Technical Analysis - Potential Trading Opportunities

[ThingyMajiggy]

So, basically you might as well just have a naked chart, just price and volume? Everything else seems to be a waste of time, TA is useless as a prediction tool yes? Isn't there a bit of predicting going on when one is finding the highest probability patterns? eg. You're predicting its going to bounce off this support which then makes it a high probability trade?

 

[explod]

So, basically you might as well just have a naked chart, just price and volume? Everything else seems to be a waste of time, TA is useless as a prediction tool yes? Isn't there a bit of predicting going on when one is finding the highest probability patterns? eg. You're predicting its going to bounce off this support which then makes it a high probability trade?

That is all I use, "Bigcharts" half an hour behind so would not suit some. It is well worth reading a few books on charting and T/a, I did a lot of that, but keep looking at things from the simple chart and you will soon better define such things as support, resistance, up or/downtrends, sideways consolidation, breakouts, pivot points and so on. Learning to read patterns comes from the basics and experience, over time your intuition does give you considerable success at knowing which way a stock is going. But that boils down to taking note of a lot that is going on, and has gone on (some tendancies have a habit of repeating), which includes the overall market as well.

The biggest one of all is protecting your trading capital, know as soon as you can when it is looking pear chaped and get out. On that note you need also to watch volume (liquidity) when you need togo you need to be able to get out without moving the stock down too much.

And another great rule is, never ever try to catch a falling knife, if it is going down be out and stand aside till it has bottomed, consolidated and for good reason is on the way back up again. I find I am often too pre-occupied with better stocks by then than to be watching anymore.

However none of this is perfect and I have more bad trades than good but usually my good trades make up for the bad.

I find myself trading less as time goes by but the trades now are much more focused and of course longer term. You go nuts watching the screen every minute of the day unless you set up as a bit of a team. Have often thought of employing a young person who can use a computer well and can follow instructions well, knows nothing about shares but follows your criteria to the letter. Of course computers can do that too.

 

[ThingyMajiggy]

I wonder how many of the real successful traders, like hardcore big time traders, those that have made millions or high hundreds of thousands use "indicators". Most of these traders from what I have seen are scalpers(order flow)/traders, other than that its the likes of Buffet type investors, not to say there aren't other traders using other timeframes that are successful, just from my own experience, the most successful traders that I have seen have been these types of traders. All the indicators, MACD, RSI and all that rubbish all seems to be used by the 90% so its obviously something else at work that gives that success?

How much does actual trading method/indicators used make a difference?

Plus the fact of emulating too, beginners tend to emulate traders that show the most success, even though sometimes this does not work, its hard to know what to strive for and stick at because no matter what you do there are the contradicting beliefs of other traders thinking you're mad. So you try to find a method that "suits yourself, your personality". Right. How does one achieve this? Start trading a method that "feels" ok(whatever that means), might go OK for a while then have a few losing trades, confidence starts lacking, "is this a bad method?" "is it just me?" "am I not suited to this timeframe/style of trading?" and "where do I go from here?".

This is some of the hardest stuff for newcomers to get on top of. It certainly is for me anyway. Sometimes I think maybe stuff it, just get a plain chart, price and volume and just stare at the damn thing for 10000 hours?

 

[johnnyg]

Sam, I don't know if you own Adaptive Analysis by Radge or not, but if you do, read the first pages. Might help answer your question.

 

[bunyip]

Alcoa Inc (AA), one of the Dow Jones listed stocks, fell below the weekly trendline to the MA (34). This fall was started by a bearish engulfing pattern about 2 months ago. Now the price is in corrective movement with low trading volume. If the long red bar occurs next week, a continuation bearish pattern will be formed.

On the daily chart this correction seems to have a form of an ascending triangle. According to various technical analysis theories Triangle is a continuation pattern and after (if) the price breaches the lower ascending line, the downside movement will continue. Take to attention that the price often breaks the top resistance level of a triangle and quickly retraces back.
The gap and the middle of the previous long red candle serve as additional resistance levels.

An ascending triangle is a trend continuation pattern when found in an uptrend. It's far less reliable as a continuation pattern when found in a downtrend, as in the example you've given.

