Improving Chart Analysis

[It's Snake Pliskin]

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,

How about cutting a riff on the LES and videoing it and posting it for us.

I don't know anything about BIG guys and what brokerage they use or pay. Some pay more than $30,000 per month. Read Everyday Traders by Nick Radge where he interviews some interesting traders.

Snake

 

[nizar]

Brokers dont pay brokerage. Or perhaps they do, but its very little.
Thats why they can afford to have "bots" buying the same parcel of shares (eg.7821 shares at like every 15-20mins) at the same price to make sure the sp does not close below a certain point. I see this everyday.

 

[RichKid]

ok guys, this thread is beginning to collect a lot of extraneous topics, I will have to start moderating it strictly. There are other threads on odd lots and on depth of market orders etc etc, there is no point in having separate threads on a forum if everything gets banded together. Sometimes it's good to just close a thread so everyone can sit back and go over it all from where we started and look more closely at what's been said so far- time for a recap and breather maybe....please try to stick to the core of analysing and comparing methods of chart analysis in order to improve it.

 

[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.

Awwww, C’mon barney,


Don’t go all “thensitive” on us. It was just my warped sense of humour about the concept of “insider trading” following the comments about stop running tactics, and spike days…

Nothing regarding your intelligence, I assure you.

You are doing a sterling job asking interesting questions about a very involved subject. The last thing I’d want to do would be to discourage you from your journey.

Just look at the view counter, you’re not the only one wanting to know more, and to your credit you have the courage to ask questions about what you don’t know. I bet there are a host of people who are thankful for that.

I second Snake's request for a sound bite of your “Les”.

Now that would be cool!


Regards


Magdoran

 

[barney]

Awwww, C’mon barney,


Don’t go all “thensitive” on us. It was just my warped sense of humour about the concept of “insider trading” following the comments about stop running tactics, and spike days…

Nothing regarding your intelligence, I assure you.

You are doing a sterling job asking interesting questions about a very involved subject. The last thing I’d want to do would be to discourage you from your journey.

Just look at the view counter, you’re not the only one wanting to know more, and to your credit you have the courage to ask questions about what you don’t know. I bet there are a host of people who are thankful for that.

I second Snake's request for a sound bite of your “Les”.

Now that would be cool!


Regards


Magdoran

No worries Mag ............ I wasn't getting sensitive ............. Just a bit PARANOID ............... If people can find humour in anything I say (direct or indirect I think thats brilliant ......... I love good humour, so you keep rolling around the floor Mag (its probably the best place for you ........ see, now thats my kind of humour!! ......... Cheers, Your comments as always, first class ............. Re the les ...... I've never uploaded wav.'s to the net ....that would be an interesting exercise ...I'll look into it .....Ps I promise I won't put my "head" in the shot .....Don't want to scare the forum members!!!

Re the 3 day gap down on AWB ............ Will it keep bombing do you think??

 

[MichaelD]

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???

Who knows what it will do? The best anyone can do is to take a viewpoint on what they think it will do and position themselves so they can profit from what it might do whilst minimizing the damage done if it doesn't behave according to your wishes.

Personally, AWB appeared in my scan for shorts on 13-Oct and looked to my eye to have no real solid support below its close. That's a short entry signal for the system I'm testing at present, so I (paper) shorted it on the open on 16-Oct with a stop at the 2.95 high of the trigger day. So far it's co-operating with my view. Whether the trade ends in a profit or a loss is unknown at this point in time.

 

[Magdoran]

No worries Mag ............ I wasn't getting sensitive ............. Just a bit PARANOID ............... If people can find humour in anything I say (direct or indirect I think thats brilliant ......... I love good humour, so you keep rolling around the floor Mag (its probably the best place for you ........ see, now thats my kind of humour!! ......... Cheers, Your comments as always, first class ............. Re the les ...... I've never uploaded wav.'s to the net ....that would be an interesting exercise ...I'll look into it .....Ps I promise I won't put my "head" in the shot .....Don't want to scare the forum members!!!

Re the 3 day gap down on AWB ............ Will it keep bombing do you think??

Hello barney,


As snake said earlier, we can't give financial advice. Please understand that we have to be very careful here, and can only express a viewpoint to illustrate general ideas. Once we start to become specific, it is a very grey line where the giving of advice starts in line with the new regime presided over in part by ASIC.

