Improving Chart Analysis

[tech/a]

Hello Nizar,


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.

Moggie do you seriously think institutions short sell stock to trigger stops?
Futures I agree stock--now thats a stretch.

“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.

Moggie just how do they do that? Ive watched even penny stocks take a beating and it would take many millions to take out a falling stocks sellers.
Just doesnt make sense. Professional traders you are saying just keep selling stock to force price lower so they can buy it back up again.---Really--what then was the price they bought this stock at so they could sell it down again???

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.

Pros arent going to be stupid enough to keep selling a stock lower,with their own stock! A pro will only sell if he thinks he is at risk or taking a profit.
This manipulation theory IN STOCKS is more myth than fact.

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.

At the time of setting a stop you have no idea how loose or tight is the optimum.
We make an educated decision---I go tight as the trade Im taking in a momentum move I expect to continue NOW. If its taken out then its not doing as I want. If its a longterm position trade then its wider..

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.

So Iguess I agree to.


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).

Dont know how you can do this without rigorous testing of stratagies. Without it its a guess,educated at best.

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.

Sure Moggie it can happen but how on earth do you propose to do part one of your Moneymanagement analysis without setting a stop level which will be a % of initial capital.

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.

Hmm your alternative?

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.

Terrific great idea so how do you assign risk?? Youve just stated that any amount is likely to be invalid.I'm interesred in how you do this.

“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.

Moggie really--- I remember Darryl the guy who makes the tables up for the results of Techtrader writing up one night that he "Thought" CTX one of our stocks could not possibly go any higher---It was at $5.91 and we had had it since the High $3s from memory.
I replied saying that an exit had not been triggered so keep it.It was eventually stopped out at $8.80.
Wait but there is MORE. Darryl was away when the stop was hit so he didnt sell it in his portfolio---when he got back it was as you have said back over the sell trigger. He kept it and STILL has it in his portfolio.

There are all sorts of arguements around taking profit---one thing is for sure taking small profits would give you the chance to grab a huge profit.
The only way you'll know is to test exits--you'll never get them 100% right but if you can profit from the MEAT of the MOVE in the TIMEFRAME your trading in then thats the best you can ask for.

Letting your profits run may mean this particular move---or this particular bull run.Like trends there are immediate intermediatory and primary.

Let your profits run and run and run if you can

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.

Yep timeframe.


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.

Ok I'm nieve.Think its all hog wash in stocks.Futures different story.

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.

So simply you will only gain the immediate move/rarely the intermediate move as a correction would normally see you "at risk" particularly if it gave back a fair % of open profit. I doubt youll ever get that $3-$23 move---but hey it could spike that in a day!

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).

Depends on win ratios and expectancy.
When discretionary trading I would argue that win ratios are formost and expectancy over a100 trades pretty well unknown. Having an expectancy for each trade is not only misleading but down right dangerous.There just isnt enough information for 99.9% of discretionary traders to make informed M/M decisions.

Bloody hell moggie havent you heard of brevity?

 

[RichKid]

Tech, in the previous post you said you didn't believe that instos would sell at a lower level to the current price action in order to trigger stops- surely being a TA man yourself you've read the respected texts and traders on the subject?

It's called a 'shakeout', the weaker hands are shaken out of the stock, often a low volume spike down (so the cost is minimal to the instos as they distribute tiny parcels at lower prices) or a short move where 'weaker hands' are cleared and then prices are free to move higher, sometimes larger parcels change hands as people panic, this has been tracked in stock charts for over 50years- see Edwards and Magee, Wyckoff, Schabacker etc etc...often happens at obvious stop placement levels where most TA people are supposed to put their stops....sometimes the buying is so strong that the instos fail but it is a known technique imo- not sure if absolute proof is available unless you trace every order's origin, but that's TA.

Happens the other way around as well when you see false, quick breaks to the upside. It's hard to say that every situation like this is an insto shakeout play. I can't see the difference bw instos doing it in the futures markets and in stocks.

 

[Magdoran]

Hello Daffy,


Where do you get the time to do all this? You must be on steroids!

Moggie do you seriously think institutions short sell stock to trigger stops?
Futures I agree stock--now thats a stretch.

I agree, it’s more common in futures, but it’s a big world, and there is a lot of powerful players in the market.

Try reading Frank Partnoy’s book “Infectious Greed” for an idea of some of the tricks of the trade... this may help to illustrate the game in a way you may not have considered.

Admittedly I am pretty cynical, but then I was around some “interesting” circles for a long time, and some of my contemporaries have ended up in some very interesting places. Can’t say too much here...

It is hard to know all the strategies that are in play at any one time, but based on a range of people’s observations I think this kind of activity definitely goes on. It is often not talked about for obvious reasons (partly why I’m not going to say too much here either). Even McLaren who traded on the floor in the US has a lot to say about this, especially if you’re lucky enough for him to speak candidly.