A descending triangle is a trend continuation pattern when found in a downtrend. It's far less reliable as a continuation pattern when found in an uptrend.

A symmetrical triangle is a trend continuation pattern when found in both uptrends and downtrends.

Click on the charts to enlarge them.

 

[Client]

You are partly right, bunyip. Ascending triangle works better in an uptrend. But nevertheless, even in a downtrend it is mostly a continuation pattern, just weaker. At least we can't take it as a reversal signal. In this case confirmation of the further fall happens after the breach of the lower line of the triangle. I don't insist the trend will continue though. Only market is always right.

 

[bunyip]

You are partly right, bunyip. Ascending triangle works better in an uptrend. But nevertheless, even in a downtrend it is mostly a continuation pattern, just weaker. At least we can't take it as a reversal signal. In this case confirmation of the further fall happens after the breach of the lower line of the triangle. I don't insist the trend will continue though. Only market is always right.

I don't dispute your point that ascending triangles are still continuation patterns in downtrends, but in my view they're barely worth trading in that situation due to their limited success rate and limited profitability.

I first learnt about triangles from the book, 'Curtis Arnold's PPS Trading System'.

Arnold's research found that...
* Ascending triangles had the highest number of winning trades (46%) and the most profit potential when found in uptrends.
* They're much less common than symmetrical triangles.
* The post triangle thrust was weaker in ascending triangles than in symmetrical triangles.
* Ascending triangles are profitable in uptrends, but less so than symmetrical triangles.

This suggests that while ascending triangles are viable trade setups in uptrends, they're barely worth trading in downtrends due to their limited reliability and profit potential.
I trade them only during uptrends. I ignore them during downtrends.

Likewise, descending triangles don't interest me in uptrends but I'll trade them during downtrends.

 

[Trembling Hand]

Arnold's research found that...

And there lies all that is wrong with TA. People pull out patterns that some dude named 50 years ago and thinks just because they have a name they also have an edge. The reality couldn't be further from the truth. Then there is the problem of application. To be successful you have to not only pick direction but also what you are trying to achieve. Does that pattern provide a high probability 2 R win or a lower win rate but 6 R target.

Few spruikers bother with anything past canned TA let alone well document research on what they are trying to achieve.

 

[ThingyMajiggy]

And there lies all that is wrong with TA. People pull out patterns that some dude named 50 years ago and thinks just because they have a name they also have an edge.

How is that any different to you finding patterns and eventually sharing them with other traders, you use them/think they are edges at the moment, so why wouldn't they be to the other traders, its no different with the dude that found patterns 50 years ago? If the patterns are still there, doesn't that just prove that it indeed is an edge?

 

[Trembling Hand]

How is that any different to you finding patterns and eventually sharing them with other traders, you use them/think they are edges at the moment, so why wouldn't they be to the other traders, its no different with the dude that found patterns 50 years ago? If the patterns are still there, doesn't that just prove that it indeed is an edge?

Are you serious?

So a couple of bars make a little coily pattern that has a name. Thats an edge that you know how to profit from and what to expect as far as probability of win rate and average R:R of that win rate in your market, in your time frame given current market volatility or lack there of?

 

[ThingyMajiggy]

Are you serious?

So a couple of bars make a little coily pattern that has a name. Thats an edge that you know how to profit from and what to expect as far as probability of win rate and average R:R of that win rate in your market, in your time frame given current market volatility or lack there of?

So you knew when you were learning how to trade, wondering what the fark to do, that the patterns you trade now had X chance of being a winner, the average R:R in the time frame and current market volatility? If someone did testing on it these bars coiling up with a name, then there might well be an edge there, who knows, dunno if anyone has tested it. I wasn't talking about that particular "pattern". How does one know if such a pattern has a X chance of being a winner, or the average R:R expected from such a pattern? Not like you can search through entire history and say yep just find all the ascending triangles for me and tell me how good the pattern is, then click OK.