I introduced the oil concept as an illustration of a charting approach and ways it could be used in constructing trades for educational purposes. I was not offering financial advice in doing so.

So I’m reluctant to comment much on AWB in response to the way your last question was framed. You may not be aware of the way the rules work here, but snake was trying to alert you to this earlier.

We could talk about it in a wider generic context; I just want to avoid any possibility of making any posts that could be construed as giving financial advice.


Regards


Magdoran

 

[barney]

Who knows what it will do? The best anyone can do is to take a viewpoint on what they think it will do and position themselves so they can profit from what it might do whilst minimizing the damage done if it doesn't behave according to your wishes.

Personally, AWB appeared in my scan for shorts on 13-Oct and looked to my eye to have no real solid support below its close. That's a short entry signal for the system I'm testing at present, so I (paper) shorted it on the open on 16-Oct with a stop at the 2.95 high of the trigger day. So far it's co-operating with my view. Whether the trade ends in a profit or a loss is unknown at this point in time.

Hi Michael, AWB certainly would have been a "short" players dream to this point. The chart is/ will make an interesting topic of study as the "news" continues to unfold in the future .... Cheers Barney

 

[barney]

Hello barney,


As snake said earlier, we can't give advice. Please understand that we have to be very careful here, and can only express a viewpoint to illustrate general ideas. Once we start to become specific, it is a very grey line where the giving of advice starts in line with the new regime presided over in part by ASIC.

I introduced the oil concept as an illustration of a charting approach and ways it could be used in constructing trades for educational purposes. I was not offering financial advice in doing so.

So I’m reluctant to comment much on AWB in response to the way your last question was framed. You may not be aware of the way the rules work here, but snake was trying to alert you to this earlier.

We could talk about it in a wider generic context; I just want to avoid any possibility of making any posts that could be construed as giving financial advice.


Regards


Magdoran

I'm with ya' Mag. Sorry about that. Did not realise there were "legal" parameters involved. I know everyone is supposed to use IMO etc. (Good to see you are finally "off the floor") Barney.

 

[Magdoran]

Here’s a current illustration of spike bars, although these are usually found towards the end of an impulse, so the nature of the bars in this chart may be more unorthodox, but in my view the principles of the idea are similar.

The McLaren “trading against the spike” concept is quite involved, and this is my extension and interpretation of a part of that concept.

The time frame though is an issue, and it is possible for the underlying to pull back into the range. These moves are exhaustive, and can result in a sideways move for a period of time.

I've used candlesticks in this example for clarity. I think these really illustrate the minutia of each bar more graphically, but often use standard bars in other areas. I hope this doesn't put orthodox chartists off.


Food for thought.


Magdoran

 

[barney]

Here’s a current illustration of spike bars, although these are usually found towards the end of an impulse, so the nature of the bars in this chart may be more unorthodox, but in my view the principles of the idea are similar.

The McLaren “trading against the spike” concept is quite involved, and this is my extension and interpretation of a part of that concept.

The time frame though is an issue, and it is possible for the underlying to pull back into the range. These moves are exhaustive, and can result in a sideways move for a period of time.

I've used candlesticks in this example for clarity. I think these really illustrate the minutia of each bar more graphically, but often use standard bars in other areas. I hope this doesn't put orthodox chartists off.


Food for thought.


Magdoran

Hi Mag, I'll jump in cause no one else has .............. Your analysis seems to have been spot on (don't you get sick of that ................ even though a "down" day today, ........ the sp final price was "above" the "spike day" EOD price 3 days ago .......... well done! ............... Being a stock which is "connected" to the price of gold, how should we approach this "chart" from a relative point of view, so to speak ............ In other words, even if our analysis/assumptions are correct, how much credence (good name for a band) should we give to the "commodity" price (gold in this case) of the stock involved ?? ...Hope that question makes sense . Barney

PS If the question makes no sense, I accept no responsibility on behalf of anyone living or deceased, regardless of their social standing/and or political beliefs (That should cover any litigation problems

 

[Magdoran]

Hi Mag, I'll jump in cause no one else has .............. Your analysis seems to have been spot on (don't you get sick of that ................ even though a "down" day today, ........ the sp final price was "above" the "spike day" EOD price 3 days ago .......... well done! ............... Being a stock which is "connected" to the price of gold, how should we approach this "chart" from a relative point of view, so to speak ............ In other words, even if our analysis/assumptions are correct, how much credence (good name for a band) should we give to the "commodity" price (gold in this case) of the stock involved ?? ...Hope that question makes sense . Barney

PS If the question makes no sense, I accept no responsibility on behalf of anyone living or deceased, regardless of their social standing/and or political beliefs (That should cover any litigation problems

Hello barney,

When dealing with resource stocks, in addition to doing the usual research using technical analysis/charting, it is certainly worthwhile tracking relevant commodities and currencies.