But we all have to make out best shot judgment on the issue. I’ve made mine, and respect yours.

Moggie just how do they do that? Ive watched even penny stocks take a beating and it would take many millions to take out a falling stocks sellers.
Just doesnt make sense. Professional traders you are saying just keep selling stock to force price lower so they can buy it back up again.---Really--what then was the price they bought this stock at so they could sell it down again???

It is not like they are in a smoke filled room and all conspire. There are market forces in action, but the smarter players I would argue take advantage of a play, sometimes backing a major player, sometimes playing against them. Think about the salient examples like Nick Leeson for example, and the way he manipulated the market for a long time. Think about the way Hunter was taken to the cleaners with Gas futures...

The bar we looked at gapped down, then moved up with force. I suspect that many stops fired off while savvy players bought like mad, then sold off a lot forcing the bar back down when they reduced their positions. I suppose your view is coloured by who you talk to in the financial markets. Probably said too much now...

Pros arent going to be stupid enough to keep selling a stock lower,with their own stock! A pro will only sell if he thinks he is at risk or taking a profit.
This manipulation theory IN STOCKS is more myth than fact.

True, they might not do it with their own stock, but look at the short selling registers some time, or try to estimate who is selling and buying back at the bottom. You need to understand the short side of the equation.

At the time of setting a stop you have no idea how loose or tight is the optimum.
We make an educated decision---I go tight as the trade Im taking in a momentum move I expect to continue NOW. If its taken out then its not doing as I want. If its a longterm position trade then its wider..

Agree. So you have to exercise judgment based on a range of criteria. My point is that there is a lot to this, and many dimensions that beginners don’t think of immediately until they consider what is going on. Put 50 traders in a room and you’ll get 50 different mixes of approaches, won’t you?

End of part 1

 

[Magdoran]

Part 2

Dont know how you can do this without rigorous testing of stratagies. Without it its a guess,educated at best.

Good question and one I’m still working on. Hence yes, use an “educated guess”.

Sure Moggie it can happen but how on earth do you propose to do part one of your Moneymanagement analysis without setting a stop level which will be a % of initial capital.

That is a huge topic in itself, and one you could devote a whole thread to. My point is that many don’t realise the real risk involved. The method of determining how much to put on is an art in itself, and my concern is that many do not realise the real risks involved, or think about probabilities enough.

Hmm your alternative?

Determine an approach that allows you to limit your risks. Me, I use option strategies... but there are many ways to achieve this.

Terrific great idea so how do you assign risk?? Youve just stated that any amount is likely to be invalid.I'm interesred in how you do this.

As above, determine the maximum risk using an instrument that conforms to my criteria.

Moggie really--- I remember Darryl the guy who makes the tables up for the results of Techtrader writing up one night that he "Thought" CTX one of our stocks could not possibly go any higher---It was at $5.91 and we had had it since the High $3s from memory.
I replied saying that an exit had not been triggered so keep it.It was eventually stopped out at $8.80.
Wait but there is MORE. Darryl was away when the stop was hit so he didnt sell it in his portfolio---when he got back it was as you have said back over the sell trigger. He kept it and STILL has it in his portfolio.

There are all sorts of arguements around taking profit---one thing is for sure taking small profits would give you the chance to grab a huge profit.
The only way you'll know is to test exits--you'll never get them 100% right but if you can profit from the MEAT of the MOVE in the TIMEFRAME your trading in then thats the best you can ask for.

Letting your profits run may mean this particular move---or this particular bull run.Like trends there are immediate intermediatory and primary.

Let your profits run and run and run if you can

The way I trade is to exit partial positions, exit outright under specific conditions, and look to re-enter using a counter trend based approach. Sure, I might miss 10-20% (or more) of the move, but the corollary of this is that losses should be more limited by not over staying positions. This is a trade off, and there are many different ways to construct trading plans successfully. I just don’t like to top or bottom pick, and have learnt to take profits when the trend is at risk. Give me the middle 50-60% any day. Also, using options means you must exit on strength, hence volatility is a factor for me for example, as is theta decay...

Ok I'm nieve.Think its all hog wash in stocks.Futures different story.

Agree, it is more evident in the futures market. Read the book above, and it may open your eyes...

So simply you will only gain the immediate move/rarely the intermediate move as a correction would normally see you "at risk" particularly if it gave back a fair % of open profit. I doubt youll ever get that $3-$23 move---but hey it could spike that in a day!

Not sure what you mean here. You can always re-enter on a counter trend. If you understand McLaren’s approach, then maybe this would make more sense. I suppose it’s a style thing...

