make a living. They treat this pursuit as a serious business and have to be 100% committed to making consistent profits. Then there are the amateurs and mums and dads.

If you don’t understand that there are all sorts of manipulative tricks that some of these guys play to make a quick buck out of the majority, then you are naive, and probably will be their next meal.

There are as snake points out different trading objectives, such as long term trend following, counter trend trading (usually quite short since it is against the main trend), day trading etc. All very relevant considerations into the mix.

The way I trade, I assess the probabilities, and interpret the chart and define exit criteria of taking profits when the trade is at risk, or where there is a good chance that an impulse may end and retrace against the main trend. You have to know how to take a profit, as much as know how to take a loss. Two sides of the coin, and half the equation that is often missed if you are position/swing trading (I tend to see these terms as pretty much interchangeable depending on the definition).

As you can imagine, we’re skirting a lot of involved issues here, and there are subtleties and tactics, and methods that we could talk about for hours on this subject, but I hope this helps to illuminate some of the issues in this first cut at the subject.


Regards


Magdoran

 

[Magdoran]

Moggie.
You open up topics that will have us involved for hrs!!---Bugger I have other things to do!!

Geez Daffy,


Am I making you work am I? Sounds like you have a war going with the “fundies” and “shark bar” amateurs at the moment without me adding to your inbox!

You poor old duck. No sleep for you this weekend. No play. No tennis Mr McEnroe!

Sorry, can’t help myself either, topics get put up, I think about them and comment…

It is fun though, isn’t it? This is a really good thread, lots of interesting ideas here…

As for barney, what do you mean it’s my fault?! You’re the one who started this crazy thread, and keep adding fuel to the fire!

Hahahahaha!


âœMoggie”

 

[Magdoran]

"Before You Recoil In Horror" (Some Practical Advice From Bob Prechter)
By Anna Troupe

An analyst in a recent news story says using stops is the "most basic tactic" for managing risk in a volatile market. The advantages (according to this analyst) are that they define losses in advance, they give you an objective reason to sell (exit) your position, and get you out before getting emotionally involved. So by using stops, investors will "spare themselves the kinds of losses that are difficult to recover from."
Sounds logical, right? As it turns out, Bob Prechter has a very different take on risk management and on using stops. For anyone who trades or is considering doing so, here's a "second opinion" -- an insight crafted from years of experience that can improve your understanding of trading in general.
Number one on his list of six requirements for successful trading (page 99 of Prechter's Perspective, c.1996) is "A method: Any time you enter or exit a market, it must be for a predetermined reason that will also apply in the future." Number five says, "Accommodation of losses: The perfect trading system does not exist, so your method must deal with taking losses."
The first step to "dealing" with losses is to manage risk in advance. As Bob warns in Prechter's Perspective, "If you take a position large enough to inflict serious financial damage upon yourself, you are a loser going out of the gate."
Back to requirement number one -- a method for entering and exiting the market: In the March Elliott Wave Theorist, Bob comments that every (trading) book says to use stops. Yet he states unequivocally his belief that "people lose more money on stops than anything else."
"Before you recoil in horror, consider that I know a futures trader who steadily makes $200,000 - $400,000 every year, and he never uses stops.
So what should a trader use in place of stops? He should use real-time analysis. The question isn't so much whether a level is broken but what the analysis indicates as it breaks. A stop only takes one aspect of analysis into account: price. There is much more to analysis than price.
A stop also makes you lazy. If the market and your analysis turn against you, you are prone to think, 'well, if the market takes my stop, then I'm out.' But if you have already decided that your position is wrong, you should already be out! On the flip side, when you already have a stop in and decide it's in the wrong place, there is a psychological impediment to widening it. If you don't act, the stop is typically taken out, and then the market turns your way without you.
To those who insist that without stops they'd get killed, I say, you are trading with too much leverage. Leverage forces you out so often that all you will have after years of trading is a long string of losses from stop-outs. Trade well within your capital so that you can allow the market time to respond to the forces that you detect developing in your analysis. If you cannot watch the market closely or do not have time to do the analysis (or don't have someone doing it for you), you shouldn't be trading in the first place. Aside from all that, there may in fact be occasional times for close stops. But treat them as exceptions that analysis demands."

Applause.


Really, really good points.

I agree with this appraisal.


Magdoran

 

[Magdoran]

Barney I can't give advice.

Consider this:

Momentum trading strategy
Range trading strategy
Countertrend trading strategy
What strategy are you using? Shouldn't you determine this first?

Determine what is acceptable for a loss.

Protect capital.

Continue to protect capital.

Let winners run and protect your increased capital.

A tight stop is not always the way to have a small loss - please think about it.

Snake

Excellent points Snake, well said.

Protecting your capital is paramount.

These points are worth highlighting.

Magdoran