Using the gold stocks as an example, tracking gold futures can be very helpful. Remember though that if you’re dealing with spot gold on the NYMEX (New York Mercantile exchange), then you should look at the Australian dollar against the US dollar.

If the US dollar is weakening while gold futures are rising, this can negate the benefit for local outfits when gold prices are rising since the exchange is valued in US dollars. Also, how well hedged a gold producer is may be a factor depending on the way gold and the US dollar are trading.

I follow Gold like I do crude oil on a daily basis, as well as the AUD/USD. If I’m going to trade resource stocks, then I do a full analysis on all relevant commodities and currencies, and sometimes sectoral indexes too. But this is up to the individual. There are some players that just trade the chart and nothing else – personal choice.

Links to NYMEX and LME:

http://www.nymex.com/index.aspx

http://www.lme.co.uk/


Re my analysis, beware of the potential pull back when these strong bullish moves happen. Sometimes these stocks are sold down and people get shaken out. If the sell down is too strong, it can actually push the stock down hard for a retest of the low, so just be careful. Don’t forget that the strong volume can suck up a lot of demand (or supply), so the effects can be unpredictable. Also be aware of potential take overs in this climate too.


Regards


Magdoran

 

[barney]

Hello barney,

When dealing with resource stocks, in addition to doing the usual research using technical analysis/charting, it is certainly worthwhile tracking relevant commodities and currencies.

Using the gold stocks as an example, tracking gold futures can be very helpful. Remember though that if you’re dealing with spot gold on the NYMEX (New York Mercantile exchange), then you should look at the Australian dollar against the US dollar.

If the US dollar is weakening while gold futures are rising, this can negate the benefit for local outfits when gold prices are rising since the exchange is valued in US dollars. Also, how well hedged a gold producer is may be a factor depending on the way gold and the US dollar are trading.

I follow Gold like I do crude oil on a daily basis, as well as the AUD/USD. If I’m going to trade resource stocks, then I do a full analysis on all relevant commodities and currencies, and sometimes sectoral indexes too. But this is up to the individual. There are some players that just trade the chart and nothing else – personal choice.

Links to NYMEX and LME:

http://www.nymex.com/index.aspx

http://www.lme.co.uk/


Re my analysis, beware of the potential pull back when these strong bullish moves happen. Sometimes these stocks are sold down and people get shaken out. If the sell down is too strong, it can actually push the stock down hard for a retest of the low, so just be careful. Don’t forget that the strong volume can suck up a lot of demand (or supply), so the effects can be unpredictable. Also be aware of potential take overs in this climate too.


Regards


Magdoran

Thanks Mag, So as a general rule of thumb, it would be sensible to sit on the fence so to speak till we see a positive movement after the spike day (one way or another), before jumping in?? Getting in early may work at times ,but would be more subject to being whipsawed as you mentioned in an earlier post ? Cheers Barney.

PS Re the hedging; Excuse my lack of knowledge, but how do we know to what extent a company is hedged? Thanks.

 

[nizar]

In fact, I've just quickly done a backtest on the strategy up to close of trade Friday. Backtesting does have many caveats which are beyond the scope of this post, but the results are;

Universe: Current ASX300
Trading: From 1-Jan-1996
Starting Capital: $100,000
Reinvest All Profits
No pyramiding of trades
Entry: Close at all-time high
Exit: 6.5 ATR

Finishing Profit: $2,638,159.39
Win %: 53.86%
Drawdown %: 10.96%

Michael D
What was the parcel size for the above backtest? 10Gs? And how about like initial stop? 2%

Can someone please explain to me what 6.5ATR actually means? I knew a mate who would exit if a stock fell 2ATRs. I understood ATR to mean average true range as in how much a stock fluctuates in a day on average. Is this right?

Can someone give me an example?

Thanks

Btw this is a great thread, it should be kept on the main page!

 

[tech/a]

Nizar as requested.

JAK question addressed on my thread on outliers.
Out to dinner.