Depends on win ratios and expectancy.
When discretionary trading I would argue that win ratios are formost and expectancy over a100 trades pretty well unknown. Having an expectancy for each trade is not only misleading but down right dangerous.There just isnt enough information for 99.9% of discretionary traders to make informed M/M decisions.

Maybe, again something I’m working on. I suspect though that there are no objective views because there are so many variables involved, so I kind of agree with you. But I still think you can be the casino re Douglas if you have an edge.

Hence the approach I’ve in part outlined does deliver a kind of expectancy, but I’d argue that your theoretical expectancy, although more stable in one respect because it is over a longer time frame, will still statistically bounce around a lot, but each style will do so uniquely.

Bloody hell moggie havent you heard of brevity?

Nup, what’s that? (Amusingly I earned this as a nickname with some friends once – especially after consuming a couple of bottles of wine together!).

Thanks tech, some good questions and observations there.


Regards


Magdoran

 

[tech/a]

You must be on steroids!

Yup isthnt evry dwuck??

 

[barney]

Posts 397 (...Mag), and 401 (....Tech) , Meaty stuff you guys ............ This is what we've all paid our "entry fee" for ............. Heavy reading ..... but funny how it gets "lighter" (understand) the more I read it! ............. I'm sure everyone (not just us newbies) are getting some good insight here. Well done gentlemen (Gentlemen being the operative word ............ differing opinions yet stated with mutual respect ........... as life in general should be!! , Barney.

 

[It's Snake Pliskin]

Tech,

Moggie just how do they do that? Ive watched even penny stocks take a beating and it would take many millions to take out a falling stocks sellers.
Just doesnt make sense. Professional traders you are saying just keep selling stock to force price lower so they can buy it back up again.---Really--what then was the price they bought this stock at so they could sell it down again???


Quote:
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.

Pros arent going to be stupid enough to keep selling a stock lower,with their own stock! A pro will only sell if he thinks he is at risk or taking a profit.
This manipulation theory IN STOCKS is more myth than fact.

See Richkid's post. There are many large TRADING SYNDICATES that you should talk to and explain the myth to.

 

[barney]

Tech,



See Richkid's post. There are many large TRADING SYNDICATES that you should talk to and explain the myth to.

Hi Snake, Re The large Syndicates that "short sell" these stocks down before re buying at a discount ............... Do they pay the same % brokerage fees as us "little guys", ........ I'm assuming they get volume discounts?? ..... Also what fees would an actual Broker pay on his trades since it is his profession?? Just curious, cause if they get "hefty" discounts, it kinda gives them a double advantage when "pushing" the SP around. Cheers, Barney.

 

[barney]

Hi Guys, Nothing real tricky with this chart on AWB ............ Obviously a lot of bad press etc and in an obvious downtrend ................ Just curious with the heavy volume, two days in a row SP gap down, whether we might see one of those "inside days" (today,monday) as talked about earlier (only this time from the "bottom up" instead of the other way round).............. It would probably be fair to say if the SP dropped anything above an average amount again today, that AWB would be looking very poor . Will be interesting to see what sort of support, if any, the SP gets over the next few days. Cheers, Barney.

 

[swingstar]

Hi barney

Here's where I'd put my lines. With the heavy volume on the recent down days, I suspect it'll just continue, possibly finding support at $2.40 or lower on the bottom of the channel. That horizontal line I put in was the lowest point AWB had ever reached (notice the consolidation around there), so there's no history/support ahead.

Cheers

 

[swingstar]

Here's AMP in 2002. Very similar trend. What the chart doesn't show is AMP hovered around the previous all-time low for a few months, then proceeded to fall about 70%.

Also have a look at Telstra. It broke through new lows late last year and has been hovering around since.

 

[barney]

Hi barney

Here's where I'd put my lines. With the heavy volume on the recent down days, I suspect it'll just continue, possibly finding support at $2.40 or lower on the bottom of the channel. That horizontal line I put in was the lowest point AWB had ever reached (notice the consolidation around there), so there's no history/support ahead.

Cheers

Hi Swingstar, Thanks for your description. I like your lines better than mine It does look a bit "sad" for AWB, and I can't see how it could turn around with any momentum in the short term with all the bad press atm. Any one game to hazard a guess as to how low it could go if they lose their monopoly status?? Its not the type of Company that could "go under" is it? I assume the Gov. has too much to lose to let that happen?? Cheers, Barney.

 

[tech/a]

Hmm Barney your invested in the company and "Cant,--Dont want too--Cant bring yourself" to take a loss on it?

 

[barney]

Hmm Barney your invested in the company and "Cant,--Dont want too--Cant bring yourself" to take a loss on it?