So I assume to find out how good these patterns are, you need to trial them on sim, am I getting hotter? So the best thing to do is trial through each stupid pattern, engulfing, triangles, channels, whatever other **** one can think of, to see if its a pattern worthwhile or if its just "canned TA" and you're wasting your time. It'd take the precious 10000 hours just to do that, which at 2 hours a day for 40 weeks a year is about 25 years.

 

[Trembling Hand]

Will get back to you. I'm a bit busy trying to execute my patterns to the market when I believe the possibilities are in my favour based on past experience/testing.

(Actually thats the answer. If you don't know how to do the above you're not a traders A hole)

 

[ThingyMajiggy]

Will get back to you. I'm a bit busy trying to execute my patterns to the market when I believe the possibilities are in my favour based on past experience/testing.

(Actually thats the answer. If you don't know how to do the above you're not a traders A hole)

LOL Classic TH answer. Fair enough then.

Well done on getting stuck into trading when you were 13, racking up those 10000 hours, obviously pays off :

Trade well

 

[bunyip]

And there lies all that is wrong with TA. People pull out patterns that some dude named 50 years ago and thinks just because they have a name they also have an edge. The reality couldn't be further from the truth. Then there is the problem of application. To be successful you have to not only pick direction but also what you are trying to achieve. Does that pattern provide a high probability 2 R win or a lower win rate but 6 R target.

Few spruikers bother with anything past canned TA let alone well document research on what they are trying to achieve.

I'm not interested in who named the patterns or when, or whether or not they have a name. I've been long enough in the game to know which patterns are profitable for me.
If they're profitable I'll trade them. I'll leave them alone if they're not.

 

[mazzatelli]

I wonder how many of the real successful traders, like hardcore big time traders, those that have made millions or high hundreds of thousands use "indicators".

Not in a conventional sense - i.e. applying it directly to a stock
E.g.Some form custom indexes/baskets they believe "lead" the index. Take the moving average of both and when they cross = trading signal

 

[Trembling Hand]

I'm not interested in who named the patterns or when, or whether or not they have a name. I've been long enough in the game to know which patterns are profitable for me.
If they're profitable I'll trade them. I'll leave them alone if they're not.

Yes mate thats my point. It not the canned pattern that matters is knowing what and when how long to use it.

 

[bunyip]

Yes mate thats my point. It not the canned pattern that matters is knowing what and when how long to use it.

Which is no different to any other setup or strategy or pattern, canned or otherwise....knowing the time and situation to use them is what counts.
That's why I put in that post earlier about triangles - they're only profitable trade setups if you know which ones to use in which situations.

There's nothing wrong with newcomers reading of chart patters in a book or on the net - irrespective of who named them or when - then trading them and getting personal experience of which ones work, the best ways to use them and when to leave them alone.

 

[Client]

This time we should pay attention to Cherokee Inc (CHKE). On the weekly chart a double bottom pattern was formed together with several bullish candlestick patterns: 3 Inside Up, Hammer and Tweezer Bottom (not marked on the weekly chart below).

The daily chart shows us the previous 5-wave impulse wave that ended in December 2009. Now the price is in corrective movement and most probably will reach the resistance level at $19.5. We should also take to attention the length of the previous rally in February that started from about $15.8 and reached $18.4. This gives us approximate target of the next upward movement - $19.6.

 

[Trembling Hand]

This time we should pay attention to Cherokee Inc (CHKE).

Now the price is in corrective movement and most probably will reach the resistance level at $19.5. We should also take to attention the length of the previous rally in February that started from about $15.8 and reached $18.4. This gives us approximate target of the next upward movement - $19.6.

Client I note on your website that you have said "It's Time To Trade Cherokee ". BUT all you have is a hopeful target. Where is the stop, where will you be proven wrong, how are you going to manage this?

Why do you pimp a trade without any regard for proper trading practise?

Are you taking this trade?

 

[pixel]

...
For me, trend hitch-hiking has been the simplest and most profitable of the many different strategies I've tried.

Thanks for putting it so succinctly, Bunyip.
I like the term "trend hitch-hiking". Didn't know it was called that, but that's in essence what I've been doing for years. And the better I've learned to refine my method of detecting a new trend, the better the result has become.
The rest is discipline and capital management.