 

[MichaelD]

What was the parcel size for the above backtest? 10Gs? And how about like initial stop? 2%

Can someone please explain to me what 6.5ATR actually means? I knew a mate who would exit if a stock fell 2ATRs. I understood ATR to mean average true range as in how much a stock fluctuates in a day on average. Is this right?

Position sizing for the backtest was 2% of capital risked per position - there are numerous other posts on the details of this type of position sizing, but the guts of its mechanics are;
1. The initial stop is at 6.5 ATR
2. Since ATR is a variable amount, the position size is adjusted to compensate for the volatility of the ATR. The nett effect is that you are risking the same amount of money regardless of where the stop is placed. The wider the stop, the smaller the position size.

As many of you here know, I LOVE ATR based stops. I find them more responsive to long term trends than a long term moving average, whilst being reasonably forgiving of increased volatility. Also, the indicator makes it bleedingly obvious when the stop has been hit since there's this HUGE downwards line on the offending bar.

Tech/A - you cheeky boy - of course they ride the whole trend - they're a long term stop. And really, comparing them to buy and hold. Hmph. Try telling that to my portfolio. 6 months ago it had 32 positions open and now it has 14 nicely pyramided ones, the rest jettisoned after hitting the 6.5 ATR stop.

Nizar, a couple of other points about % and ATR stops;

A 2% initial stop is way too close - this will lead to a tonne of whipsawing. Tech/A has numbers on % initial stop and from memory the optimal is around 7% or so (but ATR for an initial stop is even better...but cannot be backtested with TradeSim unfortunately).

A 2 ATR stop is too close. Even 2.5 ATR is too close. Using an ATR stop with these values does not guarantee your system a positive expectancy because of the whipsawing in a non-trending or downwards trending market.

I personally have found 6.5 - 7.5 ATR to be optimum for long term trend following, which is WAY more than you'll see in most books - the reason the smaller ATRs tend to appear in books is because a wide ATR stop is actually quite hard to trade psychologically (lots of profit giveback) and because it needs a decent amount of capital to make the position sizes worth trading, both factors which are usually in short supply in newer traders.

 

[nizar]

Position sizing for the backtest was 2% of capital risked per position - there are numerous other posts on the details of this type of position sizing, but the guts of its mechanics are;
1. The initial stop is at 6.5 ATR
2. Since ATR is a variable amount, the position size is adjusted to compensate for the volatility of the ATR. The nett effect is that you are risking the same amount of money regardless of where the stop is placed. The wider the stop, the smaller the position size.

As many of you here know, I LOVE ATR based stops. I find them more responsive to long term trends than a long term moving average, whilst being reasonably forgiving of increased volatility. Also, the indicator makes it bleedingly obvious when the stop has been hit since there's this HUGE downwards line on the offending bar.

Tech/A - you cheeky boy - of course they ride the whole trend - they're a long term stop. And really, comparing them to buy and hold. Hmph. Try telling that to my portfolio. 6 months ago it had 32 positions open and now it has 14 nicely pyramided ones, the rest jettisoned after hitting the 6.5 ATR stop.

Nizar, a couple of other points about % and ATR stops;

A 2% initial stop is way too close - this will lead to a tonne of whipsawing. Tech/A has numbers on % initial stop and from memory the optimal is around 7% or so (but ATR for an initial stop is even better...but cannot be backtested with TradeSim unfortunately).

A 2 ATR stop is too close. Even 2.5 ATR is too close. Using an ATR stop with these values does not guarantee your system a positive expectancy because of the whipsawing in a non-trending or downwards trending market.

I personally have found 6.5 - 7.5 ATR to be optimum for long term trend following, which is WAY more than you'll see in most books - the reason the smaller ATRs tend to appear in books is because a wide ATR stop is actually quite hard to trade psychologically (lots of profit giveback) and because it needs a decent amount of capital to make the position sizes worth trading, both factors which are usually in short supply in newer traders.

Michael D,

If initial stop is 7% doesnt that mean 10 losses in a row will wipe out 70% of your account. I thought for pros 2% is too much, so even go for 0.5-1%?? Am i misunderstanding something here??

Also - re: having such a wide ATR stop. What happens when you first buy into a stock. Say you bought KZL yesterday not an all time high close but pretty close (just say that it was for purposes of this example) at $6.15. Where would your initial stop be?
What is the point where u say, ok, my stop didnt get hit straight away, im now in profit, lets look for an exit. Coz say if it went to $6.50, a 6.5ATR exit is probably even below your entry. So do u keep the initial stop there for a while longer??