No Tech, Fortunately I'm not on AWB, If I were I would be pretty sure my stops would have been hit by now. Just a passing interest as to how a stock in this kind of trouble will pan out. If AWB resurged this week, I would start to question everything I've learned (although a small short term reversal would not surprise from what I've seen other stocks do), cause it would not make any sense to me, but then again, if it did, there would have to be a logical reason (?) , so I would simply learn something I didn't know about. The trend of this seems so obvious that even I should be able to get it right!? (Barney says hopefully Cheers.

 

[Magdoran]

Hi Guys, Nothing real tricky with this chart on AWB ............ Obviously a lot of bad press etc and in an obvious downtrend ................ Just curious with the heavy volume, two days in a row SP gap down, whether we might see one of those "inside days" (today,monday) as talked about earlier (only this time from the "bottom up" instead of the other way round).............. It would probably be fair to say if the SP dropped anything above an average amount again today, that AWB would be looking very poor . Will be interesting to see what sort of support, if any, the SP gets over the next few days. Cheers, Barney.

Hello barney,


An inside day is NOT an “insider” day! Hahahahahaha! ROTFLMAO!


It is where you have a day that has its open high low close range within the trading range of the previous day. See the attached chart for an example.

The significance of the faker move is when you have a “spike” high/low with spike volume and the day directly afterwards is an inside day (within the range of the previous day). The concept is that whichever way this following day moves is the wrong direction. It is a “faker move”, and the real trend direction is likely to be in the opposite direction to this day for the short term.

In the example you’re giving here, this is not quite a spike move - there is spike volume, but the length of the bars aren’t really long enough in my opinion to be classified as a “spike day” – you’re looking for really pronounced ranges many times greater than the average bars.

Regards


Magdoran

 

[barney]

Hello barney,


An inside day is NOT an “insider” day! Hahahahahaha! ROTFLMAO!


It is where you have a day that has its open high low close range within the trading range of the previous day. See the attached chart for an example.

The significance of the faker move is when you have a “spike” high/low with spike volume and the day directly afterwards is an inside day (within the range of the previous day). The concept is that whichever way this following day moves is the wrong direction. It is a “faker move”, and the real trend direction is likely to be in the opposite direction to this day for the short term.

In the example you’re giving here, this is not quite a spike move - there is spike volume, but the length of the bars aren’t really long enough in my opinion to be classified as a “spike day” – you’re looking for really pronounced ranges many times greater than the average bars.

Regards


Magdoran

Let me see ........... if Mag is rolling around on the floor hurting himself with humorous gyrations ........... Barney has probably said something dumb (again :homer: ............... PS You wouldn't laugh at me if you heard me cut a riff on the "Les" ............. Anyway, I can take it .....someone around here has to make everyone else seem intelligent

Just as a follow up to that chart I posted on AWB It is basically 3 gap down days in a row Todays volume was higher again today .......Will that signal a slow down, or is it likely to keep bombing??? Interesting scenario. Yours in total humility, Barney.

 

[swingstar]

Even more volume today.

What's that song?

Yeah it's free, free fallin'...

Only support I can gauge is the bottom of the channel, otherwise it's in no man's land. Will see what Mag thinks on a more micro scale (I just ordered the McLaren DVD BTW--going to Tassie for a few weeks in a couple of days, so no doubt that will fill in the boredom ).

 

[barney]

Even more volume today.

What's that song?

Yeah it's free, free fallin'...

Only support I can gauge is the bottom of the channel, otherwise it's in no man's land. Will see what Mag thinks on a more micro scale (I just ordered the McLaren DVD BTW--going to Tassie for a few weeks in a couple of days, so no doubt that will fill in the boredom ).

Why are you bored Swingstar?? If money is of no consequence anymore, I could use a loan Cheers Barney. I'd like to take my wife to Tasmania one day. Whats the best time to go?

 

[swingstar]

Why are you bored Swingstar?? If money is of no consequence anymore, I could use a loan Cheers Barney. I'd like to take my wife to Tasmania one day. Whats the best time to go?

LOL, I meant Tassie is boring. I once lived there, and family stayed behind, so now unfortunately if I want to see them, I have to visit there. Nah, I'm sure it's nice for the naturists.

Best time to go... probably when global warming has well and truly kicked into gear and Tassie is the new Hawaii (so probably not in our lifetimes).

 

[barney]

LOL, I meant Tassie is boring. I once lived there, and family stayed behind, so now unfortunately if I want to see them, I have to visit there. Nah, I'm sure it's nice for the naturists.

Best time to go... probably when global warming has well and truly kicked into gear and Tassie is the new Hawaii (so probably not in our lifetimes).

Haha very funny. Don't like the cold eh?? ........ Funny how when you've lived somewhere you can't think of anything good about it ......the old "familiarity" concept ............... My wife likes the idea of cold nights/snuggle up and all that stuff ...... I like the Casino idea, but I need money .............. actually Casino's don't really interest me anymore since I've started "studying" the share market! Why leave it to chance when you can use your brains?? Cheers.