I guess 6.5ATR is a decent exit (i know i know for you its been trialed and tested and positive expectancy) but maybe only once ur in decent profit??

 

[wayneL]

As many of you here know, I LOVE ATR based stops. I find them more responsive to long term trends than a long term moving average, whilst being reasonably forgiving of increased volatility. Also, the indicator makes it bleedingly obvious when the stop has been hit since there's this HUGE downwards line on the offending bar.


I personally have found 6.5 - 7.5 ATR to be optimum for long term trend following, which is WAY more than you'll see in most books - the reason the smaller ATRs tend to appear in books is because a wide ATR stop is actually quite hard to trade psychologically (lots of profit giveback) and because it needs a decent amount of capital to make the position sizes worth trading, both factors which are usually in short supply in newer traders.

I've done some work with ATR stops on US stocks and came to the exact same conclusion... 4.5 absolute bare minimum with optimum in the same ~6.5 value.

Most books/articles I've read say 2.5 - 3.... way too tight.

 

[tech/a]

Michael D,

If initial stop is 7% doesnt that mean 10 losses in a row will wipe out 70% of your account. I thought for pros 2% is too much, so even go for 0.5-1%?? Am i misunderstanding something here??

Nizar----the ambiguity of numbers.
The stop is set from the buy price so lets say we have a buy and a 10% stop for this exercise so at $1 the stop is $.90c.

If we have $100,000 account and we buy 100,000 of our $stop we have a 10% possible capital drawdown.---10 losses we are Cactus (actually less than that but thats a whole new mathamatical problem of deminishing returns).

So the solution is that we split our $100k into parcel sizes so that we are not fully at risk but still being able to have a 10% from initial buy stop.

So if we are to risk only 2% on our capital at one time then we have 5 positions at 10% stop. we are risking $2000 on any one trade or 2%

So 7% on the same portfolio would be 1.4%.
There was the parcel size component missing in Michael's post.

Also - re: having such a wide ATR stop. What happens when you first buy into a stock. Say you bought KZL yesterday not an all time high close but pretty close (just say that it was for purposes of this example) at $6.15. Where would your initial stop be?
What is the point where u say, ok, my stop didnt get hit straight away, im now in profit, lets look for an exit. Coz say if it went to $6.50, a 6.5ATR exit is probably even below your entry. So do u keep the initial stop there for a while longer??

I guess 6.5ATR is a decent exit (i know i know for you its been trialed and tested and positive expectancy) but maybe only once ur in decent profit??

Ill leave this to Michael.

 

[MichaelD]

If initial stop is 7% doesnt that mean 10 losses in a row will wipe out 70% of your account. I thought for pros 2% is too much, so even go for 0.5-1%?? Am i misunderstanding something here??

You're confusing RISK management ('where do I put my stop') with MONEY management ('now that I've worked out where I'll put my stop, HOW MANY shares do I buy').

What happens when you first buy into a stock. Say you bought KZL yesterday not an all time high close but pretty close (just say that it was for purposes of this example) at $6.15. Where would your initial stop be?
What is the point where u say, ok, my stop didnt get hit straight away, im now in profit, lets look for an exit. Coz say if it went to $6.50, a 6.5ATR exit is probably even below your entry. So do u keep the initial stop there for a while longer??

Worked example for KZL.

Trading capital $100,000
Position Sizing 2% of capital put at risk
Exit 6.5ATR

Close on 18-Oct-2006 for KZL is $6.16
ATR on 18-Oct-2006 for KZL is $0.19238
Thus, a 6.5 ATR stop would be at 6.5 x $0.19238 ($1.25), which is at $4.91.

You are risking 2% of your capital per trade, which is $2,000.
Your stop is $1.25 away from the CLOSE.
Thus, you are able to purchase $2000/$1.25 shares (1600) or $9,856 worth.

The whole point of position sizing like this is that you can put your stop wherever you decide is a good point, not just a fixed % away, and buy the appropriate number of shares so that you'll lose approximately the same amount of money per trade despite the wide range in where the stop is placed. It better controls your losses.

At 2% position sizing like this, 10 losses in a row will lose 20% of your capital.

A chart showing you a 6.5 ATR exit on KZL is below.